Q4 2019 Earnings Call
Thanks Hunter. Good morning.
In 2019. We took a number of decisive actions to enable long-term success.
First we completed the move to our own technology products second. We created highly focused go to a difference in API. We focused on driving accelerated Revenue growth in high-value apis, like video voice and messaging in applications Pakistan driving accelerated Revenue growth among mid-market and Enterprise customers.
We revitalized the bond is brand with a new unified Global identity and forth. We invested significantly in product Innovation and platforms including incorporating artificial intelligence throughout our products via the acquisition of over. May. I
in the context of these decisive actions full year 2019 results or solid business revenues increased 804 million or 32% Revenue growth and full-year Business Service. Revenue growth was 37%
Consolidated revenues where 1.19 billion and adjusted wave it off was $158 Million.
Our performance is driven by our unique strategy of owning the complete range of solutions this enables us to uniquely across the entire Cloud Communications tailed customers use our Solutions in many ways ranging from programmable communication apis, like video voice and message too fast offerings, like Vonage business cloud and contact center across functionality of our products provides a superior user experience than the best addresses our clients digital transformation and customer experience needs
Moreover we are increasingly.
Developing these products from a single cloud-native technology stack that we recently rebranded as the bondage communications platform.
I just product strategy is being recognized by industry analysts in 2019. We were named the leader in Gartner's magic quadrant for contact center as well. As in dog is marketscape for cloud Communications platforms. Additionally Frost & Sullivan recognized bondage as they see past market growth and Innovation leader and as a c pass provider of the year
With that as a backdrop, let's review fourth quarter highlights starting with API platform.
In the fourth quarter API platform delivered industry-leading organic Revenue growth to 50%
This growth was driven by increased traction of high-value apis, which grew at nearly double the overall rate and includes programmable apis for video as well as voice messaging regarding video. I want to highlight its significance as a core element of our API go-to-market strategy where applicable and most often win with video. For example recent wins include teladoc Health that Telehealth leader that uses or video API fax over the web medical treatment and Peloton Corporation the leader in streaming exercise classes that uses our video apis to stream those classes.
We also use video to sell in additional products. For example, the world's largest Healthcare Company began using our video API in early 2019 to in a hipaa-compliant Telehealth.
Behavioral Health and video coaching and at the same time deployed our SMS and voice apis to address other of customer engagement needs.
Of course, we're video is not applicable. We lead with our other apis. I'll cite three examples first one of the largest global food companies use as our conversation May VI which enables customized real-time conversations to automate order fulfillment. Second freshworks an Innovative leader in business software uses our messages API to enable customers to communicate over multiple channels including SMS MMS WhatsApp and Facebook Messenger off and then third Grant Thornton uses multiple advantages apis to build Superior customer customer engagement capabilities into their clients applications.
We continue to improve our go-to-market capabilities including building our partner and developer Community. We ended the year with 360 API partners and nine hundred fifty thousand registered developers now switching to Applications.
ProForm a service Revenue growth in the fourth quarter was 8% matching are guided expectations this growth rate reflects increasing mid-market at Enterprise success offset by slower growth in the micro segment as we reallocate its Associated marketing spin to mid-market and Enterprise.
From mid-market and Enterprise customers which we Define as those with greater than twelve thousand dollars of annual recurring Revenue wage in the fourth quarter and 12% in the third quarter revenues from customers with greater than $120,000 of a r r which we Define is our customers accelerated to 21% in the fourth quarter from 17% in the third quarter.
In the fourth quarter versus 36% in the year-ago quarter.
This is highly favorable for long-term growth yet. It creates near-term Revenue drag as micro segment bookings which convert to revenue agent most immediately are replaced with mid-market and Enterprise bookings that take longer to install.
As this mid-market and Enterprise shift continues. We expect improved service Revenue growth in the second half of two thousand twenty. In fact, we expect Q4 2020 mid-market and Enterprise service Revenue growth of at least 20%
With that as a backdrop, let me highlight for key proof points of our mid-market and Enterprise progress.
Is it that we have stocked our sales teams with more Enterprise sales Executives focused on Solutions selling to mid-market and Enterprise customers wage point. I'm thrilled to welcome Rodolfo cartenuto as president of applications. Formerly. The president of sap America's and president of sap is global partner operations unit Rodolfo brings Global Enterprise sales leadership experience.
The second point of mid-market and Enterprise progress is our success with Channel Partners in the fourth quarter Channel sourced bookings grew nearly 100% off and the channel originated 60% of all North American field sales.
