Venture Global Inc (VG) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Vonage Holdings Corp. Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) And please note that today's event is being recorded.

I would now like to turn the conference over to Hunter Blankenbaker, Vice President of Investor Relations. Please go ahead.

Okay, great. Thanks, William, and good morning and welcome to our third quarter 2018 earnings conference call. Speaking on our call this morning is Alan Masarek, Chief Executive Officer; and Dave Pearson, CFO. Also joining us is Kenny Wyatt, our Chief Revenue Officer; Omar Javaid, our Chief Product Officer; and Dennis Fois, our CEO of NewVoiceMedia.

Alan will discuss our strategy and third quarter results, and Dave will provide a more detailed view on our third quarter results and updated guidance. Slides that accompany today's discussion are available on the IR website. At the conclusion of our prepared remarks, we'll be happy to take your questions.

As referenced on Slide 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 those 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 third quarter earnings press release or the third quarter earnings slides, which are posted on the IR website.

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

Thanks, Hunter. Good morning, and thank you for joining us. Vonage delivered another quarter of strong business growth. Total business revenues were $154 million and comprised 59% of total revenues. Of this, business service revenues grew 23%. Consolidated revenues were $262 million, and adjusted OIBDA was $50 million, and adjusted OIBDA minus CapEx was $45 million.

I'll start my comments this morning by reiterating our strategic vision. Simply stated, we believe that by creating fully programmable communications solutions, we can drive better business outcomes for our customers. We are executing this strategy via acquisitions of technology-rich cloud communications companies, including Nexmo, TokBox and now NewVoiceMedia, coupled with fast follow-on organic development.

As a result of our efforts, we believe we have created the world's most differentiated cloud communications company that can provide solutions for all of a company's communications needs and addresses the entirety of the cloud communications TAM. And in doing so, we are helping define programmable communications as a new communications category.

Central to our strategy, we are creating a single microservices-architected software platform, or OneVonage. The OneVonage platform combines Vonage Business Cloud, our proprietary UCaaS platform, with the technology stacks of Nexmo and TokBox. And in the future, OneVonage will also include NewVoiceMedia's contact center functionality.

With OneVonage, we will provide integrated communications solutions, all fully programmable, that range from established use case applications, like contact center, hosted PBX, collaboration and team messaging, all the way through programmable communication APIs.

From the OneVonage platform, our solutions will seamlessly integrate customer communications with a company's employee communications and workflow tools. The need for an integrated communications experience is critical as businesses undergo digital transformation. That is, deep integration between business applications and enterprise communication tools is necessary to improve the customer's experience and, therefore, deliver those better business outcomes.

Vonage is building these integrated solutions, and our solution set is the essence of programmable communications. In fact, we believe programmable communications are rooted in every business's need to improve how they communicate with their customers. Each interaction a customer has with a business shapes that customer's experience.

Businesses are under intense pressure to improve customer engagement, and customers want to interact with brands through their preferred mode of communication, and they want those interactions to be integrated, whether it's voice, SMS messaging, through a brand's mobile app, over the Web, through an IVR, or even through the major chat apps, like Facebook Messenger, WeChat and WhatsApp.

So this need for an integrated communications experience is the reason why acquiring NewVoiceMedia is so important. NewVoiceMedia is a cloud-based contact center solution that's distinguished by its CRM-focused go-to-market approach. NewVoiceMedia is integrated with leading CRMs, with a particularly deep integration with Salesforce. By integrating tightly with CRMs, NewVoiceMedia delivers better omnichannel interactions and robust analytics and data capture.

We plan to integrate NewVoiceMedia's cloud contact center solutions with our Vonage Business Cloud platform, as well as to capitalize on the improved functionality that CPaaS naturally brings to contact center solutions.

Now, with NewVoiceMedia, Vonage is the only cloud communications company that can combine deep CRM integrations with the full range of programmable communications used by a business for its employees and its customers. This will be a powerful combination, because it creates an integrated customer experience across multiple communication channels. It can increase sales conversion on the front end and improve customer satisfaction on the back end.

