Good day, ladies and gentlemen, and welcome to the Vonage First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Hunter Blankenbaker, Vice President, Investor Relations. Please go ahead.

Great, thank you Victoria. Good morning everyone and welcome to our first quarter 2017 earnings conference call. Speaking on our call this morning will be Alan Masarek, Chief Executive Officer; and Dave Pearson, CFO. Also joining us are Joe Redling, our Chief Operating Officer and Tony Jamous, President of Nexmo. Alan will discuss our strategy and first quarter results, and Dave will provide a more detailed view on our first quarter financial results. Slides that accompany today’s discussion are available on the IR Web site. At the conclusion of our prepared remarks, we will 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, depends on assumptions that may be incorrect or imprecise, and are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slides and contained in our SEC filings. We caution listeners not to rely unduly on these statements, and disclaim any intent or obligation to update them. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available in the first quarter earnings press release or the first quarter earnings slides posted to the IR site. Now with that, I would like to turn the call over to Alan.

Thanks, Hunter. Good morning, it's great to be with you to discuss our results and to update you on the progress we are making on our strategic priorities. We are off to a solid start in 2017. Consolidated revenue in the first quarter was $243 million, a 7% year-over-year increase and our eighth consecutive of year-over-year consolidated revenue growth. More important we have continued to execute on our plans to transform volumes into a market leading cloud communications company. Our strategy remains routed in continued investment in Vonage business to drive faster and long-term growth. And we are continuing to leverage our strategic assets, strong brand and low cost global network, along with strong cash flows from our consumer segment. For 2017 let me review our three strategic priorities in UCaaS and I'll follow later reviewing our priorities in CPaaS. Our first priority in UCaaS is to accelerate sales in the enterprise segment. Since the beginning of the year, we have made very strong progress in enterprise. Having closed four UCaaS deals which in aggregate represent more than $20 million in total contract value. Three of these four deals will each deliver more than $1 million in total contract value. While ne deal would deliver greater than $10 million in total contract value. Our second priority is to build out our multichannel sales infrastructure to drive revenue growth. We are on-track to open sales offices in nine additional markets in 2017, bringing our total to 21 markets by end of year. Of these nine new markets, seven are on the West coast, one in the Midwest and one in the Southeast. We have already hired sales leadership in several of these markets and these leaders are actively building out their teams. We are also seeing improvements in sales productivity across…

Thanks Alan and good morning everyone. I'm pleased to review our financial results for the first quarter of 2017. As in the past, quarterly growth rates reflected in our presentation slides during our prepared remarks are on a year-over-year basis, unless otherwise noted as sequential. With that, let's begin on Slide 9. Consolidated revenue for the first quarter was $243 million, up $17 million or 7% due to organic business growth of our UCaaS business and the addition and subsequent growth of Nexmo. Business represented 46% of total revenue. Moving to Slide 10. Let me now turn to our segment financial results for the first quarter starting with Vonage Business, which consist of our UCaaS and CPaaS products. Vonage Business total revenue was $112 million a 51% increase of this UCaaS was $86 million and CPaaS was $26 million. CPaaS continues to built momentum as we saw strong April revenue that we believe will result in 2Q CPaaS year-over-year growth in the 40% area. As Alan noted, our strategy is to maximize the reach and growth of our business segment by selling in portfolio of UCaaS and CPaaS products through a common set of sales channels. We have a diverse group of business customers and low concentration risk with no one customer accounting for more than 3% of total business revenue. Business service revenue which includes all UCaaS and CPaaS revenue grew 63% to $92 million. Service margin during the first quarter was 58% down from 73% due to addition of Nexmo. First quarter average UCaaS revenue per seat was $43.98, relatively flat versus $44 in a quarter a year-ago. Revenue churn was 1.4%, up from 1.3% in the year ago quarters and flat sequentially. Vonage Business grew total seats to 659,000, up 16% reflecting strong organic growth. Before moving…

Okay, great. Thank you, Dave. And Victoria, let's please turn it over to the Q&A session.

