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LogMeIn Inc  (NASDAQ:LOGM)
Q4 2018 Earnings Conference Call
Feb. 14, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the LogMeIn's Fourth Quarter and Fiscal Year 2018 Financial Results Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Rob Bradley, Vice President of Investor Relations. Please go ahead, sir.

Rob Bradley -- Vice President of Investor Relations

Thank you, and welcome to our fourth quarter and full year 2018 earnings conference call. I'm joined today by our President and CEO, Bill Wagner; and our CFO, Ed Herdiech.

During today's call we will discuss our business outlook and make other forward-looking statements. These statements are made as of today and are based on our current projections, estimates, forecasts and expectations. Actual events or results could differ due to a number of risks and uncertainties including those mentioned in our most recent filings with the SEC. The Company does not undertake to update any forward-looking statements. We will begin today's call with comments by Bill and Ed followed by the question-and-answer session. And during the Q&A session, please limit yourself to one question and one follow-up. Please note that we have added a presentation to our Investor Relations website to accompany this call.

As a reminder we will use non-GAAP financial measures as we believe they are more representative of how we internally measure the business. Non-GAAP financial measures exclude stock-based compensation expense, acquisition and litigation-related costs, amortization of acquired intangible assets and restructuring charges. All metrics on the call will be non-GAAP unless otherwise specified. These numbers are reconciled in the tables attached to our press release and are also available in the accompanying presentation.

With that I'm going to turn the call over to our CEO, Bill Wagner. Bill?

William Wagner -- President and Chief Executive Officer

Thanks, Rob. Good afternoon and thank you for joining us today as we share LogMeIn's fourth quarter and fiscal year 2018 results. I'm pleased to report that LogMeIn delivered strong financial results in Q4 with revenue, adjusted EBITDA, earnings per share and free cash flow that all exceeded the high end of our guidance. Q4 revenue was $311 million, and adjusted EBITDA was $119 million or 38% of revenue. We delivered earnings per share of $1. 47 and free cash flow of $69 million. For the full year we delivered annual revenue of $1.2 billion, adjusted EBITDA of 37% and earnings per share of $5.39.

In a few minutes I'll turn things over to Ed who will cover the Q4 financials in more detail while also providing our guidance for Q1 and for the full year 2019. But before I do, I want to provide some important context not just for 2019 but for our long-term outlook. I'll begin by revisiting the strategic course we've set out on a little over a year ago which was to expand into much larger adjacent markets. Then I'll highlight the strong progress we've made in those growth markets in 2018 which has given us increased conviction in the opportunities in front of us. Finally, I'll conclude by sharing our plans to build on our momentum during 2019 and beyond. Plans which include making investments necessary to win in the market putting us on a path to double-digit growth and creating a much more valuable Company.

A little over a year ago at our 2017 Investor Day we outlined strategy to move beyond our legacy markets and expand into three much larger rapidly growing adjacent markets. At that time LogMeIn was well established as a leader in online meetings, remote support and remote access. By leveraging our scale, our large customer base and our well-known brands, we believe we were well positioned to expand into adjacencies that together would significantly expand our market opportunity. Embarking on this course in 2018 we've set two priorities for ourselves.

First we set out to build or acquire the missing elements needed to complete our product portfolio. Second, we wanted to demonstrate commercial momentum that would validate key assumptions in our strategy and demonstrate our ability to capture share in these large markets. Looking back on 2018, I'm very pleased to say that we accomplished both of these critical priorities. In early 2018, we introduced our first AI-powered offering in Bold360ai, leveraging the AI technology we obtained through our acquisition of Nanorep. Bold360 was an instant hit, earning reputations in the market as a better, faster and lighter way for companies to transform the way they engage with their customers.

We had success selling into new prospects, cross-selling into our existing customer base, capturing greenfield opportunities and displacing entrenched competitors like Salesforce and Oracle. Bold360ai sales also yielded a significantly higher average contract value than our legacy products. In fact in Q4 of 2018, sales of Bold360ai helped us close as many six-figure deals as we did in all of 2017.

On the Identity front LastPass continued to perform well in 2018 and was once again the fastest growing product in our portfolio. We saw LastPass cross $15 million in revenue, approximately 500% larger than when we acquired it three years earlier. With innovations such as federated login and auto-fill on iOS 12, LastPass extended its leadership position in 2018 and is now one of the fastest-growing cloud-based apps boasting nearly 14 million users. Behind the scenes we also took important steps to accelerate our development of single sign on and multi-factor authentication capabilities. We view these capabilities as essential ingredients to fulfill our vision of an IDaaS platform. And we are now in a position to introduce them to the market later this year.

