Bandwidth Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2024

There are 10 speakers on the call.

Operator

Good day, and welcome to the Bandwidth Inc. 2nd Quarter 2024 Earnings Conference Call. Today, all participants will be in a listen only mode. Please note that today's event is being recorded. I would now like to turn the conference over to Sarah Wallace, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, and welcome to Bandwidth's Q2 2024 Earnings Call. Today, we'll discuss the results announced in our press release issued earlier today. The press release and an earnings presentation with historical financial highlights can be found on the Investor Relations page at investors. Bandwidth.com. With me on the call today is David Morken, our CEO and Daryl Raiford, our CFO.

Speaker 1

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 Q3 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. 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.

Speaker 1

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 Q2 2024 Earnings Call. We're pleased to report a very strong first half toward our plan for 2024. In the second quarter, we delivered solid revenue growth across all categories while accelerating profitability and cash flow. We are a disciplined operating team with a steady focus on expanding profitability, creating unique software innovations like Maestro and AI Bridge and broadening the reach of our global bandwidth communications cloud to deliver a sustainable competitive advantage.

Speaker 2

The team is grateful for the trust our customers place in us every day and for our bandmates who go the extra mile to support them and I thank God for our opportunity to help connect people around the world. Voice communication is a large growing market and a pillar of our business delivered through our global communications plans and enterprise market offers. Bandwidth powers all the leaders in the Gartner Magic Quadrant for both unified communications and contact center as a service. Now, larger enterprises are increasingly recognizing the potential of cloud contact centers to transform customer experience and leading CCaaS platforms are capitalizing. Microsoft recently announced its new Dynamics platform, where we are a foundational partner through Operator Connect and Direct Routing.

Speaker 2

We've also seen other top historic contracts with large numbers of seats. This is a trend that we expect will contribute to future growth in our GCP and enterprise categories. For example, a nationwide provider of medical claims management selected Bandwidth as their exclusive provider for voice, valuing our exceptional customer support and the flexibility of our Maestro product to orchestrate and enhance call routing to their CCaaS platform. When CCaaS platforms add customers, we benefit as the underlying provider. And when the largest global organizations need to simplify and unify their communications, Bandwidth gives them choice and control via our direct to enterprise market offer.

Speaker 2

Moving communications to the cloud and unifying voice, messaging and emergency services into a single cloud software experience is the fastest way for enterprises to simplify digital transformation company wide, all while leveraging new AI solutions. We have a proven track record of successfully orchestrating complex global cloud migrations for some of the largest enterprises. Our partnerships with hyperscalers, cloud platforms and Global 2,000 customers continue to grow stronger and stronger through close collaboration and co creation in this rapidly evolving market. We foresee a long term expansion of voice because it's the durable customer preference for 2 key use cases in the contact center, high value transactions with human agents and convenient self-service through conversational AI. Human to human interactions like understanding a health insurance issue or rebooking a canceled flight are so business critical even a rare outage can cause significant loss of revenue or reputational damage to a brand.

Speaker 2

That's why more enterprises are turning to Bandwidth's redundant resilient voice solution. For example, a leading provider of patient transportation, meal delivery, remote patient monitoring and personal in home care chose Bandwidth to power its cloud contact center. Our powerful APIs, network reliability and comprehensive failover protection offered by our CallaSure product resonated with the customer to safeguard their business critical voice calls. Reliability also motivated a trusted provider of business insurance to switch to Bandwidth as their sole provider for voice. They valued our advanced call routing solution, which efficiently directs their contact center traffic along with our superior back end reporting tools.

Speaker 2

As consumers grow more comfortable resolving lower level issues like a lost credit card by speaking to an AI powered virtual agent, Bandwidth is exceptionally well positioned to enable these interactions as well through our Maestro platform and global communications cloud. AI powered voice automation leverages Bandwidth's voice network similarly to an interaction with a human agent, resolving many customer issues before they ever reach the contact center. For these technologies to work properly, especially with capabilities like fraud detection, the clarity and fidelity of the voice call are crucial. Bandwidth uniquely provides this quality because we own and operate our network. Our AI Bridge product available with Maestro enables contact center operators to utilize pre integrated conversational AI providers like Google Dialogflow and Cognigy and we intend to announce more partners soon.

