Bandwidth Aktie

Hello, ladies and gentlemen, thank you all for standing by. My name is Mark and I will be your conference operator for today. At this time, I would like to welcome everyone to the Bailiwick Second Quarter 2026 Earnings Call. All lines have been placed only to prevent any background noises. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star and number one again.

Thank you. And I would now like to turn the call over to Niels Erdmann, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to Bandwidth's second quarter 2026 earnings conference call. I'm joined today by David Morkin, Chief Executive Officer, and Daryl Ray, Chief Financial Officer. We will begin with prepared remarks and then open up the call for Q&A. During this call, we will make forward-looking statements, including statements related to our future financial performance, expectations regarding the growth of our business, our outlook for the third quarter and full year 2021, and other indications of future opportunities. These forward-looking statements are subject to certain risks, uncertainties and assumptions, and actual results may differ materially. These forward-looking statements represent our beliefs and assumptions only as of today, undertake no obligation to revise or update any statements to reflect changes that occur after this call. Further information on factors and other risks that could cause actual results to differ materially from these forward-looking statements is included in our reports filed with the SEC, including our most recent Form 10-K and our forthcoming Form 10-Q, and in our second quarter earnings press release and earnings presentation that were issued this morning.

During the call, we refer to certain metrics, including non-GAAP financial measures. Definitions of these non-GAAP metrics and other operating metrics, as well as reconciliations with the most comparable historical GAAP measures, are available in our earnings press release and our earnings presentation, both of which can be found on the investor relations page of our website at investors.gov. www.bandwidth.com. With that, I will now turn the discussion over to David.

Thank you and welcome everyone. We are pleased to report outstanding second quarter results with revenue and profitability exceeding expectations. Based upon our performance, we are raising our full-year financial outlook. AI is changing how enterprises buy communications infrastructure. shifting the decision toward providers that can support mission critical AI interactions. AI and AI voice agents are driving customers to highly value our services that provide trust, compliance, and global performance. This is creating numerous strategic opportunities for bandwidth. We're capitalizing on this shift to secure larger customer wins across a wide range of AI native companies, global 2000 enterprises, hyperscalers, and software platforms. And we're innovating to strengthen our competitive position, growing faster and creating durable long-term shareholder value.

In the second quarter, these themes yielded revenue growth of 22%, EBITDA growth of 27%, and five new million-dollar-plus customer wins and expansions. Additionally, we strengthened our balance sheet with a convertible notes offering in June. This offering reduces our financing costs, retires the large bulk of our 2028 maturity, and reinforces our capacity to invest profitably in AI voice infrastructure. Daryl will walk through the details shortly. I'd like to thank our customers for trusting bandwidth with their most important customer interactions. I'd also like to thank our bandmates, whose passion for innovation and serving customers continues to set us apart. And I thank God for the opportunity to serve alongside such an exceptional team.

A year ago, AI came up in only a fraction of our customer conversations. Today, it leads nearly every time. Whether we're talking with AI-native startups, global enterprises, or hyperscalers, they're increasingly reaching the same conclusion. AI is only as good as the communications platform. it runs on. That means customer buying decisions are now driven by a partner's ability to consistently deliver the trusted, compliant, high-performance communications foundation that production AI demands. We're seeing that shift play out across every category of our business. A great example is one of the fastest growing AI native voice agent developers, which we signed in the second quarter.

As the company scaled, they quickly outgrew the provider they used to initially build their business. To serve larger enterprises, they needed the higher quality voice infrastructure, global reach, regulatory compliance, and higher control, observability, and auditability that bandwidth provides. This win demonstrates something we're seeing across this space. Many AI-native companies began with speed and experimentation. As they mature into enterprise platforms, we see them needing high-performing trusted communications infrastructure that can support production workloads around the world. That's exactly where bandwidth is uniquely positioned and where our business model creates more value. As a Gentic voice adds more legs to every interaction, each of those legs becomes a new source of usage on our platform. sentiment analysis, transcription, translation, and orchestration between systems.

We're also making it easier for these next-generation AI companies to build on our platform. In June, we introduced bandwidth build, enabling authenticated AI agents to autonomously provision and launch communication services on our network. already seeing early signups generating real traffic. As AI voice agents proliferate, we're ensuring bandwidth is easy to discover, authenticate with, integrate, and deploy. Every major frontier AI lab is racing toward the same conclusion, that the primary way people will engage with AI is through speaking and listening. This is a conclusion being heard by our customers around the world. They require the same carrier grade regulated global voice network we've spent two decades building. And it's why we're already integrating leading voice agents into Maestro, so our customers can deploy them faster and with more control over their voice AI tech stack.

There are elements of that voice AI tech stack infrastructure which belong closer to the end user in our global network in order to perform faster, better, and more cost-effectively. We're seeing those same AI-driven requirements translate into larger opportunities with global 2000 enterprises as they modernize customer engagement for the next generation of AI-enabled experiences. That trend continued in the second quarter with five new $1 million-plus customer wins and expansions, 100% of which included included Maestro or AI services. A great example is a growing healthcare system operating dozens of hospitals and 400 clinics across five states in the Midwest. This million-dollar plus opportunity came through one of our channel partners, as the customer needed to modernize their complex legacy environment for the Cloud. They selected Bandwidth's Communications Cloud and Maestro orchestration platform for our native Webex calling integration, automated migration capabilities that reduce porting times from weeks to days, and centralized operational control. This modernization with bandwidth creates a foundation for the customer's planned Cloud Contact Center adoption and future AI-enabled communications.

Another new million-dollar-plus customer is a leading European appliance care and warranty provider that's selected bandwidth to modernize its customer engagement platform. Operating across multiple European markets left the customer with a fragmented communications environment across different incumbent carriers and regulatory requirements in each country. The customer simplified that complexity by consolidating onto a single trusted communications partner. Bandwidth's Global Communications Cloud, combined with our native Genesys Cloud BYOC integration, enables the customer to improve performance, simplify operations, and increase control across its European communications environment. As the customer expands its use of AI within Genesys Cloud, it will do so on our trusted carrier-grade infrastructure required to deliver those experiences at scale. In addition to these new logos, here are $3 million-plus examples of existing customers deepening their strategic partnerships with bandwidth. A global electronic brokerage serving investors in more than 200 countries expanded a multi-year messaging relationship into global voice, replacing regional carriers across its highly regulated markets with one global partner in bandwidth.

And one of our longest standing hyperscaler partners significantly expanded our role supporting a key digital service internationally, which is continued proof that as these partners scale their AI and cloud platforms, they scale on bandwidth. We also saw this pattern in messaging with a million-dollar plus existing customer expansion by one of the largest text messaging platforms in the US, serving approximately 2,500 brands. This customer had been managing traffic across six different vendors. As their business scaled, they needed more capacity, better deliverability, and stronger digital campaign management. Consolidating with Bandwidth, they've moved over 95% of their messaging volume onto our platform. We now support their business across all key channels and expect to add RCS as they evaluate a 2027 launch. This is a strong example of how our messaging business continues to win when customers need scale, deliverability, and operational discipline, not just volume.

We announced in March that Salesforce selected Bandwidth as its exclusive critical infrastructure partner for voice and messaging within agent force contact center. Salesforce has publicly discussed customer momentum following the March launch, including wins across both mid-sized organizations and growing interest from large enterprises. encouraged by what we're seeing and pleased to have already begun supporting the opportunities Salesforce is bringing to market. It's exciting to see the first traffic flowing across our platform and we expect revenue to begin growing as customer deployments scale. This is a relationship we believe in deeply. Salesforce's own vision is that every customer call should become a conference call with a human, an AI agent, and the full context of that customer relationship on the line together. We share that vision, and we built Maestro on top of our global network to make it possible. We're embedded in Salesforce's governed workflows today with the controls, the tools, and the tools. observability and integration depth their platform requires.

Over the last 18 months, we have been accelerating innovation behind the opportunities we believe will create the greatest value proposition for our customers. That decision reflects our confidence that we've just begun one of the most significant technology shifts in history. We are already seeing these investments pay off. The upgrades to our owned and operated network have contributed to the gross margin and adjusted EBITDA expansion we reported this quarter, giving us confidence that continued investment is self-reinforcing. our innovation investments are broadening our portfolio in four key areas. First, we're extending our global communications Cloud's network footprint, regulatory coverage, and capacity into additional strategic markets where our global 2,000 customers are growing. This positions us to support our customers wherever they choose to do business. Second, we're expanding Maestro and have launched Bandwidth Build to give enterprises even more integration choices and flexibility in how they deploy, orchestrate, and manage AI-powered communications across their technology environments.

Third, we're continuing to broaden our trust portfolio with capabilities that help enterprises improve answer rates, strengthen customer trust, mitigate fraud, and protect their brands at a time when trust and security have never been more important. We're also protecting new IP in this area. with a patent awarded for AI voice bot authentication this quarter, which reinforces the defensibility of the platform we're building. And finally, we're investing in our global infrastructure at the edge and data center level to power even more secure, compliant, high-performance AI-driven communications. In total, investments like these examples, with rapid returns, are designed to widen our competitive moat, increase the value we deliver to customers, and strengthen our ability to create durable growth and shareholder value. As we progress into the second half of 2026, our momentum is strong. We see voice AI adoption driving enterprise modernization and larger platform wins, and we expect those wins to translate into stronger owner economics, growing software services attachment and continued expansion of profitability and cash generation. The examples we shared today span AI-native startups, global 2,000 enterprises, messaging and software platforms, and hyperscalers, different customers, different verticals, different use cases.

Yet they're all increasingly making the same strategic decision to standardize on bandwidth. Thank you. We've spent years building the owned infrastructure, orchestration software, and consumption pricing model needed for this moment. As AI reshapes enterprise communications, we believe our innovations position us to be the mission-critical foundation of AI-driven communications, creating more value for our customers and for our shareholders. Now, I'll turn it over to Daryl to walk through the financial details of the quarter.

Thank you, David, and good morning, everyone. We delivered another outstanding quarter with results exceeding our expectations. Our performance reflects disciplined execution, durable customer demand, and the growing benefits of the strategic innovation we've made over the past several years. This comprehensive execution across all key metrics, including revenue, gross profit, adjusted EBITDA, non-GAAP earnings per share, and free cash flow, provides us with the confidence to raise our full-year financial guidance today. Now diving into our second quarter 2026 results. Total revenue was $220 million, an increase of 22% year-over-year. Cloud communications revenue, which is total revenue less messaging surcharge revenue of $68 million, reached $152 million, a 12% year-over-year increase.

Non-GAAP gross profit of $90 million increased 14% year over year. representing a gross profit yield of approximately 68% on incremental cloud communications revenue growth. Non-GAAP gross margin improved one percentage point to 59.4%, illustrating the structural margin advantage of our trusted, global-owned, and operated communications platform. Adjusted EBITDA grew by 27% to $28 million. Adjusted EBITDA margin reached a record 18.3%, demonstrating the scalability of our business model and our ability to convert revenue growth into meaningful profit expansion. Non-GAAP net income was 15% higher, while non-GAAP earnings per share was 37 cents, reflecting net movement in fully diluted shares from our new convertible issuance, 2028 convertible repurchase, and other capital activities during the quarter. Free cash flow was $24 million, showing another quarter of strong execution and reinforcing our confidence in the long-term earnings and cash-generating power of our business, focusing on our second quarter cloud communications revenue growth of 12%. both voice and programmable messaging solutions exceeded our expectations. For our voice solutions, we reported revenue of $121 million, growing 9%.

On programmable messaging, revenue of $31 million grew 22%, resulting from strong commercial messaging growth of 18%, combined with approximately $1 million of earned messaging revenue during the quarter from political campaign activities. Additionally, attached revenue across both voice and messaging from software services grew 66% compared with last year. While software services remained a relatively small contributor to total revenue last quarter because we monetize on usage rather than seats or licenses, AI adoption converts directly into revenue as interaction scale. As a result, growing AI activity across our platform flows through to our top line. rather than remaining an adoption metric alone. Turning to our operating metrics. Our reported net retention rate for the second quarter was 107 percent. Adjusted to normalize for the cyclical political campaign revenue impact, our commercial net retention rate was 113%, growing 3% sequentially. Customer name retention rate remained above 99%, reflecting the mission critical nature of our communications cloud and the very low churn we have consistently delivered.

Average annual revenue per customer reached a record $256,000. reflecting both continued customer expansion and our success attracting larger enterprise customers to the platform. Collectively, these metrics underscore the strength of our existing customer relationships. customers expand their usage, adopt more of our solutions, and trust our platform for a broader set of mission-critical communications. Turning to our capital allocation strategy, during the quarter we deployed an incremental $15 million toward share repurchases, opportunistically buying back 263,000 shares at an average price of $57.06. This brings the total cash used this year for share repurchases to $20 million. We further completed an offering of $316 million of 0.00% convertible senior notes due 2032, which included the full exercise of the initial purchaser's option. Strong demand for the offering reflected deep investor confidence in our long-term strategy and financial profile. After underwriting discounts, capped call costs, and other transaction expenses, the offering generated approximately $282 million in net proceeds.

We utilized approximately $122 million of these proceeds to repurchase a large portion of our 2028 convertible notes. reducing that outstanding principal balance to approximately $28 million. Our net leverage closed the quarter at 1.6 times, compared with 1.5 times at the end of the first quarter of 2026, resulting in an essentially stable leverage ratio while adding cash to the balance sheet, lowering financing costs, and improving the maturity profile. Turning to our third quarter 2026 outlook, we expect revenue to be in the range of $231 million and $235 million, representing approximately 21% growth year over year. Adjusted EBITDA to be in the range of $32 million and $34 million, representing approximately 36% growth year-over-year, and non-GAAP EPS to be in the range of $0.45 and $0.49, implying approximately 66% non-GAAP net income growth. For the full year 2026, we are raising our guidance to reflect our second quarter beat and sustained demand strength. Our confidence in the remainder of the year is supported by two key growth drivers. First, the revenue ramp from our recent enterprise customer wins, with a total of 13 new million dollar plus annual contracts won since the beginning of last year.

That is, six last year and seven already this year, with two in the first quarter and five in the second quarter, the phased deployment of these large-scale implementations provides meaningful visibility into future revenue growth that we expect to layer into our financial results over the next 12 months. Second, our owned and operated global network is driving structural margin and efficiency gains. As transaction volumes scale, our unique infrastructure allows us to capture higher incremental gross profit, converting top-line growth into efficient, bottom-line adjusted EBITDA and cash flow. Thanks to our usage-based model, our platform and software innovations begin contributing to cash flow almost immediately after release. We now expect for the full year 2026, total revenue to be in the range of $900 million and $910 million, representing 20% growth year-over-year at the midpoint, compared to our prior range of $880 million and $900 million. Within total revenue, we expect cloud communication to be in the range of $622 million and $626 million, representing 11% growth year over year at the midpoint. Adjusted EBITDA outlook to be in the range of $123 million and $125 million, representing representing 33% growth year-over-year at the midpoint, and a 20% EBITDA margin compared to our prior range of $119 million and $125 million. non-GAAP EPS to be in the range of $1.71 and $1.79, implying full-year non-GAAP net income growth of 48%, and the true-up for a higher fully diluted share count estimate, resulting from the second quarter convertible offering and other capital activities.

Additional modeling details underlying our full year 2026 outlook are as follows. We expect net interest income to be in the range of $500,000 and $1 million. Depreciation expense to be in the range of $38 million and $42 million. Adjusted effective tax rate to be in the range of 20 and 22%. Weighted average diluted shares outstanding of approximately 39 million. And for capital expenditures, we expect these to be in the range of $24 million dollars and 26 million dollars. In summary, our second quarter results reinforce that bandwidth is becoming a larger, more profitable, and increasingly differentiated communications platform.

We continue to benefit from durable customer demand, growing adoption of AI-enabled communications, and the structural advantages of our usage-based, owned and operated global network. Combined with our strength and balance sheet and discipline capital allocation strategy, we We believe we are well positioned to deliver sustainable, profitable growth and create long-term value for our shareholders. With that, I'll now turn the call over to the operator for Q&A.

