Vonage Reports Fourth Quarter and Full-Year 2020 Financial Results

·30-min read

Fourth Quarter 2020 Highlights:

  • Consolidated Revenues of $323 million

  • Vonage Communications Platform (VCP) Revenues of $245 million

  • VCP Service Revenues increased 17%

  • API Revenues Increased 33%

  • Unified Communications & Contact Center Service Revenues Increased 4%

  • Consolidated Net Loss of $14 Million and Adjusted EBITDA of $48 million

HOLMDEL, N.J., Feb. 18, 2021 (GLOBE NEWSWIRE) -- Vonage Holdings Corp. (Nasdaq: VG), a global leader in cloud communications helping businesses accelerate their digital transformation, today announced results for the quarter and full year ended December 31, 2020.

“We took decisive action over the past six months to improve operational efficiency and strategically invest in areas where our solutions best fit the needs of our customers. We continued to execute well in the fourth quarter and delivered solid results,” said Rory Read, Vonage Chief Executive Officer. “Vonage Communications Platform service revenues grew 17% year over year. Within this, API revenues grew 33% highlighted by high-value APIs, which grew 130% as customers continue to expand usage on our platform. And, our Unified Communications and Contact Center Applications service revenue grew 4%.”

“Our improved focus and operational execution enabled investments in our product innovation, our tailored go-to-market strategy, and our cross-sell capabilities to drive future growth. And, we are starting to see the initial benefits of these efforts. We are well-positioned with a diverse global customer set across multiple industries, and a world-class senior leadership team to drive our next phase of execution.”

Update on Strategic Review of Consumer Segment
The Company has completed a comprehensive nine-month strategic review of the Consumer business with the assistance of financial, accounting, and legal advisors. Based on this review, which included a detailed analysis of the Consumer business’ financials, profitability and potential valuation, the Company has determined that it is in the best interests of the Company and its shareholders to terminate the sale process and retain the Consumer business. This decision ensures a strong balance sheet and financial flexibility to invest in VCP capabilities and potential M&A.

“As we committed, we have completed a thorough review of the Consumer business and we have decided to retain this business,” Read said. “Our decision was driven by valuation, the $600 million of cash generation we expect from Consumer over the next five years, and what is best for our company and shareholders. This business is run efficiently and without distraction.”

Fourth Quarter 2020 Vonage Communication Platform Segment Results (compared to the year-ago quarter)

  • Vonage Communication Platform revenues of $245 million, representing 12% growth.

  • Vonage Communication Platform service revenues of $230 million, a 17% increase.

  • API Platform Revenues (which are all Service revenues) grew 33%.

    • High-Value API revenues grew 130%, driven by strength in programmable video, voice and IP messaging.

  • Unified Communications and Contact Center service revenues grew 4%.

  • Vonage Communication Platform Service Revenue per Customer was $552 per month, up 16%.

  • Vonage Communication Platform Service Revenue Churn was 1.3% compared to 1.2%.

  • Vonage Communications Platform gross margin was 46%.

  • Vonage Communications Platform adjusted EBITDA was ($4) million compared to ($18) million.

Full Year 2020 Vonage Communication Platform Segment Results

  • Vonage Communication Platform revenues were $915 million, representing 14% growth.

  • Vonage Communication Platform Service Revenues were $856 million, a 19% increase.

  • API Platform Revenues (which are all service revenues) grew 35%.

  • Unified Communications and Contact Center Service Revenues grew 7%.

  • Vonage Communications Platform gross margin was 48%.

  • Vonage Communications Platform adjusted EBITDA was ($57) million compared to ($103) million in the prior year.

Fourth Quarter 2019 Consumer Segment Results (compared to the year-ago quarter)

  • Consumer Revenues were $79 million, down 15%.

  • Customer churn was 1.7%, flat to the prior year.

  • Average revenue per line ("ARPU") was $28.13, up $0.56.

  • Ended the quarter with approximately 900 thousand Consumer subscriber lines. More than 94% of these customers are tenured, defined as customers for more than two years.

