Bandwidth Inc.

Good day and welcome to the Bandwidth, Inc. Second Quarter 2024 Earnings Conference Call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask your questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Thera Wallace, Vice President of Investor Relations. Please go ahead.

Thank you and welcome to Bandwidth's Second Quarter 2024 Earnings Call. Today, we'll discuss the results announced in our press release issued earlier today. The press release and an earnings presentation with historical financial highlights can be found on the Investor Relations page at .bandwidth.com. With me on the call today is David Morgan, our CEO, and Darryl Rayford, 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 third quarter and full year of 2024. 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 and 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 earlier today as well as in the earnings presentation, which are located on our website at .bandwidth.com. With that, let me turn the call over to David.

Thank you, Sarah. Welcome to Bandwidth's second quarter 2024 earnings call. We're pleased to report a very strong first half toward our plan for 2024. In the second quarter, we delivered solid revenue growth across all categories while accelerating profitability and cash flow. We are a disciplined operating team with a steady focus on expanding profitability, creating unique software innovations like Maestro and AI Bridge, and broadening the reach of our global bandwidth communications cloud to deliver a sustainable, competitive advantage. The team is grateful for the trust our customers place in us every day and for our bandmates who go the extra mile to support them, and I thank God for our opportunity to help connect people around the world. Voice communication is a large growing market and a pillar of our business, delivered through our global communications plans and enterprise market offers. Bandwidth powers all the leaders in the Gartner Magic Quadrant for both unified communications and Contact Center as a Service. Now, larger enterprises are increasingly recognizing the potential of cloud contact centers to transform customer experience and leading CCAS platforms are capitalizing. Microsoft recently announced its new Dynamics platform, where we are a foundational partner through Operator Connect and Direct Routing. We've also seen other top CCAS players announce historic contracts with large numbers of seats. This is a trend that we expect will contribute to future growth in our GCP and enterprise categories. For example, a nationwide provider of medical claims management selected Bandwidth as their exclusive provider for voice valuing our exceptional customer support and the flexibility of our Maestro product to orchestrate and enhance call routing to their CCAS platform. When CCAS platforms add customers, we benefit as the underlying provider and when the largest global organizations need to simplify and unify their communications, Bandwidth gives them choice and control via our direct to enterprise offer. Moving communications to the cloud and unifying voice messaging and emergency services into a single cloud software experience is the fastest way for enterprises to simplify digital transformation company-wide all while leveraging new AI solutions. We have a proven track record of successfully orchestrating complex global cloud migrations for some of the largest enterprises. Our partnerships with hyperscalers, cloud platforms, and global 2000 customers continue to grow stronger and stronger through close collaboration and co-creation in this rapidly evolving market. We foresee a long-term expansion of voice because it's the durable customer preference for two key use cases in the contact center, high value transactions with human agents and convenient self-service through conversational AI. -to-human interactions like understanding a health insurance issue or rebooking a canceled flight are so business critical even a rare outage can cause significant loss of revenue or reputational damage to a brand. That's why more enterprises are turning to Bandwidth's redundant resilient voice solution. For example, a leading provider of patient transportation, meal delivery, remote patient monitoring, and personal in-home care chose Bandwidth to power its cloud contact center. Our powerful APIs, network reliability, and comprehensive failover protection offered by our Callishare product resonated with the customer to safeguard their business critical voice call. Reliability also motivated a trusted provider of insurance to switch to Bandwidth as their sole provider for voice. They valued our advanced call routing solution which efficiently directs their contact center traffic along with our superior back-end reporting tools. As consumers grow more comfortable resolving lower level issues like a lost credit card by speaking to an AI-powered virtual agent, Bandwidth is exceptionally well positioned to enable these interactions as well. Through our Maestro platform and global communications cloud, AI-powered voice automation leverages Bandwidth's voice network similarly to an interaction with a human agent, resolving many customer issues before they ever reach the contact center. For these technologies to work properly, especially with capabilities like fraud detection, the clarity and fidelity of the voice call are crucial. Bandwidth uniquely provides this quality because we own and operate our network. Our AI Bridge product, available with Maestro, enables contact center operators to utilize pre-integrated conversational AI providers like Google Dialogflow and Cognigi and we intend to announce more partners soon. In summary, voice is a durable interface for customer service whether through a human agent or via conversational AI, even as getting support becomes faster, easier, and more satisfying than ever before. In a world where enterprise customers must balance the need for reliability with the complexities of building trust and customer experience through service channels, Bandwidth is exceptionally well positioned. We are capitalizing on the tailwinds of innovation with Invoice by becoming the platform of choice for industry leaders in the space and it will all run on the Bandwidth Global Communications Cloud. With more innovative enterprises incorporating business texting alongside voice in their customer journeys, our programmable services offer is also well positioned to be a trusted single source provider. The Bandwidth Communications Cloud provides deliverability, scalability, and insightful analytics that enterprises need to manage these complex customer interactions. For example, a long-standing customer that provides communication solutions for hospitality, healthcare, and municipal clients significantly increased their messaging business with us in the second quarter alongside the voice services they already consume. Our unique ability to provide local telephone numbers for SMS messaging in the many markets where their customers operate played a pivotal role in securing this additional business along with our deep industry knowledge, messaging compliance expertise, and outstanding customer service. We believe our strengths in commercial messaging give us a unique advantage in providing infrastructure and technology that drives future growth in some of the biggest market opportunities where messaging is a key driver of end user engagement including the trillion dollar e-commerce vertical, healthcare IT, and financial services. Before I wrap up, I am delighted to announce that DaVesh Agarwal has been appointed interim chief operating officer. In just two years as our chief software strategy officer, DaVesh has had a significant impact including realigning our global engineering resources and accelerating time to delivery for key innovations like our Maestro platform. In his new role, DaVesh will draw on his significant prior global sales, -to-market, product development, and P&L leadership experience at large organizations including Oracle. He is respected by all of us who work with him and I look forward to partnering with DaVesh in his expanded mission. In closing, I am pleased to mark the halfway point of 2024 with solid performance. We are building a durable franchise based on disciplined operation, expanded profitability, differentiated product innovations, global reach, and unmatched dedication to serving our customers around the world. Our space is dynamic and growing. Our market offers have attracted large, innovative, and loyal customers who have relied upon our platform in some cases for over a decade and we are still in the early stages of the cloud communications and AI revolution. Our leadership continues to be reinforced by industry recognition such as the UC award for best CPAS platform which was just announced in the past week. For all these reasons, I'm excited about what we'll achieve in the remainder of 2024 and beyond. I'll now turn it over to Darrell to walk through the details of our financial results and our outlook.

