Bandwidth Inc.

fiscal quarter and full year of 2020 and to the extent provided future periods, statements regarding the expected timing of the closing of the proposed box phone transaction and the expected benefits of the proposed transaction, 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 discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our 10-K filing on February 21, 2020, 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.

Thank you, Sarah. Welcome, everyone. With so much good news to share, I need to begin by thanking God for the strength to seize the opportunities he has provided us. Together, our team delivered record results in the quarter. We are raising our annual revenue guidance substantially, and we are acquiring VoxBone, expanding into over 60 countries worldwide. To my bandmates, thank you for your stamina and resilience. during this season when enterprise communication is more vital than ever before. To our soon-to-be bandmates at VoxBone, welcome aboard. We are ecstatic that you are joining us on our mission to develop and deliver the power to communicate now around the globe. During this quarter, enterprise demand for our software platform and network was higher than ever before. our CPaaS revenue increased a record 43% year over year. This accelerating growth was driven by a diverse cross-section of customers expanding their usage of all our services. Our unique combination of software platform, network, and enterprise customer support resonates with enterprises operating at scale. Our extraordinary growth was also driven by messaging, which grew 164% year over year. This increase was powered by an unprecedented amount of political messaging traffic in the run up to next week's US presidential election. We proved to be an ideal choice for this group of customers to achieve industry sanctioned, high volume deliverability. Our messaging results were also bolstered by an expanding relationship from an innovative customer well-known for point-of-sale solutions. This customer's fast-growing division, which gives users the ability to send, spend, and store money, is driving increased messaging usage on our platform. The company utilizes our enterprise-grade toll-free messaging solution for application-to-person use cases requiring high-volume delivery of customer receipts and mobile delivery confirmation. In addition to expanding existing relationships, we continue to attract new enterprise customers to our platform. This quarter, we surpassed another milestone as we now serve more than 2,000 CPaaS customers, an increase of 25% year over year. Our sales and marketing teams have executed well onboarding 115 net new customers in the quarter. While achieving record revenue growth and attracting new customers to our platform, we also continued to exceed our profitability goals. For more than two decades, Bandwidth has transformed enterprise communications across the United States. Last year, we started serving customers in Europe using our software-powered voice network. Earlier this month, We share that we will soon be serving our customers around the globe with international cloud communications leader VoxBone joining our band. We believe that this combination of two CPaaS leaders accelerates our international expansion by at least several years. And together, we will serve global enterprises across 60 plus countries representing 93% of the world's GDP. The two companies complement each other brilliantly. We share the same values and can now describe them in different languages. We are mission first while committed to serving others. A shared set of values and an incredible chemistry between the teams is the basis of the strong cultural fit we will harness to serve customers worldwide. We both offer cloud communications platforms powered by a modern network, giving customers quality, control, and scale. Over the past 15 years, Voxbone has consistently added country coverage and prided itself on a compliance-first infrastructure strategy to serve a large and innovative customer base. Both teams are excited for the opportunity to deliver the same experiences our customers have enjoyed and expanding footprints. Our customers will benefit from a unified software platform and network for the rapid launch and hyperscale of communications, applications, and experiences. We will offer enterprise-grade global connectivity for cloud platforms, mobile applications, and Fortune 1000 enterprises. The reaction from customers and team members on the acquisition announcement has given us total conviction that Bandwidth will be more uniquely positioned than ever before. This quarter, our team delivered greater results than ever before in our history, while we are acquiring one of the most impressive teams and businesses in and around the world. I am proud of all my amazing Bandmates who with me remain humbled and grateful for the many opportunities afforded us during this season. With that, I will turn it over to Jeff.

Thank you, David, and thanks to everyone for joining us on this call, including our friends at VoxBone. We had an exceptional quarter, which drove both top and bottom line results, far exceeding our expectations. Third quarter total revenue was $84.8 million, up 40% year over year. Within total revenue, CPAS revenue was $73.8 million, up 43% year over year, which is another new record percentage growth for our business. Other revenue contributed the remaining $11 million of total revenue in the period, which is up 22% from the same period a year ago. The majority of our revenue growth continues to come from the core drivers of the business. However, we did have two factors that amplified our results in the quarter. First, we experienced elevated usage in messaging driven by the upcoming US elections. Second, we continue to benefit from the work from anywhere dynamic caused by the ongoing pandemic. And as we have previewed, this COVID impact continues to decline quarter over quarter. Combine these two factors added approximately 12% to our third quarter year over year CPAS revenue growth, with 7% coming from political messaging volumes and 5% from COVID-related usage. In addition, I want to highlight our strong new logo growth contribution in the quarter, and we continue to expand our existing customer relationships as evidenced by our solid dollar-based net retention rate of 131% in the quarter, as compared to 116% a year ago. The primary driver of our other revenue outperformance with higher A to P messaging surcharges associated with serving strong messaging demand. On September 1st, carriers implemented an additional toll-free messaging surcharge, and accordingly, we expect these fees to continue going forward. Despite these increasing messaging surcharge pass-throughs, our non-GAAP gross margins came in at 49% for the quarter, and we remain on track to achieve gross margins in the high 40s for full year 2020. We continue to balance strong top-line growth with profitability, as evidenced by our non-GAAP net income in the third quarter of $6.5 million, or $0.24 per share. This result is favorable to our guide and driven by gross profit overperformance, as well as operating expense favorability. Now I'd like to share our thoughts regarding our financial outlook. We are raising our annual 2020 total revenue guidance by more than $29 million to reflect, one, the overperformance in the third quarter, two, the continued strong demand for services, as well as, three, the expected contribution from the pending VoxBone acquisition. The fundamental strength in our standalone business accounts for more than $15 million of the raise, with $8.5 million coming from our third quarter overperformance and approximately $7 million from the increase in our fourth quarter total revenue guide. The VoxBone acquisition is on track to close on October 31st, and we anticipate receiving two months of contribution from VoxBone in the fourth quarter of 2020. This equates to approximately $14 million of anticipated total revenue contribution from VoxBone to our fourth quarter and annual guidance, of which $13 million will be CPAS revenues and the remaining $1 million of revenue will be included in our other segment. This contribution assumes current business conditions and current foreign currency exchange rates. In terms of CPAS revenue, we have raised our full-year 2020 guidance to be in the range of $284.3 to $284.8 million. We expect total revenue for 2020 to be in the range of $326.6 to 327.1 million. We're estimating our full year non-GAAP earnings per share to be in the range of 44 to 46 cents per share, assuming 25.8 million weighted average diluted shares outstanding. I want to highlight that this share count includes adjustments for convertible debt conversions and shares to be issued related to the pending VoxBone acquisition. Turning to our guidance for the fourth quarter of 2020, We expect CPAS revenue to be in the range of $84.3 to $84.8 million. This contributes to our total revenue guidance of $96.5 to $97 million. Fourth quarter non-GAAP earnings per share is expected to be in the range of $0.03 to $0.05 per share, using 27.5 million weighted average diluted shares outstanding. In summary, our third quarter was an outstanding quarter for our businesses. and we look forward to driving this positive momentum into the fourth quarter and beyond. With that, let me turn the call back to the operator for Q&A.