Bandwidth Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 11 speakers on the call.

Operator

Please note this event is being recorded. And now, I would like to turn the conference over to Sarah Wallace, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to Bandwidth's Q1 2024 earnings call. Today, we'll discuss the results announced in our press release issued earlier this morning. The press release and an earnings presentation with historical financial highlights can be found on the Investor Relations page at investors. Bandwidth.com.

Speaker 1

With me on the call this morning is David Morken, our CEO and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q and 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 Q2 and full year of 2024. We caution you not to put undue reliance on these forward looking statements as they may involve risks and uncertainties that may cause actual results to vary materially from any future results or outcomes expressed or implied by the forward looking statements. Any forward looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligation to update them.

Speaker 1

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 ks 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 atsec.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. Bandwidth.com. With that, let me turn the call over to David.

Speaker 2

Thank you, Sarah. Welcome to Bandwidth's Q1 2024 earnings call. We had an impressive start to the year, exceeding Q1 guidance with record quarterly revenue and our highest ever adjusted EBITDA result for a Q1. Given the over performance, we are raising our full year outlook on top and bottom lines. 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.

Speaker 2

And I thank God for the opportunities he's given us. This morning, I've asked Daryl to first walk through our quarterly results and our updated outlook for 2024, along with our recent capital structure achievements. I'll then use the rest of the call to provide a broader perspective highlighting our fast growing customer category, direct to enterprise, where we are seeing very encouraging progress. Daryl? Thank you, David, and good morning, everyone.

Speaker 3

We're off to a solid start in 2024, beating guidance for the Q1, raising our full year outlook and dramatically strengthening our capital structure. 1st quarter revenue of $171,000,000 grew 24 percent year over year, exceeding the midpoint of guidance by $6,000,000 Within that result, cloud communications revenue grew 12% year over year. Adjusted EBITDA of $16,000,000 was up 2 15% year over year, exceeding the midpoint of our guidance by $4,000,000 reflecting the top line beat and good cost control. Just a few days ago, we strengthened our capital structure by expanding our existing undrawn revolving credit facility to $100,000,000 with a new 5 year term. This facility led by Bank of America and Wells Fargo, improves our flexibility by doubling the previous available revolver amount from that established last August with our banking partners.

Speaker 3

Yesterday, we entered into agreements with certain convertible note holders to repurchase $140,000,000 of our 20 26 convertible notes at a discount to their face value. This leverage reducing yield accretive repurchase exercise reduced the outstanding balance of these notes to just $35,000,000 from an initial issued principal balance of $400,000,000 I'd like to take a moment and talk about our capital strategy. We're proud to deliver growth, profit and to be judicial with our capital structure. In November 2022, we repurchased $160,000,000 of these notes at a very large discount, recognizing a $40,000,000 gain. We then repurchased an additional amount in March 2023 at a discount and recognizing another gain.

Speaker 3

And now in early 2024, we have essentially eliminated the subject of the maturity of these notes through yesterday's repurchase exercise. We estimate our 3rd gain from yesterday's repurchase will be roughly $12,000,000 Going forward, our on hand cash and securities balances, our revolver access to undrawn liquidity and our cash flow generating potential positions us very well to seize the market opportunities that are us while growing our business profitably. Rounding out our Q1 results, as I noted, cloud communications revenue of $128,000,000 was up 12% from last year. From a product standpoint, messaging continued to be a strong driver, growing 50% year over year and resulting in messaging now reaching 21% of cloud communications revenue. Within that result, commercial messaging grew 34%.

Speaker 3

While it is difficult to differentiate cyclical political campaign related usage from the ongoing commercial civic engagement usage derived from the same cohort of customers, we estimate that political campaign messaging revenue from the U. S. Primary elections contributed approximately $3,000,000 in the Q1. Customer demand from political campaigns did appear earlier than we had expected attributed to presidential primary spend. Turning to our 3 market categories.

Speaker 3

1st quarter global communications revenue growth was 4% year over year as we expected, reflecting an improvement from last year's usage trends. Our programmable services category grew 49% year over year, reflecting the strong demand for messaging, driven by continued healthy demand from commercial customers in e commerce, financial services and healthcare, as well as the previously mentioned $3,000,000 tailwind from cyclical political campaign messaging. In our direct to enterprise customer category, we grew revenue 20% year over year, reflecting Bandwidth's ability to solve the complex communications challenges of global enterprises and the continued execution of our enterprise go to market strategy. Our pipeline remains full of new opportunities across verticals and geographies. In terms of operating metrics, our Q1 net retention rate was 107%, an improvement of 6 percentage points from the Q4 of 2023.

