We have the infrastructure, technology and software analysts here at KeyBank. We're able to have Daryl Rayford, CFO at Ward to go. So, with Banda, I think I just want to jump right in on this one. It's relatively, I think, who's an overly great misunderstood company. And with that, I would just kind of maybe open it up for Anthony and Daryl, just maybe give a highlight in terms of the value prop that management gives I can start in terms of the way I understand this company is that They provide a better service, which is digital communication at a lower price, higher ROI.
So there's a lot of probably a lot behind that statement. So add to that, Deepgram.
Well, thanks for the invitation. Appreciate the support. We provide Global communications to all the mega platforms that are out in the industry today. So everyone That you see on the Gartner Magic Quadrant, whether leaders or otherwise for the UCaaS segment or the CCaaS segment, both UC and CC spaces, Right on top of a bandwidth communications cloud. It's a cloud that is global, it operates in 65 countries.
We provide voice emergency services, messaging capabilities to all these mega platforms. So They enjoy a very consistent customer experience. It's a network that continues to grow Ward. We are operate we're amongst many other incumbents, but we're one of the very few who operate around the world And consistently around the world. So
And thank you for that overview. The way I think also frame is most big companies. I think you target, correct me if I'm wrong, large global enterprises. Global 2000. Yes.
2 ks. Most of these companies clearly already have Telkom Services. So walk us through like, again, maybe one more attempt at the value proper And in answering that maybe who the primary competitors are in terms of why what are the pain points you're solving for? What's the major of impetus for somebody to like get your phone call and say yes, I'm going to switch now.
Sure. There's a few value props there. So if you take a look at how these enterprises are deploying Their communications platform. 1st, they need to operate in every country that they participate in or they aspire to be in. In order to do that, if they want to cobble that together themselves, they have to have a conversation with the incumbent carriers, which tend to be our competitors In every single country.
So those incumbent carriers tend to be geographically restricted. So AT and T in US, BT in the UK, Telecom Italia, Telefonica, France Telecom. We'd have to have this conversation with every one of those particular carriers in order to create this experience for their Customers. So you can imagine when you're putting that patchwork quilt together, what you end up is an inconsistent experience or not a consistent experience for their particular customers. In comes a bandwidth who operates in all these countries, who understands the regulatory environment, the regulatory framework, We have we own our own network and it exists in every one of those particular countries.
And we put a software layer on it So that you can interface with us in a very, very easy methodical manner and you have a single contract that is a single contract rather than negotiating one with single one of those particular countries or incumbents and you have a single operating procedure when things are needed or go awry. So that is a huge value proposition to an enterprise. And not only that now with the emergence of Other technologies, we talk about AI, we talk about those type of things. You can now knit those capabilities into That communications cloud one time rather than going to Telecom Italia to do it and every single one of these other players And beg them to knit that into their fabric. So you do it once with the bandwidth and you can consume it everywhere in the world that way.
And that is a value proposition, which is Emerging and emerging on a precipitous pace at the moment.
Yes. Well, the perfect segue into everybody's favorite topic is today.
What a shocker that that's going to come out.
I know. But specifically, I mean, I don't know if you were referring to your new product Maestro than what best to show at the recent Enterprise Connect in March. But if you weren't referring to that, this is there's many value props, just walk me through it. And I'm looking, I guess, for on this train of thought with AI on a catalyst because, again, these value props exist. He's G2K, I assume, I don't know, let's just make up half, must have heard the story before, we hope.
Yes. That's a great story before. From your go to market, we'll get to But there's still maybe some saying no, if not a large percentage of them were saying no. So it could AI be a catalyst?
Yes. I mean, firstly, let me G2K as you refer to it is our focus, which is the global 2000s. Ward. That's where we see our value proposition being very attractive to the Global 2,000 enterprises around the world. Why?
Firstly, because they're very large, As a function of being large, most of the time, if not all the time, you operate in multiple countries. And the more countries you operate in, the more valuable the value proposition of a bandwidth It is to them. We got an early read or a beat on AI a couple of years ago. In 2021, We started to focus on enabling capabilities, not just basic connectivity, but intertwining value added capabilities into that connectivity Such as authentication, we can create that we can capture your voice signature. Yes, you can do it with a 3rd party.