Speaker 2

In summary, voice is a durable interface for customer service whether through a human agent or via conversational AI even as getting support becomes faster, easier and more satisfying than ever before. In a world where enterprise customers must balance the need for reliability with the complexities of building trust and customer experience through service channels, Bandwidth is exceptionally well positioned. We are capitalizing on the tailwinds of innovation with nvoice by becoming the platform of choice for industry leaders in the space, and it will all run on the Bandwidth Global Communications Cloud. With more innovative enterprises incorporating business texting alongside voice in their customer journeys, our programmable services offer is also well positioned to be a trusted single source provider. The Bandwidth Communications Cloud provides deliverability, scalability and insightful analytics that enterprises need to manage these complex customer interaction.

Speaker 2

For example, a long standing customer that provides communication solutions for hospitality, healthcare and municipal clients significantly increased their messaging business with us in the Q2 alongside the voice services they already consume. Our unique ability to provide local telephone numbers for SMS messaging in the many markets where their customers operate played a pivotal role in securing this additional business, along with our deep industry knowledge, messaging compliance expertise and outstanding customer service. We believe our strength in commercial messaging give us a unique advantage in providing infrastructure and technology that drives future growth in some of the biggest market opportunities where messaging is a key driver of end user engagement, including the $1,000,000,000,000 e commerce vertical, healthcare IT and financial services. Before I wrap up, I am delighted to announce that Divesh Agrawal has been appointed Interim Chief Operating Officer. In just 2 years as our Chief Software Strategy Officer, Nivesh has had a significant impact, including realigning our global engineering resources and accelerating time to delivery for key innovations like our Maestro platform.

Speaker 2

In his new role, Divesh will draw on his significant prior global sales, go to market, product development and P and L leadership experience at large organizations including Oracle. He is respected by all of us who work with him and I look forward to partnering with Divesh in his expanded mission. In closing, I am pleased to mark the halfway point of 2024 with solid performance. We are building a durable franchise based on disciplined operation, expanded profitability, differentiated product innovations, global reach and unmatched dedication to serving our customers around the world. Our space is dynamic and growing.

Speaker 2

Our market offers have attracted large innovative and loyal customers who have relied upon our platform in some cases for over a decade and we are still in the early stages of the cloud communications and AI revolution. Our leadership continues to be reinforced by industry recognition such as the UC award for best CPaaS platform, which was just announced in the past week. For all these reasons, I'm excited about what we'll achieve in the remainder of 2024 and beyond. I'll now turn it over to Daryl to walk through the details of our financial results and our outlook.

Speaker 3

Thank you, David, and thanks everyone for joining us today. Bandwidth had a strong second quarter. We reported total revenue of $174,000,000 up 19% from last year and above the midpoint of our guidance range. And adjusted EBITDA of $19,000,000 up 77% from the prior year and surpassing the high end of our guidance. Free cash flow was $18,000,000,000 significantly higher than the Q1 and nearly $20,000,000 over last year's quarter.

Speaker 3

This robust performance underscores how we are delivering on the commitment we made at our Investor Day 18 months ago to achieve sustainable, profitable growth, operating leverage and cash flow generation and an optimized capital structure. Rounding out our 2nd quarter results, again, total revenue grew to $174,000,000 and consisted of cloud communications revenue of $128,000,000 up 8% from last year and messaging surcharges of $45,000,000 Our cloud communications revenue benefited from strong growth across all of our products and was led by messaging, which continued to be a strong driver growing 33% year over year. The large bulk of our 2nd quarter messaging revenue is derived from expanding commercial demand from new and existing customers across a variety of verticals and use cases and also benefited from about $3,000,000 in political campaign demand. A reminder that we go to market serving 3 customer categories: Global Communications Plans customers, Programmable Services customers and Direct Enterprise customers. For global communications plans, our 2nd quarter revenue grew 2% year over year, fully in line with our expectations, reflecting stable momentum across our CCaaS and UCaaS power platform customers.