This time I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. If you want to withdraw your question, please press star and the number one again. I will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Patrick Walravens from Citizens. Please go ahead.

Oh, great. Thank you and congratulations you guys on the acceleration in business. Hey, Dave, can we talk a little more about the Salesforce AgentForce Contact Center? And two questions in particular. One, just when you look on their website, it says it's generally available. in the US and Canada, but not the rest of the world yet. And is that something that would make a difference for you guys? And then secondly, Salesforce closed a massive deal with the Veterans Administration that was publicly disclosed, where basically they're going to help all our vets, you included, schedule their appointments in a much easier way. Is that the sort of thing that you guys would fit into? Yes.

Thank you, Pat, and appreciate your compliments. And the short answer to both dimensions of your Salesforce question are yes. Global expansion serving customers around the world fits very nicely into our underlying global platform and network. and would be beneficial. And the second part, yes, again, we are already seeing traffic flowing across our platform, large opportunities. Larger than our garden variety run-of-the-mill opportunities are one of the reasons why we're so excited about this relationship and why we believe so deeply in it.

Great. And if I could ask a follow-up on the finance side. Can you guys just touch on the gross margin? It came in a little below what I was expecting.

Yes, hey, good morning, Pat, and thanks again for your nice comments at the top of the... Margin came in essentially right where we expected, which is sequentially essentially stable, and one point over last year. As revenue grows again with our 20% guide, 21% guide in the third quarter, we're expecting margin expansion through the third quarter and fourth quarter. And we're on target for what we believe to be 60% approximately non-GAAP gross margin for the full year.

Okay, great. Thank you. Thank you, Pat. Your next question comes from the line of Eric Schapiger from D Riley Securities. Please go ahead.

Yes, thanks for taking the question. I think in the past you've talked about an inflection in the second half of the year. If I look at the cloud communications outlook, Looks like a slight deceleration in the second half of the year on a year-over-year basis. And so I was just wondering if I'm doing my math right on that. Then secondly, what is your expectation for contribution from political campaigns in the second half of the year?.

Yes, so thank you. Hey, this is Daryl, and thank you for that question. We are, you're right, on a first half to second half, and a over last year growth rate works. We have guided cloud communications at being slightly less than the first half growth rate. I think there's some conservatism in our model. We have left out from our model the guiding for you today any future benefit related to Salesforce. as well as the newest five enterprise deals ramping. So we believe that there's tailwinds for that, but we'll be conservative with our guide. In the second question, we initially entered the year and reaffirmed it, so to speak, in the first quarter that we believe approximately $15 billion the political campaign revenue benefit would be earned by us, principally in the second half.

We've revised that expectation to $13 million, and our guide reflects that. Now clearly, so while we are growing revenue to the extent that we are in the third quarter, and now since you understand the full year, you have the implied fourth quarter, we've actually raised our commercial cloud communications revenue expectations while lowering the political campaign revenue expectations just very moderately.

Okay, very good. Thank you. Your next question comes from the line of Joshua Riley from .

All right, great. Thanks for taking my questions. I believe last quarter you discussed for the $1 million-plus customers that you won in 2025, one was above 100% of the initial plan that you had had for that customer. I'm curious, have any others now are on track to exceed 100% of their original plan. And then on the five $1 million-plus customers that you won in the quarter, I know a few of them were expansions relative to net new customers. Can you help us just maybe understand with some more color how you expect these customers to layer in the model over the coming quarters versus what a million dollar plus customer may have in the past where it may have taken a bit longer to get them ramped up? What's the right way to think about that dynamic?.

The right way to think about that dynamic for the expansions, indeed, as you indicate, is a faster ramp. They're already provisioned in many cases and it's scaling. Some of them do have new services that are either coverage related or different product, but I think it's a good assumption that they scale more quickly. As to the first, there are customers that are scaling at a pace that should allow them to exceed 100% of our expectation. We didn't call any out in the script, but that's a reasonable assumption. There's no reason to believe that there's some slowdown among those large customers. Thank you.

And this is Dale. And hey, Josh, I would like to put a fine point on that just to clarify. We are very excited about the ramp of those particular customers. We're expecting two to be nearly twice as much the estimated contract value when they exit 26 than what we had originally assessed in the previous year. last year. So we're very excited about that. All six taken together will exit the year at a deployment rate of approximately 80%, which we feel really, really good about. We're also really excited, to reinforce David's comment, we're really excited about the faster ramping of some. We reported 22% growth in programmable messaging this last quarter.

That's 18% commercial with the benefit of $1 million of political campaign revenue. That 18% is twice, it's double what we estimate to be a growth rate in programmable messaging. And it's a point, nearly two points, is being added by the large messaging win of last year as they ramp onto our platform. We're really excited about looking forward into the second half and into the first half of 27. We announced another messaging a very large messaging win this quarter, which given the speed at which messaging can ramp, we believe that that's going to really benefit our results as we grow into next year.

Got it. That's super helpful. And then just following up on that, one of the questions I get a lot from investors is, as the million-dollar-plus customers are coming onto your platform, how much of their initial volumes are related to AI use cases versus what they're planning over the next few years? Because I think investors are trying to get a sense of how much of their initial volumes are related to AI use cases versus what they're planning over the next few years. of as you win these new customers, can then they grow off their base of what they're bringing to the platform by adding more and more AI use cases or are they already involved with AI voice use cases when they're starting right now in real time? So let me start and then invite John Bell, our Chief Product Officer.

to chime in as well, but the short answer is many of these customers have moved from prototyping AI use cases to beginning to scale. Almost all of them have additional use cases planned and are experimenting or trialing capabilities in AI voice that we can use will come online later in their contract lifecycle. Let me pause and invite John to add to that.

Yes, great question. We definitely see initial use cases coming on, along with the established legacy communications communications customers bring and but at the same time those deployments are Very often coming with future use cases and multiple platforms Multiple AI platforms that they want to continue to work with us to expand on Got it. That's helpful. Thank you, guys.

Your next question comes from the line of Arjun Bhatia from William Blair. Please go ahead.

Perfect. Thank you so much. Maybe if I can just start with a question on the voice business. It sounds like there's a lot of positive developments happening, the new wins, the AI native customers, obviously expansion deals continuing, but it did seem like This quarter, there was a bit of a decel in the voice business, both on the global communication side and the enterprise side. What would you guys just sort of chalk that up to? Is that just you're waiting for some of these customers in the pipeline to ramp, or is there some other sort of dynamic at play there that we should consider from Q2?.

I'll invite Darryl to comment on the metrics, but there's no new competitive dynamic. There's no noticeable new headwind and the AI voice acceleration continues. We see the product market fit of what we're bringing to market with Maestro and the need for orchestration across multiple platforms and regional providers and many other dynamics to be still very much part of our exceeding, beating, raising and focus on continuing the growth that we have this year into next year. Let me pause and invite Darrell to comment on any of the metrics that you indicated.

Yes, sir. For the full year, in the second quarter, year over year, our total voice did grow 9%. That is a little less than last quarter. That's primarily due to an enterprise growth that was less than last quarter. That is completely related to the timing. of ramping of new customers we continue to have embedded in our second half as I said three months ago that we were we are expecting a large growth and acceleration of our enterprise customers as the six into the second half as well as the installed base growth and what we see in terms of our pipeline. So I think that's just a quarter to quarter timing and quarter to quarter growth rates on any particular product will vary a little bit, but I'm very confident in what we're looking at.

looking at for the second half and into 27. All right, perfect. That's great to hear. And then, David, I think you talked about, you know, when you were kind of discussing some of the investment areas for the business, you mentioned expanding the network footprint. Can you just expand a little bit on what that entails? You know, I can certainly see how that would be beneficial to your to your large customers. but does that require just incremental spending? I didn't notice the CapEx guide didn't pick up. So maybe just walk us through the pieces there and, you know, how you go about expanding your footprint there.

Yes, so geographic expansion is historically very efficient on CapEx. It takes time because you have to become a regulated provider in that territory. You do deploy gear and And that is something that's vital for the value of the large global enterprises that we serve. These voice agents, these use cases have an expectation to reach multiple markets. And so it's incumbent upon us to identify those next markets that are most important. And we invest behind that demand that we see in those geographic areas, but in addition There are two other aspects of investment that we're focused on right now, expanding Maestro's capability to orchestrate across varied and emerging different AI platforms, voice platforms, and to have pre-integration and orchestration capabilities that are broad across different AI vendors so enterprises can choose. and select and benefit from the already existing integration and administration that Maestro provides. And so expanding Maestro and investing behind the 100% adoption rate we're seeing is vital.

And then last, it's really exciting to see how our global platform and network can lend itself vitally to the AI voice experience? And so elements of the AI voice tech stack, can they be more accurately, more accurate, time efficient, more cost efficient, and in terms of regulatory, maybe more jurisdictionalized in an important way for our enterprise customers by moving elements of the AI tech stack closer to the user within our network. will be responsible CapEx by us. We have begun deploying GPUs into various POPs for that reason. We're excited about how those developments are looking, but we'll always be focused on durable, profitable growth when we do those CapEx spends. But those are three areas, including coverage that you mentioned, that are vital for our growth in the future.

All right, wonderful. Thank you. Again, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of James Fish from Piper Sandler. Please go ahead.

Hey guys, just to touch on, and I know it's very new here, but what type of funnel has Build, bandwidth Build generated at this point? Does this change how you're thinking about your own internal hiring that we can leverage here as this builds up pipeline?.

Yes, it's been awesome to see meaningful business customers hit a command line interface and sign up and provision and begin flowing traffic through the build process. the build process. It's a totally different buying cycle, buying process, buying behavior. it supports autonomous agent sign up. And so it's, it's really cool. It's a frontier James that we're excited about and it's generating already revenue. And that's exciting to see. And those are business customers that are hitting that interface and buying from us. So we are excited about what it means. We've lived through API as an, innovative way for software developers to begin generating communications through different use cases.

Right now, we're living through, instead of API for developers, we're living through CLI for agents. And that's exciting.

Got it. And Daryl, for you, you guys raised the annual guide on the top line by about $15 million, but the cloud communications only by about four. I think you even just said political down from $15 million for the year to $13 million, correct me if I'm wrong. So it does suggest you're just implying more fees are coming, and that that's the upside here on the messaging piece. Is there an update to how you guys are thinking about messaging versus that, voice side of the business as well, just kind of help us as we think about the back half of the year.

Right, the walk down of the guidance is simply the flow through of the overachievement in the second quarter, the lowering, so to speak, of political campaign revenue from 15 to 13, the increase in both voice and commercial messaging, and then the, since commercial messaging is increasing the increasing in what we expect to be messaging surcharges as well. So we have the flow through of our beat, we have voice increasing, we have commercial messaging increasing, we have political campaign revenue benefit, the cyclicality decreasing some, and then we have those surcharges increasing on the volume of commercial messaging. Jim, we might have, if you're still there, we might have lost you. No, I'm good. Thanks, guys. Appreciate it.

Thank you, sir. That will conclude our question and answer session. And I will now turn the call back over to David Morgan for closing remarks. Please go ahead.

Thank you, Operator. The themes we opened with today played out across our business. AI is reshaping enterprise buying decisions. Those decisions are driving record customer wins, and we're innovating to lead the AI transformation. Before we conclude, I'd like to invite you to join us at Reverb 2026 here in Raleigh, North Carolina on November 10th. Reverb has become our flagship customer and product event where we'll showcase how enterprises are deploying AI into production and how bandwidth is making it possible. We hope to see you then. Thank you.

Thank you.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, and welcome to Bandwidth's First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

Please note, this event is being recorded.

I would now like to turn the conference over to Ankit Hira of Investor Relations. Please go ahead.

Good morning, and welcome to Bandwidth's First Quarter 2026 Earnings Call.

I'm joined today by David Morken, our CEO, and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q&A.

Our earnings press release was issued earlier today. The press release and an earnings presentation with historical financial highlights and a reconciliation of GAAP to non-GAAP financial results can be found on the Investor Relations page at investors.bandwidth.com.

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 full year 2026.

We caution you not to put undue reliance on these forward-looking statements, as they may involve risks and uncertainties that could 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.

With that, let me turn the call over to David.

Thank you, and welcome, everyone. Bandwidth has entered 2026 with historic momentum.

In the first quarter, we exceeded our expectations with record revenue of $209 million, up 20% year-over-year, and record first-quarter adjusted EBITDA of $26 million.

Based on this performance, we are raising our full-year outlook. These results represent far more than a quarterly beat. They are a definitive proof point of our structural advantage in a technology sector undergoing a profound transformation.

Our global communications cloud and Maestro orchestration layer are essential infrastructure that make voice AI possible. Bandwidth is flourishing as the mission-critical foundation for the AI-driven enterprise.

Thank you to our customers for growing and innovating with us and to our Bandmates for your amazing work. And I thank God for giving this team the opportunities to serve together.

We are executing against a clear strategy to power mission-critical communications for the AI-driven enterprise.

For voice AI to succeed in production, it requires ultra-low latency, carrier-grade reliability, and deep regulatory control capabilities that only a company that owns the underlying network can provide. This is our moat.

It creates durable advantages in economics and performance that are impossible for virtual providers to replicate. We are no longer just enabling AI, we are orchestrating it.

Through our Maestro platform, we participate in every interaction, allowing us to capture more value as customer usage grows.

As AI increases the frequency and complexity of interactions, our model allows us to grow revenue per interaction, not just per minute. We are seeing this play out as customers deploy AI into their live workflows and rely upon our platform to support mission-critical interactions.

A key example is our expanded partnership with Salesforce. We recently announced that Salesforce selected Bandwidth as its critical infrastructure partner to power voice and messaging for their groundbreaking new agent force contact center platform.

Salesforce is fundamentally rearchitecting the contact center for the AI era, bringing together its customer data, digital engagement, and agentic AI capabilities into a single AI-first platform.

In Salesforce's vision, Agentforce contact center becomes a native execution layer for CRM. This gives enterprises a single source of truth to achieve faster, more intelligent customer engagement.

Salesforce is a long-time customer and to realize its bold vision for Agentforce, they turned to Bandwidth once again as their critical infrastructure partner.

Only we are able to deliver the unique combination of network ownership, real-time orchestration, and global regulatory expertise required to support Agentforce's high-volume AI-driven interactions.

This is the result of our years of powering hyperscalers and all the Gartner leaders in CCaaS and UCaaS.

In our partnership, Salesforce has embedded Bandwidth's Communications Cloud directly into its governed workflows, enabling the control, observability, and integration depth required for agentic interactions at scale.

This is significant for 2 reasons. First, it adds CRM as a new category of platforms we power. In addition to CCaaS, UCaaS, and conversational AI leaders, we are now partnered with the leading CRM platform as it becomes the system of execution for customer engagement.

This expands our total addressable market and positions us to capture meaningful share as CRM platforms take on a larger role in customer interactions.

Second, it reinforces our emerging role as critical infrastructure embedded inside governed workflows, where every interaction represents a unit of usage and value creation.

This is a blueprint for how we expand value by embedding deeper into core enterprise systems and participating in more workflows on our platform.

As agent force adoption grows, we believe revenue will build over time. With AI becoming the primary interface for customer engagement, the traditional contact center stack is being rearchitected around Agentic workflows.

We have a long history of working closely with the leading CCaaS providers, and they continue to innovate and invest in exciting new AI capabilities.

The evolution of the category will expand the range of platforms enterprises can choose from, and Bandwidth is positioned to support them all.

Our open platform strategy ensures that, regardless of which application or AI provider an enterprise selects, Bandwidth remains the underlying communications infrastructure.

We're seeing the same need for mission-critical infrastructure play out in highly regulated industries, particularly in financial services, where we've secured large wins over several consecutive quarters, including 2 new million-plus deals.

The first is with a leading U.S. consumer financial services company that has over 70 million active accounts. This customer selected Bandwidth to replace its legacy telecom provider and migrate its contact center to the cloud through our Maestro integration with Genesys and our ultra-reliable Call Assure toll-free voice solution.

Our solution delivers the reliability, control, and integration they needed while also enabling their transition to AI-driven customer engagement.

We're now positioned for significant expansion as the customer integrates AI into the next phase of their customer experience transformation.

