Look, we're just delighted to have Bandwidth joining us at the Citizens JMP Technology Conference here in San Francisco at the Ritz-Carlton Hotel. Daryl and Dave are the CFO and founder, CEO of the company. I went back and I looked. Did I write them down? I'm pretty sure I did. One second. But maybe I didn't write them down here. I went back and I looked at Dave's historical answers to how's business, you know, and one of them was, I think it was, "If it was any better, it would be-
Illegal.
... illegal." Yeah. Do you remember what year that was?
2021 or 2022.
2021 or 2022.
That's right.
And then I think last year was, "It's swell," ... and there's three types of waves that we're surfing, right?
That's right.
So what do we got this year, Dave? How's business?
Business is great.
Ah, yeah, good.
I'm gonna keep it simple because Pat now keeps score-
Yeah
... so it's just great.
Yeah. Tell us why.
Why is business great this year? It's not 2023.
Mm-hmm.
That's great. Our team is all together in person at our new campus. We did no layoffs. We're thriving as a culture, serving customers better than ever before. So it's great.
Were there really no layoffs?
None.
Did you make people come back to the office, and did some of them quit?
Yes.
Yeah. I don't want to use the word effective, it's not the right word, but how does that work out when you mandate a return to the office when people don't want to?
We did that beginning-
Not knowing some people don't want to, I guess.
Yeah
... a better way to put it.
We maintained throughout the lockdowns that we were gonna come back in person.
Yeah.
And so everyone knew, and over the course of 18 months, from 2021 through 2022, we lost probably 20%-25% of the team because of that new policy, but for the last year and a half, our attrition is back to single digits annually, 10%, maybe max, which for us is back to the regular number, and so we've come through it.
Yeah. When was the period of attrition for the return to the office?
It was mid-2021 through-
Yeah
... late 2022.
Yeah.
And so we've had half of 2022 and all of 2023, and then moved into our new campus in August of 2023.
Yeah. How'd your Glassdoor reviews do when you made people come back to the office?
I went from the most popular guy in Raleigh to the least popular guy.
Yeah, it's funny how that works. Has it started rebounding?
I don't know.
I haven't looked recently, but I remember that. So for anyone who doesn't know, Bandwidth has a really spectacular campus in Raleigh, I mean, basically outside of Raleigh, right?
Yeah.
So tell us a little bit about your campus?
Well, we-
Then tell us why, right? Why do you have such a nice campus? What's the point?
Yeah. So we are in August, it'll be 25 years since we started the company, and our focus is on accomplishing our mission and taking care of our people. And in terms of our people, we have a whole person promise, which means meaningful work and a full life, and that full life has all kinds of policies that we've codified that are really, really important, and they're supported by our campus. So there's a body, mind, and spirit focus for accomplishing your mission, and that means, for us at our office, tons of collaboration space, really phenomenally built workspaces, conference rooms, a beautiful, beautiful setting, and then an on-site gym, 24/7, for a 90-minute workout lunch if you want it. An on-site, zero to five -year-old Montessori school that is subsidized for the team, where we have about 75 families taking part so far.
And a North Carolina convention center-like space, meeting space for about 500 folks that's a historical barn-looking structure that's extraordinary. So we believe in being in person. We believe in community and in connection. That's us, that's our culture, and it yields some of the greatest customer satisfaction numbers in our industry. You take care of your people, they accomplish their mission, your customers love you.
Yeah. That was... You remember Ultimate Software, which is now UKG, is, like, now north of a $4 billion business, but that was the founder was always like: "I'll take care of the employees, the employees will take care of the customers, the rest will take care of itself."
That's, that's great.
He was very, very focused on that. So, Daryl, you are an employee, right? You haven't been there 25 years. How's this, how's this whole thing work out for you?
I think it's working out really well. We're really excited about-
For you personally.
Oh, for me personally?
Yeah, for you personally. You're an employee.
Well, for me personally, I think it's very, it's very gratifying, very intellectually stimulating. I love working with, I'm not an employee, I'm a bandmate. Bandmate.
