Q2 2020 Vonage Holdings Corp Earnings Call
[music].
This time all participants are all this only mode.
Question answer session will follow the formal presentation. If anyone has required operator systems. During the conference. Please press star zero on their telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to your host Hunter Blankenbaker.
Sorry, like giving her vice President Investor Relations. Thank you you may begin.
Thank you operator, and good morning, welcome to our second quarter 2020, <unk> earnings Conference call.
Speaking on our call. This morning is worried Reed Chief Executive Officer.
Dave Pierson CFO.
Also joining us Omar surveyed president of <unk> platform.
It also carbon neutral.
Applications were.
Lori will discuss our strategy in second quarter results and Dave will provide a more detailed view on our second quarter results.
Third quarter and full year guidance.
Well I said accompany today's discussion are available on the IR website.
At the conclusion of our prepared remarks.
Happy to take your questions.
As referenced on slide two.
Back to remind everyone that statements made during this call maybe forward looking statements within the meaning of the private Securities Litigation Reform Act Nineteenone pot.
These forward looking statements are based on management's expectations.
Pinned on assumptions, the maybe incorrect or imprecise.
Are subject to risks and uncertainties could cause actual results to differ materially.
More information about those risks and uncertainties highlighted on the second page of the slides and contains interestingly violence.
We caution listeners not to rely unduly on these statements.
Disclaims any intention or obligation to update.
During this call will be referring to non-GAAP financial measures.
Reconciliations to GAAP is available.
Second quarter earnings press release for the second quarter earnings slides posted on the IR website.
Additionally, during the prepared remarks today.
All comparisons to prior periods are year over year, unless otherwise noted asked the question.
So with that I'll turn the call over to Rory.
Thanks Hunter good morning, everyone and thank you for joining us today.
I'm pleased to be speaking with you on my first conference call as Chief Executive Officer advantage.
I Hope you on your families are safe and healthy.
And I look forward to meeting many of you over the coming months.
Having been in the role for the past 30 days I would like to cover the following key areas in my opening remark.
First based on early learnings.
Any initial thoughts on how we can take advantage to a new level of execution.
Further growth.
Second the process, we have embarked upon to ensure we are efficiently and effectively allocating our skills and resources toward driving the bats trajectory for our business moving forward.
Finally, our strong second quarter results.
The opportunity to join a company like Vonages rare.
Honestly was born out of innovation and through that innovative spirit has reinvented itself into a global leader in cloud communications, helping businesses across the planet accelerate their digital transformation journey.
Bondage is in the right place at the right time, and a very large and growing market I.
I'm excited to leverage my experience driving large global transformation and operational execution to help lead the company board into its next chapter.
I've been in the technology and software space for the past 38 years.
I understand the power and value of cloud based solutions and what they offered to global businesses.
And I am passion about innovation execution fact, based decision, making and accountability.
Since joining on July 1st I have immerse myself, and our business conducting operating and strategic business reviews with team members across the company.
I've also been meeting with partners and customers to understand where were strong.
Where we can improve.
I have a deep appreciation and respect for what our bondage team has built and there is more to learn.
We have a strong foundation.
But it is clear we have work to do.
I believe together with the talented team here, we can lead bondage through the changes required to reach its full potential.
Today I'd like to share my initial observations.
Bert.
The market opportunity is massive.
We are at the beginning of the huge market wide Communications Revolution.
If there ever was a question whether business that needed to digitally transform not only to survive, but thrive cobot 19 eliminated any doubt.
The need for customers to accelerate their digital transformation through communication.
Now essential.
Our bonnets communications platform programmable <unk> services are gaining momentum and almost every industry.
We see tremendous opportunities ahead for helping companies transform the way they engage with their customers.
After spending time with our Apiay services team and seen new wins at new use cases every day.
I think our seep has the opportunity is even greater than many of the industry analysts project.
We will continue to focus our resources here to capture this rapidly growing market.
Well covert 19 is presenting its share of headwinds in the unified communications and contact center application space.
With weakness in SMB, and some businesses slowing down parts of their large technology projects.
We're also seeing others continuing their digital business efforts.
Businesses across the globe need to seamlessly connect to their employees and customers no matter where they are.
This will only accelerate the move from on premise to cloud based communications.
Here, we need to build a highly scalable efficient go to market engine, leveraging our direct an additional channel capabilities to improve our performance.
Second we have the right technology to capitalize on this accelerating opportunity.
Advantage communications platform brings unique value using programmable <unk> services to integrate multiple communication channels video voice messaging chat email and verification.
Into customers applications products and workflows.
It's delivers both the power and flexibility our customers need to disrupt their industry.
And enabled the type of business continuity remote work and remote delivery of services that is so critical in today's environment.
Whether our customers are building their digital applications with our programmable <unk> services or using our fully formed unified communications and contact center applications.
We are providing it from our communications platform.
Based on my initial reviews, I am confident and our platform and product portfolio.
I believe the breath and strength of our product portfolio is one of the reasons, we are uniquely positioned to win.
Third.
We had been transitioning the company into a leader cloud communication.
Now we need to further optimize our business by being more efficient.
Beating innovation and streamlining our organization and process.
