Earnings Labs

Venture Global, Inc. (VG)

Q1 2014 Earnings Call· Thu, May 1, 2014

$13.14

-0.19%

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Transcript

Operator

Operator

Good day, everyone. And welcome to the Vonage Holdings Corporation First Quarter 2014 Earnings Conference Call. Just as a reminder, today’s call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the conference over to Ms. Leslie Arena, Vice President of Investor Relations. Please go ahead, Ms. Arena.

Leslie Arena

President

Thank you. Good morning. And welcome to our first quarter 2014 earnings conference call. Speaking on our call this morning will be Marc Lefar, Chief Executive Officer; and Dave Pearson, CFO. Also joining us are Joe Redling, President, Consumer Services; and by phone in Atlanta, Wain Kellum, President, Vonage Business Solutions. Marc will discuss the company’s strategy and progress, and Dave will review our financial results. Slides are accompanied Dave’s discussion are available on the IR website. At the conclusion of our prepared remarks, we will be happy to take your questions. As referenced on slide two, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management’s expectations and depend on assumptions that maybe incorrect or imprecise. Such forward-looking statements 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 slide 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. The reconciliation to GAAP is available on the IR website. And now, I will turn the call over to Marc.

Marc Lefar

Chief Executive Officer

Thank you, Leslie. Good morning, everyone, and thank you for joining us on the call today. We reported a solid start to the year, highlighted by continued excellent results at Vocalocity. Stable revenue and strong cash flow in our North American consumer business, the launch of consumer services in Brazil and introduction of our ReachMe Roaming mobile feature. Vocalocity now rebranded as Vonage Business Solutions or VBS for short, grew revenue 40% year-over-year and 12%, sequentially on a pro forma basis. Led by these strong results, consolidated gross line additions grew to 191,000, the highest level since the first quarter of 2009, churn increased by 10 basis points to 2.6% and net line additions grew to 13,000. This morning, we announced the material increase in retail distribution. Through agreements signed with four new retail partners, we are tripling the number of stores that will be offering BasicTalk. In addition, we signed online distribution agreement with Amazon. Once completed, we expect to expand the retail footprint and improved online presence will drive additional subscriber growth at low end of segment with minimal incremental marketing investment. Our financial results for the quarter was solid, adjusted EBITDA was $29 million, the highest level in four quarters. Revenue increased 5% sequentially and 6% year-over-year to $221 million, reflecting the exhorting growth of VBS. This is our first quarter of year-over-year revenue growth since the third quarter of 2011. We continued executing on our balanced approach to capital allocation by investing for growth and returning capital to shareholders. During the first quarter, we repurchased $10 million or 2.4 million shares of Vonage stock. Let me now spend a few minutes talking in more detail about Vonage Business Solutions. Results for VBS clearly demonstrate the power of a combination of Vonage and Vocalocity, and our ability…

Dave Pearson

CFO

Thanks, Marc and good morning everyone. I'm pleased to review our first quarter financial results. For beginning, I’d like to note that this is the first quarter for which the company is reporting consolidated results, including Vonage Business Solutions for the entire quarter. As you may recall, fourth quarter 2013 results included only a partial quarter of VBS’s results, collecting the November 15th close of the acquisition. Similar to last quarter, Table 2 of our earnings release shows VBS key operating statistics on a pro forma basis as a Vonage owned VBS for all periods presented. Beginning on slide four, adjusted EBITDA was $29 million, up from $25 million sequentially, context through managing VBS in the area of EBITDA breakeven. Though there were a number of offsetting items regarding EBITDA, primary operating drivers of the sequential increase or reduction in Vonage consumer, marketing and selling, and improved costs due to international termination rates. Adjusted EBITDA was down from $34 million in the year ago quarter due to lower Vonage consumer revenue and higher SG&A. Moving to slide five, revenue was $221 million, up $10 million sequentially due to a full quarter of VBS and the acceleration of VBS revenue. On a pro forma basis, revenue was flat sequentially. Revenue increased from $209 million year ago due to the addition of VBS revenue to more than offset the impact of lower ARPU in the consumer business as we added more customers on lower price plans. On a pro forma basis, VBS grew -- VBS revenue grew 40% year-over-year and 12% sequentially to $19 million. ARPU was $28.86, up from $28.72 sequentially, down from $29.61 in the prior year quarter. The ARPU declined from the prior year quarter reflects the growing proportion of BasicTalk lines in our base over the past year.…

Leslie Arena

Operator

Thank you, Dave. Operator, please open the line for questions.