Okay.
We love working with our bandmates. We love supporting each of our bandmates and working together to fulfill our mission. I have found in the 2.5 years I've been with Bandwidth that it's a company that is full of the most bright and eager and capable team members that I've come across, and I've been in some really great companies, and I have been most impressed. So it's worked out very well for me-
Yeah
... because I enjoy having fun when I work, and Bandwidth is a place that you can enjoy being at the same time serving a customer to the fullest of your capabilities, and our customers love us.
Yeah. So, I'll go first on this, 'cause. So on my calendar, right, every day from 9:15 A.M. until basically 10:30 A.M., it says, "Pat's workout. It's okay to schedule over it if you have to, but ask me first." And they very, very rarely does it get scheduled, and if it does get so, it really is something important, right? So really, like, what I do, I wanna stay alive. It's super important, and I really enjoy my workout, right? So do you take advantage of this gym that he's got?
I have been there. You know, if you ask me personally, my workout routine is very... I've learned over many, many years that it's very early in the morning.
Yeah.
Because it's difficult as the CFO-
It is hard, yeah.
It's difficult, as the CFO of the company, and to control your day and your midday, say, for a workout lunch. It's also difficult to control the evening, whether it's a family item or whether it's Pat you're visiting.
Yeah.
We need to catch up in the evening, or we're having dinner or something along those lines, or anyone along the way, or with an investor, and we welcome all of our investors to come by. So since I can't control that all the time, I can control 4:30 A.M. and 5:00 A.M. because no one wants to meet with me then.
Yeah.
That is my personal routine.
I love it.
It happens every day.
Does it? Love it. All right, good. So, Dave, what does your company do? For anyone who doesn't know, what does Bandwidth do?
Bandwidth is a cloud communications provider for the Global 2000 enterprises. We do voice communication services, text message services, emergency services like 911. We provide a global platform for the greatest companies to use to communicate with their constituencies, and have done so for, as I said, 25 years.
Yeah. And so, you know, for people who haven't seen the slide deck, who are some of these customers who are using your communications power to power their services?
You know, the Gartner Magic Quadrant leaders in CPaaS, in UCaaS, in conferencing, all of them, 12 out of 12, use our platform, but increasingly, more, and more, and more Global 2000 enterprises-
Yeah
... use us around the world. So some of the greatest names in commerce are using us for all of their voice and text applications.
Yeah, but so, CFO of Zoom was sitting there, a huge customer for you, right?
Yes.
Yeah. Microsoft, huge customer for you.
Yes.
Who else is really big?
Well, we don't have anyone that's 10% or more.
Yeah, you used to.
We used to.
Yeah.
Well, actually, I think we were just under historically-
Yeah
... but bumping up against it. And I think that'll be, there's less and less as we get more and more large customers.
Yeah.
But again, all of the internet giants that you mentioned-
Yeah
... and many of the UCaaS leaders.
Right. Right. Right. Okay, and walk us through sort of the trajectory of... It feels like you're in a pretty good spot now, actually. Right? Walk us through the trajectory of the last two or three years.
So the last three years, we have come through a period during which COVID was an extraordinary tailwind, and we had remote work supported-
Yeah
... across so many of our customer base. Since then, we've come down from those, what I would describe, as unnatural highs to a steady state growth trajectory, where about a year ago, we laid out for the first time our mid-range targets as a company, and we are reiterating those targets now in our, our latest quarterly and annual, earnings review and our forecast for the year. We're reaffirming our 2024 and then 2026 plan. So what does the trajectory look like? I'm super excited that we are on the track we set out for ourselves. We just did our 25th quarter in a row of achieving or exceeding our guidance, and that's awesome, since going public in 2017. Incredibly proud of the team for doing that.
But we feel better about our business today than we ever have, as a team since coming public.
