BAND - Earnings call transcript Q2 2022

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Operator

Greetings, and welcome to the Bandwidth Incorporated Second Quarter 2022 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded today, Wednesday, August 3, 2022. I would now like to turn the conference over to Sarah Walas, VP of Investor Relations. Please go ahead.

Sarah Walas

Grant. you, Thank welcome and Second XXX Quarter Good to Call. Earnings afternoon, Bandwidth's announced discussing close. press be we'll in the market Today, the results our after release issued press investors.bandwidth.com. financial with on earnings and Investor can the at be found The historical page Relations release an highlights presentation the afternoon is on and our David this CFO. our Raiford, call me Morken, CEO; With Daryl They up Q&A. for the with remarks, then and prepared begin call will we open will

future related our to statements. forward-looking, outcomes the the in guidance have and our reliance analysis implied or that of to by as make forward-looking results Any the call, or our involve as that this and statements During quarter and considered concerning we cause put from they forward-looking today, or may of presentation caution results risks may third expressed including the call uncertainties statements forward-looking actual statements made to year statements XXXX. obligation financial will them. for be undue we on full you vary these reflect may business to and and update on plans slides We not any no materially

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

after David. With of which on certain today financial GAAP non-GAAP me in in website to are the as release the our included call let course call, of turn presentation, the at reconciliation our to earnings market During measures. measures over A refer close today's investors.bandwidth.com. located well will issued non-GAAP that, of as the we is to press

David Morken

few during Amid and looming like we the I'll I'd question is quarter up momentum and second million. another that and XX% to Thank to $X revenue on to joining the of for for our downturn? the the quarter thanks to our will bottom do thing lines about share details the We're exceeded a economic you this and work giving center: economic strong for we million and turbulence, guidance such I non-GAAP to year current of front within But enterprise. for top discuss perform business customers to $XXX share loss there how Thank moments, us. and Bandwidth's first, with Sarah, no question do and our likely what each answer for as that for ahead we over our together. expectations business-as-usual, Bandmates do And all us magnitude. is In us. to last and well all X our macroeconomic times. you, pleased Bandwidth through the the over other. positioned factors The for quarter of God to you that only uncertain these question is thank impact each reasons, of to are a us is to watching your key commitment and will to terrific And said net

for many our of exposed how centers, business-critical categories diverse customers certain a Contact prove work others. season few First, IT across just that Bandwidth telehealth, this we essential than more cloud power of examples rely communication spend calling customers emergency the for on set of and indicators in hybrid communications. a are Early industries. are

actually measures rather cases has than them. And enables than being are cost By seems to are essential impacted to that these less susceptible mandatory achieve connections history For but cloud many example, marketing it are computing. the discretionary. of contrast, use shown savings not Bandwidth are more just

to more with do enterprises' embrace cost just communication must enterprises' enable that them and cloud to will solutions. do halt march to a all now them and they savings productivity cost-cutting cloud large to Businesses Second, everywhere the We efforts enhanced unrelenting sustained we find there. and that. lead the not do expect believe we that downturn actually less, the

position to our efficiencies, our focus. less base, enterprise well-funded, position large is our believe is customer enterprises our there until discipline medium focused bootstrapped XXXX, enterprise not and businesses, a profitable to disrupted. serve go-to-market all operating by and heavily impacted strengthened Bandwidth's because be has we disproportionately We and a line likely to transformations, us Bandwidth This in designed product large profitability. small who strong well. bottom we always and on was this ongoing their concentrated growth established have team. we enterprise Because in finally, served downturn. Third, among that likelihood principle its a enjoy for be are IPO is the Fourth, drive been digital enduring businesses is largely revenue are first will always commitment

resources Our focused are to initiatives success. leaders that payback directing cost our investment reinforce to most and are prudent on certain periods, with management effective

So the communications mission-critical in we in profitable speed costs we've cloud large and for times through are that charted we reduce because troubled course summary, confident that provide these enterprises.