Operator

Operator

(Operator Instructions) Our first question comes from the line of George Sutton of Craig-Hallum. Your line is open. Please go ahead.

George Sutton

Analyst · Craig-Hallum. Your line is open. Please go ahead

Thank you. Good morning and congratulations on the results. I wondered if you could talk about the 40% growth number on the SMB side. Obviously that’s a great result and I'm wondering what's causing that. Obviously the market is growing nicely but I'm curious if you could, kind of, break it down into the brand changes you made, maybe some competitive changes that have occurred, meaning others moving up market and what you've done uniquely on the marketing side?

Marc Lefar

Chief Executive Officer

George, good morning. Thanks. I have to flip this to Wain who is joining us from Atlanta and let him comment on the progress. Wain? Wain, do we have you?

Wain Kellum

Analyst · Craig-Hallum. Your line is open. Please go ahead

Sorry about that. Thanks Marc. One of the thing that we were concerned about when we put the two companies together is that we just have a lot of work to do in the systems, migrate, compliance work and rebranding and we were able to get the rebranding work done incredibly quickly. And that rebranding work has had a really positive impact on taking our marketing dollars and making them work harder and do more. So we’ve been able to cast a wider net and increase our marketing spend to generate a lot more lead flow which generated a lot more customers and lot more booking as you noted from the numbers. But we've been able to do it in a way where our marketing egged efficiencies had actually improved as opposed to on the road at which would have happened before the merger. And so now what we’re doing is just trying to find new ways to put money to work to cast a wider net.

George Sutton

Analyst · Craig-Hallum. Your line is open. Please go ahead

Got you. There is also -- Wain, you guys have invested a fair bit in increasing rapidly the scale of your direct sales teams, both direct and outbound teams as well, correct. You got increased size almost 40%, just during the last couple of quarters alone I believe, right?

Wain Kellum

Analyst · Craig-Hallum. Your line is open. Please go ahead

Yeah. That’s true. And it all starts with spending marketing dollars to generate leads and then happened in the past to be able to pursue with leads in flow and so everything from scaling exact like you would expect.

George Sutton

Analyst · Craig-Hallum. Your line is open. Please go ahead

Last question from me. Marc, if we could think forward a bit, this is clearly a forward-looking question. When we look at the movement of apps, sort of, how significant that ultimately, I think, will be to this business. How does it change the business model in your view? How does it look different in a few years than it does today?

Marc Lefar

Chief Executive Officer

It's a great question. My view of this a few years from now is we won’t talk about home phone service or even mobile phone service. We’ll talk about communication accessible from any device based on who you are, where you are, the way you want to experience it. If you think about mobile today and people initially go to mobile phone, I think that you’re going to see that expanded to tablets and all forms of computing devices, having even some of the in-home broadband connected devices from television screens and then, all different forms of notebook computers, everything is good to be communications enabled. And I think you want to have those serve you, whichever one you're engaged with for traditional voice messaging and video. So as we think about the business while we talk about our mobile initiatives, we build those with a mindset to how can we leverage that across our business units and geographies. So for our launch in Brazil, for example, where we've built essentially what is the extensions product in the U.S., our initial pitch as people experience Vonage’s, when you buy service at Vonage, you can make calls from your mobile devices or from your home, whatever you prefer. And the value proposition is actually competitive versus mobile carriers and home service providers simultaneously. So it’s a completely different land through which consumers will experience the value proposition. And I think that's how it's going to be in the future. I think people in this call -- we still even in our own business think about it as home phone service and we will add mobile or mobile becomes an afterthought. Going forward, I think you’re going to see us truly integrated, unified communications and the way people experience it will vary by customer segment whether its B2B or whether its in a consumer segment across all the devices. People won’t really consider how they buy by legacy type home versus mobile but just expect that it works on any of their devices.