Thank you. [Operator Instructions] The first question is from George Sutton of Craig-Hallum. Your line is open.

Thank you. congratulations on the four large deals. I'm trying to understand you have given your somewhat unusual and that you have a large direct sales force and use the channel, where are these deals coming from the perspective of the customer segment?

Thanks George, can we have Joe answer that.

Yes, hey George, it's a mix I think the large deal Alan referred to really came from a consultant process where these large companies actually have consultant that help them with the RFPs. So that was kind of directly came out of our enterprise group and direct filed sales, our direct selling efforts, others came from the channel, so it's a mix. So we are seeing a lot of traction throughout both our direct sales efforts and indirect.

Super. On the bright sharing side a very interesting that you picked up Lift very interesting that you picked up Get. Obviously [Indiscernible] has had some issues with their relationship with Uber, I know they are a customer of yours as well. Can you talk about any changes there and what is causing you to be so successful in that specific category.

I think our success in the category is not unique, they are just high-profile customers, we are seeing success across a variety of categories. They happen to be big users of CPaaS types of solutions. Obviously big wins with Lift and Get, ongoing relationships with Uber and several others that we are beginning to see the green shoots of how it expands to greater number of those countries and then adding voice to what we did in the past with SMS. But the nice thing is we still sit with virtually no customer concentration issues as it relates to these ride sharing companies or anyone else.

Super. Thanks guys.

Thank you. The next question is from of Dmitry Netis of William Blair. Your line is open.

Just a couple of clarification on the financial side of things then more of a broader shareholder questions. Just on your business on the OIBDA you came in pretty much in line with last quarter, I didn’t hear you talked about what it will look like for the year. I think the last time you said, at least 165 million, so I'm just curious if you are reiterating that guide or not. And then it does imply pretty steep ramp in the second half of the year, given you did 37 in March, how are you thinking about that ramp, I would suppose that that also implies you will be breakeven in your UCaaS business, so whether that’s on track or not also, I would like you comment on that. Thank you.

Sure, thanks to Dmitry, the only change in guidance is the math of seeking the hosted infrastructure business and the impact that has on business revenue and corresponding total revenue. I think it's too early in the year to address the other aspects of guidance whether its OIBDA or anything outside of the hosted infrastructure services. Clearly the 37 million which we also did last quarter is based on heavy investment in both UCaaS and CPaaS and I said in my comments that if we continue to see the market conditions and the opportunity that we are seeing on CPaaS are going to be very hard on the [indiscernible]. So we saw it that way for the rest of the year, there continue to be a drag on OIBDA, but that’s really about what we are seeing and how quickly we make these investments in new products and new sales infrastructure and how that moves through the year.

Okay great and then I was wondering if you can comment on the UCaaS side Alan, as far as last quarter you were talking about the bookings growth in ad business being - above kind of the full year revenue guidance you gave. Is that still on track? Are you feeling incrementally more bullish, now that you landed you before the deal, last time you were above by a 100, 200 basis points, is it still the case, or is it better now given these deals.

Thanks to meet you. So we are feeling increasingly confident about the bookings growth through the year and how that has the opportunity to accelerate revenue growth really next year. The macro point as we talk about a lot is that we have built so much of this infrastructure whether its sales infrastructure, geographically or number of sales people relationship with channel partners and now most recently even levered distribution models with Amazon an such that won't kick in to the second half of the year, those are taking foot and you see those with these big deals that we have signed that take a long time to one, secure and then two, deploy. But all those are demonstrating the green shoots that are propelling us as we go through the year and that’s why we are increasingly bullish about our performance, just based on those examples that I and Dave cited in our prepared comments.

Okay very well, and I guess I heard you say on the big deals there was multimillion dollar contract value, do you mind restating what that life science contract value is and I'm not sure I got that.

