Q3 2019 Earnings Call
Good morning, and welcome to the Bondage Holdings Corporation's third quarter 29, <unk> earnings Conference call.
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Blankenbaker, Vice President of <unk> Investor Relations. Please go ahead.
Okay, great. Thanks, Debbie and good morning, and welcome to our third quarter 2019 earnings Conference call.
Speaking on our call. This morning is Alan Namzaric, Chief Executive Officer, Indeed, Pierson CFO .
Also joining us is omars your be president of the <unk> platform.
Alan will discuss our strategy and third quarter results.
Dave and brought a more detailed view on our third quarter results and our fourth quarter guidance.
Slides that accompany today's discussion are available on the IR website.
At the conclusion of our prepared remarks, we'll be happy to take your questions.
As referenced on slide two I.
I would like to remind everyone that statements made during this call may be forward looking statements within the meaning of the private Securities Litigation Reform Act 99 fun.
These forward looking statements are based on management's expectations.
Depend on assumptions that maybe incorrect or imprecise.
And are subject to risks uncertainties and could cause actual results to differ materially.
More information about those risks and uncertainties as highlighted on the second page of the slides and contained in our FCC fun.
We caution listeners not to rely unduly honesty and.
And disclaim any intention or obligation to update.
During this call you were referring to non-GAAP financial measures.
A reconciliation to GAAP isn't available in the third quarter earnings press release.
For the third quarter earnings slides posted on the IR site.
Additionally.
During prepared remarks, all comparisons to prior periods, our year over year, unless otherwise noted a sequential.
So with that I'll turn call over to Alan.
Thanks Hunter good morning.
We delivered a solid third quarter.
Solid data revenues increased 16% to $303 million and business revenues reached $270 million.
Service revenues grew 23% on an adjusted constant currency basis.
Adjusted OIBDA was $45 million.
I'm delighted to report that advantage campus, our first ever worldwide user developer partner and customer conference held last week in San Francisco was a great success.
We unveiled a completely revitalize the body's Brad as our single unified global identity.
Our new branding positions vonage as a modern b to B SaaS company.
[laughter] campus, we highlighted our differentiation as the world's most flexible cloud communications platform.
To emphasize our ownership of the entire communications stack across unified Communications contact center and programmable yes.
Campus had more than 1000 registered attendees.
Representing a broad cross section of communications users.
This is consistent with our integrated strategy for platform based communications.
Where we uniquely serve the entirety of the cloud communications Tam from one flexible cloud native platform.
[noise] boss, Kansas help me to step back and reflect on the enormity of our transformation.
Hi, joint advantages CEO exactly five years ago today.
Our goal then and our goal now is largely unchanged.
We are building a profitable high growth being it'd be cloud Communications company.
Based on our one bondage platform strategy.
As I look to the future.
Business revenues will be an ever increasing percentage of consolidated revenues.
And I expect consolidated organic revenue growth continue to continue to increase.
Our acquisition strategy spark this transformation.
Our one bottom strategy uniquely positioned us as a full young cloud native technology platform.
And it bodies campus, we were revealed a revitalize company operating under a single global brands.
We have been on this path for five years, and we are well positioned to drive this transformation to fruition.
Now moving to third quarter performance.
We continue to execute the three strategic initiatives, we outline to start the year.
First within a platform.
To accelerate overall revenue growth with specific emphasis growing high value it guys.
Second within applications to progress towards achieving industry, leading revenue growth by focusing on Midmarket and enterprise customers.
And third to continue building out the one vonage platform.
Differentiate our program will aid guys and applications [noise].
Let's dive deeper on these three initiatives.
Starting with they've got a platform.
Revenues grew 48% based on constant currency.
Driven by existing customer growth and increased revenue traction in high value if you guys.
Existing customers like Amazon, Google on Air VNB increased usage on our platform, while we added significant new multinational customers.
Growth came from all geographies and notably our U.S. growth rate was its highest in seven quarters.
Revenue growth for high valuation guys outpaced total platform revenue growth for example video Apiay usage grew rapidly, especially within healthcare and education verticals.
Messages a guy with Whatsapp also grew quickly as enterprises increasingly engaged customers through social messaging.
Finally advantage campus, we announced conversation HCR, which uniquely enables customized real time communications that maintain context across multiple channels, including voice chat and SMS.
Our registered developer community grew to almost 900000.
And our partner network grew to more than 300 systems integrators consultants and service providers, including censured topped a consulting and orange business services.
Now moving to applications.
Our goal is to achieve industry, leading revenue growth.
Achieving this goal requires a shift toward midmarket and enterprise customers the fastest growth segment.
And away from legacy micro customers by segment that is growing much more slow.
To highlight our customer mix challenge note that our micro in SMB segment defined as those with M. or are less than a thousand dollars comprises 48% of applications revenue.
It grew 5% in the third quarter.
Our Midmarket and enterprise segment defined as those with M. are greater than a thousand dollars comprises 52% of applications rep.
It grew 12% during the quarter.
As Dave will explain.
Third quarter revenue growth in this quarter and this cohort.
It was lower partially due to revenue deferral associated with certain large customer installations, which instead will be recognized in future quarters and be additive to revenue growth.
That said third quarter performance in the Midmarket and enterprise segment lag as competitors and our teams are working intensively to meaningfully improved performance.
To do this we're driving two key initiatives.
The first initiative is product development based.
