Vonage Reports 22% GAAP Business Revenue Growth for 2018; Completes Year of Innovation and Strategic Progress

HOLMDEL, N.J., Feb. 21, 2019 /PRNewswire/ -- Vonage Holdings Corp. (NYSE: VG), a business cloud communications leader, today announced results for the quarter and full year ended December 31, 2018.

"2018 was a year of great strategic progress for Vonage, fueled by our financial strength," said Vonage CEO Alan Masarek. "We significantly advanced our strategy by acquiring TokBox, the industry leader in WebRTC programmable video, and NewVoiceMedia, a world leader in contact center as a service. Both are integral to our One Vonage platform strategy and our ability to deliver great employee and customer experiences. Vonage now owns its entire technology stack across unified communications, contact center, and programmable APIs, and uniquely covers the entire cloud communications total addressable market."

Mr. Masarek continued, "In addition to the important progress we made advancing our product strategy, we also strengthened our go-to-market execution. Our investments in the Midmarket and Enterprise, including sales leadership and a more experienced team, are generating improved productivity and increased momentum. As we enter 2019, we have a very clear focus on continued growth, sales execution, and innovation, and we believe we are well positioned to accelerate growth in 2019."

Business Segment Results

    --  Vonage Business Service revenues in the fourth quarter of 2018 were $149
        million, representing 32% GAAP growth. For the full year 2018, Vonage
        Business Service revenues were $527 million, a 26% GAAP increase.
        --  Adjusted to include acquisitions for all periods and other one-time
            items, Vonage Business Service revenues increased 22% in the fourth
            quarter. For the full year 2018, Vonage Business Service revenues
            grew 23% on the same adjusted basis.((1))
    --  Vonage Business segment revenues in the fourth quarter of 2018 were $170
        million, representing 62% of total revenues, 27% GAAP growth and 28%
        growth in constant currency. For the full year 2018, Vonage Business
        segment revenues were $608 million, representing 22% GAAP growth and 20%
        growth in constant currency.
        --  On the same adjusted basis, Vonage Business revenues increased 19%
            in the fourth quarter and 19% for the full year 2018.((1))
    --  Service Revenue per customer was $392 per month, a 20% year-over-year
        increase, reflecting the Company's move up-market.
    --  Business Revenue Churn was 1.1%, improving from 1.2% in the year-ago
        quarter.
    --  Registered developers on Vonage's API Platform increased to 735,000.

Other Business Segment 2018 Highlights

    --  Acquired NewVoiceMedia, the largest privately-owned, pure-play, cloud
        contact center as a service ("CCaaS") company globally. NewVoiceMedia is
        in the Leader's quadrant of the Gartner CCaaS Magic Quadrant for Western
        Europe for the second year in a row; was recently named a strong
        performer in the Forrester Wave(TM) for Cloud Contact Centers; and was
        included for the third consecutive year on the Forbes Magazine Cloud
        100, a list of the top 100 private cloud companies in revenue, sales
        growth, valuation and culture.
    --  Acquired TokBox, the global leader in WebRTC programmable video. The
        acquisition accelerated Vonage's platform strategy and meaningfully
        broadened the Vonage API Platform by adding video to its existing
        strength in voice, SMS, and IP messaging.
    --  Invested significantly in Vonage Business Cloud, including new features,
        service quality, scalability, and user experience. Received several
        industry awards, including TMCNet Unified Communications Product of the
        Year, UC Today's Most Innovative Product and the Mobile Breakthrough
        award for the Vonage Business Cloud mobile app.

Consumer Segment Results

    --  For the fourth quarter of 2018, Consumer revenues were $104 million,
        down 13% year-over-year.
    --  For the full year 2018, Consumer revenues were $441 million, down 12%
        year-over-year, as planned.
    --  Customer churn was 1.8%, down from 1.9% in the year-ago quarter.
    --  Average revenue per line ("ARPU") in Consumer was $26.32, stable
        compared to the year-ago quarter.
    --  Ended the fourth quarter of 2018 with approximately 1.3 million consumer
        subscriber lines.
        --  Tenured customers, defined as those with the Company for more than
            two years, increased to 87% of the base. The churn rate of this
            tenured cohort remains at 1.5%.

