Venture Global, Inc. Q4 FY2020 Earnings Call

Greetings and welcome to the Vonage Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. As a reminder this conference is being recorded. It is now my pleasure to introduce Hunter Blankenbaker, Vice President of Investor Relations. Thank you. You may begin.

Thank you operator and good morning and welcome to our fourth quarter 2020 earnings conference call. Speaking on our call this morning is Rory Read, Chief Executive Officer; and Steve Lasher Chief Financial Officer. Also joining us is Jay Bellissimo, Chief Operating Officer; Omar Javaid President of the API Platform; Rodolpho Cardenuto Head of Unified Communications and Contact Center; and Tim Shaughnessy, our previous Interim CFO. Rory will discuss our strategy and fourth quarter results. And Steve will provide a more detailed view on our fourth quarter and full year results and 2021 first quarter and full year guidance. Slides that accompany today's discussion are available on the IR website. At the conclusion of our prepared remarks, we'll be happy to take your questions. As referenced on Slide 2, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's expectations depend on assumptions that may be incorrect or imprecise and are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slides and contained in our SEC filings. We caution listeners not to rely unduly on these statements and disclaim any intent or obligation to update. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available in the fourth quarter earnings press release or the fourth quarter earnings slides posted on the IR website. Additionally, during prepared remarks today, all comparisons to prior periods are year-over-year unless otherwise noted as sequential. So with that I'll turn the call over to Rory.

Thanks Hunter and thank you to everyone for joining us today. I hope you and your families are staying safe and healthy. I would like to start by thanking our Vonage team members around the world for their unwavering support and commitment to our customers during these extraordinary times. Our vision is to accelerate the world's ability to connect. And 2020 presented many opportunities to do just that and to make a real difference for our customers. We helped our customers address unprecedented challenges by finding new ways to work, connect and engage. One example is StoryCorps, the national nonprofit that has brought together more than 600,000 people to record intimate face-to-face conversations about their lives and leave a legacy. It is the world's largest single collection of human voices ever gathered and it is preserved at the U.S. Library of Congress for generations to come.

