Vonage Reports Fourth Quarter 2021 Financial Results


HOLMDEL, N.J., Feb. 24, 2022 (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, 2021.

Fourth Quarter 2021 Highlights:

  • Consolidated revenue of $366 million, an increase of 13% year-over-year
    • Consumer revenue of $66 million, a decrease of 16% year-over-year
    • Vonage Communications Platform (VCP) revenue of $300 million, an increase of 23% year-over-year
      • VCP Service revenue of $287 million, an increase of 25% year-over-year
        • API revenue of $165 million, an increase of 38% year-over-year
        • Unified Communications & Contact Center Service revenue of $122 million, an increase of 10% year-over-year
  • Consolidated Net Loss of $22 million, a decrease of $8 million from the prior year
  • Consolidated Adjusted EBITDA(1) of $50 million, an increase of $2 million from the prior year
    • VCP Adjusted EBITDA of $6 million, an increase of $10 million from the prior year
    • Consumer Adjusted EBITDA of $43 million, a decrease of $9 million from the prior year

Full Year 2021 Highlights:

  • Consolidated revenue of $1.409 billion, an increase of 13% year-over-year
    • Consumer revenue of $289 million, a decrease of 13% year-over-year
    • Vonage Communications Platform (VCP) revenue of $1.120 billion, an increase of 22% year-over-year
      • VCP Service revenue of $1.062 billion, an increase of 24% year-over-year
        • API revenue of $591 million, an increase of 42% year-over-year
        • Unified Communications & Contact Center Service revenue of $471 million, an increase of 7% year-over-year
  • Consolidated Net Loss of $24 million, an increase of $12 million from the prior year
  • Consolidated Adjusted EBITDA of $198 million, an increase of $27 million from the prior year
    • VCP Adjusted EBITDA of $11 million, an increase of $68 million from the prior year
    • Consumer Adjusted EBITDA of $187 million, a decrease of $40 million from the prior year

Vonage will not host a conference call to discuss its results for the fourth quarter and full year 2021 or provide financial guidance for the first quarter or full year 2022 due to the previously announced proposed acquisition of Vonage by Ericsson.

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: Monica Gould, 212.871.3927, ir@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 3 for a reconciliation to GAAP net loss.

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,
    2021       2021       2020       2021       2020  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)   (audited)
Statement of Operations Data:                  
Revenues, access and product revenues $ 350,167     $ 341,544     $ 306,773     $ 1,339,063     $ 1,185,357  
USF revenues   16,138       16,797       16,522       69,952       62,577  
Total revenues   366,305       358,341       323,295       1,409,015       1,247,934  
                   
Operating Expenses:                  
Service, access and product cost of revenues (excluding depreciation and amortization of $16,895, $15,817, $15,455, $61,874, and $51,408, respectively)   174,923       161,067       133,694       624,557       490,946  
USF cost of revenues   16,138       16,797       16,522       69,952       62,577  
Sales and marketing   80,702       86,826       80,100       335,217       342,053  
Engineering and development   19,961       17,636       22,387       80,667       81,484  
General and administrative   70,164       44,063       41,569       202,461       182,106  
Depreciation and amortization   23,572       22,507       24,853       88,780       88,917  
    385,460       348,896       319,125       1,401,634       1,248,083  
(Loss) Income from operations   (19,155 )     9,445       4,170       7,381       (149 )
Other Income (Expense):                  
Interest expense   (6,924 )     (7,045 )     (7,384 )     (28,348 )     (32,160 )
Other income (expense), net   1,119       (100 )     160       905       314  
    (5,805 )     (7,145 )     (7,224 )     (27,443 )     (31,846 )
Loss before income taxes   (24,960 )     2,300       (3,054 )     (20,062 )     (31,995 )
Income tax benefit (expense)   2,809       (4,332 )     (10,911 )     (4,435 )     (4,217 )
Net loss $ (22,151 )   $ (2,032 )   $ (13,965 )   $ (24,497 )   $ (36,212 )
Loss per common share:                  
Basic and diluted $ (0.09 )   $ (0.01 )   $ (0.06 )   $ (0.10 )   $ (0.15 )
Weighted-average common shares outstanding:                  
Basic and diluted   252,791       252,101       248,586       251,500       246,082  

