Good morning and welcome to the Vonage Holdings Corporations' Third Quarter 2019 Earnings Conference Call. All participants will be in a listen only mode. I would now like to turn the conference over to Hunter Blankenbaker, Vice President of the Investor Relations. Please go ahead.

Okay, great. Thanks, Debbie. And good morning and welcome to our third quarter 2019 earnings conference call. Speaking on our call this morning is Alan Masarek, Chief Executive Officer and Dave Pearson, CFO. Also joining us is Omar Javaid, President of the API platform. Alan will discuss our strategy and third quarter results and Dave will provide a more detailed review on our third quarter results and our fourth quarter 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.

Thanks, Hunter. Good morning. We delivered a solid third quarter. Consolidated revenues increase 16% to $303 million and business revenues reached $207 million. Business service revenues grew 23% on an adjusted constant currency basis; adjusted OIBDA was $45 million. I'm delighted to report that Vonage campus, our first ever worldwide user developer partner and customer conference held last week in San Francisco was a great success. We unveiled a completely revitalized Vonage brand as our single unified global identity. Our new branding positions Vonage as a modern B2B SAAS company. At campus, we highlighted our differentiation as the world's most flexible cloud communications platform to emphasize our ownership of the entire communication stack across unified communications, contact center and programmable API's. Campus had more than 1000 registered attendees, representing a broad cross section of communication users. This is consistent with our integrated strategy for platform based communications, where we uniquely serve the entirety of the cloud communications tam, from one flexible cloud native platform. Vonage campus helped me to step back and reflect on the enormity of our transformation. I joined as Vonage's CEO exactly five years ago today. Our goal then and our goal now is largely unchanged. We are building a profitable high growth B2B Cloud Communications Company based on our one Vonage platform strategy. As I look to the future, business revenues will be an ever increasing percentage of consolidated revenues. And I expect consolidated organic revenue growth continue to increase. Our acquisition strategies spot this transformation; our OneVonage strategy uniquely positioned us as a fully owned cloud native technology platform. And at Vonage campus, we revealed a revitalized company operating under a single global brand. We have been on this path for five years, and we are well positioned to drive this transformation to fruition.

Thanks, Alan and good morning everyone. The third quarter came in consistent with our guidance across all key metrics. Let's begin with a review of the quarter on Slide 10. Vonage business revenue was $207 million, representing 68% of total revenue and a 34% GAAP increase. Business service revenue increased 23% on an adjusted constant currency basis. This was our 23rd straight quarters of more than 20% organic growth of Vonage business service revenue. Business service revenue growth is our focus as we de-emphasize access circuits, sell fewer desk phones and pass through USF revenues to the federal government. As with the prior quarter, this revenue growth rate is suggested in two ways: the performance for the new voice media and talk box acquisitions as if we on both for the full year 2018. And it adds back the write down of approximately $1 million of new voice media is deferred revenue balance, which was required under GAAP purchase accounting rules. Also, as in prior quarters, we have included tables on Slide 20 to 22 of today's presentation, and in the press release that provides detail on the adjustments I just noted, and the desegregation of our business revenue by product. API platform revenue all of which is service with 80 million up 46% GAAP and 48% on an adjusted constant currency basis. Revenue from applications was 126 million, of which 103 million was service. Application service revenue was up 32% GAAP and 8% on adjusted constant currency basis. I'd like to provide more color on application service revenue, which was impacted in the quarter by growth of deferred revenue. As we've been moving up market and booking larger contact center deals, the lag between booking and installs has elongate. This is because larger customers tend to require more customization and have internal constraints on when they release new tools to their employees. As an example, we signed our largest ever contact center deal in Q1, but the revenue from this just starting to be recognized in October.

Okay, great. Thanks, Dave. Debbie, let's go ahead and turn it over to Q&A please.

We will now begin the Q&A session. Our first question comes from John DiFucci with Jeffries. Please go ahead.

Hi, good morning, and thanks for taking my questions. So maybe if we could just talk about a lot of announcements came out of the conference last week, I think notably the video solution in the App Center. I'm curious maybe if you've got initial feedback from customers on the video solution, and how you think about that in terms of changing the nature of the conversation in terms of go to market with customers and I have one follow up questions to ask?