Speaker 3

Our programmable service category grew 31% year over year driven by continued healthy messaging demand from commercial customers in e commerce, financial services and healthcare as well as the previously mentioned $3,000,000 tailwind from political campaign messaging. In our enterprise direct customer category, we grew revenue 25% year over year. Our Maestro platform and global communications cloud offerings are resonating with enterprise customers across many segments, including the financial services, healthcare and travel verticals. In terms of operating metrics, our 2nd quarter net retention rate was 111%, an improvement of 5 percentage points from a year ago quarter. Our net retention rate for our customers with greater than $100,000 ARR grew to 113%, 2 percentage points higher than the total company metric demonstrating the value of our offerings and durability of our large customer installed base.

Speaker 3

Our customer name retention rate once again remained in excess of 99%, evidence the reliability and reach of our global communications cloud paired with our unwavering focus on customer success and continuous innovation. Our ARPU climbed to a record $198,000 reflecting our success in attracting and serving large enterprises for their business critical communication. Our non GAAP gross margin was 56% for the Q1, up approximately 1 percentage point from the prior year's quarter, benefiting from the owner economics of our global communications cloud. We generated free cash flow of $18,000,000 representing 14% margin showing strong flow through from adjusted EBITDA and prudent management of working capital. We remain on track to achieve greater than $50,000,000 free cash flow in 2024, positioning us closer to our medium term target of greater than 15 percent free cash flow margin.

Speaker 3

Touching on our capital structure, we're proud to deliver revenue growth, profit growth and the rapid deleveraging of our capital structure. In May, we finalized our plans to reduce the outstanding balance of our 2026 convertible notes by repurchasing $140,000,000 outstanding notes for approximately $127,000,000 in cash. This action combined with the previous repurchasing exercises first begun in November 2022 has cumulatively resulted in $365,000,000 of our 20 26 convertible notes acquired at a significant discount, recognizing a cumulative $63,000,000 net gain. We've kept our eyes on delivering value to shareholders by growing profitably and optimizing our capital structure opportunistically. Now turning to our outlook, I'd like to remind you that in May, we raised both our full year revenue and profitability guidance following our Q1 strong performance.

Speaker 3

We are again very pleased with our 2nd quarter strong performance and indeed our first half twenty twenty four performance has only strengthened our confidence in the raised full year outlook of approximately $715,000,000 for revenue and approximately $74,000,000 for adjusted EBITDA, which is a 54% improvement over 2023. These projections reflect our expectation for solid performance across all market offers. Embedded in our full year projections, we estimate $20,000,000 from political campaign messaging, which represents less than 4% of cloud communications revenue. We are laser focused on growing the commercial base of business and the results from our last four quarters, our first half of twenty twenty four and once again our just completed second quarter clearly demonstrate excellent progress towards that objective. In closing, our excitement entering the second half of twenty twenty four remains high.

Speaker 3

This year, we are delivering sustainable, profitable growth based on a solid foundation of building the future with Maestro Momentum and a global cloud platform positioned at the center of the communication software AI opportunity. Our results clearly show we are retaining and growing our existing customer base. We are acquiring new innovative customers. We are growing ARPU. We are growing gross margin across all products.

Speaker 3

We are accelerating profitability. We are turning that profit into free cash flow and we have demonstrably improved our capital structure. Now I'll turn the call over to the operator to begin the question and answer portion.

Operator

And today's first question comes from Arjun Bhatia with William Blair. Please proceed.

Speaker 4

Thank you and appreciate taking the question here. Daryl, maybe can you start with, I noticed the net retention rate increased quite nicely from Q1. I was hoping you'd just be able to flush out some of the drivers there, where you're seeing the most expansion from customers and is this kind of gross expansion increase? Or are you seeing more kind of favorable volumes that are limiting some of the downtick in consumption as well? Thank you.

