Q4 2020 Bandwidth Inc Earnings Call Feb 26, 2021 (Thomson StreetEvents) — Edited Transcript of Bandwidth Inc earnings conference call or presentation Thursday, February 25, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David Andrew Morken Bandwidth Inc. – Co-Founder, CEO, & Chairman * Jeffrey A. Hoffman Bandwidth Inc. – CFO * Sarah Walas Bandwidth Inc. – VP of IR ================================================================================ Conference Call Participants ================================================================================ * Alexander Kurtz KeyBanc Capital Markets Inc., Research Division – Senior Research Analyst * Bhavanmit Singh Suri William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Technology, Media and Communications * Charles Erlikh Robert W. Baird & Co. Incorporated, Research Division – Junior Analyst * Meta A. Marshall Morgan Stanley, Research Division – VP * Patrick D. Walravens JMP Securities LLC, Research Division – MD, Director of Technology Research and Equity Research Analyst * Richard Frank Valera Needham & Company, LLC, Research Division – Senior Analyst * Thomas Michael Walkley Canaccord Genuity Corp., Research Division – MD & Senior Equity Analyst ================================================================================ Presentation ——————————————————————————– Operator  ——————————————————————————– Thank you for standing by. This is the conference operator. Welcome to the Bandwidth’s Fourth Quarter 2020 Earnings Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Sarah Walas, Vice President of Investor Relations. Please go ahead. ——————————————————————————– Sarah Walas, Bandwidth Inc. – VP of IR  ——————————————————————————– Thank you. Good afternoon, and welcome to Bandwidth’s Fourth Quarter 2020 Earnings Call. Today, we’ll be discussing the results announced in our press release issued after the market close. With me on the call this afternoon is David Morken, Bandwidth’s Chief Executive Officer; and Jeff Hoffman, Chief Financial Officer of Bandwidth. 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 first fiscal quarter and full year of 2021 and to the extent provided future periods, statements regarding the expected benefits of the Voxbone acquisition and our expectations around the impact of the COVID-19 pandemic on our business. Forward-looking statements may often be identified with words such as we expect, we anticipate or upcoming. These statements reflect our views only as of today and should not be considered our views as of any subsequent date. We undertake no obligation to update or revise these forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. 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, which is located on our website at investors.bandwidth.com. With that, let me turn the call over to David. ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– Thank you, Sarah, and thank you to everyone joining us today. We are thrilled to share our 2020 results and talk about what’s ahead. As we reflect on the past year, I thank God for leading us through so many storms and pray for our team, their families and for all of those whose lives are impacted by the global pandemic. Before we discuss our 2020 results, I want to take a minute to remember where we were nearly 1 year ago. As the world was shutting down around us, our team gathered for what remains the last time we were all together in one room. None of us knew what the next weeks or months would bring, only that it would be unlike anything we lived through before. We resolved that no matter what unfolded we would be steadfast and resolute in serving our customers and loving each other. This team delivered on that charge over and over and over again. I am humbled by our band mates commitment to our mission, especially as so many of them and their families navigated great personal adversity to all the band mates listening today, thank you. Your work fueled the success, I now have the honor to share. And that success includes a record 51% annual CPaaS revenue growth year-over-year and 84% CPaaS revenue growth in Q4, both demonstrating accelerating broad-based demand for our software powered solutions. We deepened and strengthened our existing customer relationships as evidenced by an all-time high dollar-based net retention rate of 131% for the full year. We are gratified that in 2020, we achieved these record results while staying true to our principle of responsible growth, which balances top and bottom lines. Early last year, we announced our plans to accelerate by a full year our return to positive non-GAAP net income and are proud we delivered on that commitment in 2020. In the face of extraordinary events, we remain committed to growing steadily and consistently, not just quarter-over-quarter or year-over-year, but decade over decade. In a few minutes, Jeff will walk through the full financial picture of what this team accomplished in 2020. But before he does, I’d like to discuss the broader impact of what we achieved and ways or work this past year positions us for success globally in the years to come. The pandemic forced us not just to work from home, but to learn from home, to teach from home, to worship from home, to exercise at home, love our friends and family from home and innovate and build from home. To enable the tools and platforms that make this modern work and life reality today possible, enterprises everywhere are looking to the cloud. The pandemic made clear something that we at Bandwidth already knew. Communications are no longer merely a service measured by minutes and messages. Today’s businesses demand communication solutions provided as part of a dynamic platform, allowing for integration with adjacent applications exponential scale and unfettered creativity and flexibility. 