Venture Global Inc (VG) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vonage First Quarter 2017 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to Hunter Blankenbaker, Vice President, Investor Relations. Please begin.

Great. Thank you, Latoya. Good morning, everyone, and welcome to our first quarter 2017 earnings call. Speaking on the call this morning will be Alan Masarek, Chief Executive Officer; and Dave Pearson, CFO. Also joining us are Joe Redling, Chief Operating Officer; and Tony Jamous, President of Nexmo. Alan will discuss our strategy and first quarter results, and Dave will provide a more detailed view on our first quarter financial results. Slides that accompany today's discussion are available on the IR website. At the conclusion of our prepared remarks, we'll be happy to take your questions.

As referenced on Slide 2, 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 them. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available in the first quarter earnings press release or the first quarter earnings slides posted to the IR site.

And with that, I'd like to turn the call over to Alan.

Thanks, Hunter. Good morning. It's great to be with you to discuss our results and to update you on the progress we're making on our strategic priorities. We're off to a solid start in 2017. Consolidated revenue in the first quarter was $243 million, a 7% year-over-year increase and our eighth consecutive quarter of year-over-year consolidated revenue growth. More importantly, we have continued to execute on our plans to transform Vonage into a market-leading cloud communications company. Our strategy remains rooted in continued investment in Vonage Business to drive faster long-term growth. And we are continuing to leverage our strategic assets, strong brand and low-cost global network, along with strong cash flows from our consumer segment.

For 2017, let me review our 3 strategic priorities in UCaaS, and I'll follow later reviewing our priorities in CPaaS. Our first priority in UCaaS is to accelerate sales in the enterprise segment. Since the beginning of the year, we have made very strong progress in enterprise, having closed 4 UCaaS deals, which in aggregate represent more than $20 million in total contract value. Three of these 4 deals will each deliver more than $1 million in total contract value, while 1 deal will deliver greater than $10 million in total contract value.

Our second priority is to build out our multi-channel sales infrastructure to drive revenue growth. We are on track to open sales offices in 9 additional markets in 2017, bringing our total to 21 markets by end of the year. Of these 9 new markets, 7 are on the West Coast, 1 in the Midwest and 1 in the Southeast. We've already hired sales leadership in several of these markets, and these leaders are actively building out their teams. We're also seeing improvements in sales productivity across the board. And Kenny Wyatt, our new Chief Revenue Officer, has consolidated our UCaaS and CPaaS sales teams under his leadership to promote lead sharing and sales across teams.

Our third priority is to meaningfully strengthen our customer value proposition by integrating UCaaS and CPaaS. We are seeing significant improvements in our value proposition from this integration. In fact, our CPaaS solutions are profoundly changing the conversations we have with customers. The conversation has moved well beyond simply cloudifying the PBX or contact center. Now we show customers how Vonage's solutions can drive better business outcomes. It's a powerful combination to integrate UCaaS into other cloud-based workplace tools like CRM and productivity, and then link this to direct engagement with customers through CPaaS. In fact, this is what unified communications is all about. And while it's still early, the use cases are limitless, and it is fundamentally separating us from the competition. A great example of these benefits is the multimillion-dollar deal we signed recently with MedXM, a leading provider of preventive health care technology and health risk assessments.

With 5,000 medical staff personnel, MedXM uses advanced technology to drive improved patient outcomes. MedXM selected Vonage because our communications solutions are driving better business outcomes on their behalf. They are deploying Vonage Premier integrated with their G Suite, which is their productivity suite, as well as our advanced contact center powered by inContact. But most important to our win is that MedXM will use our CPaaS platform to better engage with their medical staff and patients by automatically sending appointment reminders, connecting a MedXM member seeking urgent care with a nearby physician in real time or with other solutions that connect doctors and patients.

Now with that as a backdrop, let's review our first quarter results in more detail. Total Vonage business Q1 revenue was $112 million, a 51% year-over-year increase. This quarter also proved out that large enterprises are seeing Vonage as their go-to partner to enable their move to cloud communications. So as I mentioned, we signed a deal with a total contract value of greater than $10 million in revenue. This customer is the largest residential real estate company in the United States.