We're committed to managing the company for strong growth and profitability.
My team and I are working on a business optimization and alignment project Beth focus our resources and drive stronger operational execution.
We expect to complete this assessment over the next 90 days.
And we'll set up our strategy and operating plans for 2021, and 2022 to strengthen vonages position to capitalize on these market opportunities.
We will be customer driven and focus on areas, where bondage products and solutions deliver differentiated value and where we can win a disproportional share of the market.
We will complete the review of the consumer segment as part of this overall business optimization and alignment project.
In the meantime, we are operating this business with efficiency discipline and without distraction.
Fourth and finally I have been highly impressed by the talent and commitment of our bondage team.
We are a technology software company with huge opportunities in front of.
And we have the talent innovation drive and passion needed to capture them.
And we continue to invest in talent.
Yesterday, we announced the key addition to our executive leadership team.
We're pleased to welcome Joy core so to Vonage.
Our new Chief marketing Officer.
Joy marketing expertise leadership skills and operating experience will help further position the company as a software and technology leader.
She will work with our marketing team to help drive Vonages business execution.
And highlight our evolution into a world class business software as a service company.
Now turning to result.
We executed well in the second quarter.
Business segment revenues totaled $226 million.
Business service revenues were $212 million, an 18% year over year increase.
<unk> platform revenues now represent 47% of our business revenues.
From 41% a year ago.
And will become the majority of our business revenue in 2021.
Within this result, <unk> platform revenues grew 32% year over year, driven by high value <unk> services, and a record number of new customers.
The overall see past market is accelerating and we expect this trend to continue.
Unified Communications and contact Center application service revenue grew 7% inline with our expectation.
But we have additional go to market and efficiency work to do here.
Business segment churn remained low at 0.9%.
And on a consolidated basis revenues totaled $311 million and we delivered adjusted EBITDA of $42 million.
The very strong quarter for our Apiay platform.
What's driven by strength in three key areas.
For our revenue growth accelerated to 163% year over year and the high value Apiay services area.
Which includes programmable video the largest portion.
<unk> IP messaging and verification.
Hi value a P.I. services now account for more than 20% of Apiay platform total revenue.
As part of our business optimization alignment project.
This is an area, where we were clearly focus additional resources and leverage our leadership and video to continue high growth.
Within high value video continued to show exceptional strength, driven by Tele health remote education and virtual event such as concerts.
We're also seeing a lot of success and the social fitness and dating industries, including some of the largest players in these spaces.
Our video Apiay services are supporting customers through this pandemic by enabling them to create new experiences and new ways of doing business.
Video is introducing bondage have many new customers highlighting the depth and breadth of our complete communications platform.
Second our dollar based net expansion was 119%.
We expanded our relationships with several the largest technology companies in the world, including Google and Amazon offset by declining traffic and cobot impacted related industries like travel hospitality and transportation.
Our dollar base net expansion and our high value Apiay services exceeded 200% highlighting strong customer retention and increased usage across our platform.
For example, doxey Dot me a U.S. base Tele health leader has continued to grow rapidly.
Adding more than 700000 physicians to its platform since March.
And has now expanded into Europe.
Daugherty Dot media supporting more than 15 million patient visits monthly.
With 500 million minutes, a video sessions powered by Vonage.
And third we signed a record number of new customers and the second quarter.
Importantly, approximately 70% of these customers are leveraging our high value services in industries like financial services, social gaming and retail as well as an tele medicine and distance learning.
[noise]. One example of how the power of our platform Apiay services translated into a strategic customer win this quarter is huge at.
One of the fastest growing private contact center companies.
As one of the providers and you jets multi provider architecture bondage will provide programmable voice to power the connectivity and underlying telephony functions for you jets customer support platform.
This is a breakthrough win for bondage in this growing market for contact center voice capabilities.
Our unified Communications and contact Center application service revenue grew 7% as projected.
This growth rate was driven by our focus on Midmarket and enterprise customers offset by the micro PSEB segment, and some covert related headwinds.
Despite the economic impact of coven, our logo churn remained low demonstrating solid business execution and customer loyalty.
Midmarket and enterprise service revenues defined as those customers with greater than $12000 that they are our increased 14% in the second quarter.
Service revenues from enterprise customers, specifically defined as those with greater than $120000 or they are our grew 22% year over year.
As expected some midmarket and enterprise customers, most notably in the travel and hospitality space continue to reduce their seat count well others requested credits.
Or payment deferrals.
These impacts initially appeared to have peaked in may.
I started to moderate as the world economy gradually reopened.
[noise] given recent increases in covert 19 infection rates, we have experienced some reduced pipeline visibility in the unified communication and contact center application space.
Impacting the quality of the pipeline for these products for the second half.
Bookings from Midmarket and enterprise customers grew 13% year over year and comprised 67% of the application product bookings in the second quarter.
We continue to see strength and our large customers.
As we signed 11 seven figure TCV deals.
And the average deal size increased 26% year over year.
Well, we saw growth and these customer segment.
It is still under our expectations of fully offsetting the impact of our reduced focus and micro.
Our micro customers are those with less than $3000. They are comprised 29% of the application products service revenue.
Contracted by 3% year over year.