  • Consumer gross margin was 76%, down 200 basis points.

  • Consumer adjusted EBITDA was $52 million, a 17% decrease.

Full Year 2019 Consumer Segment Results

  • Consumer Revenues were $333 million, down 14% from the prior year.

  • Customer churn was 1.7%, compared to 1.8% in the prior year.

  • Average revenue per line ("ARPU") was $27.77, up $0.73 from the prior year.

Consolidated Income and Balance Sheet
For the fourth quarter of 2020, Vonage reported consolidated revenues of $323 million, up from $310 million in the year-ago quarter. Income from operations was $4 million, flat from $4 million in the prior year quarter. GAAP net loss was $14 million, or ($0.06) per share, a decrease from a loss of $2 million in the prior year period, or ($0.01) per share. Fourth quarter adjusted net income(1) was $5 million or $0.02 per share, down from $15 million or $0.06 per share in the prior year period.

For the full year 2020, Vonage reported consolidated revenues of $1.25 billion, up from $1.19 billion in the prior year. Loss from operations was $0.1 million, down from income from operations of $7 million in the prior year. GAAP net loss was $36 million, or ($0.15) per share, for the full year 2020, compared with a net loss of $19 million, or ($0.08) per share, in 2019. Full-year 2020 adjusted net income(1) was $44 million or $0.18 per share, down from $46 million or $0.19 per share in the prior year.

For the fourth quarter, the Company generated Adjusted EBITDA(2) of $48 million, and Adjusted EBITDA minus Capex(2) of $34 million. Net Cash from Operations was $32 million and Free Cash Flow(3) was $18 million for the quarter. Net debt decreased $20 million sequentially to
$517 million, resulting in a net debt to Last Twelve Months Adjusted EBITDA ratio of 3.0 times, as of December 31, 2020.

For the full year, Adjusted EBITDA(2) was $170 million and Adjusted EBITDA minus Capex(2) was $117 million. Net Cash from Operations was $84 million and Free Cash Flow(3) was $31 million for the year.

2021 Outlook

For the first quarter of 2021, Vonage expects the following:

  • Vonage Communication Platform revenues in the range of $240 million to $244 million

    • Vonage Communication Platform service revenues are expected to grow 16% to 18%.

  • Consumer revenues in the $75 million range.

  • Consolidated revenues in the range of $314 million to $318 million.

  • Vonage Communication Platform adjusted EBITDA in the ($7) million to ($3) million range.

  • Consumer adjusted EBITDA in the $49 million range.

  • Consolidated Adjusted EBITDA in the range of $42 to $46 million.

  • Capex in the $15 million range.

For the full year 2021, Vonage expects the following

  • Vonage Communication Platform segment revenues in the range of $1.038 billion to $1.054 billion; within this:

    • Vonage Communication Platform service revenues are expected to grow 15% to 17%.

  • Consumer revenues in the $285 million range.

  • Consolidated revenues in the range of $1.323 billion to $1.339 billion.

  • Vonage Communications Platform adjusted EBITDA in the range of $5 million to $9 million.

  • Consumer adjusted EBITDA in the range of $185 million to $189 million.

  • Consolidated adjusted EBITDA in the range of $190 million to $200 million.

  • Capex in the $60 million range.

Conference Call and Webcast

The company will host a conference call to discuss its financial results for the fourth quarter and full year 2020 and other matters at 8:30 AM Eastern Time. To participate, please dial 1-877-407-9716. International callers should dial 1-201-493-6779.

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 1-844-512-2921 or 1-412-317-6671 for international callers, and entering the passcode 13714225.

About Vonage

Vonage (Nasdaq:VG), a global cloud communications leader, helps businesses accelerate their digital transformation. Vonage's Communications Platform is fully programmable and allows for the integration of Video, Voice, Chat, Messaging and Verification into existing products, workflows and systems. Vonage's fully programmable unified communications and contact center applications are built from the Vonage platform and enable companies to transform how they communicate and operate from the office or anywhere, providing enormous flexibility and ensuring business continuity.