George Sutton

Analyst · Craig-Hallum. Your line is open. Please go ahead

That’s very helpful perspective. Thank you.

Leslie Arena

Operator

Next question, Operator?

Operator

Operator

Our next question comes from the line of Greg Burns of Sidoti & Company. Please go ahead.

Greg Burns

Analyst · Greg Burns of Sidoti & Company. Please go ahead

Good morning. If you look at the -- could you just compare the Brazilian offerings with your domestic offerings in terms of may be ARPU and then also, are the Brazilians subscribers included in the GLAs in the total subscriber numbers that you will be reporting on a go-forward basis?

Marc Lefar

Chief Executive Officer

So let me take the first part of that. And I’ll ask Dave to comment on reporting structure because of the joint venture structure. So in terms of pricing, keep in mind that the Brazil market is actually a bit more like the U.S. market was 10 or 12 years ago. To call from city-to-city or state-to-state in Brazil, you are paying significant per minute charges. You pay differently on mobile phones based on time of day and whether you're on your own carrier, mobile-to-mobile calling within the carrier network or to different carriers. Over the last decade in the U.S., we’ve all become accustomed to flat rate pricing. Business doesn’t matter inside the country. That simply doesn’t exist with any major carrier in Brazil. So our value proposition is anywhere in Brazil you’ve the ability to make calls regardless of distance at one flat rate. Calls to mobiles, which have very high termination rates and are on a permanent basis, we provide significant discounts, roughly 50%, to what other carriers are providing, and that comes inside of existing package. If you want to upgrade that to include international calling to the U.S., our rates for international calling are about 80% lower and which you can get from anybody else. So our international value proposition is huge. But to be clear, our primary market segment really is domestic calling regardless of device in Brazil. And as I mentioned earlier, it is making calls from cordless phone in your home or from your mobile phone from the very start. So that’s all about the value proposition. And we’ve seen a very strong initial traffic into our website and telesales center, it’s only in two small markets and it’s been less than two weeks. So we don’t have a lot of quantitative numbers to report at this point. We will obviously reporting our progress in future quarters, ARPU, because we don’t know the rate plan next in totality is difficult to project, but it’s going to be roughly similar to Vonage World kinds of services depending on what attach rates we have in some of our enhanced features. You can think about that as roughly the $30 U.S. equivalent ARPU, plus or minus 10%, 15%, so that gives you a ballpark kind of range. We are not entering with BasicTalk like sense of pricing, it’s more like the traditional Vonage ARPU. So you shouldn’t expect to see any kind of dilutive impact the ARPU would have on a consolidated basis. And then I will talk -- I will forward to Dave to talk about the reporting.

Dave Pearson

CFO

Sure. Greg, going forward, you will see GLAs from Brazil in our total GLAs reported. So we consolidate the joint venture. We have consolidated and we will continue to consolidate the joint venture. That didn’t change with the ownership change. And hence, you will see GLAs and net lines appear in our reporting going forward.

Greg Burns

Analyst · Greg Burns of Sidoti & Company. Please go ahead

Okay. Thank you.

Leslie Arena

Operator

Next question, Operator?

Operator

Operator

Next question comes from the line of Michael Latimore of Northland Capital. Your line is open, please go ahead.

Michael Latimore

Analyst · Michael Latimore of Northland Capital. Your line is open, please go ahead

Thanks. Thanks for the nice quarter. The COTS per line, is that -- that’s very low, that’s sustainable do you think?

Dave Pearson

CFO

I would say that the main components of their termination costs and network costs, and termination costs are the things that tend to fluctuate and have been driving the decline in COTS. A big part of that for us is international long distance, termination costs and we’ve had a very good trend on those. They can fluctuate, it depends on the country. We typically have a contract with a termination partner or termination partners in a country. And depending on what that contract looks like, the rate can fluctuate into our favor over the last few quarters. And more over, we’ve done a lot to try to control that. And in particular, we have a contract with Tata in India, which has been publicly filed, which governs our termination there. That’s the biggest country in which we terminate traffic.

