Bandwidth(BAND) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 2023 revenue reached $152 million, a 5% increase year-over-year when excluding surcharges and the impact of$ 7 million from political campaign messaging in 2022 [13] - Adjusted EBITDA for Q3 was $14 million, with a cash and securities balance of$ 139 million, providing significant financial flexibility [18] - Free cash flow accelerated to a record $18 million in Q3, indicating strong cash flow potential [19] Business Line Data and Key Metrics Changes - Commercial messaging revenue grew 51% year-over-year, driven by e-commerce conversational marketing and financial services [13][14] - Revenue from programmable services increased by 47% year-over-year, excluding prior year's political campaign messaging revenue [14] - Direct to enterprise revenue grew 19% year-over-year, supported by new customer additions and growth with existing customers [15] Market Data and Key Metrics Changes - Total messaging revenue represented 17% of total revenue excluding carrier surcharges, with pass-through carrier surcharges at$ 32 million in Q3 compared to $27 million last year [14] - Average annual revenue per customer reached$ 177,000 in Q3, reflecting success in serving large customer opportunities [16] Company Strategy and Development Direction - The company focuses on three customer categories: global communications plans, programmable services, and direct to enterprise, each showing solid customer wins [8] - The Maestro software platform is a key strategic initiative, aimed at streamlining global communications and reducing IT development time [7] - The company aims to achieve greater than 60% gross margins by 2026 through the addition of enterprise customers and a favorable product mix [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating a choppy macroeconomic environment and expects usage trends to continue positively into Q4 and 2024 [24] - The digital transformation and movement to the cloud are ongoing, with significant activity in the contact center space [26] - The company anticipates strong growth drivers from both commercial messaging and campaign messaging in 2024 [20] Other Important Information - The company was recognized as a Best Place to Work in Raleigh, North Carolina, highlighting its unique culture [12] - Management reiterated confidence in achieving 2026 medium-term targets, including revenue CAGR of 15% to 20% and free cash flow margins greater than 15% [21] Q&A Session Summary Question: How did usage volumes trend throughout Q3? - Management noted that usage trends supported results for the period and are expected to continue positively into Q4 [24] Question: How are enterprise customers thinking about usage and budgets for 2024? - Management indicated varied responses across sectors, with ongoing digital transformation driving activity in the contact center space [26] Question: Where is initial traction with Maestro, and what is the priority for integrations? - Management reported six customers on the Maestro platform since its launch, with broad appeal across various sectors [28] Question: What is the durability of commercial messaging growth? - Management expressed confidence in the durability of commercial messaging, citing high open rates and customer support as key factors [33] Question: Are there any verticals performing better or worse given the macro backdrop? - Management did not identify specific verticals under pressure but noted overall healthy usage trends [35]