Given our limited sales and marketing investment in this cohort as well as continued impacts from co bid we expect additional pressure here in the second half.
As part of our business optimization and alignment project, we will focus on building a highly scalable streamlined go to market engine over the coming quarters to drive pipeline and booking velocity.
We will target those customer segments, where our products best fit where customer growth. This strong where we can win a disproportional share of the mark.
As part of this go to market work will continue to accelerate investment in the channel, where we have experienced significant growth over the last year.
We are pleased that Curt Alan joined US in July as our new head of channel.
Kurt has more than two decades of channel experience and there has been both a master agent and a leader of channel program with large technology providers.
I'm confident that Curt will accelerate our momentum within the channel.
An increasingly important portion of our go to market.
Our cross sales were up in the second quarter, not only in unified communication and contact center products.
But also in combination with our programmable Apiay services.
This was a significant differentiator and several large deal.
And we will continue to build on the synergy across our product.
A good cross sell example is Domino's pizza.
Domino's is a technology pioneer that has developed innovative ordering platforms to drive digital sales and signed an agreement with us in the quarter.
Domino's will leverage Vonages unified communication solution at programmable voice apiay capabilities to connect more than 6000 franchises and corporate locations across the United States.
Our solution will help domino's provide more personalized support to its customers and enhance the order taking process and drive efficiencies, while creating a better customer experience.
This was a highly competitive deal, which we ultimately one because of our ability to provide a differentiated solution through the integration of multiple products across our communications platform.
We are operating an unprecedented times and I am proud of how the team performed.
We had a strong second quarter driven by increased demand for our bondage communication platform and its programmable Apiay services, we will continue to focus investment here to build on this momentum.
We were in line and unified Communications and contact center applications product.
Where we continued to see some pressure on our growth rate.
Building, a highly scalable efficient streamlined go to market engine will be a strategic area of focus in the coming quarters.
Longer term, we are in early days of a huge market why communications Revolution.
I am excited about leading bondage into this next level of growth.
Hi, I'm confident that through our business optimization and alignment project, we will increase efficiency improve execution and accelerate our technology and innovation differentiation to provide the best communication solutions for our customers.
Doing this will unlock our full potential and energized our customers partners and bondage team members.
We look forward to updating you on our progress over the coming months.
Before I hand, the call over to Dave cover the financial overview of the quarter I would like to thank him for seven years of outstanding service as the CFO advantage and for delaying his retirement to help me in my on boarding.
When Dave joined vantage.
Bondage was a consumer only company.
Can you help lead the strategic pivot source, the acquisitions and manage the capital that helped position bondage as a leader in cloud communications.
The search for Dave's replacement as active led by me and I expect to put a world class CFO and this seat in the near future.
I'll now turn the call over to Dave.
Thanks, Laurie and good morning, everyone.
Let's begin with a review at the second quarter on slide eight.
Second quarter Vonage business total revenue was 226 million ahead of guidance and representing 75% of consolidated revenue ex USS.
Over the past year business revenue grew from two thirds to three quarters of the Vonage total.
On slide nine business service revenue increased 18% service revenue growth is our focus as we deemphasize access circuits and desk phones.
Service revenue also excludes USS which was $5 million into two down 3 million.
As we discussed last quarter, we're now charging our customers lower U.S. sub fees, which are a pass through based on the study that concluded that are offering is mostly software rather than telco related services.
Then business Apiay platform revenue was 103 million up 32% and well ahead of our expectations.
Revenue from high valuation guys, primarily video doubled sequentially versus Q1.
Hey, Pi revenue now represents 47% of business revenue ex us up.
Revenue from applications was 123 million also ahead of our expectations.
This 109 million was service revenue, which increased 7% gap.
By 14% growth and MME.
Moving to slide 10, Photonics business segment revenue churn was 0.9%.
Alan versus 1% in the year ago quarter.
Monthly service revenue per customer was up 16% to $509.
Both K.P. guys demonstrate our continued move up market.
On Slide 11 business service margin was 53% up 1% year over year, and the fifth straight quarter of flat or better business service margin.
This reflects the move to our own higher margin products, including Vonage business cloud and video Npis.
Moving to slide 12, consumable revenue was 84 million.
Churn of 1.5% was down from 1.7 in the prior year.
In the quarter, we took a lighter touched on terminating the service of customers who are behind on payments, meaning normalized churn would have been 1.6% still strong and a year over year improvement.
Average monthly revenue per line was $27.59 up 70 cents, reflecting higher USS and targeted price increases implemented in the first quarter.
We ended the quarter with approximately 1 million consumer subscriber lines.
Two year, plus tenured customers now represent 93% of our consumer base.
Five year plus customers are 76%.
Engagement with our product measured by outbound calling minutes increased in the second quarter due to covert.
Based on their performance and predictability of the consumer segment.
We project it will produce in excess of $600 million after tax equity free cash flow over the next five years with significant terminal value after that.
Now moving to income statement cost items on slide 15.
Solid David sales and marketing expense was 91 million down five versus the prior year and up 5 million sequentially due to higher brand spend.
[noise] engineering and development costs were 20 million up 3 million.