They own and operate the best known residential real estate brands in the market. We are contracted to deploy our Vonage Premier UCaaS suite across 550 company-owned locations to at least 20,000 corporate seats. In addition, we're partnering with their corporate franchise team to offer Vonage services to their 4,000 franchisee offices in the United States. Vonage was selected for our mobile solution, our video conferencing and collaboration tools, and integration with Salesforce and Office 365. These services will be delivered with full QoS over Vonage's nationwide MPLS network as well as through our SmartWAN solution. The ability to provide QoS, coupled with real-time reporting and analytics, was critical to winning this RFP. And this was a highly competitive situation that included virtually all of the leading UCaaS and telco organizations as well as a detailed and lengthy pilot process. These large multimillion-dollar deals are complex, and they take significant time and corporate resources to close and deploy, but they carry significant contract and lifetime value. I'm very proud of our team for this win.

Other significant UCaaS wins include one of the largest radio broadcasting companies in the U.S., with more than 500-owned stations across the country and a large publicly traded restaurant chain with more than 550 locations. And for this restaurant chain, CPaaS was absolutely key to our win.

Finally, we continue to make progress on our strategic relationship with Amazon. We were already using Amazon Chime Pro as a lead generator for sales of Vonage Essentials to larger customers versus its traditional focus on the micro customer segment. And we continue to work towards the Q3 launch of Amazon's web properties as distribution channels for Vonage Essentials. Our products will be sold across amazon.com/business and the AWS marketplace.

Now let's turn to Nexmo, the Vonage API Platform, where the team delivered strong results. In Q1, Vonage API Platform revenues were $26 million, a 31% year-over-year pro forma increase. During the quarter, we saw solid traction with our new voice API, and we made excellent progress against our 3 key CPaaS initiatives. The first initiative was to build developer awareness, and we made solid progress building out this awareness. Our developer count increased 42,000 during the quarter. We now stand at 249,000 registered developers, and our growth has accelerated each quarter for 4 consecutive quarters. We are registering developers from all over the world and from companies large and small, spanning virtually every industry and vertical. This strong developer growth is critical to further developing the long tail revenue opportunity.

Our second key initiative is to expand the footprint and reach of our CPaaS sales force. We have meaningfully increased the size of our CPaaS sales force worldwide, and in particular, we've added more salespeople with voice expertise. We've also begun to efficiently use our 400 UCaaS salespeople to generate leads for their CPaaS colleagues. Later this year, we expect our UCaaS sales force to begin selling CPaaS products, serving as a significant force multiplier to our CPaaS sales teams. And while it's still early, results have been strong. Our U.S. sales pipeline has increased significantly, and first quarter U.S.-based revenue increased 40% from the prior year.

During the quarter, we also won some notable new accounts. We won Lyft, the second-largest ridesharing service in the U.S. Lyft selected Vonage to power real-time SMS communications. This was a competitive takeaway win, and our SMS API enables Lyft's more than 100,000 drivers to provide passenger updates and the ability for drivers and passengers to text each other without sharing personal phone numbers.

We also won Gett, which is Europe's #1 ridesharing and mobility service. Gett selected Nexmo to power voice communications for their mobile application, and we won their voice business from an established competitor because of our network quality. We continue to benefit from the massive growth of the ridesharing industry, as we now have relationships with Lyft, Gett, Uber and others, as they all seek better communication solutions to connect with their customers.

Also in the quarter, we expanded our partnership with Zoho by integrating Nexmo's voice APIs into the Zoho CRM platform. Users can make phone calls within the Zoho CRM, send customized voice calls through CRM workflows or set IVRs for outgoing and incoming calls. And finally, just last week, we went live with connectivity to Microsoft Flow and its automation suite. This opens up a large opportunity for developers to embed communications into applications built on Microsoft infrastructure, including Office 365 and Azure customer bases.

Our third initiative was to meaningfully add the utility and usability of our CPaaS products. And we've added features to our Number Insight API, to provide the full caller name for a person or business, and a major U.S. bank selected us for many use cases, including the ability to update their CRM database by validating the caller's name and phone number. We also added 40 carriers to our SMS network and 10 carriers to our international voice network.

In April, we added to our strong relationship with Amazon Web Services by integrating our API platform with WEX, Amazon's artificial intelligence service that powers Amazon Alexa. This integration gives developers an easy way to build custom bots driven by natural language understanding and to deliver those solutions through phone, text, app or mobile device.

So in closing, I'm really pleased with our results, and I'm encouraged by our progress. In only 3 years, we have built the largest revenue base in business cloud communications. And we've created a unique value proposition from the integration of UCaaS and CPaaS. We've demonstrated the power of our brand to efficiently move from its roots in residential to a leadership position in business. And now we've demonstrated the power of our products, our service delivery and our network infrastructure to win large enterprise customers across both UCaaS and CPaaS.

