Bandwidth Inc. Q3 FY2021 Earnings Call

Thank you for your patience. Welcome to Bandwidth, Inc.'s Third Quarter 2021 earnings conference call. All participants are in listen-only mode and the conference is being recorded. After the presentation, there will be a chance to ask questions. I will now hand the call over to Sarah Walas, VP of Investor Relations. Please continue.

Thank you. Good afternoon and welcome to Bandwidth Third Quarter 2021 Earnings Call. Today, we'll be discussing the results announced in our press release issued after the market closed. The press release and earnings presentation with historical financial highlights can be found on the Investor Relations page at investors.bandwidth.com. With me on the call this afternoon is 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. 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 fourth fiscal quarter and full year of 2021. And to the extent provided future periods and our views on the impact of the recent DDoS attacks we've previously disclosed. We caution you not to put undue reliance on these forward-looking statements as they may involve risks and uncertainties that may cause actual results to vary materially from forward-looking statements as described in our risk factors in our reports filed with the SEC. Any forward-looking statements made on this call and the presentation slides reflect our analysis as of today. And we have no plans or obligation to update them for a discussion of material risks and other important factors that could affect our actual results. Please refer to those contained in our latest 10-K filing as updated by other SEC filings, all of which are available on the Investor Relations section of our website at Bandwidth.com and on the SEC's website at sec.gov. During the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued after the close of market today, as well as in the earnings presentation, which are located on our website at investors.bandwidth.com. With that, let me turn the call over to David.

