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Vonage Holdings Corp  (NYSE:VG)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Vonage Holdings Corporation Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) 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 -- Investor Relations Vice President

Great. Thanks, Allison, and good morning and welcome to our fourth quarter and full year 2018 earnings conference call. Speaking on the call this morning is Alan Masarek, our Chief Executive Officer, and Dave Pearson, CFO. Also joining us is Omar Javaid, EVP of Application API Group and Chief Products Officer; and Dennis Fois, The EVP of the Applications Group. Alan will discuss our strategy and fourth quarter results and Dave will provide a more detailed view on our fourth quarter results and 2019 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 two, 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 fourth quarter earnings press release or the fourth quarter earnings slides which are posted on the IR website.

So with that, I'll turn the call over to Alan.

Alan Masarek -- Chief Executive Officer

Thanks Hunter. Good morning and thanks for joining us. 2018 was a year of great strategic progress for Vonage fueled by our financial strength. We invested significantly in product innovation and executed the acquisitions of TokBox and NewVoiceMedia and we expect accelerated growth in 2019. We finished 2018 with good financial performance in the fourth quarter. Total business revenues were $170 million comprising 62% of consolidated fourth quarter revenues and reflecting organic growth of 20%. Of this business service revenues grew 22% organically and adjusted OIBDA was $41 million.

I'm going to start my comment this morning by reiterating our strategy. Vonage's strategy uniquely addresses the entire cloud communications TAM with fully integrated owned assets. Our strategy enables us to move beyond simple connectivity solutions. Rather we deliver communication solutions that help businesses improve visual engagement with their customers. And in doing so enhance customer experience to create greater satisfaction and brand loyalty.

Our One Vonage Platform strategy enables customers to deploy our communication software in many different forms ranging from programmable communication APIs that are programmed into digital environments and workflows to prebuild communication applications like Vonage Business Cloud our Unified Communications Solution and Contact Center as we integrate NewVoiceMedia. All our product solutions will be built from the One Vonage Platform and will be programmable as a result of our micro services architecture.

Let me illustrate the power of our strategy with the following examples. The One Vonage Platform includes a set of APIs that enable phone number programmability. With number programmability it's easy to route calls, enable chatbox, integrate CRMs, launch real-time calendaring and more. Once fully launched phone number programmability automatically becomes part of Vonage Business Cloud because it's built from the same platform.

Programmable communications are critical to creating great customer experiences. In fact Gartner reports that by 2021 just a couple of years 81% of businesses 81% expect to compete mostly or completely on the basis of customer experience. So our strategy is based on a simple premise. Businesses will win or businesses will lose based on customer experience and customer experience relies on the quality of interaction between the businesses' customers and its employees. And customers want to interact with businesses through that customers' preferred mode of communication voice, video, messaging, through a brand's mobile app over the web through an IVR or even via chat apps like messenger, WeChat or WhatsApp.

During 2018 we made very important progress advancing our strategy. We acquired TokBox the industry leader in WebRTC programmable video and NewVoiceMedia a world leader in Contact Center as a Service. Both are in high-growth market segments and are critical to our One Vonage Platform strategy. With these acquisitions Vonage now uniquely owns its entire technology stack across Unified Communications, contact center and programmable APIs with complete coverage across the major modes of communication: voice, video, messaging and SMS.

As our technologies come together as the One Vonage Platform. We will deliver solutions. All fully programmable ranging from applications like Unified Communications integrated with contact center and collaboration and team messaging to programmable APIs that today software developers program into their digital environments. But in the future many people will configure without the need for software coding skills.

Now given that strategic overview, let me highlight other product innovation initiatives as well as improvements in go-to-market execution that drive accelerated growth for revenues in 2019. Regarding product innovation. Just one year ago we introduced Vonage Business Cloud. Today Vonage Business Cloud is a cornerstone solution of our One Vonage strategy. Vonage Business Cloud combines voice, messaging, collaboration, videoconferencing and other key features into an integrated user experience. And later this quarter Vonage Business Cloud will add contact center functionality via integration of NewVoiceMedia.

Vonage Business Cloud supports nearly 100,000 business customers. And in the fourth quarter alone 85% of new -- new unified communication bookings came from Vonage Business Cloud. This rapid adoption of Vonage Business Cloud is the result of significant investments in functionality, service quality and scalability. For example Vonage Flow our team messaging solution embedded within Vonage Business Cloud saw messaging usage increased 45% in the fourth quarter alone. The Vonage Business Cloud mobile app which ranked highest among competitors in the app store in Google Play increased usage 30% during the year.

Vonage Business Cloud introduced a new customer portal that improves onboarding using checkbox, artificial intelligence and natural language processing to resolve customer issues. And most recently, we released the Vonage Business Cloud app center which is an embedded marketplace for customers to install new applications and enable new features like business inbox which offers social messaging integration. These improvements and others drove meaningful increases in customer satisfaction. The number of Vonage Business Cloud customer care calls decreased 25% in 2018 and declined 30%.