We said of the four large deals, one was greater than $10 million in TCV and the other three were greater than $1 million. So they were each seven figures and the one large deal was eight figures. In aggregate those four deals represent more than $20 million in total contract value revenues.

Very well, Very well. If I could squeeze one last one here on Amazon. With this the [indiscernible] advertising earlier in this year in the March timeframe of your sort of Chime Vonage relationship there, it does look like the product isn’t ready yet given [indiscernible] late Q2 launch, so just wondering is that kind of in anticipation you are just building the brand related with to this partnership and once the product is available you are going to hit the ground line. How you feel about kind of where you are in your ability to sell and bundle a Chime and whether you also wait kind of the Amazon side of things when they are ready to kind of put that on their portal and kind of hit the ground line. So I guess you are approaching it from both sides of the point here, but which one will be kind of faster to get to market, are going to come out about the same time, just a little bit of color on how you go to market once the product kind of launches in late Q2.

Right, so as you stated in your question, there are two sides to this transaction, with this relationship with Amazon. One is our access to the product to Amazon Chime and Amazon Chime Pro, we have that now and we are using that for lead generation two larger customers than what we typically sold Vonage Essentials into, that’s already happening and that's the advertising campaign you have seen on television. By the end of this quarter, by the end of Q2, the ability to deploy that ever more seamlessly will be done on the product side. On the distribution side of the relationship where Amazon will actually be selling Vonage Essentials on their web properties, which is amazon.com/business and the AWS marketplace, that will happen in Q3. You have to remember there is two sides of this.

Okay. Thank you Alan. Thank you gentlemen.

Thank you. [Operator Instructions] The next question is from Rich Valera of Needham & Company. Your line is open.

Thank you. I was hoping you could provide a little more color on the acceleration you are seeing in the CPaaS business going into Q2 kind of what is driving that, is it [Indiscernible] any particular kind of verticals or any color you could give there would be helpful. Thanks.

Yes, it goes back to the comments that Alan made about ride sharing as well as voice, and those are the areas of strong -. However, just seen it across the complex of customers set, so if you have not been disproportionate, but those are the two strongest areas. Think as we go through the year, we expect that voice will be a greater and greater percentage of the growth and that is a different that we saw in April and relative to earlier in the year.

Hey Rich, this is Alan, I have a point on that. The game plan to accelerate CPaaS is just a few key initiatives, one you want to build the long tail and so I commented on the growth in registered developers, which now has doubled since we announced the deal, that’s an important element. The other then is expanding the sales force itself for CPaaS, which we have done in a worldwide basis and concurrent with that use the UCaaS sales force, which is 400 strong, think of them as a force multiplier for the CPaaS sales force. On top of those two, you add a whole new product category voice and really a whole new geography of the United States we are executing on each of those elements so its across the board which is driving that acceleration.

Got it and just one more question if I could, just on the sort of synergy between the UCaaS and CPaaS, MedXM seems like a great sort of testament to that potential. Just wondering if you could give us any sense kind of [indiscernible] those types of deals you see out there to potentially sell both sides of the product portfolio there.

I will tell you that in every one of our customer discussions the fact that we can provide these better business outcomes via CPaaS is profoundly changing that conversation with the customer. In the final days of reporting closed MedXM I was having direct conversations with their CEO specifically about CPaaS use cases in terms of how it drives better business outcomes for now. In every one of those situations large deals and vast majority of mid size and many small deals, we are going against a competitor in the core UCaaS side. What is wining the day is obviously having excellence in UCaaS solution, but what is separating from the pack is these only to communicate a CPaaS solution, which again is there to drive the better business outcomes. We have grown up in UCaaS during the last several years thinking that UCaaS is synonymous with cloudifying the PBX in the contact center. It's much, much more than that, it’s about using communications to embed into those workflow Apps, business processes, mobile Apps and alike to get better business outcomes and there is example after examples where its work [indiscernible].

Got it. Thanks for that color Alan.

Thank you. The next question is from Catharine Trebnick of Dougherty. Your line is open.