Sequentially, we added more than 70 team members and product technology and engineering as we continue to invest in our platform.
And did expense plus capitalized software totaled 30 million, which represented 14% of business service revenue.
General and administrative expense was 43 million up 6 million.
The increase is driven primarily by consulting fees and CEO succession cost, including search legal and severance some of which was non cash.
Turning now to slide 16.
GAAP net loss was 8 million and adjusted net income for the quarter with 10 million or four cents per share both lower than the prior year because of a significant tax benefit back in Q2 of 29 team.
Second quarter, adjusted EBITDA was strong at $42 million up 4 million year over year.
Moving to slide 17, Capex for the quarter was 12 million flat versus the prior year.
Adjusted EBITDA minus Capex was $30 million.
Slide 18, we ended the quarter with 543 million of net debt, resulting in net debt of 3.2 times LTM adjusted EBITDA, leaving us significant liquidity under our four and a half times borrowing covenant.
We reduced net debt by 25 million in the second quarter.
Intended to reduce it further as the year progresses.
Moving onto slide 19.
Updating 2020 guidance to reflect the strong second quarter and our experience with how cold it is affecting our business.
Clearly the macroeconomic environment is uncertain.
Well with the visibility we have today, we're increasing our projection of 2020 DAP business revenues to the range of 885 to 900 million.
Embedded in this guidance following trends.
With regard to 80.
Continued depressed levels of travel and hospitality usage.
Upset by elevated E commerce and video usage.
For video, we believe that we've seen the coal would stay at home peak.
Well continue to see very strong new customer formation.
And with regard to applications positive churn trends and high customer engagement.
Offset by ongoing customer credit requests and a pipeline that has not yet rebounded to pre covert levels.
For consumer we expect 2020 revenues in the 330 million dollar area.
Million dollar increase due to a projected increase in USS fees.
We continue to expect full year 2020, adjusted EBITDA of between 150 155 million.
With regard to the third quarter, we project business segment revenues in the range of 226 to 228 million, including 6 million of Usfour.
Consumer revenues and the 81 million dollar area, including USS of 11 million.
And adjusted EBITDA in the 36 million dollar area.
Hi, This is my Thirtyth and last earnings call advantages CFO after more than seven years and let's see.
I would like to thank my colleagues advantage.
Board and investors for what has been an experienced beyond what I could have imagined.
It was a privilege to work with all of you.
Following the team and assets advantage and having seen worry in action over the past six weeks I'm confident that Vonages best days are ahead.
And look forward to being a shareholder for a long time to come.
I'll now turn the call over to Hunter to initiate the QNX.
Okay. Thank you Dave.
Operator, let's go ahead and turn it over to QNX. Please.
Thank you.
I'd like to ask a question. Please press star one and then your telephone keypad.
Formation Tele indicate your line is in the question can you may have pets kill if he would like to remove your question from the Q and for participants using speaker equipment and made the necessary to pick up your handset before pressing the star teeth. We ask that you limit yourself to one question every Caitlin for follow up questions.
Our first question is from rich Valera with Needham and company. Please proceed.
Thank you good morning, and welcome Rory and best of luck in the new role.
Question on the Pie business just couple of questions first where are you mentioned in your prepared remarks, you think that that business, but see past market is bigger than sort of industry analysts think I was wondering if you could expand on that thought and then if you can you just give any comments on your thoughts on the sustainability of the trends you're seeing that.
Business in the near term over the longer term and then margin implications of that for the PPI business as a whole as your mix shifts towards that higher margin business. So few part question, there, but I'm, hoping you can check.
Sure Rich Hey.
Thank you for a welcoming the that's great I I think from a perspective of the industry's see pass is definitely part of a major communications trend that we're seeing across every industry I've been in the industry. The past 38 years rich and there's no question.
The way that companies are interacting with individuals through communication and digital relationships is only accelerate and covert 19 has in fact accelerated that activity I don't believe that's a temporary event I think that's only going to accelerate.
And I think rich over the next five to seven years, we're going to see communication, a pie isn't solutions embedded in pretty much every workflow every industry every application across the planet I don't that's one of the key drivers for the reason I chose to do.
Join the team here advantage I think is uniquely positioned to participate in this I loved the product portfolio in terms of the diversity in the strength I think apiay services and the way that applications are created workflows are created this is not a you know a minor trend.
I think this is a technological a tipping point that we see occurring here with video with boys verification and the way that customers want to be interacted with first support services sales. It's it's really a fundamental shifts so I think that.
People are underestimating.
No that this is just a an event that's occurring because of the pandemic or tampered by that I think it's a secular change and the way that customers and businesses will interact over the next five to seven years and I think that it's accelerating and I think we'll see a bit more of that I think our price.
Got it said is really well positioned in this space rich and I think that from that standpoint of opportunity you're going to see us using our business optimization alignment project to really drive additional focus here to capture that opportunity.
Sure will we see some moderation as the pandemic.
Moderates itself and when that happens was that in the next two three quarters or the next six or seven quarters, It's really hard to say I do think you'll see some moderation, but the overall trend is up into the right for sure in terms of this segment and the space.
I don't have any question about that and as we look at our mix and as we mix up now over 20% of our see pads revenues are now in that high value segment led by our leadership and video.
