Constant Contact Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.30.14 | About: Constant Contact, (CTCT)

Constant Contact (NASDAQ:CTCT)

Q4 2013 Earnings Call

January 30, 2014 5:00 pm ET

Executives

Jeremiah Sisitsky - Director of Investor Relations

Gail F. Goodman - Chairman of The Board, Chief Executive Officer and President

Harpreet S. Grewal - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Richard H. Davis - Canaccord Genuity, Research Division

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Michael J. Anderson - Crédit Suisse AG, Research Division

Raghavan Sarathy - Dougherty & Company LLC, Research Division

Michael Huang - Needham & Company, LLC, Research Division

Koji Ikeda - Oppenheimer & Co. Inc., Research Division

Brad R. Reback - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Good day, ladies and gentlemen. Welcome to Constant Contact Fourth Quarter 2013 Earnings Results. [Operator Instructions] As a reminder, this conference is being recorded. Now I'll turn the conference over to your host, Jerry Sisitsky. Please begin.

Jeremiah Sisitsky

Great. Thank you very much. Good afternoon, everyone, and welcome to Constant Contact's investor conference call for the fourth quarter and fiscal year ended December 31, 2013. With me on the call today is Gail Goodman, Chairman, President and CEO; and Harpreet Grewal, Chief Financial Officer.

During the course of this conference call, we'll make various remarks about the company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-K and 10-Q on file with the SEC. In addition, any forward-looking statements represent our views only as of today, January 30, 2014. While we may elect to update these forward-looking statements at some point in the future, we disclaim any obligation to do so even if our views change.

During this call, we will refer to certain non-GAAP financial measures. These financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure is available in the press release announcing our fourth quarter and year-end 2013 financial results. This press release is available in the Investor Relations section of our website at www.constantcontact.com. Additionally, available for download on our IR website is an investor presentation and our historical financial and operating metrics.

With that, I will now turn the call over to Gail.

Gail F. Goodman

Thanks, Jerry. We are pleased with our results for the fourth quarter and the full year. Fourth quarter revenue totaled $74.9 million, representing year-over-year growth of 13% and in line with our guidance. We also delivered on our profitability targets, with adjusted EBITDA of $14.8 million and an adjusted EBITDA margin of 19.8%.

For the full year, revenue increased more than 13% to $285.4 million. Adjusted EBITDA totaled $46 million, resulting in an adjusted EBITDA margin of 16.1% for the full year. Both revenue and profitability were in line with recent guidance.

Overall, 2013 was a good year, one highlighted by consistent execution and year-over-year improvements in all 3 of our growth levers. We delivered 4 consecutive quarters of year-on-year gains and customer adds, increased ARPU almost $2 and drove marked improvements in retention. Our strong performance in 2013 sets the stage for a reacceleration of growth in 2014 and expanding profitability. We are reiterating our plans for revenue to grow more than 13% in 2014 and for adjusted EBITDA margin to increase to about 18%.

2013 was a year of significant progress for Constant Contact on many fronts. We made a lot of progress on our vision to bring all of our products together to create a suite of marketing tools for small businesses and nonprofits. Constant Contact provides a single place for our customers to launch and track multiple campaign types across e-mail, social media and mobile, to reach and engage their customers and prospects, including a complete, integrated customer profile to help them better understand their customers and leverage insights and data to drive more relevant communications.

Our new contact management functionality is now in use by more than 500,000 or approximately 90% of our customers. Our common offering environment is in beta and remains on track for a 2014 rollout. In addition, we delivered major enhancements across our entire set of products, as we continued to develop and evolve the capabilities of each type of marketing campaign.

We continue to grow and scale our business in 2013. We added 195,000 new paying customers, acquiring more customers in each quarter in 2013 than in 2012 and finished the year with 595,000 total paying customers.

Our direct sales team reached out to more than 1 million small businesses and nonprofits and our customer operations team had almost 1.5 million interactions with customers in 2013. Roughly 180,000 attendees participated in classes and workshops hosted around the world by our Regional Development Directors and authorized local experts.

