Q3 2021 Vonage Holdings Corp Earnings Call
Greetings welcome to vantage third quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to Monica Gould Investor Relations. Thank you you may begin.
Thank you operator, and good morning, and welcome to our third quarter 2021 earnings conference call.
Speaking on our call. This morning is worry Reed, Chief Executive Officer, and Steve Lasher, Chief Financial Officer, where he will discuss our strategy and third quarter results and Steve will provide a more detailed view on our third quarter results fourth quarter guidance and updated full year 2021 guidance.
That accompany todays discussion are available on the IR website at.
At the conclusion of our prepared remarks, we'll be happy to take your questions.
As referenced on slide two I would like to remind everyone that statements made during this call may be forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements are based on management's expectations depend on assumptions that may be incorrect or imprecise and are subject to risks and uncertainties that could cause actual results to differ materially.
More information about these risks and uncertainties is highlighted on the second page of the slides and contained in our SEC filings, we caution listeners not to rely unduly on these statements and disclaim any intent or obligation to update.
During this call, we will be referring to non-GAAP financial measures.
A reconciliation to GAAP is available in the third quarter earnings press release, or the third quarter earnings slides posted on the IR website.
So with that I'd like to turn the call over to Rory.
Thanks, Monica and Hello, everyone. Thank you for joining us today.
Next generation technology happens in waves that build upon each other what is happening now it's the convergence of the Internet mobility, the cloud and powerful fiber network that is forming the digital transformation and intelligent communications weight driving a secular change in the way business is the op.
Correct.
Customers expect to digitally engage with companies to get the information they want and the channel they choose when they want it from anywhere similarly.
Employees expect seamless collaboration engagement and access to technology, no matter, where when or how they choose to work to achieve this level of engagement. We believe all communication boats will be embedded in application workflows and customer experiences through.
Composer Bowl API based programming technique that enable businesses to move from transactional interactions to true ongoing engagement.
We provide all of these capabilities through the vantage communication platform, our single Global Cloud Communications platform.
Last month, we acquired jumper Dot AI a leader in conversational commerce with jumper, we have added significant technology talent and expertise to capitalize on this growing convergence of seamless shopping and conversation on services, such as messenger Whatsapp and Instagram.
Jumper AI will accelerate our ability to enable our customers to differentiate themselves as social messaging becomes increasingly important to consumers as a frontline way of connecting with their favorite brands.
Leading brands such as L'oreal keels Disney acts.
Ben and Jerry's and Burger King Us jumpers technology to create personalized unique digital engagement experiences for their customers and this is just the beginning we're truly delighted to welcome the jumper T.
Now, let's review, our third quarter vantage communication platform results, where I'll focus my comments on our continued strong execution and the progress we are making on our strategic investment.
BCP service revenues were $274 million, representing 25% year over year growth up from 19% in three <unk> a year ago third quarter BCP adjusted EBITDA was $5 billion of 19 million dollar year over year improvement.
BCP rule of 40 this quarter was 27 more than double the 13 in the third quarter a year ago. We are ahead of the plan we laid out in our March Investor Day, and we are confident in our ability to continue to deliver on our commitment.
API revenues increased 43% year over year to 155 million dollar in the quarter. Our continued strong performance was driven by robust demand of our composed of both AP is from new and existing customers across all key industries geographies and.
Customer size it.
While messaging growth was particularly strong in the quarter. We also saw a strong adoption of our other API, particularly buoyed verify for authentication and our messages API for customer engaged.
I'll highlight just a few of the new customers for the quarter.
U K based real estate and technology company is leveraging multiple vonage API to build and differentiate their business.
That are using our messages API to facilitate connections between buyers and real estate agents and they are using our video API to power virtual operator viewings between agents and their customers.
In the United States Ping identity, a Gartner magic quadrant leader and the access management software space selected vantage to provide two factor authentication services for its customers, which now include 60% of the Fortune 100.
In addition to our strong new customer growth existing customers continued to expand on our platform third quarter dollar based net expansion was 129% driven by strength in E Commerce travel hospitality logistics and the social industry.
We also saw increased momentum in several areas across finfet, including crypto trading platforms digital lending and payments.
A great example, it's been a sell a digital lending pioneer in South East Asia already vantage voice API customer been a self selected our SMS API and two factor authentication capabilities to provide customers with a count update and password assistant fin itself also added our mess.
Such as API to power engagement with its customers over whatsapp.
Now moving to unified communications and contact center product.
Service revenue grew 8% ahead of expectations.
Combined B B C and B C. C cloud product growth was 13% driven by improving micro and SMB growth along with strong mid market and enterprise growth.
We continued to make progress on our go to market initiatives total bookings were up year over year and sequentially within the channel. Our momentum is building highlighted by significant year over year bookings growth with five out of our top 10 deals, including three of our largest deals in the quarter.
Coming from the channel.
