Vonage Holdings Corporation (VG) Q1 2021 Earnings Call Transcript

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Vonage Holdings Corporation (VG)
Q1 2021 Earnings Call
May 7, 2021, 8:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Vonage First Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Hunter Blankenbaker, Vice President, Investor Relations. Please go ahead.

Hunter Blankenbaker -- Vice President, Investor Relations

Thank you, operator, and good morning, and welcome to our first quarter 2021 earnings conference call. Speaking on the call this morning is Rory Read, Chief Executive Officer; and Steve Lasher, Chief Financial Officer. Also joining us is Jay Bellissimo, our Chief Operating Officer. Rory will discuss our strategy and first quarter results, and Steve will provide a more detailed view on our first quarter results, second quarter guidance and updated full year 2021 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.

The 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. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available in the first quarter earnings press release or the first quarter earnings slides posted on the IR website.

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

Rory Read -- Chief Executive Officer

Thanks, Hunter, and good morning, everyone. I hope you are well and staying safe. The rate of digital transformation continues to accelerate for businesses everywhere. Companies are accelerating their e-commerce and e-support plans and industries like telehealth, remote education and virtual events have seen unprecedented increases in growth rates. New forms of customer engagements are driving a communications revolution. Digital transformation of business communications is becoming a critical driver of business outcomes as hybrid work environments and work from anywhere are the new standard and customers expect to interact with businesses across any channel based on what they prefer. Enabling this transformation, our cloud-based communication solution. This is where we have a unique and differentiated value proposition. Our single global cloud communication platform, BCP, allows us to provide solutions using our API, contact center and unified communications to enable our customers to deliver greater experiences for their employees and customers. We believe this is the right strategy to address the market opportunity expected to reach more than $80 billion in 2023. Today, I'll focus my comments on two areas: one, our strong first quarter results, which demonstrate improving execution across our business; and two, the progress we're making on our strategic initiatives, including go-to-market and product innovation.

Steve Lasher will follow with a more detailed review of the quarter, second quarter guidance and an updated full year guidance. Beginning with consolidated results, we are pleased with the start of the new year. Consolidated revenues of $333 million grew 12% and adjusted EBITDA of $48 million increased 24% year-over-year. Free cash flow was $31 million, our highest first quarter cash flow in over a decade, enabling us to further invest in growth initiatives. Total Vonage Communication Platform revenues were $255 million. Service revenues were $240 million, increasing 23% year-over-year and $10 million sequentially. API continued to see broad-based strength across industries, geographies and company sizes. Unified Communications and Contact Center revenues were better-than-expected due to outperformance of all products, including VBC, VCC and VBE, and we continue to cease traction on cross sales. Six of our top 10 deals in the quarter included both VBC and VCCs. Our growth, coupled with disciplined expense management, drove VCP first quarter adjusted EBITDA of negative $2 million, ahead of expectations and a $19 million year-over-year improvement. These results reflect the initial efforts of our business optimization and strategic alignment work to improve efficiency and execution, while defining our business plan to drive faster growth.

We are pleased with our initial progress, but there is more work to do to fully capitalize on the market opportunity in front of us. With the business now on a solid foundation, we are well positioned to accelerate investments in product innovation, go to market, our people and potential acquisitions to drive long-term durable growth. Moving to first quarter highlights by product. API revenues increased 47% year-over-year to $126 million. A key driver of our performance was dollar-based net expansion, which increased to 135% in the quarter. We saw broad-based usage growth across products and industry with e-commerce, technology and healthcare verticals showing particular strength. Some of the largest and most innovative organizations in the world, including Amazon, Google and DocPlanner expanded their relationships and usage with Vonage in the quarter. We also saw solid growth from existing customers as well as new logos. New customer acquisition was strong in the first quarter. One example is an operator of well-known restaurant brands with more than 50,000 locations worldwide. The company selected our SMS API to improve customer experience by providing status updates on their orders and deliveries. High-value APIs grew 112% year-over-year with continued strength in healthcare, collaboration and education.

Video was our largest and fastest-growing product with usage of our voice, verify and messaging APIs accelerate. We delivered several new voice API features to increase customer adoption and expand our market. These included in-app voice API integration through web socket, the ability to accept payments over voice and a voice SDK to support streaming services. As we discussed at our Investor Day, we are investing in our direct sales, sales engineering, partner ecosystem and product development within API, the first quarter results reflect the initial impact of these investments, and we plan to further invest in these areas to drive continued long-term growth. Now moving to unified communications and contact center products. Service revenues grew 4%, ahead of expectations. Within the micro and small business cohorts, our renewed focus and disciplined investments are making a positive impact on our pipeline and win rate. We've now moved from high-touch, mostly human interaction across sales, provisioning and support to an efficient nearly all e-commerce experience for this customer segment. We're also leveraging Vonage AI in our customer care effort, which is enhancing the customer experience. As a result, we've lowered the cost of acquisition and decreased churn. We will continue to ramp up our investments here. Within the channel, we're encouraged by the results of our focus and investments in infrastructure, support, training and incentive programs.