2013 was also a year of testing and learning. Our efforts in testing pricing, packaging and bundling of our products yielded valuable insights and positive results. We learned that within our small business and nonprofit target profile, there is significant variation in marketing savvy and technical sophistication. Our analysis suggested that by offering different packages of both products and services, we could better meet the needs of this varied customer base and generate higher lifetime customer value. We are increasingly excited by what we're learning.

Based on the promising test results, late in Q4, we began rolling out a multiproduct package, with a premium custom care offering to customers with greater marketing sophistication. In the first half of 2014, we intend to roll out further changes to our products and packaging to better position the company to take advantage of the changing small business marketing landscape and the breadth of our offerings. Our goal is to expose more of our products to small businesses earlier in their life cycle with us. We expect to share more details and results in coming months.

In the past few years, we've made significant investments to develop our partner network and capitalize on the potential of this emerging channel to drive new customer growth. In 2013, the partner channel generated approximately 20% of overall revenue, up from 15% just a few years ago. We're excited by these results, which helped to drive additional customers, a lower cost of acquisition and higher customer lifetime value, all of which improved in 2013. We expect to see increasing gains from this channel as it continues to develop.

Our SinglePlatform business continues to mature and scale. In 2013, SinglePlatform increased our average selling price, improved sales productivity and drove higher retention rates, while growing the sales team.

In addition to improvements in financial and operating statistics, engagement continued to grow, with record page views of more than 340 million in 2013. We expect the SinglePlatform business to continue to grow rapidly in 2014.

We continue to attract great talent to Constant Contact. In this quarter, Mike Adler joined our management team as Vice President of Engineering to lead our development teams. He was one of over 400 new hires we made in the year.

As we look to continue to establish Constant Contact as one of the most innovative companies serving small businesses, we announced the launch of the Small Business Innovation Loft. Our innovation program is designed to support entrepreneurs as they solve problems for small businesses and give them access to coaching, facilities and our powerful small business network. This program furthers our commitment to both innovation and supporting those that support small businesses.

In closing, I'm proud of the effort, commitment and contribution of each of our employees. We delivered a good 2013 and set the stage for an even better 2014. We made considerable progress on our evolution to a suite provider, and there's more to come in 2014. Leveraging our strong brand, scale and reach as a market leader, we plan to deliver more success to our SMB customers and capitalize on the enormous market opportunity for Constant Contact.

With that, I'll turn it over to Harp to discuss the fourth quarter and fiscal year in more detail, as well as review our outlook for fiscal 2014.

Harpreet S. Grewal

Thank you, Gail. We ended 2013 strong, with a solid fourth quarter. All key drivers of the business showed good gains, both in the quarter and for the year. This included customer adds, ARPU, retention, gross margins, profitability, cost of customer acquisition and customer lifetime value. These gains set us up to deliver an acceleration in revenue and profitability in 2014.

Key highlights included the following: For the first time in many years, we delivered our year-on-year increase in quarterly revenue growth, and it provides an additional data point suggesting an acceleration of revenue in 2014. In the quarter, quarterly revenue growth increased to -- by $2.9 million versus $2.5 million last year, driven by the underlying gains in customer adds, ARPU and retention over the course of 2013. Customer lifetime value, meanwhile, improved to about $950 in 2013, up more than $200 from the prior year, driven once again by lower cost of customer acquisition, improved gross margins, strong ARPU growth and improved retention.

Revenue growth for the quarter was $74.9 million or 13% year-on-year growth and a little more than $285 million for the full year. Adjusted EBITDA grew meaningfully in the year and totaled $46 million or approximately 16.1% of revenue, almost $10 million higher, representing -- or versus last year, which represents a 25% growth. Higher margins and capital efficiency led to an almost 50% increase in free cash flow to about $24 million, up from $16 million last year.

The net result is that the fourth quarter and full year 2013 results reflect our renewed commitment to consistently good results. Each of our 3 growth drivers performed well in the quarter. For the fourth consecutive quarter, we delivered year-on-year gain in customer adds.