Marc Lefar

Chief Executive Officer

Mike, I will add to that just the -- as you think about the components of COTS if we’re thinking about VBS for example, that COTS per line is obviously quite sustainable because it’s primarily domestic. So the savings we’ve got, those are sustainable, those are systematic and won’t change. But as Dave rightly pointed out, the real variable portion and frankly the only one that could even be material is termination to India, so we watch that carefully, we try to manage that, we have very good and highly competitive long-term contracts with India. I would also mention that if we’re to see any kind of increases, we know that we’re at least as buffered as all the major competitors that are completing calls to India. We believe we’ve got a competitive advantage to that country, which is the one that has the largest international COTS cost to us.

Michael Latimore

Analyst · Michael Latimore of Northland Capital. Your line is open, please go ahead

Okay. And with regard VBS, you mentioned the possibility of going up market there, any new thoughts there that’s something is definitive or still looks?

Marc Lefar

Chief Executive Officer

Nothing definitive at this point in time, Mike. We have been focused primarily on accelerating what was already a very nice trajectory that Wain and his team had delivered. We are pleased with the branch transition which is complete. The team is doing a great job improving our search engine marketing. We are comfortable that we’re able to keep track of growth and keep up with the pace of growth and accelerate that by expanding our existing channels. And we’ve got additional folks that are spending a lot of time thinking about and actually working on a host of strategic opportunities, which includes actually inking white label partnership with large third parties, as well as going up market directly, M&A activities and actually this will leave a large solar opportunity that the Vonage brand can extend to. We would have to build out and improve self-service capability to deliver that. So we are still looking through the priority and sequencing of those, but we are pretty pleased right now fishing in the existing pond, but you can’t help but look at in this marketplace, which is pretty greenfield, how fast you want to move into some of these other segments. So I expect you will hear little bit more about our plans in the next three to six months.

Michael Latimore

Analyst · Michael Latimore of Northland Capital. Your line is open, please go ahead

And just last question, on VBS, what kind of features or where is the R&D focus the next -- the remainder of the year?

Marc Lefar

Chief Executive Officer

Wain, would you like to take that one?

Wain Kellum

Analyst · Michael Latimore of Northland Capital. Your line is open, please go ahead

Sure. So mainly, we’re working on building capacity out, because we see an accelerated growth and so a decent amount of R&D of just building out capacity. We are adding features that we need for. And as you know, Mike, larger clients are willing to use our cloud service when they need more analytics and more reporting. So we are adding analytics and more reporting. And we also are working really hard with the Vonage core mobile team to integrate combined mobile strategy where people can do more and more things and leverage a lot of the rich robust features that Vonage has been offering their consumers, like video voicemail, but you will see a lot more mobility things come up.

Michael Latimore

Analyst · Michael Latimore of Northland Capital. Your line is open, please go ahead

Great. Good luck.

Leslie Arena

Operator

Next question, Operator?

Operator

Operator

The next question comes from Dmitry Netis of William Blair & Company. Your line is open, please go ahead.

Dmitry Netis

Analyst · William Blair & Company. Your line is open, please go ahead

Yes, thank you very much. I have three questions, guys. First, I think just to sort of follow on, on the India side. Did I hear you guys say that the current channel program includes the referral network only for VBS? And if so, can we expect you guys to go into this maybe enablement mode where some of your VARs potentially kind of own the customer and your revenue share that which might kind of drive better sale momentum. Any thoughts there would be great.

Marc Lefar

Chief Executive Officer

So let me just clarify my comment and then I will let Wain describe the enablement for VARs. No, the referral network is not the only channel, it is one subset. We have increased the number of VARs channel over the last couple of quarters. The nature of those agreements and how that’s progressing, I will let Wain talk about that in bit more detail.