The majority of our Enterprise came from the TV total contract value pack including a 14000 seat deal with the University of Pennsylvania. The 12 deals in the fourth quarter are the most wins in this seven-figure TC video game category during any quarter in 2019. And lastly we extended our Channel reach by expanding our key master agent relationships into the UK and Australia.
The 3rd and market and Enterprise progress is the success of our go to market and product in bed strategy with salesforce.com. Our Salesforce integration was key to winning a seven-figure deal with lendingpoint a leaning fence have company The Deal started with contact center, but you can as was added as lendingpoint realized the value of an integrated solution. We also one Empower Pharmacy another Enterprise deal based on the strength of our sales force integration.
Lendingpoint and Empower were both Channel originated highlighting that our sales force in bad strategy is highly valued by Channel partners.
And the fourth point of mid-market and Enterprise progress is the improvements we've made in our platform to best serve mid-market and Enterprise customers what meetings are fully integrated video Solution on his meetings is the Exemplar of our platform strategy because it is built from the same video apis. We took the developers and Enterprises worldwide.
the internet
National front we expect to add support and Ireland Germany France and the Netherlands in this first quarter plus five more countries in the second quarter and much more in the second half.
in closing
During this morning. I decided a variety of organizational product and go-to-market actions focused on improving performance and increasing shareholder value. I now want to announce two additional actions aimed at increasing shareholder value.
First in light of the progress. We have made transforming bondage into a pure-play business SAS company including today's guidance that business segment revenues will comprise greater than 75% of 2020 Consolidated revenues. The company is initiating a strategic review of its consumer segments, including the feasibility of its divestiture to further the company's goal of becoming a pure-play business as company. The review will be led by the board working with management with the assistance of Financial and legal advisers and will include an operational review with the assistance of Consultants.
and second
The company plans several reporting and disclosure changes that will take effect with q1 reporting these changes which day will explain are designed to provide better transparency while making it easier to compare performance with our peers and with that. I'll turn the call to Dave.
Thanks Allen and good morning everyone. I'm pleased to give a financial overview of the fourth quarter and full-year 2019.
All comparisons to Prior periods. Are you over year unless otherwise noted as sequential. Let's begin on slide nine. We exceeded our Ford key Revenue guidance across the board and finished squarely in the adjusted voice down range starting with Vonage business on flight. Ten Revenue in the fourth quarter was 218 million representing a 70% of Consolidated Revenue. This was a 28% Gap increase for the full year by his business. Revenue was $804 billion a 32% cap increase.
Service Revenue growth is our Focus as we continue to de-emphasize access circuits. So fewer desk phones and pass through USF fees to the federal government.
Looking at service Revenue growth on an adjusted basis normalizing for Acquisitions and other one-time items Vonage Business Service revenues increased 24% for the fourth quarter down 22% for the full year 2019.
On a constant currency basis Business Service revenues increased 26% for the fourth quarter.
We have included tables on 526 331 that's today's presentation. And in the press release that provide detail on the adjustments that form organic Revenue off the disaggregation of business Revenue by product category.
API platform Revenue, all of which is serviced was ninety million in the fourth quarter of 50% for the full-year API. Revenue was 308 million represents a 47% increase.
Fourth-quarter revenue from applications was 128 million of which 107 was serviced up 8% on an adjusted basis for the full-year application. Revenue was $496 million of which 412 was service of 10% on an adjusted basis.
Manage business segment Revenue turn was 1.2% as planned when we guided Court to up from 1.1% and monthly Revenue per customer was off 1% to $476 reflecting are successful move upmarket.
12:00 Business Service margin and did the quarter at 53% representing a 3% decrease you over a year but a 1% increase sequentially home movie just like thirteen consumer revenue for the fourth quarter was 92 million down 11% for the full year consumer. Revenue was $385 Million down 13% on five fourteen consumer service. Margin for the fourth quarter was 90% of 1% year-over-year and sequentially.
I'm sorry.
15 four Q consumer customer turn was 1.7% and apart who was $27.57 both consistent with prior periods.
The end of the year with nearly one point 1 million consumers subscriber lines with tenured subscribers accounting for more than 90% of the space.
Turning to slide 16 Consolidated revenue for the fourth quarter was 310 million. And for the full year was 1.19 billion both up 13% off now moving to the income statement cost items sales and marketing expense for the fourth quarter was seasonally high and 89 million of 7 from the prior-year closed due to a new voice media expenses, including a significant Presence at dreamforce as well as as well as Vonage campus our inaugural user conference at which we relaunched the bondage birth.
for the full year
Automated sales and marketing was 363 million of $52 from the prior-year with much of that increase driven by the acquisition of talk box a new voice media.