Growth acceleration depends on delivering product features required by Midmarket and enterprise customers that are demonstrably better than the competition.
And this also includes support for international countries needed by multinational clients.
The second initiative involves sales and marketing, we must online sales and marketing in support of our field channel and alliance routes to market that focus on these midmarket enterprise customers.
Let's dive deeper into these two initiatives.
First regarding product development.
The one by this platform enables faster innovation cycles improved stability in reliability and tighter product integration.
Evidencing these benefits advantage campus, we announced vonage meetings, our proprietary fully integrated video solution built from our video Npis.
We also announced apps that are in that marketplace that enables customers to easily integrate third party SaaS applications into Vonage business class.
We're also rapidly adding international support into Vonage business class.
We recently added Israel to our existing UK and Australia footprint.
In 2020, we plan to add many additional European and APAC countries.
In the interim we are winning within our supported countries. For example, we recently won the largest holiday park operator in the UK.
Already up on his contact center customer this client selected bonds business cloud to replace it's disparate PBX providers.
It is now a seven figure TCB customer across 400 contact center seeds, and 1700 Vonage business class seats.
Validating this product progress Vonage was recently named a leader in Gartners Sicad Magic quadrant for Western Europe , and a visionary in Gartners North American see Kaz Magic quadrant.
And second.
Regarding alignment of sales and marketing in support of Midmarket and enterprise customers.
We are thinking our marketing messaging brand and sales channels with our up market product capabilities results. Our early but we did when five seven figure TCV deals during the quarter.
Within our field channel and alliance routes to market, we increased sales capacity and overall rep productivity.
By teaming our routes to market. Most large deals were channel source and included contact center.
A notable channel win was a global media company that selected Vonage for advanced contact Center.
We won this seven figure TCV deal based on deep Salesforce integration, coupled with omnichannel capabilities across voice chat email SMS and visual IDR.
Our product immense strategy with Salesforce dot com is driving competitive differentiation and larger customer wins.
Among contact center providers, we enjoy the highest rating on the Salesforce App exchange due to our embedded integration into salesforce ease of use and premier partner support.
To summarize I'm proud of our team's progress we continue building the foundational elements necessary to lead the broader cloud communications market.
And while we continue to show good aggregate business segment revenue growth.
23% based on adjusted constant currency.
More work remains to fully realize arpus potential.
Well, then apiay platform, we need to continue to drive accelerated revenue growth of high value. If you guys.
Within applications, we need to drive accelerated Midmarket and enterprise revenue growth as we align our product development and sales and marketing efforts to this very important cohort.
Finally, I want to thank our investors for their support what we complete the transformation of bonds. Thank you.
Now I'll turn the call over today.
Thanks, Alan and good morning, everyone.
Third quarter came in consistent with our guidance across all key metrics.
Let's begin with a review of the quarter on slide 10.
Vonage business revenue was $207 million, representing 60% of total revenue and a 34% gap increase.
Business service revenue increased 23% on an adjusted constant currency basis.
This was our 23rd straight quarter of more than 20% organic growth advantage business service revenue.
Business service revenue growth is our focus as we deemphasize access circuits, so fewer desk phones and pass through us half revenues to the federal government.
As with the prior quarter. This revenue growth rate has suggested in two ways.
Pro Formas for the new voice media and talk box acquisitions as if we own both for the full year 2018.
And it adds back the write down of approximately $1 billion of new voice Media's deferred revenue balance, which was required under GAAP purchase accounting rules.
Also as in prior quarters. We have included tables on slide 20, 322 of today's presentation and in the press release that provide detail on the adjustments I just noted.
And the disaggregation of our business revenue by product.
PPI platform revenue all of which is service was 80 million, 46% gap and 48% on an adjusted constant currency basis.
Revenue from applications was 126 million of which 103 million but service.
Application service revenue was up 32% gap and 8% on an adjusted constant currency basis.
I'd like to provide more color on application service revenue, which was impacted in the quarter high growth of deferred revenue.
As we have been moving up market and booking larger contact center deals to lag between booking and install has elongated.
This is because larger customers tend to require more customization and have internal constraints and when they released new tools to their employees.
As an example, we signed our largest ever contact center deal in Q1.
But the revenue from this just starting to be recognized in October .
The result of this timing lag is lower in period revenue and higher deferred revenue, reflecting build work on in process in scope of contact center customers prior to going line.
Total deferred revenue exiting the third quarter was 61 million of which contact center accounted for 36 million increase of 5 million year to date.
We estimate the in quarter impact of this increased lag to be approximately $1 million.
So expect to benefit from recognition of these deferred revenues as customers go live on our services over the next several quarters.
Business service margin for the third quarter of 52% was flat sequentially driven by margin improvement across most of our products offset by product mix or growth of certain lower margin products.
Moving to slide 11.
Third quarter business service revenue per customer was $451, a 25% increase reflecting our successful move up market and the acquisitions of news media and Tokbox.
Sequential business revenue churn remained at a record low of 1% down from 1.1% year over year results of our move up market and product improvements.
Moving to slide 12 consumer revenue for the third quarter was 96 million down 11%.
This revenues at the high end of our expectations, partially due to churn of 1.8%, which was flat year over year and only slightly higher sequentially. Despite pricing actions we took.
Average revenue per line increased by $1.26 cents from the prior year. This increase was driven mostly by higher USS fees, which we passed through to.
Customers.
As well as the pricing actions and the overall maturity of our customer base.