Speaker 3

It is broad based. Thank you, Arjun. It's nice to speak with you. It is broad based. We're happy with our net retention rate.

Speaker 3

You're right, it did grow sequentially in year over year. That's driven by our commercial messaging customers that cohort from last year as well as our enterprise customers. We're onboarding new enterprise customers each quarter, but we have established a nice base and that cohort has been expanding as we cross sell.

Speaker 4

Okay. Got it. And then maybe one for David here. But when you think about embedding AI in the contact center and I think you mentioned in your prepared remarks that voice is a durable channel, but why would AI not change the channel mix dynamics in the contact center? It seems like that is one of the early areas where we'll see AI adoption.

Speaker 4

But I'm curious what gives you the confidence that the voice is the preferred channel there even under this new technology paradigm?

Speaker 2

It's interesting, OpenAI only this week announced that they are for some certain subscribers enabling voice as an interface to query and get responses from ChatGPT. And I think what that represents is our conviction as well that voice is a primary human interface that we're illustrating on this call as we speak. So voice and response, whether it's a live agent that you're interacting with that's knowledgeable about your issue and resolving it or an AI endpoint that has authoritative information at its virtual fingertips to relate to you. In both cases, our Maestro platform, the integrations that we offer, the underlying global cloud platform, all resonate deeply to provide voice as what we believe will very quickly become a primary channel and access interface for AI, both in the contact center origin and in many other use cases.

Speaker 4

All right. Perfect. Thank you. Appreciate it.

Operator

And our next question comes from Ryan MacWilliams with Barclays. Please proceed.

Speaker 5

Hey guys, it's Damon Coblin on for Ryan MacWilliams. Thanks for taking the question. Great to see the beat on EBITDA guide and rev coming in line. Was the decision to reiterate both of these metrics, particularly EBITDA a sign of conservatism? Or was there a shift in expectations and now the second half will perform compared to 1Q?

Speaker 3

Eamon, do you mind so your question was related to would you repeat that? You broke up on this.

Speaker 5

So was the decision to reiterate both EBITDA and rev a sign of conservatism? Or is there a shift in expectations in how the back half will perform compared to 1Q?

Speaker 3

We're really pleased with the performance. The Q1 performance, we grew approximately 10% in terms or 12% in terms of cloud communications revenue. We grew another 8% in the second quarter. First half has been very, very strong. It has only really strengthened our conviction around the full year raise outlook from last May of 7.15 appropriate.

Speaker 3

Perfect. And then, is appropriate.

Speaker 5

Perfect. And then just curious how usage volume is trended throughout the quarter? And have volume shown similar trends so far early in Q3?

Speaker 3

In terms of well, leading into the 1st part of this Q3, we're very pleased with the volumes. We're very pleased with our commercial volumes. Our global communications plans, commercial messaging and enterprise customers continue to show exhibit usage patterns that we would expect that drive our confidence in our full year outlook.

Speaker 5

Perfect. Thanks guys.

Operator

The next question comes from Will Power with Baird. Please proceed.

Speaker 3

Okay, great. Thanks. Yes, it's great

Speaker 6

to hear some of the early traction with Maestro and BridgeAI. I guess I'd love to maybe if we can maybe dig even deeper there as to some of the customer conversations you're having there and kind of product rollouts with the combination, kind of where are we in that evolution? I assume it's pretty early. And what does that Maestro and BridgeAI kind of pipeline look like? I'm trying to better understand the medium long term opportunity there.

Speaker 2

Thanks Will. This is David. The medium and long term opportunity for Maestro and AI Bridge is fantastic. And we illustrated during this quarter some of the customer wins and I'll just highlight those. Thanks for the great question.

Speaker 2

First one is a nationwide provider of medical claims management. This customer provides solutions for industries like workers' comp, auto, health, disability management, and they manage claims and do virtual care. And these are complex interactions with customers. And we are providing Microsoft Teams voice as a solution with inbound, outbound voice from Bandwidth and Maestro helps them with this voice interface, the SMS inbound, outbound solution and the ability to integrate 3rd party solutions that some are pre integrated, some that they bring to the table. That's one example.