Speaker 3

Our customer name retention rate once again remained in excess of 99%, evidence of the reliability and breadth of our global communications cloud paired with our unwavering focus on customer success and continuous innovation. Our average annual revenue per customer climbed to a record $190,000 reflecting our continued focus on attracting and serving large enterprises. Our non GAAP gross margin was 57% for the Q1, up 300 basis points from the prior year's quarter. This is a really great gross margin result for the company. And it's worth reminding that gross margin can fluctuate a small amount quarter to quarter.

Speaker 3

We continue to expect our full year 2024 gross margin to grow roughly 100 basis points in line with our previously provided expectations. The Q1 free cash flow result reflects a $4,000,000 use of cash due to seasonal timing of working capital. We remain on track to achieve greater than $50,000,000 free cash flow in 20.24, which draws us closer to 15% free cash flow margin medium term target. We're raising our full year guidance to pass through the 1st quarter beat on top and bottom lines. For the full year 2024, we expect revenue to now be $715,000,000 at the midpoint of our range, reflecting a $15,000,000 raise to our previous guidance and adjusted EBITDA to be $74,000,000 at the midpoint, also reflecting the beaten raise.

Speaker 3

Importantly, while the timing of campaign revenue has somewhat accelerated, our full year outlook for 2024 continues to project a $40,000,000 contribution from political campaign messaging and associated surcharges. That means at this point, our full year guidance raise is driven by our commercial customers as opposed to our political campaign customers. In terms of sequencing political campaign revenue across the remaining three quarters of the year, while it's difficult to discern and predict, based on conversations with our customers, we expect the 2nd quarter to reflect a relative low in political campaign messages with activity ramping in the Q3 and peaking in the Q4 with the election concluding in November. In closing, our excitement about 2024 remains high. We're pleased that we're able to raise our full year guidance on the top and bottom lines while improving our balance sheet and capital structure flexibility.

Speaker 3

2 years ago, we told you of our plans to grow our business profitably and we are delivering. These results and our recent capital structure achievements give us comfort in achieving both our near term and medium term targets. Now I'd like to turn the call back to David.

Speaker 2

Thank you, Daryl. A little over a month ago at Enterprise Connect, we met with a number of customers, partners, prospects and investors. These conversations show the strength of our direct to enterprise strategy. The enterprise category with year over year revenue growth of 20% in the first quarter following a year of 21% growth in 2023 is driven by innovations we have brought to market and the opportunity that our award winning Maestro platform provides. Global 2,000 organizations know that moving their communications to the cloud is the fastest way to leverage relevant new AI technologies and deliver the rich new customer and employee experiences that are key to staying competitive.

Speaker 2

At the same time, these enterprises are dealing with enormous complexity from past implementations and legacy tech debt that have built up over time. Maestro solves this complexity and provides a smooth enterprise route to the cloud. It is software automation and it's central to our portfolio of offerings that are aligned with what Global 2,000 customers tell us they need and value most: interoperability, freedom of choice and solutions to their global communications challenges. Formally announced at last year's Enterprise Connect, where it won best of show, Maestro was quickly welcomed with significant client and industry excitement. As the name suggests, Maestro an orchestration software platform complementing the offerings of our cloud communications customers to facilitate seamless integration capability for enterprises to deploy and manage best in class real time voice apps across unified communications, cloud contact centers and AI platforms.

Speaker 2

Our Global 2,000 customers are finding Maestro can dramatically reduce the complexity of moving to the cloud while optimizing costs and increasing control of contact center and employee communications in the cloud. These capabilities enable enterprises to achieve faster time to value and a better customer and employee experience across a wide range of industry verticals. For example, in Financial Services, Maestro serves as the foundational element for both cloud first fintechs and mature giants both looking to modernize. They can unlock the power of Teams, Genasys, Five9 and more along with best in class fraud and AI tools while simultaneously lowering costs and simplifying vendor management. And they view Bandwidth as a partner with established expertise to help them navigate a competitive and highly regulated global landscape.

Speaker 2

As another Maestro example, in the hospitality and retail verticals, a customer may have a complex global system of independent franchises and want to add new customer experience applications and AI. Now they can build once with Maestro integrating all their locations to deliver a unified customer experience everywhere in the world. Some enterprises are choosing to use system integrators and managed service providers to map and build their new cloud based communications. Our growing channel strategy creates partnerships with the largest players doing these enterprise transformations. For example, we recently worked with NWN Carousel, a leading managed service provider to transform the customer experience platform for the largest U.

