Good day and welcome to the Vonage First Quarter 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.

Okay, great. Thank you, Nicole and good morning and welcome to our first quarter 2018 earnings conference call. Speaking on our call this morning will be Alan Masarek, Chief Executive Officer; and Dave Pearson, CFO. Also joining us are Kenny Wyatt, our Chief Revenue Officer. Alan will discuss our strategy and first results and Dave will provide more detailed view on our first quarter results. Slides that accompany today's discussion are available on the IR website. At the conclusion of our prepared remarks, we'll be happy to take your questions. As referenced on Slide 2, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's expectations, depend on assumptions that may be incorrect or imprecise and are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties highlighted on the second page of the slides and contained in our SEC filings. We caution listeners not to rely unduly on these statements and disclaim any intent or obligation to update them. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available in the first quarter earnings press release or the first quarter earnings slides posted on the IR website. With that, I would like to turn the call over to Alan.

Thanks, Hunter. Good morning, everyone. We delivered a strong first quarter and these revenues were $137 million, a 22% increase consolidated revenues were $254 million or 4% increase and adjusted OIBDA was $42 million. I'll start this morning by reviewing the progress of our corporate transformation. In just four years, we've executed a strategy to transform Vonage into a cloud communications leader. Essential to this strategy, we're creating a single communications platform internally referred to as One Vonage. From which we will drive better business outcomes on behalf of our customers. Our One Vonage communications platform is the integration of the next Nexmo Platform and Vonage business cloud. The UCaaS Platform stacks we announced last quarter. All the platform stacks leveraged a micro services architecture with open APIs built on a public cloud infrastructure. From our One Vonage platform we will provide solutions ranging from packaged applications like PBX, contact center and collaboration of work stream messaging to programmable communication applications delivered via Nexmo software APIs to integrations into other workflow applications via our Vonage Integration Suite. As one example of the power of our platform approach, we're using Nexmo's sentiment analysis as in AI agent that identifies in real-time the effectiveness of a customer care call and then uses skills based routing to escalate as necessary to improve caller satisfaction. This has created a superior contact center offering and as a result, we believe we can grow contact center revenues even faster than the 60% growth we delivered this quarter. As another example, we won a large contact center customer by combining our Voice API, VAPI with Nexmo's sentiment analysis. This solution replaced $250,000 in voice services ARR previously provided by one our public UCaaS competitors. Now let's review some enhancements made to our cloud platforms during the quarter.…

Thanks Alan and good morning, everyone. I'm pleased to review our financial results for the first quarter of 2018. As in the past, quarterly growth rates reflected in our presentation slides and during our prepared remarks were on a year-over-year basis unless otherwise noted as sequential. Starting on Slide 6, consolidated revenues for the third quarter were $254 million up $10 million due to the $25 million of growth Vonage business added more than offsetting the managed decline of $15 million in consumer. Given that business is now the larger of the two segments and growing twice as fast as consumers declining, Vonage is now a consolidated revenue growth and cash flow company. Service margin and gross margin were both consistent with the last three quarters at 70% and 59% respectively and down year-over-year due to services and product mix changes. This last three quarters of stability of our consolidated margin structure speaks to the power of our common scaled network infrastructure concerns both our consumer and business segments. Before diving further into the results, I'd like to review with you some reporting changes we made to align with our strategy and reflect Vonage's transformation into a cloud communications company. We have updated our income statement and summary operating data, which I'll also refer to as KPIs to give investors more clarity on consolidated Vonage as well as on the business segment which is expected account for more than 55% of consolidate revenue in 2018. We believe these changes will enable investors to better compare Vonage to our peers. We made three income statement reclassifications in the first quarter of 2018. One; moving the remainder of access related or non-cloud revenue out of service revenue and into product clash [ph] access revenue. Two; moving cost associated with delivering access and…

Okay, Nicole. Let's go ahead with the first question please.

[Operator Instructions] our first question comes from George Sutton of Craig-Hallum Capital. Please go ahead.

It's Jason for George. Couple questions on the channel, probably I guess one for Alan if you can just give us some more reaction on the new channel portal that you launched. And the other follow-up would be how quickly can channel partners get up to speed in the new CPaaS product that you're introducing and then for Dave. I know you've established some goals on where you want the channel contribution to be at, so just wondering if you can give some thoughts on where you think sales and marketing spend would go, if you can achieve those targets?

Jason, let me Kenny answer your questions on the channel on the portal.