Speaker 2

And I think what's really important to understand about this kind of a Maestro win is it represents a contract value that is orders of magnitude larger than our $198,000 average ARPU. This is an enterprise customer using an enterprise product in Maestro at an enterprise contract value that is orders of magnitude larger than our ARPU. The second one is a provider of patient transportation, meal delivery, remote patient monitoring and personal in home care. They also are a Maestro win. They also use our toll free Call Assure product and the flexibility that we give them with Maestro an orchestration layer allows them to really build a future proof set of services internally for engaging with customers.

Speaker 2

And these are complex customer interactions and the Maestro product is so unique in the marketplace compared to the incumbents or anyone else. We're really excited. And again, this example, this is a 3 year contract at many multiples of our average ARPU that we've experienced historically. So those are just two examples and both happened to be in healthcare, both nationwide domestic. During the period, we also added a global luxury brand using our platform outside the United States as another example.

Speaker 2

But in each of these cases, well, these are really smart operating teams planning for the future in a very fluid environment where there are 3rd party solutions in AI that are emerging and they want to make sure they're ready with an orchestration layer when those best of breed or novel new solutions emerge. And so they're planning for the future. They're signing with us and leaving incumbents and doing so at a contract value for us that is really healthy.

Speaker 3

Okay. That's helpful. Thank you.

Speaker 6

And then maybe just a quick second question, whether David or Daryl, just on the messaging growth, which continues to look very good, I guess, up 33%. I guess the question is, is that apples to apples with the 50% in Q1 and any kind of color on deceleration? Is there seasonality in there? Just trying to understand kind of the delta, I guess, and the change even though it was still a healthy number here.

Speaker 3

Yes. Thank you. It is a healthy number, and we're pleased with that commercial growth. There is some But there's nothing it's very healthy and there's nothing to report really on that.

Operator

Okay.

Speaker 3

Thank you all.

Speaker 2

Thanks Will.

Operator

The next question is from Patrick Walravens with JMP Securities. Please proceed.

Speaker 7

Great. Thank you and congratulations you guys on the sustained performance at Bandwidth. It's really great. Okay. So maybe first of all, David, very big picture.

Speaker 7

You have this comparison between you guys and AWS in your deck, which can you just comment on that? So what are the similarities? And where does that comparison maybe break down?

Speaker 2

Yes. All analogies are helpful. They're also a little bit you're absolutely right. In this case, the cloud migration revolution is something that was pioneered by AWS where you got rid of servers that you were racking and stacking on your prem and you were able on a global regional basis to abstract processing, storage, compute, security and many other things to AWS in a wonderful way. You were liberated from hardware concerns on-site from incumbent legacy interconnections that were challenging and difficult.

Speaker 2

And it really provided the base layer for much of the amazing experiences available today digitally. In the enterprise, we as an analogy to that have really pioneered for UCaaS, for CCaaS, for conferencing and now for AI across all those different use cases that same cloud based approach to technology for the future. You don't have to have on your prem any hardware. You don't have to maintain software. You're able to leave AT and T, Verizon, Lumin and other incumbents behind and really take your voice and messaging services to the cloud with bandwidth and do so globally and that's really important.

Speaker 2

With a single universal platform and access to our universal API, you don't have to have multiple integrations. Now certainly the analogy can break down. We aren't yet at the scale of AWS. That's one way in which it does not work. But certainly, as an example, structurally and architecturally, it's very aligned.

Speaker 7

All right. Great. And then Daryl, some financial questions for you, if you don't mind. First of all, can you just walk us through sort of the tranches of what remains the tranches of what remains in your debt and when they come due? So you have the credit line, you have the $250,000,000 convert in $28,000,000 and then the is there some of the $26,000,000 left?