210 -- 2010 was the last year we grew customer adds versus the prior year. In the quarter, we secured 50,000 new customers and 10,000 net new customers. We ended the year with 595,000 paying customers, up from 550,000 in the prior year, which represents a more than 7% increase in our customer base.

We also delivered accelerating ARPU growth. Including all of SinglePlatform's customers at the time of the acquisition, average revenue per user for the current quarter increased to $42.33 compared to $40.36 last year. The $1.97 year-on-year increase represents an acceleration relative to the $1.42 increase in the prior year. This provides us increased confidence that we can accelerate ARPU growth to north of $50 in the coming years.

We continue to drive improvements in customer retention as well. Our average customer today stays with us about 50 months, up from 45 months back in 2010, a more than 10% improvement in retention. We look to continue building on these gains in retention by delivering increasingly better value to our customers and -- through the use of predictive analytics.

Customer lifetime value improved markedly in the year. Lifetime value has consistently been high, hovering around $700 to $800. In the year, we saw strong gains in lifetime value, as it increased to about $950. The improvement was driven by a number of factors: First, a decrease in the cost of customer acquisition from $615 in 2012 to about $570 in 2013, reflecting gains in sales productivity and efficiencies in marketing spend. ARPU growth accelerated and grew by almost $2 to $42.33 in the December quarter. Customer retention rates, meanwhile, showed marked year-on-year improvement as a result of our efforts to drive better value to our customers and our increased use of analytics. And finally, gross margin improved by 60 basis points to 71.4%, driven by increased efficiencies in customer support and operations.

The importance of these gains and customer lifetime value stem from what this metric represents. It takes into account: cost of acquisition, retention, what our customers pay us on a monthly basis and gross margins. This metric allows us to evaluate the potential trade-offs associated with higher or lower ARPU, cost of acquisition, customer retention rates, as well as the cost to service our customers.

Increasingly, we're becoming more confident in evaluating and, at times, making these trade-offs with a clear focus on driving customer -- higher customer lifetime value and a sustainable acceleration in revenue growth. We look to build upon these gains and are targeting a 50% improvement in customer lifetime value to around $1,500 in the next few years.

Our increased investments in analytics in the last 12 to 18 months helped drive some of the revenue and efficiency gains in 2013. Predictive analytic initiatives, such as lead scoring, help propel actionable insights that drove conversion rates and a lower cost of customer acquisition.

The use of analytics is also directed to the prioritization of products, resulting in the launch of key enhancements, such as multiuser functionality. We look to continue leveraging predictive analytics and Big Data to drive revenue gains, efficiencies, all the while delivering a better customer experience.

Turning to the balance sheet. We ended the year with about $123 million of cash and investments, generated cash from operations of $43 million and free cash flow of over $24 million.

It's also worth noting that we did make a small, immaterial noncash tax-related revision to our 2011, 2012 and first 3 quarters of 2013 financials. These revisions are reflected on the financial tables included in our earnings release. These noncash provisions, which shift primarily the tax line, amounted to about $200,000 in 2011 and 2012 and totaled about $500,000 in the first 9 months of 2013. These revisions in no way impact adjusted EBITDA, non-GAAP net income and EPS or ending cash balance.

During the fourth quarter, we continued to repurchase shares under our $20 million share repurchase program, but at a reduced level in light of the increase in the share price. Our repurchases for the year totaled about 286,000 at a total cost of $5.5 million.

Our focus going forward remains clear: execute consistently on our near-term targets, all the while driving accelerating revenue growth and expanding profitability. We have positioned ourselves to do both in 2014.

So looking ahead to 2014, we plan to drive top line revenue growth through a combination of new customer additions, increased ARPU and improved customer retention. In doing so and building upon the gains since [ph] last year, we look to reaccelerate revenue growth by delivering more than 13% growth. Consistent with our prior guidance, we also expect to meaningfully expand profit margins to about 18% or about 200 basis point improvement.

From an adjusted EBITDA perspective, we would expect quarterly trends consistent with prior years. We believe adjusted EBITDA margins in the first quarter should be somewhere around the 12.5% to 13.2% range, increasing to about 15% in the second quarter, hitting a high point of about 23% in the third quarter and declining a bit to 21% to 22% in the fourth quarter, resulting in about 18% margins or 200 basis point improvement.