I think that's only going to help us on the margin side over the next two or three years I think that's on an ongoing trend I think it will continue hundred 63% year over year growth sure. That's very sporty, but I think that trend up growth is going to continue as I mentioned earlier.
Does that help.
Yes, very helpful. Thanks for all right and again best of luck.
Thank you Sir.
Omar did you want to add any color on that one before we move on.
Thank you Laurie.
Thanks, Great question Rich.
I think we're already covered a lot of at the only thing I would add is and we've talked about this in previous calls before part of what is underpinning our belief and this is even pre coated.
That the opportunities is bigger than what a lot of analysts project is the.
This market historically has been driven by digital natives and and we see that.
We see that continuing thats going to be strong.
But what.
But what we saw coming online we're enterprises right to think Gartner research showed that that was going for 5% of enterprises to 30%.
And I think that alone as a big opportunity, but with Covance would that accelerated is massively and two Rory his point I think the opportunity here is.
Everybody is rethinking their.
Digital strategy is going through digital transformation investing heavily so really what's at play is every single out.
Out there, including ones that companies are considering.
And that's that's that's.
Thats, where that conviction comes from from me.
Okay, Let's go to the next question that.
Our next generation from Alex Kurtz with Keybanc capital markets. Please proceed.
Yeah. Thanks for taking the question into and welcome worries so.
Back to your earlier comments about the ucas and seek as platforms and the need for optimization I can you just expand on that and how you see that playing out over the next 12 months I think a lot of.
Investors are we talking about I've talked to about the stock in the company CBS These kind of.
Independent platforms that have been.
Brought into vantage and aren't quite sure.
How are you guys extract value having all three in house. So you're obviously executing with deep has very well on the market is very strong here, but how do you how do you get the ucas and see trends business growing kind of where the peers are growing right now that the independent peer is that we see in the marketplace.
Yeah, Thanks, Alex and thank you for the question I'm from a standpoint of the unified communication and contact center space one of the things that.
I think is really prudent to do and joining a new company is really to really get deep into the operational execution.
Fission see what's the business strategy and business plan based on that we've embarked on a business optimization and alignment project that really will set up our strategy and operating plans for the next 30 36 months I think what we're seeing and what I've seen is very good product.
I don't think Theres any question that what's been a math in terms of assets has been very good and I don't think there's a lot of strategic activity that needs to be done in terms of adding sure if theres something out there. They augment that we'll look at it of course.
But I think we've got the right assets right time for these assets to be put together and think about it the vonage communication platform. It's really this set of a pie and <unk> platform with a set of <unk> services hung underneath it and what we've effectively are doing is building a couple of purpose built.
Applications and unified communication and contact center on top of that and what we want to do is really utilize that same kind of thought process that our customers are doing in their workflows and their application.
I think the reason that we want to target that go to market is I think over the past couple of years, the applications and unified communication and contact center product.
That's kind of built to go to market that was more singularly focus there was more of a direct maher model. It was a bit heavier in terms of its application to each of the customer segment I think theres, a huge opportunity did tyler that go to market and efficient and effective way.
At the micro level, there's good customers there, but they should be acquired three commerce supported with a self help and self provisioning as you move up to mid and small businesses huge opportunities there and I think our product that excellently there in those segments, we need to leverage the channel.
Make sure that there's a light touch in terms of the support of that and create more velocity around that by creating the tools and capability our business partners need I think the acquisition you know the hiring of occur Allen was really a great move by Rodolfo and the teams part I mean I've spent a lot of time occurred he brings.
In energy and passion to the space and he knows the space, we didn't change that trajectory I am pretty straightforward with programs and activities around supporting and then the top of the stack. We've made a lot of progress you saw that in our growth rates around enterprise.
That enterprise growth rate is because we have a strong direct team we have the capability to reach customers like domino's. Unlike others in this space Big enterprise capabilities that have multiple locations, we're going to continue to target those space, but have a tailored approach across each one again.
Applications, our purpose built on top of our communications platform and we want to de leverage those same same apiay services that our customers.
And in terms of efficiency are supporting sales model has to be tailored to the customer segments that are there I see a lot of opportunity to focus our capability and contact center, we have a great product and its focused around the CRM space will continue to leverage that strategy smart it's right there is opportunity.
For that to grow well and then our our Vonage business cloud solution. That's no question, great margin focus and target that on those customers and go to market route that give us the efficiency and disproportional growth, that's what we're going to do and they optimization and alignment.
Adolfo you want to add a couple of comments on top of that.
Yes, maybe.
Thank you and thanks, Alex or worse than that.
Yes.
Now.
Sure.
Hello.
Well.
Yes.
Our shared with you is a mine.
In general or.
There was a three d. so proud to go to market and channel, although excellent product, but the excellent.
Just to look at Newcastle when it gets.
Yes.
[music].
Yes.
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Pardon me.
Hi.
Uh huh.
Yes.
Oh, that's our enterprise grade 92%.
In market is growing at 14% with a combination of the too.
Products.
So Rodolfo we're having a little technical difficulty on your line I think.
Well have to move onto the next question I think he was just add a little bit of.
