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Vonage Holdings Corp. (NYSE:VG)
Q3 2018 Earnings Conference Call
November 2, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. And welcome to the Vonage Holdings Corporation third quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your touchtone phone. And to withdraw your question please press * then 2. And please note that today's event is being recorded. I would now like to turn the conference over to Hunter Blankenbaker, Vice President of Investor Relations. Please go ahead.

Hunter Blankenbaker -- Vice President, Investor Relations

Okay, great. Thanks, William. And good morning and welcome to our third quarter 2018 earnings conference call. Speaking on our call this morning is Alan Masarek, Chief Executive Officer and Dave Pearson, CFO. Also joining us is Kenny Wyatt, our Chief Revenue Officer, Omar Javaid, our Chief Product Officer, and Dennis Fois, our CEO of New Voice Media. Alan will discuss our strategy and third results, and Dave will provide a more detailed view on our third quarter results and updated guidance. Slides that accompany today's discussion are available on the IR website. At the conclusion of our prepared remarks, we'll be happy to take your questions.

As referenced on Slide 2, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's expectations, depend on assumptions that may be incorrect or imprecise, and are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slides and contained in our SEC filings. We caution listeners not to rely unduly on these statements and disclaim any intent or obligation to update them. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available in the third quarter earnings press release or the third quarter earnings slides which are posted on the IR website. And with that, I'll to turn the call over to Alan.

Alan Masarek -- Chief Executive Officer

Thanks, Hunter. Good morning. And thank you for joining us. Vonage delivered another quarter of strong business growth. Total business revenues were $154 million and comprised 59% of total revenues. Of this, business service revenues grew 23%. Consolidated revenues were $262 million. And adjusted OIBDA was $50 million. And adjusted OIBDA minus CapEx was $45 million. I'll start my comments this morning by reiterating our strategic vision. Simply stated, we believe that by creating fully programmable communications solutions, we can drive better business outcomes for our customers. We are executing this strategy via acquisitions of technology-rich cloud communications companies, including Nexmo, TokBox, and now, New Voice Media, coupled with fast, follow-on organic development.

As a result of our efforts, we believe we have created the world's most differentiated cloud communications company that can provide solutions for all of a company's communications needs and addresses the entirety of the cloud communications TAM. And in doing so, we are helping define programmable communications as a new communications category. Central to our strategy, we are creating a single microservices architected software platform, or One Vonage. The One Vonage platform combines Vonage Business Cloud, our proprietary UCaaS platform with the technology stacks of Nexmo and TokBox. And in the future, One Vonage will also include New Voice Media's contact center functionality. With One Vonage, we will provide integrated communications solutions, all fully programmable that range from established use case applications like contact center, hosted PBX, collaboration and team messaging, all the way through programmable communication APIs.

From the One Vonage platform, our solutions will seamlessly integrate customer communications with a company's employee communications and workflow tools. The need for an integrated communications experience is critical businesses undergo digital transformation. That is, deep integration between business applications and enterprise communication tools is necessary to improve the customer's experience and therefore, deliver those better business outcomes. Vonage is building these integrated solutions. And our solution set is the essence of programmable communications. In fact, we believe programmable communications are rooted in every businesses' need to improve how they communicate with their customers. Each interaction a customer has a with a business shapes that customer's experience. Businesses are under intense pressure to improve customer engagement. And customers want to interact with brands through their preferred mode of communication.

And they want those interactions to be integrated, whether it's voice, SMS messaging, through a brand's mobile app, over the web, through an IVR, or even through the major chat apps like Facebook Messenger, WeChat, and WhatsApp. So, this need for an integrated communications experience is the reason why acquiring New Voice Media is so important. New Voice Media is a cloud-based contact center solution that's distinguished by its CRM focused go-to-market approach. New Voice Media is integrated with leading CRMs with a particularly deep integration with sales force. By integrating tightly with CRMs, New Voice Media delivers better omnichannel interactions and robust analytics and data capture. We plan to integrate New Voice Media's cloud contact center solutions with our Vonage Business Cloud platform as well as to capitalize on the improved functionality that CPaaS naturally brings to contact center solutions.

