Venture Global Inc (VG) 2018 Q4 法說會逐字稿

Good day, and welcome to the Vonage Holdings Corp. Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

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

Thank you, Alison, and good morning, and welcome to our fourth quarter and full year 2018 earnings conference call. Speaking on the call this morning is Alan Masarek, our Chief Executive Officer; and Dave Pearson, CFO. Also joining us is Omar Javaid, EVP of Application, API Group and Chief Product Officer; and Dennis Fois, EVP of the Applications Group.

Alan will discuss our strategy and fourth quarter results, and Dave will provide a more detailed view on our fourth quarter results and 2019 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 fourth quarter earnings press release or the fourth quarter earnings slides, which are posted on the IR website.

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

Thanks, Hunter. Good morning, and thanks for joining us. 2018 was a year of great strategic progress for Vonage, fueled by our financial strength. We invested significantly in product innovation and executed the acquisitions of TokBox and NewVoiceMedia, and we expect accelerated growth in 2019.

We finished 2018 with good financial performance in the fourth quarter. Total business revenues were $170 million, comprising 62% of consolidated fourth quarter revenues and reflecting organic growth of 20%. Of this, business service revenue grew 22% organically, and adjusted OIBDA was $41 million.

I'm going to start my comments this morning by reiterating our strategy. Vonage's strategy uniquely addresses the entire cloud communications TAM with fully integrated owned assets. Our strategy enables us to move beyond simple connectivity solutions. Rather, we deliver communication solutions that help businesses improve visual engagement with their customers and, in doing so, enhance customer experience to create greater satisfaction and brand loyalty.

Our One Vonage platform strategy enables customers to deploy our communication software in many different forms, ranging from programmable communication APIs that are programmed into digital environments and workflows to prebuilt communication applications like Vonage Business Cloud, our Unified Communications solution and contact center, as we integrate NewVoiceMedia. All our product solutions will be built from the One Vonage platform and will be programmable as a result of our micro services architecture.

Let me illustrate the power of our strategy with the following examples. The One Vonage platform includes a set of APIs that enable phone number programmability. With number programmability, it's easy to route calls, enable chatbots, integrate CRMs, launch real-time calendaring and more. Once fully launched, phone number programmability automatically becomes part of Vonage Business Cloud because it's built from the same platform.

Programmable communications are critical to creating great customer experiences. In fact, Gartner reports that by 2021, just a couple of years, 81% of businesses, 81%, expect to compete mostly or completely on the basis of customer experience.

So our strategy is based on a simple premise. Businesses will win or businesses will lose based on customer experience, and customer experience relies on the quality of interaction between a business' customers and its employees. And customers want to interact with businesses through the customers' preferred mode of communication, voice, video, messaging, through a brand's mobile app, over the web, through an IVR or even via chat apps like Messenger or WeChat or WhatsApp.

During 2018, we made very important progress advancing our strategy. We acquired TokBox, the industry leader in web RCC (sic) [WebRTC] programmable video; and NewVoiceMedia, a world leader in Contact Center-as-a-Service. Both are in high-growth market segments and are critical to our One Vonage platform strategy. With these acquisitions, Vonage now uniquely owns its entire technology stack across Unified Communications, contact center and programmable APIs, with complete coverage across the major modes of communication: voice, video, messaging and SMS.

As our technologies come together as the One Vonage platform, we will deliver solutions, all fully programmable, ranging from applications like Unified Communications integrated with contact center and collaboration and team messaging, to programmable APIs that today software developers program into their digital environments. But in the future, laypeople will configure without the need for software coding skills.

Now given that strategic overview, let me highlight other product innovation initiatives as well as improvements in go-to-market execution that drive accelerated growth for revenues in 2019.

Regarding product innovation. Just 1 year ago, we introduced Vonage Business Cloud. Today, Vonage Business Cloud is a cornerstone solution of our One Vonage strategy. Vonage Business Cloud combines voice, messaging, collaboration, videoconferencing and other key features into an integrated user experience. And later this quarter, Vonage Business Cloud will add contact center functionality via integration of NewVoiceMedia. Vonage Business Cloud supports nearly 100,000 business customers. And in the fourth quarter alone, 85% of new Unified Communication bookings came from Vonage Business Cloud. This rapid adoption of Vonage Business Cloud is the result of significant investments in functionality, service quality and scalability.

