Bandwidth Inc.(BAND)Q2 2025 法說會逐字稿

Good day, and welcome to the Bandwidth Inc. Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. I'd now like to turn the conference over to your host today, Sarah Walas, Vice President of IR. Please go ahead.

Good morning, and welcome to Bandwidth's Second Quarter 2025 Earnings Call. I'm joined today by 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&A. Our earnings press release was issued earlier today. The press release and an earnings presentation with historical financial highlights and a reconciliation of GAAP to non-GAAP financial results can be found on the Investor Relations page at investors.bandwidth.com. 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 third quarter and full year 2025. We caution you not to put undue reliance on these forward-looking statements as they may involve risks and uncertainties that could 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-K filing as updated by other SEC filings. With that, let me turn the discussion over to David.

Thank you, Sarah, and good morning, everyone. Welcome to Bandwidth's Second Quarter 2025 Earnings Call. We delivered a solid second quarter, demonstrating continued momentum and disciplined execution across the business. Revenue of $180 million and adjusted EBITDA of $22 million exceeded expectations. We gained good traction in customer acquisition and achieved continued improvement in operating metrics. This quarter underscores a strong performance over the last 12 months where we grew revenue 15%, EBITDA 36%, and free cash flow 26%. The demand for mission-critical enterprise communications is durable, and our platform is essential for companies transforming their customer experience with AI. To our customers, thank you for your partnership. To our band mates, thank you for your incredible work and dedication, and I thank God for blessing our journey together. The story of this quarter is the tangible progress of our AI strategy.

Our investments in AI voice are now translating into customer adoption and laying the groundwork for a powerful new layer of revenue. We're seeing meaningful traction, including new $1 million-plus multiyear deals as enterprises leverage the software-driven capabilities of Maestro and AI Bridge within the Bandwidth communications cloud, allowing them to seamlessly integrate AI voice into their customer experience call flows. These platforms provide the essential APIs and orchestration tools for advanced deployment. This is particularly evident with our existing customers in the financial services, healthcare, and hospitality verticals. We believe Bandwidth is the essential platform for the enterprise AI voice revolution. Whether a customer is using a stand-alone AI model or the tools embedded in their CCaaS platform, they rely on Bandwidth for the scale, reliability, and orchestration required to succeed.

Let me share how this is creating value today. A longtime customer, one of the largest banks in the U.S. utilized our Maestro platform's robust software integrations to seamlessly incorporate a third-party conversational AI provider. This provided them with the programming flexibility to innovate across their multiple CCaaS systems leveraging Maestro's agnostic orchestration layer. Combined with our network-level voice anomaly detection, the bank can deliver even more reliable, resilient, and intelligent customer experiences across all their business lines. The impact is clear. They can now test and deploy new AI-powered customer experiences with speed and confidence, all while maintaining control of their technology stack. This is a blueprint for how we will expand our business across our enterprise customer base. Another large existing customer, a leader in digital banking, is using the native AI features within their Genesis contact center.

In this scenario as well, Bandwidth is critical. The low latency, high call quality, and high availability of our communications cloud were essential. As their team told us directly, our AI story only works with Bandwidth. This is powerful validation that the underlying communications cloud is the linchpin for any successful AI voice strategy. These examples highlight a fundamental shift that is expanding our economic engine. As we've said before, AI is not replacing voice; it's enriching it. Each AI-powered call has the potential to drive significantly more usage of our cloud platform, largely due to the software-driven value-added services we layer on. With capabilities like Maestro's orchestration modules, integrated transcription, and our fraud detection software solutions, we see a path to potentially generating as much as 3x to 4x the revenue of a standard voice call. This is a powerful consumption multiplier that expands our share of wallet and makes our platform stickier in regulated sectors like financial services.