Now, with New Voice Media, Vonage is the only cloud communications company that can combine deep CRM integrations with the full range of programmable communications used by a business for its employees and its customers. This will be a powerful combination because it creates an integrated customer experience across multiple communication channels. It can increase sales conversion on the front end and improve customer satisfaction on the back end. So, with that as a strategic review, as a backdrop, I will highlight the progress we're making in two critical areas. The first is the development of our One Vonage technology platform. And the second is our sales and marketing execution which continues to improve. Regarding the first initiative, we are making strong progress developing the One Vonage platform. Our development efforts are focused on the continued integration of Nexmo, TokBox, and Vonage Business Cloud with New Voice Media to come while concurrently improving their individual functionality.

Let me highlight two important development efforts. First, we are integrating Nexmo functionality more tightly with Vonage Business Cloud. We are using our messages API to significantly improve Vonage Business Cloud's business inbox functionality. With business inbox, phone numbers are programmable. And as such, developers can use our APIs to program innovative solutions for that phone number. So, for example, with business inbox, employees will soon only need a single phone number. And customers can contact that employee in the communication mode of their choice, in the customer's choice. This means that customers can call that number, text that number, fax that number, or even reach that number from within a social media platform. By making phone numbers programmable, we improve customer engagement and drive better business outcomes. Second, we are converting Vonage Business Cloud video conferencing solution from Amazon Chime to TokBox's video API.

This will provide an improved video experience and also enhance gross margins by leveraging our own technology. Our development efforts are being recognized for technology leadership by top industry analysts. We recently earned Frost & Sullivan's 2018 Competitive Strategy Innovation and Leadership award for our ability to deliver UCaaS, CPaaS, and CCaaS via our programmable communication platform. And our Vonage Business Cloud platform won gold at the Golden Bridge awards for most innovative product. The second major initiative relates to improvements in our sales and marketing execution. During the quarter, we continued investing in sales, marketing, and indirect channel initiatives. And as a result, we are seeing good increases in sales productivity across our routes to market as well as solid progress selling up market businesses. For example, within the enterprise category, we closed on four new seven-figure deals with total contract values, again, greater than a million dollars.

All four of those deals included advance contact center. And this is significant because contact center drives higher MRR and therefore, greater revenues. In these four enterprise deals, Contact center increase contract value by one-third. And it also highlights that contact center and UC are increasingly being purchased together, further validating our acquisition of New Voice Media. During the quarter, we closed 18 deals with greater than $10,000.00 in MRR. And within the smaller business segment, we increased bookings by 65% from customers with greater than $1,000.00 MRR. And across all routes to market, bookings for advance contact center increased fivefold in the third quarter over the year-ago quarter. Within indirect channels, our momentum is very strong. Bookings from the master agent channel increased more than 40%. And our pipeline is at record levels. And even more significant, average deal size more than tripled. Also, more than 100 partners have joined Nexmo Connect.

These include Microsoft, Facebook, MuleSoft, Built.io, and Aspect Software. These partners are creating compelling solutions for their enterprise customers. As one example, UniTalk, a cloud solutions company that helps enterprises embed programmable communications into their apps is leveraging our SMS, voice, and video APIs to provide real-time conversational business solutions for their clients. The acquisition of New Voice Media also provides opportunity to accelerate revenue growth. We will leverage our combined distribution channels and combined customers to pursue cross-sell opportunities. We'll also work closely with New Voice Media to expand its already highly strategic go-to-market relationship with salesforce.com. Our land and expand sales model continues to drive results. Revenues from new CPaaS customers added in the year-ago quarter increased eightfold this quarter. Also, our developer community continues to grow quickly. And it remains a critical part of our go-to-market strategy.

We ended the quarter with 696 thousand developers registered on our platform. And finally, we bolstered our leadership team by adding three highly accomplished executives. Rishi Dave joined us as Chief Marketing Officer. And Rishi will drive Vonage's repositioning as a cloud communications platform company. Sanjay Macwan joined as SVP of Enterprise Engineering and Networks. And he's focusing on the continued development of our enterprise-scale software and our communications infrastructure. And then Dennis Fois, who's joined us on the call today, CEO of New Voice Media. He will stay, as will our entire team, leading our advance contact center efforts. And regarding Dennis and his team, we're delighted to welcome all 430 New Voice Media team members to Vonage. Their team includes a global enterprise salesforce with significant understanding of CRM as well as a product and engineering team over 100 strong.