Good morning, everyone, and thank you Rory for the warm introduction. I'm honored and excited to be the CFO of Vonage. I believe there is a huge opportunity in front of us, and I am looking forward to working with Rory and the leadership team to capture more market share while driving operational excellence and profitability. Turning to our results. I'll cover the following topics: first, I'll begin with a brief discussion of our consolidated Q4 and full year 2020 performance; second, as Rory mentioned, this quarter we began providing additional disclosures on our Vonage Communications Platform and Consumer segment. So I'll review these results in more detail. And third, I'll cover our first quarter and full year 2021 guidance. And with that, let me dive right in, beginning on slide 7. Consolidated revenues of $323 million increased 4% driven by a 12% increase in VCP revenues offset by declines in consumer. For the full year, consolidated revenues were $1.2 billion, a 5% increase. Fourth quarter consolidated gross margin was 54%, down slightly due to the faster growth of relatively lower margin VCP revenue, which now represents 76% of consolidated revenue, up from 70% in the prior year. Consolidated operating expenses were $169 million, down 1% year-over-year, improving our expense to revenue ratio by three points, as we continue to optimize the business for faster growth and improved profitability. I'll discuss OpEx in more detail in our segment results. Consolidated fourth quarter adjusted EBITDA of $48 million was up $3 million year-over-year due to improving revenue performance and cost structure actions. For the full year, adjusted EBITDA was $170 million, an 8% increase. Before turning to segment results, I would like to highlight that we've included an eight-quarter historical view of the VCP and consumer segment on slide 16 and 17 in the earnings presentation. Now, let's review fourth quarter VCP segment results beginning on slide 8. VCP service revenues increased 17% to $230 million. Service revenues exclude product, access circuits and USF fees, which totaled $15 million in Q4, down $7 million. Full year 2020 VCP service revenues were $856 million, a 19% increase. Within VCP, API revenues, all of which are serviced, were $190 million in the fourth quarter, up 33%. High-value APIs grew 130% year-over-year with particular strength in video, voice, and IP messaging. High-value APIs represented roughly 20% of the total API revenue. Unified Communications and Contact Center service revenues were $111 million in the fourth quarter, up 4%. VCP revenue churn was 1.3% in the fourth quarter. Churn within UC and CC was at record lows. However, this was offset by higher churn on our API platform driven by a loss of certain customer traffic in Asia due to government regulations. Monthly service revenue per customer increased 16% to $552 due to increases in average customer size across the VCP platform. Moving to slide 9. VCP gross margin in the fourth quarter was 46%, down 100 basis points year-over-year, driven by mixed dynamics within the quarter. For the full year, VCP gross margins were 48%, up 100 basis points. VCP sales and marketing expense for the fourth quarter was $77 million, down $7 million versus the prior year and down $6 million sequentially due to our business optimization efforts to improve the efficiency of our sales and marketing. This was offset by selective investments into our API sales team. VCP engineering and development expenses were $20 million, up 22% reflecting increased investment in the VCP platform, including video and voice functionality and scalability. E&D expenses plus capitalized software totaled $32 million, which represents 14% of VCP service revenue. VCP general and administrative expenses for the fourth quarter was $38 million, up $2 million due to higher restructuring charges primarily related to lease abandonments and consulting fees on the consumer strategic review. VCP adjusted EBITDA was negative $4 million, improving from negative $18 million in the prior year and negative $14 million in the third quarter. VCP adjusted EBITDA benefited from our efforts to drive greater operational efficiencies while growing revenue. Moving to Slide 10. Consumer segment revenues were $79 million in the fourth quarter and totaled $333 million for the full year, a 14% decrease. We ended the quarter with approximately 900,000 consumer subscriber lines. Two-year plus tenured customers now represent 94% of our consumer base and five-year plus customers are 79%, which has a churn rate of 1.6% and 1.5% respectively. Consumers' average monthly revenue per line was $28.13, up $0.56 reflecting higher USF fees and targeted price increases that we implemented during the year. Churn of 1.7% was stable compared to the prior year quarter and down 10 basis points sequentially. Consumer adjusted EBITDA was $52 million in the fourth quarter and $227 million for the full year. This business provides profitability and cash generation, which helped fuel our growth initiatives. On Slide 11, we ended the fourth quarter with $517 million of net debt down $20 million sequentially. As of December 31, net debt was three times last 12 months adjusted EBITDA. Given the strong cash flows of the consumer business and improving cash flow of VCP, we expect to continue to pay down debt in 2021 ending the year below 2.5 times. Moving on to guidance on Slide 12. For the first quarter, we expect Vonage Communication Platform revenues in the range of $240 million to $244 million. We expect Vonage Communication Platform service revenue growth of approximately 16% to 18%. Embedded in this guidance are the following trends. In API, we expect first quarter year-over-year growth in the 34% to 36% range, reflecting continued positive trends in high-value and messaging; with regard to Unified Communications and Contact Center, we expect service revenue growth in the low single digits. We believe first quarter service revenue represents the trough of the UC and CC growth rate decline and that we will see a modest improvement in growth rate in each quarter of 2021 thereafter. We expect first quarter VCP adjusted EBITDA to be in the range of negative $7 million to negative $3 million. Within consumer, we expect revenues in the $75 million range and adjusted EBITDA of approximately $49 million. On a consolidated basis, we expect total revenue of $314 million to $318 million and adjusted EBITDA in the $42 million to $46 million range, with a sequential decline due to the reset of annual employee benefits and a step-up in sales and marketing activity. For the full year, we expect Vonage Communication Platform total revenues in the range of $1.038 billion to $1.054 billion. Within this, we expect service revenue growth of 15% to 17% driven by API growth approaching 30% and UC and CC service revenue growth in the low to mid-single digits. We expect VCP adjusted EBITDA to be positive for the full year of 2021 in the $5 million to $9 million range, a substantial increase from negative $57 million in 2020 reflecting our focus on continued operational efficiencies. For consumer, we expect 2021 revenue in the $285 million range and adjusted EBITDA in the $185 million to $189 million range. Total consolidated revenues are expected to be in the range of $1.323 billion to $1.339 billion. We expect full year 2021 adjusted EBITDA in the $190 million to the $200 million range.