So now let's turn to improvements in our go-to-market execution. We have aligned our go-to-market efforts around applications which combines NewVoiceMedia's contact center go-to-market teams with Vonage's Unified Communications go-to-market organization because these solutions are increasingly purchased together particularly among mid-market and enterprise customers. And then APIs which combined Nexmo and TokBox go-to-marketing teams. We're driving three broad initiatives across our go-to-market efforts. One increasing sales with Midmarket and Enterprise customers, while improving sales execution within each routes to market; two, driving integrated product sales that include programmability; and three, growing our Long-tail

customer base particularly for pure API use cases by investing in developer relations and providing all modes of communication: voice, video, messaging and SMS from one platform. And these initiatives are driving results.

In the fourth quarter our Midmarket and Enterprise focus drove a 40% year-over-year increase in service revenue from customers with greater than $10,000 in monthly revenues. We signed seven deals with TCVs greater than $1 million and most included programmable solutions. Channel bookings grew 60% and six of our top 10 deals originated from channel. Quarterly revenue from the Long-tail customers grew 90% versus the prior year period and we ended the year with 735,000 registered developers.

Two examples of recent wins include; one a Fortune 500 financial services firm with over 14,000 locations. Vonage was selected to replace on-premise systems with Unified Communications coupled with two factor authentication and verified APIs, as well as marketing. And second one of the world's largest Pizza Restaurant Chain very well known for using technology to enhance customer experience selected our APIs for account verification.

After a successful launch, we won an initial deployment for Vonage Business Cloud with opportunity to expand into several thousand locations again demonstrating the power of combining APIs with applications in the same solutions portfolio. For 2019, we will continue investing in product innovation and go-to-market execution. We will accelerate development to the One Vonage Platform and broaden our portfolio of programmable APIs, while expanding integrations into additional development platforms. We will leverage One Vonage to drive sales of higher value APIs like voice, video and verify, while growing our Long-tail customer base and increasing U.S. penetration. This will automatically embed more programmability into Vonage Business Cloud. And we will continue developing our omnichannel sales footprint which now includes the benefit of these go-to-market relationships with salesforce.com.

In closing, we own a unique combination of assets that we have productized to help businesses improve digital engagement with their customers (Technical Difficulty) and enhance customer experience to create greater satisfaction and brand loyalty. Our opportunity has never been greater and I look forward (Technical Difficulty) to sharing our progress with you in the future.

Before turning the call over to Dave, I want to emphasize one final point, that is we consider business a single segment as the way we run the company. We see that characterization of companies as UCaaS, CCaaS or CPaaS as an archaic view. Those lines of distinction are blowing for all communication suppliers, but even more so for Vonage because our solutions are built from a common One Vonage platform and we address virtually unlimited use cases purchased by both software developers and businesses.

I'll now turn the call to Dave to review our financial results and 2019 guidance.

David Pearson -- Chief Financial Officer

Thanks, Alan, and good morning everyone. As Alan noted, in 2018 we strategically deployed our capital into growth and acquisitions that significantly expanded our sales and product footprint and that we believe will accelerate revenue growth in 2019 and beyond. With that, let's begin with the review of the fourth quarter and 2018 on Slide 11. As in the past all comparisons to prior periods or year-over-year unless otherwise noted is sequential.

Turning to Vonage Business, revenue for this segment in the fourth quarter was $170 million representing 62% of consolidated revenue and a 27% GAAP increase. For the full year Vonage Business revenue was $608 million a 22% GAAP increase. As reference currency movements reduced 4Q revenue by $3 million while increasing full year revenue by $7 million due to favorable impacts during the first half of the year. Business service revenue growth is our focus as we continue to emphasize access circuits and devcom (ph) sales and look through U.S. health revenue.

Looking at service revenue growth on an adjusted basis which normalizes for acquisitions and other onetime items. Vonage Business service revenues increased 22% for the fourth quarter and 23% for the full year 2018. These growth rates adjust for several factors including the acquisitions of TokBox and New Media -- NewVoiceMedia which occurred at the end of July and October respectively.

The adjusted growth rates pro forma these acquisitions for all of 2017 and the periods in 2018 in which did not own them. Two, the writedown of approximately $2 million of NewVoiceMedia's deferred revenue balance under GAAP purchase accounting rules. And three, the exclusion of outage credits of $1.5 million in the quarter. These credits were issued specifically for VBC (ph) which is based on a third-party call processing software platform. Our focus on adding customers on the Vonage Business Cloud platform lowers this risk significantly.

We included table in the press release and on Slide 23 of today's presentation with added detail in these adjustments. Vonage Business revenue churn was 1.1% down from 1.2% in Q4, 2017 and revenue per customer was up 20% to $392 both reflecting the higher quality of our service and move-up market. Overall business service margin for the fourth quarter and full year was 55% both down 1% due to the outage credits and faster growth of lower margin products.