Thanks for taking my question. Alan and David either one of you, it doesn’t seem like your heavy emphasis on CPaaS congratulations, but quick question on UCaaS, are you reaffirming your 15% year-over-year growth rate, because it looks like you are taking 4 million out of end the year and can you give some color around what you expect the UCaaS growth rate to be, it sounds like you have some good opportunities, I just like to tweak my model. Thank you.

Sure, your guidance is only changing by the $4 million that we would have gotten from the hosted infrastructure business from June 1 through December 1, so it's literally just math. The rest of our guidance remains the same. The guidance that we on UCaaS was a mid-teens growth rate and that continues to be the pro forma growth rate that we expect to see.

Alright and quick question. Any color on the difference of how well are the SMB segment is doing compared to large enterprise just between Essentials and Premier. Approximately is it Essential 50% on a revenue basis and then which group do you think is really growing faster?

That continues to be the split Essentials continues to be a bit bigger low to mid-50s with Premier being the compliment. I think we commented before on the fact that the growth rate in the lower end of the market is still attractive when it's been slowing we are executing a build-out of this portfolio and infrastructure to be very strong player up market. I think we continue to be a bit less mature than some of our competitors there. So we are not yet capturing all of the growth in the up market, but the investments that we are making we expect well fully do that. And that represents the bookings growth and ultimately the revenue growth that we expect to see that Alan commented on.

Alight. Thanks gentlemen.

Thank you. The next question is from Greg Burns of Sidoti & Company. Your line is open.

Hey good morning. I just want to get a little bit of clarification on the customer concentration on the business segment. If we look at the CPaaS individually on its own, do you have any customer concentration within that revenue base and when you look at your customers how much revenue or how many customers do you think have the wherewithal to do what an Uber is doing, still a multi sourcing CPaaS offerings. How much revenue do you have that could potentially be at risk for something like that? Thank you.

Greg let me ask Dave to take the first part on customer concentration CPaaS and I'll take the second.

Yes, as I mentioned in my prepared remarks the way we think about concentration is as a whole, and we talked about having our largest customer in the business complex be roughly 3% of revenue that is a UCaaS customer. As it relates to the whole just to give you a sense of size, our single largest CPaaS customer represents 1% of our business revenue, and so obviously if you look just at CPaaS its slightly higher percent, but still single-digits and not high single-digits. So we feel very good about that and the fact that we are not exposed. Just to give you a sense. If you thought about our top 10 CPaaS customers today Uber is not one of our top 10 CPaaS customers just to comment on that specific exposure and not specific opportunity.

And Greg relative to you question about how many customers can as you said sort of pull an Uber and do this in a multi-source dynamic trading way. The answer is that there are probably a couple of dozen that we see out there that act in that way where they want to move traffic country-by-country or mode-by-mode, so tax versus voice. But the key thing to think about is the to win in CPaaS is not predicated on an Uber, Airbnb, and Snap, WhatsApp is very, very large initial users of CPaaS. The key to winning is to build a very long tail, because having thousands of customers with a few thousand dollars a months of sales is better than having a handful of these multimillion dollar customers who have the ability to as u say pull an Uber and run this like a dynamic trading environment where they have got great price sensitivity and they move traffic largely based upon price. So you have got to build this business on both ends of the tail, the long tail and doing smart value added things with these enterprise customers and that’s exactly what we are trying to execute on.

Okay, great. Thank you.

Thank you. And the next question is from Mike Latimore of Northland. Your line is open.

Congratulations on those enterprise wins, how many enterprise or seven figures deals did you have in all of 2016 just for comparison sake.