Thank you. We will now be conducting a question-and-answer session. Our first question has come from the line of Ryan MacWilliams with Stephens. Please proceed with your question.

Thanks for taking the question. So just to dig into the consumer division how are the interest levels during the sales process? And what was the valuation that you were trying to achieve here? And just given how extensive this review was, does this really close the book on Vonage potentially selling its consumer business?

Hey, Ryan thank you for the question. There's no question we went through a comprehensive strategic review. First, we had to understand and we brought in accounting and professional consultants to really dissect the business and pull it apart, because it's always been our intention to give greater transparency to our investors so that they could understand VCP, the Vonage Communication Platform and the Consumer business. It was definitely robust, approaching 70 strategic and financial sponsors. There's no question, we went through two rounds of discussion. And we had quite a number of interests, but at the end of the day Ryan, it really comes down to this is a very efficient access of capital for us. We can run it efficiently without distraction and this gives us real flexibility as we continue the strategic pivot of Vonage from its traditional heritage to this leader in the global communication platform space. There's no question, we'll continue to invest in VCP to drive faster growth, as I mentioned in the progression of the Rule of 40 over the next three years. And that's something we'll dig into at the Analyst Day on March 5. But I believe that this is clearly the right decision. And clearly, we closed the book on this one. End of discussion.

Thanks. And the guidance for positive adjusted EBITDA for VCP was a nice surprise, especially like thinking about some of the wins in the video API segment. But since you are keeping Consumer and its cash flow, why is it important to you to have this positive adjusted EBITDA next year for VCP? And why not drive even more investment through the API business in fiscal 2021 to accelerate growth? Thank you.

Yeah. It's just modestly positive, Ryan. There's no question about it. And we want to keep it in that range. The optimal model in terms of VCP is always going to be focused on growth at the top in terms of the service revenue. I want to make that strategic pivot. But we also over the course of the next two, three year journey is to make sure that business is very sustainable on an ongoing basis and can fund the investment and growth that we really want to drive in that space. We're not going to go heavy on the bottom line in terms of driving it. You're going to see we've tried to keep our firepower in terms of marketing and sales investment, quarter after quarter this year, to continue to improve that growth trajectory, right? And the work from Jay Bellissimo and his team as they come on with Rodolpho and Omar, Joy Corso on the sales – on the marketing side you're going to see us invest in velocity marketing to drive UC and CC and cross-sell and you're going to see continued focus to extend that API momentum as we go forward. I think that's a really important part of the ongoing strategic direction of the company. This is not a bottom line as you mentioned focus. We're going to keep it in that general range, but then continue to focus on capturing more growth accelerating the business over the next two, three years as we've improved our efficiency. And at the same time, Ryan invest in product innovation this year and next so that in 2022 and 2023 those years become the year of the product. And those product enhancements give our next leg up in terms of additional product growth. That's where we're going and that's the strategy we're on.

Thanks. Look forward to hearing more at Investor Day. Good luck guys.

Thank you. Our next question is coming from the line of Tim Horan with Oppenheimer. Please proceed with your question.

Thanks, guys. Can we delve into the API a little bit more? We're seeing kind of viral growth from a bunch of more developer platform-focused business models out there. Is this still an important part of the strategy? And maybe could you give kind of developer numbers that were working on the platform? Can you give us an update there? Thank you.