For example, VonageFlow, our team messaging solution embedded within Vonage Business Cloud, saw messaging usage increased 45% in the fourth quarter alone. The Vonage Business Cloud mobile app, which ranks highest among competitors in the App Store and Google Play, increased usage 30% during the year.

Vonage Business Cloud introduced a new customer portal that improves onboarding using chatbots, artificial intelligence and natural language processing to resolve customer issues. And most recently, we released the Vonage Business Cloud app center, which is an embedded marketplace for customers to install new applications and enable new features like Business Inbox, which offers social messaging integration.

These improvements and others drove meaningful increases in customer satisfaction. The number of Vonage Business Cloud customer care calls decreased 25% in 2018, and churn declined 30%.

So now let's turn to improvements in our go-to-market execution. We have aligned our go-to-market efforts around applications, which combines NewVoiceMedia's contact center go-to-market teams with Vonage's Unified Communications go-to-market organization because these solutions are increasingly purchased together, particularly among mid-market and enterprise customers; and then APIs, which combines Nexmo and TokBox go-to-market teams.

We're driving 3 broad initiatives across our go-to-market efforts: one, increasing sales with mid-market and enterprise customers while improving sales execution within each route to market; two, driving integrated product sales that include programmability; and three, growing our long-tail customer base, particularly for pure API use cases by investing in developer relations and providing all modes of communication: voice, video, messaging and SMS, from 1 platform. And these initiatives are driving results. In the fourth quarter, our mid-market and enterprise focus drove a 40% year-over-year increase in service revenue from customers with greater than $10,000 in monthly revenues.

We signed 7 deals with TCVs greater than $1 million and most included programmable solutions. Channel bookings grew 60%, and 6 of our top 10 deals originated from channel.

Quarterly revenue from long-tail customers grew 90% versus the prior year period, and we ended the year with 735,000 registered developers.

Two examples of recent wins include; one, a Fortune 500 financial services firm with over 14,000 locations. Vonage was elected to replace on-premise systems with Unified Communications, coupled with 2 factor authentication and verified APIs as well as SmartWAN. And second, one of the world's largest pizza restaurant chains, very well known for using technology to enhance customer experience, selected our APIs for account verification.

After a successful launch, we won an initial deployment for Vonage Business Cloud with opportunity to expand into several thousand locations, again, demonstrating the power of combining APIs with applications in the same solutions portfolio.

For 2019, we will continue investing in product innovation and go-to-market execution. We will accelerate developments at the One Vonage platform and broaden our portfolio of programmable APIs while expanding integrations into additional development platforms. We will leverage One Vonage to drive sales of higher-value APIs like voice, video and verify, while growing our long-tail customer base and increasing U.S. penetration. This will automatically embed more programmability into Vonage Business Cloud. And we will continue developing our omnichannel sales footprint, which now includes the benefit of deep go-to-market relationships with salesforce.com.

In closing, we own a unique combination of assets that we have productized to help businesses improve digital engagement with their customers and enhance customer experience to create greater satisfaction and brand loyalty. Our opportunity has never been greater, and I look forward to sharing our progress with you in the future.

Before turning the call over to Dave, I want to emphasize one final point, that is we consider business a single segment as the way we run the company. We see that characterization of companies as UCaaS, CCaaS or CPaaS as an archaic view. Those lines of distinction are blurring for all communication suppliers, but even more so for Vonage because our solutions are built from a common One Vonage platform, and we address virtually unlimited use cases purchased by both software developers and businesses.

I'll now turn the call to Dave to review our financial results and 2019 guidance.

Thanks, Alan, and good morning, everyone. As Alan noted, in 2018, we strategically deployed our capital into growth and acquisitions that significantly expanded our sales and product footprint and that we believe will accelerate revenue growth in 2019 and beyond.

With that, let's begin with a review of the fourth quarter and 2018 on Slide 11. As in the past, all comparisons to prior periods are year-over-year, unless otherwise noted, is sequential.

Turning to Vonage Business. Revenue for this segment in the fourth quarter was $170 million, representing 62% of consolidated revenue and a 27% GAAP increase. For the full year, Vonage Business revenue was $608 million, a 22% GAAP increase. As reference, currency movements reduced 4Q revenue by $3 million while increasing full year revenue by $7 million due to favorable impacts during the first half of the year.

Business service revenue growth is our focus as we continue to deemphasize access circuits and desk phone sales and look through USF revenue.

