Market cap approx $4bn, EV/(latest Q Revx4) 9.
Q4 results PR: https://investors.bandwidth.com/news-releases/news-release-d…
Nov 2020 PR on Voxbone acquisition: https://investors.bandwidth.com/news-releases/news-release-d…
Q3 results PR: https://investors.bandwidth.com/news-releases/news-release-d…
Oct 2020 - great write-up by Beth Kindig on SA: https://seekingalpha.com/article/4378234-bandwidth-leading-t…
WHAT BANDWIDTH DOES
Bandwidth is a CPaaS company. They sell software APIs for voice and messaging, using their own IP voice network. A bit like Twilio but then with their own network.
Founded in 1999 by CEO David Morken (50). He has 6 kids and believes in “family and fitness first” and is an ardent athlete. Prior to founding Bandwidth in 1999, he served on active duty in the Marine Corps as a Judge Advocate and Headquarters Company Commander. He received a B.A. in Political Science from Oral Roberts University and a J.D. from the University of Notre Dame Law School.
Morken strikes me as a deeply religious person - see his LinkedIn profile pic here: https://www.linkedin.com/in/dmorken/ and he sprinkles his investor calls with religious commentary.
His religious views are also instilled in the company. Quote from this interview: https://www.faithdrivenentrepreneur.org/podcast-inventory/ep…
“In Part Two with David Morken, the team discusses more thoroughly about what it means to be mission ready both individually and corporately. David talks about the importance of obedience to God and avoiding the pitfalls of both willfulness and passivity and Henry leads the discussion into practical applications of how their company’s HR policies intentionally reflected kingdom values as they target the whole person for impact. This commitment led them to institute chaplaincy roles as a force multiplier to help them steward the whole person policies they wanted to instill. David shares further on a few other ways the company has and continues to innovate in the area of ensuring the whole team is mission ready.”
Bandwidth IPO’d in Nov 2017.
Big change in Nov 2020 when Bandwidth acquired Voxbone. In the Q4 call the CEO stated that “with the Voxbone acquisition bandwidth expanded its reach to more than 60 countries that represent 93% of the world’s GDP, Bandwidth’s ambition is nothing less than to be the world’s dominant cloud communications provider.”
→ so the Voxbone acquisition is a really critical deal, meaning good integration will be important to fully reap the benefits.
Voxbone was founded in Brussels, Belgium, in 2005 by CEO Rodrigue Ullens and Francois Struman. Ullens is French-Belgian.
Life at Voxbone from LinkedIn page https://www.linkedin.com/company/voxbone/life/lifeatvoxbone/…
“They say variety is the spice of life. And life at Voxbone is very spicy indeed. We’re proud of our cosmopolitan outlook and the international flavor of our team.”
From their diversity & inclusion report 2019 https://www.voxbone.com/diversity/:
“The average age of the team is 33.4 years, again the same as last year. We are made up of 39 nationalities, with 65.2% speaking more than one language proficiently.”
→ Not sure how the European culture at Voxbone will gel with the US and very religious culture (and chaplains) and CEO at Bandwidth. Certainly one to watch for the integration efforts
**Rev $m Q1 Q2 Q3 Q4** 2018 53 48.3 50.5 52.3 2019 53.3 56.8 60.5 62 2020 68.5 76.8 84.7 113
**QoQ Q1 Q2 Q3 Q4** 2018 -9% 5% 4% 2019 2% 7% 7% 2% 2020 10% 12% 10% 33%
**YoY Q1 Q2 Q3 Q4** 2019 1% 18% 20% 19% 2020 29% 35% 40% 82%
->Revenue growth picked up tremendously this year - Q4 had 2 months of Voxbone contribution in there; excluding Voxbone yoy Rev growth was 63% which is still great. They’re guiding to a paltry $108-$109m for Q1, so a slight decline vs Q4. I’m thinking that they may be sandbagging a bit much - they guided for $96.5-97m in Q3 for Q4 and came in at $113m so a 16.8% beat. Key thing to watch will be what the growth turns out to be in Q1 - big beat (my thesis) or mediocre.
**NRR % Q1 Q2 Q3 Q4** 2018 115% 119% 117% 121% 2019 111% 113% 116% 113% 2020 126% 133% 131% 133%
->NRR is great, and has been trending up sharply this year. Clearly this is impacted by COVID; how much is permanent and how much transitory remains to be seen but it seems safe to assume that NRR will not drop down to 2018 levels.
Gross profit margins
**GP % Q1 Q2 Q3 Q4** 2018 52% 45% 46% 45% 2019 46% 47% 45% 50% 2020 47% 45% 46% 49%
→ GP margins have been trending up slightly to just under 50%, and it sounds like they have a credible path to their ambition of around 60% as CPaaS and the Voxbone business becomes a bigger part of their total revenue mix.