Finally, in 2018 we acquired Jive Communications, a central piece for our UCC ambitions. We believe that Jive boasts some of the most modern and scalable cloud PBX technology in the market. And in the first year as part of LogMeIn, we accelerated Jive's year-over-year revenue growth from 20% in 2017 to 35% exiting 2018. Some of that growth came as a result of the success we had bundling Jive with GoToMeeting in the second half of the year.

In fact since its launch, we've sold more than 80,000 seats on this voice, video and collaboration bundle, increased Jive's average contract value and improved our close rates. While these individual results in 2018 are impressive, looking at them collectively tells me even more exciting story for our Company. At the time we announced our intention to expand into these adjacent markets, the products aimed at those opportunities were generating total revenues of less than $100 million or only about 10% of LogMeIn's total revenue. By the end of 2018 just one year later, we have established footholds in these markets with products collectively generating nearly $240 million in annual revenue. These products now represent 20% of total Company revenue and are growing at 35%. While gaining footholds in these exciting markets was great validation of our products and our strategy, it was never the end goal. Instead, building off the momentum in 2018 and leveraging the portfolio we've built it's time to take the next step and assert our leadership in these new much larger markets, to make the smart investments required to accelerate this growth and take aim at the enormous opportunity in front of us.

All together, we'll be investing an incremental $75 million in 2019 to build on the success of our growth products. Investments that are designed to accelerate the momentum we saw coming out of 2018. Almost two-thirds of these investments will be used to accelerate our UCC strategy which starts with a combination of our GoToMeeting business and Jive. At $700 million, Unified Communications & Collaboration is already LogMeIn's largest business. Now with core meeting business continuing to stabilize and new leadership driving our road map, our UCC business is once again on track to accelerate as we work through the year. Convergence is driving this market and LogMeIn has the broadest product portfolio. Everything from a lightweight tool designed for small businesses to a collaboration platform that supports thousands on a single event to a highly scalable cloud-based telephony offering.

While competitors are scrambling to build their own or buy companies that strengthen their portfolio, we already have all the ingredients to deliver the next generation of integrated communication and collaboration solutions for companies of all sizes. On the product side, these investments will allow us to accelerate our product roadmap delivering new capabilities in voice, video and conferencing, along with what we believe will be a disruptive solution for call centers. On the go-to-market side, these investments will allow us to more aggressively ramp our international sales capacity and fund marketing programs in support of our new product launches. We will also be making investments in our customer engagement and support business or CES business specifically in support of Bold360ai. Similar to our UCC customers, our CES customers are in the midst of a transformation. These companies are evolving how they interact with their customers. Many are large professional help desks and contact centers that first engage LogMeIn for remote support and live chat solutions. Now they're looking to utilize emerging digital engagement solutions to better support their clients, reduce cost and drive revenue.

In 2019, it's our plan to introduce new versions of Bold designed specifically for the sale of use case, an untapped market for us, but an area where our customers are increasingly deploying AI-powered tools to improve the efficiency of their sales channels. We're also investing to strengthen and expand the AI capabilities that powered Bold360ai to such success over the last year and we expect that technology to appear in other LogMeIn products in 2019. We're also making growth investments aimed at our Identity and Access Management business specifically to further capitalize on the current momentum of the LastPass business.

As I've described before, we see a very large market that is underserved by current solutions. In 2019, we plan on expanding beyond password management introducing both a single sign on product and a multi-factor authentication product that together will transform LastPass into a broad yet lightweight Identity as a Service platform, a complete solution which we believe fills a large unmet need in the market. We will also be investing in additional marketing programs and sales resources to support these critical product launches.

To summarize, we believe that in 2019 LogMeIn is entering an exciting new era. The market opportunity in front of us is very large. The data we are providing in these slides that accompany this presentation supports a total combined addressable market of more than $70 billion. Our growth markets in those products have performed better than expected now making up 20% of revenue and are growing at 35%. We believe with smart investments they could grow even faster. Our goal is simple, we want to be the defining leader in the UCC, identity and digital engagement markets. And we are making the prudent investments and structural changes needed to capture the opportunity in front of us. We expect to see early results of these investments this year with growth increasing in the second half of 2019 and accelerating as we enter 2020. As always, we will operate the business with rigor. We will closely monitor the results of these investments and make adjustments as needed. We also intend to continue to deliver sector-leading margins and fulfill our commitment to return capital to shareholders.

Finally, while these investments will require us to lower margin over the next few years we believe executing this plan puts us on a path to market leadership, gives us a clear line of sight to double-digit revenue growth and makes us a much more valuable Company over time.

With that, I'll now turn the call over to Ed who will provide more detail on Q4 results, our investments as well as our business outlook for Q1 in 2019. Ed?