Looking at service revenue growth on an adjusted basis, which normalizes for acquisitions and other onetime items, Vonage Business service revenues increased 22% for the fourth quarter and 23% for the full year 2018. These growth rates adjust for several factors, including the acquisitions of TokBox and new media -- NewVoiceMedia, which occurred at the end of July and October, respectively, the adjusted growth rates pro forma these acquisitions for all of 2017 and the periods in 2018 in which did not own them; two, the write-down of approximately $2 million of NewVoiceMedia's deferred revenue balance under GAAP purchase accounting rules; and three, the exclusion of outage credits of $1.5 million in the quarter. These credits were issued specifically for VBE (sic) [VBC], which is based on a third-party call processing software platform. Our focus on adding customers on the Vonage Business Cloud platform lowers this risk significantly.

We included a table in the press release and on Slide 23 of today's presentation with added detail on these adjustments.

Vonage Business revenue churn was 1.1%, down from 1.2% in Q4 '17, and revenue per customer was up 20% to $392, both reflecting the higher quality of our service and move-up market. Overall Business service margin for the fourth quarter and the full year was 55%, both down 1% due to the outage credits and faster growth of lower-margin products.

Turning to Slide 13. Consumer revenue for the fourth quarter was $104 million, down 13%. For the full year, Consumer revenue was $441 million, down 12%, as planned. Consumer service margin for the fourth quarter was 89%, up from 84% a year ago. This speaks to the power of our common, scaled network infrastructure that serves both the Consumer and Business segments.

Consumer customer churn for the fourth quarter was 1.8%, down from 1.9%. We continue to believe we can sustain Consumer churn rates at or below 2%, given the dynamics of our customer base, with 2-year or greater tenured subscribers now accounting for 87% of the total.

We ended the year with nearly 1.3 million Consumer subscriber lines, and average revenue per line stable at $26.32. Given this churn and ARPU profile, we expect Consumer to generate at least $600 million of allocated equity free cash flow over the next 5 years with material terminal value after that. This number is $50 million higher than when we first projected it 2 years ago, reflecting the actions we took to maximize value and the enhanced visibility we have on this segment.

Turning to Slide 14. Consolidated revenue for the fourth quarter, $274 million, up $20 million or 8%. For the full year, consolidated revenue was a record $1.05 billion, up 5%. Importantly, as business segment revenues continue to grow at nearly double the rate of decline in our Consumer segment, Vonage is a long-term consolidated revenue growth company.

Now moving to income statement cost items on Slide 15. Sales and marketing expense for the fourth quarter was $82 million, up $4 million, entirely due to the impact of TokBox and NewVoiceMedia. For the full year, consolidated sales and marketing was $311 million, down $2 million from the prior year. The full year decline was due to the benefit of ASC 606 amortization of deferred sales commissions.

On Slide 16, Q4 engineering and development expense was $8 million -- was up $8 million to $17 million, reflecting the transition to a software company with their own technology stack and a shift of certain sales operations expense into product development. Engineering and development increased 76% for the full year due to the same factors.

On Slide 17, general and administrative expense increased $14 million for the fourth quarter and $13 million for the full year 2018. These increases largely reflect the impact of the run rate expenses associated with the acquired businesses as well as onetime acquisition-related items.

Moving to Slide 18. Fourth quarter adjusted OIBDA was $41 million, down $10 million.

On Slide 19, full year adjusted OIBDA was $178 million, down $2 million compared to the prior year. This entire amount can be attributed to NewVoiceMedia deferred revenue write-down. This means, for the year, we maintained adjusted OIBDA while absorbing the loss of $61 million high-gross margin consumer dollars and the losses from acquired companies.

Adjusted net income in 4Q was $11 million or $0.05 per share, down $10 million. Full year adjusted net income was $81 million or $0.34 per share, up 20%. The increase is largely due to the comparison to our tax-affected 2017 results.

Moving to Slide 20. CapEx for the quarter was $10 million. For the year, CapEx was $27 million versus $33 million in 2017. Adjusted OIBDA minus CapEx was $31 million in the fourth quarter, down $12 million due to the lower adjusted OIBDA and $151 million for the full year, up $4 million mostly due to the lower CapEx.

Fourth quarter free cash flow, which we define as net cash provided by operating activities minus capital expenditures, was $19 million, down primarily due to acquisition-related lower operating income.