We ended the quarter with 1.1 million consumer subscriber lines.
Tenured customers, we define as being with us for two or more years now represent 90% of our consumer customer base.
Consumer service margin for the quarter was 90% up from 89% due to lower termination rates and increased allocation of certain shared network cost to the business segment that revenue becomes a greater proportion of the whole.
Turning to slide 13 consolidated revenues for the third quarter were 303 million of 41 million or 16% on a GAAP basis and 9% adjusted constant currency.
Now moving to income statement cost items on slide 15.
Consolidated sales and marketing expense for the third quarter was 84 million.
9 million.
This is primarily the result of the additions of new voice media and top box.
By small increases inorganic media developer relations international marketing spend.
Engineering and development costs were 17 million up 3 million, reflecting primarily the acquisitions followed by continued investments in the one bondage platform.
Greater context. In addition to what is on the income statement now that we own our own advanced software stack.
We are capitalizing certain software development expenses.
In the expense plus capitalized software for Threeq, you totaled 25 billion, representing a competitive amount of total development spend relative to our peers.
One could also consider the recent acquisitions, we have made as an additional form a development investment.
General and administrative expense and the third quarter with 41 million up 4 million.
This difference is primarily due to higher share based expense and compensation from acquired companies.
GAAP net loss was 21 million down 31 million and adjusted net loss for the quarter was $4 million or two cents per diluted share down 25 million.
Decreases were primarily due to an update to our projected 2019 tax benefit.
The secondarily acquisition related higher operating expenses.
Turning ahead slide 16.
Third quarter, adjusted OIBDA was $45 million down 5 million year over year over year end up 7 million sequentially.
The year over year decline is due primarily to higher costs 2018 acquisitions of top box, which we only own for part of three to 18, and Dubois media, which we did not only in the year ago cord.
We also incurred a 1 million dollar impact from the new boys media deferred revenue write down.
Let me to slide 17, Capex for the quarter was 14 million up 9 million due primarily to the after mentioned development of new functionality on the one be software platform.
Driving adjusted OIBDA minus capex of $31 million.
Slide 18, we ended the quarter with 562 million of net debt down 13 million sequentially.
As of September Thirtyth, we were 3.6 times net Levered and then significant liquidity under our total debt covenant of four and a half times.
On slide 19, our expectations for the fourth quarter are as follows.
Vonage business revenue of between 214 and 216 million.
Consumer revenue in the $90 million to $91 million range.
And adjusted OIBDA of between 43 and $46 million.
Accordingly, 2019 full year adjusted OIBDA is now expected to be in the $157 million to $160 million range.
These adjusted OIBDA guidance numbers take into account the previously mentioned to increase in contact center deferred revenue.
Which impacts we've done dollar for dollar.
In conclusion, we feel good about our financial performance for the third quarter.
And our strong position to deliver on our strategic and financial objectives.
Ill now turn the call over 200 to initiate the QNX.
Okay, great. Thanks, Dave.
Debbie Let's go ahead and turn it over to acuity. Please.
We will now begin the kinase session.
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Our first question comes from some not so manner with Jefferies. Please go ahead.
Hi, good morning, Thanks for taking my questions.
So if we could add.
I can get hearing.
Yes, sure Okay, Great Hi, Thanks, Ed. Thanks again good morning. Thanks, Thanks for taking my questions. So maybe if we could just talk about a lot of announcement came out of that came out at the conference last week I think notably the video solution in the App Center I'm curious, maybe if you've got initial feedback from customers on the video solution and.
How you think about that in terms of changing the nature of the conversation in terms of go to market with customers and I have one follow up questions that.
Oh, great questions Mark It's Alan let me ask go more to take that.
Hi, This is omar so from that from the from the video as you may recall that originally we had done a partnership with Amazon chime. So it's very similar to what Ringcentral does today with two right. They have a partnership it soon.
And what we announce what we've been working on behind the scenes. Since we acquired Tokbox was was building a fully integrated video experience using the talk box video Apiay, which we just which is what we announced last week. So I think it does have a lot of so one I think it dovetails exactly would what elements.
Describing as Irwin bondage strategy.
I would building on top of building products and core platforms I think.
One second thing is I think from a customer experience standpoint, you had an integrated product offerings. So you have voice you have video you had.
Messaging all in one integrated App. This is true and mobile this is true Robin This is true on desktop as well.
This is using the latest and greatest web RTC technologies now in terms of go to market I think this gives us.
A lot of rich in terms of.
Not only a strong story.
But also the underlying technology platform. It's it's.
I think.
This is something we're probably market a lot more aggressively in the next year.
Great and then yeah, just one on the.
The fourth quarter outlook, and as you guys move into it.
Targeting larger customers and and the timing continues to evolve in terms of booking tier to implementation, maybe give us some color on what the what the Fourq you pipeline looks like with mid market enterprise customers and then maybe how should we if you you're going to give any color maybe they report on bookings. So we can such that out versus that just.
Speaking about the revenue given the lag in a in the Rev. Rec timing. Thanks again for taking my questions sure.
Sure. So we had strong bookings quarters in each of the first second and third quarters and in fact, we talked a bit about contact centers specifically on this revenue deferral elongation.
We had a very strong third quarter bookings and in contact center. So.
That remained strong in terms of how that expresses itself in for Q.
For Q apps growth rate looks a lot like the threeq you apps growth rate, because we're still experiencing that elongation.