It's like 17 engineering and development expense for Q4 was Nineteen million up to for the quarter and $17 for the year e&d expense, but capitalized software for the year. It was $98 million representing 14% of Business Service Revenue.
We also consider recent acquisitions including over a i new voice media the top box as additional forms of development investment.
General and administrative expenses increased 1 million for the fourth quarter and $17 for the full year using increase is primarily reflect the impact of the acquired businesses.
Let me just like eighteen fourth quarter adjusted wiped out was $44 million up three.
Oh.
Year adjusted like that was $158 Million down 20.
This decline is primarily due to the shifting segment Revenue mix combined with the impact of Acquisitions being partially offset by higher business gross profit dollars.
Adjusted net income in for you is 15 million or 6 cents per share up for a million.
Adjusted net income is 46 million or nineteen cents per share down consistent with Alita.
Minus capex was $32 million in the fourth quarter the $109 for the year free cash flow which includes items such as working capital and post m&a integration with a 20 million in the quarter and 44 in the year.
From a perspective we exit the year with approximately 3.4 times net debt to last 12 months adjusted oibda recall that in June we issued $345 convertible notes which lowered and fixed interest expense extended maturities and expanded overall access to Capital.
Proceeds from this transaction which also included a $10 share buyback went to pay down existing Bank debt a result was that we repurchased almost 1 million shares achieved an effective conversion price of $23.46 per share.
Our next step maturity is more than 3 years away and the convert doesn't mature until a year after that.
For a walk through twenty twenty guys. I wanted to describe the reporting changes. We are implementing in the first quarter reflecting our transition to a business size company of moving us further away from the terminology and practices.
These changes will make it easier to compare Vonage to competitors and track our progress. They include first changing adjusted to adjusted ebitda wage is they're essentially the same number.
Second moving customer subscription references from monthly recurring revenue for Mr. Are two annual recurring revenue for a r r.
providing more comparable customer retention metrics
offering bookings mix information on the success of our mid-market and Enterprise focus in applications.
Lastly reviewing our Revenue reporting structure as a relates to the fees. We collect on behalf of the FCC.
USF revenues or pure pass through the generate. No gross margin.
2019 prior we reflected these USF. He's in our gross revenues.
For 2020 we were evaluating new Revenue reporting treatments and highlights operating Revenue as such we are excluding USF revenue from 2020 Revenue guidance result of which will be lower reported Revenue, but higher gross margin.
Moving on the guidance on 521 this guidance assumes constant currency and excludes USF.
to help
You tell your models on slide twenty-five. We have included our estimate of what USF would have been in 2020 under the fourth quarter 2019 approach off as well as a Reconciliation the 2019 revenues without USF.
Story with business segments guidance for 2020 we expect revenues in the range of $875 to $895 million.
And we continue to include USF and business segment Revenue guidance. We estimate that gross revenues would have been approximately 46 million hired on a comparable basis wage 2019.
I would like to highlight items regarding the business Revenue trajectory one within our guidance range is a service Revenue which is our focus is Thursday 16 to 18% on an adjusted basis and two product and access Revenue, which is negative gross margin will be down by approximately ten million from 2019 is we continue to emphasize access circuits and desk phones.
Moving to the consumer segments we expect 2020 Revenue in the 290 area excluding USF.
And we continue to include USF. We estimate that gross revenues would have been thirty-seven million hired on a comparable basis to 2019.
Consolidated Revenue, which is simply the some of the business and consumer segments. We expect Revenue in the range of 1.165 to 1.185 billion years again, excluding USF.
We expect full-year 2020 adjusted ebitda of at least $155 billion in capex in the sixty million area.
This regard to the first quarter excluding USF. We expect business segment revenues in the $200 million area, which we estimate would have been eleven a fire under the 2019 USF approach.
Sumer revenues in the seventy seven million area which we estimate would have also been eleven million higher under the 2019 us approach Consolidated revenues in the $2,000 million area.
And adjusted ebitda in the $32 million area as we reset annual employee benefits and Philly relaunched the bondage brand in terms of cash flow Progressive or inconsistent with history. We expect that adjusted ebitda and build throughout the year.
growth Investments, we made in 2019 have positioned bondage well for the future both strategically and financially
for 2020 is that one highlighted in his remarks our team and board with the assistance of our bankers and legal advisers will be performing a strategic review of the consumer segment.
We regularly review our portfolio. Now that the company has been transformed and we business size leader. This is the right time to undertake the special project.
