Vonage Holdings Corp.
Q2 2019 Earnings Call Transcript

Published: 6 Aug 2019

[Operator:]

Good morning and welcome to the Vonage Holdings Corp Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. . After today's presentation, there will be an opportunity to ask questions. . Please note this 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:]

Hey, great. Thank you, Kate, and good morning and welcome to our second quarter 2019 earnings conference call. Speaking on our call this morning is Alan Masarek, Chief Executive Officer; and Dave Pearson, CFO. Also joining us is Omar Javaid, President of the API Platform. Alan will discuss our strategy and second results and Dave will provide a more detailed view on our second quarter results and third quarter 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 second quarter earnings release or the second quarter earnings slides posted to the IR website. Additionally, during the prepared remarks today all comparisons to prior periods on a year-over-year unless otherwise noted as sequential. So with that, I'll turn the call over to Alan.

[Alan Masarek:]

Thank you, Hunter. Good morning. I am please report solid second quarter results as our OneVonage programmable platform strategy gained momentum with customers. Business revenue reached $200 million and business service revenue growth accelerated to 25% on adjusted constant currency basis. Consolidated revenue was $298 million, adjusted OIBDA was $38 million. During the second quarter, we continue to execute the three strategic initiatives, we outlined to start the year. First within the application group driving revenue growth among midmarket and enterprise customers, second within the API platform group accelerating overall revenue growth yet with specific emphasis, growing higher value APIs even faster and third the continued development and enhancement of the OneVonage platform via integration of UCAAS and CCAAS along with programmable API.

[Dave Pearson:]

Thanks, Alan and good morning everyone. We had a solid second quarter featuring strong growth in Vonage business, results above our guidance and continued up market momentum. Let's begin with the review of the quarter on Slide 8, Vonage business total revenues was $200 million, representing 67% of total revenues and a 35% GAAP increase. Business service revenue growth is our focus as we deemphasize access circuits, sell fewer desk phones and pass through USF revenues to the federal government. Business service revenue increased 23% on an adjusted basis in the second quarter, on an adjusted constant currency basis the service revenue growth rate was 25%. As with the prior quarter's this revenue growth rate is adjusted in two ways. The performance for the acquisitions of TokBox and New Voice Media as if we owned both assets for the full year 2018 and it adds back the write down of approximately $2 million of New Voice Media differed revenue balance under GAAP purchase accounting rules.

[Hunter Blankenbaker:]

Good. Thanks, Dave. And Kate, can you please launch the first question.

[Operator:]

The first question comes from Rich Valera of Needham. Please go ahead.

[Rich Valera:]

Real strong performance on the API business in the quarter, wondering you can give us a sense of your expectations for the growth rate of that business into the second half that we think it can be sustained at these growth rates and little more granularity on what you think is driving that acceleration would be great. Thanks.

[Dave Pearson:]

So we talk about back that business somewhat seasonal, so the general backdrop is that the business is growing very quickly and we feel very good about it continuing to perform well into the 40s on a year-over-year basis, it is a seasonal business however, so baked into our 3Q guidance is a slightly lower sequential increase and what we saw from the first quarter to the second quarter, so when you look at those year-over-year because the seasonality was the same in the third quarter of last year you are looking at a rate that's relatively similar to what we saw, which is well into the mid-40s.

[Rich Valera:]

Got it and then on the applications growth 11% seemingly implies a still pretty underwhelming growth rate in the UC business. Can you give us any more color on what's going on under the covers in the UC business and what gives you the confidence that maybe that picks up in the back half from year-over-year growth rate?

[Alan Masarek:]

Hi Rich, it's Alan. When we think about applications in total, first it's doing precisely what we thought it would do, where it's going to be flattish to down Q2 and Q3 relative to Q1 and then begin increasing at the end of the year in Q4. What you find is just this continued shift from the down market business what we started from, where we have moved our marketing effort away from that and as a result that growth rate is much less, is simply pulling down what is a much better growth up market and even within up market we think the growth will continue to improve in the current quarter, we actually see things like on the CCAAS side on the New Voice Media side, if you note on the balance sheet the differed revenue grew quite a bit that is effectively all related to New Voice Media and so it just speaks to the timing of when business is booked versus installed when we actually recognize the revenue.

[Operator:]

The next question is from John DiFucci of Jefferies. Please go ahead.