We're delighted that they're joining us. To summarize, these are very exciting times at Vonage. We have made substantial progress, and I'm proud of our team's performance. We have the right technologies, products, partners, and people to execute on our strategy. We've created a new focus around programmable communications. And in fact, we believe that the fragmented view of the communications market in which companies are categorized as UCaaS, CCaaS or CPaaS players leads to alphabet soup lines of demarcation that are out of touch with the future of communications. And this is why we consider our cloud communications offerings as an aggregate product line versus breaking them into separate ads of service businesses. Said differently, Vonage is building solutions that address myriad use cases for the entire communications market pan.

We address the broad categories of buyers who each present with different needs, whether it's the IT buyer seeking to modernize infrastructure and move to cloud-based solutions or the software developer seeking to program communications into existing solutions to make those solutions better or the business buyer seeking to improve engagement with customers and to improve satisfaction for both customers and employees. With our increasingly integrated solutions, Vonage is addressing all of these buying categories. And we believe our approach is the future of communications. I'll now turn the call over to Dave for a review of our financial results.

Dave Pearson -- Chief Financial Officer

Thanks, Alan. And good morning, everyone. I'm pleased to review our financial results for the third quarter of 2018 and update guidance for the acquisition of New Voice Media. As in the past, quarterly growth rates reflected in the presentation slides and during my prepared remarks are on a year-over-year basis unless otherwise noted as sequential. Starting on slide seven, consolidated revenues for the third quarter were $262 million, up $8 million or 3% with business accounting for 59% of total revenues this quarter and growing significantly faster than consumers declining. We will continue to see accelerating consolidated growth rates. Consolidated gross margins improved to 60% due to continued improvement in margins across all of our services, partially offset by the changing mix of services. This gross margin result is despite the trend I discussed on last quarter's call of turning the CapEx that used to be spend in data centers into OpEx in the form of AWS cloud expense.

Moving to slide eight, let me now turn to our segment financial results. Vonage business total revenue was $154 million, a 19% GAAP increase. Within this, business service revenue grew 23%. I will now discuss some of the puts and takes that impacted business revenue. In the quarter, we reduced access revenues, consistent with our plan to book and migrate certain customers onto VBC and deploy SmartWAN more widely, changed an accounting estimate relating to UCaaS customer deferred revenue, lowering revenue by $400 thousand, added two months of TokBox revenue, dropped several CPaaS customers who did not meet our increasing margin threshold, and experienced negative currency translation impact. Overall, business service margin for the third quarter was 55%, in line with the prior year and up over 2 percentage points sequentially, again reflecting higher margin across all services and lower credits, offset by mix and CapEx to OpEx substitution.

Moving to page nine, third quarter business service revenue per customer was $362.00, a 12% increase from $324.00 a year ago, reflecting our successful efforts to move up market. Third quarter business revenue churn declined to 1.1%, driven by significantly lower churn on our cloud architected VBC platform. This is equal to the lowest business revenue churn we have ever reported. Moving to slide 10, consumer revenue for the third quarter was $108 million, down 13%. Consumer customer churn was 1.8%, down from 1.9%. Tenured customers, who we define as being with us for two or more years now represent 85% of the customer base. To parse that further, customers that have been with us for more than five years now represent over 60% of the base. We ended the quarter with $1.3 million consumer subscriber lines. Average revenue per line was $26.30, up $0.01 or roughly flat to the year-ago quarter and, again, representing the stability of the base.

Consumer service margin for the quarter was 89%, up from 83%, largely due to lower international and domestic termination rates and the allocation of certain shared network cost to business as that revenue becomes a greater proportion of the whole. Now moving to notable income statement cost items on page 11. Consolidated sales and marketing expense for the third quarter was $74 million, up $1 million. This is the result of the benefits of ASC 606 deferrals being offset by increased sales spend. Engineering and development costs were $14 million, a 106% increase, reflecting the significant investments we are making in our VBC platform and the addition of TokBox. General administrative expense for the third quarter was $38 million, up $11. The main difference is the addition of two months of TokBox and higher financing and acquisition costs related to both TokBox and New Voice Media. GAAP net income of $10 million was down roughly $1 million.

And adjusted net income for the quarter was $22 million or $0.09 per diluted share, up $5 million. The adjusted net income metric removes non-cash items and transaction-related costs, giving a clear picture of our strong operational performance. Turning ahead to slide 12, third quarter adjusted OIBDA was $50 million, down $1 million. The small decrease in adjusted OIBDA was due primarily to the higher engineering and development and G&A expenses including from TokBox, partially offset by the higher margin. Moving to slide 13, CapEx for the quarter was $5 million, down $4 million, driving OIBDA minus CapEx of $45 million, a $3 million improvement. As we move away from private hosting of our solutions and data centers where we have to buy the hardware, rent the space, and often pay third-party license costs to public cloud hosting of the One Vonage platform, this calculation captures the net positive effect of this shift.