Consolidated Income and Balance Sheet

For the full year 2018, Vonage reported consolidated revenues of $1.05 billion, up from $1.0 billion in the prior year. Income from operations was $52 million, down from $59 million in the prior year. Operating Income was impacted by the acquisitions of TokBox and NewVoiceMedia. GAAP net income was $36 million, or $0.15 per share, for the full year 2018, compared with a loss of $34 million, or ($0.15) per share, in 2017, impacted by a $69 million non-cash charge reflecting the impact of the Tax Cuts and Jobs Act, which was primarily associated with the re-measurement of the Company's deferred tax balances at the 21% income tax rate. Full-year 2018 adjusted net income((2)) was $81 million or $0.34 per share, up from $67 million or $0.30 per share in the prior year.

For the fourth quarter of 2018, Vonage reported consolidated revenues of $274 million, up from $254 million in the year-ago quarter. Income from operations was $6 million, down from $23 million in the prior year quarter. Operating Income was primarily impacted by the acquisitions of TokBox and NewVoiceMedia. GAAP net loss was $7 million, or ($0.03) per share, up from a loss of $55 million in the prior year period, or ($0.24) per share, which was impacted by a $69 million non-cash charge reflecting the impact of the Tax Cuts and Jobs Act, as outlined above. Fourth quarter adjusted net income((2)) was $11 million or $0.05 per share, down from $21 million or $0.09 per share in the prior year period.

For the full year, Adjusted Operating Income Before Depreciation and Amortization ("Adjusted OIBDA")((3)) was $178 million and Adjusted OIBDA minus Capex((3)) was $151 million. Net Cash from Operations was $123 million and Free Cash Flow((4)) was $96 million for the year. For the fourth quarter, the Company generated Adjusted OIBDA((3)) of $41 million, and Adjusted OIBDA minus Capex((3) )of $31 million. Net Cash from Operations was $29 million and Free Cash Flow((4)) was $19 million for the quarter. This enabled the Company to pay down $24 million of debt during the quarter, resulting in a net debt to Last Twelve Months Adjusted OIBDA ratio of 2.9 times, as of December 31, 2018.

2019 Outlook

For the full year 2019, Vonage expects the following (based on constant currency as of February 2019; percentage references represent mid-point of the guidance range):

    --  Vonage Business segment revenues in the range of $795 million to $815
        million, representing approximately 32% GAAP growth and 20% adjusted
        growth. Within this, Business Service adjusted revenue growth of 23%.
    --  Consumer revenues in the range of $375 million to $380 million,
        representing a 14% decline, reflecting the Company's continued focus on
        optimizing the segment for cash flow.
    --  Consolidated revenues in the range of $1.170 billion to $1.195 billion,
        representing approximately 13% GAAP growth.
    --  Consolidated Adjusted OIBDA in the range of $160 million to $165
        million, including the write-down of approximately $5 million of
        deferred revenue from the acquisition of NewVoiceMedia.
    --  Capex in the $40 million area, reflecting increased investment in the
        One Vonage integrated platform.
    --  Total debt will increase in the first quarter, given cash usage and
        working capital seasonality in addition to the progression of Adjusted
        OIBDA during the year, and decline thereafter.

For the first quarter of 2019, Vonage expects the following:

    --  Vonage Business revenues in the range of $177 million to $179 million.
    --  Consumer revenues in the range of $99 million to $100 million.
    --  Consolidated Adjusted OIBDA in the low $30 million area, including
        approximately $3 million of deferred revenue write-down from the
        acquisition of NewVoiceMedia.
        --  The first quarter of 2019 will reflect the impact of the first full
            quarter of owning both TokBox and NewVoiceMedia, including the
            corresponding deferred revenue write-down impact, as well as the
            annual resetting of Cash Bonus accruals and seasonal increases in
            Marketing expense.

Conference Call and Webcast

The Company will host a conference call to discuss its financial results for the Fourth Quarter and Full Year 2018 and other matters at 8:30 AM Eastern Time. To participate, please dial (866) 891-8177. International callers should dial (412) 902-6756.

A live webcast of the conference call will be available on the Vonage Investor Relations website. A replay of the webcast will also be available shortly after the conclusion of the call and may be accessed through Vonage's Investor Relations website or by dialing (877) 344-7529 or (412) 317-0088 for international callers and entering the passcode 10128592.

(1) This is a non-GAAP financial measure. Refer below to Table 5 for a reconciliation to GAAP total business revenues and business service revenues.
(2) This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income.
(3) This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP income from operations.
(4) This is a non-GAAP financial measure. Refer below to Table 6 for a reconciliation to GAAP cash from operations.


                                                                                         
         
              VONAGE HOLDINGS CORP.