But that does.
10 stretching of the rather than.
Eventually stops actually start to get the benefit of this deferred revenue actually hitting the hitting the income statement.
I would say, let me add to that as well.
So broadly what you're seeing in applications is.
Lets strengthening of the pipeline across the board simply because if you take about 2019, where we.
Quick actively selling third party solutions and win all in on our own products only as recently as Q2.
Now.
At sort of a transitional complexity is behind us are largely behind us and now everyone's focused now on our own products, where we control the roadmap and our ability to execute our product development, but more quickly as evidenced by our rent that video meetings, the bobbitt that the Omar just referenced.
And that now that value propositions, getting tighter and tighter as we move forward and again that as we direct our sales and marketing across those.
Collective up market channels with spreads Wakefield channel and our alliances group.
Okay.
Great. That's very helpful. Thanks, guys.
The next question comes from Mehta, Marshall with Morgan Stanley . Please go ahead.
Great. Thank you so much I wanted to dive in on maybe kind of the Apiay business success out of outside of traditional geographies and then maybe also you know I know we've.
Rebranded a lot of the contact center piece under the.
Bought edge brand, but just kind of how cloudsixty ex caught express firstly voice media wise or just kind of what how that will be branded going forward and how you look at kind of the lighter weight first as the heavier weight.
That kind of product. Thank you.
Great one last Omar to start on floating rate value oriented questions.
Sure Hi, Medidatas Omar so on Apiay I think your question was on our.
Performance in geography.
Where we have done well that.
Historically, so I think Alan and I Wonder if recruiting resulted in opening that actually has had the I think overall, we've seen a lump strength in terms of growth and historically Asia Pacific for example has been a market where weve been very strong and that continues to be the case.
The U.S. or let's say and North America has been.
Has been a market that we put additional focus on and we've seen really good results as a result of that.
So we're seeing we're seeing good customer acquisition in North America, I think you know I think theres a lot of opportunity in that market as well, so EMEA and APAC or our strong price and that historically been strong first they continue to be strong for us I think what we're seeing is is a good momentum.
In the U.S. and.
The Americas in general.
And that of Hey, it's now let me take the rebranding question I think the key construct here is that.
And.
By virtue of what we've done uniquely is build a platform.
That platform calc covers all the elements, but the major elements of the Tam, whether you're a buyer who is going to buy pre packaged either contact center or unified communications or increasingly a hybrid the two ornate the eyes and so the point is is the rebranding went there went through and set as we are a single platform.
We are single global brand a single identity. So that more specifically your question about CX caught express or more advance the larger more advanced contact center. It really almost doesn't matter. It's simply now from one comments stack being able to.
Provide the appropriate product are appropriate solution for the customer.
What we find is larger customers tend to default, what we referred to as advanced contact Center, formerly nvme.
While more mid market or perhaps even large smbs will default to a more lighter weight version at lower price point, which is currently brand that CX cloud expressed the whole notion is you can enter into our system.
And those two vantage points or you could come in purely on a unified communication solutions quite frankly, you could come in.
Within a pie doing two factor authentication and along the way you simply migrate within a common stack into wherever you are used cases require.
Got it thanks, and though I mean, I guess just to put a finer point on that.
You would expect more kind of traction still wouldn't be voice media or kind of the or advanced contact center, but you still expect kind of decent pull through of the lighter weight product as an add onto the platform.
Absolutely we saw that in the quarter, where you're ultimately going to is that what we refer to a single pane of glass, which is.
And one in one product you a user could either access.
You see functionality, if thats, what they needed or contact center folks I, if that's what they needed but it's in a common solution. What we have found that is that the the lighter weight has worked very well within.
Sort of a traditional master agent channel, which tends to focus much more on mid market and it fits well there while we find that a larger enterprises clearly the fall to the heavier weight.
But again.
We're just following if you will the use cases required by our customers.
Thanks, guys.
The next question comes from Rich Valera with Needham and company. Please go ahead.
Thank you question on your mid market Enterprise go to market, yeah that initiatives should have been in place for well over a year in kind of the headline numbers, we've seen from a revenue perspective.
No shown continued deceleration there. So just wondering if there are any metrics you can provide for us to show us that youre in fact, gaining traction on Midmarket enterprise.
And then related Lee your Fourq guidance, it looks like business service guidance at about five to 6 million below where the previous guidance would have put it. So just wanted it Dave if you could tie maybe between the tie between the the new guidance in the old and how much that's deferred and how much that is something else. Thank you.
Rich Thanks, let me start it's Alan.
The macro point is that.
The pipelines going forward in up market, Midmarket enterprise or improving significantly.
The deceleration in year is really a function of by by virtue of.
Pulling back from third party solutions, focusing everything on our own down implications.
But as business cloud any voice media.
That's probably the period, if you think back as sort of up the period of the greatest sort of transitional complexity.
That's getting quickly behind us well the product capabilities are improving dramatically in our own product and sales and marketing is much more effectively aligning around our up market routes to market.
Okay. That's good that's sort of transition is coming through and.
Looking better clearly in the future.
And that rich on the back yes, the midpoint of business at this point based on the guidance. We just gave for the years now 801 million, whereas it was 85 and we said in August we thought we might be a bit higher than that midpoint. What changed is we've got an additional about $3 million of currency headwind in the second.
Half of which about wanting to half was in Threeq, you and at this rate one and a half will be important view and then we have about $2 million difference from this deferred revenue elongation or revenue recognition elongation.