From a capital allocation perspective, in 2019, we had 2 main priorities: fund organic growth through customer acquisition and technology innovation and manage debt to reload the balance sheet for strategic flexibility.

After we completed the acquisition of NewVoiceMedia, net leverage was approximately 3.25x last 12 months' adjusted OIBDA. We paid down significant debt after the acquisition, resulting in net debt to LTM reported adjusted OIBDA of 2.9x at the end of the quarter. Total debt will rise in 1Q due to seasonality in cash usage and working capital, but we expect to continue to pay down debt after that.

Moving on to guidance on Slide 21. I first note that this assumes constant currency. Our expectations for the full year 2019 are as follows: consolidated revenue in the range of $1.17 billion to $1.195 billion. Within this, we expect Vonage Business segment revenue to be in the range of $795 million to $815 million, reflecting GAAP revenue growth of 32%, adjusted growth of 20% and adjusted service revenue growth of 23%, all at the midpoint of the range. The adjusted growth numbers capture the effects of the TokBox and NewVoiceMedia acquisitions and add back the deferred revenue write-down. Business revenue growth will accelerate through the year with 1Q revenue expected in the $177 million to $179 million range. We expect to exit 2019 with a Business service revenue growth rate approaching 30%. With this acceleration and growth rate exit in 2019, we believe we will achieve Business segment revenue of greater than $1 billion in 2020.

Consumer is expected to contribute between $375 million and $380 million of revenue, representing a decline in the 14% to 15% area, consistent with our continued focus on optimizing its value. We expect to deliver between $160 million to $165 million of consolidated adjusted OIBDA and CapEx in the $40 million area in 2019. These numbers take into account the impacts of dilution from NewVoiceMedia and TokBox, particularly before full run rate synergies are realized, the write-down of approximately $5 million of deferred revenue from the acquisition of NewVoiceMedia; the reset of bonus accruals with a larger workforce and increased investment in the One Vonage platform to expand and integrate our product portfolio.

In terms of cash flow progression and consistent with history, we expect that adjusted OIBDA will build throughout the year, starting in the low $30 million area in 1Q, as we have the maximum drag from the items I just noted, including the first full quarter of unsynergized expenses from both acquisitions and resulting deferred revenue and a seasonal increase in sales and marketing expense.

The acquisitions we made in 2018 and the growth investments we are making in 2019 position Vonage well for the future, both strategically and financially.

Thank you for your continued support at Vonage. I will now turn the call back over to Hunter to initiate the Q&A session.

Thanks, Dave. Alison, let's start the Q&A, please.

(Operator Instructions) Our first question today will come from Rich Valera of Needham & Company.

Question on the 2019 Business service guidance. One, just wanted to clarify what the adjusted growth was baked into the first quarter guidance. And then, I think you said you plan to exit the year, I guess, in 4Q at about 30% Business growth guidance. So it seems like it's a pretty aggressive acceleration of growth through the year. So we'd just love to get more color on sort of what underpins that, and if you could break that down into the subsegments. I know you don't want to probably report them, but which of those subsegments do you expect to see the most acceleration in as you move through the year?

Yes. So as we think about the guidance, I mean, first of all, you said it's a consolidated technology platform, we have consolidated financial incentives and bonus metrics and the same corporate buyers of our product. That said, in order to contextualize, and I know people think about the API and application businesses, the way we look at it is on a percentage of revenue basis. So in the first quarter, embedded in that Business guidance, roughly 2/3 of that revenue will be from the application side. That's the old UC and CC with the complement roughly 1/3 from API. API revenue is growing faster, therefore, in the fourth quarter, embedded in our guidance, looking at that same split, the applications business or the subscription business would be roughly 60% of Business revenue, with API representing 40% based on the faster growth.

Got it. And can you just say what that embedded growth rate is in the first quarter for the overall Business services number?

Yes. What I can tell you is that split, I think, captures the calculation, that 2/3, that really, the jumping off point, the pro forma number for applications. And you can -- if you look at Page 23 on the slides, you got a $676 million business pro forma based on ownership in the whole year that -- of that number, applications is $461 million and API is $215 million. And I think that add backs in the deferred revenue and so on. So that's the jumping off point, and then you have the splits for the quarters.

Got it. And then just 1 follow-up, if I could, on the API piece of the business. You mentioned several times, sort of the higher-level API functions, the things like verify, voice and video. Can you just give us any sense of how material they're becoming? And just talk about if you're starting to move any customers to a nontransactional business model for any of those higher-level functions?