Usually those 3rd parties want to integrate into the Bandwidth platform, capture that voice signature, allow that AI or your biometrics To allow you to have an easier flow through a contact center. So those are the beginnings of some of the AI capabilities. We've done it with A lot of biometrics, we've done it with voice. We continue to look at different AI methodologies That and introduce him into the framework of our platform. And then we're really building an ecosystem around it.
And we found that before we were going out, Now many of these vendors are coming into a bandwidth and taking a look at the Maestro solution. The Maestro solution really is about creating that ecosystem, having everybody integrate into a bandwidth because we already have integrated into bandwidth All the UCaaS and the CCaaS players. So if you think of 59, 8x8, RingCentral, Teams, etcetera, they're already integrated with the bandwidth. So as a customer comes in and wants to pick best of breed solutions, they can mix and match any one of those players. And because they're already pre integrated, We could take months off their deployments and months of their time to revenue or time to benefit to their customer.
And AI is that next Wave, right, where there's no singular AI player that is a winner yet. We're at the top of that hype curve, I think we're at the top of Well, we don't know who's going to win out and the CIO is making decisions each and every time on who their CC player is, Who their UC player is, but also who their AI player is. And if you stack up the magic quadrants for each of those particular areas, you'll find That there is no one player that dominates all 3. So they're forced to make best of breed mix and match solutions. And Maybe they're wrong.
Maybe it doesn't solve their particular problem and they want to have the ability to change. Well, as long as that underlying fabric Is a bandwidth Maestro solution. They have the ability to mix and match those solutions quite easily.
I have some more questions about GenAI and the drivers there that maybe you're seeing from your customer conversations just now. But I'll try to segue back there as I talk bringing in Daryl here, the CFO. You laid out in your Analyst Day in February, a pretty well articulated plan about selling more value on top of it in my mind, but my words, the value added services on top of your platform going more direct to enterprises. Before we get into the details around that, Daryl, What was the genesis behind that plan, if you will? Like what was the main 1 or 2 or 3 factors that led to you developing that internally at Bandwidth in terms of that to us because bandwidth has been going to market a different way.
There seem to have been a little bit of a change in focus.
Tom, thank you. I would just before I start, I want to say thank you and echo Anthony's thanks for having us here at the conference. It's been tremendous. We're very grateful. Bandwidth in 2022 reached its 5 year mark from its IPO.
And it had Clearly accomplished everything that it has set out to do from when it was $160,000,000 company in 2017 going public to today. And it felt right in this as that season and chapter was closing to lay the cornerstones, lay the plan for the next 4 to 5 years. And so that's the genesis of what we call our medium term targets through 2026. The company clearly evolved Over those 5 years between IPO, going from a single product company to a multiple product company, going from a Principally U. S.
Domiciled U. S. Operated company to a global company. Going from a Several 100 person organization to well over 1,000 person organization, serving all the acquiring and serving all the customers, as Anthony said, in the Gartner Magic Quadrant For UCaaS and CCaaS. And so it made sense to us that we should do that and set it out.
We set out a very simple plan. We felt like we set out a very simple plan.
Yes. Maybe we just dive into a couple of those items. The large the main tenant behind these drivers for what you call programmable services, which messaging on the platform, which is a higher margin service and the direct to enterprise line, which is mid single digit percentage of adjusted '22 revenue. That program will services almost 20% of the adjusted excluding surcharges revenue in 'twenty two. These are that's a big chunk of revenue.
We hope to grow it bigger going forward. Walk me through like The go to market and what the again, those pain points are that you're solving, where you're taking share from. Because I think the big mantra that you told us in terms of the February 2023 Analyst Day. You mean to take share in these markets?
We do believe so. So you're right. We have Align the company and re expressed the company around 3 market offers or customer categories, Global communications plans, programmable services and direct to enterprise. And they each operate on the bandwidth Communications Cloud, but they each have their own attributes themselves. Global communications plans are the power platforms, the players That Anthony spoke about in terms of the UCaaS and CCaaS Magic Quadrant Leaders.