[John DiFucci:]

Thanks, I have a just a follow-up to that question when I look at your GAAP revenue for the application side Alan, it accelerated but the non GAAP when you make those adjustments actually decelerated a little bit. And the non-GAAP adjustments are really due to the New Voice Media so I would assume that the most of and it only decelerates a little bit and it's still growing at a nice rate, I would assume that that’s mostly due to the CCaaS business and that UCaaS may have actually accelerated by itself and first of all that’s true. And second of all, it is what's happening is there something specific to Vonage or are you is it more that you are benefiting from sort of this whole business moving to the cloud sort of the market and then I have a follow up thanks.

[Alan Masarek:]

Let me have Dave take that.

[Dave Pearson:]

We didn’t see anything unusual or unexpected in the quarter nor a change in the dynamic between UC and CC. What I will say is that the CC business is chunkier than UC business because you tend to have much larger ARR, MRR, sales and they take time to install. So for instance we had a huge booking in the quarter and first half of the year in CCaaS which we talked about last quarter's call, that’s going to take a year to ramp, it started ramping but it's going to take the year to get the full power. So you do see some chunkiness which could fit into what you were saying but overall we did not see a change in the dynamic.

[Alan Masarek:]

But I think relative sort of a broader question, this industry we're seeing specific inflection moving as larger and larger companies are moving to cloud that is undeniable and we're benefiting by that curve, we just are in a sense weighed down by the fact that we remain over indexed to the micro segment which is growing far slower and there is no longer our area of focus. We talked about is there now from a proportionality perspective 53% is up market across all applications, it's up from 52% last quarter but I like to characterize this every day is a good day, as you get more and more of your revenue up market and in up market your churn comes down, your ability to up sell those customers improve, it is a far better place to play.

[John DiFucci:]

I like that too Alan, everyday is a good day but my follow-up question it has to do with guidance. So you guys beat guidance for this quarter, you guided the third quarter above where the street was anyway but you left your annual guidance unchanged. And I'm just curious I don’t know just some commentary around that is a simply prudence given what appears to be jitters around the macro environment, you guys saw what happened to the market yesterday. Are you seeing something in your specific business that gives you pause regarding the fourth quarter.

[Dave Pearson:]

There's no pause its really our convention to give annual guidance at the start of the year and then update that guidance only if we're going to be outside the range we gave or there is an extraordinary event like an acquisition that would push us out of the range or fundamentally change the guidance and then give quarterly guidance for each quarter. So we're sticking with that convention because we didn’t see anything extraordinary, we did do a small acquisition and that will effect EBITDA a bit but we will still be in the range. When you unpack that a little bit in terms of what we're seeing based on the first three quarters, including the midpoint of what we just gave, we are running a bit ahead of the midpoint of the guidance that we gave and revenue and so the midpoint was 805 we're running $2 million to $3 million ahead of that after absorbing what looks like a $4 million currency headwind in the year currency if dollar and Euro stays where it is today. So that’s a GAAP number that would have been $4 million higher based on currency adjustments but still in the range. Then as it relates to EBITDA the guidance range there was 160 to 165 we're still in that range. When you take into account the Over.ai acquisition where we have 23 people joining on one day as well as currency, which is also a drag on that because we have some significant costs that're over there that puts us at the low end of that range but in both cases in revenue and EBITDA we're still in the range that we gave so didn’t see the need to change it, we thought we would give that color.

[Operator:]

The next question is from Nandan Amladi of Guggenheim Partners. Please go ahead.

[Nandan Amladi:]

We talked a little bit at enterprise connect about your channel development efforts can you give us an update on how things are going there and how you are able to differentiate your offering relative to the other two major vendors in this space.

[Alan Masarek:]

We continue to make very-very good progress throughout the maceration channel, as you know I discussed going back now six or seven quarters we have new leadership and then we have focused on our partner programs, our partner portal as well as creating products that targets the channel more than certain others. And so to be specific about it CX Cloud Express, which is New Voice Media or think of it as New Voice Media light which is embedded inside Vonage business cloud is really targeting the channel because it targets the mid market which is their sweet spot and as I talked about we announced or released CX Cloud Express only at the beginning of the quarter, in the quarter, we did 10 deals on CX Cloud Express. We also did 21 New Voice Media context center deal and now the channel is embracing that as well. So it's a function of a go to market focus and a tools focus in terms of the portal and program as well as a product focus, all those items seem to be taking hold, we continue to see good strength, excellent strength as well as larger deal sizes.