Speaker 3

Yes. So let's start at the first one you articulate, Pat. We to close the transaction on this last repurchase exercise on the 26 convertible notes, we drew under we had expanded our revolving credit facility with Bank of America and Wells Fargo to $100,000,000 and drew $50,000,000 and that was a balance at the immediately upon draw. We were able to within 45 days reduce that by 20%. So at the end of the quarter, we had $40,000,000 drawn.

Speaker 3

And our pace, we expect to remain on that pace going forward here and to reduce that balance essentially to nothing. The 26 notes have $35,000,000 remaining on them trading at about $32,000,000 I understand as the last time I looked at it. That $35,000,000 is just going to sit there until March of 2026 will be our intent. It is at 25 basis points. And just given the tender rules, the tender rules and the like on further repurchasing, we will just be retiring that in the ordinary course.

Speaker 3

We have the final tranches our February or 1st March 28, 2028 convertible notes at 50 basis points, which is $250,000,000 currently trading around $160,000,000 And that is we're aware of it. We do recognize that it's a little slightly less than 4 years from now. And we'll just be paying attention to that as we stay on our track to produce over 15% free cash flow margin and really optimize and improve out our business.

Speaker 7

Yes. All right. Well, fabulous. So much easier to see how you get through this now than it was before.

Speaker 4

I'm

Speaker 7

surprised. It's interesting as Jewel Train that was to a discount, it

Speaker 5

seems like a disconnect, but okay.

Speaker 7

And then lastly, just big picture on the growth rate. I mean like in my model, I have you going back down to 9% next year and then going back up to near 20s the year after. How do we think about how much you're able to even out this every other year growth rate, which is one thing which I think some investors have a hard time wrapping their heads around?

Speaker 2

Hey, Pat, this is David. I think your question about our capital strategy and how we've paid down debt addressed the viability concerns investors have had, others have talked about surcharges. We've overcome both objections. And as to cyclicality, seasonality, it's something that I think represents growing pains for a business that's beginning to scale. And then over time, we're definitely going to smooth out those waves.

Speaker 2

They certainly are beneficial to pay down debt and are useful in our capital strategy, but the momentum in commercial messaging and enterprise, I think, speaks for itself regarding our long term steady durable franchise of both revenue growth combined with profitability.

Speaker 7

All right. Thank you, guys.

Speaker 2

Thanks, Pat.

Operator

And our next question And our next question comes from Meta Marshall with Morgan Stanley. Please proceed.

Speaker 8

Great. Thanks. Maybe on Maestro, just where are customers kind of asking you for kind of the most extensive expansion of integrations right now? Just is there a certain category where you're finding kind of the most uptick in activity there? And then second, just on you guys have a lot of partnerships and kind of sales channels.

Speaker 8

Just where are you kind of finding the most effective sales channels right now or areas to expand kind of internal sales? Thanks.

Speaker 2

Thanks, Meta. This is David. The biggest demand that we're seeing for Maestro and AI Bridge is definitely within the contact center, serving as a primary technology orchestration layer that supports a huge number of emerging solutions that address different aspects of call flow and call resolution sentiment fraud detection and identity. There are an enormous number of opportunities that really require the Maestro product to integrate easily or to take advantage of pre integrations to do so on a global footprint basis to connect to one API to be able to do so. Contact center to answer your question is definitely the area in which we see the most immediate demand.

Speaker 2

As to the second question regarding the Maestro sales funnel, some of it is clearly coming from existing customers that we already work with that have a familiarity with us and what we do and have bought into the early beta release last year August 31. We continue to grow the new opportunity funnel in finance, in healthcare, in transportation. These are all large verticals that have complex customer engagement models in the contact center, where we're seeing great success growing enterprise at a 25% growth rate. And we think that that is healthy and in line with our expectation. We do have an emerging channel strategy that's really important.

Speaker 2

And we expect over time that will contribute to our direct approach to the market with our sales team.

Speaker 7

Great. Thanks.

Operator

And the next question is from Ryan Boone with Citi and Company. Please proceed.