Given our improving trajectory, we're well positioned to accelerate revenue to double digit growth in early 2022, as we shared during our Investor day in March.
Key to our bookings growth is our integrated unified communications and contact center solution.
<unk> continues to be a key differentiator tenants our top 15 wins this quarter included both UC and Cc solution.
I'll highlight two examples and innovative financial services firm chose vantage to replace its legacy UC and cc infrastructure. The full scope of the vantage communication platform, including the depth of our sales force integration and the ability to leverage our Apis for custom integrations.
Were key Differentiators in this seven figure <unk> deal.
One of the largest roofing manufacturers in North America termed advantage and Salesforce to transform their customer service organization and leverage customer data to provide more proactive and intelligent customer support originally only a contact center deal it became apparent to the customer that.
They needed to move to a full cloud offering to replace their legacy on Prem UC and Cc solution last quarter, we discussed the importance that the Salesforce service cloud voice partner telephony program represents for vantage.
I'm pleased to share that we are seeing early success here with several new wins and a strengthening pipeline.
We had an exciting win with Stratton finance, one of Australia's largest car and asset finance brokers and existing Salesforce customer the company selected Vonage for our contact center solution integrated with service cloud voice and our unified Communications solution.
With vantage and sales force Brat, and finance will accelerate its digital transformation by creating an improved agent experience better operational efficiency and stronger customer engagement.
Now moving on to product our innovation engine continues to accelerate during the quarter. We introduced an impressive number of new capabilities across our entire platform I'll highlight just three.
Our new AI virtual assistant for BBC is one of the first AI driven conversation most solution to delivered enhanced self service interaction for unified communication.
This AI solution creates intelligent conversational experiences using natural language understanding and machine learning to engage every color with applications using voice and text.
We also launched vantage video express to make it easier and faster for developers to access Vantages video API for multiparty calls.
<unk> video Express Democratizes video, making every web developer of video developer instead of taking days weeks or even months to integrate video into application developers can now integrate video within hours you didn't just a few lines of code. Additionally.
Vonage contact center solution was one of the first to be selected by Google and its new Chrome enterprise recommended contact center category.
Integrating the Vonage contact center with Chrome OS devices, and powers I T and contact center administrators to leverage our full suite of contact center capabilities remotely and enable agents to work from anywhere enhancing the agent experience for better efficiency and productivity.
<unk>.
In summary, we had another strong quarter and expect to finish 2021, well ahead of our original revenue projections due to improving execution go to market focus and product innovation vantage is in the right place at the right time, and a large and rapidly growing market as the world begins.
To ride this next technology wave around digital transformation and intelligent communication.
The way, we work shop learn see a doctor even exercise has fundamentally changed businesses need to move beyond transaction and notification to digitally transform to deliver personalized conversation on the customer's terms as the demand for virtual engagement continues to grow.
<unk>.
Whether it's getting medical attention through telehealth tracking a package or a food delivery booking a ride sharing service, providing fraud protection connecting the right customer to the right support agent or enabling video and voice communications across thousands of office locations vantage does that.
I would like to thank our talented team members around the world for their continued hard work and dedication we are delivering on our commitment executing our transformation plan and investing for future growth and every day, we're actively looking at all options to create value for our customers.
Our team members and our shareholders I look forward to updating you on our continued progress and with that I'll turn it over to Steve.
Thank you Lori and good morning, everyone I'll start with a review of the third quarter results and then discuss the fourth quarter and updated full year 2021 guidance.
Beginning on slide eight we had another quarter of solid execution accelerating revenue and improving profitability.
Each of our product areas, including API, UC and Cc delivered on our commitments, while we continue to improve on the rule of 40.
Turning to slide nine consolidated revenue increased 13% to $358 million driven by a 23% increase in vantage communication platform revenue to $288 million BCP revenue now represents 80% of consolidated revenue up from 74.
A percent in the third quarter of the prior year.
Consolidated third quarter, adjusted EBITDA of $51 million was up $9 million or 22% year over year due to higher revenue and improving operating structure within BCP.
Moving to the bias communication platform on slide 10, BCP service revenue increased 25% to $274 million.
Head of our expectations driven by broad based demand across our entire portfolio.
BCP revenue churn with 0.6% in the third quarter, an improvement of 60 basis points from a year ago, driven by improvements across all products monthly service revenue per customer increased 25% to $657 from $527 over the prior year quarter.
The ECP gross margin in the third quarter was 45% down year over year due to the higher growth in our API products, particularly messaging as we continued to strategically pursue new customer opportunities to drive product adoption across the BCP platform.
BCP adjusted EBITDA was $5 million, representing a $19 million year over year improvement.
Moving to slide 11, API revenue was $155 million in the third quarter up 43% driven by continued growth across all product areas and geographies. We saw particular strength in our ecommerce financial and travel verticals as customers continue to adopt new products and <unk>.