Hey, Tim. How are you? Good to speak to you. Yeah. Hey, Tim. From the standpoint of API no question of about it, it's a key component of the strategy. The Vonage Communication Platform is built on that API platform. And really leverages those APIs to build once and sell many across the purpose-built capabilities. We see that same kind of momentum. And you saw Steve's comments about continued strong growth as you kind of looked at 1Q. We don't know exactly how the moderation of the pandemic will occur and we all hope that it moderates as soon as possible. But there's no question that the market and the way people work has changed forever and it will continue to be more and more virtually based and more and more communications-driven. So we think we're at the beginning of a five to seven-year trend in this kind of programming technique and this kind of approach around API. You're going to see us continue to invest in that platform using the dollars and capabilities of the business to enable us to continue to grow that. And you're going to see that. I think we'll take a piece on the developer background at the Analyst Day so we could kind of go deeper there. Jay, Omar, anything you want to add in terms of API going forward?

Rory, it's Jay. I would just add also that we've got great diversity. When you look at our balance across the geographies, APAC 39% of our revenue; Americas 38%; and EMEA 23%. And we see a lot of great opportunity to really go across the geos and go deep in those geos. And that's providing some really good year-over-year momentum as well as quarter-to-quarter momentum. So we see a very positive outlook in terms of building that. And then the other point, I'd highlight is just the customer expansion. We're seeing more and more customers engage and use the wider portfolio of our APIs. With that over to you, Omar.

Thank you, Jay. And great question. I'm glad that you recognize the power of the developer community. So I'll just share some insights there for you. We have the second-largest developer ecosystem in the space. We have over one million registered developers. And just to give you some recent facts here. We've got I think recently about 3.1 million documentation views, 10.3 million SDK installs representing about 13.5 billion API requests. And as Rory mentioned we are going to be highlighting a lot of this and go through this in a lot more detail in the Investor Day. But this is an area that we have been investing in for quite some time and we see a lot of great momentum from it.

Exactly what I was looking for. Thank you. I look forward to the Analyst Day.

Thank you. Our next question is coming from the line of Rich Valera with Needham & Company. Please proceed with your question.

Thank you. Good morning. At the risk of I guess front-running the Analyst Day, I'm going to ask a couple of questions on the apps business. First, I know you've had some initiatives to kind of shore up the base of that business particularly the VBE cohort and the micro SMB component. So I wanted to just kind of get your status updates on those initiatives. Have you seen some stabilization or improvement in that part of the base? And then just high level in terms of how you're thinking about go-to-market for MME there. I know historically you've really been aligned with Salesforce and going after accounts that were sort of standardized on Salesforce and leveraging that integration. Can you give us any high-level thoughts about how you're thinking about going to market and MME going forward? Thank you.

Thanks Rich. Rich, there's no question that the focus to tailor that go-to-market by customer segment where the products best fit and where we apply the right go-to-market is the right strategy. You're going to see us continue to build out this self-service and e-commerce at the bottom of that and the micro and beginning with small then you're going to see a lot of work around the channel particularly in the second and third quarter as we introduce new capabilities, new incentives, new programs make it easier and better to win with Vonage. And then that powerful Salesforce that's what's going to drive that direct salesforce at the top of the stack at mid and enterprise. It's tailoring to each area to get the efficiency. And then the work that Joy Corso is doing from our CMO perspective to drive the velocity marketing particularly across micro, small and mid, we're seeing some really interesting traction on some investments that we've done here in the first quarter. And as we get that information, we'll accelerate that through the balance of the year. So why don't I pass that over to Jay and Rodolpho just to add a little bit more color.

Rodolpho, do you want to start?

Thank you for the question. I appreciate your comments about the VBE and the micro business. It's important to note that we are seeing an upward trend in revenue since Q2 last year, and we have continued this progress from Q2 to Q3 and Q4, which we expect to maintain this year. This improvement is due to our advancements in VBE and the micro business. A key factor has been our investments in e-commerce, which now allow for easier customer acquisition through self-provisioning and self-support. These changes have been implemented to enhance the profitability and growth of our micro business. Additionally, we are strengthening our collaboration with Salesforce, where we have had a positive experience, while also evolving our work with ServiceNow and Microsoft. We now have integrations with Microsoft Teams and Microsoft Dynamics, providing strong solutions, including TCaaS for Dynamics. We are making significant progress with ServiceNow as well, and we are committed to expanding our efforts with the Salesforce contact center, alongside our partnerships with ServiceNow and Microsoft.