So with that as a strategic review, as a backdrop, I will highlight the progress we're making in 2 critical areas. The first is the development of our OneVonage technology platform, and the second is our sales and marketing execution, which continues to improve.

Regarding the first initiative, we are making strong progress developing the OneVonage platform. Our development efforts are focused on the continued integration of Nexmo, TokBox and Vonage Business Cloud, with NewVoiceMedia to come, while concurrently improving their individual functionality.

Let me highlight 2 important development efforts. First, we are integrating Nexmo functionality more tightly with Vonage Business Cloud. We are using our messages API to significantly improve Vonage Business Cloud's Business Inbox functionality. With Business Inbox, phone numbers are programmable, and as such, developers can use our APIs to program innovative solutions for that phone number.

So for example, with Business Inbox, employees will soon only need a single phone number, and customers can contact that employee in the communication mode of their choice, in the customer's choice. This means that customers can call that number, text that number, fax that number, or even reach that number from within a social media platform. By making phone numbers programmable, we improve customer engagement and drive better business outcomes.

Second, we are converting Vonage Business Cloud's video-conferencing solution from Amazon Chime to TokBox's video API. This will provide an improved video experience and also enhance gross margins by leveraging our own technology.

Our development efforts are being recognized for technology leadership by top industry analysts. We recently earned Frost & Sullivan's 2018 Competitive Strategy Innovation and Leadership Award for our ability to deliver UCaaS, CPaaS and CCaaS via our programmable communications platform. And our Vonage Business Cloud platform won gold at the Golden Bridge Awards for Most Innovative Product.

The second major initiative relates to improvements in our sales and marketing execution. During the quarter, we continued investing in sales, marketing and indirect channel initiatives, and as a result, we are seeing good increases in sales productivity across our routes to market, as well as solid progress selling up-market businesses.

For example, within the enterprise category, we closed on 4 new 7-figure deals with total contract values, again, greater than $1 million. All 4 of those deals included Advanced Contact Center. This is significant, because contact center drives higher MRR and, therefore, greater revenues. In these 4 enterprise deals, contact center increased contract value by 1/3. And it also highlights that contact center and UC are increasingly being purchased together, further validating our acquisition of NewVoiceMedia.

During the quarter, we closed on 18 deals with greater than $10,000 in MRR. And within the smaller business segment, we increased bookings by 65% from customers with greater than $1,000 MRR. And across all routes to market, bookings for Advanced Contact Center increased 5-fold in the third quarter over the year-ago quarter.

Within indirect channels, our momentum is very strong. Bookings from the master agent channel increased more than 40%, and our pipeline is at record levels. And even more significant, average deal size more than tripled.

Also, more than 100 partners have joined Nexmo Connect. These include Microsoft, Facebook, MuleSoft, Built.io and Aspect Software. These partners are creating compelling solutions for their enterprise customers. As 1 example, UniTalk, a cloud solutions company that helps enterprises embed programmable communications into their apps, is leveraging our SMS, voice and video APIs to provide real-time conversational business solutions for their clients.

The acquisition of NewVoiceMedia also provides opportunity to accelerate revenue growth. We will leverage our combined distribution channels and combined customers to pursue cross-sell opportunities. We'll also work closely with NewVoiceMedia to expand its already highly strategic go-to-market relationship with Salesforce.com.

Our land and expand sales model continues to drive results. Revenues from new CPaaS customers added in the year-ago quarter increased 8-fold this quarter. Also, our developer community continues to grow quickly, and it remains a critical part of our go-to-market strategy. We ended the quarter with 696,000 developers registered on our platform.

And, finally, we bolstered our leadership team by adding 3 highly accomplished executives. Rishi Dave joined us as Chief Marketing Officer, and Rishi will drive Vonage's repositioning as a cloud communications platform company. Sanjay Macwan joined as SVP of Enterprise Engineering and Networks, and he's focusing on the continued development of our enterprise-scale software and our communications infrastructure.