Gains in EBITDA margins will be driven by increased efficiency in sales and marketing, which we expect will decline as a percent of revenue by about 150 basis points to about 37.5% in 2014. We also expect to see improvements in gross margin and G&A as a percent of revenue. These gains will be partially offset by our continued investments in R&D, which we expect will increase to about 17% of revenue in 2014. The net result is that we should drive about a 200 basis point improvement in EBITDA margins.

We expect an effective tax rate of approximately 40% in the year. GAAP net income per share includes stock-based compensation expense of about $15 million and depreciation of about $25 million. We would expect to deliver about $30 million of free cash flow in the year based on capital expenditures of $26 million.

With regard to the first quarter of 2014, we are targeting revenue in the range of $77.1 million to $77.5 million; adjusted EBITDA is expected to be in the range of $9.6 million to $10.3 million, representing a margin of 12.5% to 13.2%. Depreciation and stock-based compensation for the first quarter are expected to be approximately $6 million and $3.6 million, respectively.

I would like to end with these final thoughts: Constant Contact has been in the midst of a fundamental transformation. From a company that successfully delivered e-mail marketing to small businesses and nonprofits to one that deepened its relationship with small organizations by offering multiple products, to one that now looks to drive even more value to its customers through an integrated marketing platform.

Transformations are invariably difficult, with many unknowns and moving pieces. We take pride in what our 2013 results represent: a company and a set of employees that are committed to delivering success to our customers, delivering on our targets and rewarding our shareholders. We look forward to building on these gains in 2014.

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

Question-and-Answer Session

Operator

[Operator Instructions] First question is from Richard Davis of Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

It seems like you guys have certainly turned the corner and things like that. I mean, Gail, how do you kind of think -- or even Harp, either one. How do you kind of think of the intermediate term kind of growth rate of this business? Does it get into the high teens? Or can you get past 20%? Or what would have to happen, what scenarios would happen, have to occur? Because when I kind of looked at all these irons in the fire, there's a bunch. And I know you don't want to get too far over your skis, but I was just kind of -- at least how do you think about the process.

Gail F. Goodman

So I appreciate the intermediate timeframe, so we're certainly not necessarily talking about 2014. But when we look at the various growth levers that we've been investing in, we see a path to a sustained, greater than 20% revenue growth level. Again, without setting an intermediate timeframe for that, we are investing against those targets and feel like at this stage, we'll [ph] test our way into it. We have the most expansive vision of what the problems we can solve for small businesses include. We have a team that is ready to attack those problems like we've never had before, and we are just trying to contain our enthusiasm because we need to execute our way into that growth. But we're seeing very clear paths to it.

Operator

The next question is from Peter Goldmacher of Cowen and Company.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Gail, I want to talk to you about a comment you made early in the call, where you said you're going to expose more products earlier in the life cycle. That's a pretty interesting move, considering one of the challenges you faced after you did all the deals was kind of mixing metaphors about keeping your sales guys focused on new business and cross-selling. So talk a little bit about how you came to that conclusion and what it looks like for your sales force.

Gail F. Goodman

Yes, great question. You know the way we have been attacking this problem is with very disciplined testing and analytics. So -- and I think we started talking about it late Q3 of last year, really putting into market tests where we were very carefully analyzing exactly what the impact of those tests were on all the metrics in our funnel, right: conversion to trial, trial to pay, ARPU and retention. These very disciplined tests have included a dedicated sales team with very clear targets, so we could fully understand at a small scale what we were going to do to get the full customer lifetime value metrics all the way through the funnel. What we are finding is that if we -- when we create an experience that exposes everything we have, while still allowing the customer to start with one thing, we really change the competitive dynamic quite dramatically. So while we have customers who say, "That's all great, but all I want to do right now is an e-mail campaign," they still begin to feel like, "But, you're the company I want to do that with because I'll be able to grow with you." And this coach I have on the phone is going to be able to coach me through all the things I could be doing to build my business. So what we've been doing is really testing that in a very contained way to make sure we're getting all of the metrics where we want. Now what we are seeing is that in some cases, that's translating into slightly fewer customers but with a higher average revenue, higher engagement and higher retention. So an increased, call it, revenue for each visitor that comes to the website. So we'll be continuing to test and scale those tests before we roll it out. We really need to see our tests play out over the next couple of quarters.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