This is Omar. So from the videos, you may recall that originally we had done partnership with Amazon on , you know. So it's very similar to what ring central does today with zoom right we have a partnership with zoom. And what we announced what we've been working on behind the scenes since we acquired TokBox was building a fully integrated video experience using the TokBox video API which is what we announced last week. So I think it does have a lot, one it dovetails exactly with what Alan was describing as a OneVonage strategy. With building on top of building products into platforms, I think that's one. Second thing is, I think from a customer experience standpoint, you have an integrated product offering so you have voice, you have video, you have messaging all in one integrated app. This is true on mobile. This is true on web and this is true on desktop as well. Then just as using the latest and greatest web RTC technologies. Now in terms of go to market. I think this gives us a lot of leverage in terms of not only a strong story, but also the underlying technology platform. It's, I think, this is something will probably market a lot more aggressively in the next year.

Great. And then, you know, just one on the fourth quarter outlook. And as you guys move into the world, targeting larger customers, and the timing continues to evolve in terms of booking to the implementation, maybe if you can give us some color on what the what the forecast pipeline looks like with mid-market enterprise customers, and then maybe, if you give any color on bookings. So we can sort that out versus just thinking about the revenue given the lag in the right timing. Thanks again.

Sure. So we had strong booking quarters in each of the first second and third quarters. And in fact, we talked a bit about contact center specifically, on some revenue deferrals elongation. You know, we had a very strong third quarter of bookings in contact center. So that remains strong, in terms of how that expresses itself in 4Q, the 4Q as growth rates, looks a lot like the 3Q apps growth rate, because we're still experiencing that elongation. But that does kind of stretching in rough band eventually stops, actually, we started to get to the benefit of this deferred revenue, actually hitting the income stream.

I would say let me add to that as well. Sort of broadly, what you're seeing and applications is a strengthening of the pipeline across the board simply because we think about 2019, where we quit actively selling third party solutions, and went all in on our own products only as recently as Q2. Now, that sort of transitional complexity is behind us or largely behind us. And now, everyone's focused now on our own products, where we control the roadmap and our ability to, execute our product development more quickly as evidenced by for instance video meetings, abundance that Omar just referenced. And that now that value propositions getting tighter and tighter as we move forward, and again, then as we direct our sales and marketing across those, you know, a collective up market channels, which is presently field channel and our alliances group.

The next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Great, thanks so much. I wanted to dive in on maybe kind of the API business success outside of traditional geographies. And then maybe also, you've rebranded a lot of the contact center piece under the Vonage brand, but just kind of how clouded CX Cloud Express, first New Voice Media was or just kind of what, how that will be branded going forward and how you'll look at kind of the lighter weight versus the heavier weight, contact center product? Thank you.

Very well as Omar to start on Twitter API oriented questions.

Sure. Hi Meta, this is Omar. So on API, I think your question was on our performance in geographies where we have done well, historically. So I think, overall, we've seen a lot of strengths in terms of growth. Historically, Asia Pacific, for example, has been a market where we've been very strong and that continues to be the case. The US or, let's say, North America has been a market that we put additional focus on, and we've seen really good results as a result of that. So, we're seeing good customer acquisition in North America, I think there's a lot of opportunity in that market, as well. So, you know, EMEA and APAC are strong for us, and historically been strong for us. I think what we're seeing is good momentum in the US and the Americas in general.

Let me take the rebranding question. I think the key construct here is that, we've done uniquely is build a platform. That platform covers all the elements, the major elements of the TAM, whether you're a buyer who's going to buy a pre-packaged, either contact center or unified communications, or increasingly a hybrid of the two, or API's. And so, the point is the rebranding went through and said, as we are a single platform, we are a single global brand, a single identity. So then more specifically, your question about CX Cloud Express or the larger, more advanced contact center, it really almost doesn't matter. It's simply now from one common stack, being able to provide the appropriate product or appropriate solution for the customer. What we find is, larger customers tend to default what we refer to as advanced contact center, formally NVM, while more mid-market or perhaps even large SMV will default to a more lightweight version at lower price points, which is currently branded CX Cloud Express. The whole notion is, you can enter into our system in those two vantage points, or you could come in purely on a unified communication solutions, quite frankly, you can come in with an API doing two factor authentications. And along the way, you simply migrate within a common stack into wherever your use cases require. Got it?

Got it, thanks. I guess just to put a finer point on that. If you would expect more traction still with new voice media or your advanced contact center, but you still expect decent pull through of the lighter weight product as an add-on to the UC platform?