Color.
Let's move onto the next question I. Thank you Alex for that question any follow up questions out before we go on to Ryan.
Click on the consumer side.
There was a decision I think earlier this year to think about exiting that business don't know if you want to provide an update on that it didn't see any content in the in the deck that would suggest that maybe I missed it but maybe just a really quick view about that that process.
Sure. We did briefly cover it I think what what we would say is we're going through that process. We continue to go through that process, we've been corporated that into the business optimization alignment.
A project that we have underway and we split expect to complete that project later this year that businesses throwing off at least 600 million of cash over the foreseeable future. So it's a good business and I've had an opportunity to look at it in terms of its execution.
Mr. Walker and his team are really doing a fine job executing there I think they're doing it without distraction and they're doing it efficiently, but we're going to continue that process looked at it and complete that process and give you an update in the fourth quarter.
Thanks, Alex.
Our next okay in it.
Hey, ready.
Hi, Thanks, and then trend Ryan Nick Williams with Stephens. Please proceed.
Perfect. Thanks for taking my question and Dave Congrats again on the retirement, even though this may not be how you exactly envision that given cobot just on the Apiay side can you talk about any changes to the geographic revenue breakdown or the geographic additions of new developers since crovitz just given.
Different tailwinds and headwinds to different customer verticals and use cases.
Okay.
Sure I'll pass that to Omar and just a second but basically we continued to see strength across all geographies and across all of the high evaluate your eyes.
If anything that's definitely accelerated at 163% year over year growth and when you expect that that's again, a fundamental shift I don't think that as co bid the pandemic.
Joe Dissipates at some point in the future that things go back to the way. They were I think there'll be some moderation, but theres. No question that this is only accelerated the move to digital transformation and that moved to digital communication. Some relationships will only continue to go over.
Okay Omar why don't you give a little bit of color on that for Ryan. Please.
Thanks, Laurie and.
Thank you for the question Ryan.
To go a little bit more in depth.
I mean really when you look at the kind of growth that we've seen we're growing across the board. So there isn't a particular geography that stands out.
One thing I can share or is that.
We have been seeing we saw in Q2.
A recovery in Asia Pacific in terms of traffic. So it's basically back to pre covert levels.
Which was great for the quarter and certainly encouraging when we look assuming all that stuff holds assuming.
For the for the second half of the year.
So we've been pretty strong across the board I think.
So that's obviously good the other thing that that I'm seeing is for US, particularly is the increased traction. If you just look at some of the wins.
That Rory mentioned in his opening remarks.
We're seeing increased traction in the Americas, particularly the U.S., some great logo wins and great usage as well.
Excellent let's go to the next question.
Our next question is from Catharine Trebnick live clean Air Securities. Please proceed.
Thank you for taking my question.
I'll be sad to see go and good luck in your retirement and.
So can we put a finer point on.
Sales and marketing and DNA.
Your.
Down sales and marketing that up.
The year over year in July.
How should we think about that going forward. Thank you.
Sure and I have Dave touched on that a bit in terms of the drivers of that.
In the quarter, but I want to kind of set the expectation moving forward I think there's definitely an opportunity to streamline and to provide efficiency and both of those spaces and to really focus.
Our capabilities and resources on those areas of most growth and I've tried this share those areas, particularly around <unk> services, and then definitely the contact center work and Ucas space by targeting and tailoring. The go to market, but I would expect that we could drive efficiency in stream.
In line on the longer term in both of those segments I'm in both of those opex areas, but I'll pass it to Dave to give you a little bit of clarity within the quarter.
Yes. Thank you very much for your comments Catherine regarding sales and marketing.
Taking into account.
Summer care a lot of customer care is in there. So as you see sales and marketing in certain quarters step down some of that is consumer related customer care coming down and other efficiencies.
As a general matter you saw the sequential increase in sales and marketing and that's because we launched our our new brand campaign heavy piece of that.
To do and we would expect to stay.
Type of level for the rest of the year, given we're going to continue to advertise on the brand side.
Finally, we had a bit less commission payments in there as well and a bit less money, but I would expect it to stay in this and this general level to slightly up.
If we get more activity on them on the commission and TV side.
Regarding Gionee you saw two factors in the quarter.
One was consulting fees and those will continue.
Those are not an adjusted EBITDA, but they're in the DNA caption on the income statement in that that was first thing consumer view and now that's been folded into the project that brewery talk about and so we'll have that in Q3.
And in addition in Q2 you had to you we were very heavy on the CEO transition costs, which again hit the income statement.
It did not have EBITDA as a general matter DNA organic DNA.
It's not going up ought to be relatively flat.
For the rest of the year.
And then with the project that we discussed.
Eventually that will that will start to come down as we execute that.
[noise] Catherine.
Our next question is from Tim apparent with Oppenheimer. Please proceed.
And then can luxury and thanks, Steve from your help dominoes can you give a little bit more color what was differentiated about your product and I guess, maybe the same thing for your high value services either.
How differentiated are you do you think you're taking share in that high value side. Thanks.
[noise] sure I I'll take the second one and then touch on the.
Have Omar touch on it I you know having come in here and spent the past the 456 weeks really learning the business getting deep into Apia I was familiar with the services or.