Customers rely upon us for compliance and security as well as performance. As AI is further integrated into enterprise workflows, ensuring trust and transparency in voice applications is becoming as essential as uptime and may also drive future revenue opportunities. Every new enterprise win this quarter included our Maestro platform, underscoring its role as a core software differentiator. This isn't just an add-on. It's the programmable intelligence layer that drives higher revenue per customer and deeper integration, enabling sophisticated call routing and service orchestration that legacy systems cannot match. This AI-driven growth potential is built upon the strong foundation of our core voice business. This quarter, we continued to win high-value customers, reinforcing the strength of both our integrated direct and channel sales strategies. Our direct sales team closed one of Tennessee's largest healthcare providers serving millions of customers.

They initially planned to split their traffic between two vendors but ultimately selected Bandwidth as their sole provider. Why? Because the resilience of our Collier solution was the only one that could meet their strict uptime requirements for essential Medicare and Medicaid services. When service cannot fail, enterprises choose Bandwidth. We also won a leading insurance brokerage with more than 10,000 associates across 200 offices nationwide. They needed to migrate both their UC and contact center to the cloud and chose Bandwidth after our proof-of-concept demonstrated not only the technical excellence of our support team but also the programmable power of Maestro's software to handle their sophisticated multisite call routing requirements. This win once again showcases our role as the go-to partner for complex cloud migrations in regulated industries. Our channel partnerships are also becoming a powerful growth engine, delivering a record number of deals this quarter across a variety of industry verticals.

A great example is our work with a top systems integrator where we've built a successful playbook for migrating large enterprises from on-premises Cisco systems to the cloud. Two of these partner's significant healthcare accounts are moving to Cisco WebEx Contact Center. Both had a critical need for reliability, and each chose Bandwidth because we de-risk the entire migration. With proven uptime, automated porting, and total visibility through our dashboard, we gave them the confidence to move to the cloud without fear of disruption. The message to the market is clear. For the thousands of enterprises that are still on-premises, Bandwidth is the fastest and most reliable path to the cloud. To summarize, we are executing on a clear and focused strategy. First, we continue to prioritize business execution, delivering solid financial results, exceeding our guidance, and demonstrating the efficiency of our business model.

Second, we are scaling our global enterprise business by winning larger customers with multiyear, higher-margin engagements who rely on us for their most mission-critical communications. And third, we're accelerating our AI voice innovation, creating a powerful revenue multiplier and cementing our role as the essential platform for the future of the AI-powered customer experience. Voice is the most durable and important channel for customer engagement. And with the rise of AI, it will be even more indispensable. We are uniquely positioned to lead this market, and we are confident in our ability to create significant long-term value for our shareholders. Now I'll turn it over to Daryl to discuss the financial results in more detail.

Thank you, David, and good morning, everyone. We're pleased to report a solid second quarter, driven by accelerating momentum in our core voice offerings. This performance demonstrates the strength of Bandwidth's cloud communications platform, the effectiveness of our go-to-market strategy, and our ability to scale efficiently. Our team's execution led to solid revenue performance with adjusted EBITDA exceeding the high end of our guidance. Looking at our second quarter 2025 results, total revenue of $180 million increased 9% year-over-year normalized for 2024 cyclical political campaign revenue of $8 million. Included within that result, cloud communications revenue reached $136 million, an 8% year-over-year increase on a normalized basis. Non-GAAP gross profit of $79 million marked an increase of 11% year-over-year or 13% growth when normalized. Non-GAAP gross margin improved to 58%, a 2 percentage point increase year-over-year.

Adjusted EBITDA grew by 17% year-over-year to $22 million, driven by higher revenue and stronger margins. Free cash flow was $26 million, representing a 19% margin. Focusing on our three market offers, enterprise voice revenue grew 29% year-over-year, fueled by robust demand on our core platform from both customers expanding usage and new customers migrating contact centers and employee communications to the cloud. Global Voice plans, our largest customer category, grew revenues 7% year-over-year, which is our highest growth rate achieved since 2021, driven by channel partnership traction along with continued expansion from long-term customers and onboarding of new ones. Programmable messaging likewise achieved normalized 7% year-over-year growth. Moving to operating metrics, our net retention rate for the first quarter was 112%. Customer name retention remained well above 99%. Average annual revenue per customer set another record at $230,000 or a record $216,000 when excluding political campaign revenue.