Jason good morning, did you know we launched two pretty significant channel programs in the quarter. The first was what you just mentioned which was the portal. This is feedback we received from the channel was, we want it to be easy to do business with Vonage and so the portal enables us to go do that through sharing marketing leads and programs with directly with the channel, getting their ticketing done through channel, the compensation done through sorry through the portal as well as things like deal registration. So it really lays a nice foundation for us to continue to accelerate our revenue in the channel. As it relates to CPaaS, we launched Vonage Reach [ph] as you know late last year to the channel and we're seeing nice uptick with that product, but more than that, we're also seeing a couple of our master's actually use the CPaaS product to run their own business, which has been pretty interesting as they utilize our product to enable their own agents if you will, with that product and so we're seeing that - the usage and adoption happen with the channel, we're going to continue to focus here in the key route to market for our 2018 strategy.

And I'd say that the activities that we're pursuing in the channel are built into our guidance and into our sales and marketing view in general, sales and marketing will be flat to slightly down as the year progresses and some of that is some remixing between media and sales commissions which would be the channel.

Okay, great. Thanks guys.

Our next question comes from Rich Valera of Needham & Company. Please go ahead.

Another question on sales. I was hoping you could address where you think you are in the productivity of the direct sales teams added last year. I think you added eight teams in new cities last year. is there still some productivity to come as particularly the ones added late last year, maybe continue to ramp up that productivity curve.

Rich, its Kenny. The answer to your question is, yes. Particularly those that we added in the third and the fourth quarter as you know, we kind of ramped that market rollout late last year. And so I'm still expecting productivity gains to come up for those brand new reps and how we're enabling that it really is, in two ways one is the ecosystem, we surround that rep with [indiscernible] sales tools and kind of smart selling strategies for them. But also equally is important is channel teaming, we just channel teaming earlier in the quarter and so that's where we're essentially taking our channel partner acceleration teaming it with our field sales team, in order to continue accelerate deals through the funnel and so those two key strategies is what we expect, to continue to drive rep productivity [indiscernible].

Great and just quick one on contact center. I think Alan you mentioned that, contact center revenue was up 60% in the quarter. I was curious, just to get a sense of the magnitude of that revenue in absolute sense. If there's any color if you're willing to give there and kind of how significant you view contact center is, as a driver of overall business revenue while going forward. Thanks.

Rich, I can't share you the specific numbers but we view contact center as a very integral element. One because it is increasingly driving UC, so CC is driving UC but the other is so much of the programmable communications the Nexmo APIs relate to external communication to customers and how you route that customer internally to the appropriate employee. So for instance, I'm on a website I now want to route to the appropriate person who can follow-up the part of the website that I'm interested in, I'm looking at an airline flight or what have you. The software understands the itinerary I was trying to book and routes me through the IVRs to the correct agent. So there is a natural marriage between Nexmo and contact center. So many of these examples that I gave in my prepared remarks show we're doubling down in this area to make that experience better and to tie in Nexmo more tightly.

Got it, that makes sense. Thank you.

Our next question comes from Dmitry Netis of William Blair. Please go ahead.

I wanted to kind of touch on your guidance a little bit and kind of the reporting that you've done to make sure that we're kind of still on track. Your guidance for the business services, is it still kind of in that 596 or 5 range. I know that the service revenue, I think I've heard you say 143, 144 for the June quarter. Does that still kind of line you up for the guidance you outlined in the previous quarter for the full year? And then same thing on EBITDA. I mean are you still expecting kind of $195 million of EBITDA this year and within that business revenue guidance will Nexmo still grow at 40%. So just kind of - I wanted to dot the I's, cross the T's here.

Yes there is no change to our annual guidance, we decided just to give people as we did last quarter a view into 2Q, so people can understand how the revenue and OIBDA is ramping. I would say that relative to when we gave guidance on revenue, we're de-accelerating access faster than we thought but that's a good thing for us, some intentional thing and it's - access tends to be a pretty big cost driver and we're shifting handset sales pour into rental which pushes that revenue out, but there is no change to our guidance on revenue. On EBITDA same story, as you recall last year through the first half we printed [ph] $78 million of adjusted OIBDA and obviously had a result of that was $100 million, ahead of that so we're seeing what we think is a similar trajectory this year and just wanted to help people understand that similar to last year what 2Q looks like.

Okay. Dave. And then as far as the mix shift within the business service revenue, would Nexmo grow in 40% versus UCaaS implied guidance. How does that sort of translate as you kind of move into June and then the rest of the year? Has there been any changes there?