Speaker 2

S. Domestic airline. Bandwidth replaced a legacy telecom carrier to power the airline's new cloud based high capacity customer call center as well as integrate their customer and employee communications platforms. The airline is also rolling out Bandwidth's text messaging API to enable its service representatives to easily send text to customers as part of its multichannel communication strategy. We completed the project with NWN in a short timeframe and are pleased to report flawless performance during peak holiday season.

Speaker 2

In examples like all of these, Maestro can be a real differentiator and valuable addition to our enterprise customers' communications deployments. Its software automation, interoperability and AI enablement capabilities uniquely distinguish Bandwidth as a leader in cloud communications. As the largest enterprises come to us to help them navigate complexity, we're also investing in our legendary customer support offering. This includes new predictive AI enhanced analytics to identify and solve potential incidents before they escalate. We believe this is a significant differentiator and it was honored last month with a Gold Stevie Award for Customer Service Innovation.

Speaker 2

Congratulations to everyone on our operations team for this achievement. At a time when many of our competitors have made it harder to get help, much less to talk to a real person, we by our customer support and it remains a true competitive advantage for Bandwidth. So again, very encouraging progress in our fast growing category of direct to enterprise. At the same time, our other 2 market categories are also performing very well as you heard just now from Daryl. In our Programmable Services business, we saw earlier than expected in political messaging related to the U.

Speaker 2

S. Election season. Meanwhile, we are consistently expanding our customer base in commercial messaging with notable contract wins such as a premier digital vehicle presentation provider in the automotive industry. This customer transitioned to Bandwidth's toll free messaging solution. Our specialized support and deep expertise were instrumental in helping them navigate the intricate and evolving messaging landscape, significantly enhancing the deliverability of their communications.

Speaker 2

In our global communication plans category, we benefit from expanding wallet share with existing customers as well as new customer additions. For example, in Q1, a leader in healthcare engagement and payment solutions selected Bandwidth as the sole provider for their inbound voice traffic, valuing our exceptional customer support, network reliability and automated number provisioning and porting processes. Before we wrap up, I want to remark on the leadership change we announced today. Anthony Bartolo, our Chief Operating Officer is leaving to pursue other opportunities. He will stay until later this year to ensure a smooth transition.

Speaker 2

Anthony joined us a little over 2 years ago to scale our global growth and his accomplishments are clearly evident in our strong operating results. He radically improved our strategic planning process, overhauled our product segmentation, brought in excellent new leadership and executed with outstanding day to day rigor and discipline. We were fortunate to have Anthony with us at a time important in Bandwidth's evolution and we're a much better company as a result. He is a world class global leader and I'm confident that someday soon you'll see him leading a company that's fortunate to have him on point. I will always count him as a friend.

Speaker 2

I know all bandmates worldwide join me in thanking Anthony for his excellent leadership and in wishing him all the best in the future, fair wins and following seas to the entire Bartolo family. In closing, as we reflect on a quarter marked by strategic achievements and solid growth, I want to reiterate our unwavering commitment to innovation and customer excellence. The advancements we've made with our Maestro platform, our expanding partnerships, our award winning customer service and our disciplined operating team are all pivotal elements in our mission to lead the worldwide cloud communications revolution. Our team has demonstrated the ability to deliver on our core operating principles of profitable growth, operating leverage and cash flow generation from the foundation of a durable franchise as a leader in our space. I'm incredibly proud of what we've accomplished together this quarter and I'm even more excited about the opportunities that lie ahead.

Speaker 2

I'll now turn the call over to the operator to begin the question and answer portion of our call. Thank you.

Operator

Thank you very much. And we will now begin the question and answer session. And at this time, we'll start with a question from Ryan McWilliams from Barclays. Ryan, please go ahead.

Speaker 4

Thanks for

Speaker 2

taking the question.

Speaker 5

I wanted to say that while I'm sad to see Anthony Bartolo moving on, I know he did a lot to improve the business. And to use a bandwidth expression, I'm glad he's moving on, on a high note. So for David, looks like 1Q saw improving net retention and stronger average annual customer spend. Are your customers feeling better from a macro standpoint? And how are upsells like Maestro helping support these metrics?