Our second $1 million-plus deal during the quarter is with one of the largest mutual life insurance companies in the world.

This customer selected Bandwidth to replace a long-standing legacy carrier. Like many enterprises in regulated industries, this customer required both performance and trust, areas where our owned network and integrated platform provide a clear advantage.

Their comprehensive customer experience transformation leverages our Maestro integration with Genesys, our call assured toll-free voice, and our trust services, including call verification and number reputation management.

Cost savings from modernization are being reinvested into new AI services, which could further increase usage on our platform, redirecting spend away from legacy systems and toward more intelligent, scalable customer engagement with bandwidth.

These examples demonstrate our continued strong momentum in financial services, where scalability, compliance, and resiliency are nonnegotiable.

Standardizing on bandwidth enables best-in-class integrations, intelligent call routing, built-in failover, and a clear path to deploying new AI services.

This is a land-and-expand model where the initial platform wins immediately demonstrate Bandwidth's value proposition, leading to higher usage, increased software attachment, and long-term, durable revenue growth.

We're seeing a similar dynamic play out in our messaging business, where enterprises need a robust, reliable platform partner to scale real-time customer engagement across digital channels.

During the first quarter, we won an additional high-volume messaging customer with major consumer brands across the retail and restaurant verticals.

This customer reached a level of throughput where their previous large provider could no longer meet their requirements and switched to Bandwidth for our proven delivery performance and ability to scale, particularly as they manage tens of millions of messages per month across short code, 10DLC, and toll-free channels.

As they add new AI workflows to automate campaign management and customer interactions, Bandwidth's messaging platform and campaign registration tools ensure reliable execution.

This example shows how we're extending the same land-and-expand model into messaging. As customers grow and scale their engagement, activity flows directly through our platform, driving revenue and margin performance over time.

In addition to our customer acquisition success in voice and messaging, we are increasingly supporting a growing ecosystem of AI developers building vertical applications on top of our platform.

We're seeing continued momentum in this space with developers building Agentic solutions across a wide variety of use cases from restaurants and hospitality to health care, home services, and customer support, where real-time voice and messaging are central to the customer experience.

These AI app developers are choosing Bandwidth for the same reasons as our enterprise customers, the ultra-low latency, reliability, and scalability required to run AI applications in production, along with the orchestration capabilities of Maestro.

As enterprises increasingly adopt verticalized applications built by third-party developers, Bandwidth becomes the essential communications layer powering additional usage on our platform.

In summary, we are the mission-critical communications platform for AI-driven enterprises.

First, we are executing against a clear and consistent strategy to power mission-critical communications for the AI-driven enterprise, and we are seeing this focus translate into large enterprise adoption across our platform.

Second, we are expanding our role inside governed customer workflows as AI moves into production.

And third, we are scaling a business model that drives increasing usage, expands revenue per customer, and delivers exceptional incremental gross profit growth.

Taken together, we are positioned as the mission-critical communications platform for AI-driven enterprises.

Now I'll turn it over to Daryl to walk through the financial details of the quarter.

Thank you, David, and good morning, everyone. Bandwidth's 2026 is off to a historic start.

Our first quarter performance was exceptionally strong, with demand for both voice and messaging exceeding our projections and driving results above the top end of our guidance ranges.

This robust momentum across all key financial metrics, including revenue, gross profit, adjusted EBITDA, non-GAAP earnings per share, and free cash flow, has given us the confidence to raise our financial guidance for the full year.

Our market performance and execution underscore the depth of our competitive moat and the resilience of our business model as we continue to scale our cloud communications platform and drive long-term value for our shareholders.

Now diving into our first quarter 2026 results.

Total revenue was $209 million, an increase of 20% year-over-year. Cloud communications revenue, which is total revenue less messaging surcharge revenue of $59 million, reached $150 million, a 13% year-over-year increase, driven by growth across our core communications platform.

Non-GAAP gross profit of $89 million increased 14% year-over-year and marked another quarter of improving gross profit yield on incremental cloud communications revenue.

Non-GAAP gross margin improved 50 basis points to 59.5%, illustrating the structural margin advantage of our unique global owned and operated communications platform.

Adjusted EBITDA grew by 17% to $26 million, driven by gross profit growth and the scale of higher revenue across our operating expense base.

Non-GAAP earnings per share rose to $0.38, representing 6% growth, and operating cash flow grew significantly to yield essentially breakeven free cash flow, representing a marked year-over-year improvement despite the typical first quarter working capital cycle.

Focusing on our first quarter cloud communications revenue growth, both voice and programmable messaging solutions exceeded our expectations.

For our voice solutions, we reported revenue of $121 million, growing 12%. Both of our voice market categories contributed to the total voice growth.

Within our global voice plans category, we saw broad-based demand-producing revenue growth of 12% year-over-year, underscoring both the strength and durability of our installed customer base and the tailwind of AI-influenced voice usage.

For our enterprise voice category, revenue grew 14% year-over-year to $13 million.

Growth was driven by both recent customer additions and increasing momentum as enterprises scale on our Maestro platform.

In programmable messaging, revenue rose 15% year-over-year to approximately $30 million. This performance exceeded our projections, particularly given the typical first-quarter seasonal headwinds we often encounter.

Turning to our operating metrics. Our reported net retention rate for the first quarter was 102%. Adjusted to normalize the cyclical political campaign revenue impact, our commercial net retention rate was a healthy 110%.

We believe this adjusted view more accurately reflects underlying organic commercial demand and customer expansion.

Customer name retention remained well above 99%, indicating near 0 customer churn, a remarkable and unique track record that we expect to continue.

Average annual revenue per customer reached a new high of $244,000, reflecting the mission-critical nature of our platform and deep integration with our customers.

Taken together, these metrics demonstrate continued expansion within our existing customer base as customers increase their usage, adopt more of our services, and deepen their reliance on our platform.

In the first quarter, we progressed our balanced capital allocation strategy.

We deployed approximately $11 million in cash to mitigate share dilution by 700,000 shares, while repurchasing $100 million in aggregate principal of our 2028 convertible notes at a discount to par.

This resulted in a long-term debt leverage ratio of less than 1.25x. Shares acquired under our $80 million repurchase authorization were purchased at an average price of $15.93.

Looking ahead, we intend to maintain this opportunistic approach, prioritizing debt reduction and dilution management while remaining steadfast in our commitment to prudent cash flow management and a strong, flexible balance sheet.

Turning to our second quarter 2026 outlook. We expect revenue to be in the range of $214 million and $220 million, representing 20% growth year-over-year, adjusted EBITDA to be in the range of $24 million and $27 million, representing 20% growth year-over-year, and non-GAAP EPS to be in the range of $0.35 and $0.37.

Turning to our improving full-year outlook. We are raising our full-year 2026 guidance to reflect the first quarter beat and continued demand strength.

Our positive outlook for the remainder of the year is underpinned by 3 significant growth catalysts.

First, the transition of AI-driven traffic into high-volume production. We are seeing a marked acceleration in our global voice category as AI voice agents move beyond the pilot phase into full-scale deployment.

This organic growth is generating volume that leverages the carrier-grade reliability and ultra-low latency of our owned network, further expanding our competitive moat.

Second, a robust enterprise pipeline is poised for a second-half inflection. We expect growth to accelerate as our record pipeline of large-scale deals completes onboarding.

Our role as a mission-critical partner is validated by Salesforce selecting Bandwidth to power agent force alongside our significant $1 million-plus wins in financial services this quarter.

These partnerships cement our position as the foundational infrastructure for next-generation engagement.

Third, the continued expansion of high-margin software services. As enterprises integrate more deeply with our platform, they are increasingly adopting unique services within the Bandwidth Communications Cloud.

During the quarter, software services revenue nearly doubled year-over-year, with its sequential ARR exit rate growing 67% to $25 million. This provides a powerful tailwind for both long-term business durability and incremental profitability as we scale.

We now expect the full year 2026 total revenue to be in the range of $880 million and $900 million, representing 18% growth year-over-year at the midpoint compared to our prior range of $864 million and $884 million.

Within total revenue, we expect Cloud Communications to be in the range of $616 million and $624 million, representing 10% growth year-over-year at the midpoint.

The adjusted EBITDA outlook is in the range of $119 million and $125 million, representing 31% growth year-over-year at the midpoint compared to our prior range of $117 million and $123 million.

Non-GAAP EPS to be in the range of $1.77 and $1.83, representing growth of 26% year-over-year at the midpoint. Compared to our prior range of $1.66 and $1.74.

Additional modeling details underlying our full-year 2026 outlook are as follows: We expect net interest expense to be in the range of $1 million and $3 million, depreciation expense to be in the range of $38 million and $42 million, adjusted effective tax rate to be in the range of 20%, and 21%; weighted average diluted shares outstanding of approximately 35 million.

And for capital expenditures, we expect these to be in the range of $24 million and $26 million.

With that, I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Our first question comes from Erik Suppiger from B. Riley Securities.

Congrats on a solid quarter there. Can you speak a little bit about some of the developments going on with some of the frontier model providers like Google and OpenAI in terms of their advances in their ability to support AI voice technologies, and is that making a difference to Bandwidth?

Yes, certainly, and thanks for joining, Erik. There are a number of these announcements just in the last 10 days, I think most recently, the voice model that Brock came out with for that Gemini OpenAI.

These models are focused on improving the text-to-speech, speech-to-text legacy experience that has a number of different challenges associated with it.

So we're excited about the voice focus that the frontier models have. It really does accelerate lots of the performance and quality for voice agents, and that is very favorable as a tailwind for our platform and our approach to serving voice agents globally on our platform.

Are they putting much behind marketing those services? And are you fully capable of integrating with those services?

So on the first point, they have been very forthright and expansive in talking about the new voice-focused models.

In fact, one of them talked about it displacing one of their sister company's contact center legacy experience and resolving 70% of tickets in the contact center environment just with that voice model last week.

So these things have just been announced. There's no reason that we shouldn't be able to support voice agents utilizing these models fully, and that they will complement the quality that we offer for PSTN delivery of voice agent experiences again across 80 countries plus.

Our next question comes from Patrick Walravens from Citizens.

Dave, congratulations to you and all the Bandmates. Fantastic. So 2 questions. I guess one is a follow-up.

So first of all, can you tell us a little bit more about the Salesforce partnership? In your remarks, you talked about how they're fundamentally rearchitecting the contact center.

Tell us a little bit more about that and where you fit in? And also, are customers buying into the way they're fundamentally rearchitecting the contact center?

Pat, thanks. I appreciate the congrats. And I want to also congratulate our Chief Operating Officer, Navesh Agrawal, for delivering fantastic results with all of our Bandmates.

To answer your question on Salesforce, I think the team at Salesforce, Mark Benioff, the long-time founder and CEO, and their whole team have a compelling vision for every sales call to be a conference call.

And that vision of having an agent aware of all the context of your customer experience is powerful. And we believe in it as well.

So when we say that they are absolutely challenging the legacy assumptions around contact center, it's more like a context center now, where an agent is fully aware of all your needs, wants, wishes, your sentiment, and can share, suggest, complement, or correct a sales rep or an operations representative of your company in real time.

So it is a revolution, no question about it. Their headless approach just last week, saying that they're taking the face off the UI and allowing agents to directly engage with the system of execution within their CRM Salesforce platform, is powerful.

I don't think that it's it can be overstated very easily. And in terms of the second part of your question, Pat, are companies embracing this? I don't think companies have a choice.

The level of intelligence that is now going to be available to real-time customer interactions through an approach like Agentforce is differentiated. It is competitively ahead of its peer group and cohort, and I think everyone will follow.

And so for my follow-up, if someone does, if you have a big airline or a big bank or whatever that decides that they're going to move forward with Salesforce on their new approach, how does Bandwidth make money? What are the dynamics there?

You bet. Great question. So we make money on a usage-based model based on interactions. So we are powering an announcement already on every one of those calls.

And so when every call becomes a conference call, there are multiple usage components to that that we benefit from. And they're obviously relying on us for high, high quality, resiliency, footprint, all kinds of our advantages that we've enjoyed for the last 15 years.

But our usage-based model is the approach we take to powering these experiences, and there are multiple units of usage now with AI involved.

[Operator Instructions]

 And our next question comes from Joshua Reilly from Needham.

Maybe just starting off, global voice plan revenue growth was really strong at 12% year-over-year.

I guess what are you seeing from these customers in terms of their adoption of AI driving incremental growth relative to maybe some other factors like new customer ramps.

We know there's been a lot of million-plus customers ramping up there. Maybe you can just give us a sense of what was the relative driver of that strong 12% growth there.

Josh, thanks, and thanks for your good question. I've got with me today, John Bell, our Chief Product Officer. Let me invite him to respond to your good question.

Yes. So we see broad-based adoption of AI and integration of voice agent technologies by our customers. Our customers are making it very easy for enterprises to realize real economic value from voice agents, and we see that consistently across our customer base.

And in addition to that, we do see new entrants as well coming into the market, AI-native companies that we are enabling.

We also announced our bandwidth build program, which allows new entrants to easily onboard as customers, and we're really excited about that as well.

So, both a mix of existing customers integrating voice agents and driving their business, as well as new entrants coming into the market.

And then maybe just a follow-up on the $1 million-plus customers. If you look at the $1 million-plus customers that you added in 2025, would you say that all of those now are in the run rate here of revenue as of this point in 2026?

And then how are you thinking about the net new $1 million-plus customers that you've added year-to-date thus far in 2026 relative to 2025?

Can you add a similar number, even more $1 million-plus customers this year versus last year?

This is Daryl. I'll take that question. It's nice to speak with you. The short answer is no.

The 6 million, much larger than the $1 million deals we announced last year, are not fully in the run rate right now.

In fact, 5 of them are less than 50% deployed. With one being fully deployed and now nearly exceeding 120% of our initial estimated contract value.

So we're really excited about what's to come when I said the inflection in terms of enterprise and second-half acceleration.

And we're really excited about the one that has fully deployed and more because, as I said in the prepared remarks, as soon as that occurs, the client immediately understands the value proposition that the communication Cloud brings, and it allows for our land and expand and cross-sell, upsell model. So we're really excited about that.

In terms of your second point about the momentum of enterprise, much greater than $1 million deals. We did announce two this quarter. We have a view into our pipeline, and we think that we're very much on pace with last year or to exceed.

And the next question comes from Arjun Bhatia from William Blair.

Congrats on the solid quarter here, guys. Maybe I'll start on the messaging side because I think you called it out early, but usually, there's a Q1 seasonality dynamic where there's a dip down in Q1 from Q4.

But it seems like the year-over-year growth rate is actually accelerating there. So I'm curious what's driving that? Is that AI volumes starting to layer in? And how do you expect that to sort of play out through the rest of the year, even with political layering into the back half?

We were pleasantly surprised with the strength in programmable messaging, as you said. Given the typical seasonal headwinds that occur in the first quarter, we saw pretty strong commercial and civic engagement messaging.

And of course, we had announced a couple of messaging customers who won last year that began to deploy and onboard more fully as well.

So we had a favorable comparison for that. But yes, the market dynamics plus our customer onboarding exceeded our expectations.

And Arjun, I'd only add to that. This is David. That performance wasn't due to politics in the quarter.

It was largely commercial, and that squares with the announcement that we had about our messaging win.

That was a commercial consumer brand messaging platform for both retail and restaurant verticals, and that was a major win and consistent with the success we're seeing, which has nothing to do with the seasonal civic traffic.

And then just maybe a broader question, if I can. And I don't know, maybe this is for you, Dave.

But just as AI becomes more prominent, like what is the change you expect in the business to play out, not just through 2026, but over the next couple of years, it seems like your product is there, but how does it impact the revenue model, your visibility into your revenue stream, and the customers, maybe that you even are going to serve.

I'm just curious what this evolution might look like for Bandwidth over the next couple of years.

We believe the next billion users of the global PSTN are significantly going to be voice agents. And so we're building for those agents, as are many other broad AI infrastructure companies.

We've launched ways like a command line interface for agents to be able to autonomously sign up and secure service. We obviously know how to comply with know your customer while we do that.