Thank you, David, and thanks everyone for joining us today. Bandwidth had a strong second quarter. We reported total revenue of $174 million up 19% from last year and above the midpoint of our guidance range. An adjusted EBITDA of $19 million up 77% from the prior year and surpassing the end of our guidance. Free cash flow was $18 million, significantly higher than the first quarter, and nearly $20 million over last year's quarter. This robust performance underscores how we are delivering on the commitment we made at our investor day 18 months ago to achieve sustainable, profitable growth, operating leverage and cash flow generation, and an optimized capital structure. Rounding out our second quarter results, again, total revenue grew to $174 million and consisted of cloud communications revenue of $128 million, up 8% from last year, and messaging surcharges of $45 million. Our cloud communications revenue benefited from strong growth across all of our products and was led by messaging, which continued to be a driver growing 33% year over year. The large bulk of our second quarter messaging revenue is derived from expanding commercial demand from new and existing customers across a variety of verticals and use cases, and also benefited from about $3 million in political campaign demand. A reminder that we go to market serving three customer categories, global communications plans customers, programmable services customers, and direct enterprise customers. For global communications plans, our second quarter revenue grew 2% year over year, fully in line with our expectations, reflecting stable momentum across our CCAS and UCAS power platform customers. Our programmable services category grew 31% year over year, driven by continued healthy messaging demand from commercial customers in e-commerce, financial services, and healthcare, as well as the previously mentioned $3 million tailwind from political campaign messaging. In our enterprise direct customer category, we grew revenue 25% year over year. Our Maestro platform and global communications cloud offerings are resonating with enterprise customers across many segments, including the financial services, healthcare, and travel verticals. In terms of operating metrics, our second quarter net retention rate was 111%, an improvement of five percentage points from a year ago quarter. Our net retention rate for our customers with greater than $100,000 ARR grew to 113%, two percentage points higher than the total company metric, demonstrating the value of our offerings and durability of our large customer installed base. Our customer name retention rate once again remained in excess of 99%, evidencing the reliability and reach of our global communications cloud, paired with our unwavering focus on customer success and continuous innovation. Our ARPU climbed to a record $198,000, reflecting our success in attracting and serving large enterprises for their business critical communication. Our non-GAAP gross margin was 56% for the first quarter, up approximately one percentage point from the prior year's quarter, benefiting from the owner economics of our global communications cloud. We generated free cash flow of $18 million, representing 14% margin, showing strong flow through from adjusted EBITDA and prudent management of working capital. We remain on track to achieve greater than $50 million free cash flow in 2024, positioning us closer to our medium-term target of greater than 15% free cash flow margin. Touching on our capital structure, we're proud to deliver revenue growth, profit growth, and the rapid deleveraging of our capital structure. In May, we finalized our plans to reduce the outstanding balance of our 2026 convertible notes by repurchasing $140 million outstanding notes for approximately $127 million in cash. This action, combined with the previous repurchasing exercises first begun in November 2022, has cumulatively resulted in $365 million of our 2026 convertible notes acquired at a significant discount, recognizing a cumulative $63 million net gain. We've kept our eyes on delivering value to shareholders by growing profitably and optimizing our capital structure opportunistically. Now turning to our outlook, I'd like to remind you that in May, we raised both our full-year revenue and profitability guidance following our first quarter's strong performance. We are again very pleased with our second quarter's strong performance, and indeed, our first half 2024 performance has only strengthened our confidence in the raised full-year outlook of approximately $715 million for revenue and approximately $74 million for adjusted EBITDA, which is a 54% improvement over 2023. These projections reflect our expectation for solid performance across all market offers. Embedded in our full-year projections, we estimate $20 million from political campaign messaging, which represents less than 4% of cloud communications revenue. We are laser-focused on growing the commercial base of business, and the results from our last four quarters, our first half of 2024, and once again, our just completed second quarter clearly demonstrate excellent progress towards that objective. In closing, our excitement entering the second half of 2024 remains high. This year, we are delivering sustainable, profitable growth based on a solid foundation and building the future with maestro momentum and a global cloud platform positioned at the center of the communication software AI opportunity. Our results clearly show we are retaining and growing our existing customer base. We are acquiring new, innovative customers. We are growing ARPU. We are growing gross margin across all products. We are accelerating profitability. We are turning that profit into free cash flow, and we have demonstrably improved our capital structure. Now turn the call over to the operator to begin the question and answer portion.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handsets before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Arjun Vatia with William Blair. Please proceed.