**% Q1 Q2 Q3 Q4** 2018 19.2% 5.2% 3.0% -3.1% 2019 -6.8% -3.0% -3.8% 1.9% 2020 0.6% 4.0% 6.1% 7.3%
→ EBITDA margin has been trending up nicely; with the addition of Voxbone and some cost synergies which are probably to be extracted there, things seem to point to an improvement going forward on the profitability front.
FREE CASH FLOW
**FCF $m Q1 Q2 Q3 Q4** 2018 9.8 2.6 3.1 -5.4 2019 -10.9 -4.1 -4.4 -7.7 2020 -12.0 2.7 9.3 -10
→ Still burning cash to capitalise on the opportunity, it looks like. Cash burn is not excessive and improved from -$27m in 2019 to -$10m this year.
Bandwidth customers include Google, Microsoft, Zoom and Voxbone’s the likes of Uber and Telefonica.
**Cust Q1 Q2 Q3 Q4** 2018 965 1,092 1,155 1,230 2019 1,351 1,467 1,610 1,728 2020 1,808 1,900 2,015 2,848
**QoQ Q1 Q2 Q3 Q4** 2018 13% 6% 6% 2019 10% 9% 10% 7% 2020 5% 5% 6% 41%
→ Customer growth seems to have gone through the roof. However Q4 includes 700 Voxbone customers. Excluding those, the qoq growth in Q4 is 7%, which is still up nicely vs prior Q’s.
Q4 CONF CALL
70% of companies say the pandemic has accelerated their shift to the cloud.
They seek the extraordinary efficiency economic advantage and enhanced innovation made possible by cloud-based communication solutions. But it is no small task to break free of antiquated premise-based analog telecom infrastructure.??First, we provide a software platform rich with APIs, automation and analytics. Second, we operate our own IP voice network that provides world-class quality at scale. We proved this when we were able to rapidly scale the network to keep pace with the 30% surge in concurrent calls caused by lockdowns last March. Third, we offer world-class support collectively, the Bandwidth team has centuries’ worth of deep expertise in software, voice and messaging. And we put this expertise to work providing solutions to our customers’ most difficult communication challenges.
During the fourth quarter and throughout 2020, we found continued success in serving cloud-based contact centers.
In the fourth quarter, we also signed a deal with one of the fastest-growing providers of cloud contact center software. This company headquartered in the US, is the first and only cloud contact center platform for the smartphone era customer experience that delivers global support.
In the fourth quarter, we welcome to our platform a large pharmaceutical company with operations in 90 countries. This company is in the process of overhauling its entire communications suite as part of its migration to the cloud. This company chose Bandwidth to power internal communications as well as inbound and outbound calling for their customer contact center in a dozen countries.
As many of you know, with the Voxbone acquisition bandwidth expanded its reach to more than 60 countries that represent 93% of the world’s GDP, Bandwidth’s ambition is nothing less than to be the world’s dominant cloud communications provider.
->Pretty bold and ambitious statement there!
Instead of cobbling together agreements with multiple providers around the globe for piecemeal solutions, enterprises will be able to get reliable, compliant, flexible solutions on a global scale from one source, Bandwidth.
We’ve got a massive sales enablement effort underway to ensure that we’re pursuing global opportunities in a coherent, coordinated way.
Additionally, we began offering local phone numbers in Hong Kong and enabled toll free number porting in Switzerland. We also enabled full stack services in Cyprus, paving the way for us to be the only provider offering full to a cloud-based voice services across the European Union. Each of these is an important step in our efforts to be the world’s only one stop shop for global cloud communications.
We look to 2021 and beyond with enormous optimism and the courage of our convictions, bandwidth, the opportunity to develop and deliver the power to communicate globally, is larger and more important now than ever before.
We have two months of Voxbone contribution in the fourth quarter
Fourth quarter total revenue was $113 million, up at 82% year-over-year. Within total revenue, CPaaS revenue was $98.1 million, up 84% year-over-year. Other revenue contributed the remaining $14.9 million of total revenue, which was up 74% from the same period a year ago.
Voxbone contributed approximately $17 million to CPaaS revenue in the quarter […] and just under $1m to other revenue in the quarter.
Excluding Voxbone, Bandwidth’s standalone CPaaS fourth quarter year-over-year revenue growth was 53%. Bandwidth’s standalone contribution to other revenue was $14 million, yielding a growth rate of 63% in the fourth quarter.
Combined, political messaging and COVID-related usage added 19 points to our fourth quarter year-over-year growth rate.
We ended the fourth quarter with 2,848 active CPaaS customer accounts, including the net addition of 109 customer accounts in the quarter and more than 700 new Voxbone customer accounts.
->They exclude political messaging and covid - this year’s tailwinds - from guidance:
CPaaS revenue, including Voxbone: $96.6 million to $97.6 million or up 64% year-over-year at the midpoint.