Our platform strategy and products are resonating well within the channel. Pipeline is building as expected, and nine of our top 10 deals in the quarter were partner related. At the end of March, we launched Vonage Accelerate a strategic growth initiative that includes significant investments into improving our overall partner experience and incentive programs, including a fully redesigned channel program and our rearchitected partner portal. With this strong commitment to the channel, we are seeing positive results and strong engagement and our partners value the ability to automate the entire life cycle of fields from lead to quota to cash within this new portal. Based on the success of go-to-market enhancements and our improving UC and CC pipeline, we are confident in return to year-over-year bookings growth in the second quarter and reaching high single digits revenue growth in the fourth quarter across this product portfolio. During the quarter, we continued to innovate across the Vonage Communication platform to strengthen our differentiation. On Vonage Business Communications, our UC cloud based product, we added SMS and MMS integration to Microsoft Teams to supplement our existing voice direct routing capabilities. Our pipeline here is growing well, and several of our largest first quarter deals included the Teams integration. One example is 140-year-old financial services company for military families that selected our platform to replace their legacy on-prem solution.

The company chose Vonage's integrated UC and CC communication solutions to improve their remote capabilities, reduce agent call handling times and increased analytics, while improving their return on investment. Microsoft Teams and salesforce integrations were key features that enabled us to win in this competitive process. Security, privacy and trust, by design are core principle at Vonage, and we continue to invest in talent, technology and processes to achieve this, leveraging our robust compliance certifications customers across the industry, digitize their workflows with confidence. In the first quarter, we added several security enhancements, including single sign-on via Simul and system for cross domain identity management. And in March, we added a significant product release within the Vonage contact center. This release demonstrates the value of our VCP platform strategy. Within this product release, we are leveraging our native video API for embedded video chat within the Vonage contact center, and we're enhancing omnichannel capabilities with native web chat, which routes request directly to appropriately skilled agents within an organization. Both enhancements enable better agent and customer interactions, solve problems faster and help our customers create better, more personalized experiences for their customers.

Our work is being recognized by industry analysts. Just this week, we were named a leader in IDC's CPaaS market scape. And in the first quarter, we were named a major player in IDC's UCaaS marketscape for SMB and enterprise. Of note, all three reports highlight the strength of Vonage communication platform, which provides us with the ability to better serve our customers' ever-evolving needs through complete control of our product road map. Additionally, in the Gartner peer insights voice of the customer UCaaS worldwide report published in April, Vonage received the customer choice distinction for North America and recognition in several categories, including the highest rating in evaluation and contracting category and the second highest rating in the Integration and Deployment, Service and Support and Product Capability categories. We also received the second highest rating in the Willingness to Recommend category. This report is based on end-user customer reviews of technology providers in the business cloud communication space and reinforces our belief in a customer-first approach and our commitment to delivering innovative solutions and services that build trusted partnerships, foster loyalty and enhance customer engagement. I want to thank our team members around the world for their continued dedication to our customers.

We're creating a culture based on accountability and execution. Every Vonage team member has clarity on what's expected of that and how their work fits into our overall company goals. This is fundamental to executing our strategy and delivering on our commitments to our customers, partners and shareholders. In summary, we continue to make steady progress. Our go-to-market initiatives are showing initial signs of success, and we're accelerating innovation across the Vonage Communication platform to enhance and expand our market. We are seeing increased demand across our portfolio product, which is resonating with customers of all sizes in a time where digital transformation and intelligent communications are fundamental to their success. We have more work to do, but we are confident we are on the right path to achieving our long-term goals of our rule of 40 to be in the mid-20s range for 2022 and above 30 in 2023, as we continue to realize our vision of accelerating the world's ability to connect. I look forward to updating you on our continued progress throughout the year.

Now I'll turn it over to Steve.

Stephen Lasher -- Chief Financial Officer

Thank you, Rory, and good morning, everyone. I'll start with a review of the first quarter results and then discuss the second quarter and updated full year guidance. Beginning on slide nine. Our team executed well in the first quarter. Each of our product areas, including API, UC and CC, delivered on our commitment, while we continue to improve the operating leverage and profitability of the business. Turning to slide 10. Consolidated revenues increased 12% to $333 million, driven by a 21% increase in DCP revenues, offset by an 11% decline in consumer. DCP revenues now represent 77% of consolidated revenue, up from 71% in the first quarter of the prior year. First quarter consolidated gross margin was 53%, down slightly due to the faster growth of relatively lower margin VCP revenues. Consolidated operating expenses were $167 million, up 1% year-over-year. Our expense to revenue ratio improved by six points as we continue to optimize the business for faster growth and improved profitability. Consolidated first quarter adjusted EBITDA of $48 million was up $9 million year-over-year due to higher revenue and improved cost structure, particularly in VCP. Moving to VCP on slide 11. Service revenues increased 23% to $240 million. Service revenues exclude products, access circuits and USFTs, which totaled $15 million, unchanged from the first quarter of the previous year. VCP revenue churn was 0.5% in the first quarter, down from 0.8% a year ago. API churn was near record lows, while UCCT churn was also lower due to improvements within the micro and SMB cohorts as well as DBE.

Monthly service revenue per customer increased 23% to $582 from $475 a year ago due to increases in the average customer size across the VCP platform. On slide 12, API revenues, all of which are serviced, were $126 million in the first quarter, up 47%. High-value APIs grew a 112% year-over-year, with particular strength in video, voice and IP messaging. High-value APIs represented roughly 20% of the total API revenues compared with 13% in the first quarter of the previous year. API revenues now represent 53% of total service revenue compared with 44% in the first quarter a year ago. Unified Communications and Contact Center service revenues were $114 million in the first quarter, up 4% year-over-year. VCP gross margin in the first quarter was 47%, flat sequentially and down year-over-year on accelerated revenue growth. Let's move to slide 13. VCP sales and marketing expense for the first quarter was $78 million or 30% of VCP revenue, down from 39% in the prior year. Our business optimization and go-to-market enhancements drove efficiencies in sales and marketing while positioning VCP for growth. VCP engineering and development expenses were $20 million, up 16% year-over-year, reflecting increased investments on the VCP platform, including voice and messaging functionality and contract center enhancements. VCP, E&D plus capitalized software totaled $33 million, which represents 14% of VCP service revenue. VCP general and administrative expenses for the first quarter was $41 million, up $4 million year-over-year, primarily driven by increased stock-based compensation. G&A was 16% of total VCP revenues, the high end of our targeted 14% to 16% range.