In the C test product million a in the third quarters I referred to that another million in the fourth quarter.
In addition, we in the first half we had some currency so that kind of back to back to what we said in August . In addition, the first half we had about another 2 million of currency pain. So if you were going back all the way to our original guidance, we would still have been.
Above the midpoint kind of between them the midpoint in high.
Okay. That's helpful. Thank you.
The next question comes from will power with Baird. Please go ahead.
Okay, great. Thanks, Yeah, I, just I guess was hoping to unpack the application services revenue just a bit further so if you look at that 8% growth is there a way to break out for us.
Got it Ucas piece versus new boys media I know Dubois media's facing some pressure due to affirms that you've addressed.
If you put that aside just your voice media, so growing double digits in any further color and then I guess the second part of that is that a business that can still grow 20% or is that a team grower as you think about the new voice media base.
Yes, I'd say two things.
The difference in the growth in the quarter was primarily at almost completely tied to contact center and this issue on.
The deferred revenue.
That we talked about so ucas was.
Relatively stable in the quarter, if you looked at it.
That way, but it really does come down to the cohorts and it's the same story.
The lower end cohort was low but stable the upper end cohort because of this deferred revenue.
Do you accelerate so we think again in the fourth quarter.
Were you, it's hard to get that back, but you're going to start to see.
That benefit comp.
In terms of other factors. So you had about 1% if you're if you think about 11% going to 8% yet about 1% from that deferred revenue.
1% from.
We think about his inorganic things that happened back in the third quarter, when we didnt own new voice media and about half a percent.
From currency, so theres very little organic that when you add that backup theres very little organic difference.
Okay.
As it relates to how that applications business can grow I mean, we think ultimately it can be a 20% grower, but we're not.
Outlooking.
That we're budgeting to that.
This is a this is a bit this mix shift the downs talking about.
Takes time, but I think we have the right pieces in place right now and that the factors that you know that that has the most impacted this quarter.
Tend to be non nonrecurring in nature.
Well, hey, its enemies enrolled quickly so the comment about how well contact center growing them in the future. Thank the important thing to remember is that.
When you when we go up market.
We are increasingly using a contact center to wed motion.
To drag.
You see what we're finding increasingly is.
Customers are buying those products together.
It's always been challenging by any vendor to differentiate you see.
And the contact center side, though is quite easy to differentiate particularly given our embedded strategy with Salesforce, which makes our product. We believe demonstrably better based on the win rates that we see in those environments, where the customer is using salesforce. So we find it over and over again that.
Ah you win heads up against other contact center players in a sale force environment and it pulls you see it's precisely the example that I decided with me.
Resort Park operator in the UK that was already an advanced contact center customer, but that pulled in 1700, you Ccs, we're seeing that all over the place.
Okay, Alright, and then if I can just squeezing the second one I think you talked about product development and sales and marketing.
Help improve results.
If you put that in combination with.
The bond is branding.
Doubts that that at campus, how do we think about the cost road map from here and the likelihood that we could see a step function increase as we kind of had the 2020 around those initiatives.
Yes, I'll comment on the flows to be obviously, where the middle the budget process. So we can't make any statements about 2020, but you've got you've got two different factors you, obviously have a growing sales force, which pushes that number up you've got a shift.
Of dollars out of the low end to the market and a onetime most of our marketing dollars were deployed in the low end of the market what was it was the.
Hi, most reliable and fastest return that you could get as that market has slowed down and we've seen in within this year you can see changes in our and our sales and marketing.
Dollars in mix within the year.
We are moving dollars out of that overtime out of that market, making the ones that we keep their more efficient.
And putting them into the up market that up market really has for 2020 has two flavors. One is brand and two is lead generation.
The exact where all that math ends up for 2020 again, we're we're working through but the majority of it is going to be a re mixing of our marketing spend.
Okay. Thank you.
The next question comes from James Breen with William Blair. Please go ahead.
Thanks for taking the question.
Just on the consumer side the declines one is great. This quarter's reaching the past due to some commentary there do you think that business is starting to sort of flatten out a decline perspective, because turned didn't seem to be up.
Our police were up a little bit thanks.
Sure. So I think churn is generally stable and the fact that 90% plus at the base tenured.
We have a pretty good idea of how they act.
Churn was up sequentially.
By 10 basis points and that really was because of the price up we did that price up it's also what's driving the.
The lower revenue decrease.
Then we and I think the market is expected so the price increase.
We took primarily a little bit in the first quarter and primarily the second quarter.
I was more effective.
Than we thought.
That being said, we're not planning on taking price increases.
Regularly so I think you saw that 11% decrease you're going to see that in 2020, you kind of looking forward, you're going to see that decrease revert back to.
The organic rate, which again based on the size of the base is going to be more and then in the mid teens.
Battle that that'll take a little bit of time to go from the 11 to the.
To the mid teens clearly if we wanted to take another price increase we could do that but we like to align that with value being added features being added.
And the market dynamics.
Great. Thanks.
The next question comes from Catharine Trebnick with Dougherty. Please go ahead. Thanks for taking my question I cant one I wasn't unfortunately able they tend not rebranding or your conference last week can you flip apply this because it seems like from my gather nexmos.
Now advantage and it seems like you're really not your platform maybe not only to have a you can contact center, but perhaps maybe I just might want.