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 communications solutions. But it is no small task to break free of antiquated premise-based analog telecom infrastructure. Companies around the globe need the right partner to help them tackle the myriad technical and regulatory challenges that come with migrating their communications to the cloud. These challenges put into sharp focus precisely why we believe Bandwidth is the preferred cloud communications provider for tech giants and enterprises alike. 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 century’s 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. I’d like to give a few recent examples of how the Bandwidth software platform and network have delivered quality, automation and support to our customers. We have previously highlighted a 5-year multimillion-dollar relationship with a Fortune 500 company that offers communications and technology solutions for residential, small business and enterprise customers across the U.S. Under the terms of the agreement, this existing customer uses bandwidth CPaaS platform and nationwide voice network to expand the engagement and collaboration services offered to its enterprise customers. I’m proud to report today that this customer is now all in with Bandwidth and is utilizing services across our entire platform after moving its end users to Bandwidth’s emergency services as well. The customer’s massive customer base drove increased usage of toll-free and local calling, messaging traffic and 911 enabled phone numbers in 2020. This use case is a great example of our ability to build trust and scale our full suite of services at whatever pace the customer requires to meet its cloud communications needs. During the fourth quarter and throughout 2020, we found continued success in serving cloud-based contact centers. Our platform is being used to enable incredible end user experiences in this critical segment both by CCaaS providers and by enterprises we work with directly. This year, we significantly expanded our relationship with a long-standing customer who provides a cloud-based contact center platform and works with established midsized market leaders to help them create transformative customer experiences utilizing voice, chat and text. We’ve partnered with this customer to develop and bring new services to market, gaining their trust and becoming their primary voice provider. Their trust in us and the decision to go all in with Bandwidth resulted in a doubling of the scope of our relationship over the past year. They’ve chosen to expand with us over the years because of our exceptional customer service and intuitive portal to manage number porting in all aspects of their account. 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 U.S. is the first and only cloud contact center platform for the smartphone era customer experience that delivers global support. The company powers the world’s largest elastic CCaaS tenant and is trusted by innovative customer-centric enterprises. The company selected Bandwidth to power their contact center platform and currently uses inbound calling across more than a dozen countries, primarily in Europe, with plans of expanding to additional countries and activating outbound calling. All of these because our reputation for call quality and ability to scale. Bandwidth is not just powering CCaaS providers. However, our platform is also used by enterprises who leverage our platform directly in order to scale their own large cloud-based global contact centers and other communications needs. In the fourth quarter, we welcomed 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. Before I turn things over to Jeff, I want to update you on the integration efforts following our acquisition of Voxbone last quarter. 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. And the Voxbone acquisition means we are uniquely positioned to serve the world’s most innovative companies with global communications solutions. 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. Our existing customers are ecstatic that we will be able to offer them global business voice solutions with the care and collaboration that they’ve come to expect from the Bandwidth team. And we are hearing from new prospects every day who are clamoring to learn how a truly global platform can help them develop, launch and hyperscale their applications and customer experiences. The energy and enthusiasm from customers and prospects around the world confirms our acquisition thesis. We are hard at work to bring these transformational benefits to our customers as quickly as possible. Guided by the superb leadership of our integration team, we’ve made steady progress. Our combined financial and legal teams have been working tirelessly in an effort to ensure the smooth transition of regulatory approvals and complete combined company financial reporting. Our sales teams are taking advantage of opportunities to expand customer relationships by cross-selling and upselling. We’ve got a massive sales enablement effort underway to ensure that we’re pursuing global opportunities in a coherent, coordinated way and to make the most of the incredible opportunities within reach. There is much work to be done as we seek to bring the absolute best of the Bandwidth and Voxbone products, services and customer experiences together in a unified global offering. We are so excited for the new and bigger ways our combined company will be able to serve our customers around the world. We’re doing this all on top of our mission to serve our customers and improve our offerings day in and day out. 