We expect G&A as a percent of revenue to be closer to 15% for the remainder of the year. VCP adjusted EBITDA was negative $2 million, improving by $19 million from the first quarter of the prior year. VCP adjusted EBITDA benefited from our efforts to drive greater operational efficiencies while growing revenue. On slide 14, Consumer segment revenues were $77 million in the first quarter, an 11% decrease from the prior year. Consumer adjusted EBITDA was $50 million in the first quarter, down from $60 million in the prior year. On slide 15, we ended the first quarter with $504 million of net debt, down $64 million from the prior year. As of March 31 net debt was 2.8 times last 12 months adjusted EBIT. We expect to continue to pay down debt in 2021, ending the year below 2.5 times. Moving to guidance on slide 16. For the second quarter, we expect Vonage Communications Platform revenues in the range of $260 million to $264 million. We expect Vonage Communications Platform service revenue growth of approximately 16% to 18%. Embedded in this guidance are the following trends: in APIs, we expect second quarter year-over-year growth to be in the 28% to 30% range. Within API, messaging growth will continue to provide lift. High-value growth will moderate in Q2 as we wrap on strong video results from Q2 2020. With regards to Unified Communications and Contact Center, we expect service revenue growth in the mid-single digits.

We expect second quarter VCP adjusted EBITDA to be in the range of negative $4 million to breakeven. Within Consumer, we expect revenues in the $73 million area and adjusted EBITDA of approximately $46 million. On a consolidated basis, we expect total revenues of $333 million to $337 million, and adjusted EBITDA in the $42 million to $46 million range. For the full year 2021, we are raising our revenue guidance to reflect the Q1 strength, early positive trends in Q2 and an improving macro environment. We expect VCP revenues to be in the range of $1.62 billion to $1.71 billion. VCP Service revenues are expected to be in the range of $1.10 to $1.20 billion, representing an increase of $21 million at the midpoint and growth of approximately 18% to 19%. We expect API revenue growth for the full year to be approximately 30% and full year UC, CC service revenue growth to be low- to mid-single digits. We continue to expect fourth quarter UC, CC service revenue to be in the high single digits. We expect VCP adjusted EBITDA to be in a breakeven to $5 million range. Our updated full year adjusted EBITDA reflects accelerated investments in our go-to-market and product development to continue to drive top line growth. For Consumer, we expect 2021 revenues in the $285 million range and adjusted EBITDA in the $185 million to $189 million range. We expect total consolidated revenue to be in the range of $1.347 billion to $1.356 billion, and adjusted EBITDA in the $185 million to $194 million range.

With that, I'll turn the call over to the operator to start the Q&A.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Ryan Williams with Stephens, Inc.

Ryan Williams -- Stephens, Inc -- Analyst

Great. And great to see the API strength in the quarter even before a return of travel and hospitality. I love to hear some more color on the growth here, especially around some of the drivers behind the improving net redemption?

Rory Read -- Chief Executive Officer

Sure, Ryan. Hey, Ryan, it was definitely a good start to the year, no question about it in terms of all the business and all the product areas. API, in particular, showed real strength across all geographies. We saw it in a lot of industries. And what was good, we saw it across multiple subproduct areas like verification; voice; obviously, strength in video; obviously, strength in messaging, which are core basis for our business. We saw it in each and all geographies and across all industries. So it was really nice. I'd like to see the balance. I think that's one of the strengths of our portfolio is that we have a really balanced set of revenue across geographies and across industries. And we are also seeing it across subproduct areas. In API, the key for us, is now that second quarter was the big jump last year sequentially. We're well positioned with velocity going into the quarter to have a good quarter.

We gave guidance in in the prepared remarks a couple of minutes ago, that should give you the sense of that we see that continued momentum even against that big jump last year, which was the largest sequential growth quarter-to-quarter last year. So I like the setup. And so we're seeing a really clean set of API demands. We're seeing an expansion in our existing customers across multiple areas, which is nice. That's the net dollar expansion kind of phenomena. And then we're also seeing it in terms of new logos. I'll ask Jay, if you could add a couple of points, just any additional color he'd like to give you, by. Jay?

Jay Bellissimo -- Chief Operating Officer

I would just like to hit right on two of the products that Rory talked about, the continued strength with video, but I'd like to just comment quickly on verifying messaging. As you all know, fraud is becoming the single biggest issue in online transactions. And really, whether it be about ensuring that real humans and not bots are downloading and signing your apps or securing online transactions or ensuring privacy of data, we're seeing, as more businesses and consumers come online, that that's top of mind. So we're seeing really good opportunity as it relates to our verifying API. We have a solution that's resonating well with the market. And related to that increased participation by consumers and businesses, back to the point of messaging, again, a very strong outlook for the year when it comes to messaging. And a big part of that is because more and more business is being interacted and executing on social channels. So we're seeing this is becoming more and more popular in terms of how businesses and customers want to communicate and that's leading to increased usage of our messaging API, and then you look at social channels like WhatsApp. So we see continued strength both in second quarter as well as the rest of the year in those key product areas as well as some of the others Rory mentioned.