I'm sorry. I was just going to add a couple of quick points to Rodolpho. A couple of other things for the portfolio in the UC and CC space is, we've seen some really good sequential growth in bookings and we're planning to exit the year in the high single digits in service revenue. And with that, we expect next year's service revenue to be in double digits based on the trends we're seeing today. Obviously, there are some unknowns with the impacts of pandemic, but we're feeling good about this business and the growth. And to Rodolpho's point, yes, Salesforce has been a key part. But as he alluded to, we're also looking at the partnerships with ServiceNow and Microsoft. Over to you, Rory.

Yes, Jay, I believe that’s a significant point. What we want to focus on is that, as discussed in Steve's comment, we are looking for the lowest point in the first quarter. Following that, we expect to see year-over-year bookings growth commencing in the second quarter, with a consistent improvement reaching mid to high single digits in 2021. As we look into next year, I believe we can achieve a low to mid-double-digit growth rate in 2022 as we continue to navigate through this transition.

Thanks, Rich. Next question?

Thank you. Our next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed with your question.

Thank you. Could you provide more insight into the UCC business? Are there any noticeable trends between the contact center aspect and the UC aspect? I understand they are quite integrated now, but any comments would be appreciated. Additionally, regarding gross margin, it's evident that the higher-margin API business is performing well and growing, but the gross margins for this segment appear to be declining. What can you tell us about the competitiveness or margins of the other parts of the API business? Thank you.

Thanks, Meta. This is Rory. First, I want to mention the UC CC; we're observing positive cross-sell activity within that portfolio. The strength in CC is evident mainly in mid and enterprise sectors, where we can effectively utilize our direct sales force to penetrate the market. In UC, this strong cross-sell activity extends to the mid, small, and micro segments, where we're planning to implement more efficient strategies through the channel and e-commerce to foster growth. CC continues to show strength, especially in relation to Salesforce and the expansion of the total addressable market with ServiceNow and Microsoft, which presents additional opportunities. This will primarily be a direct Vonage sales initiative to capitalize on the ongoing growth. When we discussed expectations for the upcoming quarters, we highlighted a transition in the business, integrating UC and CC, moving from low single digits to mid and high single digits during 2021 and further in 2022. Now, I’ll hand it over to Steve Lasher for an update on gross margin, which will give you insight into our current position. Steve?

Thank you, Rory, and thanks to Meta for the question. When we examine our VCP gross margins, we see that API revenue grew by 33%, while UC CC experienced a 4% increase. The margins across our products remained fairly stable, primarily reflecting the mix of our offerings. We aim to enhance the margin within our API-oriented businesses while focusing on driving API scale moving forward. As we continue to expand and utilize the advantages of our global reach and portfolio, we will also seek to improve margins.

Thanks, Meta. Next question?

Thank you. Our next question comes from the line of James Breen with William Blair. Please proceed with your question.

Thanks for taking the questions. Just a couple. One on the balance sheet side. I think you said that you're looking to get below sort of 2.5 times leverage sort of implies paying off around $30 million or so of debt this year. Is that sort of the goal, operating cash flow generation on the consumer side is around $120 million based on your estimates and sort of running VCP at breakeven?

Steve?

Yes. Sure. Thank you very much really for the question. We are. As we look to continue to operationalize the business, we are looking to pay down debt. Obviously, we want to make sure we are optimizing the business. And if there are other opportunities for acquisition or the like, we will make sure we prioritize those. But as you've seen we've made some real strong improvements in our profitability. And as we've given the guidance as we move forward towards the end of 2021, we want to be second half profitable and full year profitable. So again within that, we're going to evaluate what do we do and continue to pay down the debt is one of our priorities.

And again on that one really the focus again is, if there's opportunities for us to do strategic M&A we're going to look at that hard and then also the work to invest for faster growth across VCP. This gives us more firepower and more flexibility.