discussed. our CPaaS that with our scaling customers, global choice digital Now is winning I'd focused headwinds isolated the new customers the results, well which platform spite like on enterprise customer of for in team growing becoming we've executing to engagement. of solid and outcomes show QX We're turn and existing previously large to delivering

Our on wins of fronts. this each success quarter demonstrate those

business, Mastercard and exciting you in new XXXX all support contact examples Gartner news in support a a we card credit some established and helping CCaaS told and authentication both and biometric quarter, within Visa AI integration build-out new We've mission-critical share Our services center the capabilities its new the to shared And XX with role, and new of U.S., pleased unique Bandwidth same cloud Last about with to credit consultative of a these solutions. leading opportunities one chose team how largest voice existing our anti-fraud operation. global meeting the now of cloud-native integration issuers Quadrant I'm our network, enterprises. leaders Pindrop, cards for Magic is mentality of with UCaaS, Global in powering bank, vast us customers. before creating new win top that solutions. are who

With state struggling win incumbent to Your with center business expanding provider its our into release integrations modernize center in seamless Pindrop our we the contact time It customer they to The Bandwidth like selected union traffic platform highlight contact with is support center. another additional Bandwidth to another Own the FiveX portfolio. I'd we're But more contact AI integrate for their integration, example unit Carrier how capabilities an secured also of Pindrop. Bring add both more from the were migrations. Enter to of terrific complex these who ecosystem partners. center technology consolidated value FiveX. and for credit FiveX and this both provides and contact of

Cloud the health a telecomplexity with the service excellence come growing of of ecosystem That also maintaining for solved, diverse Duet for quarter, we're dramatically to manufacturing care, direct global call, the in outsourcing. call power new often the strong allows capture across global customer's seeing the we flexibility, this Genesys customers cloud. accelerated Genesys the what found platform with with transformations from enterprises the shared Bandwidth. Last and and such while Our Fortune center partnership. momentum is relationship XXX Genesys operational our and feature savings Duet businesses retail, examples and momentum we and set in journey to that new

the one customer new So wins is Asia across XX,XXX U.S. entire of outside largest these date. customer one This with in that employees of is to for region opportunity contact Genesvs and fastest-growing more X Duet of countries. the the center signed providers Pacific we've experience than the

reliability with contract this relationships, and not also Consolidating terms to As different they own with customer continue maintaining expand, X solved its facing only they benefited complexity from and speed challenges Bandwidth, deployment. call were upgraded of for interconnections. but carrier quality, each

despite their plans home up than ambitious this element maintain an partnership. meet environment this permanent future Bandwidth operation, and customer big Bandwidth most thanks of they and expected, our including So region, Genesys With even and magnitude that as can to Europe the of America, grow their running outside test faster customer into that ongoing to knows North needs. their the was

deliver access solutions speed the it and total to geographic examples legacy need co-creation enterprises collaborative massive opportunity the summed mentality cloud. us global the weeks months other our accomplished "Bandwidth vendors do." contact enterprise-grade enterprise has regions and what took build these differentiate a to their in to apps up as by to partner business-critical recognize complex, show they when box network, how journey to large that These that out the our really transformation. there center really combining move unlock with contacts us and carriers We and of to of Our the said, represented best-of-breed Duet to compared to it best best CPaaS contact lightning platform for positions strategy a Each power by allows center the at to experience. our customer enterprises Bandwidth