Rich, it's Alan. Let me ask Omar to take that.

Yes. So we're actually -- so since acquiring company, we've made a lot of investments in product. Alan referred to that in his opening remarks, and so we're seeing these higher-level APIs, voice, verify, a number of these other ones. And so they are making -- they're definitely making an impact both in terms of revenue and then in margin, a positive impact on those. Of course, we're still early, but we're growing that quite well.

The next question will come from George Sutton of Craig-Hallum.

Alan, you talked about an accelerated growth. I wanted to pick a little bit further on that point. In particular, you talked about $1 billion in opportunity for 2020. That's a bit higher than we've anticipated. So given that accelerated growth rate, I just wondered if you could structurally talk about the go-to-market strategy and how that's going to influence that accelerated growth. And sort of, how do you view the predictability of that growth?

Well, if you look what is embedded and what in the guidance Dave just described, the confidence around exceeding $1 billion in 2020 is that slow progression as we exit 2019. The initiatives that we'd outlined, those are what collectively drive that confidence. So the product, as an example, think about it on sort of a core of the application side, Vonage Business Cloud now very soon to be integrated to NewVoiceMedia, given all the development that's gone into it, we believe now we have created almost unequivocally the best solution in the marketplace.

Then, on the go-to-market side, it's not simply just capacity and feet on the street and sales, engineering and developer relations. It's also the fact that, as Omar just said, we've moved API at the time of acquisition of Nexmo, which was principally a programmable SMS platform, now to truly being a full platform across voice, SMS, video through the acquisition of TokBox, IP messaging and a variety of other APIs that have nothing to do specifically with termination, that are more about controlling workflows. This is what we've been building to. That's what gives us this confidence.

Got you. One follow-up relative to your channel effort, in particular. Obviously, the self-provisioning, we've gotten very good feedback from the channel on the simplicity of being able to do that. What else are you doing from a channel perspective to really kick that, what you've defined as your under-indexed level of channel into a higher gear?

Let me ask Dennis to answer that.

I think our channel assets are really continuing very strongly under the leadership of Mario DeRiggi in particular. I think what really -- the opportunity that we have now, and particularly coming out of Q1, is to offer the channel a very differentiated and integrated offering. We are well familiar that when it comes to the combination of contact center and Unified Communications solutions, traditionally, most of the vendors in this space effectively resell solutions which creates, kind of, a level of lack of differentiation of the channel, which is a problem for the channel as a whole. What we're excited about is the combination of NewVoiceMedia and VBC to really offer a class-leading product that is fully integrated, not just simply static, present integration, as they're known in the markets, but is also built out for the mid-market and the lower enterprise, which is a far more appropriate solution to deliver value quickly.

So we believe that the combination of the ability to deliver a competitively priced integrated solution, that also offers programmability, which means that organizations that continue to grow without having to switch contact-center operation, will be a real difference maker in the channel.

Our next question will come from Catharine Trebnick of Dougherty.

Back to the channel. Quick question on -- a year ago, you were building the channel out, punching up new partners. Can you address where you are in the process of now having rolled in TokBox and NewVoiceMedia, where you are on the blocking and tackling of educating the channel? What types of tools are available for the channel? And then, once they're available and trained, how much more revenue do you expect to punch out of the channel?

Dennis, why don't you take that as well?

All right. Thank you. I think we are very much in the middle of that and continuing to accelerate. I mean, as Alan kind of briefly referenced it, that in the last quarter, channel grew by 60%. We're seeing that continuing, especially when we're looking at the pipeline. What we are concentrating all our efforts on now is the enablement and education piece. I think the team has done a really good job with the initial relationship with blocking and tackling and the teaming motions as you, kind of, briefly characterized them.

The next step here is really to offer this differentiated go-to-market with the integrated product sets and there's various initiatives that we are doing. In fact, our agenda has been full of things like roadshows enablement. We leverage their existing enablement technology that we had in place, both technology and content and collateral that we had in place with NewVoiceMedia. You may remember that NewVoiceMedia had a channel partnership with Salesforce, which was mostly programmatic. We are effectively using those existing motions to make the communication channel more effective, an ability to bring those 2 together.

And then my follow-up would be, internationally, NewVoiceMedia had done very well internationally. What plans are underway or afoot to take your applications, UCaaS, and even the Nexmo and TokBox to Europe? I know Nexmo doesn't need Europe, but I mean...