Wain Kellum

Analyst · William Blair & Company. Your line is open, please go ahead

Certainly , and then just to be clear because of some ties back to Mike Latimore’s question as well as moving a market. The unique dynamic that we are seeing at VBS is that in our core market we serve and this is what market has a little bit more detail. And the core market we serve, we are finding that for every dollar, marketing dollars that we spend we can generate an increasingly larger number of lifetime value. So some of our competitors felt the need to move up market because they have started to see a market decline and marketing efficiency, and what we are seeing is the exact opposite. Our lifetime value in our core market is doing well. And then when you take our cost advantage, that’s significant and meaningful, our lifetime profitability is compared very favorably to people we compete with. So a big part of our effort is just cutting more and more dollars to work to generate a kind of flow that we have been generating in the past. Marc mentioned paid for click, that’s going very well. Our organic work on the website is doing very well. Our direct mail and our outbound is going very well. Our referrals continue to scale a long side. One of the new things that Marc mentioned is January that we launched an ability for Vonage residential customer to refer. And although we are early on, we already have 1,000 people registered. We think that over time can be meaningful as well. So we see a tremendous amount of upside that we can continue to grow pretty rapidly in our core market.

Dmitry Netis

Analyst · William Blair & Company. Your line is open, please go ahead

That’s helpful, Wain. So there is nothing in store at the moment to pin out what market will have thought, our channel partners really take something better?

Wain Kellum

Analyst · William Blair & Company. Your line is open, please go ahead

Resellers are an important part of business model, and so that continues to grow as well. And in fact, the number of resellers that we’ve added since, we are very pleased with the number of resellers we’ve added since we closed the transaction. And the thing you are mentioning Dmitry is that there are certain kind of resellers that are interested in partnering with Vonage, but either in a white label or a cobranded scenario. And so they are interested in using our software, but they want to own the customer, they want to own the terms of the service. And our software is enabled to be able to white label as well as cobranded. And Marc had mentioned in his formal statement that our expectations of that through the end of the year will be able to announce several white label or cobranded relationship that should be meaningful in 2015.

Dmitry Netis

Analyst · William Blair & Company. Your line is open, please go ahead

Very good. Thank you. That helps answer that question. And then very quickly on the other side of the business, Marc, I think you said the Amazon is a project or one of the retail channel partners you are working on, that is quite interesting. Can you elaborate on that and how material that contribution might possibly be for BasicTalk and is that just domestic or do you think they can also take you outside the U.S.?

Marc Lefar

Chief Executive Officer

The only thing that I am really permitted to share at this point in time is we have signed a definitive distribution agreement will be distributed on Amazon.com. This is not a white label agreement. It will not be under Amazon brand. It will be the BasicTalk brand sold through the traditional Amazon retail store environment. Beyond that, there is not additional perspective I can share with you at this time.

Dmitry Netis

Analyst · William Blair & Company. Your line is open, please go ahead

Okay. And when is that launch, again is at this quarter?

Marc Lefar

Chief Executive Officer

It will be before the quarter is over, yes.

Dmitry Netis

Analyst · William Blair & Company. Your line is open, please go ahead

Got you. All right. Thank you. And then the last one sort of a high level thoughts on the new leader you guys are looking to hire, to replace you Marc, I mean, obviously goes without saying, there has been a tremendous progress on the turnaround and what you have done with this company. So, what are some of the qualities you are looking -- you for in the new leader? What’s the focus going to be on? Is it revenue grow, mostly is it something else? Can you give us a sense of that?

Marc Lefar

Chief Executive Officer

Yeah. Thanks for that. I mean, just we’ve started the search. We formed the search committee. We’re down with the final selection among the few top search firms we expect to be well underway in the search very, very quickly. In terms of the range of experiences of the type of leader, we’re looking for a lot of established and prudent leaders that will have understanding of technology and software. We’d love to see somebody who has the mix of business-to-business skill sets, as well as those that might be traditionally expected within Vonage mobile certainly be a plus. But open to a lot of very experience and tenure potential executives. We’ve got a very strong executive team here, so we have the ability to have a different range of profiles that could fit exceptionally well. I think the remix for that CEO is very much unchanged, which is aggressive focus on revenue growth. As you can certainly feel from body language, we’re pleased with the SMB market as presented to us thus far and under my tenure and I fully expect on going. We would expect to continue to invest heavily in that marketplace, while there is a lot of room for significant growth. I think that you will also see a focus on proving the scalability of some of the international ventures and thinking about how mobile can serve all of our business units. I don’t think, you are going to see a substantial change in the fundamental strategies, the way those might be executed, make certainly change overtime based upon the individual fingerprints that are the thinking of a new leader.