Arjun, thank you, and I appreciate you taking the question here. Darrell, maybe can you start with – I noticed the net retention rate increased quite nicely from Q1. I was hoping you would just be able to flush out some of the drivers there, where you are seeing the most expansion from customers. Is this kind of gross expansion increased, or are you seeing more kind of favorable volumes that are limiting some of the downpick in consumption as well? Thank you.

It is broad-based. Thank you, Arjun. It's nice to speak with you. It is broad-based. We're happy with our net retention rate. You're right. It did grow sequentially in year over year. That's driven by our commercial messaging customers, that cohort from last year, as well as our enterprise customers. We're onboarding new enterprise customers each quarter, but we have established a nice base, and that cohort has been expanding as we cross-sell.

Okay. Got it. Then maybe one for David here. When you think about embedding AI in the context center – I think you mentioned in your preferred remarks that voice is a durable channel. But why would AI not change the channel mix dynamics in the context center? It seems like that is one of early areas where we'll see AI adoption. But I'm curious what gives you the confidence that the voice is the preferred channel there, even under this new technology paradigm.

It's interesting. OpenAI only this week announced that they are, for some certain subscribers, enabling voice as an interface to query and get responses from ChatGPT. I think what that represents is our conviction as well that voice is a primary human interface that we're illustrating on this call as we speak. So voice and response, whether it's a live agent that you're interacting with that's knowledgeable about your issue and resolving it, or an AI endpoint that has authoritative information at its virtual fingertips to relate to you, in both cases, our Maestro platform, the integrations that we offer, the underlying global cloud platform, all resonate deeply to provide voice as what we believe will very quickly become a primary channel and access interface for AI, both in the context center origin and in many other use cases.

All right, perfect. Thank you. Appreciate it.

And our next question comes from Ryan McWilliams with Barclays. Please proceed.