But look, over the next 2 years, to your good question, we're going to do a terrific job in being understood broadly as the best place for voice agents to speak with people around the world over the PSTN.

We think we'll do that with differentiation on our vertically integrated universal platform and our global footprint. And we're starting to see the beginning of that, I think, in these results. But let me pause and invite John Bell, our Chief Product Officer, to also opine on your question.

Yes. And I would just add that a big part of our role right now is helping our customers transition to this new world and helping both the human agents and the voice agents work together in a harmonized way.

That creates a very big opportunity for us, and a lot of value for our customers to help them quickly realize the economic value of voice agents in their businesses.

The next question comes from Jim Fish from Piper Sandler.

Congrats on the agent force side of things. Just wanted to circle back on the political side. Was there any political messaging impact this quarter?

There was no meaningful political impact this quarter. Again, for full transparency, we are really believing that, that impact will be exactly like we've seen in the last 2 cycles, which is very second-half weighted, just given the dynamic of how campaigns work.

We're calling in our guide for right at $15 million of political campaign messaging benefit, and that's what we see right now.

So we haven't really changed that. As we get into the 1st of July and then beyond, we're going to have a lot better sense with our customers of where this campaign dynamic is headed, but we're looking for about $15 million net effect in cloud communications revenue this year, second half.

And then look, your new business looked pretty strong here. Agent force isn't even kind of in the numbers at this point from your language here.

But what are you guys seeing with cloud conversions across the core unified and CX market? Are we finally getting to a point where enterprises are really starting to shift over towards the cloud, especially the CCaaS side?

And could the new SEC proposals of more human onshoring here change anything for you guys underneath?

I'll handle the second part of your question first and then invite John to talk to the first, if I could. So nothing about the regulatory change augurs negatively for us. The voice agent revolution will apply equally.

And if anything, I think it bodes well for the partners we work with and the call volumes we support. We've got an extraordinary global and domestic network underneath all of these initiatives.

So we're not deterred or concerned about that migration or change at all.

Yes, I'd add. So the move to the cloud certainly enables a lot of enterprises to easily adopt voice agents, which we're excited about.

But I would also add that a core benefit of Maestro is that even for customers who still have a lot of their human agents and the software for the human agents on-prem, we are still able to voice agent enable them. And that is a tremendous benefit of our Maestro platform.

This concludes our question-and-answer session. I would like to turn the conference back over to David Morken for any closing remarks.

Thank you, operator. In closing, our first quarter performance underscores Bandwidth's expanding role as the mission-critical foundation for the AI-driven enterprise.

By combining our unique global owned and operated network with the increasing velocity of the Maestro platform, we are capturing more value as customers deploy agentic AI into live production workflows.

Compared to prior cycles, our growth today is increasingly complemented by embedded AI workflows and software attachment rather than episodic traffic alone.

Our raised full-year guidance reflects this momentum and the scale of our record deal pipeline.

We remain committed to a disciplined capital allocation strategy that balances strategic investment in our AI moat with opportunistic shareholder returns, ensuring long-term value creation. Thank you very much.

This concludes our conference call today. You may disconnect your lines. Have a nice day.

Bandwidth is positioned at the center of global cloud communications powering mission-critical voice, messaging, emergency services and AI for enterprises worldwide. In this presentation, we will walk through how Bandwidth is positioned at the center of global cloud communications, powering mission-critical voice, messaging, emergency services and AI for enterprises worldwide.

Our story is anchored in 3 pillars. First, we're a global communications leader in a large growing market, powering mission-critical voice, messaging and emergency services for some of the world's largest and most demanding enterprises. Second, we are orchestrating AI, voice and messaging across cloud communications through our open award-winning Maestro platform. Third, we have a highly attractive business model, delivering profitability and capital structure strength that powers durable long-term growth. These pillars define how we compete and how we create long-term value.

Bandwidth powers mission-critical communications across cloud platforms. We combine global infrastructure, software orchestration and AI enablement, giving enterprises the performance, reliability and flexibility they require. This is not just connectivity. This is intelligent communications at global scale.

The market opportunity ahead of us continues to expand. Our total addressable market is projected to grow from $99 billion in 2024 to $162 billion by 2029 with a 10% compound annual growth rate. That secular growth is a tailwind across our 3 customer categories: Global voice plans, our largest customer category powering the leaders in unified communications, Contact Center as a Service and voice AI platforms is expected to grow above the market growth rate of 8%. Enterprise voice, our smallest and fastest-growing category, providing voice-powered customer experiences for the Global 2000 is expected to grow more than double the market growth rate of 13%.

Programmable messaging, our customers using text messaging to power digital engagement across platforms and applications are expected to grow in line with the market growth rate of 10%. The fastest growth is expected to come from enterprise voice and AI-powered customer engagement. And in this expanding market, Bandwidth is uniquely positioned to lead, especially as AI becomes central to how businesses engage with their customers. As AI becomes embedded into customer experience workflows, the demand for reliable real-time voice infrastructure expands. That structural shift is a meaningful tailwind for Bandwidth.

Bandwidth powers global communications at scale, trusted by some of the world's most recognized and demanding brands. We power 100% of the UCaaS and CCaaS leaders, including Microsoft, Google, Zoom, AWS and Genesys. We're also trusted by large enterprises with their most mission-critical needs like Ally and Southwest, where reliability, scale and uptime aren't just important, they're non-negotiable.

On the messaging side, Bandwidth is the trusted provider behind some of North America's largest engagement platforms. Through customers like Attentive, Rover and Kipsu, we help thousands of brands reach their consumers at scale with reliable high-volume messaging.

Our strategy to deepen direct connections with mobile carriers continues to improve capacity and cost efficiency while expanding margin. At the same time, our investments in global 2-way messaging are opening up new opportunities for our customers to deliver richer, more personalized brand experiences virtually anytime, anywhere. These aren't just logos you see on this slide. They represent platforms millions rely on daily. They trust Bandwidth for performance, scale and reliability.

That trust shows up in our customer metrics. Our name retention rate is over 99%. Once a customer chooses Bandwidth, they stay. Our 2025 organic net retention rate was 107%, fueled by strong growth within existing accounts. And among our top 20 customers, the median tenure is 12 years. That's serious loyalty. These aren't just metrics. They reflect the trust we've earned by solving complex communications challenges and showing up as a true partner year after year.

Across industries from health care to financial services to hospitality, enterprises rely on Bandwidth for high-performance voice solutions. Whether integrating cloud contact centers, enabling AI-driven orchestration or modernizing legacy infrastructure, we provide the foundation that allows customers to move faster with confidence.

On the messaging side, we enable digital engagement at scale. From retail marketing platforms to health care communications and financial alerts, our infrastructure supports high-volume, reliable messaging across short code, toll-free and 10DLC channels. As enterprises look to enhance customer engagement, messaging remains a powerful and growing channel.

What gives Bandwidth its competitive moat and lasting edge in the market? First, our owned and operated Global Communications Infrastructure, which creates structural margin and cost advantages. We have the only owned and operated IP network with global regulatory reach across nearly 70 countries, which gives us control over quality and performance.

Over the last 2 decades, we've built our platform into the global ecosystem, achieving greater than 5,000 interconnections worldwide. Second, our AI voice orchestration powered by Maestro. Simply put, our platform and orchestration software are fundamental enablers for enterprises to deploy and scale AI voice agents with ultra-low latency, reliability and scalability. Third, enterprise-led demand for mission-critical communications. This drives revenue durability and market-leading customer retention. This combination differentiates us from the providers that put a thin application layer on rented networks. At Bandwidth, we've Got Moat.

Bandwidth is not just enabling AI, we are becoming critical infrastructure for AI-driven enterprise communications. We are deeply embedded in enterprise workflows where trust, compliance and integrations are built directly into the network. Our platform gives enterprises control and observability over high-value interactions, providing visibility, auditability and a system of record at global scale. And importantly, this model expands with AI adoption.

As AI voice agents drive more interactions, platform usage increases. As workflows become more automated and continuous, engagement scales. And as interactions become more complex with additional call legs, services and software, revenue per interaction grows. This positions bandwidth at the essential core of the enterprise AI stack, powering communications between AI applications, enterprise systems and the global communications ecosystem.

Behind every call, message and emergency connection is a global cloud platform that just works, a foundation our customers can build on with confidence. Bandwidth is the only scaled CPaaS provider built on a nationwide owned voice network. That matters. We control the economics, the quality and the customer experience. Bandwidth operates in more than 65 countries, covering over 90% of the global economy. Each year, our cloud platform powers more than 110 billion voice minutes and delivers over 55 billion messages and growing. We support 30 million 911 endpoints and maintain 59 of core network uptime because when communications matter most, our customers count on us. And while we operate at massive scale, we keep it simple, reducing regulatory complexity and maximizing support with a team that's human, responsive and always on.

AI is not a future road map for Bandwidth. It's already embedded across our portfolio and being deployed at scale. Across global voice plans, enterprise voice and programmable messaging, our APIs are already embedded in UCCC and SaaS platforms and actively powering AI-driven experiences today. Whether it's enhancing customer experience through intelligent routing and voice agents or enabling conversational messaging with SaaS platforms, Bandwidth's infrastructure is already powering AI use cases today. The growth drivers are clear: digital transformation, artificial intelligence and advanced messaging. Bandwidth is already enabling all 3. We didn't retrofit AI into our platform. AI is running on it in production.

Our innovation leadership is recognized across the industry. We're proud to be named a leader in the IDC Worldwide CPaaS MarketScape for 2025, a testament to our scale, strategy and execution. We've also earned honors like Best CPaaS Platform, Most Innovative Product, Innovation in Customer Service and Best of Show at Enterprise Connect. These awards validate a simple truth. We don't just follow the industry, we lead it.

In the race to modernize customer engagement, AI will reshape how businesses harness voice and messaging, but delivering intelligent real-time experiences across channels and at global scale will take more than great AI models. It will take great orchestration. That's where Bandwidth stands apart. We're not just enabling AI, we're orchestrating AI-powered voice and messaging across the cloud communications stack with an open architecture approach that gives the flexibility, fidelity and global reach enterprises need to lead.

We're at a turning point in how enterprises engage customers and AI voice agents are leading the charge. Gartner predicts that 70% of customer service journeys will begin and be resolved through conversational third-party assistance by 2028 with major advances in latency, interruptibility, emotional tone and model quality. These aren't basic bots or legacy IVR systems. They're intelligent, adaptive and custom-built, able to carry natural conversations, personalized responses and improve service outcomes. AI voice agents will transform customer service at scale, eliminating hold times, boosting availability and delivering instant consistent support 24/7.

The expected result: Faster resolutions, higher satisfaction, lower operational cost. With Bandwidth's platform powering AI enablement, enterprises can launch these experiences through a single global provider without compromising quality, performance or control.

Enterprise technology buyers consistently rank integrations, security, AI-based features and scalability as top decision criteria. Bandwidth aligns directly with these priorities. Our integration ecosystem, AI enablement and enterprise-grade reliability position us strongly across both mid-market and large enterprise segments.

Maestro is the orchestration layer for the modern enterprise built on Bandwidth's open API-first platform. While many CPaaS providers push proprietary stacks and limit flexibility, Bandwidth takes a different approach. We enable freedom of choice. Maestro allows enterprises to integrate best-in-class solutions across CCaaS, UCaaS and AI without vendor lock-in.

Whether they're using Genesys, Five9 or another provider, enterprises can bring in voice AI from Cognigy, Google Dialogflow or a vertical-specific solution and orchestrate it all seamlessly through Maestro. Maestro provides centralized visibility, dynamic control and resiliency across global communications environments. And because it runs on Bandwidth's owned and operated global network, enterprises get the low latency and high fidelity performance real-time AI demands. With Maestro, enterprises don't have to compromise. They get the ecosystem they want with the control they require at global scale.

Maestro is already enabling enterprise transformation at scale from health care organizations modernizing hybrid environments to financial services firms integrating AI voice agents to Fortune 25 companies transitioning contact center platforms. Maestro accelerates cloud migration, reduces cost and unlocks AI capabilities.

We've covered our platform, our position in AI and the enterprises that rely on us. Now let's talk about what drives long-term value creation. Bandwidth has a highly attractive business model, delivering profitable growth, operating leverage and capital strength. Revenue is growing, margins are expanding, and our model is built to scale.

Let's start with revenue performance, where we've shown consistent growth over time. From 2022 to 2025, Bandwidth increased total revenue more than 30% and is expected to grow 16% year-over-year in 2026. The 2026 outlook includes a 10% year-over-year increase in cloud communications revenue, our core business. These results reflect the expansion of our enterprise relationships and rising demand for programmable voice and messaging across industries. We remain focused on durable, high-quality revenue growth.

In 2025, Bandwidth delivered $561 million in cloud communications revenue across global voice, enterprise voice and programmable messaging. Global voice plans remain a significant revenue source at 72% of revenue, growing 8% year-over-year. Enterprise voice, now 9% of our mix, grew 21% as enterprises modernize communications with AI and customer experience integrations. Programmable messaging used for engagement, alerts and notifications grew 7% and now makes up 19% of cloud communications revenue. Best of all, the fastest-growing parts of our business are also the most profitable, driving top line growth and long-term operating leverage.

Our network ownership model continues to drive strong margin expansion. In 2025, non-GAAP gross margin was 58% and is on track to achieve our target of 60% in 2026. What sets Bandwidth apart is simple. We own our communications cloud. We don't resell third-party carrier access. We run the network ourselves. That model supports structural margin advantages that expand with usage. Our margin performance is fueled by scale, AI adoption, software mix, global coverage and operational efficiencies. This is the foundation of our operating leverage and a key driver of long-term profitability. Our revenue and gross margin gains are translating directly into bottom line growth.

In 2025, we delivered $93 million in adjusted EBITDA, a 17% adjusted EBITDA margin, and we expect to achieve our target of 20% adjusted EBITDA margin in 2026. This reflects operating leverage and disciplined cost management as we scale. As we grow, we're gaining leverage, not just in infrastructure, but across the business, setting us up for continued margin expansion and cash flow generation.

Our disciplined execution and scalable model are driving meaningful free cash flow growth. In 2025, free cash flow margin reached 10%, and we overachieved on our goal set in 2023 to generate $125 million cumulative free cash flow over 3 years. We continue to maintain a balanced capital allocation strategy. In the first quarter of 2026, we authorized an $80 million opportunistic share repurchase program. Our balanced capital strategy involves both the new share repurchase program and our largest investment in research and development in company history in 2026. We believe this dual approach gives Bandwidth the flexibility to capitalize on market opportunities when they arise while actively managing dilution to enhance shareholder value.

It all adds up to a clear and compelling investor thesis. First, we operate in a large and growing $160 billion market, serving mission-critical enterprise communications around the world. Second, we have a durable competitive advantage, driven by software innovation and our global owned and operated communications cloud. Third, we're leading the next evolution of cloud communications, bringing voice, messaging and AI together with Maestro, our platform for choice, control and scale.

And finally, we deliver from a position of financial strength, combining profitable growth, expanding margins and capital structure flexibility. Bandwidth is built for the dynamic world of communications today and orchestrated for where it's going next. And we're just getting started.

At Bandwidth, our purpose is clear and powerful. We develop and deliver the power to communicate from a voice call to customer support to a flight confirmation text to a life-saving emergency alert. Our technology makes it happen. We're at the center of mission-critical communications for enterprises around the world, delivering cloud-based voice, messaging and emergency services. all delivered over a global software-driven platform that we own and operate, giving bandwidth superior economics and our customers a resilient foundation where they can build, scale and innovate.

Very good. All right. Good afternoon. I'm Vineet Chhangani. I'm a Managing Director of Morgan Stanley's Investment Banking. Just for important disclosures, please see Morgan Stanley's research disclosure website. [Operator Instructions].

Okay. Great. Thank you for joining us today. We're here with David Morken, Co-Founder and CEO of Bandwidth. And John Bell, Chief Product Officer. David, John, welcome to the conference.

Thank you, Vineet.

How has the conference been so far?

Outstanding.

Great. Why don't we just start. Let's just go for the audience who are not familiar with the story. David, I'd love to have you talk a little bit about what is Bandwidth all about? Talk to us a little bit about the platform, the trajectory a little bit of the history?