Ed Herdiech -- Chief Financial Officer

Thanks, Bill. Before I begin my remarks I want to remind everyone that I will be reporting our results on a non-GAAP basis unless otherwise specified. As always a reconciliation of our non-GAAP to GAAP results can be found in our press release and on our Investor Relations website. Additionally we've included a presentation on our website that summarizes the key themes from tonight's call as well as our pro forma reconciliations.

We had a strong fourth quarter with financial results that exceeded the high-end of our guidance for revenue, EBITDA, EPS, free cash flow and deferred revenue. Importantly our collaboration renewals performed well for the second straight quarter with retention rates at 82%. Total Q4 revenue was $311 million representing 3.2% year-over-year growth on a pro forma basis. Adjusted EBITDA was $119 million or 38% of revenue. Earnings per share was $1.47. Operating cash flow was $87 million, and free cash flow was $69 million. We finished the year with a strong sales quarter highlighted by Jive revenue growing at 35% in the quarter aided by the success of the Connect bundle. Bold closing eight six-figure deals in the quarter, the same number that we closed in all of 2017. And LastPass closing five large enterprise deals in the month of December alone.

For the full year, total revenue was $1,208 million and total pro forma revenue was $1,231 million which represents 6% year-over-year growth and includes a full year of Jive revenue. Adjusted EBITDA was $446 million or 36.9% of revenue and pro forma adjusted EBITDA was $439 million or 35.7% of revenue. Earnings per share was $5.39 versus $4.26 in 2017 on an as-reported basis. The business continues to generate strong cash flows which we believe makes us a real standout in today's SaaS environment. Full year operating cash flow was $443 million or 37% of revenue and free cash flow was $378 million or 31% of revenue and represents approximately $7.20 on a per share basis. Likewise, we believe our shareholder returns place us at the front of the pack of today's SaaS companies.

During the year, we returned 82% of our free cash flow to shareholders. In the fourth quarter, we spent $57 million to repurchase 667,000 shares of our stock and paid $15 million on dividends. For the full year we paid $247 million to repurchase more than 2.5 million shares of our stock and paid $62 million in dividends. In 2018 we reduced our fully diluted shares outstanding by 4%. Regarding our Q1 2019 dividend, we're increasing it by 8% to $0.325 per share, which we will pay on March 12 2019 to stockholders of record as of February 25th, 2019.

Turning to our business level results. For the fourth quarter, our UCC business was up 1% year-over-year on a pro forma basis and declined 4% excluding Jive as expected. As we continue to focus on our retention initiatives, we're seeing stabilization in this business as renewal rates were above 80% for the second consecutive quarter. As we said, we believe renewal rates are a key indicator of current performance and that the impact on revenue will follow. As we work through 2019 we expect first half UCC revenue growth to be slightly negative and then turn to growth in the second half of the year.

For the full year, our UCC business grew 4% year-over-year on a pro forma basis to $698 million. Under our direction Jive's revenue accelerated during the year to $103 million which represents 31% year-over-year growth up from 20% in the prior year. Next, our Identity and Access Management business grew 12% year-over-year in the fourth quarter and 16% for the full year. LastPass, our market-leading identity product continues to perform very well. In 2018 LastPass generated more than $50 million in revenue and grew more than 70% year-over-year. For 2018, the remote access portion of our Identity and Access Management business generated approximately $300 million in revenue and grew 10% year-over-year while generating significant profits.

In 2019, we expect remote access to slow and for revenue to be flat as applications continue to migrate to the cloud. We intend to continue to proactively manage this business to extend its lifetime with careful nurturing and support of the installed base. Our Customer Engagement and Support business generated $178 million in revenue for the full year and $44 million in the fourth quarter. On a year-over-year basis, both were roughly flat.

Within CES, we're very excited with Bold360ai which we introduced earlier this year. Incorporating the AI technology that we acquired from Nanorep in July of 2017, Bold is seeing rapid adoption as it solves customers' evolving needs in digital engagement. In 2018, Bold generated $25 million of revenue and grew 44% year-over-year, in part by selling into our large remote support customer base and by capturing new business across a range of industries which in the current quarter included multinational hotel chains (ph), gaming manufacturers and financial institutions.

Moving onto renewal rates. For the fourth quarter, our total Company gross renewal rate across all products on an annualized dollar basis was approximately 80% consistent with the prior quarter. And our UCC renewal rate excluding Jive was 82%. Before turning to guidance, I'll provide additional details regarding the $75 million that we expect to spend on our year one growth investments which we believe will help us accelerate our top line growth and in turn maximize long-term shareholder value. In UCC, we plan to invest more than $50 million to position us to win in this $50 billion market.