And then Dennis Fois, who's joined us on the call today, CEO of NewVoiceMedia. He will stay, as will his entire team, leading our Advanced Contact Center efforts. And regarding Dennis and his team, we're delighted to welcome all 430 NewVoiceMedia team members to Vonage. Their team includes a global enterprise sales force with significant understanding of CRM, as well as a product and engineering team over 100 strong. We're delighted that they're joining us.

To summarize, these are very exciting times at Vonage. We have made substantial progress, and I'm proud of our team's performance. We have the right technologies, products, partners and people to execute on our strategy. We've created a new focus around programmable communications.

And in fact, we believe that the fragmented view of the communications market, in which companies are categorized as UCaaS, CCaaS or CPaaS players, leads to alphabet soup lines of demarcation that are out of touch with the future of communications. And this is why we consider our cloud communications offerings as an aggregate product line versus breaking them into separate as-a-service businesses.

Said differently, Vonage is building solutions that address myriad uses cases for the entire communications market TAM. We address the broad categories of buyers, who each present with different needs, whether it's the IT buyer seeking to modernize infrastructure and move to cloud-based solutions, or the software developer seeking to program communications into existing solutions to make those solutions better, or the business buyer seeking to improve engagement with customers and to improve satisfaction for both customers and employees. With our increasingly integrated solutions, Vonage is addressing all of these buying categories, and we believe our approach is the future of communications.

I'll now turn the call over to Dave for a review of our financial results.

Thanks, Alan, and good morning, everyone. I'm pleased to review our financial results for the third quarter of 2018 and update guidance for the acquisition of NewVoiceMedia. As in the past, quarterly growth rates reflected in the presentation slides and during my prepared remarks are on a year-over-year basis, unless otherwise noted as sequential.

Starting on Slide 7, consolidated revenues for the third quarter were $262 million, up $8 million, or 3%. With business accounting for 59% of total revenues this quarter and growing significantly faster than consumer's declining, we will continue to see accelerating consolidated growth rates.

Consolidated gross margins improved to 60% due to continued improvement in margins across all of our services, partially offset by the changing mix of services. This gross margin result is despite the trend I discussed on last quarter's call of turning the CapEx that used to be spent in data centers into OpEx in the form of AWS cloud expense.

Moving to Slide 8. Let me now turn to our segment financial results. Vonage business total revenue was $154 million, a 19% GAAP increase. Within this, business service revenue grew 23%.

I will now discuss some of the puts and takes that impacted business revenue. I the quarter, we reduced access revenues, consistent with our plan to book and migrate certain customers onto VBC and deploy SmartWAN more widely; changed an accounting estimate relating to UCaaS customer deferred revenue, lowering revenue by $400,000; added 2 months of TokBox revenue; dropped several CPaaS customers who did not meet our increasing margin threshold; and experienced negative currency translation impact.

Overall, business service margin for the third quarter was 55%, in line with the prior year and up over 2 percentage points sequentially, again reflecting higher margin across all services and lower credits, offset by mix and CapEx-to-OpEx substitution.

Turning to Page 9. Third quarter business service revenue per customer was $362, a 12% increase from $324 a year ago, reflecting our successful efforts to move up-market. Third quarter business revenue churn declined to 1.1%, driven by significantly lower churn on our cloud-architected VBC platform. This is equal to the lowest business revenue churn we have ever reported.

Moving to Slide 10. Consumer revenue for the third quarter was $108 million, down 13%. Consumer customer churn was 1.8%, down from 1.9%. Tenured customers, who we define as being with us for 2 or more years, now represent 85% of the customer base. To parse that further, customers that have been with us for more than 5 years now represent over 60% of the base. We ended the quarter with 1.3 million consumer subscriber lines. Average revenue per line was $26.30, up $0.01, or roughly flat to the year-ago quarter, and again representing the stability of the base.