Well then I have to look at the number, I don’t know exactly the number of time. Again what we are seeing just as Dave said, our ability in enterprise is increasing dramatically again take a step back, we started with Vonage Essentials the former [indiscernible] going after the micro segment 3.5 year ago. Then beginning just a little over two years ago, we acquired through the acquisitions of Telesphere followed Simple Signal and iCore the ability to serve the up market, a business both mid market and now large enterprise and we have been building the infrastructure sales, service delivery network and so on in order to deliver that. The companies that we acquired each had large businesses in there large enterprise customers within their stable and those continues to today. We now in the new Vonage where we provide this we brought all the pieces together and added a great deal of resources are now hitting our stride where we have again knocked down since the beginning of the year these four very large deals with a very healthy pipeline of more to come.

Great and then in term of the CPaaS, you talked about CPaaS acceleration and the highlighted voice a few times there. I mean as you look at the revenue composition or bookings composition of CPaaS, how important is voice, is it going to be single-digit percent of revenue in bookings or how should we think about the voice just generally on the CPaaS line?

So voice is very important to that growth in CPaaS, so if you recall last year, Nexmo did $92 million in revenue within that revenue 90% was SMS, only 10% was voice and 94% of its traffic terminated outside the United States. So as I said before in earlier question the game plan for growth is to build the long tail and build the sales force, while currently adding voice as meaningful element of the mix and then extending to the United States as a region that really was underserved by Nexmo, because its focus was outside the United States. That’s what we are executing on. The beauty about voice in the United States for us is that by paring Nexmo’s, the programmable that API layer what we call VAPI the voice API with our network in the U.S. we know empirically we can deliver higher voice quality than our competitors and because we have the direct peering relationships with the carriers in the United States again goes back to the power of the residential business with those 15 billion minutes of calls that we terminate annually and the fact we own our own phone numbers, we can do voice in the United States at very, very high margins. So the opportunity for us to grow the top line and grow the bottom line has a lot to do with how we build voice in the United States.

Great. Thanks.

And the next question is from William Power of Baird. Your line is open.

Congratulations on the real-estate. I wonder if you can just kind of walk us through you talked about that's being a very competitive process looking back what were some of the key differentiators that helped you win that and then I'm just curious if there are any CPaaS opportunities in that way?

So I'll take the first part of it Will. So yes, it was a very involved process I think it was a 100 providers early on in the process and lot of the competitors fell out very quickly. What you see the advantages we bring to the table is really QLS. Right, I think when you get to this level of enterprise, the level of SLAs that are required at are stringent and you have-to-have the capability in your infrastructure and your network with QLS. It's one particular deal and as Alan pointed out literally includes both our NPLS network and smart LAN, so QLS was a key driver as well as the ability to scale this many locations with this type of deployment it's very complex. The third piece was really reporting and analytics right these are very sophisticated companies so we expect at a high level of monitoring and a proactive approach for after sales so I think when you add those things together we were in a very good position to drive this sale. So those are the three key components.

Let me ask Tony to jump in on the CPaaS side because there is active discussions underway right now on extending CPaaS solutions into this customer.

Yes, thanks Alan. So in the reader space segment in general we see interesting potential for CPaaS because you should of it you have the customer and the agent communication and you have the agent and the headquarter communication. And a lot of these companies they need to transform to become more software companies, they need to add more agility and they don’t need this facilities to buy pure software here, but they want to integrate the software, they want to build, they want to actually control it and this where we see the opportunity. CPaaS is enabling these companies to transform themselves and improve the customer experience and agent experience in the real estate.

Okay, thank you. Let me extend and I guess the second question you look at use of cash from here, buy bought back $10 million of stock. How should we think about appetite for buying back more stock versus looking on additional M&A. and I guess just generally speaking, how you think about your appetite for further M&A probably I assume on the UCaaS side, but how do you look at that?

Yes, so we are right on pace, actually it’s a little bit of ahead of pace on our $100 million four year authorization and we intend to fulfill that authorization, we have got seven quarters left to go on that and given the history and the liquidity we expect to finish that out. As it relates to M&A and just being generally flexible, I would say that is our highest financial priority, very strategically flexible. We continue to see small and medium size rollout type opportunities and those are getting more attractive over time in terms of price. I think we are just trying to balance that against potential industry consolidation, where we believe we have a pretty interesting competitive advantage because of our size and because of our balance sheet and because of our cash flow generation. So being flexible for the right opportunity there within M&A is our highest priority and then secondarily would be a continuation of smaller consolidation or rollout opportunities.