These investments will target cloud-based telephony, the largest segment in UCC market as well as videoconferencing and contact centers as a service. These investments will allow us to significantly increase our marketing spend, hire development resources to build out our integrated UCC platform and to aggressively expand our international sales capacity. In Identity and Access Management we plan to invest more than $10 million to extend our leadership in password management by launching a broader IDaaS solution which we expect will strengthen the competitiveness of our current offering and position us in front of a much larger market opportunity. Additionally, we intend to cross-sell the broader solution across LastPass' large installed base of approximately 14 million users and 40,000 businesses. These investments will primarily be utilized to hire additional engineers for product developments and to expand sales capacity and marketing program spend.

Finally, in CES, we plan to invest approximately $10 million to increase our engineering talent and capacity to develop verticalized AI-centric capabilities to extend Bold360ai into adjacent customer use cases. We've also earmarked investments for incremental marketing spend and to expand our sales and deployment capacity. In 2019, across the Company, we believe these investments will allow us to, increase global sales capacity by 15% to approximately 600 quota-carrying sales reps which marks the first meaningful increase since the GoTo merger. These investments will increase our marketing program spend by more than $45 million.

And finally, we will significantly increase our global engineering capacity to support delivery of new products and feature extensions. We're making significant investments in sales and marketing which are reflected in our margin outlook while we're also committed to generating capital for these investments through disciplined, operational and financial management. Accordingly incorporated into this guidance is the impact of the restructuring plan that we announced earlier today. With this plan, we will streamline the organization and reallocate resources to better align with the Company's current goals and priorities.

We expect these actions to result in savings of approximately $16 million in 2019 with annual savings of approximately $26 million. The Company expects to record a restructuring charge of approximately $17 million and to substantially complete the restructuring by the end of 2019. We intend to closely monitor the progress and results of these investments on an ongoing basis throughout the year. Before I move to guidance, I want to reiterate some of the key milestones that we believe will indicate that our plan is on target.

First, overall Company revenue growth is accelerating at the end of the year and approaching 5%. Second, our UCC business exits the year with growth approaching 4%. And third, for the full year, our growth assets comprise 25% of total revenue up from 19% at the end of 2018.

With that, I'll now provide our outlook for Q1 and FY 2019. For the first quarter, we expect revenue to be in the range of $304 million to $306 million. We are currently targeting adjusted EBITDA to be in the range of $94 million to $96 million, and an adjusted EBITDA margin of approximately 31% of revenue. Our net income per diluted share is expected to be in the range of $1.12 to $1.15. GAAP net loss per share is expected to be in the range of $0.21 to $0.17. Net income assumes an effective tax rate of approximately 25% and GAAP net loss assumes a tax benefit of approximately $2 million. Net income per share is based on 51.1 million fully diluted weighted average shares outstanding and GAAP net loss per share is based on 50.7 million weighted average shares outstanding.

For the full year, we expect revenue to be in the range of $1,250 million to $1,260 million. We expect full year adjusted EBITDA to be in the range of $407 million to $412 million with full year adjusted EBITDA margins to be approximately 33% of revenue. Our net income per diluted share is expected to be in the range of $4.90 to $4.97. GAAP net loss per share is expected to be in the range of $0.34 to $0.25. Net income assumes an effective tax rate of 25% and GAAP net loss assumes a tax benefit of approximately $1 million. Net income per share is based on 50.6 million fully diluted weighted average shares outstanding and GAAP net loss per share is based on 49.9 million weighted average shares outstanding.

Finally, we expect full year free cash flow to be approximately $350 million to $355 million or 28% of revenue which is equivalent to approximately $7 per share. Before I conclude my remarks, I want to reiterate that while we embark on our three-year investment plan to accelerate growth, that our leadership team is fully committed to rigorously manage the business, to maximize the balance between pursuing growth and delivering healthy profits cash flow and sustained capital returns. At this juncture, we believe that the most effective way for the Company to create long-term enduring value is to accelerate organic growth.

That concludes my remarks. And now I'll turn the call back over to our operator to take your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We will now take our first question. Caller please go ahead, your line is now open.

Mike -- Barclays Capital -- Analyst

Hey, this is Mike (ph) on for Raimo from Barclays. I just want -- thanks for taking my question, just wanted to ask and dig in a little bit on the collaboration side of things. What are you guys seeing, obviously there's two straight quarters where the renewal rates have kind of improved there. What are some of the things you're seeing on that end? And can you give a little bit more detail there?

William Wagner -- President and Chief Executive Officer

Sure, Mike. Thanks for the question. So yeah as I've said, we continue to make progress in the quarter. Some of the things we made in the second half have really, starting to take hold. Pleased to see the retention rates, renewal rates get back to over 80% again for the second consecutive quarter. But what we're really excited for the second half in Q4 in particular about the results of -- our initial results of the GoToMeeting Jive bundle which is a precursor of our integrated product, we'll release here in 2019. 80,000 seats sold on a combined solution in the second half of the year, average contract value increased, close rates increased. Most of that is reflected in the Jive performance, but it's clearly driven by the bundle with GoToMeeting.