Absolutely. We saw that in the quarter, where you're ultimately going to, we refer to a single pane of glass, which is in one product your user can either access UC functionality if that's what they needed, or contact center functionality if that's what they needed. But it's in a common solution. What we have found is that the lighter weight has worked very well within the traditional master agent channel, which tends to focus much more on mid-market and it fits well there. While we find that larger enterprises clearly default to the heavier weights, but again, if we're just following, if you will, the use cases required by our customers.

Your next question comes from Rich Valera with Needham & Company. Please go ahead.

Thank you. Question on your mid-market enterprise go-to-market. That initiative should have been in place for well over a year and the headline numbers we've seen from a revenue perspective, as you know shown, continued deceleration there. Just wondering if there are any metrics you can provide for us to show us that you are in fact gaining traction on market enterprise. And then relatedly, your 4Q guidance, it looks like business service guidance is about $5 million to $6 million below where the previous guidance would have put it. So just, Dave, if you could tie between the new guidance and the old and how much that's deferred and how much of that is something else. Thank you.

Rich, thanks. It's Alan. The macro point is that the pipeline is going forward in a market, mid-market enterprises are improving significantly. The deceleration in year is really a function, by virtue, of pulling back from third party solutions, focusing everything on our own applications, Vonage Business Cloud, NewVoiceMedia. That's probably the period, if you think back, is sort of the period of the greatest transitional complexity. That's getting quickly behind us, while the product capabilities are improving dramatically in our own product, and sales and marketing is much more effectively aligning around our up market routes to market. That sort of transition is coming through and is looking better clearly in the future.

Rich on the map, the midpoint of Business at this point, based on the guidance we just gave for the years now, $801 million, before it was $805 million and we said in August, we thought we might be a bit higher than that midpoint. What changed is, we've got an additional about $3 million of currency headwind in the second half, of which about one and a half was in 3Q and at this rate, one and a half will be in 4Q. And then, we have about $2 million of difference from this deferred revenue elongation, or revenue recognition elongation in the CCaaS product. In the third quarter, as I refer to, then another million in the fourth quarter. In addition, in the first half, we had some currency. So, that kind of maps you back to what we said in August. In addition to the first half, we have about another $2 million of currency payments. So, if you were going back all the way to our original guidance, we would still have been about the midpoint, kind of between them, the midpoint in the high.

The next question comes from Will Power with Baird. Please go ahead.

Great, thanks. I guess was hoping to unpack application services revenue just a bit further. So, if you're looking at 8% growth, is there a way to break out for us the UCaaS piece versus NewVoiceMedia. I know NewVoiceMedia is facing some pressure which you addressed. You know, if you put that aside, just NewVoiceMedia still growing double digits, and any further color? I guess the second part of that is, is that a business that can still grow 20% or is that a team grower, as you think about the NewVoiceMedia fees?

I'd say two things. The difference in the growth in the quarter was primarily almost completely tied to contact center and this issue on deferred revenue that we talked about. So you know, UCaaS was relatively stable in the quarter, if you looked at it that way. But it really does come down to the cohorts and it's the same story. It's the lower-end cohort was low but stable, the upper-end cohort, because of this deferred revenue, did accelerate. So, we think again, in the fourth quarter, it's hard to get that back. But you're going to start to see that benefits come. In terms of other factors, you had about 1%. If you think about 11% going to 8%, you have about 1%, from that deferred revenue, 1% from what we think about is inorganic things that happened back in the third quarter, when we didn't own NewVoiceMedia, and about half a percent from currency. So, there's very little organic, when you add that back up, there's very little organics difference. As it relates to how that applications business can grow, we think ultimately, it can be a 20% grower, but we're not outlooking that or budgeting to that. This is a business mix shift, that Alan's talking about, it takes time. But I think we have the right pieces in place right now and that's the factors that had the most impact in this quarter tend to be non-recurring in nature.

It's Alan. Let me just add to that real quickly. So, the comment about how well contact center can grow in the future, I think the important thing to remember is that, when we go up market, we are increasingly using a contact center-lead motion to drag UC. What we're finding increasingly is customers are buying those products together. It's always been challenging by any vendor to differentiate UC. On the contact center side, though, it's quite easy to differentiate, particularly given our embed strategy with Salesforce, which makes our product, we believe, demonstrably better based on the win rates that we see in those environments where the customer is using Salesforce. So, we find over and over again that you win heads up against other contact center players in a Salesforce environment. And it pulls UC, is precisely the example that I cited with the Resort Park operator in the UK, that was already an advanced contact center customer, but that pulled in 1700 UCCs, we're seeing that all over the place.