Rory Read -- Chief Executive Officer

Yes. And I think, Ryan, there's no question, we're going to see this kind of accelerated trend in API continue for the next 3, 7, 12 quarters. I mean we're at the beginning of a fundamental shift here, and we see it continuing to grow, right? Let's go ahead to the next question. Oh, Ryan, you got another point?

Ryan Williams -- Stephens, Inc -- Analyst

Yes, just real quick. In tandem with these growth opportunities, and I appreciate the color there, your presentation noted capex moving higher for some additional VCP investments. And it looks like full year VCP adjusted EBITDA guidance ticked down. So could you just provide some color around this guidance change? And maybe how you're thinking about areas of investment?

Rory Read -- Chief Executive Officer

Yes, sure. Yes, I'll have Steve give a couple of points in just a second. But these are relatively minor adjustments. What we're doing is, we're accelerating product development investment to create differentiation with Savinay Berry coming on board, working with Jay; Joy Corso, our CMO, across the team we're really starting to get clarity on real customer pain points that can open up new markets to us. We're going to accelerate that investment to make sure that we have that strength and opportunity to capture it. So you'll see a little bit of the capitalization on software. I think the investment areas that we're making, it's clear, Ryan, we've got to continue to invest in a go-to-market, more feet on the streets for enterprise and mid market, definitely more technical skills to support the technical sell of API; definitely, the investments that we've made around Vonage Accelerate to accelerate the channel, nine out of the top 10 deals in the quarter, that were channel driven. We're going to see more of that. With Vonage Accelerate, we made the right moves with the right portal, the right investment, the right focus. So you're going to see that in addition to the product areas. Steve, do you want to give a little bit of color around the capital changes?

Stephen Lasher -- Chief Financial Officer

Sure. Great. Thanks, Rory. And I think you captured most of the key points in there. We're continuing to invest to drive that top line within the increase from a capex perspective. It really was the increase in software development to drive the functionality across our technology platforms. And again, that's the key driver for us as we look to invest more, not only from a technology perspective, but also from our sales and marketing to drive the growth that we've seen. And again, I think within a capex perspective, that's the incremental that you're seeing year-over-year.

Rory Read -- Chief Executive Officer

Yes, and the bottom line is...

Stephen Lasher -- Chief Financial Officer

The growth -- growth is here. We're going to go after it, and we're going to go get it.

Operator

And our next question comes from the line of Sterling Auty with JPMorgan.

Drew Glaeser -- JPMorgan -- Analyst

This is Drew on for Sterling. Another question on the API side. You mentioned that the dollar net expansion increased to 135%. How does that number compare to prior year and the historical trends there?

Rory Read -- Chief Executive Officer

Sure. Thanks, Drew. Drew, the 135% is up sequentially. Historically, that's a good range for us to be in. When we saw the original bump in COVID, it might have jumped a little bit higher. And then we've seen quarters in that 115%, 118%, 119% kind of range. When we're in that 135% range, 137% range, that's a good range. We like to be in that range. We see that as a really good indicator of our expansion. And generally, that's at the upper end of what we generally see. Most of the time we range between, say, the 110% to 135%, 140% kind of range.

Operator

Our next question comes from the line of Will Power with Baird.

Will Power -- Baird -- Analyst

I'll try to slip in, I guess, two here, if I can. Actually, I want to follow-up on maybe the previous question or some of the API commentary. I mean, obviously, really strong trends. I'm just curious on the full year revenue growth guidance for API, given the strong growth in Q1, the dollar-based net expansion rate, it feels like it's a bit conservative given the current trends you're seeing. So I just want to understand any other puts and takes that you're taking into account for the second half of the year, what are the things we should be thinking about perhaps from a comp perspective versus conservatism?

Rory Read -- Chief Executive Officer

Thanks, Will. Hey, Will, this is one of those discussions. We want to be a company that does what it says and owns what it does. And so for us, it's really important to deliver on our commitments. We're trying to build a culture of accountability, want to build trust with our customers, our partners and our shareholders. We looked at the first quarter. First quarter was strong. We're pleased with it. We see some velocity going into 2Q. We've increased guidance for the quarter -- for second quarter and for the full year. These are important steps, but one quarter doesn't make a year. We see strength in API. We'll take a look at 2Q after it's completed in the next earnings call, give you an update for 3Q. And obviously, that will flow through to the end of the year. But at the bottom line, we see strength in API.

There's no question, there's momentum and velocity out there. Travel and hospitality hasn't picked up all the way. There's definitely a communications revolution that's under way that's going to last the next three, five, seven years. So we feel we're well positioned with the robust product set that we have across API, UC and CC running the Vonage Communication Platform. I think what we do is, we've got one good quarter under our belt, let's deliver 2Q. We've upped the full year guidance. I think API has got good velocity, and we'll deliver on the commitments we make. That's the kind of company. Steve, you want to add a little bit more on full year?

Stephen Lasher -- Chief Financial Officer

Sure. Sure. Thanks, Rory. And Will, as we look at it, look, as Rory stated, the performance of 1Q is a good start to the year. And as we look forward, the guidance that we gave is in line. We also did take it up from a full year perspective as we're looking at and was approaching 30, now it's approximately 30 and as Rory said, one quarter doesn't make the trend. We see a lot of tailwinds that indicate we're in a good position. So we're going to get through 2Q, deliver on our commitment, and we'll take a look at it and update for the full year as we see 2Q rollout.