Mike -- Barclays Capital -- Analyst

Great. Yeah. That's helpful. And then as a follow-up, I mean you guys talk about kind of the investment plan that you guys have leading toward that double-digit growth and you have talked about the $75 million that you have planned in growth investments, but can you just dig in a little bit more, because I see also kind of the EBITDA margin stepping down again in 2020. Can you dig in a little bit to the margin -- from a margin perspective on this kind of three-year plan that you have?

William Wagner -- President and Chief Executive Officer

Yeah. So I think -- I mean, the big deal is that we saw a lot of momentum accelerated momentum out of our growth products probably growing at or probably better than we have expected. Jive accelerated from 20% to 35%, Bold went to 400% in new sales, LastPass crossed the $50 million mark, growing over 70%. So those products are actually growing faster than we had thought. And I think we see a window for market leadership, either we can underinvest and really try to protect that margin in the short term or invest to continue to drive share and capture what we think is a leadership position. We think that creates a much more valuable Company.

Mike -- Barclays Capital -- Analyst

Okay, great. Thanks, guys.

William Wagner -- President and Chief Executive Officer

Thank you.

Operator

Thank you. We'll now move on to our next question. Caller, please go ahead.

Shaul Eyal -- Oppenheimer -- Analyst

Thank you. Hi, good afternoon, guys. Shaul with Oppenheimer. I had a question on the identity front, starting with that. So as you think of expanding beyond single sign on to create this multi-factor authentication expanded platform you know this is a very competitive market. From LogMeIn's perspective where do you see the competitive advantage over some of the current players? Is it the market that you're serving? Is it the product offering? Is it the potential upsell opportunity?

William Wagner -- President and Chief Executive Officer

Yeah, thanks for the question. I mean this is a market that we think is really underserved. And LastPass has been a business that we've been able to accelerate since it's been part of our portfolio and really it's not even single sign on that you mentioned, right now it's password management. We'll introduce single sign on and multi-factor authentication in 2019. And we think that meets a very large unmet need in that -- especially in that SMB space, that's really not met by any other player in this space.

Shaul Eyal -- Oppenheimer -- Analyst

Got it. And will those investments will be mostly organic R&D driven? Or there could be some supplements and inorganic additions potentially?

William Wagner -- President and Chief Executive Officer

No. This is all. We have everything we need to go, execute that. We're not going to go out, be going out and making any new additions to that. So we feel like we have the components we need, and we're going to deliver those products, those capabilities in 2019.

Shaul Eyal -- Oppenheimer -- Analyst

Got it. Thank you.

Operator

Thank you. Now, we'll move on to our next question.

Sterling Auty -- JP Morgan -- Analyst

Hi. It's Sterling Auty from JP Morgan. So two questions. First one just playing devil's advocate, if I look at revenue guidance for 2019, it's basically in line with where Street consensus already was, but obviously with a lot heavier investment. Why shouldn't we take the view that really, the market competition and dynamics is requiring you to step up the investment just to produce the kind of growth that was already expected versus the idea of acceleration?

William Wagner -- President and Chief Executive Officer

Hey, Sterling. This is Bill. So, yeah, I mean, for us, it's about the momentum coming out of 2018. And the investments we're making really pay off over the next several years and that's really where you see the acceleration coming out of this year. So rather than just kind of a flat run rate year, the investments we're making especially when we're increasing our sales capacity by like 15% to 20% as we work through the year that has a really big improvement in growth rates as we play forward. So that's really where you see that coming out. And our success that we saw coming out of those growth products we feel like we have a leadership position right in front of us. So, competitively speaking we like what we said.

Sterling Auty -- JP Morgan -- Analyst

Got you. And then one follow-up, if we look at those growth assets, the 35% growth, that continues in 2019. It implies the rest of the revenue to get to the midpoint. It looks like it would decline 4% year-over-year. Is that the right way to look at it? And the rest of those assets coming out of 2019 should that get back to flat or low-single-digit growth? Or what happens to the rest of the revenue outside of those growth assets?

William Wagner -- President and Chief Executive Officer

I think that the growth assets are clearly going to be the story here and that's driving the portfolio and the growth rates over the next couple of years. We have actually made those adjustments in EBITDA to account for that. Because obviously some of those products are very profitable. Some of them were going to be flat, and some of them will be growing modestly and some will decline. But that's all accounted for in our initial outlook.

Sterling Auty -- JP Morgan -- Analyst

All right. Thank you.

Operator

Thank you. We'll now move on to our next question.