                                                                                  
           
           TABLE 1. CONSOLIDATED FINANCIAL DATA


                                                                            
           
           (Dollars in thousands, except per share amounts)




                                                                                       
         
              Three Months Ended                                       
         
     For the Years Ended



                                                                       December 31,                                       September 30,                   December 31,           
            
              December 31,


                                                                               2018                                 2018                            2017                  2018                                    2017

                                                                                                                                                                                                          ---

                                                                       (unaudited)                                        (unaudited)                   (unaudited)                        (unaudited)                                  (audited)



            
              Statement of Operations Data:



            Revenues                                                                $
         273,803                                          $
       261,531                            $
            254,020                             $
            1,048,782  $
       1,002,286





            Operating Expenses:



            Cost of revenues (excluding depreciation and amortization      111,873                                104,351                                     103,266                          426,995                    404,954
    of $8,708, $6,386, $6,811, $27,754, and $27,308,
    respectively)



            Sales and marketing                                             82,232                                 74,380                                      78,006                          311,433                    313,251



            Engineering and development                                     16,635                                 14,309                                       7,634                           52,139                     29,630



            General and administrative                                      37,948                                 37,620                                      24,126                          135,324                    122,537



            Depreciation and amortization                                   19,094                                 16,024                                      18,003                           70,980                     72,523



                                                                            267,782                                246,684                                     231,035                          996,871                    942,895




            Income from operations                                           6,021                                 14,847                                      22,985                           51,911                     59,391



            Other Income (Expense):



            Interest expense                                               (5,774)                               (3,036)                                     (3,483)                        (15,068)                  (14,868)



            Other income (expense), net                                      (749)                                   347                                         327                            (318)                     1,270



                                                                            (6,523)                               (2,689)                                     (3,156)                        (15,386)                  (13,598)




            Income before income taxes                                       (502)                                12,158                                      19,829                           36,525                     45,793



            Income tax expense                                             (6,441)                               (2,570)                                    (75,102)                           (797)                  (79,726)




            Net income (loss)                                                       $
         (6,943)                                           $
       9,588                           $
            (55,273)                               $
            35,728   $
       (33,933)




            Earning (loss) per common share:



            Basic                                                                    $
         (0.03)                                            $
       0.04                             $
            (0.24)                                 $
            0.15     $
       (0.15)




            Diluted                                                                  $
         (0.03)                                            $
       0.04                             $
            (0.24)                                 $
            0.14     $
       (0.15)




            Weighted-average common shares outstanding:



            Basic                                                          239,649                                239,303                                     229,339                          237,499                    225,311




            Diluted                                                        239,649                                249,516                                     229,339                          248,892                    225,311


                                                                                                         
         
                VONAGE HOLDINGS CORP.


                                                                                            
             
          TABLE 1. CONSOLIDATED FINANCIAL DATA - (Continued)


                                                                                             
             
          (Dollars in thousands, except per share amounts)




                                                                                                    
          
             Three Months Ended                                                                               For the Years Ended



                                                                            December 31,                               September 30,                            December 31,                       
          
                December 31,


                                                                                    2018                                         2018                                     2017                       2018                                       2017

                                                                                                                                                                                                                                             ---

                                                                            (unaudited)                                 (unaudited)                             (unaudited)                               (unaudited)                                (audited)



          
                Statement of Cash Flow Data:



          Net cash provided by operating activities                                     $
      28,742                                                                            $
     28,528                                              $
          47,458                       $
     123,205 $
     128,058



          Net cash used in investing activities                               (358,046)                                               (37,177)                                           (7,111)                                         (407,230)             (30,737)



          Net cash provided by (used in) financing activities                   308,342                                                   7,903                                          (39,485)                                           258,212              (96,242)



          Capital expenditures and acquisition and development of software      (9,861)                                                (4,878)                                          (8,061)                                          (26,746)             (33,289)
    assets


                                                                                                                               December 31,                          December 31,


                                                                                                                                       2018                   2017



                                                                                                                               (unaudited)                           (audited)



           
                Balance Sheet Data (at period end):



           Cash and cash equivalents                                                                                                           $
         5,057                  $
       31,360



           Restricted cash                                                                                                           2,047                    1,967



           Accounts receivable, net of allowance                                                                                    75,342                   44,159



           Inventory, net of allowance                                                                                               1,470                    2,971



           Prepaid expenses and other current assets                                                                                34,130                   31,285



           Deferred customer acquisition costs, current and non-current                                                             49,636



           Property and equipment, net                                                                                              49,262                   46,754



           Goodwill                                                                                                                598,499                  373,764



           Software, net                                                                                                            17,430                   22,252



           Intangible assets, net                                                                                                  299,911                  173,270



           Deferred tax assets                                                                                                     102,560                  110,892



           Other assets                                                                                                             24,144                   20,007




           Total assets                                                                                                                    $
         1,259,488                 $
       858,681




           Accounts payable and accrued expenses                                                                                             $
         140,632                 $
       115,472



           Deferred revenue, current and non-current                                                                                53,447                   30,576



           Total notes payable, net of debt related costs and indebtedness under revolving credit facility, including current      519,228                  232,515
    portion



           Other liabilities                                                                                                        10,413                    7,080




           Total liabilities                                                                                                                 $
         723,720                 $
       385,783




           Total stockholders' equity                                                                                                        $
         535,768                 $
       472,898


                                                                                                                                                                                               
       
                 VONAGE HOLDINGS CORP.