That has everything to do with the product team, the go-to-market team. Anthony Bartolo, our COO, who joined us about two years ago, has been extraordinary in helping us achieve our goals, as has been Daryl, now two and a half years as our CFO. We're on track, and we're executing, and again, as I said, no layoffs, so our go-to-market team is completely intact. Our product team is cohesive. Our support team has incredible chemistry. The esprit de corps and the camaraderie across the team is outstanding, so we're not coming through a period in which we have slashed and burned and cut. We've grown together.
Feel better than any time since you went public?
Yes.
Wow!
I think we all need to-
Well, let's drill that. Give us the top two or three, two or three reasons why?
Well, I think-
We heard the people. I heard the people part.
Yeah.
Yep.
No question about it. Greatest group of people I've had the privilege of serving with since starting the company. But I think also we came through a period during which we knew it was unnatural. Right now, what we have in place is a solid foundation for another 25 years of growth, both in terms of the vision, the midterm that's achievable, and the reliability that we've demonstrated again over the last 25 quarters. So it's both past is not necessarily prologue, but we think that we've got the integrity, the credibility, and the vision, to grow from here in a way that we haven't had as much conviction about in periods in the past.
Hmm. Great. All right, Daryl, so you have this interesting dynamic where you get a lot of political messaging revenue every other year, right? You wanna describe that for our audience?
Yeah, we, we do participate. You know, political campaign seasons are characterized by sending messages, and 18% of our revenue last year was from messaging revenue. So, it's less than 20%, but still meaningful. We've, we expect in 2023 was without a political campaign season. In 2024, we do expect there to be a political campaign season. We do expect to benefit from that. Within our $700 million midpoint guide for the year of 2024, we estimate around $40 million of that is going to come from political messaging revenue.
That's not a lot.
It's really not, yeah.
40 over 700 is really not a lot, but we like the business, we like our customers. We look forward to supporting our customers. What we found is really interesting, Pat, in the sense that in 2022, there was the midterm, non-U.S. presidential, but midterm election season.
... and what we found is those customers that we acquired and served really well during that time, they didn't really want to see their business in 2023. They run their own businesses, right? They didn't want to see their businesses evaporate, and they worked really hard to diversify into other use cases, which we're very good at for fintech, messaging. This is in messaging, fintech, retail, e-commerce, civic engagement, things like that. And so as they've diversified their business, we're the natural provider, and we grow with them in the diversification. We're excited about having acquired more new customers, you know, some additional customers. We expect that to continue to follow that same cycle of diversifying in 2025 and beyond. And so we like the business.
Albeit, again, it's only 40 out of 700, but we really like that business, and we think that it yields more commercial revenue in the long term.
Yeah. And remind us what the 40 was last year?
Zero.
Yeah.
Right, zero.
It's not a lot, but it's growth.
Uh-huh.
Right?
Exactly.
Yeah.
Exactly. And in the thirties, the year before.
Why is it-
Thirties-
Why is it zero? Shouldn't it be more than zero?
Uh-
Even though, even a non-election, you think it would, yeah.
Well, you know, there's really not a lot of direct campaign messaging.
Yeah
... that goes on when there's not a campaign.
Yeah. Like, who, who in this room has actually gotten one? I don't get these messages. I don't get these ca-
Awesome.
You do get them? Yeah. What do they say?
Like today, it's voting day in Massachusetts. I got a, I got a text to go...
Go vote.
Oh, yeah.
Did you vote?
In Massachusetts?
Oh, yes.
So that was not well targeted, right?
Well, I used to be registered as a voter there.
Oh, you did? Okay.
Yeah.
All right, that makes more sense. That makes more sense. Did Twilio really abandon this business?
Is that something that you've noticed in your, messaging business?
Well, I think it's a known-
I mean, Jeff Lawson said they did, but I'm just wondering if you've sort of saw the other side of it.
They serve a very valuable and important function through their acquisition of Zipwhip, of supporting the election process for toll-free messaging and being paid for that appropriately.
Oh, is that what Zipwhip did?
Correct.