CPaaS is And past we choice for global Another strategic this the digital Bandwidth quarter. platform customer major today, to another enterprise of be announcing engagement. priority scaling for are new win

top text consumers message of of largest this customer brands shopping fastest-growing messaging of company. likely of with in retail that one one coupons billions most over assistance, the over commerce a text then They you've you the brands of annually. If to X,XXX text interact rapidly who base get and become are players millions used and with send messages or

could hyper Our support their not incumbent new growth. customer's adequately provider

that standard we're for the to for demanding have XXXXX from has huge simplifies Certification Bandwidth," onboarded. of of we of they less and largest to reliable, capabilities These that us online to and "Nobody it is is and And for to customers the customers. our highest to told of significant Bandwidth no was are XX% this they our to serving privacy. our team. of long underlying us, validation So achieve data information delivery. our our world. enterprise-grade, goal came and the than the our security team, APIs gotten XXXXX customers' hold by wowed technology in scale them by enterprise-grade our at companies this standards ISO our In it's information we When most and have total are ISO a their gold customer of complex network. deliver texting, since ease-of-use for because keeping through they a experience messaging it's American conversational the North highly our Their the global could the requirements our revenue history management essential scalable absolutely security commitment, entire when announcing valued say reliably done message extension Bandwidth but accomplishment ability with we network a and

work the hard allows completely Additionally, to customers' Bandwidth and IP details to for network. of it has turn to now of meet implemented our throughout our to us now XXX% second year. I'll financial whose over half the our of our all standards. the results STIR/SHAKEN through Daryl? Congratulations exacting Daryl outlook walk Bandmates

Daryl Raiford

Thank and afternoon, you, David, good everyone.

details Investor Relations earnings our As may performance to quarter are a website. reminder, our second presentation be provided that in on an accessed related

to our and Now their revenue turning coming results. in We both non-GAAP EPS, guidance ranges. second above quarter corresponding reported

outlook said, on always focus. focused and we growing that has heightened David have As macroeconomic profitably the uncertain

$XXX Second result. surcharges was contribution year quarter There compared grew million exclude that surcharges, prior This we $XX were underlying last to the million, up year. million of year-over-year. currents the our revenue $X XX% quarter. messaging result If from driving from cross X% revenue in pass-through included

across points continued both usage-based year-over-year. services our First, XX% and recurring by grew growth by we XX demand APIs, contributions for charges which messaging, from strong of voice monthly saw emergency and points XX numbers driven and base customers. for broad was phone of This

a dynamics achieved by from set headwinds points the revenue line of the durable. the continue the than current of enterprise those cases, absence business-critical that the within expectations. was offsetting we As we're legacy fully More and the discussed usage cohort at the with encouraged referenced offset from verticals customers, DDoS-impacted earlier customer businesses we growth to start diverse this serve expect divested usage environment. year. said, year we customer many were uncertain macroeconomic revenue communicated This headwinds, to our previously across large and David These broad-based and growth durability XX in being: very previously this lower our and X we customers from those, of business use revenue be XX the of with

both up and million. non-GAAP was XXX XX% Our the year, $X.XX, first margin was reported second $X of loss in was of $X.XX pleased quarter, a loss gross the driven to a was share prior this quarter, second quarter from non-GAAP half earnings with for our exceeding EPS by the scale. measures Non-GAAP net we're non-GAAP for richer our continuing and million of from EBITDA mix points XXXX. higher-margin $X per basis have quarter Combined overachievement efficiencies first the guidance. of of for year's products the

our operating second was count quarter, net fewer these were customer at than of new Active but terms We material an is metrics, serving by In the rate smallest non-regrettable attracting smallest offset larger of XX trimming additions of customers, as XXX%. than the our which on our than focused first retention customers quarter. in in enterprises. X,XXX, was rate our quarter, higher spend revenue added a first which remain impact amongst $X,XXX uptick The had the less and customers churn no majority the we annually. on

from customer per revenue fact, last quarter average In to $XXX,XXX. annual our increased