Will Power -- Baird -- Analyst

Okay. And I also just wanted to ask quickly about the channel program. It sounds like you're seeing some initial success given nine of the 10 deals coming out of the channel, I don't know how many of that is tied to the new program. But I'm just curious any additional kind of near-term disruption risk on that front as you implement these changes? Or has it been pretty smooth thus far, given the benefits of volumes accelerate? And any additional early feedback you can share from what channel partners are telling you?

Rory Read -- Chief Executive Officer

Sure. Hey, Will, a great question. My entire career has leveraged the channel throughout. There's a multiplying effect of the channel. And Rodolfo, Jay, all come from that heritage in terms of really understanding the power of the channel and what it brings. We can hire x amount of feet on the street ourself. But when we have the channel behind us, that gives us real momentum. And since I came on board last July, working with Rodolfo and Joy and Jay, we've now started to really emphasize that channel focus, particularly in the top of small through mid and into enterprise. The Vonage Accelerate program is really important. It's a concept of more for more. As our partners deliver more opportunities together with us and we win in the marketplace, there's benefits for everyone. And we've created a technical back architecture to support that growth. The portal is much improved.

All of the technology is improved. The documentation is improved. And you'll see we continue to roll that out from April across all of the next three quarters to enhance that program. Customers -- I mean, partners can now track from a lead all the way through to quote to cash. This is a big change. And the feedback that we're getting from them is really positive. They want us to win. They want us to be a strong leader in the space, and they can see the differentiated approach that we're taking. We believe in the channel, we value the channel and so do our customers. You're going to see this improve. It's already over 50% of our pipeline volume in the UC and CC space, and it's only going to continue. I don't know, Jay, do you want to add any additional color there?

Jay Bellissimo -- Chief Operating Officer

Rory, I would just add that one of the trends we're seeing is more and more of the customers are looking through our partners to have one stack, so to speak. So back to Rory's point about VCP, whether it be the UC or CC side, we're seeing more and more cross-selling of those products, and that's resonating very well with the marketplace. And I think that's another bolt of energy around this whole space and why the channels is off to a good start in terms of this redesign and why we see a strong outlook as we look through the rest of the year because we're seeing that traction with being able to cross-sell more and more.

Rory Read -- Chief Executive Officer

And you're on a really good point about cross-sell. We're also seeing a lot of traction in the UC, CC phase across -- in cross-sell, which is shown in the power of the Vonage Communication platform. We're also seeing the cross-pollination across API and UC, CC,, that we'll see more of as we go out through the year. And I think that's, again, another differentiator. It gives us that diversity of revenue, like our diversity across geographies, across products, it gives us a real base to work from. Thanks, Will. Anything else?

Will Power -- Baird -- Analyst

No. That's great.

Operator

Our next question comes from Meta Marshall with Morgan Stanley.

Erik Lapinski -- Morgan Stanley -- Analyst

This is Erik on for Meta. Congrats on the quarter. Maybe just picking back up on that last point you made on cross-sell between CC and kind of API business. As you're seeing customers come to you, how often are they looking for maybe one piece where you're cross-selling in versus choosing Vonage because you have the full solution? And have you noticed kind of the preference for a multipart solution increasing?

Rory Read -- Chief Executive Officer

Yes. Thanks, Erik. Hey, the main point here is cross-sell opportunity. We've said in a number of orals and participated in a number of orals, whether you're doing UC and CC or you're doing API, we're seeing more of that cross-pollination. And we moved away from a structure of "be used," and that was not the right structure. We have moved forward on a Vonage Communication Platform strategy. We have sellers now selling an understanding pipeline across all product areas. And we have shared selling across UC and CC. It's a differentiator. There's no question in the contact center phase combined with a highly integrated unified communication solution is really differentiated. And it's kind of cool, and I think Jay will add some color on this. We've seen in UC, CC discussions, where we give the customer the orals and the presentation on UC, CC and then we add in the piece about APIs, they spend an inordinate amount of time learning about the API.

There's so much cross-sell opportunity for us. That's why we moved the VCP, a Vonage Communication Platform, our competitors are going to move in this direction. We're already here. And this is going to play out more and more over the balance of '21 and into '22 and '23. It's a differentiator, and we're definitely seeing it in terms of uptake across the product areas. Jay, I know you just sat in on a couple of orals where we were competing, and matter of fact, we won. I know we can't say which one, but that's great. But tell him a little bit of the color about the UC, CC discussions and then how API plays into those conversations.

Jay Bellissimo -- Chief Operating Officer

Thank you, Rory. A good question. As Rory alluded to I participate just recently in a couple of different oral presentations, and these were UC, CC types of presentations. And I would also emphasize the integration we have with Microsoft Teams as well as ServiceNow and some of the other products, obviously, we work very closely with the Salesforce. So the point is, when you're having these discussions, it's largely about what's the business problem we're trying to solve? And so it might be a contact center and there might be some integration needs with a salesforce. But then the extent to say, well, what if I need to extend this capability and maybe employee video or voice to better connect with my customers? And then there's some thoughts working closely with maybe the marketing team more outbound functionality and making calls out via voice. So it really starts with just really understanding where the clients at and meeting them where the customer wants to go.