Thank you for your interest in bondage. I will now turn the call back over to Hunter between the shades Q&A session.
Okay, great. Thank you. Dave Sarah. Let's go ahead and keep up the first question, please. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your phone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two. Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. Our first question comes from Rich Valera with Needham & Company, please go ahead. Thank you. Good morning. Um so that we can talk about what the bookings growth was in that above 12000 per year AR our cohort and how that changed from three Q two four Q wage.
Hey Rance, Allen. Let me ask Rodolfo to take that question. I remember you may recall at your conference. We talked about that total bookings were flat two to three up and Q4. But more importantly it was the composition change. Let me turn that a composition of being much more high or much more upmarket than them. Sure. Sure. Thank you Alan. Hi Rich. Thanks for the question just to illustrate. I think what island mentioned during the his remarks was we are moving out to the mid Mark and Enterprise and mid-market a number is we uh, we have the ARR over over $12,000 and they are over $120,000 least one of those segments the booking. So afford those segments we were they move it from 12 to 14% And they move it from Seventeen to twenty 1% So very high grass.
for the Enterprise segment
Tuesday will be fine. There's a 170,000 r r
got it. Thank you. And then Alan you mentioned the the significant headwind you're seeing in the micro SMB segment as you reallocate marketing dollars to Iraq business and just wondering why not maintain some of that marketing spend and and not create the kind of significant Revenue headwind that you're getting from that bank statement and maybe just sort of bump up overall marketing spin. I'm sure you consider that but just wanted to get your thoughts on that decision. The relationship of faith in micro is just substantially inferior to what it is in the mid-market an Enterprise segments. And so we're in the past, you know for you know, several years. We invested most of our marketing dollars and go-to-market efforts in that micro segment, but that segment has slowed. It's become increasingly commoditized and price-sensitive.
It just made no sense to sort of over allocate our marketing.
Down there when we now have what we believe in me. Excellent product Market set up Market where we get a much better return on those allocated dollars.
Okay makes sense. Thanks very much. Gentlemen for next question comes from George sudden with craig-hallum, please go ahead.
Thank you. I am a fan of your contemplation of the Strategic alternatives for the consumer business. I'm just curious why now, and I'm curious if there were other contemplations relative strategic opportunities.
Is really about the the maturation for the transformation of the business business and as we talked about, you know, we we've always talked about we're going to be a pure-play size leader that can happen a number of different ways could happen, you know with the consumer business continuing to decline and eventually, you know becoming almost Irrelevant in our financials or it could happen, you know by transaction, which is what this review will actually cover it'll siddur all of the operational financial and strategic considerations and, you know come out with a in consultation with advisors and let me get bored with what we believe will be the right answer, you know, as it relates to a strategic transaction. It can take a number of different forms, and we don't want to prejudge It Off.
We're open to any structure that.
Enhancing shareholder value that could include a sale of the business. It can include the sale of a state minority or majority in the business and we're any other structure that we think enhancing shareholder value, but also highlights the the business business that we have in the strength of that business, Georgia. It's the last you know, our comment is now that consumer is less than a quarter of the revenues.
And I tend to look at this is this is an opportunity to sort of create what I would refer to as the Capstone of the transformation that we set out on over five years ago. And again, we only do this or contemplated now because we think business is maturing rapidly enough to Thursday its own public company ultimately. So this is a bullish sign for what we see and what's happening in the business segment.
Great, just a quick follow-up on guidance. You know, my sense is looking over the last several quarters guidance has previously been if I were to use an adjective hopeful or possible. I'm curious as you're thinking through your 2020 guidance are there are adjectives that would be more appropriate like conservative or rational just curious.
I think you saw in the fourth quarter. We exceeded Revenue guidance and squarely or even dog items. Our plan is to continue to guide them in a way that reflects the business and reflect some of the risks that we see out in the market whether it be in the world in the global environment or in the competitive environment. So I think we and we felt good about the new guidance when we gave it and we feel good about this guidance.
Perfect. Thanks guys.
Our next question comes from Samad Samana with Jeffries, please. Go ahead.
Good morning. Thanks for taking my questions. So maybe first just a follow-up on the Strategic review any idea on what the timeline of that looks like and then you know, you guys also mentioned that there will be a full operation of you as well. And so I'm wondering with all of the changes in 2019 what you view as maybe our our our residual operational changes that may still need to be made and then I have a follow-up. Yes, just to be clear. The review is about consumer. So the the operational aspect, you know has to do with our combined Network are combined brand and things like that that uh, in order to the company that in a scenario where the company is separated. You have to you have to think through those items as it relates to the timeline. We're not going to prejudge it. I think what we can say though is that this is this is very high priority for the board and for management and
We've got a good team.