So Harp made a comment that you have a $50 ARPU target. That must be an intermediate-term target, i.e. you have to believe that your target -- your ARPU target in 4 to 5 years is materially higher.

Harpreet S. Grewal

Yes. I mean, it's an intermediate target. I mean, it's something that we've spoken to that even as we started seeing acceleration in ARPU growth, going back a couple of years, where it used to increase $0.40, $0.50 a year, then going to $1, then $1.50 now, almost $2, I think what we're finding is that we're finding different paths to accelerate ARPU and we've been increasingly confident that we can get to $50. I think the one thing that gives us this confidence is the fact that in 2013, ARPU growth accelerated on an absolute dollar basis to almost $2, up from about $1.50.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

And what was the main driver of that, Harp?

Harpreet S. Grewal

I think there were a couple of things that played into that. I think we continue to focus and do better in understanding how to help our customers grow their list size. I think we continue to do better at SinglePlatform, and SinglePlatform has increased its average selling price over the course of 2013, and that's helping. From a cross-sell perspective, we're able to -- we've been able to bundle certain things together or trained our sales team to kind of sell our products better from a cross-sell perspective. So a number of things that, just based on better understanding our business, our customers' needs, strengthening of our sales organization, analytics, just coming together. And so I think we can build upon that on the coming years.

Operator

Our next question is from Steve Ashley of Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

I'd actually just like to ask a couple questions around the SinglePlatform business. Number one, I think Harp just alluded to the fact that the ASPs there are -- have been rising. You've been testing some higher prices. I wonder if you could just update us on how those tests are going and where we stand with that. And then maybe also if you could touch on your success or ability to expand that outside the restaurant industry and to just get a broader audience for that.

Gail F. Goodman

Sure. So through the course of the year, we tested -- people may remember that when we -- at the time of acquisition, the price point was $49 a month. Actually, it was -- they were doing annual license, then we moved to monthly license. Through the course of this year, we tested $79 a month. And actually, we tested that initially in verticals other than the restaurant vertical, proved it there then tested it in the restaurant vertical. And as of the beginning of 2014, all new sales are going at $79 a month, with the same sales productivity, so no trade-off in sales productivity for that higher average selling point. We've also, through the course of the year, tested our way into alternate verticals. So we have a team at SinglePlatform that methodically goes vertical by vertical and understands what -- how to make the sales pitch and get to the sustained sales productivity we need to support our economics. And so they've been moving vertical by vertical. I think they're in like a dozen verticals that have been fully rolled out at this point but continuing to test our way into incremental alternate verticals.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Terrific. And then maybe -- Harp, maybe a housekeeping question. You threw out a lifetime value number here for the -- $950. Would you have that comparable number for the last year for like 2012, 2011?

Harpreet S. Grewal

Yes. It's hovered right around $700. And the IR slide deck that's online that we published, you'll see a page that lays out the last 4 years.

Operator

Our next question is from Michael Nemeroff, Crédit Suisse.

Michael J. Anderson - Crédit Suisse AG, Research Division

This is Mike Anderson on behalf of Michael. With respect to -- we were looking at your slides, and it seems like when you look at your customer segments of 26-plus employees and 100-plus employees, it seems like you're actually getting a pretty healthy acceleration of growth there. I'm just wondering if you could comment on what's helping to drive that growth in the larger employee segment. Is that SinglePlatform or Email Marketing? Or could you just give us some color on what's going on with respect to your go-to-market there?