Hey guys, it's Amy Coggan, on to Ryan McWilliams. Thanks for taking the question. Great to see the beat on EBITDA guide and Rev coming in line. Was the decision to re-array both of these metrics, particularly EBITDA, a sign of conservatism? Or was there a shift in expectations and now the second half would perform compared to 1Q?

Amy, do you mind? So your question was related to, would you repeat that? You broke up on us.

So was the decision to reiterate both EBITDA and Rev a sign of conservatism, or is there a shift in expectations in how the back half would perform compared to 1Q?

You know, we're really pleased with the performance. The first quarter performance, grew approximately 10% or 12% in terms of cloud communications revenue. We grew another 8% in the second quarter. First half has been very, very strong. It has only really strengthened our conviction around the full year raise outlook from last May of 7-15 as a midpoint of revenue and 74 as a midpoint of EBITDA. There is some potential inherent conservatism in that and I think de-risking the second half is appropriate.

Perfect. I'm just curious how usage volume is trending throughout the quarter and have volumes shown similar trends so far earlier in the third quarter?

In terms of, well, leading into the first part of this third quarter, we're very pleased with the volumes. We're very pleased with our commercial volumes. Our global communications plans, commercial messaging and enterprise customers continue to show exhibit usage patterns that we would expect that drive our confidence in our full year outlook.

Perfect. Thanks, guys.

The next question comes from Will Power with Baird. Please proceed.

Okay, great. Thanks. It's great to hear some of the early interaction with Maestro and Bridge AI. I guess I'd love to maybe, if we can, maybe dig even deeper there as to some of the customer conversations you're having there and kind of product rollouts with the combination. We're already in that evolution. I assume it's pretty early. What does that Maestro and Bridge AI pipeline look like? I'm just trying to better understand the -long-term opportunity there.

Thanks, Will. This is David. The medium- and long-term opportunity for Maestro and AI Bridge is fantastic. We illustrated during this quarter some of the customer wins, and I'll just highlight those. Thanks for the great question. The first one is a nationwide provider of medical claims management. This customer provides solutions for industries like workers' comp, auto, health, disability management. They manage claims and do virtual care. These are complex interactions with customers. We are providing Microsoft Teams voice as a solution with inbound-outbound voice from bandwidth. Maestro helps them with this voice interface, the SMS inbound-outbound solution, and the ability to integrate third-party solutions that some are preintegrated, some that they bring to table. That's one example, and I think what's really important to understand about this kind of a Maestro win is it represents a contract value that is orders of magnitude larger than our $198,000 average ARPU. This is an enterprise customer using an enterprise product and Maestro at an enterprise contract value that is orders of magnitude larger than our ARPU. The second one is a provider of patient transportation meal delivery, remote patient monitoring, and personal in-home care. They also are a Maestro win. They also use our toll-free call-assure product, and the flexibility that we give them with Maestro as an orchestration layer allows them to really build a future-proof set of services internally for engaging with customers. These are complex customer interactions, and the Maestro product is so unique in the marketplace compared to the incumbents or anyone else. We're really excited, and again, this example, this is a three-year contract at many multiples of our average ARPU that we've experienced historically. So those are just two examples, and both happen to be in healthcare, both nationwide domestic. During the period, we also added a global luxury brand using our platform outside the United States is another example, but in each of these cases, these are really smart operating teams planning for the future in a very fluid environment where there are third-party solutions in AI that are emerging, and they want to make sure they're ready with an orchestration layer when those best of breed or novel new solutions emerge. So they're planning for the future, they're signing with us and leaving incumbents and doing so at a contract value for us that is really healthy.

Okay, that's helpful. Thank you. And then maybe just a quick second question, whether David or Darrell, just on the messaging growth, which continues to look very good, I guess, up 33%. I guess the question is, is that apples to apples with the 50% in Q1 and any kind of color on deceleration, is there seasonality in there? Just trying to understand kind of the Delta, I guess, and the change, even though it's still a healthy number here.

Yeah, thank you. It is a healthy number, and we're pleased with that commercial growth. There is some seasonality, there is some usage patterns and usage timing that goes with that, but there's nothing, it's very healthy, and there's nothing to report really on that. Okay, thank you all. Thanks,

Will. The next question is from Patrick Walravans with JMP Security. Please proceed.