As Alan mentioned, on October 31st, we completed the acquisition of New Voice Media. The equity price for the acquisition was $350 million. We inherited the cash and receivables on New Voice Media's balance sheet, meaning the enterprise value is a bit lower. We estimate that the resulting enterprise value paid is attractive at 3.8 times 2019 revenue which we expect to grow in the 25% range organically. This revenue multiple compares favorably to New Voice Media's publicly traded cloud contact center peers as well as recent private valuation multiples in the contact center's space. On page 14, we ended the third quarter with $186 million of net debt, up $14 million sequentially, as we acquired TokBox for $33 million but partially offset that cost with debt paydown. The acquisition of New Voice Media was funded through the same $600 million credit facility that we completed in July, making net debt pro forma for the acquisition $546 million or 3.4 times adjusted OIBDA.

Looking forward, we expect to pay down debt quickly with target net leverage below three times pro forma adjusted OIBDA by the first quarter of 2019. Both New Voice Media and TokBox are unique. And our ability to pay in cash enabled us to win these assets and manage dilution. We continue to be strategically flexible through access to our revolver and the capital markets. Before I discuss updated guidance for 2018, I wanted to reiterate that as an enterprise software company, New Voice Media has deferred revenue on its balance sheet stemming from its approach of billing new customers up front for their first full year of service. GAAP purchase accounting rules require a writedown of a portion of this deferred revenue balance, primarily impacting the first 12 months of ownership. Therefore, our reported revenue and OIBDA will be lower than they would have been organically through the first year of ownership.

The benefit to this billing approach is that new voice media is a positive working capital business, constantly receiving cash from new customers prior to providing the service. Turning to slide 15, consistent with our prior custom, we are updating 2018 guidance to reflect the acquisition of New Voice Media and other factors. We are raising 2018 consolidated revenue to a range of $1,048,000,000.00 to $1,052,000,000.00. Within this, we now expect Vonage business revenue to be in the range of $608 to $612 million. We expect consumer revenue to be in the $440 million area. Inherent in this update is that excluding M&A and including a projected currency headwind of more than $5 million, we are on track to achieve the initial consolidated revenue guidance we set forth at the beginning of the year.

We expect adjusted OIBDA to be in the $177 to $180 million area, taking into account New Voice Media's organic adjusted OIBDA profile and the loss of a portion of its revenue and OIBDA from the required writedown of a portion of its deferred revenue. This also takes into account the continued acceleration of VBC, the resulting shift of CapEx to OpEx, and today's currency rates. We are also updating our CapEx guidance. We now expect CapEx to improve to the $25 million area, $10 million lower than our initial guidance and lower than we anticipated last quarter primarily because of the accelerated adoption of VBC with its corresponding lower third-party equipment, call location, and license cost. This results in adjusted OIBDA minus CapEx in the $152 to $155 million range, the upper end being the number we guided to last quarter which did not include drag from New Voice Media.

To be clear, this means that excluding M&A, we are delivering more cash flow in 2018 than projected at both the beginning of the year and last quarter. In conclusion, we feel very good about our financial performance for the quarter and the long-term strategic value of New Voice Media. I'll now turn the call over to Hunter to initiate the Q&A.

Hunter Blankenbaker -- Vice President, Investor Relations

Okay. Great. Thanks, Dave. And William, could you open up the queue for questions, please?

Questions and Answers:

Operator

And we will now being the question and answer session. To ask a question, you may press * then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. And at this time, we will pause momentarily to assemble our roster. And the first questioner today will be George Sutton with Craig-Hallum. Please go ahead.

George Sutton -- Craig-Hallum Capital -- Analyst

Thank you. Alan, I appreciated your discussion around the programmable concept and moving and pushing out the services actually to customers of your customers. Have you been able to turn that into any sort of an ROI type sale where you can argue that using this creates ROI for your customers? And/or does that ultimately work its way into how you price your services?