After reaching midyear, we're encouraged by our strong performance with first half revenue growth in our core voice offerings, exceeding expectations due to higher demand from existing customers and the addition of new ones. We also achieved record high first half non-GAAP gross margins, EBITDA, and operating cash flows. Looking ahead to the remainder of 2025, three months ago, we raised our full year 2025 guidance anticipating continued acceleration in the second half, following solid second quarter results. While monitoring the expected typical holiday season uptick, we remain confident in the second half acceleration which underpins our previously raised full year guidance. We continue to project 10% organic revenue growth at the midpoint for the full year and are once again increasing our full year EBITDA outlook to $88 million at the midpoint. We believe this outlook for the second half is an achievable plan that keeps us firmly on track toward our strategic and financial goals.

In summary, we are pleased with our operating and financial performance in the first half. We're building on a foundation of strong execution, expanding customer value through AI-powered use cases, and leveraging our platform scale and flexibility. As David remarked, we're executing with discipline, scaling our global enterprise presence, and accelerating AI voice innovation to place Bandwidth at the center of the AI-powered customer experience. This strategy positions us to deliver sustained revenue growth, continued margin expansion, and robust cash generation. With that, I'll now turn the call over to the operator for the question-and-answer portion of today's call.

Yes. Thank you. We will now begin the question-and-answer session. The first question comes from Joshua Reilly with Needham.

All right. Nice job on the quarter here. It seems like the thesis for AI use cases for customer support is kind of playing out as expected here in terms of driving additional voice minutes on the platform. How are you thinking about the outlook? Maybe get some more color here. I know you made a couple of comments about the second half ramping these use cases relative to leaving your full year revenue guidance unchanged after this quarter?

Thanks, Josh. This is David. And yes, I want to affirm your observation. Indeed, Maestro was a critical component of every single one of our enterprise wins, and the AI use case thesis that we've had continues to manifest, and we're really pleased with that. The second part of your question was regarding guidance, and let me ask Daryl to address that.

Josh, it's great to connect with you, and I appreciate you being part of the call. As I mentioned in my prepared remarks, we anticipate that our growth in the second half will surpass that of the first half. The first half set a record in our financial metrics compared to the previous first half, and we expect the second half to show even more acceleration. Our guidance for total revenue at the midpoint indicates we expect 10% organic growth in the third quarter. Additionally, if we calculate the full year and consider the fourth quarter, we are projecting a 13% growth. This illustrates the progression I was referring to in terms of acceleration.

Got it. That's helpful. And then in terms of the Maestro add-ons that you've seen over the last several quarters here, can you just give us a sense? It seems like the average revenue per customer continues to tick up here. How much of that is being driven by Maestro add-ons or other add-ons or any other considerations that we should be considering here for ARPU growth?

Thank you, Josh. This is David. Again, we've invited our Chief Product Officer, John Bell, to join us on the call. John, why don't you take that one?

Yes. We continue to see a mix. As we mentioned, we are seeing more adoption of Maestro and Maestro services. So that is an important part of the uptick from our customers, and we are enthusiastic as we see adoption of more and more components of the platform by our customers.

And the next question comes from Meta Marshall with Morgan Stanley.

Great. What is the pace of the integrations you are working on for the Maestro platform? Additionally, what collaboration efforts are you undertaking with other companies, as I am sure they are eager to join the platform? As a follow-up, you mentioned a voice multiplier effect as you transition toward AI voice. Is this change expected to be a sudden leap or a gradual process? How do you envision its development?

Thanks, Meta. This is David. Annually, we have a conference that's very close now, just a little bit over a month away, and Reverb is where we're excited about talking about Maestro's latest developments, announcements, integrations, product features, and the benefits for our customer base that is engaging with and adopting AI. We'll be excited to announce new things at Reverb, but interestingly, one of our integrations, Cognigy, just announced that they were acquired by another Maestro customer of ours, NiCE. This illustrates and confirms that both these great customers that we have engaged with the Maestro platform, and we're thrilled with that combination. We think other integrations similarly in this AI era are going to benefit both partners and customers in unique ways. But at the Reverb conference, we'll have more to say about it. In terms of the second part of your question, let me ask Daryl to opine or John to opine on the pace. Go ahead, John.