Spanned usage across the portfolio.
Unified Communications and contact Center service revenue was $119 million in the third quarter up 8% year over year.
Let's move to slide 12.
Operating expenses totaled $165 million and accounted for 57% of total BCP revenue an improvement of 18 points year over year. This improvement is due to the business optimization and alignment efforts, we took last year to rebalance the business.
BCP sales and marketing expenses were $83 million or 29% of total BCP revenue as we continue to make investments in sales head count and targeted demand generation.
BCP engineering and development expenses were $17 million or 6% of total BCP revenue.
<unk> expenses, plus capitalized software totaled $28 million or 10% of BCP service revenue.
BCP general and administrative expenses were $42 million or 15% of total BCP revenue down approximately $11 million due to restructuring charges and the prior year quarter.
Turning to slide 13 consumer segment revenue was $70 million in the third quarter, a 15% decrease from the prior year.
Consumer adjusted EBITDA was $46 million in the third quarter down from $56 million in the prior year.
Moving to slide 14, we ended the third quarter with $447 million of net debt down $28 million from last quarter and $90 million from the prior year as of September 30, net debt was less than two three times last 12 months adjusted EBITDA.
Moving to guidance on slide 15.
For the fourth quarter, we expect BCP revenue in the range of $293 million to $301 million, we expect DCP service revenue growth in that 22% to 25% range embedded in this guidance are the following assumptions in API, we expect fourth quarter year over year Rev.
<unk> growth to be in that 34% to 40% range with regard to unified Communications and contact Center, we expect service revenue growth in the high single digits.
We expect fourth quarter BCP adjusted EBITDA to be in the range of $4 million to $8 million.
Within consumer we expect revenue in the $65 million range and adjusted EBITDA of approximately $42 million.
On a consolidated basis, we expect total revenue of $358 million to $366 million and adjusted EBITDA in the $46 million to $50 million range.
For the full year 2021, we are raising our revenue and adjusted EBITDA guidance to reflect our strong third quarter performance and higher fourth quarter expectations. We expect BCP revenue to be in the range of $1 billion $113 million to $1 billion $121 million.
BCP service revenue is expected to be in the range of $1.055 billion to $1.063 billion representing growth in the 23% to 24% range. We expect API revenue growth for the full year to be in the 40% range and we expect full year UC Cc <unk>.
This revenue growth in the mid to high single digits.
We expect BCP adjusted EBITDA to be in the $8 million to $12 million range.
For the full year, we expect our BCP rule of 40 results to be in the mid twenties up from our original guidance of low twenties, driven by stronger than expected growth across our API and UC cc product portfolio.
For consumer we expect full year revenue of approximately $288 million and adjusted EBITDA and $186 million range.
We expect total consolidated revenue to be in the range of $1 billion and $400 million to $1.409 billion and adjusted EBITDA.
$194 million to $198 million range with that I'll turn the call over to the operator to start the Q&A.
Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys. Our first question is from Mike Latimore with Northland Capital markets. Please proceed.
Great. Thanks, Yeah, congratulations excellent results there.
I guess just a question on the gross margin on BCP I know messaging is growing rapidly a huge demand there.
How should we think about gross margin longer term, where do you where does that sort of stabilize in BCP.
Thanks, Mike Hey, Mike I'll get started and I'll pass it over to Steve Hey from my perspective, what we're seeing is the secular change in the way communications are used across pretty much every industry and we're seeing robust demand across our portfolio I think the team is executing particularly well and we're seeing.
That demand across all product areas. So I like that a lot we're not seeing a lot in terms of pricing pressure.
We're seeing really robust demand across all product areas and as we continue to innovate I think we're seeing.
That innovation drive more demand and definitely value for the customers. So I think that's an important factor in terms of it you highlighted mix, we've definitely seen some strong.
Robust demand across messaging, but again, we see it across every product area.
I'm pleased with where we sit we're confident we're going to execute well in <unk> and finished the year strong.
But Steve do you want to give a little bit of a feel for how we view gross margins across the BCP platform.
Sure. Thanks, Ryan and my Thanks for the question as already stated from a when.
When we take a look at gross margin, we think it's going to stay in that mid 40 area and it's really for US. It's about the scale as we are always looking to improve on gross margin right now, where we see where we play the opportunity for capturing new clients and then having them scale across our platform is really key.
Now as we said our mission, we're happy to trade off a point or so of margin four two points on that top line and as we continue to make progress on our rule of 40, that's where you're starting to see we've really done a nice job and the team has done a lot of hard work to continue to deliver on our rule of 40, and we're making great progress and as we can.
Due to look towards the future that mid $40 range.
40 area, we're comfortable with it, especially as we think about the mission going forward.
Yes, It makes sense and then on the API business broad based demand. It sounds like were there any regions geographic regions that either outperformed or underperformed your expectations.