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,
    2021       2021       2020       2021       2020  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)   (audited)
Statement of Cash Flow Data:                  
Net cash provided by operating activities $ 25,304     $ 43,886     $ 32,449     $ 158,711     $ 83,880  
Net cash used in investing activities   (20,735 )     (12,768 )     (14,489 )     (62,719 )     (52,723 )
Net cash used in financing activities   (33,030 )     (21,986 )     (23,721 )     (117,257 )     (10,850 )
Capital expenditures, acquisition of intangible assets, acquisition and development of software assets   (13,735 )     (12,768 )     (14,489 )     (55,719 )     (52,723 )
    December 31,   December 31,
    2021   2020
    (unaudited)   (audited)
Balance Sheet Data (at period end):        
Cash and cash equivalents   $ 18,342   $ 43,078
Restricted cash     1,967     1,919
Accounts receivable, net of allowance     147,622     116,304
Prepaid expenses and other current assets     37,388     38,361
Deferred customer acquisition costs, current and non-current     101,403     85,690
Property and equipment, net     24,334     31,621
Goodwill     615,134     624,328
Operating lease right of use assets     31,855     29,330
Software, net     106,516     80,638
Intangible assets, net     161,134     204,267
Deferred tax assets     109,087     106,374
Other assets     33,362     33,926
Total assets   $ 1,388,144   $ 1,395,836
         
Accounts payable and accrued expenses   $ 226,497   $ 175,544
Deferred revenue, current     61,420     65,506
Total notes payable, net and indebtedness under revolving credit facility, including current portion     130,500     215,500
Operating lease liabilities, current and non-current     43,056     42,573
Convertible senior notes, net     305,609     290,784
Other liabilities     3,341     3,155
Total liabilities   $ 770,423   $ 793,062
Total stockholders’ equity   $ 617,721   $ 602,774

 

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,
    2021       2021       2020       2021       2020  
Statement of Operations Data:                  
Revenues, access and product revenues $ 292,699     $ 281,311     $ 238,673     $ 1,092,267     $ 893,076  
USF revenues   7,403       6,845       6,056       27,858       21,981  
Total revenues   300,102       288,156       244,729       1,120,125       915,057  
                   
Operating Expenses:                  
Service, access and product cost of revenues excluding depreciation and amortization   167,062       152,939       125,214       590,623       455,558  
USF cost of revenues   7,403       6,845       6,056       27,858       21,981  
Sales and marketing   77,362       83,227       77,083       320,717       329,702  
Engineering and development   19,173       16,519       20,181       76,936       73,012  
General and administrative   66,720       42,439       38,425       190,936       167,704  
Depreciation and amortization   23,412       22,325       24,433       87,872       85,210  
    361,132       324,294       291,392       1,294,942       1,133,167  
Loss from operations $ (61,030 )   $ (36,138 )   $ (46,663 )   $ (174,817 )   $ (218,110 )

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,
    2021       2021       2020       2021       2020  
Revenues:                  
Service revenues $ 286,820     $ 274,031     $ 230,077     $ 1,061,745     $ 856,492  
Access and product revenues(1)   5,879       7,280       8,596       30,522       36,584  
Service, access and product revenues excluding USF   292,699       281,311       238,673       1,092,267       893,076  
USF revenues   7,403       6,845       6,056       27,858       21,981  
Total revenues $ 300,102     $ 288,156     $ 244,729     $ 1,120,125     $ 915,057  
                   
Cost of Revenues:                  
Service cost of revenues(2) $ 158,013     $ 144,156     $ 114,491     $ 552,537     $ 413,079  
Access and product cost of revenues(1)   9,049       8,783       10,723       38,086       42,479  
Service, access and product cost of revenues excluding USF   167,062       152,939       125,214       590,623       455,558  
USF cost of revenues   7,403       6,845       6,056       27,858       21,981  
Total cost of revenues $ 174,465     $ 159,784     $ 131,270     $ 618,481     $ 477,539  
                   