On board to help us and we're going to initiate this project immediately and keep people posted, you know, as we have earnings calls.
Great, and then on the guidance, I know that you guys gave a total business revenues Outlook and and business services. But you know if I think back to maybe we're some Choice has been it's been application growth versus API business growth and maybe could we get a sense at least directionally of how we should think about the the adjusted growth rate for application services and Thursday API Business Services in in 2020.
Yes, sir, for the year the apps. And again we think about service Revenue growth is where as I mentioned in my not only qualitatively but also quantitatively should be emphasizing products and access pretty aggressively and that's that's negative gross Warrenton for the year. Our guidance implies apps growth still in the same digits and we talked about at a conference about a month ago that the first half of 2020 would look a lot like the second half of 2019. Then in the second half of 2020. We would start to see some growth in the applications service Revenue rate and that that stick the way we look at it finer point on that. We believe that the first quarter, you know really is the the maximum growth wage.
of the
Business and again will be in that will be in a single-digit context as it relates to API our guidance implies an API growth rate in the low 30% area with the year twenty-twenty. We just did a 50% clearly there's some seasonality in the fourth quarter. We're also taking into account, you know what wage and we're not not the Caterers about the economy, but what we see right now in the global environment
Great and an allen one for you as I think about the the Rebrand and and some of the largest deal activity that you that you mentioned in 4 q and the bookings momentum. How should we think about life? Are you getting more are you are you getting at a higher level inside of organizations when you're selling or you being viewed more strategically? And then I guess this is all one question. I promise but are you seeing that that resonate with with larger customers and that's it for me. Thanks again.
The simple answer is yes kind of across-the-board on the up-market traction, which means we're seeing we've got the right product. The brand is resonating off the up-market channels, whether it's our North American field Channel organization international field organizations. They're creating the right relationships wage without Market customers. And then the beauty of the platform story is that those larger customers need an integrated solution and so we are often wage being bundled sales not just contact center and and you Kaz but increasingly also API being brought into those larger customers so long, you know this it's it's sort of coming as a as a wave across all the elements and and again we're having to sort of as this is happening. We're obviously dead.
dealing with
The headwind as we have certainly question answered for Rich relative to the micro side purposefully slowing down as we reallocate marketing spend away from it. But when you look at what's happening and sort of look at sort of the stats that I quoted in my prepared remarks the business is quite healthy. Just got to get through these near-term Edwards head winds and you'll see that growth of the other side. I often describe it as this you shape and as they've just said this you shape is really going to be in the Manifest itself in the second half of 2020.
Our next question comes from Sterling audio with JPMorgan, please go ahead. Yeah. Thanks. Hi guys in terms of the potential for the consumer. Can you just for my high-level give us a sense of you know, the infrastructure overlap between consumer and you know, the the business side of the of the revenue in other words what gives you the thought or or ability to to split the businesses at this at this point, would it be some sort of sale and leasing capacity to the network or something else? I know you haven't even begun the the review but you obviously there had to be some thought to you know, it's it's a big in the process. So just kind of curious that thought process sure so I'm about two layers one would be call processing and the other would be Network. You know today the the Billing System to be SS and OSS that runs consumer is separate wage.
BSS and
That runs business so that that is relatively straightforward where they're highly intermixed is in the network where we have you know, a very scaled-down termination Network and that I think is where the focus of this review needs to be in terms of Separation. I think absolutely there's a scenario where an Explorer scenarios where there continues to be sharing or maintaining that scale cuz a lot of the scale does come in terms of minute termination from consumer. Although that issue that we've been scaling API and applications very quickly and you know you have to call that API is a very high volume of business in and of itself off so it really is about that Network and I think we've seen you know out in in the market we've seen examples of where there can be effective network sharing and maintenance log.
the benefits of that scale
Great, and then on the channel and commentary a lot of positive comments are around the momentum in the channel this quarter if I rewind to the third quarter there was talk of life. You know, what had happened on elongated implementations et cetera curious. What changed is did you change something in terms of implementation team better implementation success. Did you change this? What are the things that really motivated the momentum in the channel this quarter. They would also come with the top. It's only two different comments or to enhance. The performance in the channel is driven the bookings performance, you know nearly a hundred percent growth in his performance in the in the channel the channel representing 60% of all of North American field activity. That's a function of
You know sort of the the the core blocking and tackling with the channel in terms of having a better product and I spoke very specifically about our sales force in bed strategies that's resonated with the channel creating awareness about our products within the channel just blocking and tackling marketing and relationship-building with our Channel partners that sort of work across the board. That's a very organic effort.