Happy to and have to start with. I have [indiscernible] on my hands. I'm not Mike Tyson, wanting to have like a permanent pet tattoo, but about the 70 hours ago, I was in New Delhi when we decided to attack Iran. But I'm happy to be here today. I'm on fumes. So Vineet, please be gentle. So original story for us. Founded in 1999 and began selling Internet connectivity back then. But then in 2007 with Google is an anchor tenant built out a nationwide network.

We like to call ourselves the last C like ever built. But in all 50 states, we were able to offer voice services. And then from that beginning, expanded through acquisition to now serve 65 countries with a global voice network and software platform on top of it.

So we do cloud communications for enterprise customers including all 12 of the Gartner Magic Quadrant leaders in conferencing CCaaS, UCaaS and then many enterprise customers based in Raleigh, North Carolina, and went public in 2017 because of the outstanding leadership of a certain individual at Morgan Stanley, who's doing this review.

Thank you. And John, maybe one question for you. You've been with the company 14 years now. You've seen the evolution of technology. Talk to us a little bit about oftentimes people hear CPaaS, CCaaS, UCaaS where does Bandwidth sit and what may spend with different than some of the other players in this space.

Yes, great question. The moment we're at right now, there's a lot of things changing. So if you hear CPaaS is enabling platform. A lot of people think it's text messaging and that's where a lot of the industry has been.

We've been off in a different area. We've been very focused on the voice side of CPaaS and enabling the CCaaS providers, contact center as a service, the UCaaS providers, contact center apps when they go to market to SMBs, large enterprises and bundle telecom in customers that way.

We've also been selling direct enterprises. What's interesting about this moment now is everything needs to be separate. There was digital channels, and they did one pick on their own and their voice channels that did things with human beings on the other side. That is changing. Voice is becoming a digital channel and being tightly woven in with other digital channels.

It's a very exciting time for us as voice AI is changing really becoming front and center at what we see happening. And clearly, in the core of decisions we see enterprise is making now is they choose their infrastructure.

And so we should call out you cater to large-scale enterprise customers. You have Maestro, cloud communication platform that sits on top of your owned and operated network.

Talk to us a little bit about like a very interesting time right now. Investors have seen the CX, the CCaaS bucket, if you will, get disrupted or pressure on their stock and valuation.

But it feels like you're sitting in a very interesting spot that's powering them. Talk to us a little bit about like how is that -- how is that strategically differentiated? What does that mean for you? Maybe you start, and I'd love some product insight on it.

Our view is the next billion users of the PSTN globally are AI voice agents. They may be performing the function that is currently fulfilled in a contact center. They may be fulfilling the function of a knowledge worker. None of them need a mobile phone. All of them originate and receive their calls from the cloud. All of them need a global network to be able to communicate.

And so what we have and our vision is to be the network and platform of choice where you can orchestrate an AI voice agent that you built with 11 labs or you built it with Sierra or you built it with Vapi or somebody else, but you need to bring it to life around the world for whatever its mission is, and we want you to be able to bring that voice agent experience through the Maestro platform and our global network to life.

And so you have to have ultra-low latency, high fidelity, resiliency and reach. So we have 65 countries where we're full PSTN replacement, and we own and operate our network. That is ideal for this next wave of voice, and we're already starting to see that in the voice growth rates that we've seen in '25 versus '24 and going into '26.

Do you want to add to that from a product.

Yes. I think we ask you kind of what's changing. So CCaas customers, great customers of ours have to serve them. There's a lot of great innovation as they are bringing AI into their platforms. The opportunity is for the enterprise that wants to go best-of-breed.

So we want to do something that is not within the capabilities of that current CCaaS platform. And it wants to bring in a highly verticalized application here that wants to train their people differently.

They want to do things differently. And that is the opportunity that we're enabling with our Maestro platform, being able to bring in many of these voice agents at the same time to create really differentiated B2C communications experiences for the enterprise.

And why is it that you can do this better than the others? Who do you -- who are the customers choosing between? Is it more like they're working on homegrown solutions who are the competitors in RFPs tell us a little bit about that differentiation.

So in the fourth quarter, we announced 4 new large enterprise lease customers. One was a top 10 bank in the U.S., another household name in insurance that you would recognize immediately. All 4 were win-aways from Verizon AT&T, Lumen and represent the differentiation we offer with the Maestro software platform. So if you're going to do agentic call flows or in one case, if you have a Cisco environment, but you need Google's AI solution, Maestro lets you orchestrate and send a call first sentiment analysis engine simultaneously called party.

And that capability of Verizon has nothing like AT&T doesn't have an orchestration layer for any of these kinds of coal flows and Lumen as well. So in all 4 of these cases, they illustrate the primary competitive dynamic we see and how we win, that orchestration layer, that software platform on top of the good network is what wins the enterprise. And I think that the next generation of voice from these enterprises will largely include voice agents.

Interesting. David, maybe switch gears a little bit. Interesting business model, and investors have always kind of looked at software versus hardware, but you kind of have a good mix and maybe now that's playing to more of the strength given your owned and operated network. Talk to us a little bit about what's the most misunderstood aspect of bandwidth business model right now for the investors?

Yes. So historically, it was -- you really have a software platform, you're just don't work. Now it's forget about the software platform. Let's talk about the network. And wait a minute, you don't have SaaS seats, you have usage. What the heck is usage, how do you predict that for 32 straight quarters we've met or exceeded guidance. So predictability is something we've got a good handle on. But -- and we have an outstanding cloud communication software platform.

But for some reason, it is rather challenging to understand that we have a vertically integrated voice solution that includes the ability to engage with voice orchestration through software, but control the delivery, quality, reliability, latency of the voice call on the network. And that's a unique model.

Yes. Just staying with the voice. You obviously had a great year. You just reported your full year results. We're seeing the growth accelerate. You're delivering on the margins. talk to us a little bit about like what have been the key drivers, and you obviously gave great guidance going forward, good mix of growth and profitability. Tell us like what gives you the confidence, like how are things changing?

So one of our segments, enterprise is growing at 21%, and we've seen Voice accelerate from 3% in '24 to 8% in '25 for global voice plans and it departed -- it exited the '25 fourth quarter at 12%. That Voice tailwind comes from the Agentic Voice moment that we're in. We have installed customers that are beginning to finally scale beta and alpha and early R&D projects and Voice agents, and that is manifesting in the Voice growth rate.

Messaging is growing at the rate of the market, so we're happy with that. And what we're most excited about is in the past, we have been cyclical around political messaging in 1 year versus the next.

And what we see going forward is double-digit cloud comms growth paired with 20% EBITDA percentage, that excites us to be a consistent grower in the future.

Got it. Staying with that a little bit, which is a key theme in our conference right now, just given what we're seeing the SaaS disruption, if you will, and the ability to just wide code what software can do.

Maybe John, a question for you. How do you think about that in your space? And as you think about your disability around it, is there anything that could disrupt your -- the orchestration layer, the Maestro? Can somebody use an LLM and put a tool on top? Or how do you think about that?

Yes. So I don't think it is defensive way. Because what's really important to us is our global communications network. So every talks -- you'll see great demos and people talk about the functionality that can be built to really deploy it at scale enterprise it needs to be fast, so low latency, right?

Your voice eye experience has to be low latency. It needs to be high quality, which means you need a control of the media. It needs to scale it needs to be resilient and redundant and needs to be cost effective.

You cannot do that if you're operating a software layer that sits on some legacy telcos network. It just doesn't work. You have no control, you can't deliver the latency. It just won't work. And so that's really what we enable. So it's more than just the functionality. It's actually the performance.

We'll let work at scale reliably for an enterprise. And that's what our platform enables. And we continue to expand our coverage, we can provide that experience that just works and always works for our customers.

Great. Talk to us a little bit about just the road map, let's just call it, next 12 to 18 months, both on the product side and also as you think of geos, how are you thinking on the rollout? You mentioned 65 countries. So maybe we start with the product first and then talk to us a little bit about the geo after.

Yes. So obviously, Voice AI is really important to us as we look at the tech stack and where we believe we fit in the tech stack. We'll continue to do investments there. We're excited about supporting agents. We're excited about opportunities for our own agents we can bring as well. So there's an area that's really important. Our Voice API, we continue to grow.

We find that there are a lot of new entrants coming into the market, not just enterprises, but platforms. We continue to expand our Voice API and its capabilities, a lot of traditional customers who want to work with CIP. That's great. You want to work a Voice API, that's great. If you want to come with WebRTC.

Great. We continue to expand there as well. So we have a very flexible platform that lets our customers choose the technology they want to work with. We continue to take a very open approach. So we are 100% open. We will bring our own services. We'll also make sure our platform works for the best-of-breed services that our customers want to bring as well.

So in terms of jurisdictions, we have large current customers that are pulling us into new countries. And that's been really important in places like Brazil because it underwrites the nominal CapEx to get there, but in a way that we have a return on that investment within a reasonable period of time. and that's exciting for us to expand into certain key jurisdictions, and we'll continue to do that. And that's within our guidance for '26.

Got it. And David, how should we think about when you think of an international market owned and operated versus partnership, like how do you think about the network and you go to a country like Brazil?

Yes, you've got -- so we have -- what we call our network is the universal platform, and that's a consistent set of hardware and interconnects regulatorily compliant manner. So within Brazil, you end up only 1 hop in terms of proximity from the core of the network, and that's vital for low latency and reliability.

The codec flexibility that we have by managing our own hardware in country, but this is very different than just reselling somebody by commercial agreement in Brazil. It gives you the visibility into the performance of the network and its conduct and you can fail over resiliency, but it takes time. You're also legally in front of the regulator in a way that's appropriate so that you can provide service.

And in our case, when we say PSC and service that's inbound calls, outbound calls, a phone number and emergency service. So the 911 equivalent in that country. That's very important to an enterprise customer for us, folks like Microsoft or Google or Amazon. We have large Internet hyperscalers we serve as well as large Global 3000s. And so when we open up a new country, it's a real investment in time and meet.

And that's really what drove our acquisition back in 2020 of a company that had spent 15 years building out around the world in this fashion. And so that was vital for us to expand our footprint to serve global enterprise.

Sure. Sure. Just thinking through -- you mentioned what role do you play with Sierra's as of the world, Decagone's of the world. Talk to us a little bit about like how do you see you're placing your business model evolve as you start supporting let's just call it like the next gen of CCaaS platforms that are coming out.

You will build your voice agent at 11 labs or at Sierra. And in a local environment, you will tailor it and guardrail it and make it observable and be very excited about how empathetic and intelligent with the right context it appears. But the moment you take it out into the wild and deploy it globally on a phone network, if that network partner does not have a high-quality ultra-low latency network, the voice agent will start to annoy you to death. .

Now that voice agent, however, has an enormous number of things going on in the background. So the meat of the call from the voice agent to you needs to also simultaneously be routed to a sentiment analysis engine, a fraud engine, a speech to text engine, a transcription service. Each one of those legs of that call for us is a minute of usage.

So what used to be 1 minute at $0.002 per call is now $0.10 per call because we're doing 5 things simultaneously. So it's not just that we think the next billion users of PSTN globally or voice agents, each call is a multiple revenue opportunity for us because we are very expertly handling the media and the signaling to not just the called party, but every aspect of the voice agent stack that needs to be invoked.

And by the way, your time budget to round trip the inference and reasoning stack is like 300 milliseconds. But that's also your communications budget before you hang up. So if you're at 600 total milliseconds, you're going to abandon the call. So suddenly, are very traditional incredible voice infrastructure is now suddenly extremely important out of a competitive dimension of latency.

Interesting. Are you seeing those use cases as you've seen some of the recent RFPs? Like what are you seeing?

We're seeing hospitality partners like Wyndham take to market a voice agent the concierge desk that does precisely what I just described in routing a call for a voice agent that's also doing transfusion sentiment and other things simultaneously at great effectiveness.

Is it fair to say that David Morgan's view is even if call center reps go down because of the voice agents, the volume is actually going up, which is a driver for the business.

Do you know the number of voice agents in the contact center that are going to exist? It's infinite. It's -- as many as are needed, spun up in real time, 24/7 as empathetic is Dr. [indiscernible] as and as smart as a Nobel laureate, aware of your entire consumer context. You will demand to talk not to a representative but you'll be talking to a representative and you'll be saying AI, AI agent on the voice try.

Interesting. Okay. Let's switch gears to messaging for a second. You published the state of messaging report back in January. We've always heard about RCS, but it seems like SMS still sort of owns majority tell us a little bit about like what you're seeing and what's going to be the impact on your business model going forward?

Yes. So RCS is exciting. I think what you're seeing now is it's still the early days, people understanding how to use it. People look at it and say, "Oh, I could make my existing transaction look a little better. Well, it costs more and they do the ROI and it might not be worth it.

I think we're excited to see people starting to realize that you can do more with RCS it can do more of mobile maybe mobile advertising, lead into commerce, whereas a lot of tech messaging is super transactional. It was a one-way information message.

And so it's really getting in the hands of the right people. We're investing and helping people develop content for it because this was a totally developed content for a text message or a picture message with RCS, it's actually much richer. And so it is actually challenging our customers to do more for it. There are much -- many different ROI opportunities they have with different use cases. and that's the excitement. But it's brand new, so it takes a while for people to realize what they can do with them.

John, just staying with that, like one of the things that we're hearing is commerce itself let's just talk about commerce for a second. Commerce itself is going through an evolution with AI. You're seeing new protocols. Open AI and Stripe came out with ACP and then Shopify and Google to UCP.

And the idea is that the front end would be some chat-based prompt, you find something and you can make the traction happen there. Alternatively, in the past, you could do some of that on your SMS and there was messaging and you'd get paid from your merchants. What are your thoughts on that? Like do you think the volume and the transaction can move there away from SMS? And are you seeing anything or...

I -- I mean it's still -- we are both going to say yes, and also from apps as well, right, because so much of this was locked up in apps in the us.And there's a lot of friction using an app as well. And so there's a lot of opportunity as the interface becomes more natural like the way you do things in a brick-and-mortar store with your voice talking to somebody, there's a lot of opportunity for communications and commerce to move a lot of this friction that's existed in the past.

But you still get to be the backbone of -- like I'm just trying to picture where Bandwidth gets advantage of this change? Or is it a disadvantage? Like how should we think about that?

So we -- I think of it as we are operationalizing AI and the AI-driven communications because across all of the channels, making sure it's consistent and persistent conversation between the consumer and the business. That's the value of the CPaaS platform in the future.

David, again, just a question on like disruption, and this is my last one on that one. Talk to us a little bit about the moat. The customers that you have you've heard from some of the other software players talk about integration and the compliance risk that you would have.

Talk to us more about as you think of next 12, 18, 24 months, your retention numbers were amazing in the last quarter. So as we think of the next 24 months, like what drives that retention even higher what keeps demand in the platform of choice.

So you had net revenue retention of $107 million, and that goes up with the use cases invoice that are expanding, and that AI vialing that we're talking about, the competitive dynamic or the moat regarding how we continue -- and I should say, we have basically 0 logo churn, like our customers once they're with us, stay with us forever. And the usage that they have with us will continue to grow, depending upon the use cases, but the moat that we enjoy, even though John doesn't want to talk about it as a defensive thing, is really important because it would take an enormous amount of new capital and an enormous amount of patience because you open up each of these country jurisdictions and even the 50 state public utility commission processes for a CLEC. You move at the speed of government.

And that means EONs. It's a glacial pace. It took 15 years to get to the 65-plus companies we have today. And many of these countries aren't talking to new entrants anymore. So I don't think it's anything that we will see nor have we seen a new entrant in over 10 years. So in terms of the defensibility, again, there's a lot of regulatory compliance.

There's much international work that has to be done domestically. They are, as I said, 50 jurisdictions. And then you have to be all over TCPA and the robo calling rules and be vigilant as heck about gatekeeping the right actors and there's a lot of vigilance involved. All this to yield us as a single partner for our existing customers to come to market. In some cases, like the hyperscaler as I mentioned, we're serving 30 different products for them that they bring to market. and that's exciting for us.

