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Vonage Holdings Corp$12.79($.01)(.08%)

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 Vonage 2017 Results Powered by 33% GAAP Business Revenue Growth; Company Continues to Execute on Its Strategic Growth Initiatives
   Wednesday, February 21, 2018 8:00:00 AM ET

Vonage Holdings Corp. (VG ), a business cloud communications leader, today announced results for the quarter and full year ended December 31, 2017.

Consolidated Results

"We had an excellent fourth quarter concluding a transformational year, highlighted by consolidated revenues crossing the billion dollar mark, Vonage Business becoming our majority revenue segment, and record OIBDA of $180 million," said Vonage CEO Alan Masarek.

"In addition to our strong financial performance, we continued to innovate aggressively to transform Vonage into a differentiated business cloud communications company. Vonage’s unique offering provides better business outcomes for our customers by enabling them to operate more efficiently and engage their customers in new, more meaningful ways. Our end-to-end solution is particularly critical as cloud adoption moves up market, and larger companies undergo their own digital transformations."

For the full year 2017, Vonage reported revenues of $1.0 billion, up from $956 million in the prior year. Income from operations was $59 million, up from $44 million in the prior year. Adjusted Operating Income Before Depreciation and Amortization ("Adjusted OIBDA")1 was $180 million, a 13% increase over the prior year. GAAP net income was a loss of $34 million or $(0.15) per share for the full year 2017, compared with $13 million or $0.06 per share in 2016. GAAP net income was impacted by a $69 million non-cash charge reflecting the impact of the Tax Cuts and Jobs Act, which is primarily associated with the re-measurement of the Company’s deferred tax balances at the 21% income tax rate. Adjusted net income2 was $67 million or $0.30 per share, up from $40 million, or $0.18 per share in the prior year.

For the fourth quarter of 2017, Vonage reported consolidated revenues of $254 million, up from $247 million in the year ago quarter. Income from operations was $23 million, up from $5 million in the prior year quarter. Adjusted OIBDA for the fourth quarter was $51 million, up from $37 million in the year ago quarter. GAAP net income was a loss of $55 million, or $(0.24) per share, down from a loss of $2 million in the prior year period, or ($0.01) per share. GAAP net income was impacted by a $69 million non-cash charge reflecting the impact of the Tax Cuts and Jobs Act as described above. Fourth quarter Adjusted net income was $21 million or $0.09 per share, up from $5 million or $0.02 per share.

Business Segment Results

-- Vonage Business revenues were $134 million, representing 53% of total revenues and 21% GAAP growth in the fourth quarter of 2017. Full year revenues increased 33% to $499 million.

-- Fourth quarter UCaaS revenues were $94 million, of which $74 million were service revenues. Service revenues increased 16% year-over-year on an organic3 basis.

-- UCaaS revenue churn was 1.2% in the fourth quarter of 2017, flat sequentially and down from 1.4% the prior year.

-- Nexmo, the Vonage API Platform revenues were $40 million in the fourth quarter of 2017, a year-over-year increase of 36% on an organic4 basis; full year Vonage API platform revenues were $140 million, up 39% year-over-year on an organic4 basis.

-- The Company increased its registered developers on the Vonage API Platform to 430,000, a sequential increase of 59,000.

Other Recent Vonage Business Highlights

-- Released Vonage Business Cloud, the Company’s next-generation, proprietary cloud communications platform. Vonage Business Cloud includes advanced mobile and desktop applications as well as collaboration built on Amazon Chime. The entire platform is deployed on Amazon Web Services, enabling faster innovation and accelerated international expansion.

-- Expanded its award-winning SD-WAN solution, SmartWAN, to Vonage Business Cloud, allowing businesses to run their cloud communications using public broadband connections with Quality of Service.

-- Earned Frost & Sullivan’s Competitive Strategy Innovation and Leadership award for the Company’s ability to deliver better business outcomes for its customers through comprehensive UCaaS and CPaaS capabilities combined with extensive third-party solutions integrations.