for outlook XXXX. the of our financial turning Now remainder to

to Magic long-held continue needs full balance Gartner their and communications business we million the both of Solutions expect growing of $XXX serve to Internet entire does UCaaS, and demand profitably. Quadrant the While with and profitability million range to believe the plan. in of business CCaaS confident towards global in revenue cloud communication guidance. revenue with million of quarters, to in market enterprise developers this on and providing Meeting as bulk and while the advertising evaluated financial we've our mission-critical we believe first long-tail our not small, our our others, of cloud Instead, we the in conditions. on-again, we off-again customers, spend. usage. communications overachieved for and do in Accordingly, of year for our year earnings macro weighted directed to prudent In large our we macroeconomic our year internal non-GAAP a assuming $XXX be global we're expectations durable our shares of and it $X.XX, contrast share not X uncertain the $X.XX In uncertain trials the represents We discretionary business and enterprise XX.X approximately per power diluted cautious the so in In we've isolated business to to mission-critical our operating giants, are services strategic on be navigating is light focus summary, The customer environment half performance operating the in both have outstanding. maintaining range an our of XXXX context, reflects pipeline headwinds. spoken average customers and now this and momentum growing to focus first is customer-facing full

for half achievable for provide proven outlook profitability plan prior improved to resilient has economic downturns. business Our solutions second we mission-critical be The the enterprise an our of operating that in are profile. the to and year represents an contributes the

call to for like operator the questions. turn I'd the Now over back to

Operator

Instructions]. MacWilliams [Operator from the the first Ryan And line question of Barclays. with comes

Ryan MacWilliams

like growth the for Daryl, divestiture items of thank you voice and and moving and pieces headwinds. on onetime the detail the SMS between FX some

the And the would effect quarter impact update any too. for side, year full on was guide? what the Just then, line questioning, revenues the on FX David, to traffic and kind of that helpful, same DDoS that of in the be in

Daryl Raiford

In million over the just quarter, of it's dampening. $X revenue

in moves we're rate current something a million. expecting the than guide, just forward little less $X Assuming our

David Morken

And in QX throughout we to has year, issue remainder Ryan, accurately been in regard DDoS, bracket the that to of and continue the contained. QX, the impact and

Ryan MacWilliams

that sequentially. carriers now pricing fees in your to out Like per any revenues messaging is the the of just traffic or SMS like anything message? spread more it of attached spread then And to surcharges, And there? are and Is with on growing surcharges between Great. looks faster call amount pass-through the is the amount there looks it the like increasing. of changes

Daryl Raiford

increase March have month in in of did that throughout carrier an applied some surcharges quarter. the the We

see from surcharges you'll first the for So new would time which of divergence. explain the some the carriers,

Operator

Will And question line the next Baird. of comes with from the Power

William Power

couple and that about to reduced exiting as June, I clarify, your feel in quarter, questions. comments, the you speak to good mean, move any of the slower your guess cycles you the position resilient of far. quarter Maybe just change perhaps customers. the on when to some I a it of sales thus wondered, you -- any like start across through been But macro usage could feels I have just average

Just might year if yet guidance the trying impacts macro anticipating if any the or see the something to understand you margin? is conservatively seen for you've just on

David Morken

David. Will, and large that in of significant by this really smaller is also small out throughout customers said, the That churn guidance customer some usage customers to going with maintain they base, large, the an among for that sound. we caution year maintaining the is are actual we I'll we begin of non-regrettable the don't just balance consistent by of changes characteristics are in of customer serve. but, thought to the did highlighting, the abundance way the the pipeline execute as year. But and of see the remain we and we rest segment

William Power

Okay. That's great.

Okay. unified you UCaaS RingCentral, whether still customers have And do cohort center sounds on. know strength just you're broad-based, terms contact update which there of of Microsoft, there, you great. What pricing, and wonder maybe lot communications like side in on where the overall the exposure, if like space trends you have could about and a Dialpad think right, on us growth? just is the then look of as it Zoom, I and in I traffic, it's the you seeing

David Morken

Zoom's we Magic see across of different UCaaS. in or you UCaaS whether Gartner space in emergence all certainly, related the transfer the Teams share phone providers But of support Quadrant the platforms, So it's some service.

provider for a so out or all us platforms of conquest transfers share across those nets them. being for And usually