Alan Masarek -- Chief Executive Officer

Thanks, George. And good morning. I doubt we will -- let me just take those in reverse. I doubt we will price our services if you're referring to a benefit basis because I think that's just very difficult to capture. But what we're seeing is that -- you're seeing a very, very robust demand for these programmable services. And the use cases -- this is what I put in my prepared remarks. The use cases that they're addressing are as varied as any business's -- every business is a bit different in terms of their particular flow with their customers and how they serve their customers, what their go-to-market, what their support models are and the like.

The whole notion is they're bringing these tools in because the macro goal is to improve customer engagement. And so, if you think about every interaction with that customer, I wanna be able to pull that customer in the channel of communication of their choice, the mode of their choice to the right expert within my company and back again. So, just by virtue of the growth, the ROI is embedded in it. They wouldn't be doing it otherwise.

George Sutton -- Craig-Hallum Capital -- Analyst

Understand. Okay. One other question really for Dave, I guess. The lower OIBDA number -- there are really three things I'm hearing. I don't believe any of them are fundamental. But No. 1, your engineering costs are higher because of a lot of the work you're doing, as we talked about. No. 2, New Voice Media had some deferred revenues that aren't flowing through and then some FX impact. Is there a way to break that down at all?

Dave Pearson -- Chief Financial Officer

Absolutely. So, in the last quarter, we updated guidance to the $185 area. Now we're $177 to $180. The bridge there to the extent you were to go all the way to $177 -- and we very much are within the range -- would be $5 million for New Voice now having seen a bit more detail on what their deferred revenue looks like and how we would account for that. $1 million further CapEx to OpEx in addition to what we projected last quarter and then $2 million of currency impact. And currency impact is fairly unique in the sense that it's attributable from a cost perspective on the disconnection between the British pound and the Euro due to Brexit. We have a significant cost base in British pounds. We take in most of our revenue in dollars and then some in euros. And that disconnection between the Euro and the pound specifically is driving that. We don't view that as something that's going to be an ongoing issue. And it really hadn't been an issue before this quarter.

George Sutton -- Craig-Hallum Capital -- Analyst

Okay. Thanks for the detail. Appreciate it.

Operator

And the next questioner today will be Rich Valera with Needham & Company. Please go ahead.

Rich Valera -- Needham & Company -- Analyst

Thank you. Good morning. Alan, you mentioned you signed four large deals. I think million-dollar-plus deals that included advance contact center. I was wondering if any of those included New Voice Media. And if not, if you think if you'd already closed New Voice and had it for a couple quarters if that would be different, if you think you'll be able to sell New Voice in cases where you wouldn't have in the past. Thanks.

Alan Masarek -- Chief Executive Officer

Well, none of the -- the advanced contact center was in contact because that's the third-party product that we've been representing. Had we owned it for a couple quarters and had the integration done, of course, we would have pushed those to New Voice Media because, at that scale, that's where New Voice Media plays best. And so, the whole idea is we're gonna be integrating New Voice Media in the Vonage Business Cloud. And as we progress forward, we'll be selling that as our default. Now, that said, in contact will remain in our product catalog because there are certain instances where you may not have particular involvement of CRM, particularly no involvement of salesforce at a customer prospect. And in contact may just fit well. So, what we've done is we've expanded our opportunity. We haven't shrunk it in any sort of way.

Rich Valera -- Needham & Company -- Analyst

That's great. And then I see it looks like you're not gonna be formally splitting out the UCaaS from the CPaaS. But can you give any color on how those two businesses performed individually during the quarter?

Alan Masarek -- Chief Executive Officer

Let me let Dave take that.

Dave Pearson -- Chief Financial Officer

Yeah. Absolutely. I'll give you the numbers. So, UCaaS revenue was $98.5 million. And the accounting policy change took $400 thousand out of that. So, the clean number would be $98.9, basically $99 million total UCaaS. That represents service revenue growth of 13%. On the CPaaS side, the number was $55.1 million of CPaaS. Again, I talked about in my script, that we're happy with that number. That being said, there were two impacts negatively to that number. One was $2 million of currency. And again, you saw a very large move in the euro that we had not seen before. And secondly, about $2 million from the customers that I talked about that we dropped that simply not only weren't meeting our margin targets, but they weren't going to meet our margin target through product mix or any other kind of growth. And that was just one of those trade-offs that we make every day. But it happened to be material in this quarter.

Rich Valera -- Needham & Company -- Analyst

Got it. And just one follow-up if I could on the 13% UCaaS service growth. I think it was maybe 14% the prior quarter. And I know you've been working pretty hard on the sales end channel aspect of that business. Any thoughts about how that business trends from a growth perspective as we head into '19?