I.
Decided to join bonded so there's no question, there's real strength and our Apiay services I think we have a leadership capability from the standpoint of video I also think the way that we.
Utilize these service to create integration point is differentiated I think and there was another question at the begin to Tim was it around Domino's is that what you were asking I couldn't hear your clearly I apologize.
Is there Tim did I look what did what was the first part of the question apologize.
Yes, sorry can you hear me okay were.
Yes, I can now thank you, yes, sorry.
So the question is Domino's I think you said you want it because you're going to differentiated services just trying to understand what the differentiation was.
Yeah. This is this one's kind of interesting right. So there's a couple of things that really made a strong in that space and then enterprise solutions, particularly because of the multi location capability.
We've built that into the unified communication space I think that's really an important driver and our wins in that enterprise and remember when I talked about the go to market around a those a unified communication and contact center App that we had to tailor it and the product was particularly.
Strong and small and mid.
This is just the idea that that same kind of multi location implementation with the control points that we put over top of it give it gave its strength and then the voice they pie in the Apiay work on top of that really ISO gave us a differentiation, but why don't we.
Go to Omar first on the high value add then will.
Continue Omar one add a little bit of color on high value in our differentiation I touched on it at the beginning.
Sure so with respect to high valued just the differentiation, let's talk about a couple of different products, we highlighted video.
You May recall, we acquired a company top box.
In late 2018.
And what we got through that was not only.
A number of high profile customers, but a great deal of history in that space. So we effectively have been doing pioneering work in the underlying technology, which is called web RTC.
So we have a ton of intellectual property there great customers.
That we can reference also we've been investing in sort of security and certification. So those are important in the number of markets like healthcare financial services certain other social networking type of use cases. So we have a number of those kinds of strikes I would say.
It is one point the second point is since this is the our products are really appealing to technical support engineers are technically savvy.
Customers.
We have woman and we've won awards to this effect as well is we've invested a lot and.
Making our software very easy to use very easy to implement that is a differentiator as well.
And then on to your point about dominoes, just to add a bit to what where he was saying the multilocation capabilities remember now the we'd domino's is structured is theres corporate and there's.
There are franchisees and there's a lot of franchisees and so for them just having something.
They needed something more than just a phone system in the store.
And we can provide that there's a number of companies that can provide that but what really differentiated us is that we under that given the way that we approach the market as we talked about this this platform approach with the apps built on top of it it allowed us to give them the flexibility that they needed that was unique.
To them and implement that very easily and and really support the digital transformation that they were going through.
And then and the other really key point is.
As big as Domino's is in the U.S. They are huge in growing all over the world and so our global footprint and this is something that weve.
Been very strong it in the beginning in the business or is a global footprint and the ability to operate globally and support our customers globally.
Great. Thanks, Tim for the question.
Our next question is fab that Marshall with Morgan Stanley. Please proceed.
Hi team. This is Eric on for me to Thanks for taking your question, maybe just one for US on your sales force relationship under understand pipelines are a bit less fall on the application side overall, but how is that relationship continue to develop and are you seeing pull through of you see when making contact center.
For sale anything kind of that you've seen there.
Sure Eric I think two two good points on your question from the standpoint.
Salesforce, there's definitely continued activity and that's a really good strategy in terms of contact center focusing on that kind of.
Build out on that CRM contact center with our capability and having that deep integration. We're also doing two additional areas in that space and you'll see more on that over the coming.
Weeks and months in terms of additional capabilities in CRM and service areas, where we'll drive that same deep integration I think that will definitely drive a disproportional share and I think that there's no question that that's the REIT space and again very good progress.
In the REIT space.
Any follow up Eric there.
Oh, the pull through right.
Right, Yeah, it's just kind of anything absolutely not.
Yeah. No question. So if you think about it if we target those contact centers that are around salesforce or service applications or other CRM and just a handful because we want to be great. We want to drive really song integration and they tend to be these.
Mid sized kinds of contact centers that are built to offer that then what you get is then you can what we're seeing is pull through on unified communication DAPL as shown me several really good examples and that integration across contact center and unified communication, that's a real.
Differentiator because of the focus that goes after the right level, we don't want to be you know spread thin across all areas, but target. This subset like salesforce in the service space et cetera.
In order to get that targeted focus and then build on top of that the integration into those applications as well as the integration into our you see and we're definitely seeing pull through both and pipeline and closing that drive that.
Integration and that's been a driver of.
Net expansion in those account and driving the wind has great question.
Thanks, Eric Hi, why don't we go onto the next question of course.
Our next question is from Sterling Auty with Jpmorgan. Please proceed.
Hi, This is true on for Sterling congratulatory on your first call and Dave on your last so in the past you've mentioned, the 20% exposure to industries like travel and hospitality and the.
Of the business specifically I was wondering if you could provide some more color on how those verticals are performing and like how many customers are requesting concessions and what type of concession their offering them.
Sure I'll just give you a quick update and then I'll pass it over to Omar Yeah. We so all that kind of impact a peer to peak in the may timeframe and as he mentioned in his earlier remarks, you've seen.