We have a clear strategy to become the differentiated leader in business cloud communications by using communications to deliver better business outcomes for our customers. This goes far beyond simply cloudifying the PBX or contact center. We are fundamentally delivering those better business outcomes.

Thank you all. And now I'm going to turn the call over to Dave to review our financial performance in more detail, and we'll take questions at the end.

Thanks, Alan, and good morning, everyone. I'm pleased to review our financial results for the first quarter of 2017.

As in the past, quarterly growth rates reflected in our presentation slides and during our prepared remarks are on a year-over-year basis, unless otherwise noted as sequential. With that, let's begin on Slide 9.

Consolidated revenue for the first quarter was $243 million, up $17 million or 7% due to the organic growth of our UCaaS business and the addition and subsequent growth of Nexmo. Business represented 46% of total revenue.

Moving to Slide 10. Now let me turn to our segment financial results for the first quarter, starting with Vonage Business, which consists of our UCaaS and CPaaS products. Vonage Business' total revenue was $112 million, a 51% increase. Of this, UCaaS revenue was $86 million and CPaaS was $26 million.

CPaaS continues to build momentum, as we saw strong April revenue that we believe will result in 2Q CPaaS year-over-year growth in the 40% area. As Alan noted, our strategy is to maximize the reach and growth of our business segment by selling a portfolio of UCaaS and CPaaS products through a common set of sales channels. We have a diverse group of business customers and low concentration risk with no 1 customer accounting for more than 3% of total business revenue.

Business service revenue, which includes all UCaaS and CPaaS revenue, grew 63% to $92 million. Service margin during the first quarter was 58%, down from 73% due to the addition of Nexmo. First quarter average UCaaS revenue per seat was $43.98, relatively flat versus $44.25 a year ago. Revenue churn was 1.4%, up from 1.3% in the year-ago quarter and flat sequentially. Vonage Business grew total seats to 659,000, up 16%, reflecting strong organic growth.

Before moving on to the consumer segment, I would like to discuss a small divestiture. Last week, we signed a definitive agreement to sell our hosted infrastructure services business to RapidScale, a national managed services provider. This business consists of a mixed portfolio of products, including Infrastructure as a Service, virtual desktop, hosted Microsoft Exchange and other managed services. We acquired this portfolio in the iCore acquisition, and after operating this business for the last 1.5 years, determined it is not core to our strategy of becoming the differentiated leader in business cloud communications. We believe this is the right move for Vonage and the customers of these services, as they will be transitioning to an at-scale, focused hosted services provider.

We expect to close this transaction at the end of May and anticipate a $4 million revenue impact in the remainder of 2017. A table showing revenue from the hosted infrastructure business over the last 5 quarters appears on Slide 15.

We have also included in this table onetime items we have referenced over the past 5 quarters, which, along with the hosted infrastructure numbers, facilitates pro forma analysis.

Total consumer revenue for the first quarter was $132 million, down 14%, consistent with our plans to increase investments in business as we continue to optimize consumer cash flows. Consumer service margin for the first quarter was 81%, flat from the prior year, reflecting our ability to hold margins stable, despite a declining top line. This speaks to the power of our common scaled network infrastructure that serves both our consumer and business segments. Consumer customer churn was 2.2%, flat sequentially and year-over-year. We are seeing early signs of churn and cost per ad improvements, as we focus our consumer marketing efforts solely on digital and inbound telesales.

Consumer average revenue per line in the first quarter was $26.10, down from $26.68 year-over-year, primarily due to lower USF, which is a pass-through. ARPU was flat sequentially, again demonstrating the quality of our tenured customers as they become a greater percentage of the installed base. We ended the quarter with $1.6 million consumer subscriber lines as planned.

Now moving to income statement cost items. Consolidated sales and marketing expense for the first quarter was $82 million, up from $80 million, reflecting significant investments in sales force headcount across all sales channels, offset by the much more efficient and lower allocated media spend in consumer. General and administrative expense for the first quarter was $35 million, up from $27 million, reflecting the addition of Nexmo G&A and acquisition-related costs in the form of vesting deal consideration paid to Nexmo's senior management.

Turning ahead to Slide 12, first quarter adjusted OIBDA was $37 million, down $5 million. The decrease in adjusted OIBDA is primarily due to investments to accelerate product development and sales infrastructure in CPaaS. And we plan to continue to invest at this pace, if we continue to see the advantageous market conditions and opportunities we see today. Adjusted net income for the quarter was $15 million or $0.07 per share, up $3 million. Adjusted net income benefited from a mandated accounting change that resulted in a $5 million net tax benefit. The adjusted net income metric removes noncash items such as amortization of intangibles from acquired companies and other acquisition-related items. We also recorded an adjustment to income taxes related to these exclusions.