[Operator:]

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

[George Sutton:]

Alan you talked about a lot of your deals that combined UCaaS and CCaaS but you also mentioned that customers were increasingly looking for programmability that limits the number of competitors that can really do that. Can you can you discuss what you were referring to there and maybe some tangible examples?

[Alan Masarek:]

Let me start and I will turn over to Omar who can describe it. Our focus is when we talk about the OneVonage programmable strategy, the focus is that you're only going to win over the long haul first with integrated solutions. And I said several examples where you're seeing UCaaS and CCaaS increasingly bought together particularly within mid market enterprise. On top of that because it's built from programmable APIs those applications are they themselves programmable meaning as example we talked about last quarter, we released what we call smart numbers which is a brand term last quarter we talked about phone number programmability. So now you're bringing extra functionality to those mid market and enterprise customers. It's early in the world of programmability but if you speak to customers about future proofing their requirements. Our solution is just different and I believe better than what competitors can provide when you architected sort of the old way monolithically you are not built for micro services architecture but we're seeing examples, over and over and over again where we're winning is not about them using that programmability right now, the promise of that programmability tomorrow. Omar you may add to that.

[Omar Javaid:]

Just to extend a bit on Alan's comments so what we're beginning to see the back drop of all of this is customers that are buying our solution or solutions in general here they are going through digital transformation right, so they are trying to change from the ground up the way that they operate and some of these areas that they tackle first are really the customer experience because they finally get tremendous value out of rethinking that customer experience. So to Alan's point we acquired, next month we have this API platform. And we as we have rebuilt our products and rebuild our technology we look at our own products in the application group as leveraging those communication API which third parties all over the world leverage for their applications as well. So what we are beginning to see, what we hope to see and accelerate is that customers, application customers today either are UCaaS solution or CCaaS Solution or the combined UCaaS and CCaaS solution will be able to build, will be able to rapidly build customized experiences using those APIs and so we have seen examples of that. So for example, the ability to quickly enable SMS or messaging alerts, the ability to do verified for 2FA very quickly. So these are capabilities that we bring to the table as you pointed out it’s a very limited competitive set of competitors that can actually match those skills.

[George Sutton:]

So I’m not sure if the Gartner folks listen to these calls but they clearly haven't been paying attention to your progress, curious if you could just sort of address their recent Magic quadrant.

[Alan Masarek:]

The simple answer is we did not apply, and again it's frustrating to our investors, it's frustrating in every which way I understand that, last year in 2018 we worked in the quadrant because the requirements were to have a certain scale across in UCaaS across the three main regions of the world and we did not have that presence in Asia PAC. This year they changed that and it's only two of three of the major regions of the world and we certainly qualify for that. Yet they said you cannot do it with a third-party call proc stack and in the UK up until very recently we used BroadSoft there not Vonage business cloud and so yet again we did not qualify so we chose not to apply.

[Operator:]

The next question is from Catharine Trebnick of Dougherty. Please go ahead.

[Catharine Trebnick:]

So quick question. One, how does the new acquisition tie in what the work you are doing with Google AI and the second part of the question early as to do with the high value API could you reiterate again which were the three this quarter. Thank you.

[Alan Masarek:]

Let me have Omar take that.

[Omar Javaid:]

To your question of AI and Google the short answer really is that it enhances it so as various to question and really the base of it is we saw as Alan said in his opening remarks that as companies are going through there digital transformation as we see AI and machine learning is more and more important, so this is really about bolstering our capabilities both with the skill set and the intellectual property. So it doesn’t meant to subplant, what we're trying to do with Google AI and other AI technology is really about accelerating our own internal efforts.

[Alan Masarek:]

And then within the top 50 on the higher value it's just voice video and verify as well as things like we said if the message as API which can default to the social apps in particular we're seeing super strength in the WhatsApp connection there as well. Let me make one other point about over AI this is an aqua higher, these 23 heads are head count that was already approved headcount in the budget the only sort of drag on EBITDA is the fact that we're hiring these folks now in one day as opposed to it would have taken out half a year to bring in those people in the ordinary course. So the key thing about this is that we had an existing AI group within that engineering team who already had a relationship in working with Over.ai, we now really as a talent and IP acquisition just folded that group directly into the existing engineering hub and the existing efforts within Tel Aviv.