Speaker 4

Thanks for the question and congrats on the great momentum here in first half. You really you're seeing inflection here in growth and I wonder if you see any changes in the competitive landscape that are helping you achieve some of these higher growth rates. David, we're interested to hear your thoughts on the competitive landscape. Thanks.

Speaker 2

Thanks, Ryan. I wish we had the kind of lead that Katie Ledecky has at about the 1400 meter mark and her 1500 meter swims. I'd like to I do we do look to our left and right swim lanes and are excited about the leadership position that our team has achieved and we're headed for the podium to continue the Olympic analogy, there are no new entrants diving into the pool. There are very known quantities that we collaborate with in some cases, incumbents that we compete with mightily. And in the Vanguard, we're proud of being in a space that is really innovative and the lead that we've achieved so far we're excited about continuing.

Speaker 4

Do you feel like to some degree you have a cost advantage over the legacy players at least?

Speaker 2

No, thank you, Ryan. There's no question that owning and operating our platform globally provides us with a vertically integrated advantage for both costs, but also quality and reliability. We're able to deliver visibility to enterprise customers that need to know how their services are performing on a global basis. And economically as well as quality, we have an advantage. And there in some cases are 15 years of infrastructure work that have gone into our global platform.

Speaker 2

And we are proud of that. A huge differentiator. Large global enterprise can trust us to not point fingers at other vendors, but instead to predictably identify issues and to resolve them when they emerge, but most of all to avoid issues altogether.

Speaker 4

Quick follow-up there. Are you seeing more traction in U. S. These days? Or how's Europe developing?

Speaker 2

Both Europe and globally are developing well. We signed in the period one customer that we called out a global luxury brand and have more Maestro customers that are signing up both globally and domestically in the quarter. So we're excited about that success. Certainly, U. S.

Speaker 2

Domiciled large global companies remain the foundation for our business, but we are serving customers around the world, and that will continue to be our focus. It's just a global single unified platform for voice and messaging for enterprise.

Speaker 4

Thanks a lot. Appreciate it. Thank you.

Operator

And the next question is from James Fish with Piper Sandler. Please proceed.

Speaker 9

Hey, guys. I did want to circle back to Will's question as I think it's important as arguably your biggest growth driver right now. If my math is right here, it appears the messaging API sort of ex political and ex the pass through grew just sub 20%, which is down from roughly 34% and almost 70% in Q4. I guess what seasonal slowdown is causing this? Or was there something sort of geographically, competitively or kind of use case wise that the end cause here and really just to kind of set expectations for all of us, I guess, what do you guys see as the growth for messaging this year?

Speaker 3

We did hey, good morning. This is Darryl. It's nice to speak with you. Our commercial message you're right, our commercial messaging right at 20% slightly less in terms of growth. And that is right in line with our expectation and where we thought it would be.

Speaker 3

There are some seasonal factors. There's no change in customer mix or any shift in the cohort or the like. We're really pleased that our cloud communications revenue grew the $10,000,000 8% over the prior year. That led to an expansion in margin by that point and also very good profitability flow through on that incremental revenue. In fact, I would probably call your attention to the model economics on that because we have been really focused on and speaking about scale and as revenue grows and how that's going to produce disproportionate profit.

Speaker 3

So we're really happy with that. There's really nothing to report in commercial in terms of commercial messaging. It is right in line with where we think it should have been and based on our customer conversations and we're looking forward to a continuing strong second half.

Speaker 9

Got it. Helpful, Daryl. Any changes competitively across mediums versus Twilio Centra legacy carrier providers? And within that conversation, I guess, what are you guys seeing with pricing across both messaging and voice? Thanks, guys.

Speaker 2

Thanks, James. There hasn't been any change in our competitive landscape from those like us who have been very innovative in the space or incumbents that have lagged. I think the dynamics and competitors set up well again, no change.

Operator

And at this time, we are showing no further questioners in the queue. And this does conclude both our question and answer session and today's conference. Thank you for attending today's presentation and you may now disconnect.

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Earnings Conference Call
Bandwidth Q2 2024
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