I'll take that one.

Yes, Please, Dennis.

Great question, thank you. We often forget this but there's a very significant internationally, both in the European markets and Asia Pacific and Australia now in particularly. So we're very excited. We've launched VBC. So VBC is now live in Australia. That means that we now have a combined and integrated offering in Australia. We already had established a reasonable presence there. We had the -- when we combined the teams. So fundamentally, what we're doing is we've combined the UCaaS teams and the legacy NewVoiceMedia teams into 1 group of teams that are working together, both in Australia and in Europe.

You knew that NewVoiceMedia had a pretty large footprint in the U.K. as kind of its main hub, over 250 people there. And so what we're excited about now is the ability to deliver the combined offering. We are using the existing go-to-market motions there. So we have ramped very, very fast. So both our sales reps, the marketing motions and this -- and the lead generation efforts are in situ and in place. And effectively, what we're doing is we're leveraging the existing NewVoiceMedia go-to-market end customers. We're also approaching existing customers to effectively maximize our cross-sell, up-sell opportunities.

Our next question will come from Tim Horan of Oppenheimer.

I'm just trying to understand the Vonage Business Cloud and the integration of the Business services. Are you, at this point, fairly fully integrated from a user interface perspective? And is it also fairly integrated from a network perspective? Just where are you on the process, both with the acquisitions and in getting Nexmo integrated?

Let me ask Omar to take that.

All right. So yes, let me put my CPO back -- hat back on here to answer that. So the short answer to your question is that -- and I think Alan alluded to this in his opening remarks markets as well, is this is part of the investment that we've been making, not only through acquisitions, but then behind the scenes on product -- on the investment that we've made in product and development. So the short answer to your question is that we are very far along in the end-to-end integration. So just some data points, these are things that we've announced publicly before. So for example, incorporating the messaging APIs into VBC, our flagship UCaaS product. So we have a capability in that product, which is called Business Inbox, that is powered by the Nexmo API, it's seamless, it's an integrated application, right? So that's one example.

There are a number of other ones. But we're pretty far along in that. And especially as we continue to invest in the One V platform, this will only become more so the case. Dennis already alluded to the integration of NewVoiceMedia, the Contact Center-as-a-Service software into VBC. That will be coming out fairly soon. So that's another example. So I guess, what we've been able to demonstrate is not only sort of scaling these businesses but then also rapidly integrating them, right, not making them multiyear projects.

Well, just 2 quick follow-ups on that. So will developers be able to now basically create a customized UCaaS product? Are you that far along? Or will be there in a year from now?

So it's not -- it's pretty far along. Now as far as customize the UCaaS product, that's definitely an angle that we've considered, but the product today does not. We're not allowing that today outside of what you can customize within the API.

But I guess, can the developers become another form of distribution channel for the UCaaS in this integrated product?

The way the -- so we haven't announced anything in the product road map that would indicate otherwise. In other words, it's a discrete application. What you're pointing out is it's actually a very interesting observation, and it's something we have definitely considered. But we don't really have anything more to add based on what we've said so far.

(Operator Instructions) The next question will come from Dmitry Netis of Stephens.

I apologize; this might be a bit of a loaded question. But let me get a couple of housekeeping items out of the way and then ask a question, more specifically on the Business revenue side of things. The acquisition-related stuff in the quarter, I'm looking at your Slide 23. It says there's roughly $6 million -- $6.1 million of that less revenue from divested businesses. So how does that compare to the guidance you gave, which, I believe, was somewhere in the $10 million range? So are we really talking about a $4 million headwind here from kind of this acquisition stuff? Or is there something else going on?

Yes. It's pretty straightforward. You're adding back -- first of all, you have -- that only adds back 2 months -- I'm sorry, it adds back 1 month of NewVoiceMedia, since we owned the company for 2 months. So the 2 months under which we owned it is baked into the $170 million. The 1 month in which we did not own it is the $6.1 million. In addition, we added back $2.2 million of deferred revenue just for the 2 months in which we owned it that was dragged.

So for the 2 months that you owned it, what was that number? What was the contribution from NewVoiceMedia?

So it would be -- I mean, the $6.1 million represents 1 month. So you could multiply that by 3. There's a little bit of growth in there. But you have to add back deferred revenue, which is the $2.2 million, okay?