Gail F. Goodman

So I think we have always done an exceptionally good job of broad reach to the market and bringing into our funnel small businesses of all sizes. So I'll point out this is still very much a small business focus. So internally, we talk about going from sole proprietor to about 100 employees. So our high end is well below a mid-market low end. But what we have also done is gotten more nuanced about the sales and service process to really make sure that when we find someone with increased marketing sophistication, we don't talk to them like they're a sole proprietor. So I would say that, that's been really mostly driven by sales training, sales process and customer care process that is focused on addressing these slightly larger small businesses in a way that more successfully converts and retains them.

Michael J. Anderson - Crédit Suisse AG, Research Division

Makes sense. And then just one quick one, you said you're expecting to get some efficiency on your sales and marketing spend this year. I just -- can you give us a little bit more color on where that's going to come from? Because I recall a couple of years ago, you elected to remove some of your mass media advertising. So I'm just wondering when it comes to your advertising spend this year and just general sales and marketing spend, how are you intending to -- where are you to get that leverage from?

Harpreet S. Grewal

Yes. So I think the efficiency in the sales and marketing line comes primarily from 3 areas. The first is as we found in 2013, as we improved our productivity in the sales side, that naturally led to improved gross adds, which led to efficiencies, lower cost of acquisition, et cetera. So once again, using the strength of and strengthening of our sales organization, leveraging the analytics, the power that we're putting behind there, I think we have opportunities to continue gaining efficiencies. The second part we saw was on PPC. We're seeing some really nice gains in 2013. The team here is getting better and better at understanding how to leverage that channel, and we think we can continue doing so. On television, it was a really nice win for us in 2013. We saw -- as we expected that -- as we continue with television and that spend that you should, over time, lower your cost of acquisition, and we saw that. And I think what I get quite excited by is some of the work that the marketing team is doing with the analytics team in terms of media mix analysis is showing that there are opportunities to build upon that. So those are the kind of 3 areas, I'd say, that -- where we've got wins that we can keep on winning -- building on those.

Gail F. Goodman

So we do not intend to pull out of mass media. Or maybe to put it in a positive way, mass media will be an important part of our mix -- our sales and marketing mix in 2014.

Michael J. Anderson - Crédit Suisse AG, Research Division

And just one last one, if I may. I noticed -- we noticed that your -- the cross-sell of your products has been somewhat constant at 1.78 products per customer, give or take. Can you just give us some insight into -- I imagine that the newer customers are maybe using less initially, and then your older ones might be using more. Is that -- would that be -- would that hold true? And would you expect this new strategy of bundling a little bit more -- or introducing your products -- more of your products to the customers as they sign on to help lift that number and improve your retention in kind?

Harpreet S. Grewal

Yes, absolutely. We do. Looking ahead, as we bundle packaging and pricing test flow through those [ph] more of our products early on into the experience, I would certainly expect our customers to be engage with more of our products earlier. I would say the primary reason actually that it hasn't moved to the success of SinglePlatform, to be quite honest. SinglePlatform has done very well in the last year in terms of delivering new customers to the franchise, and the vast majority of those new customers are new to the franchise and aren't cross-sell, so that's the biggest reason.

Operator

Your next question is from Raghavan Sarathy of Dougherty & Company.

Raghavan Sarathy - Dougherty & Company LLC, Research Division

A couple of questions for Gail. So you talked about the premium customer care that your rolled out in the fourth quarter and also you kind of touched upon some new bundles this first half of this year. Can you talk about what this premium customer care is and what additional service that you offer there? And then so when you talk about the bundles, what exactly are you going to be offering?

Gail F. Goodman

Yes. So coming -- starting back at what we've been learning, what we've been really learning is that different types of customers value and are willing to pay for a variety of different things, and so -- and some of that includes service. So some of that includes the ability to get to a priority support line. Some of the things we've been testing are the ability to actually have a named customer care person, and we have a team out in our place near Denver that's working on that. And they value a variety of different product mix, right, e-mail plus social and other things. So what we were testing was different combinations of those. The one that we rolled out in Q4, and you'll see other things rolling out as we go through 2014, was really just that priority support line; the ability to call a different number and get -- it is actually a combination of how far they're up in the queue and more experienced customer care reps.