                                                                                                                                                                                     
             
         TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA


                                                                                                                                                                                   
             
         (Dollars in thousands, except per line amounts)


                                                                                                                                                                                                 
          
                (unaudited)





              The table below includes revenues and cost of revenues that our management uses to measure the growth and operating
    performance of the business focused portion of our business:





               Business                                                                                                                                                                       
       
                Three Months Ended                                                        For the Years Ended



                                                                                                                                                                  December 31,                                    September 30,                    December 31,                
           
      December 31,


                                                                                                                                                                          2018                                              2018                             2017                 2018      2017

                                                                                                                                                                                                                                                                                         ---


              Revenues:



                 Service revenues                                                                                                                                             $
          149,004                                                                    $
      133,709                    $
              113,304          $
     526,707 $
     417,118



                 Access and product revenues(1)                                                                                                                        12,394                                                      12,427                                     13,349                          50,068  54,971




                    Service, access and product revenues                                                                                                              161,398                                                     146,136                                    126,653                         576,775 472,089



                 USF revenues                                                                                                                                           8,601                                                       7,499                                      7,447                          31,369  26,833




              Total revenues                                                                                                                                                  $
          169,999                                                                    $
      153,635                    $
              134,100          $
     608,144 $
     498,922





              Cost of Revenues:



                 Service cost of revenues(2)                                                                                                                                   $
          66,179                                                                     $
      59,600                     $
              50,013          $
     239,096 $
     184,054



                 Access and product cost of revenues(1)                                                                                                                14,790                                                      14,887                                     14,369                          58,081  57,906




                    Service, access and product cost of revenues                                                                                                       80,969                                                      74,487                                     64,382                         297,177 241,960



                 USF revenues                                                                                                                                           8,601                                                       7,499                                      7,447                          31,374  26,833




              Total cost of revenues                                                                                                                                           $
          89,570                                                                     $
      81,986                     $
              71,829          $
     328,551 $
     268,793




    Service margin %                                                                                                                                                    55.6                                                        55.4                                       55.9                            54.6    55.9
                                                                                                                                                                             %                                                          %                                         %                              %      %



              Gross margin % ex-USF (Service, access and product margin %)                                                                                              49.8                                                        49.0                                       49.2                            48.5    48.7
                                                                                                                                                                             %                                                          %                                         %                              %      %


    Gross margin %                                                                                                                                                      47.3                                                        46.6                                       46.4                            46.0    46.1
                                                                                                                                                                             %                                                          %                                         %                              %      %





              (1) Includes customer premise equipment, access, professional services, and shipping and handling.



              (2) Excludes depreciation and amortization of $7,462, $5,141, $5,169 for the quarters ended December 31, 2018, September 30, 2018 and December 31,
    2017, respectively, and $22,554 and $20,100 for the years ended December 31, 2018 and 2017, respectively.



              The table below includes revenues and cost of revenues that our management uses to measure the growth and operating
    performance of the consumer focused portion of our business:





              Consumer                                                                                                                                                                    
     
     Three Months Ended                                               For the Years Ended



                                                                                                                                                                  December 31,                   September 30,           December 31,                
           
      December 31,


                                                                                                                                                                          2018                             2018                    2017                 2018      2017

                                                                                                                                                                                                                                                               ---


              Revenues:



                 Service revenues                                                                                                                                              $
      92,435                                               $
      97,093                    $
              107,674          $
      394,389 $
      454,340



                 Access and product revenues(1)                                                                                                                            87                                        92                                 27                             559     525




                    Service, access and product revenues                                                                                                               92,522                                    97,185                            107,701                         394,948 454,865



                 USF revenues                                                                                                                                          11,282                                    10,711                             12,219                          45,690  48,499




              Total revenues                                                                                                                                                  $
      103,804                                              $
      107,896                    $
              119,920          $
      440,638 $
      503,364





              Cost of Revenues:



                 Service cost of revenues(2)                                                                                                                                   $
      10,389                                               $
      10,661                     $
              17,485           $
      47,439  $
      80,454



                 Access and product cost of revenues(1)                                                                                                                   632                                       993                              1,733                           5,289   7,208




                    Service, access and product cost of revenues                                                                                                       11,021                                    11,654                             19,218                          52,728  87,662



                 USF revenues                                                                                                                                          11,282                                    10,711                             12,219                          45,716  48,499




              Total cost of revenues                                                                                                                                           $
      22,303                                               $
      22,365                     $
              31,437           $
      98,444 $
      136,161




    Service margin %                                                                                                                                                    88.8                                      89.0                               83.8                            88.0    82.3
                                                                                                                                                                             %                                        %                                 %                              %      %



              Gross margin % ex-USF (Service, access and product margin %)                                                                                              88.1                                      88.0                               82.2                            86.6    80.7
                                                                                                                                                                             %                                        %                                 %                              %      %


    Gross margin %                                                                                                                                                      78.5                                      79.3                               73.8                            77.7    72.9
                                                                                                                                                                             %                                        %                                 %                              %      %





              (1) Includes customer premise equipment, access, professional services, and shipping and handling.



              (2) Excludes depreciation and amortization of $1,246, $1,245, $1,642 for the quarters ended December 31, 2018, September 30, 2018 and December 31,
    2017, respectively, and $5,200 and $7,208 for the years ended December 31, 2018 and 2017, respectively.



              The table below includes key operating data that our management uses to measure the growth and operating performance
    of the business focused portion of our business:





               Business                                                                                                 
              
     Three Months Ended                                       For the Years Ended



                                                                                                   December 31,                                  September 30,      December 31,                       December 31,


                                                                                                           2018                                            2018               2017        2018                  2017




              Service revenue per customer                                                                       $
              392                                                  $
     362                            $
     328        $
     358 $
     327



              Business revenue churn                                                                       1.1                                                 1.1                       1.2                            1.1   1.2
                                                                                                              %                                                  %                        %                             %    %



              The table below includes key operating data that our management uses to measure the growth and operating performance
    of the consumer focused portion of our business:





              
                Consumer                                                                                                      
     
     Three Months Ended                                                For the Years Ended



                                                                                                             December 31,                      September 30,              December 31,                       December 31,


                                                                                                                     2018                                2018                       2017                2018        2017




              Average monthly revenues per line                                                                            $
          26.32                                                $
     26.30                        $
              26.33            $
     26.42 $
     26.19



              Subscriber lines (at period end)                                                                 1,287,649                                       1,341,662                         1,492,067                       1,287,649 1,492,067



              Customer churn                                                                                         1.8                                             1.8                               1.9                             1.8       2.0
                                                                                                                        %                                              %                                %                              %        %


                                                                                                  
            
                VONAGE HOLDINGS CORP.


                                                                                      
            
            TABLE 3. RECONCILIATION OF GAAP INCOME FROM OPERATIONS


                                                                                       
            
            TO ADJUSTED OIBDA AND TO ADJUSTED OIBDA MINUS CAPEX


                                                                                                  
            
                (Dollars in thousands)


                                                                                                      
             
                (unaudited)




                                                                                             
          
              Three Months Ended                                                                     For the Years Ended



                                                                     December 31,                                September 30,                                 December 31,                
          
         December 31,


                                                                             2018                                          2018                                          2017                    2018                        2017

                                                                                                                                                                                                                          ---


              Income from operations                                              $
      6,021                                                                                  $
     14,847                        $
              22,985               $
      51,911  $
      59,391



              Depreciation and amortization                               19,094                                                  16,024                                                 18,003                            70,980      72,523



              Share-based expense                                          9,330                                                   8,484                                                  8,035                            33,020      30,105



              Acquisition related transaction and integration costs        4,704                                                   9,509                                                                                  14,645         172



              Acquisition related consideration accounted for as               -                                                     39                                                    823                             1,425      12,782
    compensation



              Organizational transformation                                2,030                                                     923                                                  1,101                             6,073       5,101



              Adjusted OIBDA                                              41,179                                                  49,826                                                 50,947                           178,054     180,074




              Less:



              Capital expenditures                                       (8,345)                                                (2,900)                                                (6,125)                         (19,032)   (21,915)



              Acquisition and development of software assets             (1,516)                                                (1,978)                                                (1,936)                          (7,714)   (11,374)




              Adjusted OIBDA Minus Capex                                         $
      31,318                                                                                  $
     44,948                        $
              42,886              $
      151,308 $
      146,785


                                                                                                     
         
                VONAGE HOLDINGS CORP.