I got you. Okay. That's helpful. And then, if I could kind of go back to sort of the split. And I appreciate the platform going into 2019 and how you sort of look at the business on a total basis. But I think what would be helpful is just if you could tell us, because for the majority of '18, and I'm really zooming in on Q4, not Q1 of '19 and fuller quarters, but in Q4, and this is a bit of a kind of a follow-up to Rich's questions. If you look at Q4, on an apples-to-apples basis and you have mostly UCaaS and CPaaS side of the business there, what was the service revenue from the UCaaS' side of the business? Has that accelerated? I know if you did the math, and you used to disclose the numbers in your PowerPoint presentation separately there, zooming on Q4, did the service revenue growth from the UCaaS side of the business reaccelerate it or not?

And you're talking about Q4 '18?

Correct.

Q4 '18 looked a lot, as we said in Q3 '18, Q4 '18 would look a lot like Q3 '18. And that is the case. On a service -- and having owned NewVoiceMedia and thinking about this as an applications business you had, you did actually have a material growth there. But it was the UCaaS -- the implied UCaaS growth would have been roughly the same to 3Q.

Understood. Okay. When we did the math, I think it was roughly 13%. So you're suggesting it's roughly that as well in Q4. However, looking at your numbers, channel did very well, 60% year-over-year growth in terms of bookings. You had very strong mid-market enterprise bookings growth. That should imply that that UCaaS-specific growth should begin to reaccelerate from here. And by the way, the...

Yes. Yes. There are a couple of factors going on here. And I think Alan and Dennis can expand on this. But within UCaaS, what is embedded in the 3Q and 4Q growth is a deceleration of the low-end SMB cohort. That decelerated faster than we thought, and obviously, it continues to be more than half of our base, although it's a shrinking part of our base. That is what drove that 3Q and 4Q outcome. In 2019, and obviously, it takes time to -- for changes in the subscription business to occur. But in 2019 -- but we saw the flip side of that as well, which is that the higher end of the market grew to our plan, in the mid-20s. So what you see in 2019 is continued leaning in to the upper end of the market but also making sure we're getting our fair share in SMB because we are seeing attractive economics there.

That's super helpful. If I may address 1 last, sort of, elephant in the room, and that's your OIBDA guide. Should we be expecting, given how you guided for '19 and keeping in mind Consumer still continues to trend down and presents a headwind, I calculate roughly $25 million in OIBDA as well going into maybe '20 time frame, so you got to overcome that before you begin to grow OIBDA from there. How should OIBDA be trending past the 2019 time frame? I appreciate you're not giving guidance past that stage. But should we begin to expect here Business side of things to produce more material operating leverage to kind of lap these declines in OIBDA that we're seeing in 2019?

Yes. 2020 OIBDA based on the visibility we have right now will be higher than 2019 OIBDA. So yes, we will get operating leverage.

The next question will come from Mike Latimore of Northland Capital Markets.

I guess, just on the OIBDA comment there. For Vonage Business in 2019, should OIBDA be positive or breakeven or negative?

Yes. So the way we think about our segments, and this involves a significant amount of allocation, is the contribution to G&A. And yes, Business, as a complex, the entire group of assets that we own, including the drag from what we acquired, will make a positive material contribution to G&A, so a positive contribution dollars and margin.

So Vonage Business should be -- have positive OIBDA in fiscal '19?

Positive contribution to G&A. G&A is shared across both segments.

Okay. And then in terms of -- you're adding -- you have a comprehensive platform, 8 programmability applications. Does that have any effect on just sort of sales cycles? Does it make it a longer sales cycle? Does it accelerate? Or doesn't that really matter?

Let me -- it makes it better because we have now a differentiated offering. But let me ask Dennis to weigh in.

Yes. I think a couple of things there; there's 2 important subjects there. One is the ability to offer an integrated solution, and I'll stress the point of integration. Sort of the UCaaS, most of the services seen as UCaaS and CCaaS offers you are kind of more blended together. That is one. And the other end is the programmability spectrum.

The integrated solution helps to sell better in the mid-market. I think that drives differentiation, and it's also a more appropriate solution from the other contact center solution that we have seen there which are fundamentally more enterprise-grade solutions that are being deployed in the mid-market, which is effectively taking too long to deploy and, in fact, complex to operate. So that's the point of integration. There, we would expect at least to see shorter time to revenue as our ability to deploy and successfully install that would materially improve.