Okay, all right. And if I can just squeeze in a second one, I think you talked about product development, and you know, sales and marketing to help improve results. If you put that in combination with the Vonage branding, announced that at Campus, how do we think about the cost roadmap from here and the likelihood that we can see a step function increase, as we head to 2020 around those initiatives?

No comment on the flows. We obviously are in the middle of the budget process, so we can't make any statements about 2020. So, you've got you got two different factors, obviously have a growing sales force which pushes that number up, you've got a shift of dollars out of the low end of the market, and at one time, most of our marketing dollars were deployed in the low-end of the market. It was the most reliable and fastest return that you could get, as that market has slowed down and we've seen it in within this year. You can see changes in our sales and marketing dollars and mix within the year. We are moving dollars out of that overtime, out of that market, making the ones that we keep there more efficient and putting them into the up market. That up market really for 2020 has two flavors. You know, one is brand and two is lead generation. Where all that math ends up for 2020, again, we're working through, but the majority of it is going to be a remixing of our marketing spend.

The next question comes from James Breen with William Blair. Please go ahead.

Thanks for taking the question. Just on the consumer side, the client's one is great this quarter. Just some commentary there. Do you think that business is starting to sort of flatten out from the client perspective because Churn didn't seem to be up or push up a little bit?

Thanks. Sure. So, I think Churn is generally stable. And the fact that 90% plus of the basis 10 tenured, we have a pretty good idea of how they act. Churn was up sequentially by 10 basis points. And that really was because of the price that we did, that price up is also what's driving the lower revenue decrease than we, and I think the market, expected. So, the price increase that we took primarily a little bit in the first quarter and primarily the second quarter, was more effective than we thought. That being said, we're not planning on taking price increases regularly. So, you know, I think you saw that 11% decrease, you're going to see that in 2020 looking forward, you're going to see that decrease revert back to the organic rate, which again, you know, based on the size of the base is going to be more in the mid-teens. That will take a little bit of time to go from the 11 to the mid-teens, clearly. If we wanted to take another price increase, we can do that, but we like to align that with value being added, features being added, and the market dynamics.

The next question comes from Catharine Trebnick with Dougherty & Company. Please go ahead.

Thanks for taking my question. I've got two. One, I wasn't unfortunately able to attend the rebranding or your conference last week. Can you simplify this? Because it seems like from my gather, Nexmo's now advantage and it seems like you're willing off your platform, maybe not only to have a UCaaS contact center, but perhaps, maybe I just might want IVR or I might just want am omni-channel and not the rest of it, and how do you plan that correct assumption and then how do you plan on pricing this?

I'll just start on brand, I'll ask Omar to jump in on your product-specific questions. What we did very clearly is to announce that our go-forward global brand is Vonage, which means that we will sunset the acquired company brand names Nexmo, NewVoiceMedia, TokBox and the like. So, all research suggests that there's great favor ability in the bondage brand, high levels of awareness, and it's the correct brand to go forward with them. Again, as I spoke about it at Campus is that, the brand is associated with disruption. Clearly, that's what we did 20 years ago, when Vonage disrupted the residential telephony market and the position is we're doing it all over again, again from the platform approach. The product naming architectures underneath, around Vonage contact center, Vonage business cloud, Vonage API platforms, you'll have opportunities for discrete product names. As we package things going forward, yet again, simply based upon where we see the demand. Let me turn it to Omar.

Hi Catharine, this is Omar, you had a question on pricing?

It seems to me, yes, I get the fact you can get contact center, any API flavor. So, are you going to switch this to a more basic, like on the API, and do usage-based pricing in this new model? Or are you going to do base pricing?

That's a great question. Yes, the applications businesses, SAS business, subscription business, and you're right to point out that the API side had its usage base. Part of, and this is something we don't talk about as much, but part of the flexibility that we could have, we haven't implemented it. I look at it as a benefit of the one Vonage approach that we're taking, that some of these things we could offer a usage-based pricing model, like we do on the API's. So, there's some very interesting product areas that we think are candidates for that. So, we have abilities to do it. We just haven't done that. We haven't seen the right timing in the market yet for that.

Okay, that helps a lot. And then the second question has to do with SD-WAN. In the last year, that was a big trigger for growth, and where does that stand in this new One platform? Thanks.