Nothing to do with the elongated book-to-bill that continues as I said in my prepared remarks the better we do market. So we said 62% of bookings in a quarter were mid Mark and Enterprise versus 37% in the year-ago quarter fabulous for the business, but those upmarket bookings take long to install then the micro bookings that they replaced which turned into Revenue almost immediately. And so
The performance in the channel and the and the elongated book-to-bill are sort of different issues.
Our next question comes from Michael Adam or with Northland Capital markets, please. Go ahead. Yeah, thanks on the apic pads business for the deals with how many of those deals are kind of Greenfield opportunities versus replacing somebody.
Amar once you take that on API
Hi, good morning. It's still we get for the year. I would say just given the given the growth that we've seen that they referred to in the opening remarks up on the financials. We've focused a lot on our high-value products. So I would say the particularly with high-value products. We are seeing more than a new customers. So we have a significant base right as Dave mentioned in the businesses as well. You know, there's a product line. It's the largest product line of the company. We we see a lot of new customers particularly with the high value of such as video and we think that that mix in other words skewing towards your customer will continue in the twenty20. We do have a large. We do have a large existing base of customers and Alan mentioned the dynamic of with Summer.
With some of the case studies some of the great logo wins that we had were.
The started with one API and brought in a number of others right through cross-selling. So there's there's also that dynamic as well. But what we see would be particularly high-value is is new customer acquisition wage. And then on the the eBay the forecast for the $155 million-plus how much of that comes from the consumer business
Yeah, so it's below the gross. Margin where functional organization right now. So the gross margin is the best guide and that's that's what the Strategic review is all about, which is trying to perfect what this might look like. If it were actually two full segments. What I can say is that you know, you can do some very simple math on the gross margin in 2020. We will lose about roughly. They're very rough numbers just to make the math easy about forty million dollars of consumer gross margin wage 2020. We will gain about seventy million of business gross margins and we'll have about ten million dollars of consumer variable cost money away. So that creates about forty million extra gross profit dollars to go around in 2020 or redeploying that 40 cuz we're keeping me batav.
It's a marketing, you know a little bit less than half of that's going into marketing and roughly half of that is going into engineering and development, which is an investment in our combined platform. Thanks.
Our next question comes from metal Marshall with Morgan Stanley, please go ahead great. Thanks. Maybe first question for me. Just any estimated time of the headwind from the transition off of some of the broad removing those customers off of broadsoft based products and just how much longer that could potentially be a head winds home. I'll take that. So the the head went on Broad is not significant. There are about three thousand of our 105,000 applications customers on broadsoft now, they skew larger and they're being migrated.
starting with the smaller over to
Starting with the smaller and then moving up to the larger. And so some of those migrations can create a small amount of elevated churn and other instances as we exit access. Dave spoke about
There may be a customer that has a lot of access that we're no longer interested in but also had a portion of You cast broadsoft you calves and that we might lose that customer based upon the decision to exit the access, but all in all it's not a significant headwind the much more significant head. When is simply the dish in book-to-bill timing between mid-market and enterprise-focused versus micro.
Got it. And then maybe just a second question for me the application segment any difference in Trends between kind of what would be the Legacy new voice Media or the context in our business in the office.
Trends are
the contact Centre
is a key element of our go-to-market because we find that particularly among larger deals that we just have a demonstrable a better solution environment took me a mini of the CRM environments, but particularly with Salesforce is who we find is we lead with contact center in those situations and it pulls you see with so long. We think the performance of
newvoicemedia, since we bought it has been has been very strong for us because again it again it just it gives us a differentiated Halo by which to sell both contact center and you see
Okay. Got it. Thanks.
Our next question comes from Catherine trip Nick with Daughtry, please. Go ahead. Oh thanks for taking my question. So netting this out. It seems that you are dead, maybe believing that the with the consumer divestiture that the business segment would be Break Even or close to break even
I think that's what the review is for. It is it is primarily about how you would separate the businesses and took it makes operational sense to separate the businesses. Clearly. There's a view that once this is over that business the business segment can be a compelling a public company, but that's what the that's what the review is for. Okay. Thanks Dave. And then the second question has to do with International executive chef help you in Europe. Can you give us an idea of any new programs you put in place to drive in the sales and and asia-pac and pretty much what the plans are going forward to lift revenue from those two regions think you transferred to take that. Yeah. Thank you Catherine. I think that's important initiative to expand or dead.