Yes. From what we observe, our customers typically show a standard adoption pattern. They often begin by using the Maestro platform, transitioning from on-prem to the cloud, usually starting with a fixed platform. Once they are in the cloud, they gain the flexibility to enhance their services, potentially integrating additional applications into their call flows. We continue to introduce more services, as demonstrated in one of our examples involving a large bank. This is a common trend we see with customer adoption.

And the next question comes from Arjun Bhatia with William Blair.

Actually, if I can just follow up on the last question. I think David, you had mentioned in your prepared remarks that the AI potential per call is 3 to 4x that of a non-voice call. Is that measuring any sort of AI call versus regular voice call? Or is that something that's using all of your Maestro services, some of your Maestro services? Like how should we think about what that multiplier actually relates to and where kind of you have customers that are realizing where you're realizing this sort of uplift already? Or is this sort of a potential further down the road?

Well, it's being realized in real time, and I think it's reflected in the increased usage that we see in voice for our global communications plans as well as enterprise. Each AI interaction on a call can generate multiple examples of voice minutes on our network. For a call, because there's an agent or engine on the other end that's doing sentiment, transcription, fraud detection, or any number of different important services in call synchronously in real-time, those are what drive the potential to add 3x to 4x the call revenue for us. And that's happening today. We're excited about the additional value being added by those different engines or agents for our customers, whether it's in the contact center or again in GVP. Yes, uniquely in the past, a voice call was really monetized based on a single stream of media and signaling that we handle on behalf of the customer. Today, we expect even more so in the future with the rise of voice agents, you're going to have sub-agents and really valuable things happening simultaneously that require the intelligence and orchestration of the Maestro platform. It's beginning to be realized today, and we think that it will even increase in the future. Let me again invite my bandmate and colleague, John Bell, to add to my remarks.

Yes. I think just second what David said, there are a lot of services running in parallel that are enabling that multiplier. And at one where agents being developed, more and more applications for enterprises to use, that create the opportunity for us to serve them multiple streams and multiple applications at the same time.

Okay, that's very helpful. I wanted to discuss messaging for this quarter. I'm curious about the challenges and advantages regarding that, and overall, I'm interested in how Bandwidth differentiates itself in messaging compared to competitors where messaging plays a larger role in their business. I would love to hear about your focus areas concerning compliance, reliability, and other factors.

You bet. So, in the quarter, our messaging growth was 7% for commercial messaging, and that was driven by customers in e-commerce, financial services, and civic engagement. Our assumption for commercial messaging is high single-digit growth for the full year, which is in line with the market growth rate for commercial messaging. There are some deals that you might expect us not to pursue because they're not margin accretive, and we're focused on large enterprises with large scale opportunities as long as they contribute to our long-range plan for profitability. Our focus is on expanding messaging and specifically messaging formats like RCS and RBM. We're targeting larger customers where our excellent service is required, but profitability is a big component. We do have opportunities to grow messaging, and we are winning away from large centers that have outgrown their existing platforms. They're looking for things like scalability, reliability, and how we deliver those messages and support that. So we're cross-selling into enterprises. But again, our assumption is in line with market growth for the rest of this year.

Thank you. And the next question comes from Will Power with Baird.

Okay, great. I wanted to come back to the global voice plan segment, your largest. I think you called out strongest growth in a few years, which is nice to see. So be great to get any other color as to kind of the core drivers there. It sounds like an increased presence with partners is helping. So maybe if you can kind of dissect how much has partner-driven versus maybe core trends within UCaaS, CCaaS, et cetera, would be great.

You bet, Will. So the growth in GVP was 7% up from 2% year-over-year in the year-ago quarter, and the total voice business is growing 9% versus 3% year-over-year. Your question is where is all this voice growth coming from, and what we are seeing is that there are many, many new use cases where you have AI voice, and you have examples of that in UCaaS and CCaaS. The Cognigy-NiCE announcement really illustrates that just this week. We understand how indispensable voice is for our enterprise customers. They understand that as well. The rise of AI, I think, is being reflected in the actual results in our voice business. Let me pause and invite John or Daryl to add to my remarks.