Total revenue: $108 million to $109 million or up 58% year-over-year at the midpoint.
→ Guiding for a revenue slow-down, despite having only 2 months of Voxbone in Q4 and 3 month in Q1…I don’t buy it; I think they are massively sandbagging.
Q: View on returning to the office?
A: David: Leading is an in-person dynamic. And culture is an in-person dynamic. So we’re convinced and focused on a full return to an in-person culture. I know that’s quite different from some Silicon Valley companies who are declaring that folks never will return. I think that flies in the face of millennia of human experience.
A: Jeff: Built in COVID benefit [for last year] but won’t break it out in future. But, you know, I agree with what David said, I think there to some extent, the hybrid work environment is the new norm, and our business will benefit from that.
→ Feels to me he’s saying they’re sandbagging.
Q: Competitive environment?
A: David: We are very familiar with our competitors and don’t see any fundamental change or shift in the marketplace, other than the fact that we singularly and uniquely have now been able to address the entire world on behalf of US headquartered companies, enterprises, large tech, no one else on the competitive field has that worldwide footprint of network and platform in the way that we do. And that is a distinguishing characteristic of our strategy and addresses a much larger marketplace. And so that’s been the real change. It’s a change that we initiated.
Q: Cross-sell opportunity with Voxbone?
A: David: Only about 5 of the top 20 customers of each company were shared. And that’s important because the cross-sell opportunity is robust. The chance to go into the customer bases of each company and provide the portfolio of product in new jurisdictions or a new capabilities is rich. And so we’ve got great integration, leadership, identifying sales leaders who are on point with each of the largest customers, broader than just the top 20. So the cross-sell opportunity is manifest to us. And we’re attacking it, I think, with good vigilance.
Q: GP impact of Voxbone (Voxbone had better GP% than Bandwidth)?
A: Jeff: we expect CPaaS margins continue to grow, they will be aided, as you pointed out, by Voxbone, who comes in with accretive gross margins. But there’s interplay still with, as you know, we’ve had a lot of success with messaging. And with messaging, oftentimes comes more SMS surcharges, which we’re passing through to our customers, which actually compresses our margin. So I think net-net, we should see an uptick in our margins in '21, as we continue our climb to our long-term goal of 60%.
Q: Microsoft Direct routing opportunity?
A: Jeff: the Microsoft Teams Duet product was something that we launched as really a pioneer in the space, among the very first to do direct routing with the UCaaS solution like Microsoft Teams. What’s been incredibly gratifying since is the interest and the progress among other UCaaS platforms that are eager to integrate with Bandwidth to do Duet product. And while we don’t have any specific announcements that we’re making now, to your point on what has been the direct routing response in the space, what’s been the progress, it is exciting to see that there are other platforms that are doing collaboration, that are wanting to utilize our Duet product
Q: Drivers of Q4 growth?
A: David: It was really a strong performance across the board. We posted a dollar-based net retention of 133%. So obviously, our existing customers are trusting us and growing more and we’re deepening those relations, but we’re also continuing to attract and scale new customers.
Now the things that really amplified the results that we called out in our prepared remarks. The political messaging volumes were much higher. COVID contributed about $2 million, as we said, based on the methodology, but across the Board, just a great performance.
Q: DBNRR going forward?
A: David: Yeah, so it’s certainly, Rich was impacted if you normalize for that political messaging increase and COVID, the 133% dollar-based net retention would normalize to 125%
Q: Contact centre focus going forward?
A: David: You bet. It has been a segment that we have focused on in the past and a pipeline that we are building and have been clear about that in the future and are as excited as ever with these most recently announced results, providing some of the evidence of what’s possible in that segment for the platform and network that we have, especially now that we’re international and around the world. It just opens up an entirely new set of customers that have international contact center requirements.
Q: x-sell opportunity - how long to roll out?
A: David: So we have factored aspects like cross-sell, up-sell into our guidance. Some of these opportunities take longer than others to integrate and roll out into jurisdictions. But that said, our original international thesis was entirely driven by existing customers who, at the time that we began building internationally had significant spend for existing product and service outside of the United States. Voxbone accelerated our ability to serve those existing customers tremendously. And we are focused on serving those customers in these new markets, and are identifying where the Voxbone platform can do that more quickly for some than others, but haven’t guided specifically an average on ramp or onboarding timeframe during '21 within which we would expect those 15 to come on.
I think they stand a good chance to continue to continue growing at 40%+ for the foreseeable future and to surprise on the upside if their customers (the likes of Zoom Microsoft, Google) do not see a sharp slowdown. I do not see the world returning to pre-pandemic ways any time soon and therefore increased my position today.
Would be very interested to hear others’ opinions and/or the bear case on this one.
-WSM (Long BAND 5%)