Leslie Arena

Operator

Next question, Operator?

Dmitry Netis

Analyst · William Blair & Company. Your line is open, please go ahead

Okay.

Operator

Operator

Next question comes from the line of Raghavan Sarathy of Dougherty & Company. Your line is open. Please go ahead.

Raghavan Sarathy

Analyst · Raghavan Sarathy of Dougherty & Company. Your line is open. Please go ahead

Yeah. Hi. Good morning. Thanks for taking my questions. Just couple of questions from my end. Just on the VBS business, revenues grow 40% year-on-year here in the quarter consistent with what we saw last quarter. But you we talked about more than 70% sequential increase than a net subscriber addition. So can you talk about whether your continuously momentum in the business is so, whether we should expect acceleration revenue growth of the business?

Marc Lefar

Chief Executive Officer

Yeah. So let me hit the topline, hit the top of the ways and then see if Wain has additional comments. So just to clarify, last quarter’s growth was 37%, this quarter was 40%. So actually we’re accelerating growth on what is obviously a larger base. So particularly in light up of doing that on top of merger integration, we are feeling pretty good about the early returns. In terms of the 72% sequential growth that was for net new accounts. So as you we report churn and net new accounts, so that net new account includes both the gross new customers coming in netted for cancellations and that number versus year ago is up 250%, that’s what was up 70% sequentially. Obviously, that's new customers, so that the forward-looking indicator of what future revenues would do. So you can think about that as that’s what you’ve added and that group of customers over the next 12 months will be what continues to ramp in revenues. You won't see much revenues in the quarter from folks who have just signed up is only getting a partial quarter revenues maybe only one bill, maybe two at maximum. So hoping that provides perspective, think about that is a measure of rate of growth for revenues, not exactly the growth, but a leading indicator of revenues going forward and the revenue number speaks for itself, that’s was actually booked and pay for based upon the acquisition from prior quarters.

Raghavan Sarathy

Analyst · Raghavan Sarathy of Dougherty & Company. Your line is open. Please go ahead

Just a follow-up on that if I may. I think, the last call you sort of talked about how the net subscriber additions actually, I believe doubled in the month of December and January, as the previous two months. I guess, my question was do you continue to see that type of momentum continuing in your net sub adds?

Marc Lefar

Chief Executive Officer

Yeah. I think we talked about was the number of bookings that we were seeing shortly after close, that in the prior couple of months before closing to the two months after that we’ve seen a roughly doubling of new customer bookings. That was not net booking. So this net, takes out the lead, this is kind of more of what’s the real net revenue approach versus what are the bookings in sales. We’re not going to ongoing report existing percentages of gross numbers, but suffice to say to achieve a 72% sequential increase in our net, we continue to see very, very strong acceleration versus pre-closing on our gross account sales.

Raghavan Sarathy

Analyst · Raghavan Sarathy of Dougherty & Company. Your line is open. Please go ahead

Okay. And then on the core business, I know, Marc, you talked about some of the factors that impacted like weather and some increase churn coming from retail and also redirect leads to VBS. But then you have some new things happening out in a retail distribution. So you kind of look at all the different factors, how should we think about the core business that will use or going to be stable from here now or should we expect some growth in the business or how should we think about given some of the puts and takes here?

Marc Lefar

Chief Executive Officer

So, I think, you should be thinking about the core business is one that has and will continue to provide very stable strong cash flow. We do see opportunities for growth in certain sub-segments and we certainly, BasicTalk being one of them. It’s ARPU dynamic. It’s quite different obviously than Vonage World. So there definitely some positives that we’re looking at, but there's certainly some pressure that exists within the core business and we’re really focused on making sure we’re doing this cost effectively. So as you’ve seen, we have actually invested some in selling and marketing in the consumer business and we’re trying to optimize. And we can redeploy dollars into other business units and get a better return for revenues that we’re going to be able to and we are going to make that decision. So we're not going to limit ourselves by unit. Our goal is to take the investment make in selling and marketing resources and optimize that for the full company. But generally, I think, you can think about the core business as stable and we will see fluctuations in different sub-segments positive and negative. The one thing that will be an ongoing hit is we’re getting much better yield by taking all of our small business leads that were coming in, many thousand of them every quarter into the Vonage website and we are handing those directly to VBS, whereas we’re seeing a higher increase, a better number of average lines per lead as well as higher ARPU and we turn them over to VBS. It’s still a very small percentage of VBS’s growth, but it is on a sequential basis something that is a long-term shift and where the consumer business is benefited from. So, that one is not one that’s going to go away.