Operator

Piper from The James of the Fish next Sandler. is with line question

James Fish

seem outbound in on pricing, pricing around basis you guys like did What piece. changed at messaging are least I and year-to-year space the voice the seeing messaging? on a think between It for outbound you guys

Daryl Raiford

is impact -- didn't It growing quarter. that but us. Overall, price driven increases higher-priced had Overall messaging as said, were this mix favorable of looked if price much grid, richer and a pricing wasn't of much disproportionately. quarter on With toll-free new on some Jim, like as effect have there the for you're the right, second was products as that a pricing per it modest by increases, unit much customers, Daryl. in you our from an at really

James Fish

could follow customer Okay. to I much off? net the we seeing just about "non-regret any that And number if what on there obviously used churned to installed unregrettable" are Really think how way more base. here. the then Is here up additions new understand the trying grow -- additions normalized for Bandwidth as net to customers

Daryl Raiford

outcome again, just the note customers. ARPU lowered was, revenue XX did gross offset to by per overall. of just average additions, We did That churning and disproportionately was $XXX,XXX, smallest just The an sub-XXX. the lowest, the it sub-XXX, that that new churning that and customer improve

David Morken

customers And new that comes very customer customers preponderance it the have a that adds, lifetime. the of that's the of We cohort a in terms design on highlight end I'd serve call customer are of basis. of that law to applies. some of not over architected there's base and really just number the you acquire our And customer small when customers from their support by that of of our efficient And a growth cost power driving also as on new lower these versus our end can tail. to the longer

that. larger customers not such a because to small, for look So there's our a terrific at, contribution to inevitably from index within it's metric large of set accurately growth

Operator

with next Ryan line comes Koontz the of question from And the Needham.

Ryan Koontz

guide, great might your impacts. from characterize of you half of been election could second half not in if around for tailwind election within much wonder kind transparency And how have I the second anticipate a us guys You about that's the you recurring.

David Morken

really Supreme is much for seasonal engagement decision a just And captures term cycle Court specific of messaging, a set that the broad illustrated than cases us. that are political that Within recent elections. use more

country. across engagement the We are an increasing at dialogue active civic

elections. messaging And so will accrue specific just has it's interest to way that bigger the all half revenue civic what engagement from we on civic-minded of contribution called endeavors whether year haven't But second become to or in broadly, campaigns. something out groups our the are than specifically kinds or campaigns going of

Ryan Koontz

you around all That's And like the there. rate you Teams, with characterize to shifts toward the like a we're attach share ecosystem? hearing rest It share to your where Teams land an opposed fair, the David. in about you pretty real the industry Teams? on it's slide have which comments is as outsized out consistent sounds feel Can something of

David Morken

within revenue attach primary enterprise offers. you with really Teams enabled, seat. in But that when activated when voice is within we are the phone a their shared Microsoft the tight that phone preponderance past, enjoy of Ryan, additional that we I've we the you seat, in partner see of capability assume and Microsoft's product with integrations a part the is Microsoft What the that have from help? Does rate, service can that Teams

Ryan Koontz

does. It

Operator

question Blair. the Matt [Operator comes with Instructions]. from line Stotler And next the of William

Matthew Stotler

on the first mentioned you and ago number Duet with a also mean with a with think just months partnership of Genesvs integration here the Pindrop. of I you Alianza. announced couple guess, I now, one partner a ecosystem. integrations, the I

relationships could I'd number as to your be the update clearly, how character that and continue you of of have here an time. I the over meaningful broaden you well ecosystem and so to partner that and to opportunities on, ecosystem. the love your expand the kind see And efforts get business an in effort the as guess, to

David Morken

in program and designed So bring opportunity with success announced an talk opportunities. direct specific knowledge go-to-market large various how of and partner Bartolo past with are for experience our enterprise. enterprise Anthony of But in in to Preizler, motion go-to-market about to and a have wealth Sandy the the any we a our addition senior for me yet haven't heard channel leadership, we bear from we and you've

about talk later that year. some so hear you'll probably us more And this

Matthew Stotler

love one to side. there. I an We'd super get, update more helpful. then And just guess, on the international maybe That's

then is on of is going fully and in front? opportunities that terms that kind revenue in contribution ramp terms how and that cross bookings the Now of of expect integrated, Voxbone