Consumer service margin for the quarter was 89%, up from 83%, largely due to lower international and domestic termination rates and the allocation of certain shared network costs to business as that revenue becomes a greater proportion of the whole.

Now moving to notable income statement cost items on Page 11. Consolidated sales and marketing expense for the third quarter was $74 million, up $1 million. This is the result of the benefits of ASC 606 deferrals being offset by increased sales spend. Engineering and development costs were $14 million, a 106% increase, reflecting the significant investments we are making in our VBC platform and the addition of TokBox.

General and administrative expense for the third quarter was $38 million, up $11 million. The main difference is the addition of 2 months of TokBox and higher financing and acquisition costs related to both TokBox and NewVoiceMedia.

GAAP net income of $10 million was down roughly $1 million, and adjusted net income for the quarter was $22 million, or $0.09 per diluted share, up $5 million. The adjusted net income metric removes non-cash items and transaction-related costs, giving a clear picture of our strong operational performance.

Turning ahead to Slide 12. Third quarter adjusted OIBDA was $50 million, down $1 million. The small decrease in adjusted OIBDA was due primarily to the higher engineering and development and G&A expenses, including from TokBox, partially offset by the higher margin.

Moving to Slide 13. CapEx for the quarter was $5 million, down $4 million, driving OIBDA minus CapEx of $45 million, a $3 million improvement. As we move away from private hosting of our solutions and data centers, where we have to buy the hardware, rent the space and often pay third-party license costs, to public cloud hosting of the OneVonage platform, this calculation captures the net positive effect of this shift.

As Alan mentioned, on October 31st, we completed the acquisition of NewVoiceMedia. The equity price for the acquisition was $350 million. We inherited the cash and receivables on NewVoiceMedia's balance sheet, meaning the enterprise value is a bit lower. We estimate that the resulting enterprise value paid is attractive at 3.8x 2019 revenue, which we expect to grow in the 25% range organically. This revenue multiple compares favorably to NewVoiceMedia's publicly traded cloud contact center peers, as well as recent private valuation multiples in the contact center space.

On Page 14, we ended the third quarter with $186 million of net debt, up $14 million sequentially, as we acquired TokBox for $33 million, but partially offset that cost with debt paydown. The acquisition of NewVoiceMedia was funded through the same $600 million credit facility that we completed in July, making net debt pro forma for the acquisition $546 million, or 3.4x adjusted OIBDA. Looking forward, we expect to pay down debt quickly, with target net leverage below 3x pro forma adjusted OIBDA by the first quarter of 2019.

Both NewVoiceMedia and TokBox are unique, and our ability to pay in cash enabled us to win these assets and manage dilution. We continue to be strategically flexible through access to our revolver and the capital markets.

Before I discuss updated guidance for 2018, I wanted to reiterate that as an enterprise software company, NewVoiceMedia has deferred revenue on its balance sheet stemming from its approach of billing new customers upfront for their first full year of service. GAAP purchase accounting rules require a write-down of a portion of this deferred revenue balance, primarily impacting the first 12 months of ownership.

Therefore, our reported revenue and OIBDA will be lower than they would have been organically through the first year of ownership. A benefit to this billing approach is that NewVoiceMedia is a positive working capital business, constantly receiving cash from new customers prior to providing the service.

Turning to Slide 15. Consistent with our prior custom, we are updating 2018 guidance to reflect the acquisition of NewVoiceMedia and other factors. We are raising 2018 consolidated revenue to a range of $1.048 billion to $1.052 billion. Within this, we now expect Vonage business revenue to be in the range of $608 million to $612 million. We expect consumer revenue to be in the $440 million area.

Inherent in this update is that, excluding M&A and including a projected currency headwind of more than $5 million, we are on track to achieve the initial consolidated revenue guidance we set forth at the beginning of the year.

