Good day, welcome to the Bandwidth Inc. Q1 2023 earnings conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance during that time, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Sarah Walas, Vice President of Investor Relations. Please go ahead. Thank you. Good afternoon, and welcome to Bandwidth's Q1 2023 earnings call. Today, we'll discuss the results announced in our press release issued after the market closed. 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 this afternoon is 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. 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 Q2 and full year of 2023. 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. 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, all of which are available on the Investor Relations section of our website at bandwidth.com and on the SEC's website at sec.gov. 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 after the close of market 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. Thank you, Sarah, and thanks to everyone for joining us. 2023 is off to a good start. We are making solid progress adding direct-to-enterprise customers, developing innovative award-winning products, and advancing our strategic initiatives while focusing on profitability. During the Q1 of the year, we exceeded our revenue guidance and are on target to meet our goal of growing profitability by 30% this year. I want to thank our customers for continuing to trust us with their mission-critical communications. Thank you as well to all our bandmates around the world for supporting our customers and each other in selfless dedication to our mission. I thank God for blessing us with a 24th year of extraordinary opportunities. We serve three distinct customer categories: global communications plans, programmable services, and direct to enterprise. This quarter, we highlight our growing momentum in the direct-to-enterprise market, where we power cloud contact centers and new developments in our software platform. In direct to enterprise, we won several Global 2000 financial services leaders that chose Bandwidth as the voice provider for their contact centers during the quarter. Notably, each one deployed a different CCaaS platform while choosing our Bandwidth Communications Cloud to power their communications stack. This shows how we're leveraging our strong relationships with all the Gartner leaders in cloud contact centers and the breadth and depth of our expansion in the enterprise contact center space. Among existing customers, we expanded our long-term relationship with the largest issuer of Visa and Mastercards in the United States. Using the Bandwidth Communications Cloud, we helped this customer scale up its contact center capacity due to a recent acquisition. Additionally, this customer needed new international coverage to connect with employees in the Asia Pacific region. Because we seamlessly connected this customer across global geographies, we were awarded this new business. As these examples show, we're seeing measurable results by directly serving enterprise customers. We've grown over 10-fold the number of enterprise contact centers utilizing the Bandwidth Communications Cloud just in the last three years. Our significant expertise across numerous industry verticals comes from providing scalability, redundancy, pre-integrated conversational AI, and native fraud scoring technology, and is driving the largest enterprises to come directly to Bandwidth to help build their cloud contact centers. Successful enterprise communications strategy is dynamic, and our strong culture of innovation keeps us ahead of and shapes the curve. For example, we integrated AI into our communications cloud over a year ago. That's because we prioritized R&D from our very earliest days. For the last 24 years, in fact, innovation has been the foundation for all our growth and profitability. Bandwidth Maestro is the latest example, born from our close connection with enterprise CIOs, who now must connect their entire organizations to create better customer experiences while streamlining operations. Maestro integrates the best-in-class platforms and capabilities that CIOs need across UCaaS, CCaaS, and AI. It's truly a next-generation capability and customer experience, and it saves months of integration work so enterprises can achieve faster time to revenue. Unlike the proprietary lock-in of other providers, Maestro maintains our platform-agnostic approach, providing flexibility to CIOs. We believe the value proposition and ROI of Maestro is unique in the CPaaS space. With full availability slated for later this year, the early market reaction to Maestro has been encouraging. In recognition of its excellence in technology advancement, innovation, and business impact, Maestro won Best of Show at Enterprise Connect. This is a substantial achievement, and it is already proving to energize conversations with both existing customers and prospects. Maestro joins other award-level innovations we've launched recently, like our native text messaging app for Microsoft Teams called Send-To, which recently won the INTERNET TELEPHONY Product of the Year award, and our backup solution for toll-free calling named Call Assure, which was a finalist in the prestigious CX Awards this past quarter. These are just a few examples of how our innovation engine and breadth of solutions are shaping the future of cloud communications for both new and existing enterprise customers. We're still in the