Service margin %   44.9 %     47.4 %     50.2 %     48.0 %     51.8 %
Gross margin % excluding USF (Service, access and product margin %)   42.9 %     45.6 %     47.5 %     45.9 %     49.0 %
Gross margin %   41.9 %     44.5 %     46.4 %     44.8 %     47.8 %
(1) Includes customer premise equipment, access, professional services, and shipping and handling.
(2) Excludes depreciation and amortization of $16,735, $15,635, $15,331 for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively, and $60,966 and $47,701 for the years ended December 31, 2021 and 2020, 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,
    2021       2021       2020       2021       2020  
Service revenue per customer $ 678     $ 657     $ 552     $ 637     $ 516  
Vonage Communications Platform revenue churn   0.5 %     0.6 %     1.3 %     0.6 %     1.1 %

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,
  2021   2021   2020   2021   2020
Statement of Operations Data:                  
Revenues, access and product revenues $ 57,468   $ 60,233   $ 68,100   $ 246,796   $ 292,281
USF revenues   8,735     9,952     10,466     42,094     40,596
Total revenues   66,203     70,185     78,566     288,890     332,877
                   
Operating Expenses:                  
Service, access and product cost of revenues excluding depreciation and amortization   7,861     8,128     8,480     33,934     35,388
USF cost of revenues   8,735     9,952     10,466     42,094     40,596
Sales and marketing   3,340     3,599     3,017     14,500     12,351
Engineering and development   788     1,117     2,206     3,731     8,472
General and administrative   3,444     1,624     3,144     11,525     14,402
Depreciation and amortization   160     182     420     908     3,707
    24,328     24,602     27,733     106,692     114,916
Income from operations $ 41,875   $ 45,583   $ 50,833   $ 182,198   $ 217,961

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,
    2021       2021       2020       2021       2020  
Revenues:                  
Service revenues $ 57,405     $ 60,162     $ 68,022     $ 246,553     $ 292,003  
Access and product revenues(1)   63       71       78       243       278  
Service, access and product revenues excluding USF   57,468       60,233       68,100       246,796       292,281  
USF revenues   8,735       9,952       10,466       42,094       40,596  
Total revenues $ 66,203     $ 70,185     $ 78,566     $ 288,890     $ 332,877  
                   
Cost of Revenues:                  
Service cost of revenues(2) $ 7,436     $ 7,607     $ 8,080     $ 31,968     $ 33,550  
Access and product cost of revenues(1)   425       521       400       1,966       1,838  
Service, access and product cost of revenues excluding USF   7,861       8,128       8,480       33,934       35,388  
USF cost of revenues   8,735       9,952       10,466       42,094       40,596  
Total cost of revenues $ 16,596     $ 18,080     $ 18,946     $ 76,028     $ 75,984  
                   
Service margin %   87.0 %     87.4 %     88.1 %     87.0 %     88.5 %
Gross margin % excluding USF (Service, access and product margin %)   86.3 %     86.5 %     87.5 %     86.3 %     87.9 %
Gross margin %   74.9 %     74.2 %     75.9 %     73.7 %     77.2 %
(1) Includes customer premise equipment, access, professional services, and shipping and handling.
(2) Excludes depreciation and amortization of $160, $182, and $124 for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively, and $908 and $3,707 for the years ended December 31, 2021 and 2020, respectively.

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,
    2021       2021       2020       2021       2020  
Average monthly revenues per line $ 27.82     $ 28.47     $ 28.13     $ 28.50     $ 27.77  
Subscriber lines (at period end)   779,179       807,265       909,965       779,179       909,965  
Customer churn   1.4 %     1.5 %     1.7 %     1.4 %     1.7 %

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,
    2021       2021       2020       2021       2020  
Net Loss $ (22,151 )   $ (2,032 )   $ (13,965 )   $ (24,497 )   $ (36,212 )
Interest expense   6,924       7,045       7,384       28,348       32,160  
Income tax   (2,809 )     4,332       10,911       4,435       4,217  
Depreciation and amortization   23,572       22,507       24,853       88,780       88,917  
Amortization of costs to implement cloud computing arrangements   840       818       938       3,515       2,885  
EBITDA   6,376       32,670       30,121       100,581       91,967  
                   