Moving to Slide 13. CapEx for the quarter, including the acquisition and development of software assets, was $7 million, down from $11 million in the prior year, given that last year we were executing a major data center consolidation that is now complete. Adjusted OIBDA minus capital expenditures was $30 million, down $1 million, highlighting the strong cash flow generation of our business. Free cash flow, which we define as net cash provided by operating activities, minus capital expenditures and acquisition and development of software assets, was $10 million, up $4 million due to the lower CapEx spend. We continue to use our strong cash flow generation to return value to shareholders through opportunistic share repurchases. In the first quarter, we bought back $10 million of stock or 1.6 million shares at an average price of $5.95 per share. Since beginning the repurchase of stock in August 2012, we have bought back 57 million shares of Vonage stock for $191 million at the highly accretive average price of $3.33. Moreover, our share count is lower now than it was when the program started, meaning that we more than offset 5 years of employee share issuance and 4 acquisitions that included the issuance of stock. Our buyback continues to be one of the components of our capital allocation plan to be deployed at management's discretion.

Cash, cash equivalents and marketable securities as of March 31 were $28 million, including $2 million in restricted cash. Net debt was $306 million, and we ended the quarter with net debt to trailing adjusted OIBDA of 2x. In addition to the significant repurchase of stock, the first quarter is our heaviest draw as we pay out cash bonuses in February.

Our liquidity and strategic flexibility remain high through the $450 million credit facility we put in place in mid-2016.

With regard to guidance, we are adjusting our revenue expectations only to reflect the impact of the hosted infrastructure services divestiture. We now expect 2017 business revenue, which includes both UCaaS and CPaaS, to be in the range of $483 million to $489 million. Corresponding total revenue guidance, likewise, adjusted to between $966 million and $981 million. Both of these numbers mathematically remove from prior guidance approximately $4 million of anticipated revenue from the divested hosted infrastructure business for the period from June through December.

That concludes my prepared remarks. I will now turn the call over to Hunter to initiate the Q&A.

Great. Thank you, Dave. And Latoya, let's please turn it over to the Q&A session.

(Operator Instructions) The first question is from George Sutton of Craig-Hallum.

Congratulations on the 4 large deals. I'm trying to understand, given you're somewhat unusual in that you have a large direct sales force and use the channel, where are these deals coming from, from the perspective of the customer segment?

Thanks, George. Let me have Joe answer that.

George, it's a mix. I think the large deal Alan referred to really came from a consultant process, where these large companies actually have consultants that help them with the RFPs. So that was kind of directly came out of our enterprise group and direct field sales, our direct selling effort. Others came from the channel. So it's a mix. So we're seeing a lot of traction throughout both our direct sales efforts and indirect.

Super. On the ridesharing side, very interesting that you picked up Lyft, very interesting that you picked up Gett. Obviously, Twilio has had some issues with their relationship with Uber. I know they're a customer of yours as well. Can you talk about any changes there? And what's causing you to be so successful in that specific category?

I think our success in the category is not unique. They are just high-profile customers. We're seeing success across a variety of categories. They happen to be big users of CPaaS types of solutions. Obviously, big wins with Lyft and Gett, ongoing relationships with Uber and several others that we're beginning to see the green shoots of how it expands beyond -- expands to greater number of countries and then adding voice to what we did in the past with SMS. But the nice thing is we still sit with virtually no customer concentration issues, as it relates to these ridesharing companies or anyone else.

The next question is from Dmitry Netis of William Blair.

A clarification on the financial side of things and then more of a broader general question on your business. On the OIBDA, you came in pretty much in line with last quarter. I didn't hear you talk about what it will look like for the year. I think the last time, you said at least $165 million. So I'm just curious if you're reiterating that guide or not? And then it does imply a pretty steep ramp in the second half of the year, given you did $37 million in March. How are you thinking about that ramp? Basically I mean I would suppose that, that also implies you will be breakeven in your UCaaS business. So whether that's on track or not, also, I would like you to comment on that.