Speaker 2

Thanks, Ryan. I just want to reiterate what you said at the outset. Indeed, Anthony is a master conductor and has left us and is leaving us on a very high note. And we are sorry to see him go and so, so grateful for the 10 quarters during which he executed flawlessly. So thanks for mentioning that.

Speaker 2

In terms of the macro, we talk to customers in all of our segments consistently about their plans and outlooks. And we do factor that into the guide and the results from the Q1 notwithstanding. There are always concerns in these days that we live in about macro and policy and international events. But all that said, we increased our guide on the top and bottom according to the overarching sentiment that we pick up across all segments with our customer base. So we're excited about executing throughout the rest of this year.

Speaker 5

Perfect. And then for Daryl, glad to see continued debt pay down. How are you thinking about the full year guide here after a stronger raise in the top line compared to the bottom line? Is this mostly you just pass through the commentary around the strength that you're seeing in your commercial messaging business, just a little more detail there. Thanks.

Speaker 3

Yes. Hey, good morning, Ryan. We raised our revenue guidance by $15,000,000 at the two midpoints. Roughly 2 thirds of that is related to surcharges and a third is related to commercial cloud communications revenue. And so that roughly 1 third is falling through at margin is the represents the increase in the approximate increase in the EBITDA raise to the full year guidance.

Operator

And our next question comes from Meta Marshall from Morgan Stanley. Meta, please go ahead.

Speaker 6

Hey, good morning, everyone. You've got Jamie on for Meta. I guess just two quick questions from my end. I guess one, is there any sort of way we can kind of track the progress that you guys are getting with Maestro, either number of customers on the platform or that sort of thing? And then as a follow-up, it looks like capital investment picked up a little bit over the past couple of quarters.

Speaker 6

Should we look at recent trends as the new run rate?

Speaker 2

Yes. Thanks for your question. Enterprise customers and Maestro adoption continues really, really well. And while we haven't called out specific numbers on our customers, the growth percentage wise in these early days since going general availability back in August has been substantial. So we've talked in the past about that growth and it is actually continuing to grow at that same rate or faster.

Speaker 2

So we haven't decided if we're going to call out Maestro adoption as a particular KPI, but enterprise customer additions and Maestro adoption continues to really be favorable.

Speaker 7

On

Speaker 3

Jamie, it's nice to speak with you and please give our regards to Meta. On the capital expenditures for the Q1, traditionally, we have incurred more in the Q1 or the 1st part of the year versus the last part of the year. I think it's a natural business phenomenon. Everyone has zeal and zest when it

Speaker 6

comes to the 1st part of

Speaker 3

the year and getting on with their investment plans. With that said, we are we hold our guidance at around 3% of revenue for CapEx and that's what you all should be considering. I don't take anything with the slightly higher amount in the Q1.

Speaker 6

Great. Thanks so much for the detail and congrats on the strong results.

Speaker 3

Thank you.

Operator

Our next question comes from Ryan Coons from Needham and Company. Ryan, please proceed.

Speaker 4

Hey, thanks for the question. I want to ask you about the messaging business. It sounds like that was broad based in terms of your strength there, really strong growth on the cloud comps piece there. I assume that's mostly U. S.

Speaker 4

Based, first question. And second here, as it relates to international and your presence you gained from Voxbone, can you expand on your thoughts about how that market develops for you going forward? Thank you.

Speaker 2

Thank you. Thanks for the good question. Total messaging is up 50% year over year. Commercial showed strong growth of 34% year over year and enterprise momentum also really solid. So your question about domestic versus international, we recently announced international, which is part of our solution selling to large enterprise globally, and that's a really positive and strong addition that rounds out our offer portfolio.

Speaker 2

However, these results do reflect the preponderance of the messaging growth domestically. So international is strong growth upside for us going forward. The second part of your question about international business generally continues to be a very real differentiator for us on both voice and now messaging footprint. Globally, our voice footprint is unsurpassed and enterprises really value that single partner solution. And now with messaging coming on alongside it globally, we expect the international business to continue to outperform our expectations and we're pleased with how it's doing.

Speaker 4

Got it. So maybe I can interpret that. It sounds like your global presence has given you a lot of strength to win domestic deals to have an international reach and you're just planning to pivot more to direct

Speaker 2

international sales now,

Speaker 7

a little harder? Well said. Thank you.

Operator

Our next question comes from Patrick Walravens from Citizens JMP. Patrick, please go ahead.