Alan Masarek -- Chief Executive Officer

Sure. Let me ask Kenny to take that.

Kenny Wyatt -- Chief Revenue Officer

Hey, Rich. Good morning. Yeah, you mentioned it, right? We've invested heavily in distribution, as you know, throughout '17 and into '18. We are seeing a nice take-up from channel and contact center, as Alan mentioned in his remarks which obviously benefits the UC bookings. So, as we look at what I consider mid-market bookings above that thousand-dollar MRR threshold, we're seeing a 65% growth in those bookings as a result of really those three main areas of focus, expanding distribution and field sales, continuing to invest heavily in the channel and making sure that we've got access to all the deals in the market through the channel, as well as adding contact center in the bag of the sales professionals continues to improve bookings. And I think we'll see that come through in revenue as a result.

Rich Valera -- Needham & Company -- Analyst

Got it. That's all for me. Thanks, gentlemen.

Alan Masarek -- Chief Executive Officer

And Rich, it's Alan again. You may recall, as a reminder, I said in the current quarter, across all our routes to market, contact center bookings were up fivefold. So, what Kenny's referring to is that focus there is really beginning to bear fruit.

Rich Valera -- Needham & Company -- Analyst

Got it. Thanks, gentlemen.

Operator

And the next questioner today will be Michael Rollins with Citi. Please go ahead.

Michael Rollins -- Citi -- Analyst

Hi. Thanks for taking the questions. So, maybe just at a high level, if you think about all of the additional services that you're putting on your menu for customers to bundle together, how do you think about the totality of growth versus your cloud communications competitors? Should you be able to grow in total for business revenue faster than them because you have all these capabilities? And over what time frame do you expect to effectuate that aspiration? Thanks.

Alan Masarek -- Chief Executive Officer

Hey, Michael. It's Alan. Simple answer is I believe that we will be able to -- because of the totality of the offerings that we have, that we will be able to overtake our competitors in terms of our revenue growth and so that the 23%-and I'm addressing service revenue growth. The 23% this quarter, it's roughly been 24%, 23% through the first three quarters of the year. My expectation is that's going to move up. And I think we'll overtake all competitors. Those who are focused -- other than perhaps those who are focused specifically on CPaaS -- CPaaS, as its own piece, is growing the fastest. But I think the other names that we get compared to all the time, I have every confidence that we're gonna exceed their growth rate.

Michael Rollins -- Citi -- Analyst

And as you look to accomplish that, what's the biggest hurdle that the organization needs to overcome?

Alan Masarek -- Chief Executive Officer

Well, I think that Kenny addressed that in part, and I did as well. If you parse it back -- and I prefer not to. But if you parse it back in just the as a service components, the efforts that we're doing on UCaaS are to grow up market because, again, we have been over-indexed in the SMB market. We're seeing great success within the channel growing over 40% where the average deal size has more than tripled. And we're seeing contact center which has very high tickets to it growing as well.

And we're adding distribution in terms of numbers of salespeople, seniority of salespeople, and we're seeing better productivity. So, it's those levers which are just happening. Concurrent with that, again, if you parsed it back to the CPaaS side, we have been executing on, really, a mix and geography strategy, supplementing where Nexmo was strongest when we bought it which was international termination of SMS to add voice and other higher margin and fast-growing products like VAPI as well as geography in the United States. We're just executing on all those pieces. And what we can uniquely do is serve the whole TAM. And others can't. As we execute and you're seeing the green shoots -- each quarter, we're seeing more and more of that -- the green shoots of that execution, that growth rate's gonna come.

Michael Rollins -- Citi -- Analyst

Thanks very much.

Operator

And the next questioner today will be Jonathan Kees with Summit Insights Group. Please go ahead.

Jonathan Kees -- Summit Insights Group -- Analyst

Hi. Thanks. I appreciate you taking my questions. Wanted to ask about -- maybe this is a question more for Alan here. In regards to your discussion about fully programmable solutions, you've gone to good lengths here detailing about the cross-sell with contact center. Just curious how the cross-sell has been with customers in regards to Nexmo. How many of your UCaaS customers have been buying Nexmo? How much of that was included in the large deals?