Sure. Thanks, Dmitry. It's Dave. The only change in guidance is the math of taking out the hosted infrastructure business and the impact that has on business revenue and corresponding total revenue. I think it's too early in the year to address the other aspects of guidance, whether it's OIBDA or anything outside of the hosted infrastructure services. Clearly the $37 million, which we also did last quarter, is based on heavy investment in both UCaaS and CPaaS. And I said in my comments that if we continue to see the market conditions and the opportunity that we're seeing on CPaaS, we're going to be very hard on the gas. So that would put us -- if we saw it that way for the rest of the year, there would continue to be a drag on OIBDA. But that is -- that's really about what we're seeing and how quickly we make these investments in new products and new sales infrastructure and how that moves through the year.

Okay. Great. And then I was wondering if you can comment on the UCaaS side, Alan. As far as last quarter, you were talking about the bookings growth in that business being a tad above kind of the full year revenue service -- revenue guidance that you gave. So is that still on track? Are you feeling incrementally more bullish now that you landed these 4 big deals? Because last time, it was above by maybe 100, 200 basis points. Is it still the case? Or is it better now, given these deals?

So thanks, Dmitry. So we are feeling increasingly confident about the bookings growth through the year and how that has the opportunity to accelerate revenue growth really next year. The macro point, as we talk about a lot, is that we've built so much of this infrastructure, whether it's sales infrastructure, geographically or number of salespeople, relationships with channel partners and now most recently even levered distribution models with Amazon and such that won't kick in until the second half of the year, those are taking foot. And you see those with these big deals that we've signed. They take a long time to, one, secure and then, two, deploy. But all those are demonstrating the green shoots that are propelling us as we go through the year. And that's why we are increasingly bullish about our performance just based upon those examples that I cited and Dave cited in our prepared comments.

Okay, very well. And I guess, I heard you say on the big deals, there was multimillion-dollar contract value. Could you mind repeating what that contract value -- lifetime contract value is? I'm not sure I caught that.

So we said of the 4 large deals, 1 was greater than $10 million in TCV and the other 3 were greater than $1 million. So they were each 7 figures and the 1 large deal was 8 figures. In aggregate, those 4 deals represent $20 million -- more than $20 million in total contract value revenues.

Okay. Very well, very well. If I could squeeze one last one here on Amazon. We did see pretty interesting advertising early in this year in the March time frame of your sort of Chime's Vonage relationship there. It does look like the product isn't ready yet, given what you had just said on your slides. It says late Q2 launch. So I was just wondering is that kind of in anticipation you're just building a brand related to this partnership? And once the product's available, you're going to hit the ground running? How you feel about kind of where you are in your ability to sell and bundle Chime? And whether you also weighed kind of the Amazon side of things, when they are ready to kind of put that on their portal and kind of hit the ground running? So I guess you're approaching it from both sides of the coin here, but which one will be kind of faster to get to market? Are they going to come out at about at the same time? Just a little bit of color on how you go to market once the product kind of launches late Q2.

Right. So as you stated in your question, there are 2 sides to this transaction or this relationship with Amazon. One is our access to the product, to Amazon Chime and Amazon Chime Pro. We have that now, and we're using that for lead generation to larger customers than what we typically sold Vonage Essentials into. That's already happening, and that's the advertising campaign you've seen on television. By the end of this quarter -- by the end of Q2, the ability to deploy that ever more seamlessly will be done on the product side. On the distribution side of the relationship, where Amazon will actually be selling Vonage Essentials on their web properties, which is amazon.com/business and the AWS marketplace, that will happen in Q3. So you have to remember there's 2 sides of this.

(Operator Instructions) The next question is from Rich Valera of Needham & Company.

I was hoping you could provide a little more color on the acceleration you're seeing in the CPaaS business going into Q2, kind of what's driving that. Is it VAPI? Any particular kind of verticals? Or any color you could give there would be helpful.

Yes, it really is -- it goes back to the comments that Alan made about ridesharing as well as voice. It's -- and those are the areas, the strongest areas. We, however, have just seen across the complex, across the customer set. So it has not been disproportionate, but those are the 2 strongest areas. Like, as we go through the year, we expect that voice will be a greater and greater part of the percentage of the growth, and that is a difference that we saw in April relative to earlier in the year.

Rich, let me just add -- this is Alan. I'll add a point on that. The game plan to accelerate CPaaS is just a few key initiatives. One, you want to build the long tail. And so I commented on the growth in registered developers, which now has doubled since we announced the deal. That's an important element. The other then is expanding the sales force itself for CPaaS, which we've done on a worldwide basis, and concurrent with that, use the UCaaS sales force, which is 400 strong, as a -- think of them as a force multiplier for the CPaaS sales force. On top of those 2, you add a whole new product category, voice, and really a whole new geography, the United States. We're executing on each of those elements, so it's across the board, which is driving that acceleration.