We are or I might just want a omni channel and not the rest of it and how do you plan.
Is that correct kinda assumption and then how do you plan on pricing.
Kevin had failed all the start on brand I'll ask Omar to jump in sort of on your.
Product specific questions.
What we did very clearly is too.
Announced that our go forward global brand is wantage, which means that we will sunset.
The acquired.
The company brand names Nexmo, New voice media talk bugs and alike.
So all research suggests that there's great favorability in the bonds bran high levels awareness.
And it's the correct.
Ran.
To go forward with I mean again as I spoke about it at.
Campus is that we have the brand is associated with a disruption clearly that's what we did 20 years ago when bought as disrupted the residential for less money market and the positioning is we're doing it all over again again from the platform approach.
The product naming architecture is underneath around.
Content bondage contact center, but as business cloud validate the I platform you will have opportunities for discrete product names as we package things are going forward, yet again simply based upon where we see the demand let me turn it to note Omar.
Hi, Kettering does so mark. So your question you had a question on.
Is it pricing on well right. It seems to me, yes, I get the fact, you can get contact center you know any P.I. flavor, sorry are you doing that.
Are you then have switched this to a more basic like on the <unk> can and do you sense based pricing in this new model are you going into based pricing.
That's a great question. So yes, so the applications businesses SaaS business subscription business.
And you're right. We're not that you guys had its usage base.
What.
Part of the and this is something we don't talk about as much but part of the flexibility that we could have we haven't implemented it but there is no.
It's not a if I look at it was a benefit of the one bonded approach that we're taking is that some of these things we could offer usage based on usage based pricing model like we do on the eyes. So.
There's some very interesting product areas that that we think.
We think are candidates for that so we have built east to do it we just haven't.
We haven't done that we haven't sort of seeing.
The right timing in the market yet for that.
Okay that helps a lot and then the second question asked to do with SD. When you know in the last last year that was a big odd trigger for growth and where does that stand in this new one platform. Thanks.
O'malley take that as low relative to our strategy on access in Qs.
Okay.
Hello.
We can catch it on the post call Alan Yes, it's simple if it's simple us as Dave mentioned in his comments.
We are.
Exiting the traditional provision of access.
You know the pure connectivity into the office, where it with you we used a bundled into our Bill We report we buy it and resell it from whomever have that that building or that office complex wire, we have replaced access.
With.
Oh Smart went as our quality of service.
Approach and that continues to grow very attractively. It is just an element of our offering and again as a piece that we can control as opposed to.
The past if that T one or whatever into the office went down we had no control over so that's the approach we're taking boat.
Alright, thank you.
The next question comes from Tim Horan with Oppenheimer. Please go ahead.
Thanks, guys two questions, maybe first on the consumer side.
You kind of mentioned that maybe there was a way to add more features and services on consumer maybe just any any thoughts around that in.
My kind of little Crazy, but consumer.
It feels like the triple play bundle with the cable guys as disintegrating in there might be a way to kinda.
Stabilize the grow that business, a little bit more because a lot of people still want their home phone lines just curious on your thoughts on that.
Thanks, Tim So we haven't seen the SEC a change in the secular trend, which is away from home phone service.
We clearly are adding new customers.
But that that is a relatively small amount of the business and we're not.
Sitting here right now, we're not seeing opportunities to to step on the gas or to to add more than than what we're getting or at least to do that with any kind of reasonable CAC. What we found over the last couple of years as as we brought the spends down and brought the tack down.
We tried to test.
On adding some some spending back to see what we got in every time.
It was it was pushing on stream a bit so we don't see the opportunity to really to to shifted as we as we stand right now we feel like the focus on on business at both the kind of folks are the team and the focus of the capital.
It is the right one.
As it relates to features that was that was really a comment about.
When we do a price out yeah, we tend to tie that to.
And when we tell the customer about it we tend to highlight to features they are getting.
And you know every once in a while we do we do add something like Boomerang is one that's particularly attractive to.
Customers, calling between India, and U.S., but but we're not just to be clear when we're not spending a lot of development time today on new features for that.
Also when we do a price up we may adjust the bundles you may say, okay price going up a dollar or two but you're going to get more minutes or what have you which was part of my comment.
Got it and the second question, maybe just on the CPI side, it looks like you're growing faster than one of your largest peers right now congratulations and I guess, maybe can you talk about the relative product quality versus than men.
Do you think you can kind of continue that and I guess on Apiay side are you having much success.
With the go to market integrating on the application front. Thanks.
And you let me let me take that yes. Please omar.
So thanks, Yes, we had been seeing really good really good growth.
And and I think your observation is correct, yes, we're definitely growing faster than some of our larger.
Larger competitors so.
In terms of what we're seeing in product mix.
Said in his opening remarks.
This year was not only to grow revenue, but was to pace, particularly focused and really what we call. The high value. How about you guys and we've seen good where we've seen really good progress. This year in that regard let me see now across the board in Asia Pacific in EMEA.
And in the U.S. I think in particular.
The video video Apiay, we've seen a lot agreed good traction, particularly in healthcare.
Customers education et cetera, so we've seen mentally good customer wouldn't there, but then usage also growing so I think thats kind of all one standout.
We've also seen some good.
Good so not only customer wins, but also good usage to begin on on more on voice as well on a voice NPL now you asked a question I think on relative stability of the platform.
When we acquired next no I think that's three half years ago, Great company, but really would have messaging apiay right really around SNS that weve invested very heavily in terms of R&D to build out that sort of make the product product line broader and deeper.