Raghavan Sarathy - Dougherty & Company LLC, Research Division

And then in terms of SinglePlatform, I think, Gail, you mentioned that you nearly doubled the price, and all new sales would be at $79 a month. What about the renewal customers, people who bought last year the subscription? Is the price going toward $80? How does it work?

Gail F. Goodman

Yes. Honestly, I actually don't know what we're doing with -- when we're turning the original guys who were at $49 a month, are we going to take them up to $79. I don't know what the plan is.

Harpreet S. Grewal

Yes. So at this point, actually, what they're doing is they're actually testing it out, rather than making a call, we don't know how they would react. So what we're doing is as some of these are coming out, they're testing and seeing are they renewing. So we don't want it to have a material impact on the SinglePlatform business, so that's where we are.

Raghavan Sarathy - Dougherty & Company LLC, Research Division

Okay. Just two quick follow-ups. So can you -- Harp, can you give us some sense what the SinglePlatform contribution last year, what is the expectation for this year and some of the factors behind that? And then the second question is if I look at the midpoint of your revenue guidance for the first quarter, it's 13.3%. Historically, revenue growth has decelerated through the course of the year. You were saying that you're still expecting maybe stable, maybe even better revenue growth. So help us understand some of the puts and takes there.

Harpreet S. Grewal

Yes. So in terms of SinglePlatform, I think one of the things to -- for SinglePlatform is it performed well across all 3 of the drivers, just like the overall Constant Contact business, like any SaaS business, 3P revenue drivers, which is what your customers are paying you and how long they'd stay with you and how many customers and the cost of acquisition. And what we found is they're adding sales, productivity is improving, retention improving and ARPU is improving. And so those gains got us pretty much where we said that we thought that we're going to be in 2013. And on top of that, as we look at 2014, we look for them to roughly double in size, so really expecting nice growth on that end. And on the -- sorry, the second question was?

Gail F. Goodman

13.3%, why would it decelerate?

Harpreet S. Grewal

Oh, 13.3%. Yes, absolutely. I mean, I think this is a kind of a milestone year for us, which is changing the trajectory that exists in the past. To your point, when sales are declining year-on-year, you usually start off at higher Q1 and degrade over the course of the year. This year, we think the midpoint, to your point, is 13.3%. We think we're going to accelerate growth, so that would suggest that it doesn't degrade over the course of the year.

Raghavan Sarathy - Dougherty & Company LLC, Research Division

Right. So I was kind of wondering what are some of the factors that will play into that acceleration that you anticipated.

Harpreet S. Grewal

Yes. I think a couple of things will play into it. One is our e-mail business continues to do well, and we're pleased with that. Secondly, things like SinglePlatform and other -- some of our new initiatives are adding tens of millions of dollars to our revenue. And then -- so those are things that give us the confidence. And then we have a lot of initiatives that we're excited by, but we're still waiting to play them through and -- as we test them and we'll get a better sense about the magnitude of their impact. So I think in the coming quarters, we'll give better perspective of where we actually look to end up.

Operator

Your next question is from Michael Huang of Needham & Company.

Michael Huang - Needham & Company, LLC, Research Division

Just a couple of questions for you. I know we were still kind of early around rolling out pricing, packaging, bundles, et cetera. I was wondering -- as you're thinking about kind of how much larger kind of these deal sizes could be, was wondering if you could help us just understand kind of what that range could be and maybe kind of relative to what you had prior to these bundles.

Gail F. Goodman

Yes. So what we are testing actually crosses a fairly broad range of potential price points. When we start to add in do-it-with-me services, we are seeing price points as high as hundreds of dollars a month for more of a service model. Obviously, that will have different margins as well. So we're testing everything from the range you're used to us starting at, the $15 and $20 range in structured tiers up to as high as hundreds of dollars a month.

Michael Huang - Needham & Company, LLC, Research Division

Got you. Is it fair to say ARPU kind of -- when you're thinking about ARPU growth and kind of the acceleration that you saw this past year, assuming kind of pricing packaging is accessible, I mean, ultimately, we should see further acceleration of the ARPU growth trend in 2014. Is that kind of...