Share-based expense   32,325       17,247       11,695       79,900       45,667  
Acquisition related transaction and integration costs   10,120                   10,120        
Organizational transformation (1)                           5,119  
Restructuring activities (2)               3,731       2,655       18,913  
Other non-recurring items (3)   916       944     $ 2,654       4,314       8,518  
Adjusted EBITDA $ 49,737     $ 50,861       48,201     $ 197,570     $ 170,184  
                   
Consumer Adjusted EBITDA $ 43,297     $ 45,839     $ 52,169     $ 186,856     $ 227,152  
VCP Adjusted EBITDA   6,440       5,022       (3,968 )     10,714       (56,968 )
Adjusted EBITDA   49,737       50,861       48,201       197,570       170,184  
Less:                  
Capital expenditures   (2,214 )     (2,058 )     (2,853 )     (8,996 )     (10,571 )
Intangible assets   (62 )     431       (52 )     256       (312 )
Acquisition and development of software assets   (11,459 )     (11,141 )     (11,584 )     (46,979 )     (41,840 )
Adjusted EBITDA Minus Capex $ 36,002     $ 38,093     $ 33,712     $ 141,851     $ 117,461  
(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,
    2021       2021       2020       2021       2020  
Net loss $ (22,151 )   $ (2,032 )   $ (13,965 )   $ (24,497 )   $ (36,212 )
Amortization of acquisition – related intangibles   10,823       10,733       13,131       43,141       53,539  
Amortization of costs to implement cloud computing arrangements   840       818       938       3,515       2,885  
Acquisition related transaction and integration costs   10,120                   10,120        
Amortization of debt discount   3,402       3,349       3,210       13,230       12,532  
Organizational transformation (1)                           5,119  
Restructuring activities (2)               3,731       2,655       18,913  
Other non-recurring items (3)   916       944       2,654       4,314       8,518  
Tax effect on adjusting items   (6,787 )     (4,120 )     (4,969 )     (20,014 )     (21,316 )
Net (loss) income excluding adjustments $ (2,837 )   $ 9,692     $ 4,730     $ 32,464     $ 43,978  
Loss per common share:                  
Basic and diluted $ (0.09 )   $ (0.01 )   $ (0.06 )   $ (0.10 )   $ (0.15 )
Weighted-average common shares outstanding:                  
Basic and diluted   252,791       252,101       248,586       251,500       246,082  
Earnings per common share, excluding adjustments:                  
Basic $ (0.01 )   $ 0.04     $ 0.02     $ 0.13     $ 0.18  
Diluted $ (0.01 )   $ 0.04     $ 0.02     $ 0.12     $ 0.17  
Weighted-average common shares outstanding:                  
Basic   252,791       252,101       248,586       251,500       246,082  
Diluted   252,791       260,851       258,211       270,831       254,874  
(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,
    2021       2021       2020       2021       2020  
Net cash provided by operating activities $ 25,304     $ 43,886     $ 32,449     $ 158,711     $ 83,880  
Less:                  
Capital expenditures   (2,214 )     (2,058 )     (2,853 )     (8,996 )     (10,571 )
Intangible assets   (62 )     431       (52 )     256       (312 )
Acquisition and development of software assets   (11,459 )     (11,141 )     (11,584 )     (46,979 )     (41,840 )
Free cash flow $ 11,569     $ 31,118     $ 17,960     $ 102,992     $ 31,157  

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,
    2021   2020
         
Convertible senior notes, net     305,609     290,784
Notes payable and indebtedness under revolving credit facility, net of current maturities     130,500     215,500
Unamortized debt related costs     3,919     5,512
Unamortized discount on debt     35,472     48,704
Gross debt     475,500     560,500
Less:        
Unrestricted cash     18,342     43,078
Net debt   $ 457,158   $ 517,422

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; incremental business, regulatory, and reputational risks related to the pending Ericsson merger; timing and satisfaction of the closing conditions related to the Ericsson merger; 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.

Vonage Holdings Corp





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