Alex Zukin -- Piper Jaffray -- Analyst

Hey, guys. It's Alex Zukin here from Piper Jaffray. Thanks for taking the question. So, maybe just again to Sterling's question. So if we're talking about a double-digit growth rate in fiscal '21 could you break out for us how much of that growth is coming from those existing assets? And then I've got a follow-up.

William Wagner -- President and Chief Executive Officer

Yeah, Alex. First of all thanks for the question. So, I mean I think the math, we try to show a three-year target to give everyone a perspective of where we think we're headed. You can kind of see for yourself that we -- if that growth continues or accelerates which as I've mentioned in my comments I'm hopeful and I believe it can, then we'll exceed those targets. But right now we think that's a good place to be. And we'll provide any further detail in terms of the breakdown at our future Analyst Day which we'll have in 2019 at some point.

Alex Zukin -- Piper Jaffray -- Analyst

Okay. And then just on the dynamics of the, I guess just maybe one more on the growth. What do you feel guys the confidence in maintaining kind of the existing. So, the 15% increase in the sales organization, is that all going to the growth assets? And what is happening in the kind of the organization of the non-growth assets? And what's giving you guys the confidence to make this investment now coming out of what was a up and down a year in 2018?

William Wagner -- President and Chief Executive Officer

Yeah. So really it's what you're seeing in our portfolio is convergence, right? For instance let's take the UCC side. So as I mentioned we saw a lot of success especially in the second half of the year in the bundle with Jive and GoToMeeting. So increasingly we're selling those products together and that's what we're going to see and that allows us to sell into our large install base. You're seeing the same thing in Bold360 which was an incredible breakout product for us this year. We're selling about a third of the sales were actually into our installed base. And then as we're introducing these new capabilities on in under LastPass. We think there's an opportunity there to increase sales and manufacturing. So that, we're going to spend that sales spent impacts all of our business. And with maybe a little bit heavier emphasis on international. But we saw good improvement in our -- what gives us confidence, we saw very good improvement in our sales efficiency in the year. We just didn't add to it in 2018. 2019, we're getting back to the cadence we used to have a couple of years ago of adding, layering sales capacity and that's going to fuel growth.

Alex Zukin -- Piper Jaffray -- Analyst

Got it. And then maybe just one on retention. So if you think about the last two quarters 80%-plus retention, I guess first what kind of retention dynamics are you contemplating in the guidance for 2019? And then also what type of discounting trends have you seen or had or employed around renewals? And then kind of how we should think about that for fiscal '19?

Ed Herdiech -- Chief Financial Officer

Yeah. So, hi. For 2019 we're assuming 80% renewal rates for the year, so fairly consistent with where they're at today.

William Wagner -- President and Chief Executive Officer

I think on the discounting side, what we talked about in the middle of the year we made some adjustments with pricing with -- on the collab side. We started moving more toward bundle pricing and where we think we have a very strong competitive advantage, because we have the broadest product portfolio. So we can do some things with packaging and pricing that others just can't do. So we think that gives us a good advantage.

Alex Zukin -- Piper Jaffray -- Analyst

Got it. Thanks, guys.

Operator

Thank you. And we'll now move on to our next question. Caller please go ahead. Your line is now open.

Richard Valera -- Needham & Company -- Analyst

Hello. This is Rich Valera from Needham & Company. Bill, just want to try to understand what's going on under the covers in the collaboration business. It looks like it was down 2% ex-Jive in the third quarter and then down 4% ex-Jive in the fourth quarter despite having seemingly pretty consistent renewal rates there. So, what's going on in that business? Why is it kind of declines accelerating? Are new sales weaker than expected? Why, what's the dynamic there?

William Wagner -- President and Chief Executive Officer

Yeah, that's what we had contemplated. Actually when we -- over the summer we knew that it was going to take a couple of quarters for that to return to growth. So it's performed in line with what we had expected maybe slightly better. And I think that's going to -- you are going to see that continue in the next couple of quarters. But I think in our plan we believe by, in the middle part of the year you'll start to see some upward trends in that business, and that's contemplated in our plan. And again the trends we are seeing on the sales side would support that.

Richard Valera -- Needham & Company -- Analyst

Okay. One more if I could on the 2020 free cash flow and EBITDA numbers. So you're increasing your investment by $75 million in '19 and then you have a cost-saving plan which should net you $26 million of savings and you have about a $60 million increase forecast for revenue in 2020, so really having a hard time understanding how EBITDA and free cash flow declined there. Is it incremental, more incremental investment? Or is it the decline of the really profitable products. If you could sort of break that out for us, I'd appreciate it. Thank you.