Got it. And just wanted one more question, if I could, just on the sort of synergy between the UCaaS and CPaaS. MedMX (sic) [MedXM] seems like a great sort of testament to that potential. Just wondering if you could give us any sense of the kind of pipeline of those types of deals that you see out there to potentially sell both sides of the product portfolio there?

I will tell you that in every one of our customer discussions, the fact that we can provide these better business outcomes via CPaaS is profoundly changing that conversation with the customer. In the final days before we closed MedXM, I was having direct conversations with their CEO, specifically about CPaaS use cases, in terms of how it drives better business outcomes for them. In every one of those situations, large deals and the vast majority of midsize and many small deals, we're going against a competitor in the core UCaaS side. What's winning the day is, obviously, having excellence in the UCaaS solution, but what's separating us from the pack is the ability to communicate a CPaaS solution, which again is there to drive the better business outcomes. We have grown up in UCaaS, here in the last several years, thinking that UCaaS is synonymous with cloudifying the PBX and the contact center. It's much, much more than that. It's about using communications to embed into those workflow apps, business processes, mobile apps and the like to produce better business outcomes. And there is example after example where it's working. So that's just the net of it.

The next question is from Catharine Trebnick of Dougherty.

Alan and Dave, either one of you, it doesn't seem like -- you have heavy emphasis on CPaaS, congratulations, but quick question on UCaaS. Are you reaffirming your 15% year-over-year growth rate, because it looks like you're taking $4 million out of end of the year? And can you give some color around what you expect the UCaaS growth rate to be? Sounds like you have some good opportunities. I'd just like to work on my -- tweak my model.

Sure. Our guidance is only changing by the $4 million that we would have gotten from the hosted infrastructure business from June 1 through December 1. So it's literally just math. The rest of our guidance remains the same. The guidance that we gave on UCaaS was a mid-teens growth rate, and that continues to be the pro forma growth rate that we expect to see.

All right. And quick question, any color on the difference of how well the SMB segment is doing compared to the large enterprise, just between Essentials and Premier? Approximately, is it 50% Essentials, 50% on a revenue basis? And then which group do you think is really growing faster?

That continues to be the split. Essentials is a bit -- continues to be a bit bigger in the low to mid-50s with Premier being the complement. I think we've commented before on the fact that the growth rate in the lower end of the market is still attractive. But it's been slowing. We're executing a build-out of this portfolio and infrastructure to be a very strong player upmarket. I think we continue to be a bit less mature than some of our competitors there, so we're not yet capturing all the growth in the upmarket. But the investments that we're making we expect will fully do that. And that represents the bookings growth and ultimately the revenue growth that we expect to see and that Alan commented on.

And the next question is from Greg Burns of Sidoti & Company.

I just wanted to get a little bit of clarification on the customer concentration on the business segment. If we look at the CPaaS individually or on its own, do you have any customer concentration within that revenue base? And when you look at your customers, how much revenue or how many customers do you think have the wherewithal to do what an Uber is doing, [stool] or multisourcing CPaaS offerings? Like, how much revenue do you have that could potentially be at risk for something like that?

Greg, let me ask Dave to take the first part on customer concentration and CPaaS, and I'll take the second.

Yes, so the way -- as I mentioned in my prepared remarks, the way we think about concentration is as a whole. And we talked about having our largest customer in the business complex be roughly 3% of revenue. That is a UCaaS customer. As it relates to the whole, just to give you a sense of size, our single largest CPaaS customer represents 1% of our business revenue. And so obviously, if you looked at -- just at CPaaS, it'd be a slightly higher percent, but still single digits and not high single digits. So we feel very good about that and the fact that we're not exposed. Just to give you a sense, if you thought about our top 10 CPaaS customers today, Uber is not one of our top 10 CPaaS customers, just to comment on that specific exposure and that specific opportunity.

And relative, Greg, to your question about how many customers can -- as you said, sort of pull an Uber and do this in a multisourced dynamic trading way, the answer is that there are probably a couple of dozen that we see out there that act in that way where they want to move traffic country-by-country or mode-by-mode, so text versus voice. But the key thing to think about is the -- to win in CPaaS is not predicated on an Uber, an Airbnb and Snap and these very, very -- WhatsApp, these very, very large initial users of CPaaS. The key to winning is to build the very long tail, because having thousands of customers with a few thousand dollars a month of sales is better than having a handful of these multimillion-dollar customers who have the ability to, as you say, pull an Uber and run this like a dynamic trading environment where they've got great price sensitivity and they move traffic largely based upon price. So you've got to build this business on both ends of the tail, the long tail and doing smart value-added things with these enterprise customers. And that's exactly what we're trying to execute on.