Thank you, Sarah. And hello, everyone. Thank you for joining us today. This quarter, Bandwidth continued to play a critical role in the enterprise move to the cloud. We celebrated a number of important wins with both new and existing customers. We largely completed the integration of our Voxbone acquisition and we withstood an unprecedented cyber attack on our business. Bandwidth delivered another quarter of solid financial results exceeding revenue guidance, including 46% CPaaS revenue year-over-year growth. For both the mountaintops and the valleys that we visited during the quarter, I was inspired by this team's unwavering commitment to our mission and our customers. I have never been more proud of our brave and brilliant team or more thankful for God's faithfulness. I want to start by talking about the DDoS attack at the end of September. Attacks like ours have been aimed at a number of companies in our global ecosystem. First, we were prepared and we weathered the storm well. Our infrastructure includes specific DDoS mitigation systems and is routinely audited. In responding to the attack in real time, we augmented our DDoS defenses to keep pace with the attackers' evolving methods. Some customers saw periodic service disruptions and we regret any impact to their business. At the same time, we are proud of our team and our partners and the resilience of our platform in avoiding the crippling effects others have seen in similar attacks across the industry. In fact, the vast majority of our traffic continued to be delivered. Second, we served our customers well and they supported us, too. We have been moved by our customers' trust. We count many of the world's largest and most sophisticated technology leaders as our customers, and a number of them joined us in our situation room. In a true demonstration of our long-standing partnerships, they stood shoulder to shoulder with us in this fight. Nevertheless, a number of our customers did move services to other options. Our operations team worked around the clock to accommodate these choices, consistent with our commitment to always do the next right thing for our customers. Many of those customers have already brought their business back. I am confident that others are in the process of doing so in the coming days and weeks. Daryl will give more details on the estimated financial impact of the DDoS attack. Third, we're now using our lessons learned to help our customers and partners protect themselves against similar attacks. Our experience puts us at the forefront of understanding how to combat these threats against the ecosystem. We did not pay ransom, and instead relied on innovative solutions and strategies to confront the threat head-on. To sum up, we believe Bandwidth is now stronger than ever, and we plan to leverage what we've learned to help make the ecosystem safer for enterprise communications. With that, I want to highlight a few important milestones and wins in the past quarter. We just celebrated the first anniversary of the close of our acquisition of Voxbone. And I'm excited that the bulk of our international integration is complete. Even as we continue to chart the course for our single global platform, we're now fully serving our customers as one global Band. We continue to make progress on huge cross-sell opportunities from the Voxbone acquisition as we expand our long-term customer relationships from domestic to global. Our customers told us they wanted the Bandwidth experience, enterprise-grade quality, service, and reliability around the world. They are showing us that they meant what they said. I am very pleased to announce the latest example. One of our largest and longest tenured customers signed a contract for global service in the third quarter. This is a customer that was not previously working with Voxbone and now is going global with Bandwidth. In short, this is yet another growing relationship that was only made possible by the global reach achieved through the acquisition, and it is a takeaway from multiple competing international IP network providers. In the initial phase of the contract, this customer's testing voice services over our global network in select countries during the fourth quarter. We expect services and coverage to expand throughout 2022. Our team is humbled by this customer's desire to build with Bandwidth to the ends of the earth. We look forward to growing this foundational relationship at a global scale. Powering the platform players in Internet giants has always been a core strength of ours. This win demonstrates again how compelling a truly global offering is to these customers. We also see significant momentum building among global 2,000 enterprises executing their digital transformations. The enterprise migration to the cloud is extremely complex and fraught with technical and regulatory challenges. We are nimble and quick in a world of sluggish, entrenched legacy carriers. Today, I want to zero in on an area where we are particularly winning in the enterprise category, Global contact centers. Customer service agents are becoming critical to helping brands create a better customer experience in a post-COVID world. But the contact centers in today's large global enterprises can be enormously complex. There may be multiple locations with expensive on-premise equipment requiring top-tier expertise to manage. To connect it all, most enterprises have been relying on multiple carriers, each with different contracts, uncertain redundancy, and traffic limitations. Then they have the need to retain critical call data to power third-party integration, such as CRM, voice authentication, fraud detection, AI monitoring, and other services essential to a better customer experience. Bandwidth simplifies this challenge. Our network is cloud-native, so it can work seamlessly with the largest cloud contact center platforms for global interoperability, scalability, and security. The biggest global contact center players are recognizing our new global capability and potential. I'll share what one enterprise customer told us recently after successfully rebuilding their entire contact center architecture on the Bandwidth platform: 'We built a better architecture, a smarter architecture, and we've saved a ton of money. This migration has been a huge success.' One of the contact center wins we closed in Q3 is a global leader in electronic signature. This customer chose Bandwidth because with our expanded footprint, we could move their entire 15-country global contact center stack to the Cloud. Not only were we able to eliminate the complexity of their existing on-premise equipment, but we consolidated their 9 legacy carrier agreements into 1. The project has propelled this customer forward into the efficiency and scalability of cloud-based communications. Our customer values Bandwidth's ability to integrate with nearly every major communications platform and enterprise needs from UCaaS to CCaaS, which opens the door to more efficiency and savings. We're also continuing to win with U.S. only enterprises. This is the case for a new deal this past quarter with a $16 billion Fortune 200 managed care provider. This company is on the front lines of patient communication, and their contact center is critical to managing customer engagement. They came to us and said, no kidding, that they wanted to take all their legacy communications hardware, throw it into a giant dumpster, and light it on fire. It was that cumbersome and frustrating to manage. They chose Bandwidth because we were uniquely able to power their entire communication stack in the Cloud, both UCaaS and CCaaS. In addition, our tools and automation enabled them to manage their system without specialized telecom expertise. They can literally drag and drop using our software to make real-time number changes on the fly. This customer joins a growing cohort in the healthcare space who rely on Bandwidth to power their Cloud communications needs. In fact, healthcare is one of the markets where we are seeing particularly strong momentum in both the large enterprise space and also with innovative app developers that are building a better patient experience. In closing, I want to talk about our continued thought leadership in an increasingly complex regulatory landscape. We take seriously our obligation to help our customers navigate issues like fraud and robocalling, which impact their businesses and their customers. Bandwidth has been at the forefront of implementing new security standards like STIR/SHAKEN, which went into effect on June 3 in the United States to reduce fraudulent calling activity. We will continue to aim to use our seat at the table with leading standards and rule-making bodies to provide our customers with critical support and over-the-horizon insights on important regulatory developments. We are also providing our customers with innovative and unique solutions to enable them to meet evolving 911 compliance requirements. Bandwidth's dynamic location routing solution can deliver enhanced location information to 911 dispatchers and helps to ensure first responders are sent to the right building, floor, and room. Our solutions are among only 3 that have been certified for use with Microsoft Teams direct routing and are powering Zoom Phone as well. Emergency services continue to be a growing and important component of our suite of service offerings. Often it serves as a unique door opener. Customers who come to us for help with emergency services learn about the broader power of the Bandwidth platform driving new cross-sell opportunities. With that, it is my pleasure again to welcome Daryl Raiford, who is joining us for his first earnings call as our new Chief Financial Officer. He has been a great addition to our team, bringing strong leadership and new perspective. I'll now turn it over to Daryl to walk through our financial results and outlook.