early stage of a long-term secular trend of digital transformation that's becoming more and more dynamic by the day, with emerging AI technologies, converging platforms, and exciting new use cases. We're focused on maximizing our direct-to-enterprise momentum, capitalizing on new innovations like Maestro, increasing product penetration across all three customer categories, and exploiting the competitive advantage of being the only CPaaS provider with our own global network, all while serving our customers and executing with discipline to grow profitably. I'll now turn it over to Darryl to walk through the details of our financial results. Thank you, David, and good afternoon, everyone. We started the year with a solid Q1, achieving revenue of $138 million and Adjusted EBITDA of $5 million. Both results position us well to deliver our full-year outlook. Revenue compared with last year benefited from monthly recurring charges for phone numbers and emergency services, which combined were up 6% year-over-year, and higher messaging revenue up 8% and representing 15% of total revenue excluding surcharges. Our commercial messaging growth was driven by solid demand across a variety of use cases, including healthcare, retail and e-commerce shopping, fintech, and civic engagement. On a sequential basis, excluding surcharges, overall Q1 messaging was lower than in Q4 2022, as we had expected. Adjusting for the positive effects of political campaign messaging recognized in last Q4, we achieved sequential growth of 16% in our commercial messaging from higher demand in those same verticals. Pass-through surcharges associated with messaging were $23 million in the Q1. The combination of these products power the offers that we provide to our three target customer markets. In terms of our market results, in our most established market, global communications plans, we met our expectations for revenue that was essentially flat year-over-year due to softness primarily in UCaaS customers. In our programmable services and direct enterprise customer categories, our quarterly growth from messaging and monthly recurring charges is evident as these two customer categories grew 8% and 27% respectively year-over-year. Programmable services continued to strengthen from a secular movement to messaging engagement. Although the direct-to-enterprise category is a small base of revenue for us today, the undeniable market dynamics, customer wins David highlighted, and strong pipeline give us confidence this market will be a key driver in achieving our long-term financial targets. Rounding out our Q1 results, non-GAAP gross margin was 54%, up 1 percentage point from the prior year's quarter. We continued to benefit from economies of scale, a rich mix of higher-margin products, global coverage, and operating improvements. In terms of our operating metrics, our Q1 net dollar retention rate was 109%. For customers greater than $100,000 annual revenue, our net dollar retention hit 111%, 2 percentage points higher than the total customer metric, and clearly demonstrating the benefits from focusing on large customers and direct-to-enterprise opportunities. Active customer count was 3,361, although the customer count metric has diminished in relevance over time as we focus on larger and more profitable customers. Average annual revenue per customer, which continued to rise, reached $172,000 in the Q1, another demonstrable result from larger customer opportunities. In the Q1, we further strengthened our balance sheet with another repurchase of 2026 convertible notes, resulting in a reduction of $65 million of convertible debt for approximately $51 million cash, or an approximate 22% discount to par value. This latest opportunistic repurchase, combined with the $160 million repurchased in November 2022, lowered the outstanding 2026 notes by $225 million, or 55% of the original principal balance, utilizing only $168 million of cash, effectively erasing $57 million of our net debt obligation. The remaining balance of our convertible debt maturity in 2026 is now $175 million. We continuously evaluate our options for the best use of our balance sheet to stay opportunistic in the current capital market environment. With our resolute focus on profitable growth, we create the option to fully repay our remaining convertible note obligations in full upon their respective maturities with our earnings and available cash if that is the choice we wish to make. We ended the quarter with a cash and securities balance of $124 million, a more than sufficient amount to meet our business needs and sustain a great deal of financial flexibility. Turning to our outlook, we are on track to achieving our full year guidance provided at the start of the year of $576 million-$584 million in revenue, and $43 million-$47 million Adjusted EBITDA. Our outlook for the full year is unchanged despite a challenging macro environment. In summary, our financial and operating performance in the Q1 represents a solid start to the year. We'll continue to focus on what we can control, serving and delighting our customers every day, growing our margin, being disciplined with our cost, and becoming more profitable. Now I'll turn the call back over to the operator for questions. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause just momentarily to assemble our roster. Our first question here will come from Mike Walkley with Canaccord Genuity. Please go ahead with your question. Great. Thanks for taking my question. Nice to see the solid start to the year and the updated guidance. I guess, David, for you, just a question on maybe the linearity of the quarter and just post Silicon Valley Bank and some of the macro issues. Have you seen anything slowing in the March, April timeframe, or is business really trending as you expected for the year? Thank you. Thank you, Mike. Very proud of the team for what we achieved in the Q1. We certainly, like everyone, are watching things like the issues with banks. We're executing as expected and guiding forward as you've come to know us well in a way that we believe is accurate and reflects both macro and things that we do see internally. Nothing to call out in particular that would further answer your question on conditions, but again, executing the plan that we set for ourselves for the year, really delighted that we've started off the year with the performance in the Q1 as expected and believe that we will continue to execute throughout the remainder of this year toward the objectives that we've defined for ourselves. Thanks. Just for my follow-up question, you know, Darryl, good job, you know, paying down the debt. It certainly seems like you guys have the balance sheet in a good position now given your profitable growth history. Just in terms of the Q2 guidance on the slightly higher revenue but similar Adjusted EBITDA, is there any kind of change in mix or gross margins, or are you kind of just expect a Q2 similar to Q1? Thank you. We're expecting Q2 on the revenue line to grow just modestly over Q1. We're also expecting our EBITDA to be as we've got it, $5 million. We believe that we have some real operating flexibility there. Clearly, the macroeconomic conditions that we even witnessed today would give some in the market pause. We're pretty happy that we have de-risked our guide for the Q2 and comfortable with it. Great. Thanks for taking my questions. I'll pass the line. Our next question will come from Meta Marshall with Morgan Stanley. Please go ahead with your questions. Great. Thanks. You know, I was noting kind of the win that gave you or where your coverage in APAC was kind of noted. I just wanted to get a sense of, you know, do you feel like you have all of the regions that you need at this point? Are there still regions kind of as you do expand your global footprint that are more meaningful that we should kind of consider you expanding into? Second, just on the Maestro piece, you know, that was a great product to see at Enterprise Connect. Just when do you think that that could be kind of a meaningful contributor to revenue? Do you think that that could be meaningful in 2024 or, you know, it'll take time for that product to ramp? Thanks. Thanks, Meta. Regarding your first question related to geographies and markets that we opened, we celebrated opening Turkey and did so really behind a strong business case from an existing customer. That's the way we've historically built. Instead of trying to build it and they will come, we follow demand. So we've got a very good relationship with some of our most aggressive international customers who identify for us markets that are favorable for lots of different user experiences, and we'll invest and build in those geographies responsibly. Sometimes we'll begin by partnering, but then our unique value proposition that you've followed for a while, Meta, is to have an owned and operated network beneath our software platform, and we'll continue to execute against that strategy globally, following our customers around the world. In regard to Maestro, excited that the product has been received the way that it has, winning the best of show at Enterprise Connect. The team continues to have very encouraging and exciting conversations with enterprise customers about the product, and we believe that it will continue to pick up steam and momentum throughout the rest of this year. Your question, the essence of which is when will the revenue arrive for Maestro? We think that it is going to be exciting to see throughout 2024 and beyond as we head toward our long-term growth targets for direct-to-enterprise business, that Maestro is going to really drive a lot of that growth. That's the reaction we have from the early responses and conversations coming out of the award-winning quarter that we've just left. We may not call out directly related Maestro revenue, but it is the leading car on this train that we're on toward the future with direct to enterprise. Great. Thanks. Our next question will come from James Fish with Piper Sandler. Please go ahead with your question. Hey, guys. Thanks for the questions. David, in your prepared remarks, I think it was you noticed some softness with the UCaaS side of the business. I guess, can you elaborate on that in terms of what you guys are seeing and also what you're seeing with more so your largest customers in that part of the market as well as on the contact center side where it sounds like things are going pretty well? Yes. I'll start in reverse. The CCaaS momentum with the direct enterprise wins has been fantastic and as expected. Lots of high interest in Bring Your Own Carrier model for consuming CCaaS. Every single deal win that we highlighted on this call was related to contact centers in the enterprise and Bring Your Own Carrier, so that's exciting. We think regarding UCaaS, that it's purely a function of the macro and fewer seats that may result from the macro. Usage patterns for UCaaS are largely attributable to the economic