And the next question is from Mike Latimore of Northland.

Congratulations on those enterprise wins. How many enterprise or 7-figure deals did you have in all of 2016, just for comparison's sake?

It's Alan. So I have to look up the number. I don't know exactly the number off the top of my head. What we're seeing just, as Dave said, is our ability in enterprise is increasing dramatically. So again, take a step back. We started with Vonage Essentials, the former Vocalocity, going after the micro segment 3.5 years ago. Then beginning just little over 2 years ago, we acquired through the acquisitions of Telesphere, followed by SimpleSignal and iCore, the ability to serve the upmarket business, both mid-market and now large enterprise, and we have been building the infrastructure, sales, service delivery, network and so on, in order to deliver that. The companies that we acquired each had large businesses in their -- large enterprise customers within their stable, and those continue to today. We now in the new Vonage, where we provide this -- where we brought all the pieces together and added a great deal of resources, are now hitting our stride where we've, again, knocked down since the beginning of year these 4 very large deals with a very healthy pipeline of more to come.

Great. And then in terms of the CPaaS, you talked about CPaaS acceleration and you highlighted voice a few times there. I mean, as you look at the kind of revenue composition or bookings composition in CPaaS, how important is voice this year? Is it going to be single-digit percent of revenue and bookings? Or how should we think about the voice just generally on the CPaaS side?

So voice is -- this is Alan again. Voice is very important to the growth in CPaaS. So if you recall, last year, Nexmo did $92 million in revenue. Within that revenue, 90% was SMS. Only 10% was voice. And 94% of its traffic terminated outside the United States. So the growth is -- or sort of, as I said before to an earlier question, the game plan for growth is to build the long tail and build the sales force, while concurrently adding voice as a meaningful element of the mix and then extending to the United States as a region that really was underserved by Nexmo, because its focus was outside of the United States. That's what we are executing on. The beauty about voice in the United States for us is that by pairing Nexmo's -- the programmable API layer, what we call VAPI, the voice API, with our network in the U.S., we know empirically we can deliver higher voice quality than our competitors. And because we have the direct peering relationships with the carriers in the United States -- again, goes back to the power of the residential business with those 15 billion minutes of calls that we terminate annually -- and the fact that we own our own phone numbers, we can do voice in the United States at very, very high margins. So the opportunity for us to grow the top line and grow the bottom line has a lot to do with how we build voice in the United States.

The next question is from Will Power at Baird.

Congratulations on the real estate win. I wonder if you could just kind of walk us through -- you talked about that being a very competitive process. Looking back, what were some of the key differentiators that helped you win that? And then I'm just curious if there are any CPaaS opportunities for that win?

I'll take the first part of it, Will. So yes, it was a very involved process. I think there was 100 providers early on in the process, and a lot of the competitors fell off very quickly. What you see -- the advantages we bring to the table is really QoS, right? I think when you get to this level of enterprise, the level of SLAs that are required are very stringent, and you have to have the capabilities in your infrastructure and your network with QoS. This one particular deal, as Alan pointed out, literally includes both our MPLS network and SmartWAN. So QoS was a key driver as well as the ability to scale this many locations with this type of deployment. It's very complex. The third piece was really reporting and analytics, right? These are very sophisticated companies, so we expect a high level of monitoring and a proactive approach for after-sales. So I think when you add those things together, we were in a very good position to drive this sale. So those were the 3 key components.

And let me ask Tony to jump in on the CPaaS side, because there's active discussions underway right now on extending CPaaS solutions into this customer.

Yes, thanks, Alan. So in the real estate segment, in general, we see interesting potential for CPaaS, because if you think of it, you have the customer and the agent communication and you have the agent and the headquarter communication. And a lot of these real estate companies, they need to transform to become more software company. They need to add more agility. And they don't need necessarily to buy pure software here, but they want to integrate that software. They want to build it, and they want to actually control it. And this is where we see the opportunity. CPaaS is enabling this company to transform themselves and improve the customer experience, the agent experience in the real estate.

Okay. That makes sense. And then I guess just the second question. You look at use of cash from here. You bought back $10 million of stock. How should we think about appetite for buying back more stock versus looking at additional M&A? And I guess, just generally speaking, how do you think about your appetite for further M&A, probably, I assume, on the UCaaS side, but how are you looking at that?