We expect adjusted OIBDA to be in the $177 million to $180 million area, taking into account NewVoiceMedia's organic adjusted OIBDA profile and the loss of a portion of its revenue and OIBDA from the required write-down of a portion of its deferred revenue. This also takes into account the continued acceleration of VBC from resulting shift of CapEx to OpEx and today's currency rates.

We are also updating our CapEx guidance. We now expect CapEx to improve to the $25 million area, $10 million lower than our initial guidance and lower than we anticipated last quarter, primarily because of the accelerated adoption of VBC with its corresponding lower third-party equipment, co-location and license cost.

This results in adjusted OIBDA minus CapEx in the $152 million to $155 million range, the upper end being the number we guided to last quarter, which did not include drag from NewVoiceMedia. To be clear, this means that, excluding M&A, we are delivering more cash flow in 2018 than projected at both the beginning of the year and last quarter.

In conclusion, we feel very good about our financial performance for the quarter and the long-term strategic value of NewVoiceMedia. I'll now turn the call over to Hunter to initiate the Q&A.

Okay. Great. Thanks, Dave. And William, could you open up the queue for questions, please?

(Operator Instructions) And the first questioner today will be George Sutton with Craig-Hallum.

Alan, I appreciated your discussion around the programmable concept and moving and pushing out the services actually to customers of your customers. Have you been able to turn that into any sort of an ROI type sale where you can argue that using this creates ROI for your customers, and/or does that ultimately work its way into how you price your services?

I doubt we will -- let me just take those in reverse. I doubt we will price our services, if you're referring to sort of a benefit basis, because I think that it's very difficult to capture, but what we're seeing is that you're seeing a tremendous -- a very, very robust demand for these programmable services, and the use cases -- this is what I put in my prepared remarks. The use cases that they're addressing are as varied as any business's -- every business is a bit different in terms of their particular flow with their customers and sort of how they serve their customers, what their go-to-market, what their support models are, and the like. The whole notion is they're bringing these tools in because the macro goal is to improve customer engagement. And so if you think about every interaction with that customer, I want to be able to pull that customer in, in the mode -- in the channel of communication of their choice, the mode of their choice, to the right expert within my company and back again. So just by virtue of the growth, the ROI is embedded in it. They wouldn't be doing it otherwise.

One other question, really for Dave, I guess. The lowered OIBDA number, there are really 3 things I'm hearing. I don't believe any of them are fundamental, but, #1, your engineering costs are higher because of a lot of the work you're doing, as we talked about. #2, NewVoiceMedia had some deferred revenues that aren't flowing through, and then some FX impact. Is there a way to break that down at all?

Absolutely. So in the last quarter, we updated guidance to the $185 million area. Now we're $177 million to $180 million. The bridge there, to the extent you were to go all the way to $177 million -- and we very much are within the range -- would be $5 million for NewVoice. Now, having seen a bit more detail on what their deferred revenue looks like and how we would account for that, $1 million further CapEx-to-OpEx in addition to what we projected last quarter, and then $2 million of currency impact, and currency impact is fairly unique in the sense that it's attributable from a cost perspective on the disconnection between the British pound and the euro due to BREXIT. We have a significant cost base in British pounds. We take in most of our revenue in dollars and then some in euros, and that disconnection between the euro and the pound specifically is driving that. We don't view that as something that's going to be an ongoing issue, and it hasn't -- really hadn't been an issue before this quarter.

And the next questioner today will be Rich Valera with Needham & Company.

Alan, you mentioned you signed 4 large deals, I think $1 million-plus deals, that included Advanced Contact Center. I was wondering if any of those included NewVoiceMedia, and if not, if you think -- if you'd already closed NewVoice and had it for a couple quarters, if that would be different, if you think you'll be able to sell NewVoice in cases where you wouldn't have in the past.