May be if I could just sneak one more in, just a follow-up for Tony, I know there has been some questions, and probably some concern just with respect to CPaaS competition what might be evolving on that front. And I mean your number suggest these obvious price otherwise you are seeing good traction, I wonder if you could just speak to what you are seeing your competitively, has there been any sea change events, are you seeing more players in the market place, just any further color there would be helpful.

Sure, so we see more players branding themselves as CPaaS, that’s when you look it deeper, we don’t have any concern as you, because as you recall, a CPaaS it is more than just API, it’s a full platform that comes with a developer tool with algorithm that manages all the other network and higher level of enterprise capabilities that takes years to develop. So we see increasing need of [indiscernible] which is a great traction for our category, but we don’t see any concerns about a major competition entering in the market at this stage.

Okay. Thank you.

Thank you. And the next question is from Robert Routh FBN Securities. Your line is open.

Yes good morning and thanks for taking my questions. First I was curious if you could give us an update as to your tax NOLs, what the size of them is and what you think you might do with them, especially given, talk about them changing corporate tax rate, [indiscernible] Federal Tax NOLs, it would seem that may be finding any company that generates real - lot of operating income now and being offset their future income with your NOLs before the laws change might make a lot of sense, I'm wondering if you could talk a little about how you think about that.

Sure current tax intervals is $575 million, so its sizable and it’s a strategic asset for us. We do believe that we are consuming it and we expect to fully consume it over the coming years particularly as we generate significant amount of allocated cash flow from the consumer business. So we are definitely open to different ideas and clearly we are tracking very closely, any changes in the tax rate, but right now, we continue to consume it at whatever the rate is, given the cash flow generation that’s going to happen in due course.

And just one follow-up, given your success now with the Lift and obviously you have Get and the Uber relationship. What would your dream industry or your client be, if you don’t mind mentioning in terms of areas where you are not yet that you think that given your size now and what you done in any kind of the endorsements you have had that you would like to be and is there any industry that you don’t yet have a presence in, or any particular where you think it would just be Vonage’s dream client to win.

Let me turn it over to Tony to answer this comment ahead of time and the way to think about CPaaS is it's where can communications are make an underlying business process or an app or a website just that and it's everywhere, it's a simple answer, but I'll let Tony answer about if there is a dream industry.

Yes, there is only the a dream industry, but potentially this market has started by early adopters and these were the light house account that we talk about often the Uber, Airbnb, SnapChat of the world, but what we see in an acceleration of the recorded early majority these are agile enterprises that wanted to sort of transform themselves to become more software company and they want to do that to improve the user experience between differentiated user experience and created new markets. So the industry that we would like to grow more into are the industry that are mostly affected by the digital transformation, I think about retail being disrupted by Amazon, I think about transportation being disrupted by Uber, but think about even financial services are being disrupted by new [indiscernible] lending companies. So these are the segments that we would like to penetrate more and see more acceleration of this early majority adopting CPaaS. For two reasons, one is because each one of the enterprises there is a lot of use cases in them, so when you enter that enterprise, you can help multiple departments. And secondly is because as Alan mentioned, one of our objective is to build a long tail and we want increasingly customers that are spending that are spending a significant amount of revenue, but compared to their overall size it is a real activity and a small spend. That's kind of where we focus on and new hope that that early majority segment accelerates the adoption as we move forward.

Okay, great. thank you very much.

Thank you. And at this time, I would like to hand the call back over back to Hunter for closing remarks.

Great. Thank you, Victoria, and that wraps up the Q&A portion of the today's call. 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 site. Please contact us if you need any additional details and thanks again for joining.

Thank you. Ladies and gentlemen, this does concludes today conference. You may now disconnect. Have a good day.