Speaker 7

Great. Thank you. So Dave, this question is going to seem a little unusual, but I think the context will be super helpful. So can you just step back and help people who don't know this story that well understand what's been going on in this business over the last couple of years and how you're positioned now. And just for context, I mean, the stock peaked at almost $190 in March 2021.

Speaker 7

Last year, it went all the way down to 9% and change. And now at 42% year to date plus, pre market is up another 9%. So just help us understand the big picture in terms of what has been going on, why there's so much volatility and where we're headed from here, not commenting on the stock where we're headed from here, but where the business is headed from here?

Speaker 2

Thank you, Pat. Thanks for the opportunity to speak to the longer term and the background. So we enjoyed COVID tailwinds as did many in our space when remote work seemed to become the foreseeable future. And those tailwinds certainly dissipated after the COVID era ended. Our whole space and peers were similarly impacted as valuations plummeted, but executing is really what matters.

Speaker 2

And I can't answer the question about the last 2 years without appropriately tipping my hat to my bandmate, Anthony Bartolo, who is going to be the CEO someday soon of a powerful company somewhere. We can't wait to see where that might be and there's certainly nothing to announce. But I want to say this, Anthony came on board and with Daryl Raiford, our CFO, articulated excellently our mid and longer term plans at our first ever Investor Day, and we've executed ever since. And this space is in the very early days of a transformation of taking 100 years of business telephony that has been premise based and migrating it to the cloud and doing so with platforms like Maestro, which allow them to abandon incumbent carriers and instead go completely software driven with how they move calls and messages around the world. We are in the vanguard of companies that have helped these enterprises globally do that.

Speaker 2

And so I think we're going to look back and see the COVID era spikes in valuation as but an anomaly in a much longer period of growth that fundamentally changes the way enterprise businesses do communications and voice and text. And again, the platform approach that we've taken, the leadership that Anthony and myself and Daryl have had in place over the last 2 years has contributed to the outperformance that you see today. And if I'm an investor and I'm looking at that pattern that you mentioned over time where we shot up and then cratered and now we're crawling our way back out of that basement to a bright horizon, it would be with confidence that the macro technology shifts that we are a part of are going to persist and the team and the technology that we've built are durable for that future. So this is our 27th quarter of achieving the guidance that we put out to the world. And we hope and pray that we continue to do that against the backdrop of a very real technology shift in communications.

Speaker 2

So I hope that answers the question, Pat.

Speaker 7

Yes, that was great. Thanks, Dave.

Operator

And our next question comes from Arjun Bhatia from William Blair. Arjun, please go ahead.

Speaker 8

Perfect. Thank you guys and great job on the quarter here. Maybe first to start with, I noticed that the net retention rate had a nice uptick from Q4 to Q1. It sounds like some of the usage growth is coming back, messaging is strong, enterprise is strong. Can you maybe just give us a sense of how net retention might progress through the year and embedded in that, I assume there's also some Maestro, but would love to hear how that might benefit that net retention figure as we progress through the year here.

Speaker 3

Good morning, Arjun. This is Darryl. It's nice to hear from you. Let me just plainly say that we expect net retention to continue to grow. Over the last 18 months, we've spoke each quarter about churning small inconsequential customers from our customer base and replacing them each quarter with larger enterprise customers.

Speaker 3

On net retention, when we remove existing customers, there is no more net retention and so that will lower the rate. But when in that same quarter, we've replaced them with other customers, it's a year the formula before net retention is reflected. It's now been a year and going. We're very happy with our enterprise customer outcome. Our average annual revenue for customer grew to the record $190,000 and we're expecting through the year net retention will be growing back to what a normal rate would have been, should have been had we not architected the churn over the last 18 months.

Speaker 8

Okay. Perfect. That's very helpful. And then other one, I just wanted to touch on is gross margins. Again, I think you've called out that there will be about 100 basis point improvement there year over year.

Speaker 8

But when I look at the Q1 performance, especially, it seems like there's been some outperformance there. Again, can you just give us a sense for the puts and takes on gross margin? And I guess when I'm looking at this year and Q1 performance, maybe I'm extrapolating too much, but why can't it be higher than 100 basis points improvement as we're looking at 2024?

Speaker 3

It is a real the Q1 was, as I said, a really great performance. It touches the record that we set about 5 quarters ago in terms of a quarterly gross margin performance. We are still expecting it, as you said, to be 100 basis points higher for the full year over last year. We product mix certainly helps. We have we're also driving for cost efficiencies, which we continue to do.