Well, none of -- they were all -- the Advanced Contact Center was in contact because we -- that's the third-party product that we've been representing. Had we owned it for a couple quarters and had the integration done, of course we would have pushed those to NewVoiceMedia, because at that scale, that's where NewVoiceMedia plays best. And so the whole idea is we're going to be integrating NewVoiceMedia into Vonage Business Cloud, and as we progress forward, we'll be selling that as our default. Now, that said, inContact will remain in our product catalog, because there are certain instances where you may not have particular involvement of CRM, particularly involvement of Salesforce at a customer prospect, and inContact may just fit well. So what we've done is we've expanded our opportunity. We haven't shrunk it in any sort of way.

And then I see you're not -- it looks like you're not going to be formally splitting out the UCaaS from the CPaaS, but can you give any color on how those 2 businesses performed individually during the quarter?

Let me let Dave take that.

Absolutely. I'll give you the numbers. So UCaaS revenue was $98.5 million, and the accounting policy change took $400,000 out of that, so the clean number would be $98.9 million, basically $99 million total UCaaS. That represents service revenue growth of 13%. On the CPaaS side, the number was $55.1 million of CPaaS. Again, I talked about in my script there were -- we're happy with that number. That being said, there were 2 impacts negatively to that number. 1 was $2 million of currency, and, again, you saw a very large move in the euro that we had not seen before. And, secondly, about $2 million from customers that I talked about that we dropped, that simply not only weren't meeting our margin target, but they weren't going to meet our margin target through product mix or any other kind of growth. And that was just 1 of those tradeoffs that we make every day, but happened to be material in this quarter.

And just 1 follow-up, if I could, on the 13% UCaaS service growth. I guess that, I think, was maybe 14% the prior quarter, and I know you've been working pretty hard on the sales end channel aspect of that business. I mean, any thoughts about how that business trends from a growth perspective as we head into '19?

Sure. Let me ask Kenny to take that.

You mentioned it right. We've invested heavily in distribution, as you know, throughout '17 and into '18. We are seeing a nice take-up from channel and contact center, as Alan mentioned in his remarks, which obviously benefits the UC bookings. So as we look at bookings, what I consider mid-market bookings above that $1,000 MRR threshold, we're seeing a 65% growth in those bookings as a result of really those kind of 3 main areas of focus. Expanding distribution, field sales, continuing to invest heavily in the channel, and making sure that we've got access to all the deals in the market through the channel, as well as adding contact center in the bag of the sales professionals continues to improve bookings, I think we'll see that come through in revenue as a result.

Rich, it's Alan again. You may recall, as a reminder, I said we -- in the current quarter, across all our routes to market, contact center bookings were up 5-fold. So what Kenny is referring to is that focus there is really beginning to bear fruit.

And the next questioner today will be Michael Rollins with Citi.

So maybe just at a high level, if you think about all of the additional services that you're putting on your menu for customers to bundle together, how do you think about the totality of growth versus your cloud communications competitors? Should you be able to grow in total for business revenue faster than them because you have all these capabilities? And over what timeframe do you expect to kind of effectuate that aspiration?

The simple answer is I believe that we will be able to -- because of the totality of the offerings that we have, that we will be able to overtake our competitors in terms of our revenue growth, and so that the 23% -- and I'm addressing service revenue growth, the 23% this quarter. It's roughly been 24%, 23% sort of through the first 3 quarters of the year. My expectation is that's going to move up, and I think we'll overtake all competitors -- those are focused -- other than perhaps those who are focused specifically on CPaaS. CPaaS, as its own piece, is growing the fastest, but I think the other names that we get compared to all the time, I have every confidence that we're going to exceed their growth rate.

And as you look to accomplish that, what's the biggest hurdle that the organization needs to overcome?