Vonage Holdings Corp. is headquartered in New Jersey, with offices throughout the United States, Europe, Israel, and Asia. To follow Vonage on Twitter, please visit twitter.com/vonage. To become a fan on Facebook, go to facebook.com/vonage. To subscribe on YouTube, visit youtube.com/vonage.

Investor Contact: Hunter Blankenbaker, 732.444.4926, hunter.blankenbaker@vonage.com

Media Contact: Jo Ann Tizzano, 732.365.1363, joann.tizzano@vonage.com

(1) This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net loss.
(2) This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP net loss.
(3) This is a non-GAAP financial measure. Refer below to Table 5 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,

2020

2020

2019

2020

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(audited)

Statement of Operations Data:

Revenues, access and product revenues

$

306,773

$

298,991

$

287,466

$

1,185,357

$

1,106,472

USF revenues

16,522

17,658

22,221

62,577

82,874

Total revenues

323,295

316,649

309,687

1,247,934

1,189,346

Operating Expenses:

Service, access and product cost of revenues (excluding depreciation and amortization of $15,455, $13,649, $9,947, $51,408, and $38,167, respectively)

133,694

124,243

113,398

490,946

428,210

USF cost of revenues

16,522

17,658

22,221

62,577

82,874

Sales and marketing

80,100

85,505

88,598

342,053

363,111

Engineering and development

22,387

20,110

19,142

81,484

69,460

General and administrative

41,569

56,835

39,292

182,106

152,672

Depreciation and amortization

24,853

22,887

23,061

88,917

86,256

319,125

327,238

305,712

1,248,083

1,182,583

Income (Loss) from operations

4,170

(10,589

)

3,975

(149

)

6,763

Other Income (Expense):

Interest expense

(7,384

)

(7,373

)

(8,304

)

(32,160

)

(32,821

)

Other income (expense), net

160

(37

)

455

314

(50

)

(7,224

)

(7,410

)

(7,849

)

(31,846

)

(32,871

)

Loss before income taxes

(3,054

)

(17,999

)

(3,874

)

(31,995

)

(26,108

)

Income tax (expense) benefit

(10,911

)

7,937

1,499

(4,217

)

6,626

Net loss

$

(13,965

)

$

(10,062

)

$

(2,375

)

$

(36,212

)

$

(19,482

)

Loss per common share:

Basic and diluted

$

(0.06

)

$

(0.04

)

$

(0.01

)

$

(0.15

)

$

(0.08

)

Weighted-average common shares outstanding:

Basic and diluted

248,586

246,697

242,708

246,082

242,018



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,

2020

2020

2019

2020

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(audited)

Statement of Cash Flow Data:

Net cash provided by operating activities

$

32,449

$

12,628

$

33,076

$

83,880

$

92,926

Net cash used in investing activities

(14,489

)

(12,990

)

(12,817

)

(52,723

)

(52,079

)

Net cash (used in) provided by financing activities

(23,721

)

807

(15,687

)

(10,850

)

(21,921

)

Capital expenditures, acquisition of intangible assets, acquisition and development of software assets

(14,489

)

(12,990

)

(12,817

)

(52,723

)

(49,079

)



December 31,

December 31,

2020

2019

(unaudited)

(audited)

Balance Sheet Data (at period end):

Cash and cash equivalents

$

43,078

$

23,620

Restricted cash

1,919

2,015

Accounts receivable, net of allowance

116,304

101,813

Prepaid expenses and other current assets

38,361

33,801

Deferred customer acquisition costs, current and non-current

85,690

68,982

Property and equipment, net

31,621

48,371

Goodwill

624,328

602,970

Operating lease right of use assets

29,330

50,847

Software, net

80,638

40,300

Intangible assets, net

204,267

249,905

Deferred tax assets

106,374

108,347

Other assets

33,926

33,729

Total assets

$

1,395,836

$

1,364,700

Accounts payable and accrued expenses

$

175,544

$

179,955

Deferred revenue, current

65,506

59,464

Total notes payable, net and indebtedness under revolving credit facility, including current portion