Ed Herdiech -- Chief Financial Officer

Yeah. Hey, Rich. This is Ed. So, yes, it's definitely incremental investments in 2020 and 2021 beyond the $75 million this year. Those investments are needed to accelerate growth. The 10% mark that we were trying to get to. And, but at the same time first and foremost in front of us right now is we're all focused on executing 2019 plans. That's the first thing for us. And as we do as we go through the year we're going to monitor progress really closely and as we see areas of overperformance or otherwise we'll adjust accordingly.

William Wagner -- President and Chief Executive Officer

Hey, Rich, I would just add that obviously what you're seeing in our plan -- in the plan and what we shared is these growth products are taking a bigger percentage of our portfolio. So you're seeing that portfolio shift that's contemplated in the three-year target that we shared today.

Richard Valera -- Needham & Company -- Analyst

Got it. Thank you.

Operator

Thank you. And we'll move on to our next question.

Tim Klasell -- Northland Capital -- Analyst

Good afternoon. Tim Klasell from Northland. Just some question on the timing of the product releases of the growth initiatives. If I take a look at that 5% and 10% for the out-year growth rates, how dependent are they on those new products releases? And again maybe you can give me a little bit of timing of when we should expect to see those? Thanks.

William Wagner -- President and Chief Executive Officer

Yeah. Thanks for the question. So those product releases are actually already in the pipeline. So anything that we are depending on or building in that's already in the pipeline. So for C&C (ph), some of that were UCC, some of the things that we talked about over the summer are either already coming out or reintroduced over the next couple of months and quarters. And the same thing as I said on the call in my prepared remarks we will introduce our full IDaaS suite this year, include single sign on, multi-factor authentication. So, we definitely expect to be able to sell those products and we have a lot of confidence in that. I think the bundle is another example. The integrated product, we were, I think we did not build a lot of into our plan this year for the bundle and really saw that success take off in the second half of the year. That is -- was really exciting for us. And I think bodes well as we start to introduce our integrated product here shortly.

Tim Klasell -- Northland Capital -- Analyst

Okay. And then just a quick follow-up. Just from the tone of some other questions and what you said on your prepared remarks, it seems as if that M&A will become less of a -- you become less active in the M&A front while something fantastic comes by over the next couple of years. Is that correct?

William Wagner -- President and Chief Executive Officer

No, I think the -- we feel like we have the big ingredients we need in our portfolio to deliver on that plan. So, obviously we'll always -- we're always in the market, we're talking to companies. But we're really focused on executing our 2019 plan and that puts us on a great trajectory.

Tim Klasell -- Northland Capital -- Analyst

Great. Thank you.

Operator

Thank you. We'll take our next question.

Steven -- KeyBanc Capital Markets -- Analyst

This is Steven (ph) on for Alex Kurtz. Just got a question on what you guys are seeing on the restructuring side -- and just kind of figure out, what you're seeing in the market dynamic standpoint and also kind of where those changes are going to be made of.

Ed Herdiech -- Chief Financial Officer

Yeah. Hi, this is Ed. So, the executive team here, we are continuously looking at the business to identify areas where we can make improvements and increase efficiencies. And the restructuring that we announced today which will take a year to execute is a byproduct of that. And this is a discipline that we'll continue to practice. Specifically you'll see R&D and G&A having kind of the biggest impact from the restructuring as we look to leverage some of the shared service centers that we've built up and lower cost development centers. And then we're are also going to consolidate a couple of offices, but that's really the bulk of the restructuring.

Steven -- KeyBanc Capital Markets -- Analyst

Okay, great. And then as we kind of think out to 2021 and I guess the margin profile there, it sounds like there's a mix shift going on there that's kind of lead in to lower margin businesses. Just trying to figure out, accelerate, are they getting into scale? Or is that your view that they're going to scale in 2021? Or what's driving again the margin uplift?

William Wagner -- President and Chief Executive Officer

Well, yeah. I think those business as they get larger, they're starting to -- they will start to scale and show better contribution margins. And again, we -- those other products and our core products that we are bundling and integrating into those products, they also bring a lot of contribution margins. So that's all factored into that outlook.

Steven -- KeyBanc Capital Markets -- Analyst

Okay. Great. Thank you.

Operator

Thank you. We'll move on to our next question.

William Power -- Robert W. Baird & Co. -- Analyst

Yes. Hi. Will Power with Baird. Yeah, if I could just come back to the UC and collaboration segment I just want to make sure, I understand one of the comments that was made. I think Ed you said that you expect that segment in total to turn negative in the first half. And I just want to make sure I caught that (ph) right. So, that could be a worsening of the trends, you saw last couple of quarters. Is that in fact included, Jive? And then, and another piece to that, is that I wanted to better understand what you're trying to do with contact center. Are there existing contact center capabilities within Jive? Are you building that from the ground up? Or what's the thought process and opportunity there?