Well, I think I -- Kenny addressed that in part, and I did as well. We have within -- if you parse it back -- and I prefer not to, but if you parse it back into sort of the as-a-service component, the efforts that we're doing on UCaaS are to grow up-market, because, again, we have been over-indexed in the S&B market. We're seeing great success within the channel, growing over 40%, where the average deal size has more than tripled, and we're seeing contact center, which has very high tickets to it, growing as well. And we're adding distribution in terms of numbers of salespeople, seniority of salespeople, and we're seeing better productivity, so it's those levers which are just happening. Concurrent with that, again, if you parsed it back to the CPaaS side, we have been executing on really a mix and geography strategy, supplementing the -- where Nexmo was strongest when we bought it, which was international termination of SMS, to add voice and other higher-margin and fast-growing products, like VAPI, as well as geography in the United States. We're just executing on all those pieces, and what we can uniquely do is serve the whole TAM, and others can't. As we execute and you're seeing the green shoots -- each quarter we're seeing more and more of that, the green shoots of that execution -- that growth rate is going to come.

And the next questioner today will be Jonathan Kees with Summit Insights Group.

I wanted to ask about -- I guess maybe this is a question more for Alan here in regards to his discussion about -- your discussion about fully programmable solutions. You've gone to good lengths here detailing about the cross-sell of your contact center. I'm just curious how the cross-sell has been with customers in regards to Nexmo. How many of your UCaaS customers have been buying Nexmo? How much of that was included in the large deals?

The way to think about it is not from a go-to-market point of view. It's from a product point of view. And what I mean by that is you clearly -- as I mentioned in the remarks, you're absolutely seeing UC and CC, so sort of the hosted PBX and the contact center, being bought together. We're seeing that everywhere, and we highlighted that specifically. For instance, all 4 enterprise deals reflected both UC seats and contact center seats, and the contact center seats added a third to the total contract value of those deals. On the CPaaS side, what you're seeing is not a specific go-to-market connection. You're seeing a product connection. So as I talked about, you'll sell more UC because all of the phone numbers are programmable, which is functionality that comes from the Nexmo side, or in contact center, you'll sell more of that because of functionality that's delivered because of the programmable pieces. For instance, last quarter, we announced -- again, this was built on inContact -- Vonage CX Cloud, which took Nexmo's sentiment analysis and paired that with inContact. Now that we have NewVoiceMedia, where we obviously control the roadmap, we'll be able to make those integrations ever tighter.

So if I can dig a little bit deeper there, in regards to those -- I can understand you sell more because it's more a budgeted program. How many of the -- are you getting a greater rate interest of customers who have purchased the UC and the CC solutions and now they're saying we want to be able to utilize that programmable aspect of it?

Yes, you're seeing that in the examples that I gave you, and you're also seeing it where we're winning deals because of the Nexmo capability even before it's even implemented. We're winning deals because of that. So a couple quarters ago, we announced, just to give you an example, MedXM, a 5,000-seat disease management company, and that was contact center and UC. We won that deal because of the Nexmo functionality, because they were very interested in the ability to program the communications out to their patients, because that's how that business works. It's all about compliance with the patient, and so it has -- it's very intensive as to communicating back and forth with the patients. That functionality, which was not present in the deal day 1, is the reason that we won relative to competitors. That has played out over and over and over again, and our salespeople, very interestingly, even within I'll call sort of a fairly vanilla UC deal, will start by selling the Nexmo differentiator, the ability to differentiate with Nexmo, first because that's what future-proofs that customer. It's not -- you want to avoid in a sales call getting into a feature sale. As I often say, you don't want to go to a customer and say, "Buy me versus a competitor because my auto attendant is better than the competitor's," because it's basically very -- it's a baseline utility. It's hard to differentiate that way. But when you pair it with the programmability and, now with NewVoiceMedia, pair it often with the contact center, now you have a differentiated offering.

(Operator Instructions) And the next questioner today will be Michael Latimore with Northland Capital Markets.

On NewVoiceMedia, how quickly will you be able to sell that through the Vonage U.S. channels, like the master agents, and how long will it take to onboard them if you're going to do that?

Well, let me have Dennis take that.

Well, the answer is we're starting immediately. Kenny, I and the teams are working together on that, so we're actually looking forward to make some progress on that in this quarter.