conditions. Are you adding heads? Usage was healthy and growing prior to the pandemic, and so we think that return to the office is not the primary factor. Again, I think it's most important to recognize that within the overall guide and results, the traditions in UCaaS haven't changed either our expectation or our results for the quarter. It's something that we've easily accounted for in the period and don't think that it takes us off track at all for the remainder of the year. Helpful. On the customer count, I know you guys are focused in on larger and higher quality customers, but it was another quarter where it was down sequentially again, and somebody's gotta ask it here. You know, how much of this was kinda continued rationalization versus, you know... I think in the past, Darryl, you've given what the gross additions were this quarter. You know, can you help us kind of bridge the rationalization versus kind of gross additions or is this kind of a clean customer count to think of going forward? It is continuing rationalization as we architect the churn of small, unprofitable customers. Those customers on average are $2,000 a month customers. Compare that to the average ARPU that we have. I'm sorry, $2,000 a year, not month, excuse me. Our average customer is $172,000 a year. Again, the customer count is not as germane to yield a forward projection on revenues, and that's just continuing, as your question stated, what we've been doing for a while now, which is a focus on profitable growth from larger enterprise customers. We actually have average customer revenue this quarter increasing, as I said, $172K. That's up from $158K a year ago. That aggressive climb of our average annual customer spend is really good and is what we want. We're not, at all concerned about the absolute customer count number. Thanks, guys. Our next question will come from Ryan Koontz with Needham & Company. Please go ahead with your question. Thanks for the question. Nice progress on the messaging front. Really good to see that business motoring along. On the voice side, you know, you mentioned softening in UCaaS and strength in CCaaS, which is familiar tone. I wonder if you can comment on the pricing environment in general for either of those segments and how we should think about that impact relative to kind of the seat counts and usage within those two segments. Thanks. Hey, Ryan. This is Darryl. Pricing had a favorable impact in the Q1. It was driven by a richer mix of higher-priced products like messaging and phone numbers. When we look at pricing and volume, pricing did increase again as it has been for many quarters. It wasn't necessarily a SKU by SKU price increase, but we have enjoyed improved aggregate pricing. That's helpful, Darryl. Thanks. That's all I had. Thanks. As a reminder, if you have a question, you may press star then one to join the queue. Our next question here will come from Patrick Walravens with JMP Securities. Please go ahead with your question. Oh, great. Thank you. Hey. David, let's talk about ChatGPT a little bit here. You know, all these studies of the jobs that are gonna be eliminated, like, the top of the list is the customer service rep. What is that gonna do for the, you know, the total number of seats out there in call centers? How will that impact you guys? You don't really charge per seat, right? You're more consumption-based. That's exactly right, Pat. We're usage-based. We're excited about providing high fidelity, reliable audio for conversational AI customer support in all its robust parameters. ChatGPT is understood and experienced today as a text-based prompt. We were present at the dawn of products like Alexa, which were voice-driven conversations. We believe that conversational AI will migrate rapidly to voice. We have an incredible role to play orchestrating those very intelligent and effective conversations among those reps that are really empowered by AI tools as well as potentially standalone reps as well. Our role is usage-based in our model. We're excited about the dawn of this new era. Okay. The pressure on seats is gonna happen, right? I don't know. Mm-hmm. While I can't predict the future, what I do anticipate are the incredible teams that we work with in the CCaaS space understand how to adapt and overcome and actually utilize some of the most powerful developing AI tools that are out there. Their business models may change, but the value that they add within the contact center environment, I expect to continue. Precisely how, I think is unclear, which is why your question is a very good one, but the teams that are at the forefront of the contact center digital transformation are all over this. Okay. One more just, I think, as a reminder for myself and everyone else. I mean, 5% growth this quarter, down from 24% next year, but there's this bizarre dynamic about elections, right? How do you guys feel about next year in terms of what growth you can do, and has that changed? We firmly believe that the long-term trajectory that we put out on our Investor Day is well within reach, having finished one quarter since we talked about that, and we're on track and on plan, and reiterating our guidance for the rest of this year. Everything about executing in the last 90 days supports the longer term thesis that we socialized on Investor Day. Okay. Thank you. This concludes our question and answer session, and also concludes the call. Thank you very much for attending today's presentation. You may now disconnect your lines.