Thank you, David and good afternoon everyone. I'm thrilled to have joined such a remarkable company at a pivotal point in its history as we lead enterprise communications into the cloud on a global scale. I've enjoyed meeting some of you and look forward to interacting with more of you in the coming months. And thanks to my team for helping me get a running start. So let's dive into some of the highlights of Q3. As Sarah said in her introduction, we posted an earnings presentation detailing our third quarter and historical financial performance on the Investor Relations section of our website. I'll now take you through the third quarter financial results and outlook for the fourth quarter. We provide guidance for CPaaS revenue, total revenue, and non-GAAP EPS. For the third quarter, each of these measures exceeded their corresponding guidance ranges. On a consolidated basis, our third quarter results are as follows: third quarter revenue was $131 million, up 54% year-over-year, total revenue on our U.S. platforms, which excludes our international Voxbone integrated platform, increased 22%, non-GAAP gross margins came in at 49%, unchanged from last year's quarter, non-GAAP net income was $6.5 million stronger than expected due to higher revenue, improved mix, and operating expense favorability, and non-GAAP EPS was $0.25, an increase of $0.01 year-over-year. Turning to our segments, CPaaS revenue was $107 million, up 46% year-over-year. This solid result is inclusive of the negative impact of approximately $3 million from the DDoS attack in line with our earlier announcement describing the revenue reduction for lost transaction volume and customer credits in the third quarter. Our third quarter CPaaS revenue outperformance was driven by broad-based demand across our products and geographies. Within the CPaaS segment in terms of U.S. and international revenue contribution, CPaaS revenue growth on our U.S. platforms grew 20% when normalized for last year's COVID and political messaging benefits. As a reminder, in the third quarter of last year, our U.S. platform benefited from $6 million of COVID related and political messaging tailwinds. Our international platform operations contributed approximately $26 million to CPaaS revenue in the third quarter. Bandwidth's CPaaS gross margins continue to be strong, setting another record margin at 54%, up 4 percentage points from last year's quarter, enhanced by improved operating leverage and inclusion of higher margin international business. Turning to our other segments, other revenue contributed the remaining $23 million of total revenue, which is up 112% from the same period a year ago. The growth in other revenue was primarily driven by carriers implementing additional ADP messaging surcharges, as well as continued growth of our messaging volumes, which drive more surcharges. ADP messaging surcharges in the quarter totaled $14 million. Turning to our operating metrics, our dollar-based net retention rate, which excludes the Voxbone acquisition until we lap the acquisition closed, was 108% in the period. Our normalized retention rate was 113% when taking into account the previously described COVID and political messaging benefits from last year. We ended the third quarter with 3,173 active CPaaS customers, representing a net addition of 122 customer accounts in the quarter. In terms of our Balance Sheet, our cash and investments balance at the end of September was $331 million, an increase over June 2021 and September 2020 of $12 million and $30 million respectively, adjusted EBITDA was $14.2 million in the third quarter or 11% of total revenue. Now turning to our updated financial outlook for the full year, we've updated our CPaaS revenue and total revenue estimates. As you already know, in October we continued to experience the lingering financial effects of the DDoS attack through lower usage demand from certain customers who shifted their traffic. While we were encouraged by many customers that have already returned their usage traffic to our network, along with other customers expressing intentions to do so, the result is that we expect lower usage in the fourth quarter than we had previously thought. Thus, our updated outlook for full-year CPaaS revenue is now between $407 million and $412 million, driven by our earlier announced $9 million to $12 million estimate of the full-year impact from lower usage and customer credits as a result of the DDoS attack. We estimate full-year total revenue outlook to be between $480 million and $485 million. We further estimate our non-GAAP net income to be slightly higher than our previous August outlook. And accordingly, expect non-GAAP EPS between $0.74 and $0.78. Our higher gross margins and operating leverage experienced in the first 9 months of 2021 give us confidence to preserve our profitability outlook notwithstanding the DDoS impact to revenue, which is a testament to our business model of sustained, profitable growth. Going forward from here, despite the challenges caused by the DDoS attack, we believe our fundamental growth drivers remain unchanged. Enterprises continue to value our unique combination of software, platform, and global network. Many of our largest customers have a greater appreciation for our resiliency and commitment to serving their mission-critical communication needs. We remain well-positioned to serve a large and growing global communications market that is benefiting from transformational, secular trends, and we believe we are uniquely positioned to help enterprise customers navigate complexity. Now with that, I'll turn it back to the Operator for questions.