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 2-way 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. And of course, we’re doing the joyful work of creating 1 team from 2. Our unique Bandwidth culture has been the not so secret ingredient of our success for 2 decades. We are eagerly sharing that culture with our new band mates and they are generously enriching us with their global perspectives and with new traditions that we’re adopting as our own. Even though we still can’t be together in person, the chemistry between our new band mates is unmistakable. We at Bandwidth had been watching and admiring the work of the Voxbone team for years. It’s amazing to see these 2 teams now roll their sleeves and get to work together to unlock our full potential. You’ve never seen a more energized group, and I’m confident that the chapter we are writing now will be Bandwidth’s best one yet. We look to 2021 and beyond with enormous optimism and the courage of our convictions. Bandwidth’s opportunity to develop and deliver the power to communicate globally is larger and more important now than ever before. With that, I’ll turn it over to Jeff. ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– Thank you, David, and good afternoon, everyone. We are humbled that our mission is rooted in connecting one another during these challenging times, and I couldn’t be more proud of our team for delivering extraordinary results in the fourth quarter that capped off an exceptional 2020 performance. As we discuss our financial results, I want to remind everyone that we closed the Voxbone acquisition during the quarter so we have 2 months of Voxbone contribution in the fourth quarter and full year 2020 results. Fourth quarter total revenue was $113 million, up 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, which was $4 million better than anticipated. The positive variance was primarily driven by a large customer, testing a new offering at scale that contributed to our fourth quarter results and is expected to return to a more normal spending pattern in Q1. Excluding Voxbone, Bandwidth’s stand-alone CPaaS fourth quarter, year-over-year revenue growth was 53%. Our growth was driven by the broad-based fundamental strength in our business and amplified by 2 factors. First, political messaging contributed more than $8 million to fourth quarter CPaaS revenue. Second, COVID related tailwinds, which continued to decline sequentially in the fourth quarter, contributed approximately $2 million to CPaaS revenue. Combined, political messaging and COVID related usage added 19 points to our fourth quarter year-over-year growth rate. Please note that going forward, we will no longer break out COVID-related impacts, which over time have become less meaningful to our results and increasingly difficult to differentiate from organic growth on our platform. We believe the hybrid work environment is the new norm and will continue to benefit our business for years to come. Rounding out the top line, Bandwidth’s stand-alone contribution to other revenue was $14 million, yielding a growth rate of 63% in the fourth quarter. Voxbone contributed just under $1 million to other revenue in the period, which was in line with expectations. We achieved a 133% dollar-based net retention in the quarter, strong evidence of our ability to drive deeper and more meaningful relationships with our customers, like those David highlighted in his comments. Please keep in mind that this metric will not be impacted by Voxbone until we hit the acquisition closing anniversary in the fourth quarter of 2021. 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. Non-GAAP gross margins came in at 49% for the quarter. Bandwidth stand-alone CPaaS margins continued their upward trend and was further enhanced by the inclusion of higher-margin Voxbone. However, these positive factors continue to be partially offset by higher carrier SMS surcharges which we pass-through to our customers. These same dynamics are expected to continue going forward with CPaaS margins continuing to expand, including the lift from the Voxbone business, but we also anticipate that other carriers may add messaging surcharges in 2021, that could create further potential drag on our overall gross margin. Consistent with our commitment to balancing top line growth with profitability, our business delivered non-GAAP net income in the fourth quarter of $3.5 million or $0.13 per share based on 27.2 million weighted average diluted shares outstanding. Moving on to the full year 2020 highlights. Total revenue was $343.1 million, up 48% year-over-year. Within total revenue, CPaaS revenue was $298.1 million, up 51% year-over-year. Delivering on our commitment to pull forward profitability by 1 year into 2020, non-GAAP net income came in at $14.2 million or $0.55 per share based on 25.9 million weighted average diluted shares outstanding. Now I’d like to outline our financial outlook for 2021. In terms of CPaaS revenue, we expect the full year of 2021, including Voxbone, to be in the range of $413 million to $417 million or up 39% at the midpoint of the range. We expect 2021 total revenue to be in the range of $460 million to $464 million, up 35% at the midpoint of the range. Our annual guidance builds on the success we achieved last year, excluding $23 million of CPaaS revenue tailwinds, which include $12 million of political messaging traffic and $11 million of COVID related usage. While our guidance assumes continued investment in our people and systems to fuel our future growth, we remain dedicated to our commitment to profitable growth in 2021, and accordingly, have forecasted positive non-GAAP net income for the year. These 2021 