And I'll just back up for a minute, Vineet and touch on texting. The last decade plus, certainly since the iPhone in 2007 has been dominated by texting. But I think the payload and content potential of the voice channel in this AI moment is going to really be fundamental in shifting many, many behaviors from text to voice and even UI to AI because of voice, and that's exciting for us. Most of our revenue, most of our business, we've specialized in voice for a very long time, and so that's exciting.

Great. So one question I wanted to ask is, imagine we're here next year, let's fast forward...

It's 8 in a row. So it's not too hard to imagine.

Yes. And I'm sitting here Tell us, what do you think we'll be talking about? Everything is about AI right now. You're at the front row, you're seeing this whole communication landscape sort of go through these big changes. What do you think happens? Who's doing what? Give us a picture.

And I -- I''m -- this and 5 bucks will buy you a cup of coffee at Starbucks, but as I look back 6 months to where we are now just seeing the pace. I'm very much a true believer in the value and extraordinary the incredible impact of these foundational models when tuned appropriately, they change lives and they change work.

And it's an amazing moment. I was registered the first Bandwidth website in '94. So I saw the web, mobile. We did an MVNO, we spun out of Bandwidth and a dish and so saw mobile, but this is unlike anything we've seen. And if I answer your question directly, a year hence, I think we look back and are amazed absolutely amazed at how much benefit and redemptive power there is in this technology. So I'm totally excited in Jazz, but I couldn't tell you specifically anything other than I hope we are the network of choice for the next billion users of the PSTN.

That's the right answer. John, do you want to add.

Yes. I think a year from now, we will have some very concrete examples of voice AI driving mission-critical properties for name brand enterprises. It will not be abstract anymore.

It will be real, and it will become clear to everybody how the actual tech stack actually has to look to enable true mission-critical applications, and that's what we're excited about being in that tech stack.

Yes, being in that tech stack.

Okay. just a couple more questions now on just the financials. You guys have been great sort of capital. You recently bought back some convert that was due in 2028. You are guiding to double-digit growth. You had record year in profitability. Help us understand like what are your priorities from a capital structure perspective? How do you plan on deploying capital, thinking about growth and mix of profitability?

Very excited about the repurchase of the converts and going from having $600 million of debt to now $150 million, that's it. And very much on control of our own destiny when you look at our EBITDA and free cash flow and what we're projecting in '26 and growing EBITDA at 30%.

But even with the stock buyback, which is meant to mitigate dilution and the repurchase of the debt, we're also investing a record amount in R&D while we're doing that. So we've wonderfully achieved the kind of free cash flow generation that affords us the opportunity to both be stewards of capital be responsible to our equity investors, but also to put more money to work in creative ways than we ever have before. So all 3 things are in place simultaneously. And very grateful to our CFO, Daryl Raiford, who has pioneered the debt repurchase and saved us $80 million in doing so. So there should be a bronze in our lobby of Daryl. And it's exciting to have the discipline of operating responsibly at this moment when there is so much opportunity to create new.

Okay. Organic, inorganic, how do you think about M&A going forward.

Organic.

Organic. Yes. And you've had great results with like 1 million-plus customers. You talked about you're not going to slow down on R&D. Tell us more like on OpEx side.

Yes. We did more enterprise $1 million-plus deals in '25 than we did in '23 and '24 combined. And we're going to do even more in '26. The pipeline is larger now than it was in '25. That's exciting. The deal cycle because we've expanded the channel is shorter than it's ever been. So those are both really favorable for the '26 guide, which is 16% growth top line and really healthy EBITDA percentage.

So again, had to Daryl for making sure that we have a capital strategy that's robust. And John's product road map, I think, is terrific for the sales team, and they're excited about it.

Perfect. I love how you have maintained and cultivated this culture of Bandwidth. I'd love to hear your thoughts on like how are you getting your employees not just giving them comfort getting them excited in the world of AI when you see block just like 40% of their workforce. Talk to us a little bit about that. .

So we made a declaration during COVID that we would be 5 days a week in person, and we lost 20% of the team immediately. We're still 5 days a week in person, but we made a different declaration right now in this moment of AI, which was we're going to give you every tool you need across all the major models, this was a year ago to embrace use every day, and we're going to make a commitment to you, you will not lose your job because of AI.

You may be learning something new, doing a new job, but it will not replace you. And that was a firm declaration we made in confidence, and I think that it's proved to be really effective in getting adoption and creativity without fear, which is hard to do in a moment like this. And I think that we'll make good on that.

I don't see any issue with that. And I'm excited about repetitive uncreative work going away. And so I'm fired up about it, but it does take a leap of face to be able to make that kind of commitment to your team.

That's amazing. Let me take a minute now see if there are any questions in the audience. I think we've got one here.

[indiscernible] Some very good tailwinds with AI for your business, right? Like 24/7support centers, like multiple streams and Maestro, but I have a concern around voice minutes. If I go back right now, I'm waiting 15, 20 minutes, and you guys are getting paid for it. And if I got an agent, it's picking it up immediately, and it's getting it resolved in 2, 3 minutes. So kind of the voice minutes are pressured. So how do you handle for it? Like do you think it's a headwind for you?

I don't because abandonment in the 20-minute queue is acute. There is no abandonment if you can answer every call immediately. You end up net positive in the total number of calls and the call durations. The conversations are incredibly effective, and so the call back rate becomes higher. All of us in this room love, love having to call, and that's changing because these voice agents know who you are, what you talked to them about last time, every detail of your account and indeed, actually interpret if you're hungry, based upon the last time they talked to you or if you might have a cold based upon how nasal you might sound that kind of intensity in their interpretation from the voice signals you're giving them allows them to have a very wonderful dialogue with you driving overall engagement from text and chat and app to voice.

I'd also add to that, the idea of the long hold times, we've supported a lot of our customers in doing the callbacks, right? You've probably seen it many times where agent will be available for some minutes typing your phone number, you do it, hang up, you get a text back later.

So I think a lot of that has been -- there's been opportunities for enterprises to already improve that today.

Great. Any other questions? No. Great. Well, David, thank you so much.

Thank you.

John, thanks for taking the time. Thank you all.

Thank you.

Good day, and welcome to the Bandwidth Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Sarah Walas, Vice President, Investor Relations. Please go ahead.

Good morning. I'm joined today by David Morken, our CEO; and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q&A. Our earnings press release was issued earlier today. The press release and an earnings presentation with historical financial highlights and a reconciliation of GAAP to non-GAAP financial results can be found on the Investor Relations page at investors.bandwidth.com. During the call, we will make statements related to our business that may be considered forward-looking. We caution you not to put undue reliance on these forward-looking statements as they may involve risks and uncertainties that could 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. With that, let me turn the discussion over to David.

Thank you, and welcome, everyone. We're pleased to report a solid fourth quarter, capping off a year defined by sustained business performance and strengthening fundamentals. Throughout 2025, we delivered steady progress across revenue, profitability and free cash flow. A primary highlight of the year was our success in the large enterprise space. We closed a record number of $1 million-plus deals, including 2 significant wins in the fourth quarter alone. We also continued to invest in high-margin innovation. We are seeing tangible results from our AI voice tools, our Trust portfolio, our Global Communications Cloud and our Maestro orchestration software.

Entering 2026, we are confident in the upward trajectory of our business. When we reported 2022 results, we set ambitious 4-year goals extending through 2026, a 15% to 20% revenue compound annual growth rate, a 5 percentage point increase in gross margin to 60%, a 20% EBITDA margin, a 15% free cash flow margin and $125 million in cumulative free cash flow. While market dynamics, particularly in messaging, will almost certainly keep us short of our multiyear revenue CAGR target, our 2026 outlook is fully on track to achieve our goals for gross margin, EBITDA margin and free cash flow margin.

Furthermore, we will significantly exceed our 2026 cumulative free cash flow objective, having already surpassed $125 million by the end of 2025. Daryl will walk through our full 2026 guidance in more detail shortly, but at a high level, our 2026 outlook reflects healthy demand across both voice and messaging, along with continued solid execution, giving us confidence in the direction of our business and our financial model. Earlier today, we also announced the authorization of our inaugural share repurchase program. This reflects our confidence in the durability of our business model and our ability to generate cash while simultaneously investing in our future.

I want to thank our customers for their continued trust in Bandwidth. I also want to thank our Bandmates for their tireless commitment to excellence, and I thank God for the blessing of another year filled with opportunities for our team to learn and grow. Over 2 years ago, we identified AI voice as the next frontier. Since then, we've helped customers move from AI voice experimentation into real-world production. From an AI voice concierge for a global hospitality brand to an AI-powered voice ordering system for food venues nationwide, enterprises are trusting Bandwidth to launch new AI-driven customer experience use cases.

Our AI investments are paying off. The Bandwidth Communications Cloud and Maestro are purpose-built to integrate and manage AI voice across diverse environments with the quality, reliability, ultra-low latency and scale that global businesses require to support multichannel AI-driven customer conversations. Our enterprise momentum validates this network-centric approach. Our role as a foundational platform for AI deeply embedded in the global communications network becomes even more critical as enterprises manage constant change across shifting AI models and application platforms.

Simply put, our communications cloud and Maestro orchestration software are essential to enabling AI in enterprise production environments. We're seeing AI-driven voice adoption across both new enterprise wins and expanding deployments within our existing customer base. A good illustration comes from a major household name U.S. insurance group, which selected Bandwidth to replace their legacy provider in a $1 million-plus deal. They cited our AI-enabling features and seamless integration with their complex Cisco environment. Bandwidth will power a new cloud-based customer experience stack for claims and customer quoting functions, utilizing inbound voice calling alongside Google Conversational AI.

This is a blueprint for how we serve large global enterprises, achieving rapid value capture for our customers through low-risk cloud adoption while enabling new AI voice capabilities. Our other $1 million-plus deal in Q4 is with a top 10 U.S. bank serving millions of customers nationwide. They selected Bandwidth's resilient toll-free solution to modernize and protect their contact center infrastructure to enhance customer experience. This win was driven by our differentiated failover architecture and open integration strategy. A similar dynamic resulted in another win in financial services, the U.S. consumer financing arm for a top 5 global carmaker.

In this case, Bandwidth was selected to launch AI-enabled communications for their Genesys contact center. This win came through our channel and reflects our ability to align with partner ecosystems while serving the customer directly. By moving to Bandwidth, the customer gained greater flexibility and freed up cost savings, which supported their investments in new AI services. The transition has been seamless, thanks to the long-standing partnership and technical alignment between Bandwidth and Genesys. It's a strong example of our Maestro orchestration platform enabling enterprise customers to modernize on their terms.

We also saw momentum in our messaging business, winning an e-commerce platform that supports high-volume, time-sensitive communications for top brands. This customer chose Bandwidth over our largest CPaaS competitor, citing our superior deliverability, scalable capacity and operational support during high-demand retail seasons like Black Friday. A particularly strong example of our progress in RCS messaging is highlighted by a long-time customer that supports hundreds of enterprise brands on their platform. Our customer trusted us to power their first production RCS campaigns for several of their well-known consumer brands across retail, home furnishings and hospitality.

The decision followed a broader evaluation of messaging providers and was driven by Bandwidth's ability to ensure consistent deliverability, scalable throughput and operational reliability as RCS grows from early trials toward broader enterprise use. Taken together, these wins share a common theme. Customers need an open, scalable, reliable global platform to support their most mission-critical communications, both for today's customer experience and the AI-driven conversations now being deployed.

The majority of these wins also follow our broader pattern of large enterprise wins in 2025, multi-location rollouts, deep integration into existing infrastructure and clear line of business value realization within the first 90 to 180 days of launch. Perhaps most exciting is the validation we are seeing from the AI developer community. The number of third-party conversational AI developers building on our platform has more than quadrupled over the past 6 months. While this cohort does not yet contribute materially to revenue, the momentum is a powerful leading indicator. Developers are choosing Bandwidth for our low latency, quality and predictable economics. Bandwidth enters 2026 at the exciting confluence of enterprise communications and AI with the global infrastructure, software platform and the vibrant ecosystem to lead this next wave of innovation. Now I'll turn it over to Daryl to walk through the financial details of the last quarter.

Thank you, David, and good morning, everyone. I'll begin with a brief update on the fourth quarter, then touch on the full year 2025 before spending the majority of my time on our outlook for 2026 and the fundamentals of Bandwidth's business model. In the fourth quarter of 2025, strong execution drove solid revenue and record levels of profitability and free cash flow. Total revenue saw a 12% year-over-year increase on an organic basis. This organic growth metric excludes the cyclical revenue generated from political campaign messaging in 2024, providing a clear view of our core business strength.

Both our Voice and Messaging segments were key contributors, each achieving healthy double-digit growth. In Voice, our 11% year-over-year growth was fueled by increased Voice usage, rising adoption of voice-based AI applications and growing contributions from software services revenue. Messaging organic growth of 12% year-over-year was driven by robust holiday messaging demand. EBITDA margin reached 17%, reflecting improved pricing and mix and continued progress on profitability, providing a strong close to the year.

Looking at the full year 2025, we delivered another year of disciplined performance where we generated total revenue of $754 million, up 10% organically year-over-year, non-GAAP gross margin of 58%, adjusted EBITDA of $93 million and free cash flow of $57 million. Durable customer relationships drove accelerated growth in our largest voice customer category, Global Voice Plans, where 8% revenue growth more than doubled compared to 2024. Our Enterprise Voice customer category also delivered strong full year results, growing 21%, supported by a record number of $1 million-dollar-plus deals.

While large enterprise customers typically have extended onboarding cycles, these customers are experiencing a faster time to value realization after launching on Bandwidth's Communications Cloud. In fact, the enterprise cohort of customers added in 2025 already represents 15% of total enterprise revenue, making it the second highest contributing annual cohort in our history. Notably, more than 40% of 2025 enterprise voice growth came from accounts added in the past 3 years, one of the strongest proof points that our enterprise cohort expansion continues to compound over time.

Programmable messaging achieved 7% organic year-over-year growth, in line with our expectations. Beyond the numbers, 2025 reinforced critical themes, the durability of our customer relationships growing deal sizes and improving profitability driven by operating leverage and an expanding mix of higher-value software services. As we look ahead, we expect 2026 to be a year of continued growth and margin expansion. First, we expect continued accelerating revenue growth in voice, supported by higher usage demand, including usage influenced by AI-driven call flows, large deal activity, increasing software services contribution and geographic expansion.

Second, we remain focused on operating leverage and platform investments, which we expect will continue to support margin expansion and profit growth. Based on these factors, our 2026 full year guidance shows total revenue growth of approximately 16% year-over-year, including cloud communications growth of approximately 10%, adjusted EBITDA improvement of nearly 30% year-over-year, in line with our aim to achieve a 20% full year adjusted EBITDA margin and non-GAAP earnings per share of approximately $1.66 to $1.74, representing growth of approximately 19%.

We're excited that our execution and investments position us now to achieve our 3-year goals around gross margin, adjusted EBITDA margin and cash flow goals. And beyond 2026, we anticipate delivering sustained double-digit growth in cloud communications revenue, independent of the political campaign cycle while driving further growth in gross margin, EBITDA and free cash flow. Now I want to spend time on what we believe is the most important point, the quality of Bandwidth's business model. Our view is simple. Bandwidth is a durable cloud communications platform with software-like expansion economics.

There are 5 principal reasons we believe this is true. First, our customer relationships are highly durable. We set the industry standard for customer satisfaction rates. We see the direct outcome of that with ultra-low customer churn and strong retention across customer categories. Our customer name retention rate remains above 99%, and our organic net retention of 107% reflects ongoing expansion as customers grow their usage with us over time. Our top 20 accounts have a median tenure of 12 years. Within enterprise voice, we again, in 2025 realized a 100% customer name retention, which means 0 churn.

In fact, we recognized a 98% customer retention rate from our Enterprise Voice customer cohort of 3 years ago, a remarkable demonstration of outstanding customer durability. In addition, our average annual revenue per customer continues to increase, driven by larger deployments, deeper integrations and expanding use cases. We ended 2025 with average annual customer revenue of $232,000, a record and up from $171,000 3 years ago. All these metrics underscore the long-term value of our customer base and the mission-critical role our platform plays.