Thank you. We will now begin the question-and-answer session. We will pause for a moment as callers join the queue. The first question is from Bhavan Suri from William Blair. Please go ahead.

Hi, everybody. It's Matt Stotler on for Bhavan. Thank you for taking the questions. Just a couple here related to the DDoS attacks. So I'll start with one and then I have a quick follow-up. Just in terms of the remediation, obviously helped that your customers moved traffic to where they needed to. Good year that someone came back. When you look at that $9 million to $12 million hit that you talked about from usage and customer credits, any color you can provide on how much of that is usage versus customer credits? And then as you think about the tail from here and the visibility you have into your customers, are they tending to come back and what-have-you, you just speak to expectations beyond Q4 as to what we should expect, and we're thinking about kind of year-over-year comps beyond just the fourth quarter?

Hey, Matt, this is David, thanks much for your question. The vast majority of the financial impact was utilization or usage, not credits, to answer the first part of your question. We expect far less of an impact in Q1 than we have seen in Q4 and are predicting for Q4. It's early, obviously we have a lot of Q4 still left ahead of us, and we don't want to get ahead of ourselves in terms of providing guidance for '22, but Q1 we expect will have far less of an impact than Q4.

That's helpful. And then maybe just one follow-up. Obviously, you've closed several large deals and mentioned some impressive ones. Even in this environment where you dealt with the DDoS attack, how has this changed your conversations with customers? I would love to explore what's changed, their reactions, and how this factors into your discussions with both new and existing customers as you continue to expand and land new ones.

It's pretty remarkable, Matt. Those conversations unexpectedly have become extremely positive regarding Bandwidth being the most resilient and best place to go if you are concerned about a DDoS attack. The reason is we have successfully fought back against the latest methods in the VoIP space that before now were unheralded, unprecedented. We essentially won and so the conversations with customers have gotten something like this: There is no better place on the planet to go than Bandwidth right now regarding DDoS attacks worldwide. And we're extremely proud of that. It comes with scars, but we bear those scars proudly.

Got it. Thanks again.

The next question is from Mark Murphy from JPMorgan. Please go ahead.

Thank you. David, just kind of continuing along that thread. I was wondering if you could clarify. You said you were prepared for the DDoS attacks and you've been regularly audited. There's preparations, but you have the service was impacted. You do have revenue impact. What was it that was unique about this attack that it kind of overcame the full capability to prevent any impact?

Hey, Mark. If the attack had occurred in July, it would have set a world record for DDoS volumes of any kind. This attack was unique, and not only was it massive in its size, it was specifically on a dimension using UDP packets and fragmented UDP packets which had never been seen before. We're only seeing it very recently in our space with voice. You need signaling and medium, and UDP fragments, we can't just block wholesale in the way that you can with an HTTP attack. So we had a very good, robust solution for attacks that have been seen in the past. We rallied during this attack and used vendors like Cloudflare and taught them how to address this issue for the first time and collaborated with them in a way that they then were able to go to the whole industry and share. It was unprecedented in size, and in a very unique way that we experienced this attack for what was really the first time. I'm confident the way that we've adjusted our defenses, that we can withstand this and other similar attacks going forward.

Okay. What percentage of your overall traffic do you think would have led to other options in the wake of that attack? And I'm wondering how much of what you lost has returned, and how much of it, if any, do you think could be permanently lost?

So we had some of our most important customers that we said, you need to move quickly, we're experiencing this. And we were around the clock 24/7 overnight, all hands on deck to have our customers evacuate during the early stages. We're delighted that those customers watched us communicate well with them, and watched us restore service so quickly and most of them return.

Okay. One other question for you just at a high level, how is usage trending into reopening of the economy and with people starting to return to the office, starting to travel a bit more versus what you might have expected 6 or 9 months ago?