No Mike we saw strength across the board you look at the DB a need from the standpoint of a 129, we like to run that in that 120 to $1 30 range. We saw demand from our existing customers for existing API. Then we saw some good expansion in terms of new when multiple API.
New customer growth was strong again, we saw it expand we still have pretty much in every geography every geography and almost every vertical.
There's a lot of demand out there and whether the world is opening up from the pandemic or however, it's changing I think what we're seeing is the secular change in the way consumers want to interact with companies and these companies need to implement these composedly API.
Is to create these multimodal communication interactions that create a kind of a 360 degree relationship I think that's pretty powerful so we're seeing it across all <unk>.
Industry and customer sizes, big medium and small across the board nice API demand robust existing and new customers.
Okay. Thank you congratulations Mike.
Okay.
Our next question is from meta Marshall with Morgan Stanley. Please proceed.
Yeah.
Hi, This is Dave for cargo on for meta Marshall.
So you touched on the rule of 40, a little better Joe I'm, just as you progress towards that do you think bets.
Driven more by additional opex leverage or will that primarily be driven by growth.
Yes, so so Dave I comment on that one when we did the Investor day in the spring. This year matter of fact, our first Investor day in 20 years, and we won't wait 20 years for the next one we look forward to it.
In the first half of next year again, we kind of gave this three year view of our transformation, we expected at the beginning of the year kind of how the rule of 40.
The high teens and exited the year near the 20 as the year has progressed we've seen strength.
In terms of the topline the robust demand for oil products UC cc now approaching double digit growth and we will see that by early 'twenty two.
We see it in terms of all API, including messaging, we see it across all of our other API.
So.
We saw a 27 and the rule of 40 up from 13, a year ago. That's a big improvement we thought we'd see mid twenties and the rule of 40 next year. So we're significantly ahead of schedule and it's never exactly a straight line on that but.
<unk> P growth.
Sure, Steve you've got that.
Yeah. So so when we take a look at it in fact he was relatively.
From our perspective is relatively flat we had a good quarter. So from BCP service revenue as reported was 25 constant currency was 25.
Got it so Dave's, we saw no impact on that farm.
Yep. Thank you thanks for the questions on congrats on the quarter.
Thank you Steve.
Our next question is from Willpower with Bird. Please proceed.
Okay, Great Yeah, I guess I Echo my congratulations great to see the revenue and.
Operating efficiency improvements maybe.
Maybe a question a jumper AI that seems like a pretty interesting acquisition and fit for you. All so I guess, you would love to better understand potential impacts that to Q4, and even into 2022 revenue and maybe even on the cost side and and maybe just any other background color on you know and the integration process you know how quickly you can.
Get up and running with that.
Hey, well I <unk> I love that question from the standpoint of how we see this marketing involving over the next 357 years, we're gonna see this multimodal communications.
Transformation across every industry every work flow.
Every geography every customer site, what we're seeing is this movement from transactional notifications kind of flat interaction through these composable API, whether it's videos or messaging or our voice it it.
What's going to fundamentally occur is it's gonna move from this concept of notification and transactional communication put 360 degree engagement full conversations ongoing and this is gonna be one of the key engagement levers I.
[noise] believe for every industry in every customer unfortunately, the pandemic or depending on how you will I think it's unfortunate, but it's only accelerated that because you've seen now all age groups being accepting of this kind of activity and because of the cloud because of mobility and your $3.8 billion.
Our full handsets and everyone's hand, plus five G networks with improved latency, an unbelievable bandwidth and security, we're seeing that in jumper AI what it does for us is it.
It moves it's a leader Neurally mover in this conversational commerce space look at the customers. So I mean, l'oreal Burger King keels Dove, Ben and Jerry they they they're setting a trend there. We believe this is only going to accelerate this 360 degree kind of engagement in the meadow.
[noise] burst expands and explodes and I think we're way at the beginning of it but the jumper team brings technology innovation and customer that's good and a lot to be a leader of this space and we have other things that we're continuing to look at it mistakes. This as a secular change and this is why we can divide.
Is to participate in this movement from notification to true engagement and it's gonna change the world in terms of how we integrate I had the opportunity to do the integration of Delany M. C. The largest keck deal in history jumper is gonna come in they're gonna fit right in great culture spend time with that team.
They're energized about how we can open up the opportunity and from the standpoint. We think this is a an important capability for us in 22, and 23, well, we've always called 22 and 23 the year of the product and you're gonna see us continue to build on that.
Okay. No. That's great I mean is there anything from a granular standpoint to call out with respect initial revenue or or you know cost impacts.
Or I <unk>, well see if you could comment if you if you like but I'd say I'm not seeing anything significant on the on the Opex side were very financially well structured we've been managing well you could see the 19 million dollar improvement year to year on the bottom line.
We've structured that all into our outlooks and our four cats and I I I think it's gonna help us in terms of you know.