215,500

220,500

Operating lease liabilities, current and non-current

42,573

58,199

Convertible senior notes, net

290,784

276,658

Other liabilities

3,155

2,862

Total liabilities

$

793,062

$

797,638

Total stockholders' equity

$

602,774

$

567,062




VONAGE HOLDINGS CORP.
TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA
(Dollars in thousands, except per line amounts)
(unaudited)

The table below includes summarized income statement information that our management uses to measure the operating performance of the Vonage Communications Platform focused portion of our business:

Vonage Communications Platform

Three Months Ended

For the Years Ended

December 31,

September 30,

December 31,

December 31,

2020

2020

2019

2020

2019

Statement of Operations Data:

Revenues, access and product revenues

$

238,673

$

227,213

$

207,162

$

893,076

$

765,746

USF revenues

6,056

6,613

10,571

21,981

38,134

Total revenues

244,729

233,826

217,733

915,057

803,880

Operating Expenses:

Service, access and product cost of revenues excluding depreciation and amortization

125,214

115,487

104,681

455,558

389,500

USF cost of revenues

6,056

6,613

10,571

21,981

38,134

Sales and marketing

77,083

82,601

84,375

329,702

342,757

Engineering and development

20,181

18,103

16,547

73,012

58,894

General and administrative

38,425

53,847

36,486

167,704

140,720

Depreciation and amortization

24,433

21,929

21,653

85,210

80,197

291,392

298,580

274,313

1,133,167

1,050,202

Loss from operations

$

(46,663

)

$

(64,754

)

$

(56,580

)

$

(218,110

)

$

(246,322

)



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

Vonage Communications Platform

Three Months Ended

For the Years Ended

December 31,

September 30,

December 31,

December 31,

2020

2020

2019

2020

2019

Revenues:

Service revenues

$

230,077

$

218,456

$

196,454

$

856,492

$

719,514

Access and product revenues(1)

8,596

8,757

10,708

36,584

46,232

Service, access and product revenues excluding USF

238,673

227,213

207,162

893,076

765,746

USF revenues

6,056

6,613

10,571

21,981

38,134

Total revenues

$

244,729

$

233,826

$

217,733

$

915,057

$

803,880

Cost of Revenues:

Service cost of revenues(2)

$

114,491

$

105,593

$

92,549

$

413,079

$

336,045

Access and product cost of revenues(1)

10,723

9,894

12,132

42,479

53,455

Service, access and product cost of revenues excluding USF

125,214

115,487

104,681

455,558

389,500

USF cost of revenues

6,056

6,613

10,571

21,981

38,134

Total cost of revenues

$

131,270

$

122,100

$

115,252

$

477,539

$

427,634

Service margin %

50.2

%

51.7

%

52.9

%

51.8

%

53.3

%

Gross margin % excluding USF (Service, access and product margin %)

47.5

%

49.2

%

49.5

%

49.0

%

49.1

%

Gross margin %

46.4

%

47.8

%

47.1

%

47.8

%

46.8

%


(1)

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

(2)

Excludes depreciation and amortization of $15,331, $12,691, $8,800 for the quarters ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively, and $47,701 and $33,484 for the years ended December 31, 2020 and 2019, respectively.


The table below includes summarized income statement information that our management uses to measure the 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,

2020

2020

2019

2020

2019

Statement of Operations Data:

Revenues, access and product revenues

$

68,100

$

71,778

$

80,304

$

292,281

$

340,726

USF revenues

10,466

11,045

11,650

40,596

44,740

Total revenues

78,566

82,823

91,954

332,877

385,466

Operating Expenses:

Service, access and product cost of revenues excluding depreciation and amortization

8,480

8,756

8,717

35,388

38,710

USF cost of revenues

10,466

11,045

11,650

40,596

44,740

Sales and marketing

3,017

2,904

4,223

12,351

20,354

Engineering and development

2,206

2,007

2,595

8,472

10,566

General and administrative

3,144

2,988

2,806

14,402

11,952

Depreciation and amortization

420

958

1,408

3,707

6,059

27,733

28,658

31,399

114,916

132,381

Income from operations

$

50,833

$

54,165

$

60,555

$

217,961

$

253,085



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,

2020

2020

2019

2020

2019

Revenues:

Service revenues

$

68,022

$

71,693

$

80,237

$

292,003

$

340,462

Access and product revenues(1)

78

85

67

278

264

Service, access and product revenues excluding USF

68,100

71,778

80,304

292,281

340,726

USF revenues

10,466

11,045

11,650

40,596

44,740

Total revenues

$

78,566

$

82,823

$

91,954

$

332,877

$

385,466

Cost of Revenues:

Service cost of revenues(2)

$

8,080

$

8,287

$

7,971

$

33,550

$

34,677

Access and product cost of revenues(1)

400

469

746

1,838

4,033

Service, access and product cost of revenues excluding USF

8,480

8,756

8,717

35,388

38,710

USF cost of revenues

10,466

11,045

11,650

40,596

44,740

Total cost of revenues

$

18,946

$

19,801

$

20,367

$

75,984

$

83,450

Service margin %

88.1

%

88.4

%

90.1

%

88.5

%

89.8

%

Gross margin % excluding USF (Service, access and product margin %)

87.5

%

87.8

%

89.1

%

87.9

%

88.6

%

Gross margin %

75.9

%

76.1

%

77.9

%

77.2

%

78.4

%


(1)

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

(2)

Excludes depreciation and amortization of $124, $958, $1,147 for the quarters ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively, and $3,707 and $4,683 for the years ended December 31, 2020 and 2019, 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:

Vonage Communication Platform

Three Months Ended

For the Years Ended

December 31,

September 30,

December 31,

December 31,

2020

2020

2019

2020

2019

Service revenue per customer

$

552

$

527

$

476

$

516

$

447

Vonage Communications Platform revenue churn

1.3

%

1.2

%

1.2

%

1.1

%

1.1

%



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,

2020

2020

2019

2020

2019

Average monthly revenues per line

$

28.13

$

28.31

$

27.57

$

27.77

$

27.04

Subscriber lines (at period end)

909,965

951,729

1,087,819

909,965

1,087,819

Customer churn

1.7

%

1.8

%

1.7

%

1.7

%

1.8

%



VONAGE HOLDINGS CORP.
TABLE 3. RECONCILIATION OF GAAP NET LOSS
TO ADJUSTED EBITDA AND TO ADJUSTED EBITDA MINUS CAPEX
(Dollars in thousands)
(unaudited)

Three Months Ended

For the Years Ended

December 31,

September 30,

December 31,

December 31,

2020

2020

2019

2020

2019

Net Loss

$

(13,965

)

$

(10,062

)

$

(2,375

)

$

(36,212

)

$

(19,482

)

Interest expense

7,384

7,373

8,304

32,160

32,821

Income tax

10,911

(7,937

)

(1,499

)

4,217

(6,626

)

Depreciation and amortization

24,853

22,887

23,061

88,917

86,256

Amortization of costs to implement cloud computing arrangements

938

670

680

2,885

1,362

EBITDA

30,121

12,931

28,171

91,967

94,331

Share-based expense

11,695

11,530

13,090

45,667

45,242

Acquisition related transaction and integration costs

80

701

Organizational transformation (1)

3,347

5,119

14,533

Restructuring activities (2)

3,731

15,182

18,913

Other non-recurring items (3)

2,654

1,959

$

115

8,518

3,289

Adjusted EBITDA

$

48,201

$

41,602

44,803

$

170,184

$

158,096

Consumer Adjusted EBITDA

$

52,169

$

56,001

$

62,542

$

227,152

$

261,362

VCP Adjusted EBITDA

(3,968

)

(14,399

)

(17,739

)

(56,968

)

(103,266

)

Adjusted EBITDA

48,201

41,602

44,803

170,184

158,096

Less:

Capital expenditures

(2,853

)

(2,863

)

(4,847

)

(10,571

)

(20,273

)

Intangible assets

(52

)

(70

)

(318

)

(312

)

(318

)

Acquisition and development of software assets

(11,584

)

(10,057

)

(7,652

)

(41,840

)

(28,488

)

Adjusted EBITDA Minus Capex

$

33,712

$

28,612

$

31,986

$

117,461

$

109,017


(1)

The cost identified as "Organizational transformation" are related to the Company’s previously announced goal of becoming a pure-play software-as-a-service (“SaaS”) company, offering a suite of communications solutions for businesses. These costs include employee related exits including CEO succession, system change management, facility exit costs, and rebranding.