Second, Bandwidth owns and operates a scaled infrastructure-based global cloud communications platform. In contrast to others, we do not market a thin application layer underpinned by reselling commodity third-party carrier access. Bandwidth's ownership model supports structurally higher margins that expand with usage and create durable operating leverage over time. Our margin performance is fueled by scale, voice AI adoption, growing software services contribution, global coverage and operational efficiencies.

Our incremental gross profit yield of 82% in 2025 demonstrates that each incremental cloud communications revenue dollar converts at highly attractive economics. This is the foundation of our operating leverage, driving long-term profitability and creating a meaningful competitive advantage for large enterprises that require consistent quality at scale. Third, we continue to see strong traction in large deals. In 2025, we closed a record number of $1 million-plus deals. These larger deals not only contribute to near-term growth, but also create long-term expansion opportunities as customers increase usage and adopt additional services.

Fourth, we see a growing opportunity to expand relationships through upsell and cross-sell. Software services are becoming a more meaningful part of our value proposition and our financial model. These solutions complement our communications cloud, deepen customer engagement, increase platform stickiness and support continued progress toward margin expansion over time. We exited fourth quarter of 2025 with software services revenue at an approximate $15 million annualized run rate, driven by solutions that are increasingly attached to core voice usage such as Maestro, Call Assure and our trust services offerings.

Our year-end annualized run rate was meaningfully ahead of the $10 million expectation that we expressed a few months ago. Notably, software is now attached to all $1 million-plus deals. These solutions are embedded into customers' communication stacks, producing recurring high-margin revenue streams that scale with usage. Finally, our model is designed to grow profitably. We are focused on scaling the business in a disciplined way, balancing growth with operating leverage, margin expansion and cash generation.

As we continue to execute, we believe Bandwidth is positioned to deliver sustainable revenue growth, expanding margins and increasing long-term value creation. Regarding capital allocation, our business is strong and set to generate continued meaningful free cash flow. After focusing since 2023 on reaching the 2026 margin metrics we previously outlined, we are pleased to announce, as David mentioned, that our Board of Directors has authorized an inaugural share repurchase program of up to $80 million in common stock.

Our balanced capital strategy involves both this new share repurchase program and our largest investment in research and development in company history this year to accelerate innovation across our AI portfolio. This dual approach gives Bandwidth the flexibility to capitalize on market opportunities when they arise while actively managing dilution to enhance shareholder value.

In closing, we believe our performance in 2025 and our outlook for 2026 demonstrate the strength and durability of Bandwidth's business. We are encouraged by continued Voice growth, the incremental usage driven by AI-enabled applications and the expanding contribution from software and services, all supported by the strength of our business model and sustained operational performance. We're also proud of how we're embracing AI across our business.

Recently, Bandwidth was honored to be recognized by Gartner as a first mover in the deployment of AI for Investor Relations. We believe this mindset, combining innovation with operational excellence, positions Bandwidth well for the future. With that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question today comes from Arjun Bhatia with William Blair.

Maybe if I can start off first, just I want to touch on the Enterprise Voice segment. It seems like you're clearly signaling you're getting good enterprise demand there and software services as a part of that is also ticking up. I was hoping you could just touch a little bit on what you saw in terms of Q4 trends and the growth rate. I think if I'm backing into some sort of an implied Q4 growth rate for Enterprise Voice specifically, there was a little bit of a tick down. So I was hoping you could address that. And then talk about outlook in 2026 as well, especially with those large deals starting to contribute, how much of a bump and tailwind could that be next year?

This is Daryl. Thanks for joining the call. We appreciate the question. There was about 10 questions in there. So let me start with -- and I'm grateful for that. Let me start with the growth rates in terms of enterprise for the fourth quarter. We did have acceleration last year with some deployments of customers. So we had a little bit of a lapping and tougher compare -- for a quarter. We are real pleased with the annual rate of 21%. We -- again, with a record number of $1 million-plus deals, we see that deployment and ramping into 2026, driving the growth that we've called for, for enterprise. So we're projecting a very healthy growth again in enterprise going forward into the new year.

In terms of software services contribution, absolutely. As we said, each of the $1 million-plus deals and really nearly every deal includes software services now as an upsell, cross-sell, add-in feature. We think that it's becoming critical to the -- for the customer in terms of the value that it provides. The value proposition is just dramatically clear to them. The benefits that we accrue as a company are as I articulated previously, which is around stickiness as well as durability and as well as allowing us to continue to expand and cross-sell and upsell. So did I capture the bulk of your questions, Arjun? Is there something that I might have missed?

Yes. No, that's super helpful. You touched on all of it. And then actually, Daryl, a follow-up for you. Just in terms of 2026, can you just help us understand how you're thinking through political contribution? And should we comp that to 2022? Or what's the kind of right cadence?

Yes. I'm glad you asked. We've guided to 15% revenue growth, 10% cloud communications growth. The midterm elections are different from the presidential elections in the -- since that the presidential elections, the caucuses and the early primaries would have already started 2 years ago, and we would have more visibility. The midterms are more state local. They don't really have the presidential primaries. They start later in the season, say, mid summer-ish time frame is where we may see benefit. Based on what we're seeing and speaking and hearing from our customers, we think that the political campaign contribution this year will be roughly 2.5% of cloud communications revenue, and we will keep monitoring that.

We don't really experience -- don't plan to experience anything in the first half of the year, but we'll keep monitoring that. It's good to say that 2 -- 4 years ago, we were making the remark that our political campaign customers were beginning to diversify, that they weren't really just appearing for like a and then going back into the ground, that they were beginning to diversify their business models. 4 years on, they truly have. So these customers are really durable for us in terms of civic engagement and other commercial types of messaging business as well as they scale up and down for the political content. So we're really happy with that. And we'll see maybe about 2.5%. But we'll update you again next quarter as we get better visibility into the year.

And our next question comes from Erik Suppiger with B. Riley Securities.

First, can you just discuss or give us some context around the dynamics between the cloud communication growth outlook for 10% and the total revenue growth of 15%. Why is there a significant difference between those 2?

Well, that would be the difference in surcharge growth rate for carrier messaging surcharges. Last year, you will have noticed in our reported results that surcharge growth was relatively tame, very moderate. It was dampened by the carrier pricing environment where there was really only one noticeable price increase by a carrier on surcharges last year. So surcharge growth last year for us on a reported basis was simply due to our continued messaging volume growth.

This year -- and just one note, I think this is David. Sorry to interrupt, Daryl. I think you mentioned topline total growth at 15%, it's actually 16%.

Yes. Okay. Sorry. Sorry, yes, yes, correct, that 16% and 10%, 16% and 10%. This year, preceding our guide that we just released, we've all -- 2 carriers -- I won't go to the effort to name them, but 2 major carriers have already announced price increases that have gone into effect and will be going into effect in the next month or so. So we've had -- we've taken those price increases into account in our guide.

And just critically, those are pass-through surcharges. So they aren't margin important at all for us. And cloud comms importantly, has become, as Daryl mentioned, so durable that we're projecting forward to achieve double-digit cloud communications growth irrespective of political seasons altogether.

Okay. Second question, Twilio had noted a significant increase in their Voice traffic. I'm wondering if you're seeing evidence of them getting more competitive on the Voice side of the CPaaS market.

We're not. The customer examples we cited in our script were win aways from Verizon in two of the cases, from AT&T in one of the cases and from a smaller carrier in the final case, and none of those was Twilio relevant.

And our next question today comes from Patrick Walravens at Citizens.

Congratulations to you guys. Dave, can you -- I actually have 2 questions. But the first one is, can you talk a little bit more about the insurance example that you gave us? And you said that you were working with Google Conversational AI on that. Can you just explain what exactly they were doing, what you do and what the potential is to do more of those kinds of deals with Google?

So absolutely. The most important aspect of that customer case is the complex pre-existing Cisco environment for their contact center and the need that this very large household name insurance company had to integrate Google's AI solution within that environment. And so orchestration among chosen best-of-breed AI solutions is vital, was vital for them and Maestro from us is perfect. And that's what facilitated that opportunity. And in the other cases, if some of our other customers chose differently to go with Google or to go with someone else, again, Maestro is ideally situated to give flexibility at scale for these enterprise customers to navigate what is the most fluid and dynamic changing AI environment imaginable.

All right. Great. And my second question is for every stock that we cover, really, it's become all about is the incredibly rapid increases in AI good or bad for this business? And what are the moats that the business has to prevent larger new AI companies from coming in and somehow disrupting their business. What would you -- how would you explain that to shareholders? What are your moats?

So the first part of your question is as interesting, and I will get to moats. As to the relevance of AI for Bandwidth as a tailwind, we are deeply convicted that the need for intelligent voice agents to communicate across every imaginable channel with the empathy and intelligence to answer questions of all kinds means that for us, and we're already seeing this in our voice growth and acceleration for us, it's an amazing moment. It may not manifest as fast as the work-from-home dynamic that occurred back in the early 2020s, but it will ultimately be far more durable and persistent as the next billion users of the global PSTN that we have a footprint for are voice agents acting on our behalf in wonderful, delightful ways.

What kind of a moat do we have? We have a moat that is a mile wide, filled with oil and lit on fire. Very difficult to cross because you have to cross it at the speed of government across 80-plus countries. We have interconnections with all the global incumbents necessary to provide immediate footprint, again, to the next billion voice agents. We own and operate this infrastructure. It's across the globe. That gives us a structural margin and cost advantage, which is why we've grown gross margins from 47% to now 60% during the time that we've been a public company. Our ARPU per customer is exploding because of their adoption of our different software services. And again, we're focused on the enterprise and the agents that are lining up to be able to engage globally in use cases that are awesome.

And our next question comes from Joshua Reilly at Needham.

How should we think about the pipeline for Voice AI relative to other Voice opportunities here heading into '26? And does that remain a relatively low overall mix of voice revenue today? And is 2026 maybe kind of the inflection point where Voice AI use cases are ramping in the marketplace and your overall revenue base?

It's a really good question, Josh. It's -- AI is a component of all enterprise conversations with Maestro attaching to almost -- actually to every enterprise deal. So it's really a degree question. It's not whether or not AI is germane to these enterprise conversations. It's to what extent does the revenue of that motion manifest. And your primary question is, when is the inflection point in voice growth driven by AI disproportionately or more heavily? And what we believe, having for 2 years, been focused on this moment, what we believe is that we are seeing, whether it's the developer channel that's quadrupled as we talked about on our script, or the enterprise use cases that are proliferating, this year is a vital year to watch and observe and see the results from AI adoption and voice hit the top and bottom line.

That's the year that we're in. We've captured that in our projection for 16% topline growth and 10% cloud communications growth. And again, we're disciplined as a team. So 20% EBITDA margins render our overall business plan, I think, very strong. But we think this is a vital year for AI adoption to go from experimenting to real scale and deployment.

Got it. Very helpful. And then you mentioned reaching a record number of $1 million-plus deals. I think that was for the year of 2025, not the quarter, correct me if I'm wrong there. Could you just share a bit more about the composition of some of these newer Global 2000 deals? Is there functionality that they're asking for today that they weren't a couple of years ago? And maybe is that one of the key reasons that's helping you win against some of the legacy telcos?

Terrific question. We closed more $1 million-plus deals in all of '25 than we did in '23 and '24 combined precisely for the reason that you're asking about. The product portfolio has expanded to really answer the key questions on value prop. And we've got here with us, our Chief Product Officer, John Bell, and I'll just invite him to add to my answer.

Yes. Maestro has been very -- had a strong enterprise value proposition around integration, supporting the move to the cloud. In all of these conversations we have with enterprises, it is really about now the move to AI. And so the move to AI is reinforcing the value proposition and showing up in these customer conversations.

Thank you. And that concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good morning, and welcome to the Bandwidth Inc. Third Quarter 2025 Earnings Conference Call. [ Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sarah Walas, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Bandwidth's Third Quarter 2025 Earnings Call. I'm joined today by David Morken, our CEO; and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q&A.

Our earnings press release was issued earlier today. The press release and an earnings presentation with historical financial highlights and the reconciliation of GAAP to non-GAAP financial results can be found on the Investor Relations page at investors.bandwidth.com. 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 full year 2025. We caution you not to put undue reliance on these forward-looking statements as they may involve risks and uncertainties that could 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.

With that, let me turn the discussion over to David.

Thank you, Sarah, and good morning, everyone. Thank you for joining us. Bandwidth delivered another solid quarter of execution with outperformance in revenue and profitability that extended our momentum from the first half. We again saw accelerating growth in our core voice business, driven by broad-based demand across our global voice plans and enterprise market offers as real-world AI voice usage continued to grow, and we closed more million dollar-plus deals in the third quarter, bringing us to a record pace year-to-date as the largest Global 2000 enterprises increasingly choose Bandwidth. To our customers, thank you for placing your trust in us for your most essential communications. To our bandmates, thank you for the talent, energy and commitment you bring to our customers' success. And I thank God for the blessings and purpose that continue to guide our work.

Our third quarter performance strengthens the foundation for continued growth, fueled by large customer wins, conversational AI adoption and disciplined execution. At the same time, we're evolving our business model toward a higher mix of recurring software-driven revenue, adding intelligent automation and value-added services that customers love. We're seeing especially strong traction in financial services and health care, where performance and trust matter most in mission-critical communications. An example of how much bandwidth is valued is the Technology Disruptor award we won from Ally Financial, which recognized our key role in transforming their customer experience. It was especially meaningful to be honored by Ally, which is one of the original disruptors in digital banking.

The story of this quarter is innovation, powering our growth, strengthening our customer relationships and moving AI voice from potential to production. At Reverb25, our award-winning annual product and customer showcase, we announced the next chapter of Bandwidth's AI and software strategy to make cloud communications more intelligent, more automated and more trusted. It was part of an entire Reverb week of customer roundtables; market offer deep dives and hands-on sessions, attended live by more than 100 customers and partners along with nearly 3,000 online. Customer feedback was overwhelmingly positive as they saw how our product road map connected directly to their priorities and real-world use cases. Last year at Reverb, we talked about the promise of AI. This year, we're delivering it.

Let me give you some highlights. We shared our vision to be the most open and flexible provider for enterprises to integrate conversational AI into cloud communications through 4 key paths: native AI within CCaaS platforms, prebuilt partner integrations, bring your own AI with third-party apps and public APIs like OpenAI's real-time interface. Whatever path customers choose, our new MCP server empowers AI voice agents to control Bandwidth APIs in real time using natural language, enabling actions like searching phone numbers, sending text or triggering other actions mid-conversation, no custom code required. This open freedom of choice strategy gives customers the power to innovate on their terms and keep control over their tech stack without sacrificing optionality or scalability. It also reinforces our role as a platform partner that supports the full life cycle of customer engagement. By building on Bandwidth, enterprises can move faster now and derisk changes in the future.

In short, we are strongly positioned to be the provider of choice for conversational AI deployment, no matter what path our customers choose. This strategy is already translating into meaningful deployments. For example, a long-time Bandwidth customer in digital commerce serving tens of millions of small business customers expanded their partnership with us for their new AI-powered voice ordering system for food venues nationwide. The service answers 100% of incoming calls with natural conversational AI and is sophisticated enough to allow customers to place complex orders by phone just as they would with a staff member. This is large-scale AI voice in production today made possible by our Maestro software and AI optimized edge infrastructure, enabling enterprises to integrate AI voice on their terms.

At Reverb, we also did a live demo of the prototype for our AI receptionist, an automated front door for any business. It uses conversational AI to handle most calls without human intervention, answer questions in detail and route inquiries efficiently. For small businesses sold through our resellers, it can deliver a professional always-on customer experience at scale. For large enterprises, it could serve as a modern IVR replacement, streamlining call handling and improving operational efficiency. AI receptionist processes calls natively within our communications cloud to ensure natural human-like conversations and protection of customer data. Our team built the AI receptionist to showcase our ability to develop intelligent voice solutions that unlock new opportunities for recurring scalable software revenue over time.