The velocity of the business because I think it's a differentiated capability I didn't think the with a differentiated capability. It's also gonna help us get into even higher margin messaging higher margin a T I's but see Eddie.
Any comment for well.
Yeah, and then well thanks for the question when we look at it look over time, we will see some synergies from jumper AI, that's going to allow us to move my improvement are operating margin and that's gonna come over time and it goes back to his Marie mentioned as transactions move to conversations that's gonna allow us to improve but as far as where we are right now.
You're not going to see any any significant change to where we are as a what it's really about that's embedding jumper into the platform and moving forward and the evolution of transaction to conversations.
Okay, great. Thank you.
Our next question is friends Tonight, So Hannah Chafee's. Please proceed.
Hi, This is Nathan married on first <unk>, thanks for taking our questions.
So I I wanted to go back to a P. I C cut out messaging is particularly strong going forward. How are you thinking about growth between messaging voice video and what the main drivers will be.
Sure. Thanks, Nathan I think from a standpoint of API messaging and this you know continue trend toward moving notifications to conversation and adding value added capabilities like the jumper AI offering and this conversational commerce is gonna continue.
To drive robust demand and messaging, we see that in the pipelines, we see that in the trend.
And we're we're going to continue to participate in that you're going to see <unk> Berry and his team are doing outstanding job work in a cost or go to market.
Really understand where the opportunities are to open up Tam and improve even our margin participation with higher value offerings and we've got that innovation engine moving more rapidly. So we like the robust demand that's a good thing we see it.
Into the future based on the pipeline and then from the standpoint of the other a P. I for like the <unk>. The the intelligent messaging API like in the over the top areas. Your video voice, we think that area will ultimately grow faster in terms of percentage of space some of that.
He was working on some relatively smaller number but there we've gotten that again that focus on what functionality do we need a whole yo introduced that were to open it up and you're gonna see is really trying to focus on vertical differentiation in our go to market team. So that we can see the use.
Cases, where they're applied and we're gonna bring expertise you know I think it's a very interesting time, you've got this convergence of the cloud where mobility and five G. Networks. This is opening up this and the secular change in terms of those societal acceptance. This is opening up the demand we're seeing robust demand.
Across the board.
[noise], Okay, great. Thank you and then going over to the U C. C. T. A business interest is accelerating right on track can you guys talk about your channel partner efforts, how it channel part of the responding to changes you've made and then on the other hand can you talk about your direct sales efforts uhm down market and how your new go to market <unk>.
Is resonating there.
Yeah, I'll make a couple of comments here and there you see see see you today I've been so impressed with our team we kind of laid out with Regardful Reggie and others. This kind of concept of really pivoting and turning that business around we began that work in 2020, we could see.
In terms of the pipeline in terms of bookings install it's a waterfall are waterfall. So you can really see it we've seen year to year improvement sequential improvement.
And then business is right on track we called it earlier on these call that we would return to double digit growth, but cloud components, you <unk> a V. B C. N. B C. C are already in that mid double digit growth and we were optimistic we're gonna continue to build.
Remember Mason, there's a half a billion.
Let me say that again I have a billion seats that need to move to the cloud you know less.
Less than 10% of it maybe right around 10% have moved this is G U <unk> opportunity and it's across all customer segment, we're doing a really nice job and re energizing micro and small with the work that Joyce marketing team working with the go to market have improved in that space.
I think you know and then the strength that we continue to see in mid and enterprise you asked about the channel I spent the past four weeks meeting with every major channel partner one on one.
I've spoken to many of their events over the past two months I believe in the channel I believe in the channel multiple pine capability of reach and customer impact and we definitely gotten feedback that we're on the right track they liked the portal they like the tool they like.
Our ability to work with them to create a great outcome for the customer. So we've seen the pipeline and that the key deals and the channel continue to accelerate I think I think where they are as we're building real trust with them.
They have seen some starting soon stops with vantage in the past and the channel. We're committed we believe in the channel. We believe in our partners and we're going to continue to accelerate our investment to build that capability ability out and we see it in the result, so the feedback was good the trust is building.
And we're gonna continue to follow through on that over the next 348 12 quarters to continue to create that great relationship I think they want us to win I I really do and I think they were helping us. So good good feedback so far but more work to do and we're gonna do it.
Thanks Bye thank you.
Our next question is from Cam her aunt with Oppenheimer. Please proceed.
Oh, Thanks, guys. Your largest API competitor you kind of grew faster than for I think the first time I can remember and I've always been curious why you haven't been kind of growing faster than him for the last couple of years, because you have such a market share universes them and I guess my question is if you look at your top 2030 APR users globally.
[noise] are you starting to gain share that with those customers do you have the product quality now because your price point seemed to be you know quite a bit below them and do you think you are basically set up at this point to really gain a lot more sure from them with the larger customers out there.