David Morken

because One Voxbone-Bandwidth of our quarter a for combination this and that contact power the it we X was the Pacific global that I talked think, illustrates, the underlying up the footprint Asia thrilling the covers broader customer wins of was region the that and for it we opens announced beautifully center They and working XX,XXX that carriers, with to they And massive ecosystem. they and come completely international us. consolidated about. employees, with have different and platform our have were

And is so a like just unified like powerful illustration and opportunities there away and more together. But that, can't a think, are that. the working office combination. I that you got have And you deal the you've of teams well the back do squared unless

so we're more the I future. about the and really will in like there that that And progress be happy think

Operator

the And with Securities. line Patrick the of comes next from question JMP Walravens

Patrick Walravens

Awesome.

on like in combined something and QX Daryl, implies my like So model, then growth your with XX% X% QX QX. annual guidance, in guidance, the

why? pretty there. us a So Do there's ramp good just mind you reminding

Daryl Raiford

messaging do We particular half higher in the second expect in the year quarter. fourth and in of the

So there that of as is well. some

Patrick Walravens

right? easier much a in Yes, comp,

Daryl Raiford

for In Well, thank that, -- that. appreciate a you Pat. much I

Patrick Walravens

That's I'm to get... point the big trying

Daryl Raiford

event the last lower that the from did like seems year, quarter-after-quarter-after-quarter we of the time is That comps. been difficult true. fourth discussed. the we had in went It previously usage of it's quarter By we experience

that for so us in lifting some our under comp quarter. provide And favorable does a terms that wings of

Patrick Walravens

way one, to I've I've okay. QX I that's recession been a what to and going probably Bandwidth's business? right? companies, about answer is guidance. bar, implied that company's mean, of I've sort the been okay, year, little But bit, going doing Okay. use for this generally, that is And that around right? taking actually saying, in for But then I'm most think reasonable been lowers And a you're next to this And

Daryl Raiford

we -- we history the we of have. quarterly growth. last a Well, year, quarter Notwithstanding sequential have enjoyed fourth do

X till that. so me too, let me a to about that months and And January have XXXX. some probably be let it's it's also before caveat will assume we But long get but unreasonable February do Dave -- and not talking remarks to

read anything on into don't comments I really So that. want to my

David Morken

revenue you've leading understand we've profitability years on And David. $XX done profitability, just in We've past. Hope million past well would for than of well. EBITDA. I had in the more we've Pat, the focused always us on the this be a from that to we the line big where into that tension always that in top of come seen And operating that a we're past through, with the between is season you've focus We growth profitability line. think, we're we and is year reconciliation and us going and has a headed quite been environment this think the bottom deal. where been we've done

eye be so fourth operating say into line wouldn't also if how I growth pretty on think as 'XX. top remiss just well. And and bottom about line I our keen would the I the you factor quarter didn't that we're with a

Operator

time. questions to will the now further the at host. turn presentation this no I are There back

David Morken

and bless, on Thank bless you, and us God America. this the everybody joining appreciate God call I evening.

Operator

disconnect and your does you thank your participation please We That conference. ask for conclude today's that lines. you

Sarah Walas	VP, IR
David Morken	Co-Founder, CEO, & Chairman
Daryl Raiford	EVP, CFO & Principal Accounting Officer
Ryan Koontz	Needham & Company
William Power	Robert W. Baird & Co.
James Fish	Piper Sandler & Co.
Patrick Walravens	JMP Securities
Matthew Stotler	William Blair & Company
Ryan MacWilliams	Barclays Bank

Bandwidth (BAND) 4 Aug 222022 Q2 Earnings call transcript