Turning to Slide 13. Consumer revenue for the fourth quarter was $104 million down 13%. For the full year consumer revenue was $441 million down 12% as planned. Consumer service margin for the fourth quarter was 89% up from 84% a year ago. This speaks to the power of our common scale network infrastructure that serves both the consumer and business segments. Consumer customer churn for the fourth quarter was 1.8% down from 1.9%. We continue to believe we can sustain consumer term rates at or below 2% given the dynamics of our customer base with two year or greater tenured subscribers now accounting for 87% of the total. We ended the year with nearly 1.3 million consumer subscriber lines and average revenue per line stable at $26.32.

Given this churn and ARPU profile, we expect consumer to generate at least $600 million of allocated equity free cash flow over the next five years with material terminal value after that. This number is $50 million higher than when we first projected it two years ago reflecting the actions we took to maximize value and the enhanced visibility we have on this segment.

Turning to Slide 14. Consolidated revenue for the fourth quarter $274 million up $20 million or 8%. For the full year consolidated revenue was a record $1.05 billion up 5%. Importantly as business segment revenues continue to grow and nearly doubled the rate of decline in our consumer segment Vonage is a long-term consolidated revenue growth company.

Now moving to income statement cost items on Slide 15. Sales and marketing expense for the fourth quarter was $82 million up $4 million entirely due to the impact of TokBox and NewVoiceMedia. For the full year consolidated sales and marketing was $311 million down $2 million from the prior year. The full year decline was due to the benefit of ASE 606 amortization of deferred sales commissions.

On Slide 16 Q4 engineering and development expense was $8 million was up $8 million to $17 million reflecting the transition of a software company with their own technology stack and the shift of certain sales operations expense into product development. Engineering and development increased 76% for the full year due to the same factors.

On Slide 17, general and administrative expense increased $14 million for the fourth quarter and $13 million for the full year 2018. These increases largely reflect the impact of the run rate expenses associated with the acquired businesses as well as onetime acquisition-related items.

Moving to Slide 18. Fourth quarter adjusted OIBDA was $41 million down $10 million. On Slide 19 full year adjusted OIBDA was $178 million down $2 million compared to the prior year. This entire amount can be attributed to NewVoiceMedia deferred revenue writedown. This means for the year we maintain adjusted OIBDA while absorbing the loss of $61 million high gross margin consumer dollars and the losses from acquired companies.

Adjusted net income in 4Q was $11 million or $0.05 per share down $10 million. Full year adjusted net income was $81 million or $0.34 per share up 20%. The increase is largely due to the comparison to our tax affected 2017 results.

Moving to Slide 20. CapEx for the quarter was $10 million. For the year CapEx was $27 million versus $33 million in 2017. Adjusted OIBDA minus CapEx was $31 million in the fourth quarter down $12 million due to the lower adjusted OIBDA and $151 million for the full year up $4 million mostly due to the lower CapEx. Fourth quarter free cash flow which we defined as net cash provided by operating activities minus capital expenditures was $19 million down primarily due to acquisition related lower operating income. From a capital allocation perspective in 2019 we have two main priorities one, organic growth through customer acquisition and technology innovation and manage debt to reload the balance sheet for strategic flexibility. After we completed the acquisition of NewVoiceMedia net leverage was approximately 3.25 times last 12 months adjusted OIBDA.

We paid down significant debt after the acquisition resulting in net debt to LTM reported adjusted OIBDA of 2.9 times at the end of the quarter. Total debt will rise in 1Q due to seasonality and cash usage and working capital, but we expect to continue to pay down debt after that.

Moving onto guidance on Slide 21. At first note business assumes constant currency. Our expectations for the full year 2019 are as follows: consolidated revenue in the range of $1.17 billion to $1.195 billion. Within this we expect Vonage Business segment revenue to be in the range of $795 million to $815 million, reflecting GAAP revenue growth of 32% adjusted growth of 20% and adjusted service revenue growth of 23% all at the midpoint of the range.

The adjusted growth numbers capture the effects of the TokBox and NewVoiceMedia acquisitions and add back the deferred revenue writedown. Business revenue growth will accelerate through the year with 1Q revenue expected in the $177 million to $179 million range. We expect that exit 2019 with a business service revenue growth rate approaching 30%. With this acceleration and growth rate exiting 2019 we believe we will achieve business segment revenue of greater than $1 billion in 2020.

Consumer is expected to contribute between $375 million and $380 million of revenue representing a decline in the 14% to 15% area consistent with our continued focus on optimizing its value. We expect to deliver between $160 million, $165 million of consolidated adjusted OIBDA and CapEx in the $40 million area in 2019. These numbers take into account the impacts of dilution from NewVoiceMedia and TokBox particularly before the full run rate synergies are realized; the writedown of approximately $5 million of deferred revenue from the acquisition of NewVoiceMedia. The reset of bonus accruals with a larger workforce; and increased investment in the One Vonage platform to expand and integrate our product portfolio.