Got it. Got it, got it, got it. Okay, and so, this business is good too, you know, it's turned into a big business, right? $700 million in revenue. What are you doing in EBITDA this year, would you guys say?
We've guided to a midpoint-
Midpoint
... of $72 million, which is a 50% increase over this-
Yeah
... over 2023.
So 10% EBITDA margin, $700 million in revenue. So Dave, where'd this business start? How long, what year was it?
It was 1999. August 9, 1999, 25 years ago, started in a spare bedroom. Started sleeping in rental cars, not being able to afford much, moving in with my folks. It's a long time ago.
Why the name Bandwidth?
It is.
This, I think, is an important thing to know about this company. It's super interesting.
Well, I was the original registrar of the name, and originally, we went to market providing a transparent marketplace for internet connectivity for small and medium business, and that was appropriate for the intuitive value of the domain name. We attracted a very high amount of leads to that domain. But from that inauspicious beginning, built out our own voice network and have never looked back, and as of today, Bandwidth really describes the cycles of human interaction that we facilitate globally. So very fond of the name and the ticker symbol, but the ticker symbol is a whole different story on how we got that. It was not easy.
Oh, yeah, who had Band before you?
It was a planned hedge fund in Kansas City that had registered and was squatting on the name. And so I-
That's a good one.
I started calling the person that was on the record for the name during my 90-minute workout lunch. I'd be on the rowing machine, and I'd take a break and leave another voicemail, which pretty much amounted to, "I'm gonna continue to call until you call me back, or I die." And he eventually called back and was willing to give us the name as we went public.
Can you squat on a ticker?
Apparently, yes.
Apparently, you can.
They had registered it in anticipation of using it, but they were very gracious in saying, "You guys should have this, and you're going public. Congratulations. Thank you for the funny voicemail you kept leaving, and here you go.
Oh, really?
Yeah.
So they didn't-
Yeah
... you didn't have to extract, it wasn't, yeah.
It took week. It took weeks, but they didn't ask for a—and by the way, I asked all of our legal counsel, all of our investment bank friends-
Yeah
... "This is the ticker we need. It's kind of manifest destiny if you're Bandwidth to have BAND," and they all said, "Can't get it. No way. No what, no, it's impossible.
Yeah.
You know what? If you just are a cold-calling SDR by background, you can make it happen.
The valuable lesson. Any questions from our audience?
So you said that, you know, the political campaign messaging, the revenue has increased over the past two cycles. Is that something you anticipate will continue to increase?
It's possible.
Oh, we should repeat the question.
Yeah. Oh, I'm sorry. The question was that the, in the campaign revenue associated with 2022, and taking the guide for the $40 million of campaign revenue for 2024, it was noted that that had increased. The $40 million had increased and, well, is projected to increase. And yes, going forward, it is certainly possible that in a 2026 election cycle, it could increase again. It's certainly possible.
That's a midterm cycle. I think the perhaps, follow-up question would be presidential over presidential. I think that's a more likely probability.
It's substantially higher than 2020.
Now, that said, our commercial messaging-
Substantially
... and if I could just add.
Mm-hmm.
Our commercial messaging continues to grow at an extraordinary clip, quarter- over- quarter- over- quarter, year- over- year, and is by itself extraordinarily capable of contributing to us being less cyclical over time when it comes to the political season. That seasonality, we think, is diminishing wonderfully into the future, although as you pointed out, presidential over presidential probably increases, but its percentage as a total of our business and as a total of our messaging will continue to diminish.
Mm-hmm.
... Well, that's new for me. You really, so you got- you think that's, you think it's gonna-
Mm-hmm.
The year-to-year lumpiness is gonna go down?
Mm-hmm. It will, and I think it's just math.
Okay.
Because this last year in 2023, our commercial messaging, and commercial is defined as not political, so all our other, other messaging. Our messaging business being 18% of revenue, it did grow 31%, 32% over the prior year, over 2022. But Pat-
Just the commercial part, yeah.