Thanks. Could you provide some insights on how our sales relationships with channel partners and agents have progressed, particularly in terms of being included in more deals and our win rate, both quarter-to-quarter and year-over-year?

Yes. Over the past six months, I have spent considerable time engaging with various channel partners to better understand how we can enhance our collaboration and generate momentum. Both Rodolpho and Jay have extensive experience in utilizing the power of the channel to facilitate growth and expansion globally, even while we're not actively working. We have been reviewing our products, portfolios, and documentation over the last several months to implement necessary changes and additional capabilities. We are currently collaborating with our channel partners to develop the next set of incentives to drive growth. You can expect the launch of these initiatives in the second quarter, and we will continue to expand throughout this year. It's important to note that this will increasingly become a crucial driver of our growth. As we progress along the VCP Rule of 40, we aim to transition from a 15% exit in 2020 to around 20% in 2021, and then into the mid-20s in 2022. This is a significant element of our strategy. We look forward to providing you with updates as we move ahead.

Thank you. Next question.

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question.

Great. Thanks. I guess just two questions here. You just threw out the notion of strategic M&A. I guess can you give a little more detail on what you're thinking as a potential kind of criteria there? It seems like your product portfolio is pretty well-rounded out now. So just kind of curious what you might think about in terms of strategic M&A? And then second in terms of new bookings opportunities for your API business, how important is this notion of cross-selling into the application base there? It seems like a lot of the growth is just coming from direct at this point.

Sure. So let's talk about M&A. M&A is opportunistic. We always are looking to potentially augment our technical innovations and there's lots of opportunities out there. But it has to make sense, if it expands our reach, our revenue base and our capabilities in terms of routes, that's also attractive. At this point we've done a really good job over the past 3, 4 years and strategically pivoting the business, Vonage Communication Platform. I think we've got the base products as you pointed out, Mike. I think if there's any of that activity. It's opening up market expansion and TAM where it's augmenting technical innovation. It's going to be opportunistic and we're going to look at that going forward. Then from the API standpoint I'll swing it over to Omar.

Hi Mike. Thank you for your question. I believe you were inquiring about the potential for cross-selling APIs to applications and vice versa, compared to concentrating solely on APIs. As we've indicated previously, the opportunity within APIs is quite robust, and we remain dedicated to it. Rory, Jay, and the team, I genuinely wouldn't want it any other way. Nonetheless, we have made significant investments and developed a solid customer base on the app side, so it would be advantageous for us to enhance our ability to sell those solutions to our existing customers. Therefore, I see that as an opportunity. However, we are also very committed to excelling in the API business.

Thank you. Next question.

Thank you. Our next question comes from the line of Catharine Trebnick with Dougherty. Please proceed with your question.

Thank you for taking my question. I have two. One is, it seems you have recently added a lot of senior management team members. Are you transitioning to a more traditional management structure with roles like CTO, engineering, sales, and marketing, moving away from what we saw a year ago, where there seemed to be two centers of power with API and the UC and CC Group? I'm trying to understand the new organizational structure and how it will affect responsibilities and roles.

Sure Catharine. Hey, there's no question. I love the power of the Vonage Communication Platform, an API-based platform with global reach leveraging this global carrier network, a cloud-based infrastructure around the world. We can reach any customer, any partner, anywhere. And our APIs give us this build-able base. And these purpose-built applications built on top of it. And UC and CC, that's the power of Vonage. It's diverse, in terms of the geography, representation of revenue, the industry representation, let's leverage that. That's the power and one of the differentiators of Vonage. And when you have the opportunity and you get into this. And we're going to drive a culture around accountability, collaboration, trust and driving excellence. We're going to do what we say. And own what we do. And that's going to be our culture. Want to make sure that we augment an already strong senior leadership team, with really amazing talent. I mean, first Joy joins us, in terms of CMO. Then we go. And get, Jay, Steve Lasher, look at the scale there. And then, Savinay Berry just yesterday. These are opportunities and combination with the skills that we already have on board that are now building a company, not for today but for the next three years and the next five years. That's the kind of idea that we're tackling here. And we want to leverage that Vonage Communication. That's what customers are looking for. Communications are going to rule the day, over the next five to seven years. We're in the right place, at the right time, with the right team. And then, under that, the technical team that we have in engineering and product, I'll go into any battle, with that team anywhere. Thanks Catharine.