Our programmable services customers are messaging led. They consume many other services us as well, but messaging led. And our direct to enterprise, we recognized in 2021 when we launched our BYOC Partnerships with Five Nines as an example and other important partners and BYFCME's bring your own carrier That larger enterprises with their complexity, thinking about moving from telco incumbents and On prem contact center software and things like that with their own complexity. They wanted to have the ability to control word orchestrate but to control the service Acquisition and service delivery of a communication stack like a Bandwidth Communications Cloud versus Taking that provision through some of our valued partners in the contact center space or through the UCaaS partners and the like. And so we began so from 2021 we began a very successful initiative in selling direct to Some of those larger enterprises and we've announced over these last several years a number of different engagements that went large banking institutions, Large investment banks, large cruise lines, large hotel chains and just selling direct that way.
That led to a natural evolution in our 20% at most of the Global 2,000 enterprise have begun their digital transformation to the cloud. This is a huge market for us. It's going to grow disproportionately greater over these next 5 or 10 years, and we should organize around that and have a direct to market activity on that.
Diamonds of the essence there. I think that's a good segue back to Anthony in terms of GenAI. Now, whether it's something as simple as AI summaries or, you know, some other solution there, or some other solution there. We've seen in our own checks and our own conversations with the companies, we've seen a big uptick in RFP production or customer conversations around this only 20% and I think it might may even be a little less in terms of how G2K have begun this transition to a digital communications platform. And then maybe this is the catalyst that I've been trying to talk about the last 5 minutes.
Are you hearing that from your customers today? Yes.
It's one of And
bringing bandwidth into that fold.
Yes. It's one of the catalysts. I mean, if If you really think about it, I mean, we talk about disputing whether it's 20% or 25% or less. What's indisputable is 96% of these guys according to you see, you're going to move to the cloud. So they're going to embark on this particular journey.
And when you embark on a journey like that, you think about what are the other things that I While I'm moving through this transformation, AI is one of them. One of the interesting things about AI in the contact center It's really focusing around the contact center and the experience center or the customer experience. They keep thinking about Translations would be a classic example. Why are translations important? If you take a look at what AI is doing, it is converting voice sometimes into text, They convert that into text and then they do sentiment analysis based on the text.
And you have to really think about that, but that is the basic of what goes on A lot of the time with regards to a contact center and AI. And contact centers have been absorbing AI for a long period of time. Why is that important? Because if you're translating, for instance, what starts to happen is if you're going to translate something, fidelity of the voice is super important because If it's not very clear, you're going to get a bad translation. If you get a bad translation, you're going to have a poor AI experience or a poor you're not going to get the insights you want.
So fidelity matters. And if you want to make sure you can protect the fidelity, the way you got to protect fidelity is having a quality network. And if you and the only way to have a quality network is to own your own network. Because otherwise, if you're renting the network from somebody else, all of a sudden now when you get that poor quality, you can't sift through it in any real Imagine a real amount of time. So enterprises recognize this particularly as they're deploying AI.
So that's why They're asking they're coming to us a little bit more often to help form that throughout their experience for our customers.
Would you say on that follow-up there that you're seeing more inbound in the last when did that kind of help?
I think we've been seeing it now for about 14, 15 months for the most part. I think it takes there was some the market has been Hot on AI in the contact center a little bit earlier than most. And then we went to obviously the tech layoffs. If you take a look at the tech layoffs, it really hit its crescendo. There's about 470,000 tech layoffs that have taken place over the course of last year.
The crescendo occurred in about January, about 100,000, 108,000. You sit there the Last month it was sub 9000, right? So the issue with the enterprise, I wouldn't say issue, the thing that we factor into this choppy market is You win these customers, now the rollout starts to happen and they've got less people to roll these out. So this is why we look at it As a choppy market. So the desire is there.
Their speed of rolling out is what causes any of us to Sit back and think and be cautious as we look through the rest of the year.
It's great point on the layoffs. We've heard that in our check as well. Sometimes there's no one there to make the decision.
Well, we're seeing Sign
off on the floor.
Well, we're seeing we're having great success in the enterprise at the same time sometimes you run into enterprises And the decision maker is there one day and it may not be there the next and then there's ambiguity as to Who has the right to sign the document. But we saw through that pretty quickly. The value proposition is very strong. So find that we've been
So, we've talked about the value proposition a few times in multiple different facets as well. If the enterprises are truly going to be catalyzed to finally make this transition to a Global Digital Communications Platform to better enable many, many services in addition to Gen AI and have one throat to choke, so to speak. That's my words. Who would be the value who would be the competitor along those lines?
Like who would you view
as your main competitor there? It can't be the regional telcos. Is it another major platform like the cloud providers?