Omar will take that as well, relative of our strategy on access and QLS.

We can catch it on the post call Alan.

In its simplest, as Dave mentioned in his comments, we are exiting the traditional provision of access. The pure connectivity into the office where we used to bundle into our bill and we buy it and resell it from whomever has that that building or that office complex wired. We have replaced access with smart win as our quality of service approach and that continues to grow very attractively. It is just an element of our offering. And again, it's a piece that we can control, as opposed to, in the past, if that tier one or whatever in the office went down, we had no control over. So, that's the approach we're taking forward.

All right, thank you.

The next question comes from Tim Moran with Oppenheimer. Please go ahead.

Thanks. Two questions, maybe first on the consumer side. You mentioned that maybe there was a way to add more features and services on consumer. Maybe just any thoughts around that? And it might sound a little crazy, but consumer, it feels like the triple-play bundle with the cable guys is disintegrating and there might be a way to stabilize it, grow that business a little bit more, because a lot of people still want their home phone lines. Just curious on your thoughts on that.

Thanks Tim. So, we haven't seen a change in the secular trend, which is away from home phone service. We clearly are adding new customers. But that is a relatively small amount of the business and we're not -- sitting here right now, we're not seeing opportunities to step on the gas or to add more than what we're getting, or at least to do that with any reasonable cast. You know, what we found over the last couple of years, as we brought the spend down and brought the cat down, we tried to test adding some spending back to see what we got and every time it was pushing on the string a bit. So, we don't see the opportunity to shift it as we stand right now. We feel like the focus on business, both the focus of the team and focus to the capital is the right one. As it relates to features, that was really a comment about, when we do a price out, we tend to tie that, and when we tell the customer about it, we tend to highlight the features they're getting. And, every once in a while we do add something like Boomerang, is one that's particularly attractive to customers calling between India and US. But just to be clear, we're not spending a lot of development time today a new features for that. Also, when we do a price up, we may adjust the bundles, you may say, okay, price going up $1 or $2, but you're going to get more minutes or what have you, which was part of my comment.

And the second question, maybe just on the API side. It looks like you're growing faster than one of your largest peers right now. Congratulations. And I guess maybe, can you talk about the relative product quality versus them and do you think you can continue that? And I guess on the API side, are you having much success with the goals on marketing and branding on the application front? Thanks.

Yes, we have been seeing really good growth. And, I think your observation is correct, we're definitely growing faster than some of our larger competitors. So, in terms of what we're seeing in product makes sense, this year was not only to grow revenue, but was to pay particular focus on what we call the high value API's. And we've seen really good progress this year in that regard. We've seen across the board in Asia Pacific in India, and in the US. I think, in particular, the video API, we've seen a lot of really good traction, particularly in healthcare, customers, education, et cetera. So, we've seen not only good customer wins there, but then usage also growing. So, I think that's kind of a standout. We've also seen some good, not-only-customer wins, but also good usage to begin on voice as well, our voice API. Now, you asked a question on relative stability of the platform. You know, when we acquired Nexmo, that's three half years ago, great company, but really without messaging API, really around SMS. So, we've invested very heavily in terms of RMB, to build out, make the product line broader and deeper with voice, with conversational API, the video, to the acquisition of TokBox and a number of other things. And, when Alan referred to it in his opening remarks as well, we've grown in the developer, the registered developer ecosystem. One of the things that we do, as a matter of course of business, is survey to developers. So for example, for the second year in a row, we won an award around this, around the overall developer experience, a very competitive situation. So, we're happy to receive that award, and our own customer satisfaction surveys. Even when we acquired Nexmo, they had a high customer satisfaction, in this case the customers being developers. And we've continued to grow that actually, since acquiring company. So, it had to double check, I think it might actually be the highest now that it has been since we acquired the company. I think that a couple of those things are a testament to the strength and the depth and breadth of the product line there.

And sorry, one last one. You think your voice and video API's are on-par with your competitors at this point?

We do. I think video of -- Video in fact, I think we're ahead because when we acquired talk about some Telefonica, I thought was one of the early companies and sort of a pioneer in terms of developer and contributor to web RTC, which has become big and so if you just look at the amount of video that we do, the kind of customers that we have. I think video -- we're pretty far ahead of them there. And on voice a very comfortable saying, well, I'm part of their.

The next question comes from Mike Latimore with Northern Capital Markets. Please go ahead.