We're global now, so it does depend on the theatre that you're talking about and things do change. We've got some sectors of our customer base, like hospitality and ride shares that benefit from the return and indeed even the travel industry customers that we have. So those numbers are obviously improving and we're excited about reopening quarters. And then we've got a cross-section of all of UCaaS, CCaaS, and conferencing customers. It's a blend in terms of the current dynamic with usage, but overall we're excited about the re-openings that are occurring that benefit our enterprise customers everywhere.

Thank you very much.

Thanks, Mark.

The next question is from Will Power from Baird. Please go ahead.

Dave, this is Charlie Erlikh on from Will. Thanks for taking the question. Just wanted to ask one about the DDoS attack and kind of going off of that last question. For those customers, especially the larger ones that have not brought their traffic back to Bandwidth, is there any sort of common theme or common thread between them in terms of the main reasons why they haven't come back to Bandwidth?

Large customers move slower. It's that simple. Administratively you've got different procedural steps to take for large customers. Those that have continued to believe in us are moving back at the speed that's appropriate for their operating team. I think it's that simple.

Okay. Got it. And then I also wanted to ask about Voxbone. I think the CPaaS revenue from Voxbone, $26 million in the quarter was about flat sequentially. Is there anything specific to call out there? Sounds like things are going pretty well from the customer anecdotes, but just wondering if there's anything to call out there.

You're right, Charlie. This is Daryl. Things have gone pretty well from the customer side. The $26 million is essentially flat to the second quarter. It's a bit of a half glass-full. We were gratified in the second quarter that we were able to accelerate some timing and bring customers on early versus in terms of scaling. And of course, we operate a global platform. So having exact predictability across all of our 60 countries and where the usage is going to be is not 100% perfect. But in the second quarter and in the third quarter, our aggregate platform beat our expectations. So we're happy about that.

Got it. All right. Thanks.

The next question is from Meta Marshall from Morgan Stanley. Please go ahead.

This is Klarna for Meta. Thank you for the question. So appreciate that you guys are having pretty positive conversations for customers rerouting revenue back to your platform. I guess, is there any more detail you can give on how long of a process it is based on the customer size of bringing the reroute revenue back to the platform and timing around that? That'd be helpful. And then I have a quick follow-up.

Klarna, this is David. I shared earlier this evening on one of the calls that we expect in Q1 of '22 that the shortfall from the DDoS attack will be far less than what we are projecting for Q4. So that's very encouraging and reflects the pace of the return, and I would hope that that pace accelerates. That's what we're thinking at this moment in time as we continue to finish out Q4.

Got it. That's helpful. I have a quick follow-up regarding the interaction between Voxbone and Bandwidth. Has there been more interest in either direction, and could you provide any details on that opportunity? It would be helpful to know if you are seeing an acceleration in one area or the other. Thank you.

Thank you. The cross-sell opportunities that we've been most excited about are among the U.S. based large technology customers that we serve and their desire to go globally with Bandwidth. We have shared that we, for example, closed a global leader in the electronic signature space, who are consolidating 9 different providers across 15 countries because of our singular global footprint. That's an example of a strong technology leader that uses our combined U.S. and international platform. We think we'll see more of that.

The next question is from Steve Enders from KeyBanc. Please go ahead.

Hi, guys. Thanks for taking my question. This is George on for Steve. Two questions. First one on gross margins, a really nice quarter-on-quarter step-up. Can you give a sense for unpacking? I think you mentioned international mix on both scale. And if you could rank order the effects and where should we expect that number to go? And then second question on the linearity of customer adds also fairly healthy metric. Wondering if you saw any slowdown in October tied to the DDoS attacks and how you see that trending. Thank you.

Hey, there, this is Daryl. Thanks for the question. In terms of unpacking the record 54% margin in Q3 for CPaaS, revenue exceeded our expectations. So certainly revenue does help in that scale across a fixed cost base. We also experienced just better improved operating leverage, which means favorable costs, as well as the mix you alluded to; our international platform margins are higher than our U.S. margins. We were able to improve through mix as well. That's essentially how we put that. And in terms of customer adds, we're pleased with the customer adds, but really nothing to call out that would say it's an outlier in terms of some customer mix issue.

Great. Thank you, again.

The next question is from Tyler Radke of Citi. Please go ahead.