International footprint we already have a very good International footprint that with a c k s
And then you watch need a platform and a port for you. We are expanding that or and into that that you can stop port for you. This first quarter wage to add uh, a handful of new countries and by the end of this year. We are going to add 15 new countries where you can support a multinational come back from the US in international countries in Europe and a pack and also support locally those those companies in local markets as UK or France Germany. We have the least of 15 countries that we are going to add that's an important Initiative for us you let me let me let me qualify cap and just real fast. I've spoken often about the 28th you program twenty additional countries in 2020. What we're doing is uh, we're actually cutting that back to Fifteen and the reason is is because we want to not just surfing
US based multinationals in those 15 overseas locations
but we also want to have
Our next question comes from Alex Kurtz with keybanc capital markets, please. Go ahead. Thanks. And I would also say this is I think a very interesting opportunity here to suck the businesses. So kind of also would would underscore that that comment earlier in the in the Q&A just going back to the consumer business. I think historically talked about the consumer business driving a significant amount of free cash flow to the model. I'm sure this is part of the Strategic review. But you know, how would you think about the profitability and the structure of the of the the businesses at the business services as a stand-alone entity given what you've outlined to investors in the past about the free cash flow generation from consumer. I just imagine you wouldn't have outlined this Thursday if you guys had already thought about that a bit. So any context there would be helpful.
Yes, the first of all we have a hypothesis that this could be compelling to create shareholder value and that there there could be a market for the consumer. As I said at the business business could be a compelling public company itself sometime in the future. But again, that's what the review is for typical. We used to update an allocated estimate of equity free cash flow from consumer each year. We did not do it this year because we did not want to color bulb review or color is the valuation of the consumer business, you know, should we decide to proceed with a separation? All of that being said the consumer business continues to exceed our expectations, you know, we continue to to see very high gross margins maintain very strong scale churn and are dead.
our our
Very stable tenured customers are now five year tenure customers now represented roughly 90% of the base wage 75-year customers represent 72% of The Bays to your customers over 90% and we've been able to take selected pricing actions that have not spiked turned materially but have led to the you know, the maintenance or even in some cases wage increases relative to what we thought in gross profit. So all of that is true, but the the the answer to that question will be in the review.
Okay, we have sneak in one last question, you know with the rebranding and re-platforming of the product this fall. I'm just wondering about whether or not there is a kind of a temporary slowdown and just pipeline development and how that may have impacted Cube forward to q1 activity if at all.
I am sailing simple answer is it did not the you know, the Rebrand was released the end of October again. We we stayed with Vonage as the brand. What we did is we we launched it with new graphical presentation and iconography the lake and we announce that we are sun setting them wired Legacy Brands, but we've been Full Speed Ahead on all activities around driving mid-market and Enterprise success and application as I described in my remarks to the the brand activity and the re-platforming ran activities are relevant and the re-platforming if you referring to moving away a third-party product like broadsoft and in contact we did that effect at the beginning of the of the second quarter last year and so in effect, that's dead.
really all out of the
Out of our pipelines today and you know, we've been marching forward for now close to a year with our own product.
Our next question comes from Tim horn with Oppenheimer, please go ahead. I'll keep the one but maybe longer one. Can you talk about maybe just a channel off, you know where you're at now and kind of where you can get to and you know, how scalable is it? It seems like we're just at the cusp of Enterprise is really moving to cloud-based Communications broadly speaking. You have a small wage and now your product is, you know, pretty close to equally as good as as everyone else. I mean, why can't you substantially capture a lot more flow share in the market and one of your peers is talking about servicing the bars a lot more where the bumper basically control the customer and it would be their customers. Are are you doing something similar? So, thanks a lot.
Hi Jean, this is that.
From Milan to talk a little bit about the the Channel first as we know that during the you know, the previous remarks channel is going on doubling the business with us. We had a 99 a very close to Triple digit growth from one year to the other in terms of a channel participating participation with our new bookings. Let me just give us some color about the change because we recently a few weeks ago. We had our Channel or app an advisor counselor together. It's a little bit over a dozen of our top channels back there where we evaluated the product strategy. We validated the strategies as a whole the go-to-market and the brand that with them and what we wanted to validate is exactly the scalability and the food chain with with a channels in terms of the product where we share that we are expanding expanding the features officiality and also the footprint as a nation before the food printer for the international
What a strategy the extension of the ten because one thing that is important and moving from micro to a meat market and Enterprise as Windows notice before we are extending the tan. We are multiple at them by a few of you know, uh multiples that which is important for the channel and also be validated the go-to-market the inside sales the direct and the Channel first type of wage approach that we have an easier course. We are implementing a lot of things with them to make sure that we we have this Channel first approached and we also validated the brand the one vulnerable that bullet next four pieces Enterprise approach with the channel. So and we got very good at 8 plus degrees from them and just mentioned him as well. And so on the back of expanding also Beyond sort of the traditional Master Asians come into vars just he's the regional and Global s eyes in addition to all the work that we have done with. Yep.