Thanks. You mentioned bookings were strong. Can you provide a little more color on like a bookings growth rated number and then second how much of your business bookings are coming from the channel at this point?

Mike, it's Alan. So the booking strength that we're seeing, you have to remember as we shift marketing spend, which traditionally was spent down market, more transactional we're buying fewer those leads, again on purpose to buy fewer of those or super micro customers and shifting that working media spend in support of the up market channels. So we've actually managed down bookings in the down market channel while bookings are going up attractively in the mid-market and enterprise. And that and again, that growth in bookings we don't sort of disclose the actual percentage growth in bookings but it is moving definitely in the right direction. Now focused on the own product, B2B business cloud at NBM. It might address your question?

That's great. Thanks. And then the channels what percent of bookings is coming to the channel?

So, sorry, I stopped because I forgot the tail on your question. So on channels I mentioned in my remarks, basically, virtually all of what you would traditionally think is you see bookings are and now contact center bookings in North America are coming with a channel connection to it. So what we've done is we have fully teamed field, the direct sales force, channel and even our alliances team which is really working predominantly with the Salesforce ecosystem. We team those resources, where the alliances group and channel are very focused and getting us additional back, they're more top of funnel, while the direct group is more closing it bottom of the funnel. So you really sort of no longer can split them. And it's all coming across this coordinated effort across the three elements of the marketing channels.

The next question comes from Ryan McWilliams with Stephens Inc. Please go ahead.

Thanks, taking the question. David, would you mind walking through similar map for the lower Q4 adjusted EBIT guidance? I know you mentioned the $1 million dollar for dollar decrease to do the extended contact center implementation but is there anything else in here worth highlighting quarter to quarter?

I say the one thing that's different is the Vonage campus events, so the reason why sequentially, it would be lower. So that's the difference relative to what we thought it would be its differs. The different sequentially quarter to quarter is bondage campus. So we have several million dollars in their relative to the brand re-launch, including the event itself, which put pressure on the number puts pressure on the 4Q number relative to 3Q number.

Great. And then, I apologize as this was addressed before but is there a Vonage house you on the recent central of ideal and maybe what that means for the industry and how it impacts your business?

This is Alan, so the house view on this is that this is just another example of the trend that all cloud vendors enjoying as prem moves to cloud. We don't see any particular acceleration even within the Avaya community as a result of this deal. And I know some of this isn't expected until next year, but even next year, we think we're still getting our shots at the Avaya bar community and other prem-based bar communities. Based upon this trend that moves over, the key thing is we've looked at this relationship is that the connectivity between Avaya as the provider, and the downstream customer is most often very remote. The customer may have a Nortel device on Avaya phone on their desk. But overwhelmingly, they're not even on a maintenance contract. And so when someone makes a decision to move from prem to cloud, who's a hardware or the premise based software provider is frequently unimportant as I often hear from premise based CEOs who I chat with saying, when someone makes a decision to go to from prem to a multi-tenant, true cloud solution, they don't even get the phone call. So we're not seeing dramatic impact to it today, nor do we expect it tomorrow.

The next question comes from Adam with Citi. Please go ahead.

Thank you. Good morning. I wanted to talk about 2020 for a moment if we could. I think, Alan, earlier in the year we had talked about exiting the year towards a 30% service revenue growth rate, which may prove difficult at this point, and then talk about international expansion and additional investments in sales and marketing. If I look at where people are expecting your results for 2020 come out, it's a pretty healthy step up in profitability for next year. So I was just wondering if you can kind of talk through the puts and takes of that as we look out towards the next year? Thanks.

Thanks. Yes, I'll give you the numbers and then color on that. So as it relates to the exit rate, which just to repeat it was the number approaching 30 or high 20s, service revenue, currency adjusted growth rate, we're going to end up you know, right now, based on the guidance we just gave, that number is going to be more than somewhere in the mid-20s.For the factors that we talked about, on this call, as it relates to, obviously that's the rate that we're taking into 2020. As it relates to 2020 itself, right now, we're not prepared to make any more statements than the fact that we're, you know, we're deep in the budgeting process, we see a lot of opportunity to drive growth. And we're thinking through capital allocation to that relative to cash flow. And also, what are those opportunities we can we can actually execute with high confidence. You mentioned international expansion. I'm not sure what your question was there. That's, clearly part of 2020, part of that discussion around how to remix the marketing dollars and how to spread them between international and the U.S as we see opportunities across them. I was just also note that for us internationals, a bit of a product play in that in the US, multinational companies are requiring you to have an international presence. So, you know, from product perspective, we have to do that development and we are investing in that. And then it's just a question of how much marketing dollars we put behind the in marketing efforts in each individual market but we do think there are compelling opportunities there. And the NVN sales network and customer network in Europe in particular, is very, very strong.