Oh voice with conversational Epi video to the acquisition of top box in a number of other things and.
When.
When I referred to it in his opening remarks as well we've grown the developer in other registered developer ecosystem. What are the things that we do just as a matter. So the matter of course business is survey to developers and so for example went that second year in a row. We won an award around this around the overall developer experiencing very competitive.
Competitive.
Situation. So we're happy to receive that award and our own customer satisfaction surveys on even when we acquired an excellent they had they had a high.
Customer satisfaction in this case the customers being developers.
And we've continued to grow that actually since acquiring companies. So it.
I'll have to double check I think it might actually be the highest now but it has been since we acquired the company. So I think that a couple of those things are testament to the strength and kind of the depth and breadth of product line there.
And so you just sorry, one last one so you think your voice and video IP eyes are on par with your competitors at this point.
We do we do I think the video video in fact, I think we're ahead.
Because the topic when we we're quite talk Watson Telefonica.
Well as one of the early companies and sort of pioneer in transit developer in contributor to go back Tc.
Which has become big and so if you just look at the amount of video that we do.
End of customers that we had.
Oh I think video.
Yes, I would think they were pretty pretty far ahead of that they're on a non voice.
Are you comfortable saying well okay pardon.
As a reminder, please limit your and your time to one question and one follow up. The next question comes from Michael rather more with Northern capital markets. Please go ahead.
Hi, Thanks, Yeah. Just on you mentioned bookings were strong can you provide a little more color on that you have like a bookings growth rate number and then second how much you're booking is business bookings are coming from the the channel This plant.
Yeah, Let me take Us Hey, Mike a sale and so the.
The bookings strength that we're seeing yet you have to remember as we shift marketing spend which traditionally with spirit downmarket more transactionally, we're buying fewer of those leads again on purpose to by fewer of those sort of super micro customers and shift.
Thing that working media spend entity up market in support of the up market channels. So we've actually manage down bookings.
In the Downmarket channel, while bookings are going up attractively and the what we refer to as Midmarket and enterprise.
And that and again that growth in because we don't served we don't.
Disclose the actual percentage growth in bookings, but it is moving definitely in the right direction now focused on the owned product.
Maybe to Budd business cloud and yeah.
The.
Within those.
Let me stop there so am I address your question.
Okay. Thanks.
And then the channels that you know what a pick what percent of bookings is coming because of the channels outside so I stopped because I forgot the tail end. Your question. So on channel as I mentioned in my remarks.
Basically virtually.
All of what you would traditionally think as you see bookings.
Our and they'll contact center bookings.
In North America are coming.
With a channel connection to it so we've done as we have fully teamed field the direct sales force Chantal and even our alliances team, which is really working predominantly with the salesforce ecosystem, we team to those resources, where the alliance as group and channel.
Our very very focus in getting us additional at Bath, they're more top of funnel, while the direct group is more closing at bottom of the funnel. So you really sort of no longer can split them and it's all coming across this coordinated effort across the three elements of the up market channels.
Okay. Thanks.
The next question comes from Ryan Mcwilliams with Stephens, Inc. Please go ahead.
Thanks for taking the question David would you mind walking through similar math for the lower Q4, adjusted EBITDA guidance I know you mentioned, a 1 million dollar for dollar decrease due to the extended contact center implementation, but is there anything else in here worth highlighting quarter to quarter.
I'd say the one thing that's different is that it's advantage campus event. So the reason why sequentially it would be lower so the difference relative to what we thought it would be is the deferred.
The.
The difference sequentially quarter to quarter, it's Vonage campus. So.
Several million dollars in there.
Relative to the brand relaunch, including the event itself, which put pressure on the number puts pressure on the Fourq you number relative to the Threeq number.
Great and then I apologize if this was addressed before but is there a vonage house view on the recent ringcentral of ideal and maybe what that means for the industry unhealthy factor business.
This is Alan so.
Arrogant I'm the house view on this is that.
Okay.
This is just another example of the trend that all cloud vendors are enjoying as close as prime moves to cloud.
We don't see any particular acceleration even within the a via community as a result of this deal.
I know some of this isn't isn't expected until next year, but even next year. We think we're still getting our shops at the a vial bar community and other prime based var communities.
Based upon this trend that moves over the key thing is we've looked at this.
Relationship is that the connectivity between a via as the provider and the downstream customer is most often very remote the customer may have a nortel device on their desk or a viable.
Phone on their desk, but overwhelmingly they're not even on the maintenance contract and so what someone makes a decision to move from premise to cloud who's the hardware or the premise based software provider is.
It is frequently on important as as I often hear from premise based Ceos, who I chat was saying when someone makes a decision to go to from Premier until a multi tenanted true cloud.
Solution, they don't get the phone call. So.
We're not seeing dramatic impact to it.
Today, nor do we expect it tomorrow.
Appreciate the color thanks, taking my question.
The next question comes from Adam Elkowitz with Citi. Please go ahead.
Thank you good morning, I wanted to.
Talk about 2020 for a moment, if we could I think Alan earlier in the here, we have talked about exiting the year towards a 30% service revenue growth rate.
Which which may prove difficult at this point and then the talking about international expansion and additional investments in sales and marketing if I look at where people are expecting your results for 2020 come out it's a pretty healthy step up in profitability for next year. So I was just wondering if you can kind of talk through the puts and takes us.