And then what is the OIBDA profile of NewVoiceMedia?

So as it relates to 2019, organically, there's a slight drag, and then you have the deferred revenue. So from a GAAP perspective, it's going to end up dragging OIBDA next year in the kind of $10 million type area, almost all of which is from deferred revenue. So there's a small organic OIBDA drag and then a fairly material deferred revenue, which is non-cash, drag from it.

And then in terms of your UCaaS deployment timeframe, sort of the time to install deals, particularly mid-size and enterprise, has that been stable, shrinking, growing? How has that been working out?

We're actually seeing our quote to cash, if you will, the install time from contract signature to when we start billing post-install, coming down, decreasing, and a lot of that is due to the shift towards VBC. VBC, just the way we've built it, the way Omar and team have built it, is much easier to provision and easier to install, even with things like SmartWAN, as we've integrated those features into that product set. Our install days are much, much shorter than the VBE platform. So as we shift more bookings -- in fact, 70% -- just a little bit above 70% of the bookings in third quarter were on VBC. As we continue to shift even more bookings towards that platform, we expect those install times to continue to come down.

And then next questioner today will be Catharine Trebnick with Dougherty.

Sorry if I'm repeating. I got bounced off the line. One is, just to give an idea, how much of the revenue was through the channel this year or this quarter versus a year ago? To get a good sense of -- you've invested in the channel. I'm just looking for some progress, some more data on progress since then.

So from a -- let me start just with bookings. As Alan mentioned on his prepared script, we're seeing inbound deals, so deals that we're booking through the channel, up just over 40% year-on-year. In fact, the number was 43% year-on-year from third quarter 2017. So that's one indicator of the investment that we've talked about over the last several quarters that we're making back into the channel by offering the new portal, the new programs and just making kind of deeper inroads with the masters and their subs. So bookings are up 43%. We're also seeing the size of those deals improve pretty dramatically. So the size -- the average size of a deal that a channel partner brings us is roughly 3x what it was in the first quarter, and so that -- we're seeing very, very good progress from both deal inflow as well as size deals. The last stat I'd share with you is the -- all the large deals we sold, all the way down to kind of $10,000 in MRR, 3/4 of those came from the channel. As we've mentioned, some of those obviously were CCaaS. Some of those were both CCaaS and UCaaS, but 3/4 of that volume came from the channel, so we're seeing nice progress based on the investment we've made with partners.

How long does it take you to ramp up your new partners?

It depends on the partner. We are recruiting daily to bring partners into the fold. Some of those partners are ready to ramp immediately. They have the background to sell UC, they have the background to sell a contact center solution. Others take a little bit longer, because they may have been an on-prem partner that -- for instance, AVAR -- that's looking to move towards cloud and takes a little bit more enablement and education. So we're seeing deals pop from the partner any -- inside of 30 days, all the way to as long as kind of 6 months to get them ramped.

And then another -- Alan, this is for you. On Nexmo, how much of the -- what percentage would you say are you getting traction in North America with the voice API. That's a real key piece of driving the gross margins for that product up. Can you give us some more color around that? Thank you.

Catharine, I'll start, and then I'll turn it to Kenny. I think we are seeing continued progress and high growth rates on VAPI, but still off of a small base. So the largest proportion of the business is still international, where it was 2 years ago, so we're -- again, we feel we have the right product, and we've developed the distribution and the training and the sales enablement, et cetera, pushing hard into the United States, not just for voice, but also for SMS as well, because even SMS terminating in the U.S. is much, much better margin than it is overseas. Kenny, you want to augment that?

No, I think you covered it, Alan. I think that's it.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Hunter Blankenbaker for any closing remarks.

Okay. Great. Thanks, William, and that does wrap up the Q&A portion. We look forward to seeing many of you in the coming months at various investor conferences. And for those unable to attend in person, the event -- these events will be webcast, and you can follow our comments on the Vonage IR website. Please contact us if you need additional details, and thank you again for joining.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.