[Catharine Trebnick:]

All right thanks and then any time frame on when you expect some new proof of concept to come out from the combined group.

[Omar Javaid:]

That’s a great question, in fact we have been working with this group for quite some time and so just to refer to Alan's opening remarks we look at this benefiting both the applications business, and the API business. I think what where you will see our initial focus in terms of proof of concepts will be on the applications side and we will then sort of shift to the API side but this is all pretty new and we're looking to move pretty aggressively here in general.

[Operator:]

The next question is from Michael Rollins of Citi Investment Research. Please go ahead.

[Michael Rollins:]

Couple of question. First as you describe the focus to move up market for the size of deals and customers that you're going after, does the balance sheet play a role in your customers purchasing decision if so how you look at the balance sheet strategy going forward and then secondly can you just give us an update on how you see the competitive landscape and who are the tough competitors in each of the key product verticals that you are offering into the business marketplace.

[Alan Masarek:]

Let me have Dave to take the balance sheet question.

[Dave Pearson:]

On the balance sheet side right now we're at our maximum leverage point that we project right now, we're able to go up to 4.5 times debt based on the facility that we have now and having put in the convergent place actually unlocked a turn of leverage relative to the bank loan that we has it also fixed that 4.5 times capacity across the five years of the security. So we feel very good about our liquidity and our ability to use our balance sheet offensively that being said we don't have any plans to be any more highly levered than we are today. I think that and in fact we're paying down debt every quarter. This quarter went up and more than 100% of that increase is from the fees on the convertible issuance which was a very positive thing from cost capital and financial engineering perspective but we do believe that over time financial heft and financial flexibility will be an important differentiator for customers as you move up market, people want to do business with companies that are going to be around for while. I think it feeds into what we're talking about on George's question relative to future proofing if you're sizable company is going to be around for a while and you're future proofed on the technology those two things put together.

[Alan Masarek:]

And then Mike to your other question on the tough competitors, it's pretty straight forward, within the API side its really ourselves and Twilio we're really the only two players with a full all-in-one platform across the major modes of communication, we're the largest by a lot, we're growing looks to be the fastest relative to anyone else sort of kind of two horse race at this point, and we continue to make great deal of progress in a market which is just growing in very attractive ways. In the application side really the best performing competitor today is Ring Central obviously as evidenced in their growth rate. We continue to make moves to overtake them. We got still work to do as I cited across the product work we're doing around modern business cloud and creating a differentiated offering, our sales and marketing and demand efforts, what we're doing across routes to market all those efforts are in place, we're seeing good results, we're seeing good bookings it's heading in the right direction. Clearly we still have work to do to overtake someone growing as fast as Ring Central.

[Operator:]

The next question comes from Will Power of Baird. Please go ahead.

[Will Power:]

I guess kind of two part question, tied to contact center, I wonder if you could dig into what's driving the increased interest in the integrated UC contract center products, how much of that is the market driving that versus you all pushing that combine product more aggressively and I guess kind of tied to that as you look at the mid market enterprise MRR growth 17% I think it was down slightly from last quarter is that a number that we could expect to actually accelerate as some of those recent wins and contact centers start to flow through how do we think about that going forward.

[Alan Masarek:]

Let me start and I will turn it over to Omar so. So simple answer is that 17% versus the 20% last quarter is really a timing issue and it should accelerate based on all the factors that I spoke to and we do see in year acceleration. And on your first point on the UCCC combo, we were simply following buyer demand when we bought New Voice Media we created the application groups which is UCaaS and CCaaS combined simply because following the buyer demand. That application motion is very similar whether you are going to buy UCaaS or CCaaS and increasingly on a combined basis and you are seeing more and more that within mid market and enterprise. And quite frankly while we do it now with a fully owned solution our competitors do it with a third-party solution like in contact but they are doing it the same way. We also have done third-party research, which validates about how IT professionals and others of the decision makers really are increasingly insisting on the UC and CC solution being from a common technologies stack, much of this goes to how the world is evolving in terms of contact center are getting ever more virtual rather than having a big center with 300 agents in one building increasingly virtual work, somebody takes a three hour shift from home and you have to be able to be virtual because the biggest problem with the contact center world is turn over. Brands are trying to drive a better customer experience if there're folks who are front facing the customer turn over all the time, they just can't do that, so you have to accommodate distributed workers from contact center and distributed increasingly mobilized workers on UC side, it becomes really all in the same that's we believe why you are seeing more integration. Omar do you want to add to that.