In terms of cash flow progression and consistent with history we expect that adjusted OIBDA will build throughout the year starting in the low $30 million area in 1Q as we have the maximum drag from the items I just noted including the first full quarter of unsynergized expenses from both acquisitions and resulting deferred revenue and a seasonal increase in sales and marketing expense. The acquisitions we made in 2018 and the growth investments we are making in 2019 position Vonage well for the future, both strategically and financially. Thank you for your continued support at Vonage.

I will now turn the call back over to Hunter to initiate the Q&A session.

Hunter Blankenbaker -- Investor Relations Vice President

Thanks, Dave. Alisson, let's start the Q&A please.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) Our first question today will come from Rich Valera of Needham & Company. Please go ahead.

Richard Valera -- Needham & Company -- Analyst

Question on the 2019 business service guidance. One just wanted to clarify what the adjusted growth was baked into the first quarter guidance? And then I think you said you plan to exit the year I guess in 4Q at about 30% business growth guidance. So it seems like it's a pretty aggressive acceleration of growth through the year. So we just love to get more color on sort of what underpins that, and if you could break that down into the subsegments. I know you don't want to prior report them, but which of those subsegments do you expect to see the most acceleration and as you move through the year? Thanks.

David Pearson -- Chief Financial Officer

Yes. So as we think about the guidance, I mean first of all you said it's a consolidated technology platform we have consolidated financial incentives and bonus metrics and the same corporate buyers of our product. That said, in order to contextualize, and I know people think about the API application businesses, the way we look at it is on a percentage of revenue basis. So in the first quarter embedded in that business guidance roughly two-thirds of that revenue will be from the application side. That's the old UC and CC that complement roughly one-third from API. API revenue is growing faster therefore in the fourth quarter embedded in our guidance looking at that same split the applications business or the subscription business will be roughly 60% of business revenue with API representing 40% based on the faster growth.

Richard Valera -- Needham & Company -- Analyst

Got it. And can you just say what that -- that embedded growth rate is in the first quarter for the overall business services number?

David Pearson -- Chief Financial Officer

Yes. What I can tell you is that split, I think, captures the calculation of that two-thirds that the -- that really the jumping off point, the pro forma number for applications and you can -- if you look at Page 23 on the slides you got a $676 million business pro forma based on ownership in the whole year that of that number applications is $461 million and API is $215 million. And I think that add backs in the deferred revenue and so on. So that's, that's the jumping off point and then you have the splits for the quarters.

Richard Valera -- Needham & Company -- Analyst

Got it. And then just one follow-up if I could on the API piece of the business. You mentioned several times sort of the higher-level API functions, the things like verify, voice and video, can you just give us any sense of how material they are becoming and just talk about if you're starting to move any customers to a non-transcational business model for any of those higher level functions? Thank you.

Alan Masarek -- Chief Executive Officer

Rich, it's Alan. Let me ask Omar to take that.

Omar Javaid -- Chief Product Officer

Hi, good morning. Yeah, so we're actually -- so since acquiring the company we made a lot of investments and product, Alan referred to that in his opening remarks and so we're seeing these higher level of APIs voice verify number of these other ones and -- so they are making they're definitely making an impact both in terms of revenue and then in margin the positive impact on those, of course we're -- you know we're still early, but we're growing that quite well.

Richard Valera -- Needham & Company -- Analyst

Got it. Okay. Thank you.

Operator

The next question will come from George Sutton of Craig-Hallum. Please go ahead.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Thank you. Alan you talked about an accelerated growth, I wanted to -- I want to pick a little bit further on that point. In particular you talked about $1 billion in opportunity for 2020 that's a bit higher than we've anticipated. So given that accelerated growth rate I just wondered if you could structurally talk about the go-to-market strategy and how that's going to influence that accelerated growth and sort of how do you view the predictability of that growth?

Alan Masarek -- Chief Executive Officer

Well, if you look what is embedded in what -- in the guidance Dave just described the confidence around exceeding $1 billion in 2020 is that slow progression as we exit 2019. The initiative that we've outlined those are what collectively drive that confidence. So the product as an example think about it on sort of the core of the application side. Vonage Business Cloud now very soon to be integrated to NewVoiceMedia, given all the developments that's gone into -- into it, we believe now we have created almost unequivocally the best solution in the marketplace. Then on the go-to-market side, it's not simply just capacity and feet on the street and sales, engineering and developer relations it's also the fact that as Omar just said we've moved API at the time of acquisition of Nexmo which was principally a programmable SMS platform now to truly being a full platform across voice, SMS, video through the acquisition of TokBox IP messaging and a variety of other APIs that have nothing to do specifically with termination they're more about controlling workflows. This is what we've been building to, that's what give us this confidence.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Got you. One follow-up relative to your channel effort in particular. Obviously the self-provisioning we've gotten very good feedback from the channel on the simplicity of being able to do that. What else are you doing from a channel perspective to really kick that? What will you define as your under index level of channel into a higher gear?