Alan Masarek -- Chief Executive Officer

The way to think about it is not from a go-to-market point of view. It's from a product point of view. And what I mean by that is you clearly -- as I mentioned in the remarks, you're absolutely seeing UC and CC, so the hosted PBX and the contact center being bought together. We're seeing that everywhere. And we highlighted that specifically. For instance, all four enterprise deals reflected both UC seats and contact center seats. And the contact center seats added a third to the total contract value of those deals. On the CPaaS side, what you're seeing is not a specific go-to-market connection.

You're seeing a product connection. So, as I talked about, you'll sell more UC because all of the phone numbers are programmable which is functionality that comes from the Nexmo side. Or in contact center, you'll sell more of that because of functionality that's delivered because of the programmable pieces. For instance, last quarter, we announced -- again, this was built on in contact -- Vonage CX Cloud which took Nexmo's sentiment analysis and paired that within contact. Now that we have New Voice Media where we obviously control the roadmap, we'll be able to make those integrations ever tighter.

Jonathan Kees -- Summit Insights Group -- Analyst

Okay. That was helpful. So, if I can dig a little bit deeper there, in regards to those -- I can understand you sell more because it's more robust. You can program it. How many of the -- are you getting a greater rate in terms of customers who have purchased the UC and the CC solutions and now they're saying, "We wanna be able to utilize that programmable aspect of it"?

Alan Masarek -- Chief Executive Officer

Yes. You're seeing that in the examples that I gave you. And you're also seeing it where we're winning deals because of the Nexmo capability, even before it's even implemented. We're winning deals because of that. So, a couple quarters ago, we announced -- just to give you an example -- MedXM 5000 seat disease management company. And that was contact center and UC. We won that deal because of the Nexmo functionality because they were very interested in the ability to program the communications out to their patients because that's how that business works. It's all about compliance with the patients. And so, it's very intensive as to communications back and forth with the patients. That functionality which was not present in the deal day one is the reason that we won relative to competitors.

That has played out over and over and over again. And our salespeople, very interestingly, even within I'll call a fairly vanilla UC deal will start by selling the ability to differentiate with Nexmo first because that's what future-proofs that customer. You wanna avoid in a sales call getting into a feature sale. As I often say, you don't wanna go to a customer and say, "Buy me versus a competitor because my auto attendant is better than the competitors," because it's basically very -- it's a baseline utility. It's hard to differentiate that way. But when you pair it with the programmability, and now with New Voice Media, pair it often with the contact center, now you have a differentiated offering.

Jonathan Kees -- Summit Insights Group -- Analyst

Okay. Great. That helps. Thanks a lot. Good luck.

Operator

And as a reminder, it is * then 1 if you would like to ask a question. And the next questioner today will be Mike Latimore with Northland Capital Markets. Please go ahead.

Mike Latimore -- Northland Capital Markets -- Analyst

Yeah. Great. Thanks a lot. On New Voice Media, how quickly will you be able to sell that through the Vonage US channel, like the master agents? How long will it take to onboard them if you're gonna do that?

Alan Masarek -- Chief Executive Officer

Well, let me have Dennis take that.

Dennis Fois -- Chief Executive Officer of New Voice Media

Hey. Good morning. Thanks for the question. Well, the answer is we're starting immediately. Kenny, I, and the teams are working together on that. So, we're actually looking forward to make some progress on that in this quarter.

Mike Latimore -- Northland Capital Markets -- Analyst

Okay. Great. And then what is the OIBDA profile of New Voice Media?

Dave Pearson -- Chief Financial Officer

Yeah. So, as it relates to 2019, organically, there's a slight drag. And then you have the deferred revenues. So, from a GAAP perspective, it's gonna end up dragging OIBDA next year in the $10 million type area, almost all of which is from deferred revenue. So, there's a small organic OIBDA drag and then a fairly material deferred revenue which is non-cash drag from it.

Mike Latimore -- Northland Capital Markets -- Analyst

Okay. Got it. And then in terms of your UCaaS deployment timeframe, the time to install deals, particularly midsize and enterprise, has that been stable, shrinking, growing? How's that been working out?

Kenny Wyatt -- Chief Revenue Officer

Hey, Mike. It's Kenny. I'll take it. We're actually seeing our quote to cash, if you will, the install time from contract signature to when we start billing and post-install coming down, decreasing. And a lot of that is due to the shift toward VBC. VBC, just the way we've built it, the way Omar and team have built it is much easier to provision and easier to install, even with things like SmartWAN. As we've integrated those features into that product set, our install days are much, much shorter than the VBE platform. So, as we shift more bookings -- in fact, just a little bit above 70% of the bookings in third quarter were on VBC. As we continue to shift even more bookings toward that platform, we expect those install times to continue to come down.