Oh, great. Thank you, and congratulations, you guys, on the sustained performance at the end. It's really great. Okay, so maybe first of all, David, very big picture. You know, you have this comparison between you guys and AWS in your deck, which, can you just comment on that? So what are the similarities, and where does that comparison break down?

Yeah, all analogies are helpful. In this case, the cloud migration revolution is something that was pioneered by AWS, where you got rid of servers that you were racking and stacking on your prem, and you were able, on a global, regional basis, to abstract processing, storage, compute, security, and many other things to AWS in a wonderful way, and you were liberated from hardware concerns on site, from incumbent legacy interconnections that were challenging and difficult, and it really provided the base layer for much of the amazing experiences available today digitally. In the enterprise, we, as an analogy to that, have really pioneered for UCAS, for CCAS, for conferencing, and now for AI across all those different use cases, that same cloud-based approach to technology for the future. You don't have to have, on your prem, any hardware, you don't have to maintain software, you're able to leave AT&T, Verizon, Loom, and other incumbents behind, and really take your voice and messaging services to the cloud with bandwidth, and do so globally, and that's really important with a single universal platform, and access to our universal API, you don't have to have multiple integrations. Now, certainly the analogy can break down. We aren't yet at the scale of AWS. That's one way in which it does not work, but certainly as an example, structurally and architecturally, it's very aligned.

All right, great, and then Daryl, some financial questions for you, if you don't mind. First of all, can you just walk us through sort of the tranches of what remains, the tranches of what you have to do? You have the 250 convert and 28, and then is there some of the 26 left?

Yes, so let's start at the first one you articulated, Pat. To close the transaction on this last repurchase exercise on the 26 convertible notes, we had expanded our revolving credit facility with Bank of America and Wells Fargo to $100 million and drew $50 million, and that was the balance immediately upon draw. We were able to, within 45 days, reduce that by 20%. So at the end of the quarter, we had $40 million drawn, and our pace, we expect to remain on that pace going forward here and to reduce that balance essentially to nothing. The 26 notes have $35 million remaining on them, trading at about 32, I understand, is the last time I looked at it. That $35 million is just going to sit there until March of 2026 will be our intent. It is at 25 basis points, and just given the tender rules, the tender rules and the like on further repurchasings, we will just be retiring that in the ordinary course. We have the final tranches are February or 1st of March, 2028 convertible notes at 50 basis points, which is $250 million currently trading around $160 million. We are aware of it. We do recognize that it is slightly less than four years from now, and we will just be paying attention to that as we stay on our track to reduce over 15% free cash flow margin and really optimize and improve out our business.

Yeah, all right. Well, fabulous. So much easier to see how you get through this now than it was before. I'm surprised. It's interesting that it's still trading. That was just a discount. It seems like a disconnect, but okay. Then lastly, just big picture on the growth rate. I mean, like in my model, I have you going back down to 9% next year and then going back up to 20 the year after. How do we think about how much you're able to even out this every other year growth rate, which is one thing which I think some investors have a hard time wrapping their heads around.

Hey, Pat. This is David. I think your question about our capital strategy and how we've paid down debt addressed the viability concerns investors have had. Others have talked about surcharges. We've overcome both objections and as to cyclicality seasonality, it's something that represents growing pains for a business that's beginning to scale and that over time, we're definitely going to smooth out those waves. They certainly are beneficial to pay down debt and are useful in our capital strategy, but the momentum in commercial messaging and enterprise, I think, speaks for itself regarding our long-term steady durable franchise of both revenue growth combined with profitability. All

right. Thank you guys.

Thank you, Pat.

Our next question comes from Mettah Marshall with Morgan Stanley. Please proceed.

Great. Thanks. Maybe on Maestro, just where are customers asking you for the most extensive expansion of integrations right now? Just is there a certain category where you're finding the most uptick in activity there? And then second, just on meeting, you guys have a lot of partnerships and sales channels. Just where are you finding the most effective sales channels right now or areas to expand internal sales?