Alan Masarek -- Chief Executive Officer

Let me ask Dennis to answer that.

Dennis Fois -- President NewVoiceMedia

Hi, good morning. I think our channel assets are really continuing very strongly under the leadership of Mario DeRiggi in particular. I think what really -- the opportunity that we have now and particularly coming out of Q1 is to offer the channel a very differentiated and integrated offering. We are well familiar that when it constitute the combination of contact center, a Unified Communications solutions traditionally most of the vendors in this space affect the resell solutions, which creates kind of a level of lack of differentiated of the channel which is a problem for the channel as a whole.

We're excited about this is the combination of NewVoiceMedia and VBC through the offer of class-leading product that is fully integrated, not just simply static presence integrating us well known in the markets, but is also built out for the midmarket and the lower enterprise which is a far more perfect solution to deliver value quickly. So we believe that the combination of the ability to deliver a competitive price integrated solution, it also offers programmability, which means that organization is continued to grow without having to switch. Compensating the operation will be a real difference makers in the channel.

George Sutton -- Craig-Hallum Capital Group -- Analyst

Thanks guys.

Operator

Our next question will come from Catharine Trebnick of Doherty. Please go ahead. Ms. Trebnick, your line is open, your phone maybe muted.

Catharine Trebnick -- Dougherty & Company -- Analyst

Hi, there you go, sorry, I had you guys you mute. You didn't have me on mute. Back to the channel. Quick question on -- a year ago, you were building the channel out punching out new partner. Can you address where you are in the process of now having rolled in TokBox and NewVoiceMedia, where you are on the blocking and tackling of educating the channel? What types of tools are available for the channel? And then once they're available on trade how much more revenue be expected to punch out of the channel? Thanks.

Alan Masarek -- Chief Executive Officer

Dennis why don't you take that as well?

Dennis Fois -- President NewVoiceMedia

All right. Thank you. This is my turn to be unmute. I think we are very much in the middle of that and continuing to accelerate. I mean, as Alan kind of briefly referenced it, that in the last quarter channel grew by 60% and we're seeing that continuing especially when we're looking at the -- the pipeline. But we are concentrating all our efforts on now is the enablement and education piece. And the team has done a really good job with the initial relationship with blocking and tackling and the pinning motions as you kind of briefly characterize them.

The next step here is really to offer this differentiated go-to-market with the integrated product sets and then various initiatives that we are doing. In fact, our agenda has been full of things like roadshows enablement. We leverage the existing enablement technology that we had in Facebook technology and content and collateral that we had in place with NewVoiceMedia you may remember that NewVoiceMedia has a channel partnership with salesforce which was mostly programmatic. We are effectively using those existing motions to make the communication channel more effective and ability to bring those two together.

Catharine Trebnick -- Dougherty & Company -- Analyst

And then my follow-up would be internationally NewVoiceMedia had done very well internationally. What plans are under way or what to take your applications, UCaaS, and even the Nexmo and TokBox to Europe? I know Nexmo is already in Europe, but I mean say in...

Alan Masarek -- Chief Executive Officer

Take away Dennis.

Dennis Fois -- President NewVoiceMedia

Yeah, thank you. Great question. Thank you. We often forget this, but there is a very significant opportunity internationally both in the European markets and Asia Pacific and Australia now in particularly. We're very excited we've launched VBC. So VBC is now live in Australia, that means that we now have a combined and integrated offering in Australia. We already had established a reasonable presence there. We had the -- we combined the teams. So fundamentally, what we're doing is we've combined the UCaaS teams and the legacy NewVoiceMedia teams into one group of teams that are working together both in Australia and in Europe, you knew that NewVoiceMedia had a pretty large footprint in the U.K. and set up its main hub top over 250 people there. And so what we're excited about now is the ability to deliver the combined offering. We are using the existing go-to-market motions there. So we are ramped very, very fast to both our sales reps, the marketing motions and this -- and the lead generation efforts are in future and in place. And effectively, what we're doing is we're leveraging the existing NewVoiceMedia go-to-market and customers. We are also approaching existing customers to effectively maximize the cross-sell upsell opportunities.

Catharine Trebnick -- Dougherty & Company -- Analyst

All right. Thank you.

Operator

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

Tim Horan -- Oppenheimer -- Analyst

Thanks guys. I'm just trying to understand the Vonage Business Cloud and the integration of the business services. Are you at this point fairly fully integrated from a user interface perspective? And is it also fairly integrated from a network perspective? Just where are you in the process? What were the acquisitions in getting Nexmo integrated?

Alan Masarek -- Chief Executive Officer

Let me ask Omar to take that.