That as we look out towards the next year. Thanks.
Yeah, I'll give you the numbers and then.
Colorize that so as it relates to the exit rate, you know, which to just to repeat it.
Was the number approaching 30 or for high Twentys service revenue currency adjusted growth rate, we're going to end up right now based on the guidance. We just gave that number is going to be more in the somewhere in the mid twentys.
For the factors that we that we talked about on.
On this call.
As it relates to.
Obviously, that's the rate that word that we're taking into 2020.
As it relates to 2020 itself.
Right now we're not prepared to make any more statements and then the fact that where you know were deepen the budgeting process.
We see a lot of opportunity to drive growth.
And we're thinking through capital allocation to that.
Relative to cash flow and also what are those opportunities. We can we can actually execute.
You know with with high confidence.
You mentioned international expansion I'm not sure what your.
My question was there that's that's clearly part of.
2020.
Part of that discussion around.
How to how to remix the marketing dollars and how to spread them between international and the U.S. as we see opportunities across them.
I would just also note that for us International's a bit of product play in that in the U.S. multinational companies are requiring you to have an international presence. So.
I'm proud of perspective, we have to do that development and we are investing in that and there's just a question how much how much marketing dollars, we put it behind the end market.
Marketing efforts in each individual market, but we do think they are compelling opportunities there and the nbn.
Network of sales network and customer network in Europe in particular.
It's very very strong.
Thank you.
The next question comes from George Sutton with Craig Hallum. Please go ahead.
Thank you I hopped on late so I hope this wasn't a dress, but your new value proposition revolves around having the most flexible cloud communications platform, which is a new way of describing it I wondered if you could go a little more in detail on that and then one of the industry analysts I mean interesting observation.
Said your two polite and your marketing relative to others I would tend to agree. So I'm curious if you could address that as well.
Well, Hey, Craig sale, so excuse me George sale the.
The the reason we've gone with the flexible platform is really just its fundamental in our belief that.
Cloud communications is not.
Sure no longer be considered under these discrete camps around ucas sicad than the past as an example.
Matter of fact, I was reflecting after bonds campus I thought many vendors would have organize that campus in the three the cabins event into three events you could because there is this.
Well I think as a more or can't view that says Gee only I T buyers by Ucas for their employees need and only you know the care support group buys contact center software for integrations are interactions with customers and only developers by 85.
We're not seeing that what we're seeing is coming together and so the whole approach about the flexibility. The platform is that it's a common platform we build functionality into the platform. We then can either.
So what do we sell just based upon the use cases of the customer or the developer where you enter in our process real care if that flexibility in how you stitched together, which is so important.
And so that's the approach and that's why.
We have anchored on this messaging in its resonating really well and you see a very very specific example, where for instance, you see at Ccs just increase can be bought together, you're seeing it everywhere and matter of all the vendors whether they own a contact center like we do or resell somebody else's, they're all packaging their go to market that wage in response to the.
The buyer demand.
As for your comment about whether we're being a little bit to Kuwait and our marketing.
My expectation is that we're going to be a much more aggressive in our marketing one of the things that we had to go through first was the unification about a single brand.
And therefore, the sun setting up the legacy brands. So you think about the ability to put all was behind one arrow polite or otherwise it would just very difficult to do that when you are distributed over multiple identities now we have a single global identity and we're going hard at.
Perfect. Thank you.
The next question comes from Jonathan Kees Smith Summit insights group. Please go ahead.
Great I'm glad to make it and thanks for taking my questions I.
I am wondering I, specifically about sales and marketing I I've kind of curious why I'm sales marketing for Q3 was down a percentage of revenues as well as dollar amounts compared to first two quarters, especially since tokbox and which meet our full in there and the other two opex lines were up had been trading up even on even if over the last four core.
Orders and then you've also been spending money on branding and as the ancillary to that I know, Dave you're you're seeing is still in the budgeting process and you see or your skin only talk high level Oh, how should we model for 2020 turned to sales and marketing is it off Q3 base has there.
I reference point or should we use the the point from Q1 Q2.
Yes, so I made reference to this earlier, which is a re mix and the fact that.
We were heavy in the first half in marketing on.
On what we call inside or in the lower end of the market.
The thought as time was that again that that was efficient spend and while we were making these structural investments in moving up market that that was the right place to deploy some capital.
We did we got what we thought were adequate returns from that but I think what we found is that deploying that money up market makes much more sense, so and by the way we <unk>. We budgeted this way that we would be heavy that we would do some testing.
And make it make a judgment we ended up following.
By in Threeq, you really taking those dollars.
Some of those dollars away from inside.
So we're only deploying inside what is truly efficient not not kind of pushing you know that the the marginal sale that might not be efficient.
And keep those dollars in threeq human or pocket.
Advance of campus and the brand launch.
And now you're going to see that remix start to happen, so you're going to actually see.
Marketing in Q4 as part of our EBITDA guidance I noted this.
Is that marketing starts to trend back up and then it's clearly going to be up.
In 2020.
The extent of which is the thing that we're still working through.
I would just say that again, it's moving dollars from inside.
Towards sales brand and very targeted up market lead generation.
And the amounts again or to be to be determined as we work through this but we do now believe that you know with the investments that we've made and the strategy work. We've done that we can effectively deploy that money up market now.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Hunter Blankenbaker for any closing remarks.
Okay, great. Thanks Debbie.
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