We also see it as a potential extension of our Maestro software platform. We're also applying AI to simplify our customers' back-office workflows. At Reverb, we introduced our first AI agent, the Bandwidth Activation agent to automate complex number activation through a guided compliance-aware chat interface. Designed for customers managing high-volume multi-country deployments, it reduces operational workload and accelerates time to value. We'll continue expanding its capabilities to help customers operate more efficiently, reduce support tickets and scale faster. It's another step toward embedding automation into the core of our cloud platform, improving customer experience while lowering our cost to serve. As we expand AI-driven intelligence and automation, we're also strengthening the foundation every customer interaction depends on, trust.

At Reverb, we announced an expanded trust services portfolio with new capabilities for our number reputation management solution. Originally launched as an enterprise offering, we've now expanded NRM to serve our global voice plans customers as well. This reflects growing interest from the power platforms we serve across the UCaaS and CCaaS landscape. NRM addresses an urgent customer challenge to protect call answer rates in an era of spoofing and fraud. If end-users don't trust who's calling, they don't answer, leading to lost revenue and missed critical calls like medical test results or service notifications. Because we own the network layer, Bandwidth can embed trust directly into our cloud platform, authenticating identity, managing number reputation and controlling how brands appear on mobile devices.

The result is higher connection rates, stronger engagement and greater platform usage as we elevate outbound phone calling as an essential and high-performing channel for enterprise communication. Number reputation management was the deciding factor for a leading transportation and logistics provider. They chose Bandwidth to modernize their communications stack, consolidated 161 call paths to 10 and installed number reputation management to resolve spam-likely flags that were negatively impacting answer rates with carriers and distributors. Our trust services software portfolio was a key lever for this win, and we expect it to deliver a significant competitive advantage going forward.

Finally, we advanced our vision for next-generation messaging through a new RCS for business partnership with Out their Media, which we announced at Reverb25. Based in Europe and trusted by global brands like Coca-Cola, Unilever, Disney and Netflix, Out their Media chose Bandwidth as the sole provider to launch its RCS portfolio in the United States. It's a strong validation of our platform's deliverability and scalability as we partner to launch a new wave of exciting mobile-first brand experiences from some of the world's most recognized companies. Trust and scalability continue to resonate with enterprises that depend on both messaging and voice, and this quarter brought another powerful example of Bandwidth as their unified platform for mission-critical communications. A leading property management software company chose Bandwidth as their primary voice and messaging provider for a cloud contact center migration. Using Genesis with our Bring Your Own Carrier model, they ported more than 300,000 toll-free and local numbers from multiple legacy carriers and unified programmable voice and text messaging on the Bandwidth platform.

They also activated our built-in transcription and call recording APIs for compliance. It's a textbook Bandwidth win, showing how we can consolidate providers and deliver total communications transformation as a trusted partner. While many of our Reverb announcements scale over coming quarters, Global 2000 enterprises are choosing Bandwidth today for reliability, flexibility, scalability and AI voice.

Let me walk through a few highlights. A financial services firm responsible for nearly $2 trillion in client assets chose Bandwidth to move their legacy on-premises call center to the cloud. Their need to run both environments simultaneously during the migration is proof of our Maestro software's strength in orchestrating complex compliance-driven contact center call flows. In another financial services win, a credit union serving employees of a U.S. government Space Administration selected Bandwidth for a comprehensive communications upgrade, integrating Microsoft Teams Operator Connect for employee communications and Five9 with Pindrop for a new cloud contact center build. Our Maestro software's ability to support the customers' chosen multi-vendor environment across UCaaS, CCaaS and fraud prevention without being locked in was the key differentiator. It's our freedom of choice strategy in action.

In summary, this quarter combined 3 powerful drivers of our business: disciplined execution, continuous innovation and deep customer trust in our mission-critical communications platform. We delivered another quarter of solid growth and profitability. We showcased at Reverb how Bandwidth is shaping the future of trusted intelligent communications enabled by AI, and we expanded customer adoption with more multi-solution deployments and a record number of million-dollar wins. These are all clear demonstrations of solid momentum and durable growth powered by a trusted platform our customers rely upon, and a team committed to delivering long-term value.

Across AI voice, trust and messaging, our focus is the same: to evolve Bandwidth toward a higher mix of software-driven revenue that broadens market differentiation and deepens customer loyalty while expanding margin performance. We're building toward a future where every enterprise interaction is more than a transaction. It's a conversation that is trusted, intelligent, secure and AI optimized.

Now I'll turn it over to Daryl to detail our financial results.

Thank you, David, and good morning, everyone. Building on our solid performance in the first half of the year, Bandwidth delivered another good quarter, highlighted by further accelerating momentum in voice. Profitability remains central to our strategy, and this quarter's results reflect that discipline with both revenue and adjusted EBITDA exceeding the high end of our guidance ranges.

Let me now walk you through our third quarter 2025 results. Total revenue of $192 million increased 11% year-over-year normalized for third quarter 2024 cyclical political campaign revenue, included within that result, cloud communications revenue reached $142 million, an 8% year-over-year increase on a normalized basis. Non-GAAP gross margin remained strong at 58%. We are really pleased with that result as we had expected and did experience third quarter cross currents, namely the tougher comparison to last year's quarter given the absent benefit of political campaign messaging completely overcome by the growing contribution from software and services revenue. That growing contribution is accelerating and has long-term staying power, positioning us for continuing margin expansion over the next year.

Adjusted EBITDA was $24 million, exceeding our expectations due to a combination of higher revenue and lower spending from timing of cloud expansion operating expenses. We generated $13 million of free cash flow in the quarter, modestly below last year, driven by normal timing of working capital and capital investments for cloud expansion. Our trailing 12-month free cash flow grew 35% year-over-year, underscoring the durability of our cash generation. Focusing on our 3 market offers. Enterprise voice revenue increased 22% year-over-year, reflecting strong adoption among existing customers expanding through Maestro software integrations and AI voice initiatives, along with contributions from new customers ramping on our Bandwidth cloud.

Global voice plans, our largest customer category, grew revenue 7% year-over-year, more than doubling the growth rate from last year. It's worth noting that the combined voice growth of our enterprise voice and global voice plans was 9% year-over-year, an acceleration from last year, driven in part by expanding software revenue. Programmable Messaging achieved a normalized 6% year-over-year growth, in line with our expectations.

Moving to operating metrics. Net retention rate for the third quarter was 105% and 107% when excluding the benefit from political campaign revenue in 2024. Customer name retention remained well above 99%. Average annual revenue per customer set another record at $231,000 or $224,000 when excluding political campaign revenue in the 12-month period. Over the last 3 years, average annual revenue per customer has grown 46%. Reflecting on the quarter performance, both our operating and financial results again demonstrate the strength, resilience and long-term value of our business model.

AI is not a stand-alone product for Bandwidth. It's integrated throughout our cloud and embedded in the services our customers use every day. You see its influence in our revenue growth, our gross margin expansion and in the continued durability of our cash generation. AI is everywhere and is a central theme in every customer discussion. We are creating a synergistic effect. At times, we are leading our customers to AI with our advanced offerings. And at other times, we are supporting our customers as they rapidly deploy their AI initiatives. We believe this is just the beginning of how AI is accelerating innovation and creating new sources of value, value that we believe will continue to set us apart in 2026 and beyond.

Looking ahead to the remainder of 2025, for full year revenue guidance, we are tightening the range with the midpoint yielding 10% organic revenue growth year-over-year. This is due to moderated expectations for messaging surcharge growth and increased expectations for voice growth. As a result, we've increased our full year cloud communications revenue growth to 8% organically year-over-year. And for the third time this year, we are raising our full year adjusted EBITDA outlook, now reaching $91 million at the midpoint. Reflecting our third quarter overperformance and strong execution and financial discipline, we now expect the updated EBITDA outlook of $91 million to represent about $1.30 non-GAAP earnings per share.

In closing, we believe the growing momentum in voice AI, our increasing software revenue, strong customer focus and our sharp business execution position us for a solid fourth quarter and start to the new year. Looking ahead to 2026, we anticipate continued momentum within our global voice plans and enterprise voice customers as well as another robust political campaign messaging season to drive us toward our 2026 medium-term financial targets.

With that, I'll now turn the call over to the operator for the question-and-answer portion of today's call.

[Operator Instructions] And our first question comes from Patrick Walravens from Citizens.

Congratulations to you guys. David, for you first, can you maybe drill down a little more on what your overall conversations are like and what you're seeing, how you characterize sort of overall demand? And then I think -- I thought the property management example was particularly interesting. And then on the financial side, maybe if you guys could remind us what those 2026 medium-term targets actually are and so what it means when you say that you're driving towards them?

Thanks, Pat. And I'll answer the first part of your question and then hand it over to Daryl. I'd characterize broadly the conversations that we're having with customers consistent with signing a record number of $1 million-plus revenue customers again this period for the second time this year. That stat reflects broad-based demand. Voice is growing in a way that's really healthy and exciting, and every conversation is reflecting the AI moment that we're all in. Maestro is a fundamental component of the example that you cited regarding the property management software company. And I think that one illustrates a consistent dialogue we're having with enterprises who are moving to the cloud. They have multiple vendors that they're either consolidating or trying to orchestrate. And the combination of Maestro and the network that we own and operate is really resonating. And again, that's reflected by a record number of large enterprise deals and then average customer spend continuing to grow at record pace. But let me turn it over to Daryl for the second part of your question.

Pat, it's nice to say hello. Back at the first part of '23 in our Investor Day, we set out our vision for the company over 4 years to drive us through the end of 2026, and we titled those our medium-term targets. We're driving for, and we believe that we're very much on track to achieve above-market revenue growth, 60% and greater gross margins, 20% and greater EBITDA margin and 15% and greater free cash flow margin.

Okay. So just as a reminder for everyone, so Daryl, you guide 15% to 20% in 2023 to 2026. That implies a range of $729 million to $827 million in 2026, $729 million at the low end. I've always thought that was probably too much of a stretch. So just where you really think you can get to the low end of that 15% to 20% CAGR?

We are continuing to focus on. We've guided to $753 million at the midpoint this year in terms of total revenue, and we're very much focused on above-market revenue growth.

The next question comes from Joshua Reilly from Needham.

Maybe just starting off, I know you had some strong customer additions in the first half of '25. Curious how those have been ramping into revenue and going live now. And then you mentioned some strong customer additions here in Q3, $1 million-plus customers. Can you just speak to broadly like how long is the period transitioning from when you get the customer win to when you're actually getting them live? And how much is that compressing because of maybe internal processes that you continue to improve?

You bet. Deal cycles from initiation to close have been consistent, although the channel opportunities that we've enjoyed have compressed that deal cycle significantly in an exciting way. But as customers come on board, they have continued to ramp as we've projected based upon the systems that we have in place, the personnel that we have in place, the policies and practices that bring them aboard and allow them to move mission-critical phone numbers and sites and services in a way that preserves continuity. So, there's always a concern about making sure that services are uninterrupted, but we're very, very good at working with enterprises and have an extraordinarily high level of customer support that allows them to onboard elegantly and to scale in a way that we're really familiar with projecting. And so, the large number of significantly larger annual operating revenue deals or annual recurring revenue deals that we signed at the beginning of this year continue to contribute to the success and the solid results in this period and we will continue to do so into next year.

And then you highlighted a number of new products at the September customer event. Obviously, those tend to have a higher gross margin because they're more software-like margin structure. Curious how these have been layering into new deals for enterprise voice this year versus a year ago? And then how much are those also kind of bleeding into the global voice plan deals as well? Maybe give us a sense of how much is getting bought by Enterprise voice on the software side versus Global Voice.

You bet. Let me ask John Bell, our Chief Product Officer, to answer that one.

Yes. So, we're -- starting our launches with these products for enterprise customers, but they are immediately interesting to our GBP customers as well. So, we build them initially for that target market but do fast follows with releases to the GBP customers. The topics are very interesting both to the enterprises. And since our GBP customers are serving the same enterprises, they naturally are naturally adopted there as well.

And the next question comes from James Fish from Piper Sandler.

On the digital commerce one, I found that one interesting. Are you seeing customers like this more and more in terms of deploying a DIY strategy? Or are you integrating more and more with some of these conversational AI tools that is leading to wins like this?

So, it's a great example of a very large at-scale e-commerce point-of-sale related customer allowing small business to take advantage of AI at a very local DIY level to enable food ordering and delivery. And we are seeing as one of the primary use cases for voice AI, scheduling, calendaring, ordering and fulfilling at the very front lines of small and medium business nationwide. So yes, I think, James, you're accurate in saying this looks like or sounds like a real reference implementation for a growing trend. And so, we are seeing conversations like this more frequently.

Right. My question though on that is, is it more the DIY approach? Or are you integrating with some of the other conversational players out there to help enable this?

So, this is John. Good to talk to you again. It really is both. And so, our approach has really been focusing more on the standards-based approach so we can help with more and more of those integrations, whether they are DIY or really reusing some of the do-it-yourself into turning them into prebuilt. That's really the pivot we've taken recently so we can support both because we do see a strong mix of different approaches customers are taking.

Okay. And then, Daryl, for you, gross margin did come in a little lower than we all had modeled. Can you just talk us through what you're seeing across the segment's gross margin, particularly on the messaging side, given there was some lower pass-through surcharges, as you pointed out? And how should we think about the international versus domestic mix this quarter?

Gross margin had some cross currents moving through it in the third quarter, and we were able to hold it at a 58% rate, which we're very happy about. On the headwind cross current, we had lower messaging primarily because of the missing political messaging last year. And that messaging is -- that contribution in gross margin is at a higher amount than our aggregate company gross margin. And we were able to offset that completely and overcome it with our growing software revenue contribution. And in fact, we're really, really pleased with the way that is developing from a relatively recent start, we expect to end 2025 with an annualized MRR exit rate on software greater than $10 million, and that's going to substantially be built upon in 2026. So, we're excited about that.

We really think that, that's going to continue to propel the company along with our other pillars of software -- excuse me, of gross margin improvements that will take us into the 60% and above. In terms of international, international grew very nicely. It grew at 11% year-over-year and international is nearly all voice, and that was at the exact same rate as the overall company's third quarter organic growth rate of 11%. So very good in terms of that mix.

[Operator Instructions] Our next question comes from Will Power from Baird.

I guess maybe first question for either for Daryl or David, who wants to take it. But just on the 2025 revenue guidance, I think you suggested you were narrowing the range a bit or look like raising the low end a bit. And I think you cited stronger voice trends. So, I guess, a, it would be great just to get any further color on the upside in your voice calling plans versus enterprise voice or is it maybe both? And then maybe just any other color on what's happening on the messaging side. It sounds like a little somewhat weaker outlook there.

Okay. Yes. So glad that you asked me to clarify that. We are -- we tightened our range on the lower end with respect to revenue. Our midpoint is just with the decimal slightly above $753 million. Within that is 2 elements. In cloud communications, we've raised that guidance, the implied guidance that builds into the $753 million on the strength of voice. And within cloud communications, we've held messaging as we had fully expected already in line with what we had guided previously. The other component, surcharges, we've lowered that modestly just based in terms of the carrier pricing environment, carrier mix and the type of messaging mix as we're entering in a very large fourth quarter messaging seasonality with Black Friday, Cyber Monday. We have good line of sight to our customers' demand, and we see surcharges coming in a little lower.

That lower surcharges, as you know, doesn't contribute anything to gross margin or EBITDA. And so, we are very enthused when it comes to being able to raise our cloud communications revenue.

And then my second question, again, if we want to take David or maybe John, but this number of reputation management product really seems like a nice opportunity and good market fit. I mean, just given what a lot of us as consumers kind of see on a regular basis. So maybe just talk about the trends you're seeing there and kind of how you view that opportunity? How meaningful could that product addition be?

Yes, great question. The trends you see is the consumer, our customers see, and it hurts their business. They are trying to -- businesses are trying to reach consumers, and the consumers won't pick up the phone. So, it's a very basic value proposition, and it is something that we, with our owned and operated network can attack head on and there's immediate value in there. And so, as you did hear, we were -- it's driving customer wins now. We launched it with our direct enterprise customers. This week, we launched it to wholesale customers as well to address their unique needs. And so, we do see global opportunity for that product.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.