Ed Herdiech -- Chief Financial Officer

Yeah. So, yes. You heard me correctly. So in the fourth quarter our total UCC business on a pro forma basis of course grew 1%. And while we're seeing the core collaboration business stabilize, but before it actually, it returns to the growth, we're going to see the overall UCC business decline in Q1 and Q2 and then return to growth in Q3. And one of the things that I called out that will be important for us is that we exit the year kind of around 4% approaching 4%.

William Wagner -- President and Chief Executive Officer

Then I -- just on the call center. So yeah, we have call center capabilities. Jive brought them with us. One of the things we'll be doing is I talked a little bit about it, it's just tremendous traction we are seeing with Bold360, and we'll be integrating that into our call center capabilities which I think is a very unique and disruptive offering in the market.

William Power -- Robert W. Baird & Co. -- Analyst

Okay, great. If I can just ask one additional question just a follow-up to some earlier commentary as well. I think you talked about as you were talking about the Identity and Access Management business obviously LastPass is, have been a home run for you. As you think about remote access, how do we think about that growth in 2019? I think you said that was 10% in '18? Does that still grow in '19?

William Wagner -- President and Chief Executive Officer

Yeah. No it's flat in '19.

William Power -- Robert W. Baird & Co. -- Analyst

Okay. Thanks.

Operator

Thank you. We'll now move on to our next question.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Hi, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our question. Could you talk a little bit about new business bookings in the quarter were good. I know, some of the changes you made around renewals previously you relaxed some requirements around new business, seems like you're benefiting here. Is that still the case?

William Wagner -- President and Chief Executive Officer

Yeah. So I think the -- from a new sales perspective, two things just jumped out at us in the quarter. One was the bundle we saw with Jive and bundling together Jive and GoToMeeting as we had hoped made a lot of sense to customers. I think it actually exceeded our expectations and that's a business that renews at about 90%, so that bodes well for our strategy. And that was definitely one of the highlights especially in the second half of the year. We began that in June, but really hit our momentum in the second half of the year. The other thing I would point out was Bold360 and sales of that. That was new sales for Bold360, Ed, make sure I'm right here, but they were over 400% in 2018. So...

Ed Herdiech -- Chief Financial Officer

That's correct.

William Wagner -- President and Chief Executive Officer

Really strong new sales of Bold.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Great. And then maybe for one to Ed in guidance. For several quarters now guidance has been framed as quote-unquote, conservative approach. Is that still the case? Are you laying any factors differently with the first quarter outlook here than the last several quarters?

Ed Herdiech -- Chief Financial Officer

I say, there is no change to the methodology that we used to provide guidance.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Great. Thanks.

Operator

Thank you. We'll now move on to our next question.

Sterling Auty -- JP Morgan -- Analyst

Hey, guys. It's Sterling again. Just with a quick follow-up. I was just curious as we think about the three-year targets that you gave, how should we think about the gross margin profile? You've given us good detail with EBITDA, but how should the gross margin profile look?

Ed Herdiech -- Chief Financial Officer

Yeah. Hey, Sterling, so in 2019, I'll tell you that we see a one point decline in our gross margin. Beyond that we'd be in better position to talk about that at Investor Day that Bill mentioned.

Dan Bergstrom -- RBC Capital Markets -- Analyst

Okay. Thank you.

Operator

Thank you. And that does conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Wagner for additional or closing remarks.

William Wagner -- President and Chief Executive Officer

Thank you, and thank you for your questions tonight. In closing, we believe we are entering an exciting new era, an era that we believe will see LogMeIn achieve leadership positions in larger faster growing markets. Building off the success of our growth products and the validation of our strategy, we are embarking on an investment plan that we believe will see us exit 2019 with accelerating momentum and a line of sight to double-digit organic growth.

We are committed to making these growth-centric investments while remaining focused on running our business with discipline, delivering strong margins and returning capital to shareholders. As a result, we are confident that this plan creates a far more viable Company in the long term. Thanks again for your time this evening, and we look forward to updating you on our progress when we report our Q1 results in April.

Operator

Thank you. That does conclude today's conference. Thank you all for your participation. You may now disconnect.

Duration: 51 minutes

Call participants:

Rob Bradley -- Vice President of Investor Relations

William Wagner -- President and Chief Executive Officer

Ed Herdiech -- Chief Financial Officer

Mike -- Barclays Capital -- Analyst

Shaul Eyal -- Oppenheimer -- Analyst

Sterling Auty -- JP Morgan -- Analyst

Alex Zukin -- Piper Jaffray -- Analyst

Richard Valera -- Needham & Company -- Analyst

Tim Klasell -- Northland Capital -- Analyst

Steven -- KeyBanc Capital Markets -- Analyst

William Power -- Robert W. Baird & Co. -- Analyst

Dan Bergstrom -- RBC Capital Markets -- Analyst

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