The next question comes from George Sutton with Craig Hallum, please go ahead.

Thank you. I hopped on late. So I hope this wasn't addressed. But your new value proposition revolves around having the most flexible cloud communications platform, which is a new way of describing it. I wondered if you could go a little more into detail on that. And then one of the industry analysts I thought made an interesting observation. He said you're too polite in your marketing relative to other I would tend to agree, so I'm curious if you could address that as well.

The reason we've gone with the flexible platform is really just its fundamental in our belief that cloud communications is not -- should no longer be considered into these discrete camps around UCAAS, CCAAS and CPAAS as an example. Matter of fact, I was reflecting after Vonage campus, I thought many vendors would have organized that campus into three event because there's this what I think is a more archaic view that says the only IT buyers buy UCAAS for their employee's needs. And only, you know, the Karen support group buys contact center software for integrations or interactions with customers and only developers by API's. We're not seeing that what we're seeing is it's coming together. And so the whole approach about the flexibility the platform is that it's a common platform, we build functionality into the platform, we then can either sell it to we sell just based upon the use cases of the customer, or the developer, where you enter in our process we don't care it's that flexibility and how you stitch it together, which is so important. And so that's the approach and that's why we've anchored on this messaging, and it's resonated really well. And you see a very, very specific example where, for instance, UC and CC is just increasing BB bought together, you're seeing it everywhere. And then for all the vendors whether they own a contact center like we do, or resell, somebody else's there packaging their go to market, that way it's in response to the buyer demands. As for your comment about whether we're being a little bit too polite in our marketing, my expectation is that we're going to be much more aggressive in our marketing. One of the things that we had to go through first was the unification of a single brand and therefore, the sun setting of the legacy brands. So you think about the ability to put all wood behind one arrow, polite or otherwise, it was just very difficult to do that when you're distributed over multiple identities. Now we have a single global identity, and we're going hard at it.

The next question comes from Jonathan Kees with Summit Insights Group. Please go ahead.

Great. Glad to make it and thanks for taking my questions. I wanted to ask specifically about sales and marketing or kind of curious why sales and marketing for Q3 was down percentage of revenues as well dollar amounts compared to first two quarters, especially since TokBox and fully in there. And the other two OpEx lines were up, had been trending up even over the last four quarters. And then you've also been spending money on branding. As an ancillary to that I know Dave, you're seeing still in the budgeting process. And so I guess can we talk high level? How should we model for 2020 in terms of sales marketing, is it off Q3 base as a reference point, or should we use the point from Q1, Q2?

Yes, so I made a reference to this earlier, which is a remix and the fact that we were heavy in the first half in marketing on what we call inside or in the lower end of the market. You know, the thought at the time, was that, again, that that was efficient spending. And, you know, while we were making these structural investments in moving up market, that was the right place to deploy some capital. We got what we thought were adequate returns from that. But I think what we found is that deploying that money up markets makes much more sense. So by the way, we budgeted this way that we would be heavy, that we would do some testing. And, you know, make a judgment, we ended up following by in 3Q, really taking those dollars, some of those dollars away from inside. So we're only deploying inside, what is truly efficient, not kind of pushing. You know, that the marginal sale that might not be efficient, and keep those dollars in 3Q in our pockets in advance of the campus and the brand launch. And now you're going to see that remix start to happen. So you're going to actually see, marketing in Q4 is part of EBITDA guidance I noted this as that marketing starts to trend back up. And then it's clearly going to be up in 2020, the extent of which is the thing that we're still working through. I would just say that, again, it's moving dollars from inside towards sales brand and very targeted up market lead generation. And the amounts again, are to be determined as we work through this, but we do now believe that, with the investments that we've made, and the strategy work we've done that we can effectively deploy that money up market now.

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

Okay, great. Thanks, Debbie. We look forward to seeing many of you in the coming months at various investor conferences. And for those unable to attend in person, these events will be webcast and you can follow our comments at the Vonage Investor Relations website. And please contact us if you need additional details. Thanks again for joining.

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