Thanks. Thanks, Mettah. This is David. The biggest demand that we're seeing for Maestro and AI Bridge is definitely within the contact center, serving as a primary technology orchestration layer that supports a huge number of emerging solutions that address different aspects of call flow and call resolution, sentiment, fraud detection, identity. There are an enormous number of opportunities that really require the Maestro product to integrate easily or to take advantage of preintegrations to do so on a global footprint basis, to connect to one API to be able to do so. Contact center, to answer your question, is definitely the area in which we see the most immediate demand. As to the second question regarding the Maestro sales funnel, some of it is clearly coming from existing customers that we already work with that have a familiarity with us in what we do and have bought into the early beta release last year, August 31. We continue to grow the new opportunity funnel in finance, in healthcare, in transportation. These are all large verticals that have complex customer engagement models in the contact center where we're seeing great success growing enterprise at a 25% growth rate and we think that that is healthy and in line with our expectation. We do have an emerging channel strategy that's really important and we expect over time that will contribute to our direct approach to the market with our sales team.

Great, thanks.

The next question is from Ryan Boone. Can somebody please proceed?

Thanks for the question and congrats on the great momentum here in first half. You really, you're seeing an inflection here in growth and I wonder if you see any changes in the desired growth rates. David, we're interested to hear your thoughts on the competitive landscape. Thanks.

Thanks, Ryan. You know, I wish we had the kind of lead that Katie Ledecky has at about the 1,400 meter mark in her 1,500 meter swims. I'd like to, we do look to our left and right swim lanes and are excited about the leadership position that our team has achieved and we're excited for the podium to continue the Olympic analogy. There are no new entrants diving into the pool. There are very known quantities that we collaborate with in some cases, incumbents that we compete with mightily and in the vanguard we're proud of being in a space that is really innovative and the lead that we've achieved so far we're excited about continuing.

Do you feel like it's to some degree you have a cost advantage over the legacy players at least?

Yeah, no thank you, Ryan. There's no question that owning and operating our platform globally provides us with a vertically integrated advantage for both cost but also quality and reliability. We're able to deliver visibility to enterprise customers that need to know how their services are performing on a global basis and economically as well as quality we have an advantage and there in some cases are 15 years of infrastructure work that have gone into our global platform and we are proud of that. It's a huge differentiator. Large global enterprise can trust us to not point fingers at other vendors but instead to predictably identify issues and to resolve them when they emerge but most of all to avoid issues altogether.

Quick follow-up there, are you seeing more traction in US these days or again how's Europe developing?

Both Europe and globally are developing well. We signed in the period one customer that we called out a global luxury brand and have more maestro customers that are signing up both globally and domestically in the quarter so we're excited about that success. Certainly US domiciled large global companies remain the foundation for our business but we are serving customers around the world and that will continue to be our focus just a global single unified platform for voice and messaging for enterprise.

Thanks a lot, appreciate it.

Thank you.

And the next question is from James Fish with Piper Sandler. Please proceed.

Hey guys, I did want to circle back to Will's question as I think it's important as arguably your biggest growth driver right now. You know if my math is right here appears the messaging API sort of ex political and ex the path through grew you know just sub 20% which is down from roughly 34 and almost 70 in Q4. I guess what seasonal slowdown is causing this or was there something sort of geographically competitively or kind of use case wise that you know the end cause here and really just to kind of set expectations for all of us. I guess what do you guys see as the growth for messaging this year?

We did, hey good morning this is Darrell it's nice to speak with you. Our commercial message, you're right our commercial messaging right at 20% slightly less in terms of growth and that is right in line with our expectation and where we thought it would be. There are some seasonal factors, there's no change in customer mix or any shift in the cohort or the like. You know we're really pleased that our cloud communications revenue grew the $10 million 8% over the prior year. That led to an expansion in margin by that point and also very good EBITDA profitability flow through on that incremental revenue. In fact I would probably call your attention to the model economics on that because we have been really focused on and speaking about scale and as revenue grows and how that's going to produce disproportionate profit. So we're really happy with that. There's really nothing to report in commercial revenue in terms of commercial messaging. It is right in line with where we think it should have been and based on our customer conversations and we're looking forward to a continuing strong second half.

Got it helpful Darrell. Any changes competitively across mediums versus Twilio Center legacy carrier providers and within that conversation I guess what are you guys seeing with pricing across both messaging and voice? Thanks guys.

Thanks James. There hasn't been any change in our competitive landscape from those like us who have been very innovative in the space or incumbents that have lagged. I think the dynamics and competitors set up well and again no change.

And at this time we are showing no other questions in the queue and this does conclude both our question and answer session and today's conference. Thank you for attending today's presentation and you may now disconnect.