Omar Javaid -- Chief Product Officer

All right. So yes, let me put my CPO back -- hat back on here to answer that. So the -- a short answer to your question is that, and I think Alan alluded to this in his opening markets as well, this is part of the investment that we've been making not only through acquisitions, but then behind the scenes on product on the investment that we've made in product and development. So the short answer to your question is that we're very far along in the integration. So just on data points these are things that we've announced publicly before. So for example incorporating the messaging APIs into VBC our flagship UCaaS product. So we have that capability in that product which is called Business Inbox, that is powered by the Nexmo API, the seemless integrated application, right? So that -- that's one example there are number of other ones, but we're pretty far along in that and especially as we continue to invest in the One V platform. This will only become more so the case. Then it's already alluded to the integration of NewVoiceMedia the contact center -- contact center and service software into VBC that will be coming out fairly soon. So that's another example. So I guess what we've been able to demonstrate is not only sort of scaling these businesses, but then also rapidly integrating -- rapidly integrating them right not making the multiyear projects.

Tim Horan -- Oppenheimer -- Analyst

Well, just two quick follow-ups on that. So, will the developers be able to now basically create a customized UCaaS product? Or are you that far along? Or will be there in a year from now?

Omar Javaid -- Chief Product Officer

So it's not, it's not, it's pretty far along. Now as far as customizing the UCaaS product that's definitely an angle that we've considered, that the product today does not -- we're not allowing that today outside of what you can customize within the API.

Tim Horan -- Oppenheimer -- Analyst

But I guess can the developers become -- can the developers be -- become another former distribution channel for the UCaaS in this integrated product?

Omar Javaid -- Chief Product Officer

The way the -- so we haven't announced anything in the product road map that would indicate otherwise. In other words it's a discrete application. What you're pointing out is -- it's actually a very interesting observation and it's something we've definitely considered, but we don't really have anything more to add based on what we said so far.

Tim Horan -- Oppenheimer -- Analyst

Thanks so much.

Operator

(Operator Instructions) The next question will come from Dmitry Netis of Stephens. Please go ahead.

Dmitry Netis -- Stephens -- Analyst

Great. Thanks guys. I apologize this might be a bit of a loaded question. But let me get a couple of housekeeping items out of the way and then ask a question more specifically on the business revenue side of things. The acquisition-related stuff in the quarter looking at your Slide 23 It says it's roughly $6 million -- $6.1 million of debt less revenue from divested businesses. So how does that compare to the guidance you gave which I believe, but somewhere in the $10 million range? So are we really talking about a $4 million headwind here from kind of this acquisition stuff? Or is there something else going on?

David Pearson -- Chief Financial Officer

Yeah, it's pretty straightforward. You're adding back first of all you have fairly adds back two months, sorry it adds back one month of NewVoiceMedia since we own the company for two months. So the two months under which we owned it is baked into the $170 million. The one month in which we did not own it is the $6.1 million. In addition we added back $2.2 million deferred revenue just for the two months in which we owned it that was dragged.

Dmitry Netis -- Stephens -- Analyst

So for the two months that you owned it, what was that number? What was the contribution from NewVoiceMedia?

David Pearson -- Chief Financial Officer

I mean it's the $6.1 million represents one month. So you could multiply that by three there is a little bit of growth in there. But...

Dmitry Netis -- Stephens -- Analyst

Okay. Got it.

David Pearson -- Chief Financial Officer

You have to add back deferred revenue, which is the $2.2 million (ph), OK?

Dmitry Netis -- Stephens -- Analyst

I got you. Okay. That's helpful. And then if I could kind of go back to sort of the split. And I appreciate the platform going into 2019 and how you sort of look at the business on a total basis. But I think what would be helpful is just if you could tell us just from the majority of 2018 and I'm really zooming in on Q4 not Q1 of 2019 and fuller quarters, but in Q4 and this is a bit of a kind of a follow-up to Rich's question. If you look at Q4 on apples-to-apples basis and you had mostly UCaaS and CPaaS side of the business there. What was the -- service revenue from UCaaS side of the business? Has that accelerated? I know if you did the math and used to disclose the numbers in your PowerPoint presentation separately there zooming on Q4 did the service revenue growth from UCaaS side of the business reaccelerated or not?

David Pearson -- Chief Financial Officer

And you're talking about Q4, 2018?

Dmitry Netis -- Stephens -- Analyst

Correct.

David Pearson -- Chief Financial Officer

Q4, 2018 looked a lot as we said in Q3, 2018, Q4, 2018 will look a lot like Q3, 2018. And that is the case. On a service and having all NewVoiceMedia and thinking about this as an applications business you had you did actually have material growth there. But it was the UCaaS the implied UCaaS growth would have been roughly the same to 3Q.

Dmitry Netis -- Stephens -- Analyst

Understood. Okay. When we did the math I think it was roughly 13%. So you're suggesting it's roughly that as well in Q4. However looking at your numbers channel did very well 60% year-over-year growth in terms of bookings you had very strong midmarket enterprise bookings growth that should imply that -- that UCaaS specific growth should begin to reaccelerate from here (Multiple Speakers) and by the way the number...