referred to as our alliances team
Which works very closely with Salesforce where we actually have employees embedded in the major sales for cities throughout the world and then we invest heavily in city in a dream Force itself in the lake. So I feel like the whole sort of scope of indirect distribution is ramping very attractively month. We should see continued to see more and more flush are from it.
Our next question comes from James Bond with William Blair, please go ahead. Thanks taking the question. You just talked about amongst your customers and how that's changed over the course of the last year or so in terms of the product they're taking and and potentially how some of the see past products are working in with some of the of the sales side of things.
Yeah, I mean bring that together. We've already spoken about.
The way we need the way to think about mix is by customer cohort and buy product from a customer cohort perspective.
We already said 62% of the bookings in applications. Were Min Mark and Enterprise in Q4 versus 37% in the year-ago quarter off that is a very dramatic shift which actually will continue to increase where that relationship of food marketing Enterprise are going to get larger and micro smaller and that'll happen through the through the year then in addition to the cohort ma'am. You see the product mix changing because those upmarket customers the mid-market and Enterprise are increasingly taking a bundled selection of both and see cast.
Then when you get to so that's sort of that sort of the cohort plus the product sign the application. Then you see situations on the seapath side particularly where you took a contact center sale.
Has tends to be sort of the opposite side of the same coin the natural partner with contact center is see pads because see pass is often focused on Solutions dealing with customer engagement either outbound to a prospect or inbound from a customer and that's the perfect match with contact center. And you're just seeing it more and more and that's why am I spoke about the need for bringing Rodolfo? We had one who has great experience in leading enterprise-focused sales organizations and how we have restocked our sales team over the course of the last year that have more of a solution selling approach.
Our next question comes from Madan and Lodi with Guggenheim Partners, please go ahead.
Good morning. Thanks for taking my question as you're selling up into the mid-market and large Enterprise and and you're selling more subscriptions more business-oriented revenue streams. How much is that is going to turn into deferred revenue benefit that ultimately helps your cash flow.
Yeah, so we've been seeing that the trend is this elongation we talked about it last quarter and we're continuing to see that and of course, you know, eventually we're going to be on a kind of an escalator off of projects maturing and and actually going into revenue and other projects being added but as a general rule as the projects get bigger and bigger or the the customers get bigger and bigger and contact center that will that will lead to more deferred revenue in that elongation will continue down. I think you're asking also just from a cash flow perspective. So the contact center based traditionally functions like Enterprise like non communication oriented Enterprise SAS in the sense that it suck it up front for the full year while the you can't sign which is a traditional more Communications orientation which tends to build monthly as you see more combiner.
more combined you cast to seek as deals and
I think the trend will be more going towards an Enterprise SAS billing construct, which is a year in advance.
Once again, if you have a question, please press * then 1 our next question will come from willpower with bared please go ahead. Oh great. Thanks. Yeah, and I guess that goes from the previous comments. Good luck in the consumer strategic process. I wondered if we could get a little bit more color on the application Services segment. Yeah, I'd love to you know, you look at the job growth I think of 8% or so this past quarter. Is there a way to kind of help us break apart what you cast looks like versus new voice media and contact center within those divorce rates. And then you talk about the record number of seven-figure deals. Do you say how many actually included both and how many of those were across showing those two pieces?
I didn't so well, let me take that I didn't we can get back to you and sort of the breakout on what was bundled among the large TV deals and then after price deals in general that were not um, uh did not hit the seven-figure level.
Breaking out you seeing CeCe is just not a it's not a productive exercise any longer when we bought new voice media. We reorganized the company to create what we now refer to as the applications group. We could have run it as a UK as vertical and Asik as vertical in addition to what we do on the API platform side, but it made no sense because increasingly these products are being bought together and bundled matter of fact, we talked often about our long-term strategy. We referred to as a single-pane-of-glass where you'll simply have our Cloud communications platform and you'll either elect and pay for what we would traditionally refer to ask you can functionality and or elect and pay for seek as functionality, but it'll be the be a common stack and so it really is not relevant to break it out we dead.
on the company that way
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this concludes our question-and-answer size.