investments include hiring across the combined company to support growth and innovation, expand the scale and reach of our global platform as well as the integration of the recently acquired Voxbone business. We are estimating our full year non-GAAP earnings per share to be in the range of $0.02 to $0.12 based on approximately 27.5 million weighted average diluted shares outstanding. Turning to our guidance for the first quarter of 2021, we expect CPaaS revenue, including Voxbone, to be in the range of $96.6 to $97.6 million or up 64% year-over-year at the midpoint of the range. This contributes to our total revenue guidance of $108 million to $109 million or up 58% year-over-year at the midpoint of the range. Moving on to the first quarter 2021 profitability. Non-GAAP earnings per share is expected to be in the range of 0 to $0.02 per share. This outlook assumes weighted average diluted shares outstanding of approximately 27.5 million. In conclusion, we are very pleased with our 2020 performance and are excited about the opportunity ahead of us in 2021 and beyond. Our business fundamentals are strong and Bandwidth continues to be well positioned to capture the large and expanding CPaaS market opportunity around the world as enterprises increasingly embed cloud communications into their products and services to deliver mission-critical connected experiences. With that, I’ll turn the call back to the operator for Q&A. ================================================================================ Questions and Answers ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) Our first question is from Patrick Walravens with JMP. ——————————————————————————– Patrick D. Walravens, JMP Securities LLC, Research Division – MD, Director of Technology Research and Equity Research Analyst  ——————————————————————————– Great. Congratulations as well. So Dave, can I ask you a question about sort of your philosophy about returning to work and working from home and maintaining your culture, as hopefully the pandemic eases here. And then what you’re seeing from all the companies you’re talking to and how you think that plays out for your business? ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– Pat, great to hear from you and look forward to being together in person sometime, hopefully soon. To answer your question — yes, hopefully, praying for that. Here’s our philosophy and my view on work in general and leading. You can follow from home all the time. 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 millennial of human experience. ——————————————————————————– Patrick D. Walravens, JMP Securities LLC, Research Division – MD, Director of Technology Research and Equity Research Analyst  ——————————————————————————– I actually feel like people are walking that back for what it’s worth. And are you — I’m curious what you’re hearing from customers on that same topic. ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– You bet. I think from our customers, what we understand is the new methods of engagement learned during this season are instrumental going forward, even as folks either return or choose not to return. What won’t happen is the new arrows in everyone’s quiver to engage customers and cultivate relationships, those are going to be continued and continue to be used in the future. We learned lots of new use cases, and many of those will continue, even as many of us return to in-person. ——————————————————————————– Patrick D. Walravens, JMP Securities LLC, Research Division – MD, Director of Technology Research and Equity Research Analyst  ——————————————————————————– Okay. And then, Jeff, just on that subject, how should investors think about it in terms of what’s in your guidance? ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– So I think we have, Pat, built in to the extent we can distinguish it a COVID benefit. But as we had said in our prepared remarks, it’s getting harder to distinguish from organic growth now almost a year into the pandemic. And so it is built in. We won’t be separating it out going forward. But agree with what David said. I think that, to some extent, the hybrid work environment is the new norm, and our business will benefit from that. ——————————————————————————– Operator  ——————————————————————————– Our next question is from Bhavan Suri with William Blair. ——————————————————————————– Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Technology, Media and Communications  ——————————————————————————– Hey, gentlemen, good to even hear your voices. And I’ll echo Pat, just great results. I just want to touch first on the competitive landscape a little bit. There’s obviously great results out there. But we’ve heard sort of network owners like Telmex and Inteliquent are targeting multi-sourcing opportunities from your customers. Overall claim seem to be gaining market share. I guess the question I have is, have you seen any change in behavior or market presence from these types of providers at all? And sort of even with that, some of the consolidation or acquisition stuff like Sinch announced, their intention to buy in the space. Any change in competitive behavior or anything from these sorts of providers? ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– Hey Bhavan, great to talk to you as well. 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 U.S. 