Speaker 3

And as our international grows, it will improve margin as well. But for now, for the full year, taking all things together and our investments that we're considering as well in terms of our network cost and the like, we're calling for 100 basis point improvement. Is it conservative? Possibly, but that's what we're calling for right now.

Speaker 8

All right. Understood. Fair enough. Thank you, guys. Congrats again and congrats to Anthony as well.

Speaker 8

Hopefully, we'll reconnect soon.

Speaker 3

Thank you, Arjun. Thank you, Arjun.

Operator

And now we have a question from Quentin Gabrielli from Piper Sandler. Quentin, please go ahead.

Speaker 9

Hey, thanks guys. Yes, I'm on for Jim Fish here at Piper Sandler. Just one question for us. As we think about your core use cases, really specifically in messaging, you're seeing strong messaging growth. Is there any material change in those kind of core use cases you're seeing or providing for customers?

Speaker 9

Or should we think about it as similar use cases as historical kind of provided by bandwidth, it's just you're gaining more share in these kind of deployments? Thank you.

Speaker 2

It's broad, Quintin. We have adoption across FinTech, Healthcare, Orange Enterprise, Retail. The messaging need for engagement is very, very broad. We expect that to continue. The share that we'll take both domestic and international is from incumbent providers as well as some of our competitors.

Speaker 2

But the emerging use cases that displace conventional email or even snail mail are significant. And so there's lots of upside once you're into a large enterprise account. So you should consider the success that we've had in messaging in enterprise, which has been broad to continue.

Speaker 9

Understood. Thank you.

Operator

And we have a question from Will Power from Baird. Please go ahead.

Speaker 10

Hi, this is Yamini Samolis on for Willpower. Thanks for taking the question. So could you just walk us through the drivers of your enterprise business in Q1 and how those some of those drivers, if some of that upside might have changed here versus last quarter?

Speaker 2

I think the drivers are similar. Our Maestro product adoption is accelerating. It hasn't yet been a year since general availability. We have more awareness of our solution and our AI approach to enabling enterprises to easily get to the cloud. And that transition is not easy if you're working with an incumbent.

Speaker 2

You've got lots of use cases around AI that require orchestration of your voice and messaging services. And so I think the enterprise adoption that we've seen in past quarters continues to pick up speed. And I think it's a function of the product strategy and our path to market. We've got great sales leadership. And again, I'd be remiss if I didn't call out Anthony Bartolo, our COO, and his leadership during this past period driving the results that you see today.

Speaker 10

Okay, awesome. Thanks. And then just looking at messaging, I was hoping you could discuss the messaging outlook for the balance of the year, maybe just a framework for some of the growth expectations there? Or I guess what some key drivers could be there too, any drivers of upside you call out?

Speaker 3

Messaging grew 50% in the Q1, 34% in commercial messaging. I think our outlook for the Q2 would have a similar growth for commercial messaging. And then in messaging in total with the additional $40,000,000 less 3,000,000 dollars $37,000,000 that would be called for in our projections in the Q2, you can expect messaging to definitely pick up in the second half of the year. That would be driven by continued robust commercial and the increased wedge of political campaign.

Speaker 10

Awesome. Thanks so much. I'll pass it back.

Operator

And this concludes our question and answer session as well as the conference. Thank you very much for attending today's presentation. You may now disconnect and have a great day.

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Key Takeaways

  • Bandwidth beat Q1 guidance with record quarterly revenue of $171 million (up 24% YoY) and its highest-ever Q1 adjusted EBITDA of $16 million (up 215% YoY).
  • The company raised its full-year 2024 outlook, now targeting $715 million in revenue (up $15 million) and $74 million in adjusted EBITDA, while still projecting a $40 million contribution from political messaging.
  • Bandwidth strengthened its capital structure by expanding its undrawn revolver to $100 million and repurchasing $140 million of 2026 convertible notes at a discount, reducing the balance to $35 million.
  • Core segments drove robust growth: cloud communications revenue rose 12%, messaging grew 50% (commercial messaging +34% and $3 million from political campaigns), direct-to-enterprise revenue climbed 20%, and net retention improved to 107%.
  • Enterprise momentum remains strong as Maestro, Bandwidth’s orchestration platform, sees rapid adoption across Global 2000 customers, simplifying cloud migrations and driving larger average deal sizes.
AI Generated. May Contain Errors.
Earnings Conference Call
Bandwidth Q1 2024
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