And so in these last couple of orals that I participate in, and there's obviously many more, but it fundamentally is coming back to the first part is the UC, CC integration is a big plus and we're hearing that time and time again from our channel partners who's bringing us into a lot of these opportunities. And then the second point is back to the API connectors and how we pull that in, it really comes back to extending those base set of UC, CC capabilities and better engaging with the customer base. So that, again, is a good reason why we remain focused. We're working with Savinay and the product team as well to continue to enhance the product set as we move forward. But that's been a very good opportunity for us to date, and we see that expanding. And then when you think of some of the industries like travel and hospitality coming back, hopefully, in the second half, no one knows exactly when, but we also see some opportunities there as well as we move forward with some of that UC, CC integration with API.

Rory Read -- Chief Executive Officer

The other cool space is that we've got to continue to follow and that we're going to build on is the AI space. With the Over.ai acquisition a couple of years back, we've been embedding that technology into UC, CC, that's going to really be a key driver and that ability to create integrations across Teams, ServiceNow, Salesforce and then our unified contact center and API Vonage Communication Platform solution like I said AI space, it's going to be very important particularly as you get into '22 and '23. You'll see the early velocity this year, but that's going to be a differentiator again. Thanks, Erik.

Erik Lapinski -- Morgan Stanley -- Analyst

That's really helpful color. And if I could kind of sneak one more in? You did mention potential acquisitions as part of the strategy to drive growth and you do have a broad portfolio and a lot of capability. So I guess just wondering if there's anywhere you've identified that you could be focused, whether it's from a product capability or even scaling perspective?

Rory Read -- Chief Executive Officer

Sure. Erik, the real opportunity in that acquisition-type space around partnerships and acquisitions is really across a couple of key areas. They're definitely the aqua hire kind of capability to add technology and technology skills to build out the platform further. And there's a number of areas that you could continue to build on in that space. And then there's obviously targeted opportunities around the UC, CC and API space in the core velocity revenue-driven segments. We're looking across the portfolio. And we have an entire team that works on that. And we're going to continue to opportunistically look at all of those opportunities, but really focus on aqua hire, technology and the building in differentiated velocity revenue in our core product areas of API, video, messaging and then UC, CC.

Operator

Our next question comes from the line of Michael Rollins with Citi.

Michael Rollins -- Citi -- Analyst

Curious if you could talk a little bit more on the API business in terms of the durability of the revenue once you get it? What's the competitive risk that someone comes in and can say, OK, having a 50% off sale on pricing, and can you just take volume from you or even from some of your other competitors? And in terms of the growth of the video, what are you seeing there in terms of the breadth and the depth of communications that's driving that?

Rory Read -- Chief Executive Officer

So Michael, the first question was around the API durability. Hey, API is a usage-based technology. Now the key point of this is it's a technology-driven technical implementation. You have to embed it into your application. And on the higher-value APIs, for sure, there's a more program-driven implementation where people are implementing inside of that. So there is a defensible moat there because it takes time and issue to make changes. The key for us is to create a great product, continue to enhance it, do it at a competitive price and deliver on our commitments to our customers every day. That's how we grow usage, that's how we grow routes, that's how we grow countries. And we're definitely seeing that over the past several quarters, and we continue to see that opportunity. There's always a risk that someone can go do the old New Jersey-based electronics company crazy Eddie-type sales, right? our prices are insane.

That doesn't last. That's not sustainable. What wins is good to really strong technology, great people, delivering on your commitments and then showing that you're a company that people can trust. And that's what we're building with our customer sets, we're going to be competitive and we're going to make sure that we deliver what they need. And we're going to put our customers first every day in every way. And that's going to allow us to continue to expand. Sure, there is those threats out there. You got to earn it every day. You buckle up your helmet, you get out on the field and you show the customer exactly what you're going to do every day. That's the key. And then your second question was around video?

Michael Rollins -- Citi -- Analyst

Yes. Just more details on the breadth and depth of the usage that you're seeing in the verticals and how you're seeing that grow as maybe the priorities shift a little bit during this reopening process?

Rory Read -- Chief Executive Officer

Yes. And what I like about that question, Michael, is that they're definitely what we're trying -- and what we tried to do, for example, going into 2Q of this year is to build velocity into the business, which we did in 4Q and 1Q, to set us up for that sequential compare from last year where there was that big jump in 2Q. And I think we did a good job on that. On video the strategy has been diversify the portfolio. Don't get just tied into one or two verticals, get a broad-based set of video solution and then embed that into the Vonage Communications Platform. In the UC, CC you might have saw some of the announcements around that. I'm sure Jay can give a little bit of color there. But it's the diversity of industry that gives us comfort there and then the diversity of the implementation of technology. Hey, you have to continue to invest in differentiation, and that's why we're making those investments to grow. Video is a differentiated solution for us. There's a number of competitors there. What we do -- what we're doing is continuing to invest, leveraging a broad set from online events to education to medical. Sure, you know those, but we're seeing it and support in all those areas. And now we're embedding it into, for example, our CC. Jay, do you want to add a little bit of color around video?

Jay Bellissimo -- Chief Operating Officer

Sure, Rory. Like to just add two quick points. Coming back to the first point on the differentiation. The other thing I would just add, as you alluded to right price is important, but quality is very important as well. And that really links to, I think, what we do very well, and that is the reliability and the scalability, including our retail knowledge and expertise in some of these verticals. When you look at the country-specific regulations and compliance now and then you fast-forward that to the second question around the video, I think it's a cross geo understanding and expertise in a lot of these regions, and it's understanding these industries. And as Rory alluded to, we're seeing more and more of these use cases, whether it be onboarding collaboration, but there's a lot of cross-pollination across these different verticals, not just in one deal, but across the globe. And that's really helping us as it relates to growing out our video capabilities, and we'll continue to work with our customers as well as partners as we co-ideate and co-create together because that's where you're going to really drive that bottom line value and also create the outcome our customers are looking for more and more because they're looking for an outcome that can integrate the VCP capabilities, and that's coming back to the earlier points about the other features in UC, CC. We're really leveraging this VCP platform to help deliver those business outcomes.