Harpreet S. Grewal

Absolutely. I mean, I think that would be our expectation as we kind of play through these tests and get a better sense of it. We think ARPU will accelerate.

Michael Huang - Needham & Company, LLC, Research Division

Okay. And then switching gears a little bit. So when you're thinking higher level kind of around the health of the small business, and maybe you can kind of help share [ph] some of your assumptions around what the health of the small business is doing for your business and whether or not it's a neutral, tailwind, headwind to you, just kind of what you're seeing out there.

Gail F. Goodman

Yes. So in 2013, we definitely saw a stabilization in the small business market and even some signs of renewed energy and optimism. And as we build our plans for 2014, we assumed we would continue to see that. So not a dramatic improvement but nor did we expect a significant decline.

Operator

The next question is from Brian Schwartz of Oppenheimer.

Koji Ikeda - Oppenheimer & Co. Inc., Research Division

This is Koji Ikeda for Brian Schwartz. I was wondering if you could talk a little bit about your international expansion plans. You previously mentioned one of the major roadblocks that was hindering that growth was being able to localize your billing system for international customers. Could you maybe update us on your international go-to strategy? And is this something where we could start seeing some meaningful growth later on this year or early next year?

Harpreet S. Grewal

I think we won't necessarily expect to see meaningful growth in 2014 from our -- from the international market. It does comprise 10% of our market -- of our revenues come from outside the United States. Canada and the U.K. are by far the largest of those markets, and we're represented in a number of other -- 100-plus other countries as well. What we've been testing is really what is the right selling model in these markets, trying to get a sense of what are the market dynamics. And we're increasingly feeling that the right selling model is a partner-led model, so we're pushing on that. We also understand that in addition to understanding how to better fit the market, we also need to work on being more effective in those markets, whether it's being able to take billing in local currency, whether it's the template that fits a certain country. So we're trying to -- we're figuring those things out. And so one of the major infrastructure initiatives we have is around our billing systems, which we hope we will be rolling out parts of that over the course of 2014, which will give us more flexibility internationally. So I think in intermediate term, it is a core focus of ours, and 2014 is a year that we continue to learn and gain a perspective.

Operator

The next question is from Brad Reback of Stifel.

Brad R. Reback - Stifel, Nicolaus & Co., Inc., Research Division

So Gail, when you look at your internal forecast for '14, do you have net sub add growth greater than ARPU growth, on a percent basis, obviously?

Gail F. Goodman

So I don't know that I've done that on a percent basis. What we are looking at doing is driving all 3 of our revenue growth drivers: adds, ARPU and retention. But we are expecting that gross and net adds in '14 look pretty similar to the way they looked in '13. So I think I can wing it without kind of going through a mountain of data and say probably more growth on the ARPU side than on the net adds side.

Brad R. Reback - Stifel, Nicolaus & Co., Inc., Research Division

And, Gail, when you sort of look at your installed base close to 600,000 customers, what percent do you think roughly are targets for this bigger bundle?

Gail F. Goodman

So the -- one of the interesting tests through the course of the year will be really understanding when, how, and I would say even, if we go back to the installed base -- I guess, it's more of a when than an if, with the bundling approach. So to date, our tests have entirely focused on new folks, so people who've either never seen our packaging and pricing before, so have no idea that it's new or people who used us years ago and are coming back. And so we haven't had to address the "hey, wait, I was paying X, now you're offering me Y" kind of transition yet. So much like everything we do, we'll test our way into that. But I think the packaging, pricing and bundling at the beginning, we'll focus very much on those new customers we're bringing in rather than introducing it to the installed base. We've had a fair amount of change in the installed base even this year with the introduction of the new contacts, and I think the new offering environment will be another round of change, all positive, but change is change. So I think we'll play through the year and see when we introduce bundles to the base.

Operator

There are no further questions at this time. I'd like to turn the conference over to Gail Goodman for any closing remarks.

Gail F. Goodman

Thanks to everyone for joining us on the call this evening. As always, we appreciate your continued interest and support. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.

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