Yeah. And then, the follow-up is on, could you parse for us what the high-value API gross margins are? I know at one point in time, I was thinking the video, API was around 60%. Any possibility you can parse some of that information out for us? Thanks.

Yeah. At the product level, we're not going to kind of get into that kind of level. Suffice to say, high value is definitely on the higher end of the portfolio, in terms of the mix. There's no question. And we're growing a higher-and-higher percentage of that, as we go forward. But there's no question. It's the power of VCP. And with the new disclosures now, you can see that business much more clearly, over the past several years, how that's progressing and growing. And then, with the work that we're going to do at Analyst Day, we kind of set the vision for where we're going to go over the next three years. Thanks, next question.

Thank you. Our next question comes from the line of George Sutton with Craig-Hallum. Please proceed with your questions.

Thank you. Rory you gave about a 1,500 basis point suggestion of improvement, in your Rule of 40 over the next three years. I wondered if you could just break that down into, growth versus margin plans.

George, as we discussed earlier with Ryan, growth needs to be our primary focus. Looking ahead three years, we aim for growth around 30% or better, which suggests we should target a mid-20s growth rate. While higher growth is preferable, we also need to ensure our bottom-line growth is in the mid-single digits. The real opportunity lies in accelerating growth; currently, we are experiencing high teens growth in VCP revenue, and we need to boost that over the coming years. Ultimately, there are multiple paths to achieve our targets, but we want to concentrate on growth as our main driver. Does that clarify things for you, George?

That's very helpful. Thank you.

Okay, next question.

Thank you. Our next question comes from the line of Will Power with Baird & Co. Please proceed with your questions.

Okay. Great. Thanks. Yeah, I guess, a couple I'll try to sneak in here. I guess, Rory, now that you've concluded the consumer strategic review. I wonder if you could just remind us of the strategic importance of having API and the UC contact center businesses together, how intertwined are those? And could it make any sense to look at strategic alternatives for the UC Contact Center business, just to help shine a brighter light on the API segment?

From my standpoint, Will there's no question, we're better together. The power of Vonage is in that reach and scope. I have no hesitation, at that, at all. The Vonage Communication Platform will be based on an API-based platform. And we're going to use that global carrier network, that global infrastructure reach to be able to reach any customer, anywhere, anywhere around the planet. And then, what we're going to do is, use those APIs and build those ones. And then, build those into the UC and CC capabilities, as we move forward. Sure. There's no question that there's some different sellers, but we already are seeing examples and I referenced a couple in the prepared remarks where customers are definitely seeing the power of UC and CC in that combination and we're seeing a lot more in terms of our Salesforce flow in terms of combined cross-sell opportunities. But then they love the API work to build out and give them scale and reach as they build out this communications reach. Does that help?

Yes. No that helps. Thank you. I guess, maybe just a second quick follow-up. As we look at the API segment and guidance I think you all are expecting an acceleration in revenue growth from what was just reported. So I'd love any further color as to kind of the key drivers behind the API outlook?

There’s no doubt that from an API perspective, we've experienced some effects from the pandemic on the hospitality and travel sectors. However, we've also observed growth in video, voice, verification, and other areas. It’s somewhat challenging to forecast how the resolution of the pandemic will unfold throughout 2021. We all wish for it to improve, as that would be ideal. There’s no denying that the shift in how business is conducted will persist. I believe that this momentum will continue. We have taken a careful approach in assessing the full year, weighing short-term observations against the uncertainties surrounding the pandemic's progression. Ultimately, our goal is to ensure we provide information that we can act upon and execute with excellence. Thank you, Will. Next question.

Thank you. Our next questions come from the line of Michael Rollins with Citi. Please proceed with your question.