No, so when we gave guidance we thought about it and we run the business on a consolidated basis. We decided to give people the UCaaS and the CPaaS revenue difference just so they understand what's happening, but as with the KPIs, we're really starting to, we're more and more running the business on a combined basis and so when we gave the guidance, it was a combined basis and we standby that guidance on a combined basis.

Our next question comes from Tim Horan of Oppenheimer. Please go ahead.

It's kind of more a qualitative question, but I guess where are you in the integration both functionally with CPaaS and UCaaS and the go-to-market strategy. I guess on the timing of it, at a higher level, maybe just some qualitative more examples on customer wins here. And just following up, it looks like the business revenue growth is going to accelerate each quarter for the remainder of the year. I know you're not giving guidance for next year, but it seems like it's accelerating existing the year. Just any thoughts on what the longer term outlook is for the combined business revenue growth. Thanks.

Tim, this is Alan. Let me take the first one and Dave will take the second. We feel really good about the integration on UCaaS and CPaaS, what I described in my prepared remarks is, we dealt out the Vonage business cloud stack focused initially in UCaaS pointed applications and we will be marrying that with the Nexmo stack technologically to have one single platform, so if you think about it in a simple way, underlying Vonage business cloud there is video, there's audio, there is messaging and under Nexmo there's video, audio and messaging. So it just makes good sense to bring that together under what we now refer to as the One Vonage platform. As that works going on and it's very active right now, will continue throughout the year and into next. Operationally and organizationally we've been integrating in a very big way. So organizationally, our business every functional area reports up to a common leader. Kenny is the Chief Revenue Officer for all business revenues. Omar is the Chief Product Officer for all products so [indiscernible] for all engineering across both, then what's happening on the ground with the sales people, is on deals of any size the sales people, the UCaaS sales people actually leading with CPaaS because it gives them the ability to go into a customer opportunity and basically talk about the unexpressed need as opposed to the expressed need. So a customer says, I'm looking to move my prem [indiscernible] to the cloud, rather than going in there competitively against others and have to sort of pound the table buy me because my ungroup or auto attendant is better. You can actually shift the conversation to talk about how I'm going to help that company with its business outcomes, using these Nexmo tools that how it communicates with its customers. Sales people gravitate to what works and that's exactly what they're gravitating to. So this whole process is accelerating and so we're very, very bullish about it and everything that we're doing both in terms of technical integration, organizational integration and operational integration all is driving towards this result. Turn it over to Dave.

Tim, right now we're not prepared to comment on 2019 quantitatively. Other than to say that we feel like there is good momentum and that momentum is going to build in 2018 and that's a math behind our consolidated growth, is absolutely going the right way to the point whereas we talked about, we see a double-digit consolidated revenue growth quarter at some point in 2019.

Thank you.

Our next question comes from William Power of Baird. Please go ahead.

Just a couple of questions, maybe just starting on the UCaaS side drilling down under 16% services growth. I guess qualitatively maybe I missed this, but any further color you can provide in terms of what the SMB trends look like versus bit market enterprise and maybe just any updates competitively - the larger companies you're targeting.

Will, its Alan again. So consistent to what we said last quarter. our focus is up market in a mid-market enterprise that growth rate we expect for the year to be greater than 25% and the micro segment which we're over indexed to because that's where we came from, is slower than the 16% and the up market, mid market enterprise is higher than - is higher. So we're driving to the up market all our programs are moving to the up market and we're just growing our way out of the being over indexed to the micro segment.

Okay, that makes sense. And I guess as you target the enterprise segment in a bigger way. Any update as to what you're seeing competitively pretty status quo over the last couple of quarters?

Kenny, why don't you take that?

We continue to see in the enterprise space not only because of traditional providers that often times we're replacing from an on prem perspective, but also competition from our failed [ph] communications peers in those same deals. I mean the good news, we continue to see in that enterprise space adoption occurring and accelerating for moving away, it is the cloud value prop moving away from an on prem system to unlock, the value, the opportunities to integrate into things like back office systems and utilize things like CPaaS as you move to the cloud.

Okay and then I just want to ask question on Nexmo, you called out - to continue to success in Asia Pac, I guess I wonder what you're seeing for Nexmo in the US at this point. I mean I think VAPI is still early, but I'd just be curious if there are any numbers you can provide as to absolute revenue, revenue growth both in terms of messaging and voice as we look at the US market.