Hey, good afternoon. Thanks for taking my question. I wanted to just ask, excluding the DDoS attack which understandably, there's a lot to talk about there, but just kind of how did you see seasonality in overall usage trends play out through the third quarter? Obviously, there's been a lot of talk in the industry just around a summer slowdown. So I was just wondering to see what you saw on that front and just anything to call out in terms of the overall usage in seasonality trends that you've seen here thus far in Q4.

The third quarter was affected by the DDoS attack, which had a slightly lesser impact than we initially estimated for the full year. On a normalized basis, our international platform grew by 20% in the third quarter, which we are pleased with. Regarding CPaaS revenue, it aligns closely with our expectations after adjusting for last year's $6 million in political messaging and COVID-related factors. We believe that growth rates between 20% to 25% are within our expected range, and we feel confident that the market is expanding at a pace consistent with our estimates of ongoing digital transformation, which we anticipate will yield long-term benefits for us.

Thanks, Daryl. This is David. I agree. We did not see some slowdown that was isolated to within a specific sector or something that was seasonal. We were on track based on our understanding of how the year would go, so we haven't seen that.

Great. And if I could just ask you around the customers that you did migrate to another platform. I guess just where did those customers go? Is it the main competitor? And I'm curious as you looked to restore that traffic, have you had to make anymore aggressive price concessions that I would imagine that whoever benefited from that traffic would do a lot of things to hold onto their customers? But just curious about some of the dynamics as you try to get back to that traffic.

You bet. When we transitioned some of our largest customers, they shifted to major competitors as quickly as possible, including Verizon, AT&T, and Lumen, among others. When they returned, it was under the same terms they had when they left. There won't be any discounts; this isn't a season for discounts to come back. It's all clear. You've trusted us for years. Welcome back.

Great. Super helpful. Thank you.

You bet.

The next question is from Andrew King from Colliers Securities. Please go ahead.

Thank you for taking my question. Are you moving on from the DDoS attacks? I have several questions about that. I wanted to explore a bit about the lab and opportunities in the next quarter as we see the upcoming rates and the next level of instrumentation with Brave Off and Very Flock. What kind of expectations do you have for this, and who do you consider your main competition for these solutions? Is it more about in-house development, or is there another player you are noticing a lot?

Thank you for calling in from the upper deck of a stadium somewhere. But in all seriousness, I do love the question about the 911 special service that we do provide. For example, at Microsoft Teams, we're one of only 3 certified providers. We do dynamic location routing that satisfies the latest requirements for both fixed and nomadic lines. Those are huge door openers for conversations within the large enterprise. We're excited about the season that we're in where emergency service is featuring so importantly in the minds of decision-makers that are going through a digital transformation move to the Cloud. Microsoft is just one example. We have other Duet products with other providers. We're proud of where the 911 service is a leading conversational piece.

Great. Thanks.

The next question is from Ryan Koontz from Needham & Company. Please go ahead.

Hi, thanks for the question. Want to drill down on your commentary around the contact center market and how you're tapping into that. Is this a different go-to-market motion you're finding traction with, or are these like strategic relationships with these partners that they are referencing you straight in without much effort on the sales side? I have a follow-up.

That's a good question, but I want to make sure I understand it. I thought I grasped the first part regarding our sales motion, but I didn't quite follow your comment about a strategic partner.

As you partner with these contact center players, are they referencing you in or is it more of a proactive effort to penetrate by their incumbent base, their installed base?

Got it. Thank you. We have an aggressive, active, outbound enterprise sales motion where we are focused on the C-suite decision-maker, the SVP decision-maker, and the contact center leader. And certainly, there is word of mouth in the industry when you solve a problem for a financial, you might get a reference into another large strategic financial, but it is an individual effort. We don't have a channel. We've got a dynamic group of enterprise salespeople that are making great inroads. In this quarter, we announced a great win among the Fortune 200, a managed care provider, a $16 billion company. That was a direct win into the senior decision-maker, an example of that sales motion that we have. But the contact center is filled with enormous complexity. They're trying to take call flows and route calls for authentication for using AI whether it's to prevent fraud or for sentiment analysis. There are lots of very creative, intelligent things happening in the contact center. Because we are a network and platform owner, we're able to have both signaling and media to route those calls very flexibly. Literally, a contact center executive can drag and drop calls for different reasons to different places in real-time, comparing that to what you can get from a large domestic or international incumbent, it's night and day. Everyone should be thinking about the emerging, exciting technological changes in the contact center, you’ve got to have a flexible partner like Bandwidth in order to have the actual audio transit all these solution providers elegantly. That merit-based value proposition is resonating audibly in the contact center.