[Omar Javaid:]

That was perfectly answered. We have done third party, we've seen customers demand drive us this way so it's not really vendor driven, it's not really pushed by us per se and that’s kind of what fueled the acquisition in the first place and what we've done with the road map so we've seen customers demand. As we just like any other firm we do a lot of research and to Alan's point the third-party research has consistently shown and we do this quarterly, consistently shown a lot of interest and desire by economic buyers across medium size companies and larger in fact what you see is the largest company get, the stronger that preference is. So we think that it's a pretty strong combination.

[Operator:]

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

[Mike Latimore:]

On the API business how much of that growth is coming from current customers, current applications I see more volume versus this kind of cross sell up sell dynamic.

[Alan Masarek:]

Omar.

[Omar Javaid:]

I’m sorry I didn’t catch last part of that question, the cross sale dynamic.

[Mike Latimore:]

Just how much of the API growth is coming from current customers just volume growth versus cross sale up sale.

[Omar Javaid:]

That’s a great question, I think couple things. We see a lot of existing customer growth particularly in the messages API and I think a lot of what you're seeing in terms of the numbers is existing customers growing, growing and growing and I will just point you that as day's remark now and Alan's remarks there. Now in terms of product mix what we see especially within newer products what we termed as high value API, that would be voice, that would be video, enhancements to the message API where we connect to OTT apps like WhatsApp for example. That is a combination of both existing customers, so existing customers say started in messaging API say SMS have enhanced those offering with our additional products say voice or video, but we’re seeing a lot of activity is probably skewing more towards newer customers that start with higher value API, so I think that answers your question.

[Mike Latimore:]

And then on the how about in terms of industry verticals are you seeing some new verticals open up to those API CPaaS model that maybe wasn't there a year ago, maybe more traditional economy kind of verticals.

[Omar Javaid:]

That’s a great question, so I think we have done I think a lot of the companies in this space and probably where CPaaS was born was adoption by digital leaders that's still a very, very strong area for us but what we have seen and I think we talked about this in previous earnings calls as well, what we have seen is the traditional customers, the traditional large enterprises begin to adopt API technologies more and more and I think this is the big trend it's early, we started seeing it, we began with investing in fact in our go to market mid last year pretty heavily in terms of both build out in sales that sales capabilities as well as partnerships where we saw this happening and we continue to see it grow. So just to recap we the traditional digital media are a big part of that business and they are growing and we love that but we're seeing a lot of the traditional enterprises, particular large enterprises being interested in this, adopting we see a lot of potential growth as well.

[Alan Masarek:]

Mike there is a really good study that Gartner did that in 2017, it was 5% of businesses were using these programmable tools expected to be 30% by 2020 and what's so interesting is everybody whether you're a digital native or you're an old brick-and-mortar enterprise, everyone focused in trying to improve customer experience and so these programmable tools are doing precisely that how do I create something within some other digital environment by mobile apps or on existing enterprise application proprietary otherwise where I can now embed in communications to make it better and you are seeing that everywhere.

[Omar Javaid:]

And just what we're also seeing is number one it's global and what we're seeing in parts like say outside the United states are those companies there's almost a leapfrog to give you an example like a lot of parts of the world skipped landline and went directly to mobile so there's a similar kind of effect there, so it's really interesting and we're a beneficiary of that of course.

[Operator:]

The next question is from Jonathan Kees of Summit Insight Group. Please go ahead.

[Jonathan Kees:]

I just wanted to follow up on Alan your commentary about the integration of CCaaS with UCaaS organizationally and sounds like you're leading with the New Voice Media and not so much with your in contact partnerships and you're doing that in your sales approach in terms of integration there. I'm just curious in terms of the software stack, something you talked about before, in fact all on a same stack, where are you there and not just with New Voice Media, but also with Neximo and the other acquisitions too. Thank you.

[Alan Masarek:]

The strategy is to be a single stack that we own, that’s what OneVonage is all about. And so we effective the beginning of the second quarter stop selling new customers on BroadSoft and UCaaS side and in contact, so the contact side cause we're focus all on our own stack because we have a fundamental belief that you have to control the roadmap in order to provide these seamlessly integrated solutions. Our view of OneVonage what we're doing is your characterization of Neximo let me just try to clarify that, our stack is programmable API stack that’s what OneVonage is it's comprise of those micro services, video, audio, SMS, IP messaging, etcetera. Those elements can be sold individually or small bundles as APIs that we refer to as the API platform go to market or and or built into the application around known use cases, the UCaaS UK use case, the CCaaS used case or increasingly combined. That what we're driving to uniquely no, one else combined owning all those elements so that we can serve these big tam around these known application used cases or selling it unbundled because it's architect in that micro services way.