Rory Read -- Chief Executive Officer

Thanks, Jay. Thanks, Michael.

Operator

Our next question comes from the line of Samad Samana with Jefferies.

Mason Marion -- Jefferies -- Analyst

This is Mason Marion on for Samad. So the UC and CC growth starting to select upward, very good thing to see. Are your efforts to reinvigorate the micro SMB segment starting to take hold? Or is something else causing that inflection?

Rory Read -- Chief Executive Officer

Yes, Mason, one of the key things in UC, CC is it's a traditional kind of waterfall business. You see pipeline -- you see leads, you see pipeline, you see validated leads, you see conversion, signings, bookings, then you see installs and revenue. So we can see that business moving. That's what gives us confidence in terms of the trajectory into the high single digits by the end of the year. We see it. We'll see positive year-over-year bookings growth in second quarter. That's really important. We've seen a really broad-based set of reaction to our channel program in the space. We've been adding technology under Rodolpho's direction of where the differentiations are needed, like video, into the contact center solution. These are some of the cross-pollination. We've seen some really nice size of wins come into the space. So we're seeing good term in terms of pipeline. Pipeline looks up again quarter-to-quarter. So that's a good trend. Bookings year-over-year growth in the second quarter. We see installs picking up nicely through March and April. And we're confident that we'll drive the high single digits through the end of the year on the UCC business across the board. And that the opportunity for us to go further is get that channel with Vonage Accelerate on site, focused and then Savinay and his team deliver Rodolpho and Jay, the technology that they need to expand the marketplace, I think there's a lot of opportunity for us there. Does that help, Mason?

Mason Marion -- Jefferies -- Analyst

Yes, absolutely. And then just let me in one more here and to really beat a dead horse on the API segment. So the D&E was obviously impressive. Is this more a function of increased volumes per customer? Or is it more upsell and cross-sell of additional API products?

Rory Read -- Chief Executive Officer

It's both. It's both. It's new customers, it's lower churn, it's new routes and countries with existing customers, and it's really expanding into customers across the Vonage Communications Platform. It's all factors. And again, the market, the broad-based portfolio that we have of APIs, multiple geos with a nice diversity of revenue split, gives us that kind of insulation. So if there's a pressure in one industry or one geography, we have the opportunity to grow. We're seeing good uptake in terms of existing customers, new countries and routes. We're seeing the velocity on some new logo wins and pipeline, and we're seeing the opportunity for us to do the cross-sell. It's across the board, Mason.

Operator

And our next question comes from the line of James Breen with William Blair.

James Breen -- William Blair -- Analyst

Can you just give us some color around the number of deals you're going to bite into versus your win rate? So how that plays out in terms of growth going forward?

Rory Read -- Chief Executive Officer

I think from a standpoint across the funnel, we've done a lot of work with Joy Corso, our CMO, to really understand the funnel from lead to validated lead, to engagement, to booking or a design win, to an install, to a ramp. And what's really important around that space, James, is really to understand exactly what your conversion rates are across. And Joy has kind of targeted specific tactics at each part of the funnel to maximize the win rate. So for example, what's the conversion from market-validated lead to a point? What's the conversion rate from appointment to win or design win? We have specific targets on each of those because we're doing a pareto analysis on all of the defects. Where are the escapes? And we've highlighted across each product in a portfolio where we are seeing escapes. So do we have enough pipeline at the top of the phone? Yes or no? Most of the time, yes.

Why are we getting that converted into a validated lead? Are we getting the engagement? What's our win rate? We've seen win rates improve, there's no question because we've seen a better focus on the data and information, but it's not that simple. I mean you really want to look at every one of those conversions, and we're looking at that across the funnel to make sure that we are seeing that hotspots, right? So if we're not getting the right conversion rate on, for example, leads to appointment, then we go in and we pull that apart to really understand why isn't that happening? How can we increase it by 10? We can get so much more out of our existing pipeline by just mining it more efficiently and nurturing it. Joy has been working with Jay on this. Jay, did you want to add any color on that?

Jay Bellissimo -- Chief Operating Officer

Rory, I would just add one point, and you said it well in terms of the overall approach. I would just double-click on the existing base. As we talked about at the Investor Day, we look at how can we streamline how we work with our existing customer base? So we've done a lot of work with Joy and the team. And we've this whole nurturing experience is very important any question earlier. And so that's another reason. When we look at the quality, we redesigned how we service those customers. And I think that's been a very good thing in terms of creating more opportunity and having a higher quality in terms of our close rates on the existing base. And as Rory alluded to, we'll continue to go through and look at every motion within the sales cycle end to end and make sure that quality is consistent throughout. And when we have a hotspot, we will take the appropriate action. And we're already seeing good progress on that to date.

Rory Read -- Chief Executive Officer

Thanks, Jay.