Just the commercial. But in terms of the third quarter and the fourth quarter, that growth was 51% quarter-over-quarter of prior year, and 66% quarter-to-quarter. So the trajectory wasn't just 30 through the year, it was, it's been accelerating.
Mm-hmm.
As you do that math, and with our customer acquisition and where we see our growth in the future and how we've guided, it will become much, much less. Mm-hmm.
Yeah, well, that'll be good for this stock.
Mm-hmm.
Because the people definitely struggle with, well, every other year, I gotta think about a slowdown versus an acceleration.
We're focused on that. You know, we talked about our medium-term targets in 2026.
Yeah.
We don't really dwell on the interim between 2024 and 2026 in terms of 2025, but we are very focused on that cyclicality being noticeably diminished as we move into 2025.
All right, great.
These are, these are commercial messaging use cases that are broad. This is across fintech and healthcare and retail, and they're coming from large enterprise, so it's, it's a terrific mix.
Yeah, where are we on the debt?
I tried to be... I think we're in a really good spot, and I tried to be really, really clear on-
You, you were very clear, yeah.
On our earnings call about that.
Yeah, no, you were.
I appreciate you asking that.
Yeah.
I said in the earnings call, I wanted to put a really fine point on our healthy balance sheet, and I, I was determined to do that. Bandwidth does have convertible notes. The $175 million of face is due in March 2026. At the end of 2023, we finished the year with $153 million of cash and securities. Now, the $175 million of face notes in March 2026, they're trading right now at about, what, roughly right around $145 million. So we just finished a couple months ago, we just finished the year with more than the retirement of those notes by the time we get to March 2026, if we wanted to effect that now.
We also have an undrawn $50 million revolver with Bank of America and Wells Fargo that supplements our liquidity. At any time, it's possible for us to just pay that. Our balance sheet supports it, and we could retire it. I'm not of the mind to do that right now, because that's a 25 basis points coupon, and our portfolio is earning greater than 5%, and I don't think it makes a lot of sense. But we've also guided with our $72 million of EBITDA in 2024. We've walked down, Pat, the math on where we think free cash flow will be, and that's roughly $50 million or higher.
So even when we get to the end of 2024, if you take our $153 and then that guide, that's substantially higher than the face value of the notes, 14 months in advance of March 2026. So I think that the debt discussion is done.
Yeah. And then what about the chunk that comes after that?
Yeah.
Oh, sorry.
Well, actually, just on that note, if the debt is trading at, like, 80 cents on the dollar, just why would that be?
Well, it's about, you know, it's about 88 cents on the dollar by the time you do the acquisition. And of course, there is a gain that's associated with that, and we would pay, there are some cash taxes that go with that gain. So by the time you do all that math, it pretty much washes out.
And so-
Now, in terms of the 20.
The second part, yeah.
We have $250 million of convertible notes that are due in 2028, at roughly the same time, right around March 2028. If you play through... Two things: First of all, those notes are trading at $165 million, not at $250 million.
But if you do the math, 4 years into the future, through 2028, once we get through our medium-term targets of 15%-20% revenue CAGR, greater than 60% gross margin, greater than 20% EBITDA margin, and greater than 15% free cash flow margin, and you achieve those, or you meet those projections in 2026, just modeling and doing the math forward, would demonstrate that those 2028 notes we're in the same place as we are in 2026, about 14 months in advance.
Great.
So I really don't see. I'm really proud of the way the company has put in place a strategic strategy, and has been executing over the last 18 months for that. We just saw that in the 2023 results. Our 2024 guide is another demonstrable indication of that, and I really want to put an emphatic point on the fact that I see no issue with the debt.
Yeah, so for anyone who missed it, on February twenty-eighth, the stock was up 52% in the day, right? Which is partially the growth and profitability, but a lot of it is a sigh of relief-
Mm
... about the debt. So, mission accomplished on your,
Thanks, Pat.
Mission accomplished on your commentary on the debt on the call. You guys, thanks so much for coming. It's great to have you here.
Thank you, Pat. Thank you for having us.
It's great to see you.
It's a wonderful conference.