Mike Latimore -- Northland Capital Markets -- Analyst

Okay. Great. Thank you.

Operator

And the next questioner today will be Catherine Trebnick with Dougherty. Please go ahead.

Catharine Trebnick -- Dougherty -- Analyst

Thanks for taking my question. Sorry if I'm repeating. I got bounced off the line. One is just to give an idea, how much of the revenue was through the channel this year or this quarter versus a year ago? To get a good sense of -- you've invested in the channel. I'm just looking for some progress, some more data on progress. Thanks, Kenny.

Kenny Wyatt -- Chief Revenue Officer

Yeah. You bet. Good morning, Catherine. So, let me start just with bookings. As Alan mentioned on his prepared script, we're seeing inbound deals -- so, deals that we're booking through the channel -- up just over 40% year-on-year. In fact, the number was 43% year-on-year from third quarter 2017. So, that's one indicator of the investment that we've talked about the last several quarters that we're making back into the channel by offering the new portal, the new programs, and just making deeper inroads with the masters and their subs. So, bookings are up 43%. We're also seeing the size of those deals improve pretty dramatically.

So, the average size of a deal that a channel partner brings us is roughly three times what it was in the first quarter. And so, we're seeing very, very good progress from both deal inflow as well as size deals. The last stat I'd share with you is of all the large deals we sold, all the way down to $10,000.00 in MRR, three-quarters of those came from the channel. As we've mentioned, some of those obviously were CCaaS. Some of those were both CCaaS and UCaas. But three-quarters of that volume came from the channel. So, seeing nice progress based on the investment we've made with partners.

Catharine Trebnick -- Dougherty -- Analyst

How long does it take you to ramp up your new partners?

Kenny Wyatt -- Chief Revenue Officer

It depends on the partner. We are recruiting daily to bring partners into the fold. Some of those partners are ready to ramp immediately. They have the background to sell UC, they have the background to sell contact center solution. Others take a little bit longer because they may have been an on-prem partner that -- for instance, AVAR -- that's looking to move toward cloud and takes a little bit more enablement and education. So, we're seeing deals pop from the partner inside of 30 days all the way to as long as six months to get them ramped.

Catharine Trebnick -- Dougherty -- Analyst

Okay. And then another. Alan, this is for you. On Nexmo, what percentage would you say are you getting traction in North America with the Voice API? I know that's a real key piece driving the gross margins for that product up. And can you give us some more color around that? Thank you.

Alan Masarek -- Chief Executive Officer

Yeah, Catherine. I'll start. Then I'll turn it to Kenny. I think we are seeing continued progress and high growth rates on VAPI but still off of a small base. So, the largest proportion of the business is still international, where it was two years ago. So, again, we feel we have the right product. And we've developed the distribution and the training and the sales enablement, etc., pushing hard into the United States, not just for voice but also for SMS as well because even SMS terminated in the US is much, much better margin than it is overseas. Kenny, you wanna augment that?

Kenny Wyatt -- Chief Revenue Officer

No, I think you covered it, Al. I think that's it.

Catharine Trebnick -- Dougherty -- Analyst

All right. Thanks.

Operator

And this will conclude our question and answer session. I would like to turn the conference back over to Hunter Blankenbaker for any closing remarks.

Hunter Blankenbaker -- Vice President, Investor Relations

Okay. Great. Thanks, William. And that does wrap up the Q&A portion. 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 on the Vonage IR website. Please contact us if you need additional details. And thank you again for joining.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Duration: 55 minutes

Call participants:

Hunter Blankenbaker -- Vice President, Investor Relations

Alan Masarek -- Chief Executive Officer

Dave Pearson -- Chief Financial Officer

Kenny Wyatt -- Chief Revenue Officer

Dennis Fois -- Chief Executive Officer of New Voice Media

George Sutton -- Craig-Hallum Capital -- Analyst

Rich Valera -- Needham & Company -- Analyst

Michael Rollins -- Citi -- Analyst

Jonathan Kees -- Summit Insights Group -- Analyst

Mike Latimore -- Northland Capital Markets -- Analyst

Catharine Trebnick -- Dougherty -- Analyst

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