Yeah. Thanks, Tim I think one of the things we wanted to do is we wanted during the first phase of the transformation has to really get the house in order, we did that and in the second half of 2020 and sort of like restoring a sports car and we've taken it out of the garage now we took it out on the track.
See what it could do.
That's good.
Product quality has improved knock on wood will continue to focus on that we're adding new features and functions and I highlighted a few like video expressed in this most recent quarter last quarter of the HIPAA compliance and the Sox compliant. These are opening up new Tam for us.
We're getting to the point, where we've getting this business and a good balance we have fiscal responsibility we have very good operational discipline in the structure and there's demand out there that demand as robust and for US I think we can improve the value that.
We're getting for our products by adding these new features and functions like jumper AI and the conversational calmer or adding the HIPAA compliance and messaging, so that medical and and privacy are really covered you know there's come competitors out there sure, but our focus is.
We understand them, but we're really spending our time with our customers and our customers are telling us you're on the right track, you're definitely increasing our footprint with them, we're expanding across the other a P. I, but we have more work to do what we're gonna do it. So we like the progress we're on on Ah.
Three year transformation. We are ahead of schedule, but the demand is there and people are reacting to the improvements we're making so Tim we're going to continue to do what we're doing listen to our customer put that customer first deliver the innovation that great value and we're gonna go after this market, but I guess.
Pacifically larger API customers out there globally are they looking at a dual source at this point or are you starting to gain some traction with them and you think there's a lot more potential only because it just seems to be such hanging fruit I mean, it's almost like no SG&A and R&D costs with those customers and I would think they want a dual source yeah, Tim I think you're spot on I think that.
We are definitely scaling on our Opex now I think we're getting in the business and balance so that we can add in particular areas like you suggested and some of the larger relationships and we're winning new routes, we're expanding our footprint with them. They definitely are reacting we're going to go across the the.
The entire planet and go after the competition.
Customers reacting so you're spot on I definitely think there's opportunity and we're going to be the aggressor. Thank.
Thank you.
[noise]. Our next question is from true Glashow J P. Morgan. Please proceed.
Hey, guys. Congrats on a great corner you mentioned it briefly in the prepared remarks that power the TV impacting your industry my travelling hospitality picks for me.
<unk> and are there any specific radicals that are leading the way in the cabinet or anything you see see see fine.
He drew how are you going to speak with you I I'd say in terms of our portfolio and we've come in at a couple of times in the past I I think it's a competitive advantage the diversity of it both geographically and vertically why we're definitely seeing improvement in travel and <unk>.
Hospitality.
Add COVID-19 kind of moderate and we're also seeing activity and logistics, we're seeing it in crypto platforms, we're seeing it in social we're seeing it in a payment sector. There is no question that there is demand out there and.
We see it in terms of E Commerce financial logistics.
The hospitality area and travel have absolutely picked up but there there's still more room for them to go I think they're gonna add a lot more in terms of capacity.
And will continue to participate on that so I I feel that.
That we have a nice combination. So we're not just tied to pre COVID-19 kind of industry, where <unk> participating across the board and Andrew I think it really is less to do about COVID-19 and more do about this change in the way customers want to interact and that's why we went after jump right.
That's why we're building that technology. This is really going to move in a direction of engagement and the <unk> and I think it <unk>.
It's it's the next five 710 years.
You had a second question through what was the second part.
So I can get that covered the first time that I do have another quick question account you talked about the traffic a channel I was wondering if you could kind of expand upon what exactly you're doing okay.
Okay Channel partners.
Sure drew one of the things that you know.
We did when I first got here is reached out to the channel partners their leadership, you'll communicated our commitment and our focus then when we launched bureau, the whole vantage accelerate and that the whole concept of getting that to move faster than the channel.
We then back that up with action, so better tooling better documentation better incentives and then our team and now we're investing to expand our footprint with Cid on the street to allow us to to deliver a that so it's a series of steps and then the most recent six eight weeks I went and followed up with.
All of them with you know the team to understand what the feedback was and I spoke at a lot of their kick offs in their event. The feedback is positive they like the investment of the portal they like the tooling the ability to do faster pricing, we need to do it even faster but.
The feedback was good and spent time at so I'm trying to reinforce that we say that we're going to do it. We do it then we follow up we get feedback and we continue to improve their.
Their feedback was good said, we're on track and we're seeing it we're seeing in terms of the pipeline and we're seeing it in terms of the velocity, we're not at the knee of the curve yet I think there's more to do here and you can hear it in their boy Cheryl because they're they're looking and they're believing that we're executing we're committed which we are and we're gonna build.
On that that activity why the channel the channel has such reach and they have their trusted advisers to so many players in the space, particularly in U C. C. C and we we create that combination of vantage plus that channel partner plus that end customer that's expertise that's trusted.