Thanks and good morning. I have two questions. First, could you share an update on your expectations for the addressable markets in terms of revenue for key product categories over the next three to five years, considering how enterprise firms and their customers are interacting? My second question is about the business management. Now that the strategic review is complete and you've provided more financial disclosures for consumer, will you operate the consumer segment as a smaller company within the Vonage portfolio with its own balance sheet and specific objectives that differ from how you manage VCP? Thank you.

Yes. Michael, I'll address the second question first. Regarding the consumer business, we are treating it almost like a separate operation. While there are some minor synergies, it is running efficiently with a strong small team managing it. I believe we can operate this segment independently and without distractions. You should consider it a distinct business area that runs on its own, though we will leverage some synergies. As for the market opportunity related to the API and the Vonage Communication Platform, I firmly believe this reflects a significant shift in how communication and programming occur across various modes. It's essential to integrate these into workflows, applications, and business processes. This change is underway, and while the pandemic has been unfortunate, it has accelerated this trend, which we expect to continue over the next three to five years. We are well positioned for this evolution.

Thank you. Our next questions come from the line of Samad Samana with Jefferies. Please proceed with your question.

Hi, good morning. Thank you for taking my question. I’ll just sneak one in since we’re already beyond the 9:30 mark. Regarding the changes in the senior management team that you've mentioned, you've strengthened the team significantly over the past 18 months. How should we view the turnover rate in the organization of quota-carrying sales representatives? What was the churn or retention rate there in 2020? How should we consider backfilling or supplementing that for 2021? Also, I know you have an Analyst Day coming up in a few weeks and I don't want to take away from that, but how should we anticipate any additional strategic changes concerning the management of the business?

I feel confident about the organizational structure and the leadership team we have developed. While there can always be minor adjustments, we have accomplished the significant work in the past six months. With the four new additions, I believe we are well positioned. Regarding the sales team, my experience in every business I've been involved with shows that the primary factor in sales productivity is time and territory. We have observed a consistent flow of productivity; the longer someone sells our products, the more productive they become. Our goal is to foster an environment where they feel motivated to be part of this growth. Over the last two years, our attrition rates have been at or below industry averages, and in the past year, those rates have actually decreased. This is something I know Jay strongly believes in—driving productivity through time and territory, and we will certainly manage that. Therefore, you should consider that our team maintains attrition rates comparable to or lower than the industry standard, and we aim to keep those individuals focused on growing the business.

Thanks. Next question?

Thank you. Our next question comes from the line of Sterling Auty with JPMorgan. Please proceed with your questions.

Hi. This is Drew on for Sterling. You've mentioned this e-commerce self-service platform that will drive growth with micro businesses and SMBs. Is that a completely new solution? And if so could you provide some more color on the strategy surrounding that?

Sure, Drew. That's a great question. I want to highlight two important aspects. First, it’s not only the capabilities we’ve launched over the past few quarters, but also the strategy Rodolpho has been developing, which began with targeting small segments. Secondly, Joy Corso and the marketing team are actively working on enhancing velocity marketing for this initiative. As I mentioned in the first quarter, we've introduced several new velocity marketing tactics, and we’re seeing promising results. We plan to intensify our efforts in this area to bolster growth. This has been our strategy since Rodolpho joined at the end of 2019, and he has been instrumental in driving this transformation. We will discuss this in more detail at the Analyst Day.

Thanks, Drew.

Thank you. There are no further questions at this time. I would like to turn the call back over to Rory Read for any closing comments.

Hey, I want to say thank you to everyone for participating. As committed, we communicated greater and more transparent disclosures. We closed on the strategic review of Consumer and we delivered a solid quarter in the fourth quarter. We have a strong leadership team and a committed Vonage set of team members that want to create a better Vonage going forward. We're excited to tackle 2021 and beyond. And we look forward to sharing more information with you at our Analyst Day on March 5. I want to thank everyone for joining and the entire team that answered questions today. We appreciate it. Everyone have a great day. Stay safe and stay strong. Thank you everyone.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.