                                                                                             
          
           TABLE 4. RECONCILIATION OF GAAP NET INCOME TO


                                                                                                 
           
             NET INCOME EXCLUDING ADJUSTMENTS


                                                                                            
          
           (Dollars in thousands, except per share amounts)


                                                                                                        
           
                (unaudited)




                                                                                               
          
           Three Months Ended                                                                   For the Years Ended



                                                                     December 31,                                September 30,                              December 31,                   
         
       December 31,


                                                                             2018                                          2018                                       2017                  2018      2017

                                                                                                                                                                                                   ---


              Net (loss) income                                                  $
        (6,943)                                                                            $
       9,588                     $
              (55,273)              $
         35,728   $
           (33,933)



              Amortization of acquisition - related intangibles           11,770                                                   8,746                                                 9,220                           37,940      36,545



              Acquisition related transaction and integration costs        4,704                                                   9,509                                                                                14,645         172



              Acquisition related consideration accounted for as               -                                                     39                                                   823                            1,425      12,782
    compensation



              Organizational transformation                                2,030                                                     923                                                 1,101                            6,073       5,101



              Tax impact on TCJA                                               -                                                                                                      69,378                                      69,378



              Tax effect on adjusting items                                (370)                                                (7,283)                                               (4,604)                        (15,131)   (22,558)




              Net income excluding adjustments                                    $
        11,191                                                                            $
       21,522                       $
              20,645               $
         80,680     $
           67,487




              Earnings (loss) per common share:



              Basic                                                               $
        (0.03)                                                                             $
       0.04                       $
              (0.24)                $
         0.15     $
           (0.15)




              Diluted                                                             $
        (0.03)                                                                             $
       0.04                       $
              (0.24)                $
         0.14     $
           (0.15)




              Weighted-average common shares outstanding:



              Basic                                                      239,649                                                 239,303                                               229,339                          237,499     225,311




              Diluted                                                    239,649                                                 249,516                                               229,339                          248,892     225,311




              Earnings per common share, excluding adjustments:



              Basic                                                                 $
        0.05                                                                              $
       0.09                         $
              0.09                 $
         0.34       $
           0.30




              Diluted                                                               $
        0.04                                                                              $
       0.09                         $
              0.08                 $
         0.32       $
           0.28




              Weighted-average common shares outstanding:



              Basic                                                      239,649                                                 239,303                                               229,339                          237,499     225,311




              Diluted                                                    249,208                                                 249,516                                               245,725                          248,892     241,933


                                                                                                   
              
                VONAGE HOLDINGS CORP.


                                                                           
       
               TABLE 5. RECONCILIATION OF GAAP BUSINESS SEGMENT AND BUSINESS SEGMENT SERVICE REVENUES


                                                                             
         
                TO ADJUSTED BUSINESS SEGMENT AND ADJUSTED BUSINESS SEGMENT SERVICE REVENUES


                                                                                                   
              
                (Dollars in thousands)


                                                                                                        
              
                (unaudited)




                                                                                                
              
                Three Months Ended                                                                  For the Years Ended



                                                                                 December 31,                                                 September 30,                                   December 31,           
              
            December 31,


                                                                                         2018                                     2018                                              2017               2018                        2017

                                                                                                                                                                                                                                ---




              Business total revenue                                                           $
              169,999                                                      $
           153,635                           $
              134,100                      $
     608,144 $
     498,922



              Deferred revenue adjustment from acquired companies                      2,173                                                                                                                                    2,173



              Revenue from acquired companies (prior to acquisition) less              6,102                                     19,052                                                    18,209                                63,191              65,094
    revenue from divested businesses



              Outage credits and significant one-time items                            1,500                                                                                             (1,100)                                 2,433               2,274



              Adjusted business total revenue                                                  $
              179,774                                                      $
           172,687                           $
              151,209                      $
     675,941 $
     566,290








              Business service revenues                                                        $
              149,004                                                      $
           133,709                           $
              113,304                      $
     526,707 $
     417,118



              Deferred revenue adjustment from acquired companies                      2,173                                                                                                                                    2,173



              Revenue from acquired companies (prior to acquisition) less              6,083                                     18,961                                                    18,009                                62,858              64,450
    revenue from divested businesses



              Outage credits and significant one-time items                            1,500                                                                                             (1,100)                                 2,433               2,274



              Adjusted business service revenues                                               $
              158,760                                                      $
           152,670                           $
              130,213                      $
     594,171 $
     483,842


                                                                                
        
                VONAGE HOLDINGS CORP.