(2)

Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 and include employee related exits and further facility exit costs executed upon as part of the overall project.

(3)

Other non-recurring items principally include certain litigation charges and other non-recurring project costs such as the review of the Consumer business and the business optimization project, both of which were initiated in 2020.



VONAGE HOLDINGS CORP.
TABLE 4. RECONCILIATION OF GAAP NET LOSS TO
NET INCOME (LOSS) 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,

2020

2020

2019

2020

2019

Net loss

$

(13,965

)

$

(10,062

)

$

(2,375

)

$

(36,212

)

$

(19,482

)

Amortization of acquisition - related intangibles

13,131

12,948

14,968

53,539

56,927

Amortization of costs to implement cloud computing arrangements

938

670

680

2,885

1,362

Acquisition related transaction and integration costs

80

701

Amortization of debt discount

3,210

3,159

2,996

12,532

6,431

Organizational transformation (1)

3,347

5,119

14,533

Restructuring activities (2)

3,731

15,182

18,913

Other non-recurring items (3)

2,654

1,959

115

8,518

3,289

Tax effect on adjusting items

(4,969

)

(7,123

)

(4,659

)

(21,316

)

(17,481

)

Net income excluding adjustments

$

4,730

$

16,733

$

15,152

$

43,978

$

46,280

Loss per common share:

Basic and diluted

$

(0.06

)

$

(0.04

)

$

(0.01

)

$

(0.15

)

$

(0.08

)

Weighted-average common shares outstanding:

Basic and diluted

248,586

246,697

242,708

246,082

242,018

Earnings per common share, excluding adjustments:

Basic

$

0.02

$

0.07

$

0.06

$

0.18

$

0.19

Diluted

$

0.02

$

0.07

$

0.06

$

0.17

$

0.19

Weighted-average common shares outstanding:

Basic

248,586

246,697

242,708

246,082

242,018

Diluted

258,211

256,318

249,624

254,874

250,034


(1)

The cost identified as "Organizational transformation" are related to the Company’s previously announced goal of becoming a pure-play software-as-a-service (“SaaS”) company, offering a suite of communications solutions for businesses. These costs include employee related exits including CEO succession, system change management, facility exit costs, and rebranding.

(2)

Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 and include employee related exits and further facility exit costs executed upon as part of the overall project.

(3)

Other non-recurring items principally include certain litigation charges and other non-recurring project costs such as the review of the Consumer business and the business optimization project, both of which were initiated in 2020.



VONAGE HOLDINGS CORP.
TABLE 5. FREE CASH FLOW
(Dollars in thousands)
(unaudited)

Three Months Ended

For the Years Ended

December 31,

September 30,

December 31,

December 31,

2020

2020

2019

2020

2019

Net cash provided by operating activities

$

32,449

$

12,628

$

33,076

$

83,880

$

92,926

Less:

Capital expenditures

(2,853

)

(2,863

)

(4,847

)

(10,571

)

(20,273

)

Intangible assets

(52

)

(70

)

(318

)

(312

)

(318

)

Acquisition and development of software assets

(11,584

)

(10,057

)

(7,652

)

(41,840

)

(28,488

)

Free cash flow

$

17,960

$

(362

)

$

20,259

$

31,157

$

43,847



VONAGE HOLDINGS CORP.
TABLE 6. RECONCILIATION OF INDEBTEDNESS UNDER REVOLVING CREDIT FACILITY, AND CONVERTIBLE SENIOR NOTES TO NET DEBT
(Dollars in thousands)
(unaudited)

December 31,

December 31,

2020

2019

Convertible senior notes, net

290,784

276,658

Notes payable and indebtedness under revolving credit facility, net of current maturities

215,500

220,500

Unamortized debt related costs

5,512

7,108

Unamortized discount on debt

48,704

61,234

Gross debt

560,500

565,500

Less:

Unrestricted cash

43,078

23,620

Net debt

$

517,422

$

541,880



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 EBITDA, adjusted EBITDA less Capex, adjusted net income, constant currency, net debt (cash), and free cash flow.