Super interesting, thanks. And a quick follow-up if I could for David. You mentioned the Voxbone integration, mostly complete. Can you give us any color there in terms of is this mostly IT, customer systems headcount? I mean, any other color you can give us there on the Voxbone will be great.

You bet. The customers that we serve are primarily focused on having 1 point of contact, 1 resolution path for issues. They're okay if they have more than 1 bill right now. We've achieved integration with all of the personnel on both sides of the company, which is vital for our large customers. So single point-of-contact, single individual is the first point. The second point is all of the SOX compliance, all of the IT controls, all the ERP, all that hard heavy lifting work is largely behind us. Where we're headed next is a single pane of glass experience, where a customer has a universal journey through the Bandwidth service during their lifetime. That will take some longer time, but the team has done an extraordinary job during a time when we could not be together physically for the vast majority to do the vast majority of the integration.

That's great as we think about the OpEx impact of that going forward. Does it stand out much at all in terms of what remains or is it just small stuff?

This year, we have clearly faced integration costs that are part of our operating expense structure. However, moving into next year, we expect those costs to significantly decrease and for our operations to return to a more typical state, focusing on continuous improvement as we innovate and serve our customers.

The next question is from James Fish from Piper Sandler. Please go ahead.

Hey guys, this is Quinton on for Jim. Thanks for taking our question. Maybe just to beat one more time on the dead horse, the DDoS attack. But is the majority of the cyber security investment now behind us given the rapid response in the quarter, or should we expect some additional investments as we move into Q4 beyond just staying ahead of these attacks? Thank you.

Yes. Thanks, Jim. This is Daryl again. The bulk of it is behind us. The incremental investment was less than a million dollars in terms of what we've experienced. There are going to be some maintenance; this is software, this is sub-service, this is some maintenance and things like that that would go on, but it won't be noticeable in our cost structure.

Got it. So you're able?. Thank you.

The next question is from Pat Walravens from JMP Securities. Please go ahead.

Great. Thank you and congratulations for getting it all under control. So I suspect, Dave, that everyone on this call has had the experience now when they navigate to Bandwidth site, there's a little pop up from Cloudflare that says, 'Please hold on a second while we check your browser.' And then the little dots go by and then you get to your website. You didn't have that before; you do now. Did Cloudflare not work for some reason for your kind of network before and does it now? What's going on there?

When the attack started, Pat, we had a network-based best-of-breed awesome solution by a great vendor in the industry and it worked well for the first 48 hours of the running gun battle. After that, there was a different dimension to the attack. On a different protocol, different ports, different origins. You're talking about attacks originating in a different nation-state, transiting through a partner that doesn't know any better and then hitting all your IP ranges with different flavors of traffic in different ways. So we migrated from the original defense that we had stood up that was working and used Cloudflare thereafter. They were superlative in working with us, rallying with us. We shared in real-time aspects of the vector of attack for the changing dimension, and they would adjust with us their solution in real time. It was a combined effort, and one that should be celebrated, and I think resulted in many of those in the voice industry probably becoming Cloudflare customers. It is a small price to pay right now, as a prophylactic security to have that additional nominal step at the beginning of a user experience. We're not a consumer service, so that brief interruption we don't think deters prospects or those who know us from a user experience right now that's appropriate, but we will work that out of the user experience here shortly.

Great. Thank you. And my follow-up is just I noticed the same thing pop up on a completely different vendor site. So is this something that you're sharing with others in the industry who might have a similar risk profile than you had before it?

Yes. We immediately reached out to our top competitors and shared everything we knew. We told them to get ready; it's probably going to hit you next. Here's what we did. Here's how we did it. Here's the playbook, and we shared openly. At the vitality and the quality of our ecosystem is essential for enterprises around the world. So we wanted to protect it with those that we happen to compete with and did so openly right out of the gate.

This concludes the question-and-answer session, as well as today's conference call. You may disconnect your lines at this time. Thank you for participating and have a pleasant day.