Second point's on programmability, and to Alan's point, the programmability effectively gives a point of differentiation and reassurance more to lower enterprise and enterprise level. This is where organizations are effectively looking to future proof their communication strategy based on their digital transformation in the program. They probably selected their CRM platforms. They're all in on any of the Big 3. What they're now looking to do is to try to understand, I guess, the spaghetti on communication. And what they want to see there is that they're selecting a vendor that helps them to future proof their cloud communication strategy. Programmability there, with custom demos, allows us to put that point to bed. So I'd expect that at least to improve our win rate and conversion. I'm not so sure about the timing. I hope that that helps.

The next question will come from James Breen of William Blair.

Just a couple. One, can you just talk about Nexmo growth in the quarter and what you've been seeing there in terms of business trends in that unit? And then, as we think about next year and given the full year guidance and then the guidance for the first quarter, can you just talk about how you see that trending throughout the year overall?

Yes. So on the first part of your question, the API grew in the low-40s in Q4, group revenue in the low 40% area in Q4. And that's consistent. That's a bit higher than the guidance that we had given in 2018 and for the start of the year and finished the year a bit higher than our guidance. As it relates to 2019, again, we gave the split, which you can impute a percentage growth. But there's no reason for the API business not to continue to grow in the trajectory it's on. It is a volatile business, a nonsubscription business and a seasonal business. And so from quarter-to-quarter, it can fluctuate pretty significantly. But in terms of our guidance, we feel comfortable with that on an annual basis.

Our next question will come from Jonathan Kees of Summer (sic) [Summit] Insights Group.

I have, I guess, the first one regarding the cash flow. It's great that it's -- you're now forecasting, what, $600 million contribution, cash generated by the Consumer business, and that's $50 million higher than originally forecasted. Just curious, at what point is it going to be cutting over in terms of business and in terms of when Nexmo's going to start contributing to the cash flow generation? You're always talking about OIBDA being positive in 2020, being higher than 2019, just -- yes, a rough time frame. I know you're not giving guidance, just rough time frame of when the Business revenues will be starting to carry its own weight.

Yes. So as we talked about in the prior question, the Business is -- if you think about a set of truly corporate G&A, and that's a subset of our total G&A on our income statement, both Business and Consumer on an allocated basis are contributing to that number, materially to that number. That's point one. Point two is, every year, as Consumer goes down roughly -- these are rough numbers, $60 million, it's -- these are 89% service margin dollars, it's taking cash flow with it. So for us to grow cash flow implies that there's significant operating leverage on an allocated basis coming from the Business segment.

Okay. All right. That was helpful. And then, let me ask one other question, if I may. In regards to your channel, you're going out and increasing the channel and talking with corporate IT executives. Just curious, what kind of efforts do you have planned? Or are you ramping up also your developer efforts? Are you -- or are you going to have efforts targeted solely towards developers?

Let me ask Omar to take that. He leads all the dev rel efforts. Omar, you may be on mute.

I think he may have dropped off.

Okay. I see. He's overseas right now. He may -- let me take the question. So if I understand correctly, you're saying what are the efforts in terms of marketing to the broader developer population?

Yes. Specifically for your API segment, that group, they obviously cater to developers at different segments than your UC and your CC groups.

Correct. So they're really -- they're different go-to-markets but not different segments. What we do is we have a hybrid approach to developers. Part of it is a long-tail effort reaching out to register developers on our platform. We ended the year with 735,000. For us, that's -- think of that as the top of the funnel. When a developer comes to the site and wants to download some of our APIs, the first thing they have to do is register. That number has been growing very attractively and more productively where we're targeting developers that make the most sense. That developer community is both marketed to and then has direct outreach from a dev rel team, a developer relations team, who is hosting events throughout the world where developers gather. That's one piece of the go-to-market.

The other piece looks more like traditional enterprise sales where we have, again, globally, mid-account managers and key account managers in the regions of the world who are calling on larger enterprises who are -- again, the developers within those larger enterprises are baking these API tools into their existing digital environments.

Ladies and gentlemen, at this time, we will conclude the question-and-answer session. I'd like to turn the conference back over to Hunter Blankenbaker for any closing remarks.

Okay, great. Thanks, Alison, and thanks, everyone, for participating today. We look forward to visiting with folks throughout the quarter at various conferences. And for those not able to participate in person, the materials will be available on the IR website. Thank you.

Thank you.

The conference has now concluded, and we thank you for attending today's presentation. You may now disconnect your lines.