Adjusted EBITDA

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

Vonage defines adjusted EBITDA as GAAP net income (loss) before interest, tax, depreciation and amortization, share-based expense, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, organizational transformation costs and other non-recurring items. The costs identified as “organizational transformation” are related to the Company’s previously announced goal of becoming a pure-play software-as-a-service (“SaaS”) company, offering a suite of communications solutions for businesses. These costs include employee related exits, system change management, facility exit costs, and rebranding.

Vonage believes that adjusted EBITDA permits a comparative assessment of its operating performance, relative to its performance based on its GAAP results, while isolating the effects of interest, tax, 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, organizational transformation costs and other non-recurring items. Organizational transformation consists principally of costs in connection with exits of employees and facilities, system migration costs and certain professional related fees. Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 and include employee related exit costs and further facility exit costs executed upon as part of the overall project. Other non-recurring items principally include certain litigation charges and other non-recurring project costs such as the review of the Consumer business and the business optimization project, both of which were initiated in 2020.

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

The Company does not reconcile its forward-looking adjusted EBITDA to the corresponding GAAP measure of net income because stock-based compensation expense and other non-recurring items cannot be reasonably calculated or predicted at this time as they may be significantly impacted by future events, the timing and nature of which cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.

Adjusted EBITDA less Capex

Vonage uses adjusted EBITDA less Capex as an indicator of the operating performance of its business. The Company provides information relating to its adjusted EBITDA 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 EBITDA 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, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, amortization of debt discount, organizational transformation costs, other non-recurring items 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, organizational transformation, other non-recurring items, and tax effect on adjusting items are not reflective of operating performance. Organizational transformation consists principally of costs in connection with exits of employees and facilities, system migration costs and certain related professional fees. Other non-recurring items principally include certain litigation charges and other non-recurring project costs.

Constant Currency

Vonage reviews its results of operations on both an as reported and on a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our prior period reported results.

Net debt (cash)

Vonage defines net debt (cash) as indebtedness under revolving credit facility, convertible senior notes, discount on debt, and debt related costs less unrestricted cash.

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.

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 future financial results, growth priorities or plans, revenues, adjusted EBITDA, churn, seats, lines or accounts, average revenue per customer, cost of communications 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; our ability to adapt to rapid changes in the cloud communications market; realizing the expected benefits of our business optimization or other cost-savings plans; risks related to the acquisition or integration of businesses we have acquired; our ability to scale our business and grow efficiently; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers cost-effectively; developing and maintaining effective distribution channels; risks associated with sales of our services to medium-sized and enterprise customers; the effects of COVID-19 on our business; our reliance on third-party hardware and software; our dependence on third-party vendors; reliance on third parties for our 911 services; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; the effects of significant foreign currency fluctuations; developing and maintaining market awareness and a strong brand; retaining senior executives and other key employees; security breaches and other compromises of information security; system disruptions or flaws in our technology and systems; our ability to comply with data privacy and related regulatory matters; unfavorable litigation or governmental investigations; our ability to obtain or maintain relevant intellectual property licenses or to protect our trademarks and internally developed software; fraudulent use of our name or services; intellectual property and other litigation that have been and may be brought against us; rapid developments in global API regulation and uncertainties relating to regulation of VoIP services; liability under anti-corruption laws or from governmental export controls or economic sanctions; risks associated with the taxation of our business; governmental regulation and taxes in our international operations; 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; actions of activist shareholders; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; risks associated with the settlement and conditional conversion of our Convertible Senior Notes; potential effects the capped call transactions may have on our stock in connection with our Convertible Senior Notes; 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 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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