                                                                               
        
                TABLE 6. FREE CASH FLOW


                                                                                
        
                (Dollars in thousands)


                                                                                  
           
                (unaudited)




                                                                            
     
          Three Months Ended                                                        For the Years Ended



                                                     December 31,                      September 30,                     December 31,                
         
         December 31,


                                                             2018                                2018                              2017                   2018                        2017

                                                                                                                                                                                   ---


     Net cash provided by operating activities                   $
     28,742                                                             $
     28,528                       $
              47,458          $
      123,205 $
      128,058



     Less:



     Capital expenditures                                (8,345)                                      (2,900)                                    (6,125)                        (19,032)  (21,915)



     Acquisition and development of software assets      (1,516)                                      (1,978)                                    (1,936)                         (7,714)  (11,374)




     Free cash flow                                              $
     18,881                                                             $
     23,650                       $
              39,397           $
      96,459  $
      94,769


                                                                                                                             
              
                VONAGE HOLDINGS CORP.


                                                                                                                     
     
     TABLE 7. RECONCILIATION OF NOTES PAYABLE, INDEBTEDNESS UNDER REVOLVING CREDIT
                                                                                                                               FACILITY, AND CAPITAL LEASES TO NET DEBT


                                                                                                                            
              
                (Dollars in thousands)


                                                                                                                                  
              
                (unaudited)




                                                                                                                                                                                                       December 31,                    December 31,


                                                                                                                                                                                                               2018             2017






     Current maturities of capital lease obligations                                                                                                                                                  
              $                               $
        140



     Current portion of notes payable                                                                                                                                                                       10,000             18,750



     Notes payable and indebtedness under revolving credit facility, net of current maturities and debt related costs                                                                                      509,228            213,766



     Unamortized debt related costs                                                                                                                                                                            772                672



     Gross debt                                                                                                                                                                                            520,000            233,328




     Less:



     Unrestricted cash                                                                                                                                                                                       5,057             31,360




     Net debt                                                                                                                                                                                                      $
     514,943                 $
        201,968

About Vonage

Vonage (NYSE: VG) is redefining business communications. True to our roots as a technology disruptor, we've embraced technology to transform how companies communicate to create better business outcomes. Our unique cloud communications platform brings together a robust unified communications solution with the agility of embedded communications APIs. This powerful combination enables businesses to collaborate more productively and engage their customers more effectively across messaging, chat, social media, video and voice.

The Company also provides a robust suite of feature-rich residential communication solutions.

Vonage Holdings Corp. is headquartered in Holmdel, New Jersey, with offices throughout the United States, Europe, Asia, and Israel. Vonage® is a registered trademark of Vonage Marketing LLC, owned by Vonage America Inc. For more information, visit www.vonage.com.

Use of Non-GAAP Financial Measures

This press release includes measures defined as non-GAAP financial measures by Regulation G adopted by the Securities and Exchange Commission, including: adjusted Operating Income Before Depreciation and Amortization ("adjusted OIBDA"), adjusted OIBDA less Capex, adjusted net income, net debt (cash), and free cash flow.

Adjusted OIBDA

Vonage uses adjusted OIBDA as a principal indicator of the operating performance of its business.

Vonage defines adjusted OIBDA as GAAP income (loss) from operations excluding depreciation and amortization, share-based expense, acquisition related transaction and integration costs, change in contingent consideration, acquisition related consideration accounted for as compensation, organizational transformation costs and loss on sublease.

Vonage believes that adjusted OIBDA permits a comparative assessment of its operating performance, relative to its performance based on its GAAP results, while isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance; of share-based expense, which is a non-cash expense that also varies from period to period; of one-time acquisition related transaction and integration costs, acquisition related consideration accounted for as compensation and change in contingent consideration, organizational transformation costs and loss on sublease.

The Company provides information relating to its adjusted OIBDA so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its Adjusted OIBDA are valuable indicators of the operating performance of the Company on a consolidated basis.

The Company does not reconcile its forward-looking adjusted OIBDA to the corresponding GAAP measure of income from operations due to the significant variability and difficulty in making accurate forecasts with respect to the various expenses we exclude, as they may be significantly impacted by future events the timing and nature of which are difficult to predict or are not within the control of management. As such, the Company has determined that reconciliations of this forward-looking non-GAAP financial measure to the corresponding GAAP measure is not available without unreasonable effort.