Well it's Kenny again. We don't share it kind of segment - sorry geographic specific growth rates or total revenue. But what I'll tell you is two things. One is, we're starting to see voice and VAPI adoption in the US, Alan mentioned a couple of key features that we launched earlier this year along with the program around them, things like split recording and call whisper. We're starting to see pretty significant take rates for those in the US. Obviously it's small, but growing very, very quickly. The second I got to tell you, we continue to see traction in the US broadly across the entire portfolio, some pretty big wins this quarter around things like 2FA, as well as things like SMS for instance Shopify here right in the US. Where we're seeing customers like that adopt not only kind of the SMS platform, but also expect to grow in the VAPI platform as well.

Our next question comes from Catharine Trebnick of Dougherty. Please go ahead.

Alan, I just have a clarification. You had said contact center was up 60% year-over-year, just so I understand apples-to-apples. When you're talking about that piece of the business, is that Vonage skill based routing that you introduced in the middle of March 12 around or is this your reseller arrangement with the other call providers, contact center providers or is this part of the BroadSoft suite. Thanks.

Catherine, it's both. It's both.

Okay.

And so we have with Vonage business cloud varies a contact center or there's routing capability within BroadSoft itself on the Vonage enterprise solution and then the advance contact center resell relationship is within contact. So when we talk about contact center, we talk about in aggregate.

And then you had mentioned that you had a pretty robust product roadmaps and team collaboration, is that going to be in-house development effort or are you going to team with one of the Slack [ph] or one of the other big providers.

Well this is in-house development and to be own IT, but our view is that you need an integrated product that functions in an integrated way, so not separate apps like some of our competitors have, where the user has to switch out of the communication app over to - let's say workstream messaging or what have you. So we'll have our own integrated solution but we'll also integrate with others out there because obviously if you will whether it's Slack [ph], Stride [ph], Teams [ph], WebEx what have you. There is a great deal of activity by many large companies in their own collaboration solutions and workstream messaging solutions. So ours will have our own integrated and also the ability to integrate into others.

All right. Thank you. I'll move out of the queue.

[Operator Instructions] our next question comes from Michael Rollins of Citi. Please go ahead.

Was curios if you could talk a bit more across the different sizes of enterprise that you're going after. If you could discuss how you view the barriers to competitive entry. Are they rising? Are they falling? And maybe you could share some anecdotes of what you're seeing competitively. Thanks.

I'll start and then I'll turn it over to Kenny. The way we think of enterprise Mike, this is Alan again. Is the best enterprise prospects for cloud are distributed companies. So think about those with literally thousands of locations and you can sort of think through retail, food service, restaurants, insurance, finance, etc. those companies that literally hundreds of thousands locations, that's where the cloud works perfectly. As oppose to 10,000 employees in a common location. In those situation prem is going to stick around much longer in our view, so that's been the focus from the enterprise side. The barrier in enterprise is that, this is a complete step function the increase in the required level of service delivery, enterprise support, monitoring, analytics, security and so forth. These companies have very high expectations and I would suggest that there's a relatively few number of companies that have organized and resources around to serve the higher need of the enterprise segment.

Yes, this is Kenny. Mike good morning. The thing I would add to that is, Alan is spot on. Obviously the service delivery piece of this particularly in the enterprise space is the key [indiscernible]. I'll give you an example, we announced last year the large real estate win for 2017 and we're in the middle of implementing that very, very complex multi-thousand site deployment and it's very complex as you can imagine, right? You're taking thousands of users and moving them from an on prem to the cloud while also not providing zero interruption in how they serve their customers every single day. To do that one site is relatively straightforward; to do that across thousands of sites simultaneously becomes very, very complex. The good news is, we built tools, people in processes in order to go handle these large kind of multi-geographical, multi-regional site deployments that tend to be very complex.

Thanks.

Our next question comes from Mike Latimore of Northland Capital. Please go ahead.

This is actually Vijay for Mike Latimore. Thanks for taking my question. One quick question is, what are the CPaaS revenue. How do you see the CPaaS revenue growing for the rest of the year?

Sure it's growing at a similar pace than it is right now and again as I mentioned to Dmitry that's embedded in the guidance.

Okay and one more question about the churn level. Do you see the churn levels to be at this current level for the rest of the year or is it going to change, any reasons for that?

I think churn will be flat to down slightly as the year progresses. This is a new KPI and so it includes the CPaaS business which was not in the calculation before, that can lead to and also having bigger accounts can lead to both more stability, but can also lead to more volatility particularly on some of the CPaaS services where some companies come in and out seasonally. So there is some volatility there, but I think flat to slightly down, is what 2018 looks like.

Great. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Hunter Blankenbaker for any closing remarks.

Okay, Nicole. Thanks very much and thanks everyone for listening in this morning. We look forward to visiting folks throughout quarter at various investor conferences and those will be webcast for those that cannot attend.

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