James Breen -- William Blair -- Analyst

Is there any notable difference in win rates on the deals that include CPaaS versus

Rory Read -- Chief Executive Officer

That's an interesting question. I think we're going to have to take that one off-line. I don't have that right at the top of my head. I would think -- is there a notable difference between CPaaS? Not that jumps out at me, we'll take a look at the data and we'll jump back at you, Jim. I mean, definitely, we're seeing much more of that discussion, and it definitely adds in the UC, CC space, probably my intuition is that it probably has some positive impact on win rate. I think probably -- let me get the data because I don't want to just give you a hypothetical. The real point here is that we're systematically looking at the information and data of all parts of our business, whether it's how we structure our go-to-market, how do we invest our dollars in marketing, where do we leverage the channel, everything is becoming much more optimized around a data-driven, fact-based decision-making system, where we can optimize our results systematically across each of the businesses. And that's why we're seeing better performance, better growth, better profitability, better ability to make more investment. I think there's a lot of opportunity there.

Operator

Our next question comes from the line of Steve Enders with KeyBanc.

Steve Enders -- KeyBanc -- Analyst

I just want to touch on a little bit more on what you're seeing on the UC, CC side. It sounds like you're seeing some good acceleration there and some positive bookings momentum. But wondering what it would take, I guess, longer term to get that business back into the double-digit growth range and you see some further acceleration? Is it more on the product side? Or is it more on the go-to-market and the partner relationships that need to be built out to help drive that longer term?

Rory Read -- Chief Executive Officer

Yes. Well, as we talked about at Investor Day, we're looking at double-digit growth in next year. We'll exit this year in the high-single growth. That's -- we're confident in making that commitment, so you can count on that. What we really want to drive on -- and that's our expectation that we can do it, and obviously, things can change. But we are confident that that's the right view. And we see double digits in 2022. I think the opportunity for us is a combination. It's a combination of product enhancements. We get a lot of interaction between Savinay and Rodolpho, Reggie, the team to really understand. Joy's work in terms of the market analysis is giving us better indication of what are the specific changes in the channel? The channel definitely is a key player in this space. It gives a multiplying effect. We're off to a good start with Vonage Accelerate, and you're going to see us continue to invest in that throughout the year. And then from the standpoint of the go-to-market, we tailored the go-to-market. We have that e-commerce self-provisioning solution in micro and small, then we're leveraging the channel from small all the way through enterprise. And then we have a really powerful and talented direct team from the top of small and really mid through enterprise. This is giving us the right factors to really play that space. Again, look for us in that high-single digits at the end of this year and will grow double digits next year.

Operator

And our next question comes from the line of Andrew King with Colliers Securities.

Andrew King -- Colliers Securities -- Analyst

You called out the strong cross-sell between UC and CC. Could you guys just give us a little bit more color into new logo generation in that segment and specifically upmarket and how you see that trending across the year?

Rory Read -- Chief Executive Officer

Yes. And Andrew, that was on UC, CC?

Andrew King -- Colliers Securities -- Analyst

Correct.

Rory Read -- Chief Executive Officer

Yes. Okay. Great. Jay will give a bit more color on that, but we've definitely seen it across all sizes of customers from small to mid to enterprise. We've got some really interesting enterprise wins. Well, enterprise is growing at the fastest rate because of -- the company had defocused 1.5 years ago on that micro small segment. We definitely have revitalized that. I think we'll see that continue to pay dividends in the second half and into next year. Definitely mid is the sweet spot for the product that we have and the capability, the combined UC, CC capability and having those teams work more closely together gives us a multiplying effect and then across the channel partners. There's definitely new customer acquisition, is definitely -- and we see a stronger pipeline in 1Q and then a stronger pipeline again in 2Q. Again, positive bookings growth in second quarter. Jay, any additional color you'd like to add there for Andrew?

Jay Bellissimo -- Chief Operating Officer

Rory, I would just add two points. One is back to the point in the verticals. We see continued strength in healthcare, financial services, some of the technology areas. So we're going to continue to see, I think, a very diverse set of industries and verticals we're focused on. And I think one of the things that's helping propel us is the fact that we can cross-pollinate these use cases. So we're going to continue to invest the resources in driving that out. The second point I'd make is just Rory alluded to it in his opening remarks, but you look at some of our recent wins in the customer base, and a lot of it may start with -- they have a need for VCC the contact center, and it might be a sales force integration, and they also have a need for VVC with the Microsoft Teams. So we're seeing a lot of that type of cross-selling and as it relates to the first quarter and some of the wins, we're going to, I think, see increased amounts of those types of wins, and we could provide separately some of those highlights through Hunter at a later point.

Operator

We have no further questions at this time. I'll turn the call back to you. Please continue with your presentation or closing remarks.

Rory Read -- Chief Executive Officer

I'd just like to say thank you to everyone for joining the earnings call today. Please, be well and be safe out there. We're focused on creating a culture around accountability and execution. We're pleased with the start to 2021. We have more work to do, but we're confident we're on the right path. Vonage Communication Platform strategy is the right strategy. Our cross-sell, upsell and opportunity to build an API-first architecture is winning in and working. We'll see and look forward to continuing to give you updates throughout the year and appreciate your interest in Vonage. have a good day, and thank you for joining us today.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Hunter Blankenbaker -- Vice President, Investor Relations

Rory Read -- Chief Executive Officer

Stephen Lasher -- Chief Financial Officer

Jay Bellissimo -- Chief Operating Officer

Ryan Williams -- Stephens, Inc -- Analyst

Drew Glaeser -- JPMorgan -- Analyst

Will Power -- Baird -- Analyst

Erik Lapinski -- Morgan Stanley -- Analyst

Michael Rollins -- Citi -- Analyst

Mason Marion -- Jefferies -- Analyst

James Breen -- William Blair -- Analyst

Steve Enders -- KeyBanc -- Analyst

Andrew King -- Colliers Securities -- Analyst

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