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. ——————————————————————————– Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division – Partner & Co-Group Head of Technology, Media and Communications  ——————————————————————————– Got you. And then I do want to drill a little bit into Voxbone. And maybe just a question for both of you here. But obviously, really nice upside there. I guess, how is cross-sell going? You touched a little bit on the sort of broader comments. But how is going vis-a-vis your expectations? And then really on gross margin, Voxbone had nice — sort of much nice or nicer gross margin I know that. And how do you think that plays out, given sort of what seems to be at least better growth than maybe we had anticipated and how that it is in gross margin through 2021. Let’s — I’ll leave it to my expectations as opposed to anybody else’s, but help us walk through those 2 pieces. But both the cross-sell vis-à-vis expectations, the expansion that which you seem to be seeing and then the gross margin flow-through and impact through 2021. ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– Bhavan, 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 that portfolio of product in new jurisdictions or 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. And then I’ll ask Jeff to answer the other part of your question. ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– Sure, glad to. So I think a lot of the dynamics that we saw in fourth quarter are going to play in ’21 as well. What I mean by that is 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%. But there’s some interplay there that I want to make sure everyone understands. ——————————————————————————– Operator  ——————————————————————————– Our next question is from Alex Kurtz with KeyBanc Capital Markets. ——————————————————————————– Alexander Kurtz, KeyBanc Capital Markets Inc., Research Division – Senior Research Analyst  ——————————————————————————– Yes, good to hear from you guys. Just on that last question on, the last statement, Jeff, on gross margin. Is it fair to say that Voxbone is growing faster than your messaging business? Just so when we think about the longer-term driver, right, that’s a higher-margin outcome. It should be additive to blended gross margins should be increasing over time just so the interplay between messaging growth versus Voxbone growth.. ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– So I think that’s right. Net-net, I think the positive factors of the expansion in CPaaS margins and the addition of Voxbone that’s higher-margin will overplay what we’re seeing on the SMS surcharge side. So I think you’ve got that right. ——————————————————————————– Alexander Kurtz, KeyBanc Capital Markets Inc., Research Division – Senior Research Analyst  ——————————————————————————– Okay. And then just on this plan, I appreciate all the detail about what you think the COVID impact is to your business. But — and I’m sure we were all pushing for it at the time, including myself back in the spring, but how can you really understand what the baseline is above what your customers were doing, right? I mean it’s kind of a — you’re adding — your end customers are adding new UCaaS customers. Your customers are adding new CCaaS customers. So is it — this concept that you had $11 million of COVID tailwind, how strongly do you feel that that number is really the right estimate because one could argue that there’s a lot of other factors that there could be expansion on top of the customers that you’re added in 2020. ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– I think it’s a fair point, Alex and that’s part of the way. You’re right when the pandemic hit and everyone sort of rushed to work from home outside the office, it was pretty clear to us what the COVID impact was because you saw growth trends spike and that spike is how we knew that was COVID related. But as we’ve advanced on each quarter using sort of that same methodology, we saw a peak in second quarter and then become — start to come down, and it has each sequential quarter. So it’s become, one, less meaningful; but, two, harder to differentiate to your good point, what’s temporary and what’s permanent. And that’s part of why we won’t be reporting a COVID breakout going forward, but wanted to finish the year. In terms of your specific question on the $11 million, we feel pretty strong about that. Most of that estimate came in the first half of 2020, and that’s where we had really good visibility. ——————————————————————————– Operator  ——————————————————————————– Our next question is from Meta Marshall with Morgan Stanley. ——————————————————————————– Meta A. Marshall, Morgan Stanley, Research Division – VP  ——————————————————————————– Great. Congrats. Just a couple of questions. Maybe just an update on kind of the Microsoft Teams’ direct routing and E911 opportunity and kind of what you’re seeing there? And then just maybe an updated split of the business so maybe how much of messaging composes of the business at this point versus maybe voice versus E911. And if you could just break out what the ADP charges — surcharges were more specifically this quarter? ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– Meta, 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 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 that 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. When we launched it with Teams, we weren’t certain that would be the case, but we believe that the direct routing future and the platform that we have that powers Microsoft Teams today will power others in the future. ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– And then I’ll take the part on kind of the split of the business as you were asking, Meta. Just recall, Voxbone is 100% voice. So despite all the success we’ve had in COVID fourth quarter with political messaging. Messaging was 18% of CPaaS revenue. If you normalize for political messaging, we’d be at 9%, which is probably a better way to sort of think about it going forward. In terms of the ADP charges, they were approximately $6 million in the quarter and $11 million for the year. What — the reason that we saw it higher in the fourth quarter was related to the spike we saw in political messaging usage, in particular, as we ran up to the November U.S. elections. ——————————————————————————– Operator  ——————————————————————————– Our next question is from Will Power with Baird. ——————————————————————————– Charles Erlikh, Robert W. Baird & Co. Incorporated, Research Division – Junior Analyst  ——————————————————————————– This is actually Charlie Erlikh on for Will. Congrats on the really strong results. I was hoping just for some more information on maybe some upside drivers in the quarter. I mean, you had such a strong quarter. So just wondering, it sounded like contact center was a nice driver. But is there anything else that you would call out that was maybe better-than-expected going into the quarter? ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– So I’ll start, and then David is welcome to come in. It was really a strong performance across the board. We posted a dollar-based net retention of 133%. And 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. 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. ——————————————————————————– Operator  ——————————————————————————– Our next question is from Rich Valera with Needham. ——————————————————————————– Richard Frank Valera, Needham & Company, LLC, Research Division – Senior Analyst  ——————————————————————————– Let me add my congrats on the strong results. And the DBNR very strong for the quarter at 133, just wondering if you can frame out how we should think about that going forward? I know you don’t guide to it, but if you think that was sort of affected by any temporary factors, and just, again, how we should maybe think about that number going forward? ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– Yes. So certainly, Rich, it was impacted. If you normalize for that political messaging increase and COVID, the 133 dollar-based net retention would normalize to 125%. It gets a little bit more tricky in ’21 because, as you know, how we’ve always guided our analyst and investors is look at our CPaaS growth percentage, make an assumption on new logo growth based on what we’ve trended in the past and you kind of back into a dollar-based net retention. Since the DBNR will only be for the bandwidth stand-alone business. That won’t work quite as well in 2021 until we lap the anniversary of the Voxbone close. ——————————————————————————– Richard Frank Valera, Needham & Company, LLC, Research Division – Senior Analyst  ——————————————————————————– Got it. That’s helpful, Jeff. And then for just the year in general, are you willing to say what percentage you think is going to come from Voxbone in the sense of the relative contribution of Voxbone versus the original business? ——————————————————————————– Jeffrey A. Hoffman, Bandwidth Inc. – CFO  ——————————————————————————– We’re not going to break out guidance and between the 2 business, we’re actively trying to take those 2 businesses and turn them into one. However, just like we did in fourth quarter, each quarter for the next year, we’ll give you that Voxbone contribution, so that you have that when we report our results. ——————————————————————————– Richard Frank Valera, Needham & Company, LLC, Research Division – Senior Analyst  ——————————————————————————– That’s great. And just final one on contact center. It seems like you had a nice amount of activity kind of new contact center activity. Anything to that? I’m curious if there’s a trend there or what you’re seeing behind that? ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– 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. ——————————————————————————– Operator  ——————————————————————————– Our next question is from Mike Walkley with Canaccord Genuity. ——————————————————————————– Thomas Michael Walkley, Canaccord Genuity Corp., Research Division – MD & Senior Equity Analyst  ——————————————————————————– My congrats also on the great results and hope everybody is healthy on the call. Just wanted to focus a little more on Voxbone and the cross-sell opportunities. Taking some of your North American customers onto their network, especially with those 15 large customers that don’t overlap, how long does it take maybe to roll them out internationally? And how much cross-sell, if any, is included in your guidance? Or is that potential upside driver as the year plays out? ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– We have factored aspects like cross-sell upsell 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 time frame during ’21 within which we would expect those 15 to come on. ——————————————————————————– Thomas Michael Walkley, Canaccord Genuity Corp., Research Division – MD & Senior Equity Analyst  ——————————————————————————– Great. And then just on the investments, how is the hiring opportunity out there? And what’s kind of maybe the pace of adding new headcount plan for ’21? ——————————————————————————– David Andrew Morken, Bandwidth Inc. – Co-Founder, CEO, & Chairman  ——————————————————————————– You bet, we’re focused on reinforcing success in marketing and in sales domestically and globally. And we’ll continue to invest responsibly balancing again the top line growth with a real bottom line sensibility on non-GAAP net income. But keenly focused on where we see opportunity and where we have good new product initiatives that we think yield in line with our long-term strategy, we’ll continue to invest. ——————————————————————————– Operator  ——————————————————————————– This concludes the question-and-answer session and today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.