I think what ends up happening is The regionals have a role, right? Because what ends up happening is it depends on how many countries they're operating in. Once again, if they're operating in lots of countries, There's very there's much fewer players that they can sort of deploy in. So what I find is it ends up being systems integrators, But we don't tend to compete with systems integrators because they don't have a network. They tend to come to us to help them deploy or give them the Carrier side or the communications cloud side to integrate into their solutions.
So that's what we're seeing. We're seeing that these transformations are larger For the most part, especially when you focused on the Global 2,000.
And you talked about before the major other decisions that these enterprises are making about standardizing platform and the E and all the benefits that come with that. There also seems to be a bit of a coopetition or maybe even straight up competition with some of your partners, like teams, maybe less of teams, maybe a 59. Do you ever run into that in the market?
No. Because we have a that's another distinguishing fact from a lot of people look at us and compare us with the Twilio or some such. What we don't do is we don't build our own applications. That's a really important point. We have focused purely on bidirectional real time communications and we go a mile deep.
So whereas others have chosen Have a breadth of products, but they're not as deep. When you start to move into that into a wide breadth, you inevitably move into When you have those applications, you start to compete against the teams or a Five Nines and against your customers. And we just don't do that. We think that we're going to focus on our knitting. We do that really, really well.
We've expanded since we've since the IPO into Messaging, we've expanded into the enterprise and we're doing that relatively well right now and we anticipate that that will continue in the future.
Daryl, maybe switching back to that framework that you provided at the February Analyst Day. I think it included a 15% to 20% revenue CAGR. I think that's on an adjusted basis, correct me if I'm wrong. So I think this year, I think the Street is looking for kind of maybe a high single digit on an adjusted basis. What accelerates us from here to kind of hit those targets?
And you got multiple new products. You got multiple new segments. Just maybe point to us in terms of a couple APIs you're watching internally to kind of hit those kind of top line categories. So I think you've been already a proven purveyor of hitting your gross margin targets, which will end up leading to the $125,000,000 cumulative free cash flow guide for the next few years. With that top line CAGR.
I'd like to understand what the what the accelerating drivers are there.
We have We have just reported another very strong quarter of growth in our commercial messaging Lines of businesses, we think the commercial messaging will very much outgrow that 15% to 20% CAGR over the time. We also benefit from a cyclical nature of campaign messaging, which is in absence this year, But we expect to be in full swing for the 2024 election cycle. That will outpace, we believe, The overall CAGR and allow us to kind of spread, get to that 2026 CAGR. We have We do think that as messaging and along with the growth of the other service lines and the like And the fact that, you know, people ask me about this, the fact that our churn is so little. We've talked about our we've talked about bandwidth intentionally grooming off the very smallest In our customer set, those with $3,000 ARR and the like.
But our retention our logo retention rate Is well remains well over 99%. And people ask because and what that tells you is that when people when a company when a Whether it's in the global communications plans, whether it's a power platform or whether it's a direct Global 2,000 enterprise, When they adopt the Bandwidth Communications Cloud, they stay with the Bandwidth Communications Cloud. And just to drive that home, folks have 99% is such an incredible logo retention rate that we went back from Investor Day to 2019 to say of the cohorts of our customers in 2019, what is our retention even through the Corruption of COVID and the discontinuity that occurred. And that's over 97%. So we know that when we we know From the data that is in front of us that when we bring a new customer onto the cloud, they stay on the cloud.
And so we're not subject to a lot of churn and that leads to as upsell and cross sells because when they adopt our cloud, it may only be in one line of business. But as we upsell and cross sell and international, it leads to that CAGR that we're appreciating.
A lot more arrows over available to her as well. Have you disclosed NRR? Have you when you looked at that cohort analysis, have you looked at net expansion rate for those customers?
No, we have not. We have we disclosed net retention rate and our logo and our customer logo rate.
And so
we've also disclosed our net retention rate for customers greater then $100,000 which is another indication of the growth in the direct enterprise space, those being the larger customers And that net retention rate is above the average retention rate of the company as a whole. And we feel really because that's where the growth is coming from. And we love to see that expanded usage within an already established customer of over a year old.
And you're focusing on those large customers relative to that cater. Right. Great answer. All right. If there's no other questions in the audience, I think we're Any questions?
I think we're right out of time. Thank you very much.
Thank you. Thank you. Good