Asia Pacific Asia Pacific returned to more pre co bid activities in terms of that velocity there still pressure there. There's no question, particularly in the U.S. and travel and even in Europe.
But we have seen them come off of.
The lows and they've definitely been improving at why don't I pass it Omar to give you a little bit of detail on that true and thank you for the welcome.
Omar.
Thank you Laurie.
Really not much more to add I think we've seen we have seen so we have that exposure to travel and hospitality and I think just globally.
They are going to struggle to recover to free coated levels, but what we have seen in Asia Pacific is.
Activity and usage back to pre covert level. So we saw that a particularly in mainland China and we have seen.
Pickup in travel and hospitality and there's also a lot of.
Just a lot of traffic for example that is meant to drive meant to drive actions in retail.
So we've seen that we've also seen that pickup in Asia Pacific.
So all of that.
Looks pretty positive and we are monitoring that situation pretty closely of course has as everyone I'm sure now to the other part of your question in terms of whether we're getting whether we're being asked for concessions due to covert.
We really haven't seen that.
We haven't seen we haven't seen so let's say struggling customers.
[music].
I have come back to us and asked us for price breaks and things like that.
Just stated that early on.
I just haven't seen much of that activity.
Thanks drew thank you.
Our next question is from will power with Robert Baird. Please proceed.
Great. Thanks, Yeah, sorry, I guess I want to follow up a bit.
And try to fill that going a little bit more if we could on the App services.
Segment in trying to understand a couple of different underlying trends there I mean look at digital transformation over the course of this quarter or one of the biggest beneficiaries of they submitted your peers has been contact center.
So I, just I guess I'd love to kind of better understand Holistically salesforce in total kind of what you're seeing in contact center or is that station same pipeline.
Challenges go to market issues that you're facing more broadly or is that more related to you can't really just trying to understand that.
Broader contact center trends and we're as you look at that and talked to customers of the pieces. There you need to add I guess to.
Further improve that product.
Yeah I.
From a perspective of contact center that area had a strong good trajectory.
I think the focus in terms of the product and the way we're targeting it at Salesforce and then in the service space and then additional maybe one more CRM I think it's the right strategy keep it focus put the you know the energy of the organization there get the pull.
Through through the eyes, the eco system, we've already seen higher growth rates compared to the.
Unified communication space in contact center I expect that to continue contact center grew in the mid teens I expect that we can continue to build on that by keeping that focus and expanding that base I think that that's the right strategy in terms of.
The capability I think there's more pressure on unified communications in general, but I think thats more about how we've gone to market versus the product I think the power, though of the combination in contact center when we win those contact centers around salesforce or so.
Service activities and then we combine it with unified communication, it's really a differentiated capability then you get that full integration across call activities routing all of the data and information shared I think it's a powerful offering and I think will build on that the main purpose above.
The AWP business optimization on alignment project is to put in additional operating discipline and drive execution Excellence I think we're on the right.
Base right focus and contact center I think we can lift that growth rate, but what we have to do is continue to build on that focus and augment it with the.
Unified communication alright, thanks, well.
Thank you.
Appreciate it.
Our next question is from George the Ed with Craig Hallum. Please proceed.
Thank you are welcome to reorient, Dave I hope to never have you come when I dialed 911 so.
[laughter] Laurie and actually this is for Omar as well the there were several months ago you change the branding.
Kind of a logo change was really met to move outage more into a business environment. I'm curious how you feel that has gone and are we moving the vonage brand into that business centric area in your view that.
Sure I I'll take the first pass at a George well one of the things is I I'm very excited about continuing to add talent that the team you may notice that we added a new senior leader a joint core so joined US as CMO of the business Joy brings a real deep.
Knowledge across all marketing activities.
She knows how to deliver messaging and communication across the portfolio and she's got an operations and then operators type background on what we want to do here is there's no doubt vonage is a business software as a service company, that's where we are that's where we're going and that's why we're.
Properly position to take it vantage of this fundamental shift and communications and digital transformation, you're going to see us continue to build on that and to continue to drive that messaging because that's what we are the capabilities that we're bringing to market across or Apiay services.
<unk> platform and communications platform and then the targeted purpose built applications around unified communication and contact center are all built on that idea of serving businesses and their digital transformation I'm pretty excited about that that's why I wanted to be part of this team and.
You'll see us continue to build on that messaging and that thrust. That's part of our overall operates and operating discipline and our strategic business planning for the next two and two and a half years.
Thanks George.
Yeah reached the end of our question answer session.
I like to turn the conference back over.
Two management for closing remarks.
Well I wanted to say, thank you to everyone joining the call it very exciting could be part of the Vonage team and as we talked about through the earnings call I think we've made.
Real tangible progress over the past several years to position the company well for the future I think we're at the beginning of a.
Industry wide communications Revolution that Miss digital transformation space.
And I think our products and capabilities are rell well position to take advantage of that we're going to apply operating discipline and drive execution excellence across every part of our business to change and to fully realize our full potential of our business trajectory.
Sorry.
With that I'll pass it to Hunter any final comments Hunter.
Oh no Roy Thank you for that clothing, we look forward to seeing many of you some virtual conferences over the coming months.
And we will soften okay.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.