David Pearson -- Chief Financial Officer

Yes. There are couple of factors going on here. And I think Alan and Dennis can expand on this. But within UCaaS what is embedded in the 3Q and 4Q growth is the deacceleration of the low end SMB cohort. That deaccelerated faster than we thought and obviously continues to be more than half of our base although it's a shrinking part of our base. That is what drove that 3Q and 4Q outcome. In 2019 obviously it takes time to -- for changes in the subscription business to occur, but in 2019 -- but we saw the flip side of that as well which is that the higher end of the market grew to our plan -- in the mid-20s. So what you see in 2019 is continued leaning in to the upper end of the market, but also making sure we're getting our fair share in SMB because we are seeing attractive economics there.

Dmitry Netis -- Stephens -- Analyst

That's super helpful. If I may address one last sort of elephant in the room and that's your OIBDA guide. Should we be expecting given how you guided for 2019 and keeping in mind consumers still continues to trend down and presents a headwind I calculate roughly $25 million in OIBDA as well going into maybe 20 times range. So you got to overcome that before you begin to grow OIBDA from there. How should OIBDA be trending past the 2019 time frame? I appreciate you're not giving guidance past that stage, but should we begin to expect here business side of things to produce more material operating leverage to kind of lap these declines in OIBDA that we're seeing in 2019?

David Pearson -- Chief Financial Officer

Yes. 2020 OIBDA based on the visibility we have right now will be higher in 2019 OIBDA. So yes we will get operating leverage.

Dmitry Netis -- Stephens -- Analyst

Very good. Thank you so much.

David Pearson -- Chief Financial Officer

Thank you so much.

Operator

The next question will come from Mike Latimore of Northland Capital Markets. Please go ahead.

Mike Latimore -- Northland Capital Markets -- Analyst

Hi, thanks. I guess just on the OIBDA comment there. For Vonage Business in 2019 should OIBDA be positive? Or breakeven or negative?

David Pearson -- Chief Financial Officer

Yes. So the way we -- the way we think about our segments and this involved a significant amount of allocation is contribution to G&A. And yes business as a complex the entire group of assets that we own including the drag from what we acquired will make a positive material contribution to G&A. So a -- positive contribution dollars and margin.

Mike Latimore -- Northland Capital Markets -- Analyst

So Vonage Business should have a positive OIBDA in fiscal 2019?

David Pearson -- Chief Financial Officer

Positive contribution to G&A. G&A is shared across both segments.

Mike Latimore -- Northland Capital Markets -- Analyst

Okay. And then in terms of you're having -- you have a comprehensive platform, a programmability applications. Does that have any effect on just sort of sales cycles? Does it make it a longer sales cycle? Does it accelerate? Or that doesn't really matter?

Alan Masarek -- Chief Executive Officer

It makes it better because we now have a differentiated offering. But let me ask Dennis to weigh in.

Dennis Fois -- President NewVoiceMedia

Yes. I think -- a couple of things there, there is two important subjects there. One is the ability to offer us an integrated solution analysis that's the point of integration. Sort of the UCaaS, most of the services seen as UCaaS and CCaaS offers you kind of more blended together. That is one. And the other end is the programmability spectrum. The integrated solution helps to sell better in the midmarket. I think that drives differentiation and it's also more appropriate solution from the other contact center solution (inaudible) that seem there were fundamentally more enterprise-grade solutions that are being deployed to the midmarket which is effectively taking too long to deploy and that quite complex to operate. So, that's a point of integration there. We would expect at least to see shorter time to revenue because our ability to deploy and successfully install that would materially improve. Second point on programmability and to Alan's point the programmability effectively gives a point of differentiation and reassurance loyalty (ph) lower enterprise and enterprise level.

This is where organizations are effectively looking to each approve their communication strategy based on their digital transformation in the program. They probably selected their CRM platforms. They're all in on any of the Big 3. What they're now looking to do is to understand I guess the spaghetti on communication and what they want to see there is that they're selecting a vendor that helps them to improve (ph) their cloud communication strategy. Programmability there, with customed demos allows us to put that points to bed. So I'd expected at least to improve our win rate and conversion. I'm not so sure about the timing also that helps.

Mike Latimore -- Northland Capital Markets -- Analyst

Okay. Thank you.

Operator

The next question will come from James Breen of William Blair. Please go ahead.

James Breen -- William Blair -- Analyst

Thanks for taking the question. Just a couple. One can you just talk about national growth in the quarter, and what you've been seeing there in terms of business trends in that unit? And then, as we think about next year and given the full year guidance and then the guidance for the first quarter. Can you just talk about how you see that trending throughout the year overall? Thanks.