Keyser, that's better together so the feedback has been good and we're going to continue to build on the <unk> track record in action will build trust.
Yeah got it. Thank you that's very helpful.
Our next question is from Georgetown and with Craig Hallum. Please proceed.
Thank you Rory as a longterm follower I would tell you. This turnaround has been fun to watch and I think your use of data to create some predictability is really creating renewed.
Renewed confidence in the story. So I think it's great I I had a quick question on Salesforce Dot com and and your ability to go to market with them on the <unk> side I know that's been an increased effort for you and and certainly an area of enthusiasm for US and then secondarily just the issue of the day Microsoft.
<unk> voice being added to their C cast platform any fox around that relative to your opportunity going through the Microsoft channel. Thank you.
Thanks, George Hey, I'll pitch it to to Steve for a quick comment on the data because one of the things that we really focused on over the past 18 months to give us instrumentation, we built invested into R. B I structure in our analytics capability and then steam just maybe a couple of sentences.
Is on the focus and that that all report something to you. So how are you feeling about our instrumentation and the analytics in terms of giving us that data to kind of really target in where the opportunities are.
Sure Thanks, Marie and George Thanks for the question.
When we take a look at how we're trying to really get underneath the diagnostics too where do we can P S and where it gives us the best opportunity to win since the business analytics teams business insight data all rose up to me. So I have one source of the truth, and we're really able to leverage that information, especially women.
Go take a look at the opportunities of the pipeline, how they're flowing through and really getting into the details around what allows us to win and quite frankly, the relationship with Salesforce. We continue to see strong opportunities in the pipeline and the wind rates continue to be really strong N. As we continue to.
When they pulled into more integration opportunities and that's really went to that more opportunities swing that we get as we're at the plate and we're we're we're connecting with the ball right now and we see that continuing its but is very mentioned earlier on it's really also about continue to add new teacher function in our product and Ian date and will.
Do you need to invest in that area to make sure we're building out that relationship.
Yeah, and I'll, just add a little bit it'll from Ah Ah Salesforce the top to top communications are strong the service cloud voice.
Really represents an interesting opportunity were clearly a leadership partner and that's I I I believe we have significantly more wins than anyone else in this space and that that pipeline is trending well.
So there's a lot of interest in that top to top conversation and we're building it through the team Yo J in Brea Brea, who runs are you gay partner activity. We're we're committed to this and we're going to build that out so good traction so far uhm, we'll add more feature and function I do think that.
Jump or AI capability again will help us in the U C. C C space as well so that's an interesting combination, but I'll, let <unk> expand on the M. S conversation. It's it's a half a billion seats out there you know I built mmm competed and work with Microsoft.
A off for 38 years in my career I heard so many times that they were gonna do this or take over that there's a huge opportunity out there they're they're just starting we have some really great products, okay, great great channel relationships and there's a half a billion Sikhs I mean, we have a really good opportunity part.
Dissipate in a significant way, we take every sitcom Petitor serious but our focus is on our customer and the opportunity. That's that's a big opportunity and we're gonna go get it thanks George.
Thank you.
Okay.
Our next question is from Ryan Mcwilliams with Barclays. Please proceed.
Next taking the question and Rory good to hear about your hands on and consistent approach the channel I know they love that so with net debt now I'd like to 0.3 times and down almost a full turn from last year, how should we think about M&A here I know you probably feel pretty good about your hand, but like how should we think about anything transformational on the horizon.
Sure, Thanks, Ryan and <unk>.
Great to have you back in a cold. So so always enjoy it hasty do you want to give your thoughts on how we improve the net that it's been a very impressive fiscal management, including the way, we're managing accounts receivable everything but what's your thoughts you want to add on that and I'll talk about mmm.
Sure and right. Thanks for the question, we've seen a strong progress as as far as collections and and again, it's really just been the team continuing to go after and we we've done a really nice job as a collection D being able to pay down the debt and it shows the operations are running smoothly.
There's always work to do it will continue to continue to drive and expand on that but we feel pretty good about where we are and Mac terms perspective, we're not extending any changing any new term. So we feel pretty good about where we are and then as they look forward will continue to continue to pay down the day as we report and then when we think about what that allows us to do.
It allows us to think about M&A in it as you kind of ask the question worry runs a very robust process around acquisitions looking for strategic plays within the marketplace and we feel we're in a pretty good place as far as the BCP business getting to profitability the continuing to utilize the cash from consumer.
And so when we're looking through the marketplace. We we are focused on key areas that will allow us to continue to build on that top line, but advance the strategy and the mission that we're on and again I think jumper AI is just one of the one of the first day, you'll see coming through the pipeline that we.
C O will really embed in the technology and help advance last one.
Thanks, Steve the thing I'd add here is the board and management are looking every day actively of how we can create value for our team members our customers and our shareholders.
We're always looking at how we can improve that and that's consistent and we're actively looking at that we have and we have a process that looks at 10, and 10 70, plus 75 target potential interesting asset.