Raghavan Sarathy

Analyst · Raghavan Sarathy of Dougherty & Company. Your line is open. Please go ahead

Okay. Thank you.

Leslie Arena

Operator

We have time for one more question Operator.

Operator

Operator

Our final question comes from the line of Robert Routh of National Alliance. Your line is open, please go ahead.

Robert Routh

Analyst · National Alliance. Your line is open, please go ahead

Yeah. Good morning. Nice results. A couple of quick questions. You mentioned that you have four new retail change in addition to Walmart and Amazon for the BasicTalk product. I’m wondering if you could tell us who they are, give us any sense, obviously it’s a big endorsement to you product to get that many people moving and carry it in addition to Walmart, but do you have any more insight as to who these partners maybe?

Marc Lefar

Chief Executive Officer

Rob, its Marc. I would love to share, but unfortunately the partners won’t allow us to do that until we’re actually in distribution and frankly for some competitive reasons I probably wouldn't want to reveal that. But obviously, tripling the size of distribution, you could probably look at the number of mass merchant. These are not small players, these are large mass merchandisers. You could probably come up with a shortlist if you think they would be not permitted to share at this point.

Robert Routh

Analyst · National Alliance. Your line is open, please go ahead

Okay, great. Fair enough. And one follow-up on the Amazon relationship. I know you can’t say much about it right now, they’re just kind of reselling their product on the online environment. But is it safe to say that there is nothing prohibit that relationship from deepening, and at some point if you wanted to, it is potential for you and Amazon to enter into a larger scale kind of deal given the Amazon Prime doing video and all that, the Facebook acquisition that was made recently. Is it safe to say that that could happen going forward or is that out of line to deepen the relationship?

Marc Lefar

Chief Executive Officer

I think, I’ve talked in the past about suggesting that you BasicTalk is a white label kind of product for any number of large consumer friendly brands that have a forward leaning technology bias would be a wonderful fit. So we would certainly love to see that relationship deepen over time. And if we see some success maybe there will be some interest in that, believe me very much open to it. I should mention because I think I was not clear earlier, the relationship with Amazon is not just for BasicTalk, we’ll be selling Vonage in the online environment for Amazon as well. It was the doors with the mass merchant that I was referring to that was BasicTalk expansion only.

Robert Routh

Analyst · National Alliance. Your line is open, please go ahead

Okay, great. It makes sense. And just the last question is, can you give us an update as to your patent portfolio, obviously you’ve got a fewer during the quarter, you have a big patent portfolio already, a bunch of pending, a bench of granted. Obviously, you don’t get any value in the stock price for them, but clearly they have value, otherwise you wouldn’t go after and secure them. Could you give us an update as to that and what the outlook is for this year in terms of what you expect in term of patents granted?

Marc Lefar

Chief Executive Officer

We continue to have a patent intellectual property extraction process that we run monthly and quarterly. You’ve seen the pace and we’ve talked about some of the very specific numbers. We can shoot those to you again if you don't have in terms of what's been issued recently. We can't project what that harvesting will be and what will actually get granted, but we do have hundreds of applications pending in the U.S. and abroad. And we expect to continue the pace of innovation and to protect those inventions, but you can expect that historical course and speed to largely continue. Of course, we can’t guarantee you what the pattern office is going to do.

Robert Routh

Analyst · National Alliance. Your line is open, please go ahead

Great. Thank you very much.

Leslie Arena

Operator

Okay. With that, we will conclude our call today. Thank you for joining us this morning.

Operator

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day.