David Pearson -- Chief Financial Officer

In the first part of your question the API grew in the low 40s in Q4 revenue in the low 40% area in Q4. And that's consistent. That's a little bit higher than the guidance that we had given in 2018 and for the start of the year and finished the year a bit higher than our guidance. As it relates to 2019 again we get the split which you can impute a percentage growth. But there's no reason for the API business not to continue grow the trajectory it's on. It is a volatile business a non-subscription business and a seasonal business. And so from quarter-to-quarter it can fluctuate pretty significantly. But in terms of our guidance we feel comfortable with that on an annual basis.

Operator

Our next question will come from Jonathan Kees of Summit Insights Group. Please go ahead.

Jonathan Kees -- Summit Insight Group -- Analyst

Great. Thanks for taking my questions. I have -- I guess the first one regarding the cash flow. It's great that it's -- you now have cash about $600 million contribution, cash generated by Consumer business, and that's $60 million higher than originally forecasted. Just curious, at what point this is going to be a cutting over in terms of business? In terms of when Nexmo start contributing to the cash flow generation? You're tallking about OIBDA being positive in 2020 being higher than 2019 just yes rough timeframe, I know even guidance this rough timeframe of when the business revenue is to be starting to carry its own weight?

David Pearson -- Chief Financial Officer

Yeah, so as we talked about in the prior question, the Business is -- if you think about a set of truly corporate G&A and that's a subset of our total G&A on our income statement both business and consumer on an allocated basis are contributing to that number materially to that number. That's point one; Point Two is every year as consumers go down roughly -- these are rough numbers $60 million, it's -- these are 89% service margin dollars it's taking cash flow with it. So for us to grow cash flow implies that they're significant operating leverage on allocated basis coming from the Business segment.

Jonathan Kees -- Summit Insight Group -- Analyst

Okay. All right. That's helpful. Let me ask one other question if I may. In regards to your channel you're going out and increasing the channel and talking with corporate IT executives. Just curious, what kind of efforts do you have plans or are you ramping up also your developer efforts? You are just -- you have efforts targeted solely toward the developers? Thanks.

Alan Masarek -- Chief Executive Officer

Let me ask Omar to take that. He leads all the dev rel efforts. Omar, you may be on mute.

Operator

I think he may have dropped off.

Alan Masarek -- Chief Executive Officer

(Multiple Speakers) Let me make sure, I'll take the question then. He's overseas right now. Let me take the question. So if I understand correctly you're saying one of the efforts in terms of marketing to the broader developer population?

Jonathan Kees -- Summit Insight Group -- Analyst

Yes. Specifically for your API segment, that group, they obviously cater to developers at different segments and your UC and your CC group?

Alan Masarek -- Chief Executive Officer

Correct. So they're really -- they're different go to markets not different segments. What we do is we have a hybrid approach to developers. Part of it is a Long-tail effort reaching out to register developers on our platform. We ended the year with 735,000. For us that's, think about it's the top of the funnel, when our developer comes to the site and once to download some of our APIs. The first thing they have to do is register. That number has been growing very attractively and more productively over targeting developers to make the most sense. That developer community is both marketed to and then has direct outreach from a dev rel team, a developer relations team, who is hosting events throughout the world where developers gather. That's one piece of the go-to-market. The other piece looks more like traditional enterprise sales where we have again globally mid-account managers and key account managers in the regions of the world who are calling on larger enterprises who are again the developers within those large enterprises are baking these API tools into their existing digital environments.

Jonathan Kees -- Summit Insight Group -- Analyst

Okay. Great and thank you that's helpful. Good luck guys.

Alan Masarek -- Chief Executive Officer

Thank you so much.

Operator

Ladies and gentlemen, at this time we will conclude the question-and-answer session. I'd like to turn the conference back over to Hunter Blankenbaker for any closing remarks.

Hunter Blankenbaker -- Investor Relations Vice President

Okay. Great. Thanks Allison and thanks everyone for participating today. We look forward to visiting with folks throughout the quarter at various conferences. And for those not able to participate in person the materials will be available on the IR website. Thank you.

Alan Masarek -- Chief Executive Officer

Thank you.

Operator

The conference has now concluded and we thank you for attending today's presentation. You may now disconnect your lines.

Duration: 61 minutes

Call participants:

Hunter Blankenbaker -- Investor Relations Vice President

Alan Masarek -- Chief Executive Officer

David Pearson -- Chief Financial Officer

Richard Valera -- Needham & Company -- Analyst

Omar Javaid -- Chief Product Officer

George Sutton -- Craig-Hallum Capital Group -- Analyst

Dennis Fois -- President NewVoiceMedia

Catharine Trebnick -- Dougherty & Company -- Analyst

Tim Horan -- Oppenheimer -- Analyst

Dmitry Netis -- Stephens -- Analyst

Mike Latimore -- Northland Capital Markets -- Analyst

James Breen -- William Blair -- Analyst

Jonathan Kees -- Summit Insight Group -- Analyst

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