Yes, so we're right on pace, actually a little bit ahead of pace on our $100 million 4-year authorization, and we intend to fulfill that authorization. We've got about -- we got 7 quarters left to go on that. And given the history and the liquidity, we expect to finish that out. As it relates to M&A and just being generally flexible, I'd say that is our highest financial priority, being strategically flexible. We continue to see small and medium-size roll-up type opportunities, and those are getting more attractive over time in terms of price. I think we're just trying to balance that against potential industry consolidation, where we believe we have a pretty interesting competitive advantage because of our size and because of our balance sheet and because of our cash flow generation. So being flexible for the right opportunity there, I think, within M&A is our highest priority. And then secondarily would be a continuation of smaller consolidation or roll-up opportunities.

Okay. Maybe if I could just sneak one more in, just maybe a follow-up for Tony. I know there's been some questions and probably some concerns with respect to CPaaS competition, what might be evolving on that front. I mean, your numbers suggest [in some respects] otherwise and you're seeing good traction. But I wonder if you could just speak to what you're seeing competitively. Have there been any sea change events? Are you seeing more players in the marketplace? Just any further color there would be helpful.

Sure. So we see more players branding themselves as CPaaS. But when you look deeper, we don't have any concerns, because, as you recall, a CPaaS is more than just API. It's a full platform that comes with developer tools, with algorithm that manage all the other network and higher level of enterprise capabilities that takes years to develop. So we see increasingly the term CPaaS being used, which is great traction for our category, but we don't feel any concerns about major competition entering the market at this stage.

The next question is from Robert Routh of FBN Securities.

First, I was curious if you could give us an update as to your tax NOLs, what the size of them is and what you think you might do with them, especially given talk about them changing the corporate tax rate. Even if you do have sizable federal tax NOLs, it would seem that maybe finding a company that generates real -- a lot of operating income now and being able to offset their future income with your NOLs before the laws change might make a lot of sense. I'm wondering if you could talk a little bit how you think about that?

Sure. Our current tax NOL is $575 million. So it's sizable, and it's a strategic asset for us. We do believe that we are consuming it, and we expect to fully consume it over the coming years, particularly as we generate significant amount of allocated cash flow from the consumer business. So we're definitely open to different ideas, and clearly, we're tracking very closely any changes in the tax rate. But right now, the thought is just to continue to consume it at whatever the rate is. And given the cash flow generation, that's going to happen in due course.

Okay. Great. And just one follow-up. Given your success now with the Lyfts, and obviously, you have Gett and the Uber relationship, if you would -- what would your dream industry or client be, if you don't mind mentioning a few, in terms of areas where you're not yet that you think that given your size now and what you've done and kind of the endorsements you've had, that you'd like to be in? Is there any industry that you don't yet have a presence in or any particular client where you think it would just be Vonage's dream client to land?

Let me turn it over to Tony to answer. I'll just comment ahead of time is, the way to think about CPaaS is where can communications make an underlying business process or an app or a website just better, and it's everywhere, is the simple answer. But I'll let Tony answer about if there's a dream industry.

Yes, there's always a dream industry. But essentially this market has started by early adopters. And these were the lighthouse account that we talk about (inaudible) the Uber, the Airbnb, the Snapchat of the world. But what we see is an acceleration of the, we'll call it, early majority. These are adjunct enterprises that want to transform themselves to become more software company, and they want to do that to improve the user experience, to create a differentiated user experience and create new market. So the industry that we would like to go more into are the industry that are mostly affected by the digital transformation. So think about retail being disrupted by Amazon, think about transportation being disrupted by Uber, or think about even financial services as being disrupted by new peer-to-peer lending companies. So these are the segments that we would like to penetrate more and see more acceleration of these early majority adopting CPaaS. For 2 reason: One is because each one of these enterprises, there is a lot of use cases in them. So when you enter that enterprise, you can sell to multiple department. And secondly is because, as Alan mentioned, one of our objectives is to build the long tail and we want increasingly customers that are spending a significant amount of revenue, but compared to their overall size, it is a relatively small spend. That's kind of where we focus on, and we hope that, that early majority segment accelerates the adoption as we move forward.

And at this time, I'd like to hand the call back over to Hunter for closing remarks.

Great, thanks, Latoya. And that wraps up the Q&A portion of today's call. We look forward to seeing many of you in the coming months at various investor conferences. And for those unable to attend in person, these events will be webcast, and you can follow our comments at the Vonage Investor Relations site. Please contact us if you need any additional details. And thanks again for joining.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.