[Jonathan Kees:]

So it sounds like whether it's sold unbundled or bundled in terms of integration in the technology side you are in the same stack on the same platform that work sounds like its mostly completed.

[Alan Masarek:]

That’s the strategy, there is more work to be done New Voice Media we just acquired nine months ago and so pulling that apart back into that micro service that’s work under way but that is precisely what we're driving to.

[Omar Javaid:]

And just to add a little bit those point of new voice is that just multiple stages to that effort so we began some integrations very shortly after acquiring New Voice Media that’s an ongoing effort. So just putting my product hat on for a second those are things that you always effectively working on the product side.

[Operator:]

The next question is from James Breen of William Blair.

[James Breen:]

First just a follow up I think it was Mike asked around API side, are there any used cases that you seen that sort of surprise you that are nontraditional that in the future sort of increase the traditional tam for that market and then secondly on the consumer side you talked about a pretty high percent lines now being two years or plus customers, when do you get to the point where that just basically stays flat and generate cash flow and doesn’t weigh on the overall growth rate.

[Alan Masarek:]

Let me ask Omar to take the API and Dave will take on the consumer side.

[Omar Javaid:]

Great question, so we see a couple of them and in fact some of those use cases are what drove this talent acquisition of Over.ai. So what we seen I think one of the use cases that we talked about in the past we have a really interesting customer that uses augmented reality and virtual reality and this is a company that howers it's a B2B SaaS company and they use our video APIs to power unique customers care, customer support use cases. So think, you are a business, you have an issue with some of your equipment you call these people, you call this company who provide who is effectively selling service plan, think of it as IT service plan. And using a camera it could be a camera on your smart phone, it could be on your laptop, it could be on your tablet whatever the case might be. Using the video API they can actually do see what the customers see, they can actually improve schematics they can put drawings on it, right to say this is the way the cable layout should be looks like there is a mistake there, so we think that’s pretty powerful, we think there is a pretty broad set of use cases, we think once people see the power of something like that we will see a lot more of that. That’s one I think the other one has been the power of artificial intelligence and machine learning, there is been a lot of use cases there all across the board just to give you one example, there is a lot of when we talk about voice most of the industry has been focused on basically making voice sort of voice minute or the unit of voices as inexpensive as possible and that's great but there is now a growing trend and growing interest in voice quality. So you see the importance of artificial intelligence both to analyze existing voice calls and even enhance the quality of the voice experience real time so that’s one and so then there is a lot of data that generated on the backend where machine learning where you can sort of constantly improve that experience based on a very large customers base across the network. So those are kind of the two use cases that I think surprise me. Dave do you want to take the consumer question?

[Dave Pearson:]

Absolutely so the question is when we do think consumer or could we get it to flat, so it's not a drag on consolidated growth, we are very happy with how the business is performing, the consumer business is exceeding our expectations this year and every day that the base becomes more tenured it becomes more predictable. That being said we're not projecting that it will get to a zero revenue decline at any point in the future, but we are projecting is that eventually the tenure base will go from roughly 90% of that base today to a 100% of that base because I think we will be adding over time number of customers that we add relative to that base will be diminimus. So the churn of the base will become the churn of the tenure cohort, that churn today is in the 1415 context. So I think the upside in that business over time is lowering churn and then being able to manage ARPU as well as possible and we did that in the quarter, we took some pricing actions in areas that we thought we could. And where it was warranted and we'll continue to look for those opportunities where we’re adding value to customers but really is it's about managing the rate of decline not getting it to zero.

[Operator:]

This concludes our question and answer session. I'd like to turn the conference back over to Hunter Blankenbaker for closing remarks.

[Hunter Blankenbaker:]

Okay thanks Kate and that does wrap up today's call. We look forward to seeing many of you in the coming months, including tomorrow at various Investor conferences certainly for those unable to attend in person these events will be webcast and you can follow our comments at the bondage investor relations website. Please contact us if you need any additional details, thanks everybody.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.