You wanted to have a wide net but we're looking <unk> you don't have to spend a billion dollars to get really interesting capability jumper. A bias is a really good asset and you're gonna see us continue to look at that across the board, where there's definite technologies and skills that.
Make a difference that open up new margin open up new value that we can create with it and everything is focused around this communications engagement platform, where the market is going sure. You know, we always like a transformational pivots as well and this company has a long history.
<unk> working with the board to really do those kinds of things. So rest assured we're actively looking every single day at the ways to increase value for our shareholders for our team members and our customers. Thanks Ryan.
Thanks, and just one more on the API side, you mentioned your prepared remarks, and we picked up in our checks that some of your larger U C. C. C deals included Uhm API revenues or a P. I use cases alongside that do you think channel partner to becoming more comfortable selling API solutions on top of personal contact centre salute.
<unk> are you seeing more cross out there.
It is a great question Ryan by the way you know I.
<unk> the amount of discussion about a P. I N. My channel checks that I did over the past eight weeks was definitely increase from the previous two cycles, but I've done I do it about every quarter and a half to make sure that I got a feel for where that is there. The channel is definitely interested in adding.
Yet they see it as the customer sees it that a future proofs.
The opportunity again I think that's why this platform concept is a good one and I think whether it's the channel or are you see customer <unk>. We're at the beginning of that kind of integration, but I can tell you every orals every customer call, we make an I U C C C.
The a P I section, where we share our capabilities. There is probably one of the most well attended and the best interactions in terms of where they're interested in talking about because a P. I as in Composedly. If you guys are going to dominate the planet for the next.
357, 10 years, and so we're going to see more of it is still early but your right to feel that and we're seeing it. Thanks.
<unk> <unk>.
Our next question is from Andros King with Collier's. Please proceed.
Thanks for taking my question really nice.
Seeger accelerating in line quiet and laid out the analysts day give us an idea of how much of that acceleration is being driven by bundled versus Standalone contact center.
Sure. Thanks, Andrew Yeah.
The the momentum in the space. We played out I think the team has done a very nice job of understanding where where the product spit.
Still see the dominant volume in the pipeline and the closed deals being one or the other you see your C C. But we're clearly seeing more and more each quarter and particularly in the larger size deals. We've been seeing our biggest feels have a combined structure I think.
That's only going to continue to accelerate.
That combination is just a natural unnatural capability and often what we see it a customer engages that someone tower one product tower and then once they get into it they're like Oh. This makes a lotta sense, let's do bowls and I kind of highlighted a couple of that that that phenomenon.
And and that in the prepared remarks so.
We like that in 10 of the top 15 deals or and that combined space in the third quarter again up from a few quarters ago, where it was 315 and it's been on and kind of a nice steady trajectory. There. So we liked it in that business is on track to get two double digits. The cloud components already there. Thanks.
Andrew.
If I could just sneak one more quick one of their there's a free meaningful step down engineering development. This quarter could you just talk about what caused that and where do you see that going forward, especially with the acquisition of jumper AI.
Yeah, I like Steve comment, but it's basically go.
One time kind of bite them and some of the accounting, we're definitely and best thing and growing that you'll see 22, and 20, well 22 for sure the claims done but for sure twenty-three as well, we're gonna increase and have been increasing our development footprint. This as a software communicate.
<unk> cloud business the future is around product and innovation. So that's just the one time kind of blip based on some one time items, but it's really up until the right Steve any further thoughts.
No I think he hit on it right, where he will continue as we move forward to invest in a our engineering and development and it is a focus for us and we'll we'll continue to make investments as we report.
Great. Thank you.
Our final question is from Steve and there's with Keybanc capital markets. Please proceed.
Hi, This is George on for Steve Congrats on the quarter. Just wanted a quick one for me anything to call out from H P carrier fees on the messaging so I.
That's at in N out congrats again.
And Steve do you want to add any comment there I I have some quick thoughts on it but.
Yeah, No again, so George Thanks for the question stomach area <unk> perspective, no no change as we continue to to move to the quarter and obviously, we'll stay close it as it goes but as far as impacting any of our our guy we feel confident and kind of what the teams being able to deliver and then going forward when we take a look.
You know as we look at the growth from BCP on and go forward basis, continuing to C. A P. I at that midpoint of about a 37% growth. We're seeing that continue and you see see see and that I single digits. So oh, that's baked in as we continued to <unk>.
Expand on the rule of 40, as we talk about looking forward and baking in some of the seat it's really all about our progression and I think they go for it correct. We feel confident about where we're gonna end and we're looking forward to just closing out the year.
And thanks, Thanks, George I appreciate everyone time, we we definitely look forward to updating you on our progress and poor too we've got work to do so we're gonna get to it.
<unk>.
Pass it back to you Sherry. Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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