Adjusted OIBDA less Capex

Vonage uses adjusted OIBDA less Capex as an indicator of the operating performance of its business. The Company provides information relating to its adjusted OIBDA less Capex so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its Adjusted OIBDA less Capex are valuable indicators of the operating performance of the Company on a consolidated basis because they provide our investors with insight into current performance and period-to-period performance.

Adjusted net income

Vonage defines adjusted net income, as GAAP net income (loss) excluding amortization of acquisition-related intangible assets, acquisition related transaction and integration costs, change in contingent consideration, acquisition related consideration accounted for as compensation, organizational transformation costs, loss on sublease and tax effect on adjusting items.

The Company believes that excluding these items will assist investors in evaluating the Company's operating performance and in better understanding its results of operations as amortization of acquisition-related intangible assets is a non-cash item, one-time acquisition related transaction and integration costs, change in contingent consideration, acquisition related consideration accounted for as compensation, loss on sublease and tax effect on adjusting items are not reflective of operating performance.

Net debt (cash)

Vonage defines net debt (cash) as the current maturities of capital lease obligations, current portion of notes payable, notes payable and indebtedness under revolving credit facility, net of current maturities and debt related costs, and capital lease obligations, net of current maturities, less unrestricted cash and marketable securities.

Vonage uses net debt (cash) as a measure of assessing leverage, as it reflects the gross debt under the Company's credit agreements and capital leases less cash available to repay such amounts. The Company believes that net cash is also a factor that first parties consider in valuing the Company.

Free cash flow

Vonage defines free cash flow as net cash provided by operating activities minus capital expenditures, purchase of intangible assets, and acquisition and development of software assets.

Vonage considers free cash flow to be a liquidity measure that provides useful information to management about the amount of cash generated by the business that, after the acquisition of equipment and software, can be used by Vonage for debt service and strategic opportunities. Free cash flow is not a measure of cash available for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure.

The non-GAAP financial measures used by Vonage may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments, which limits its usefulness as a comparative measure. These non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

Adjusted business total revenue and Adjusted business service revenues

Vonage defines adjusted business total revenue and adjusted business service revenues as business segment revenue and business segment service revenues to give effect for acquisition-related activities and other one-time items.

The Company does not reconcile its forward-looking adjusted business total revenue and adjusted business service revenue to the corresponding GAAP measures due to the significant variability and difficulty in making accurate forecasts with respect to the various acquisition-related and one-time events that we exclude, as they may be significantly impacted by future events the timing and nature of which are difficult to predict or are not within the control of management. As such, the Company has determined that reconciliations of these forward-looking non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.

Safe Harbor Statement

This press release contains forward-looking statements, including statements about acquisitions, acquisition integration, financing activity, growth priorities or plans, revenues, adjusted OIBDA, churn, seats, lines or accounts, average revenue per user, cost of telephony services, capital expenditures, new products and related investment, and other statements that are not historical facts or information, that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. In addition, other statements in this press release that are not historical facts or information may be forward-looking statements. The forward-looking statements in this release are based on information available at the time the statements are made and/or management's belief as of that time with respect to future events and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Important factors that could cause such differences include, but are not limited to: the competition we face; the expansion of competition in the cloud communications market; risks related to the acquisition or integration of businesses we have acquired; our ability to adapt to rapid changes in the cloud communications market; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers cost-effectively; the risk associated with developing and maintaining effective internal sales teams and effective distribution channels; security breaches and other compromises of information security; risks associated with sales of our services to medium-sized and enterprise customers; our reliance on third-party hardware and software; our dependence on third-party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; our ability to comply with data privacy and related regulatory matters; our ability to scale our business and grow efficiently; our dependence on third party vendors; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; our ability to obtain or maintain relevant intellectual property licenses or to protect our trademarks and internally developed software; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; fraudulent use of our name or services; intellectual property and other litigation that have been and may be brought against us; reliance on third parties for our 911 services; uncertainties relating to regulation of business services; risks associated with legislative, regulatory or judicial actions regarding our business products; risks associated with operating abroad; risks associated with the taxation of our business; governmental regulation and taxes in our international operations; liability under anti-corruption laws or from governmental export controls or economic sanctions; our dependence on our customers' unimpeded access to broadband connections; foreign currency exchange risk; our history of net losses and ability to achieve consistent profitability in the future; our ability to fully realize the benefits of our net operating loss carry-forwards if an ownership change occurs; certain provisions of our charter documents; and other factors that are set forth in the "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018 and in the Company's Quarterly Reports on Form 10-Q filed with the SEC. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so except as required by law, and therefore, you should not rely on these forward-looking statements as representing the Company's views as of any date subsequent to today.

(vg-f)

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SOURCE Vonage Holdings Corp.