Yes. To add maybe two other dimensions to that. One, AI is enabling the number of new entrants in the market who are becoming Bandwidth customers, and customers there. Our global expansion continues as we continue to help our GVP customers expand globally.

And Will, this is Daryl. I just want to clarify David's comments. When we increased our voice revenue and doubled our growth rate in the first quarter, we communicated that this was reflected in our raised outlook for the full year. We anticipated doubling our growth rate compared to last year. I believe the second quarter is on track to achieve this much higher growth rate that we're projecting for the full year. We have clearly positioned ourselves for future success beyond that.

And the next question is a follow-up from James Fish with Piper Sandler.

Look, it's wanting to build off of some of the prior questions, but I think we've always thought of lower cost as an advantage for Bandwidth, but what are you guys seeing with pricing on the messaging side, in particular, as one of your competitors clearly changed how they're pricing. And does this give you any pricing leverage to take your own sort of higher?

This is Daryl. Regarding pricing for the quarter, our analysis shows improvement compared to this time last year in both pricing and volume. We believe that the higher value services we offer to our larger customers enable us to price accordingly. Our customer retention is strong, with a logo retention rate exceeding 99%. We feel confident about our positioning in voice pricing, especially considering the additional value we provide as AI continues to be integrated across our customer base.

Recent pricing moves by others that you mentioned are opening up competitive opportunities for us as customers are evaluating options directly related to the price increases. So we're seeing that in real time.

And the next question comes from Patrick Walravens with Citizens.

Great. I have a couple, and congratulations on the results. So David, can we go back to this NiCE-Cognigy deal yesterday because I think there's a number of wrinkles to it that make it super interesting for you guys. So number one, they were both partners, right? But can you just explain to us how they differ, right? So what do they do differently as partners? And why does it make sense for them to be together?

Thanks, Pat. Both indeed were Maestro customers. NiCE was pre-integrated within the Maestro environment, so that enterprise customers could easily take advantage of the NiCE contact center capabilities. Cognigy, which does extraordinary AI voice features and capabilities, were also an AI Bridge integration in Maestro so that enterprise customers using NiCE in the contact center could easily add the Cognitive voice agent capabilities to their call flows. What's really cool is that Cognigy, a phenomenal company really pioneering the voice AI agent space, and NiCE, the contact center company that powers many, many seats of agents in the contact center, by getting together, what it shows us is both the relevance and importance of Maestro in terms of an orchestration layer. Their combination, I think, really points to the future, which is you're going to have millions and millions of new users of the global phone network and system, but many of them will be PhD-level intelligent and highly emotionally empathetic AI voice agents adding extraordinarily high value to different call flows in the contact center. NiCE effectively, I think, is going to be able to add many, many, many seats of voice AI agents to add value to their customers, and we're excited to support both. We think the combination is fantastic.

All right. Great. And so I guess the two sort of wrinkles on this are NiCE paid almost $1 billion for Cognigy, which is going to do like $85 million exiting next year, right? You guys are doing like $750 million sort of at the midpoint of the range and traded half of that, right? So what is the disconnect here? And how does Bandwidth capture more of that perceived future value?

I think there's a lot of good conversation going on about infrastructure globally in data centers right now for compute and inference related to AI. There has not been much conversation about infrastructure and software layers important for voice AI infrastructure. Once that's recognized, I think valuations may change. Right now, we're excited about seeing the impact of AI voice use cases in our global voice revenue run rate for the year. That's been exciting to see manifest and become real. To your good point, I think that time will tell, but global AI voice use cases require global AI voice infrastructure, and we are pioneers and leaders in that. Our Maestro platform, on top of that global universal platform for both regular voice conversations and AI voice conversations, is something we've worked on for years, and we're excited about supporting this wave that is happening with voice agents globally.

Thank you. And that concludes the question-and-answer session as well as the call. Thank you so much for attending today's presentation. You may now disconnect your lines.