-- Awarded FierceMarkets’ Business Services Innovation Award for the Company’s innovative, industry-leading Voice API.

Consumer Segment Results

-- Consumer revenues were $120 million in the fourth quarter, down 12% from the prior year quarter, and the fifth consecutive quarter of a lower year-over-year rate of decline in revenue. Full year 2017 revenues were $503 million, down 13%.

-- Consumer customer churn was 1.9%, flat sequentially and down from 2.2% in the year ago quarter.

-- Average revenue per line ("ARPU") in Consumer was $26.33, up from $26.11 in the year ago period.

-- The Consumer segment ended the fourth quarter with approximately 1.5 million subscriber lines.

-- Consumer’s tenured customers, defined as those with the Company for more than two years, increased to 82% of the base. The churn rate of this tenured cohort is 1.5%.

Balance Sheet

The Company generated Adjusted OIBDA of $51 million, and Adjusted OIBDA minus Capex5 of $43 million in the fourth quarter. For the full year, the Company generated Adjusted OIBDA of $180 million and Adjusted OIBDA minus Capex of $147 million. The Company reduced debt by $90 million in 2017, resulting in a net debt to Last Twelve Months Adjusted OIBDA ratio of 1.1x. Vonage also repurchased 1.6 million shares of stock for $10 million at an average price of $5.95 under its current four-year $100 million program.

2018 Outlook

The Company’s guidance reflects the adoption of the new Revenue from Contracts with Customers (Topic 606) revenue recognition standard that is effective beginning January 1, 2018. For 2018, Vonage expects the following:

-- Consolidated revenues in the range of $1,030 million to $1,045 million

-- Vonage Business revenues in the range of $590 million to $605 million, with first quarter 2018 Vonage Business revenues expected to be in the range of $136 million to $137 million

-- Consumer revenues in the range of $435 million to $440 million reflecting the Company’s continued focus on optimizing the business for cash flow

-- Consolidated Adjusted OIBDA of at least $195 million, including the impact of Topic 606, with first quarter 2018 Adjusted OIBDA in the low $40 million area.

-- Capex of approximately $35 million; Adjusted OIBDA minus capex of at least $160 million.

Conference Call and Webcast

Management will host a conference call to discuss fourth quarter and full year 2017 financial results and other matters at 8:30 AM Eastern Time. To participate, please dial (866) 807-9684. International callers should dial (412) 317-5415.

A live webcast of the event will be available on the Vonage Investor Relations site. A replay of the call and webcast will 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, passcode 10116395.

-- This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP income from operations.

-- This is a non-GAAP financial measure. Refer below to Table 5 for a reconciliation to GAAP net income.

-- We define organic UCaaS growth as the increase in UCaaS revenues after giving pro forma effect for the exclusion of one-time items. See Table 3 for reference.

-- We define organic Vonage API Platform growth as the increase in Vonage API Platform revenues after giving pro forma effect for the change in accounting treatment with respect to certain Vonage API Platform revenues being recognized on a gross rather than net basis. See Table 3 for reference.

-- This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income.

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,
                                                          2017            2017           2016 (1)       2017             2016 (1)
                                                          (unaudited)                                   (audited)
Statement of Operations Data:
Revenues                                                  $    254,020    $    253,083   $    246,763   $    1,002,286   $    955,621
Operating Expenses:
Cost of services (excluding depreciation and amortization 97,058          96,632         88,768         378,960          321,373
of $6,811, $6,852, $7,211, $27,308, and $28,489,
respectively)
Cost of goods sold                                        6,208           6,306          7,768          25,994           33,777
Sales and marketing                                       78,006          73,576         84,293         313,251          330,969
Engineering and development                               7,634           6,956          7,607          29,630           29,759
General and administrative                                24,126          26,811         34,043         122,537          123,304
Depreciation and amortization                             18,003          18,179         19,070         72,523           72,285
                                                          231,035         228,460        241,549        942,895          911,467
Income from operations                                    22,985          24,623         5,214          59,391           44,154
Other Income (expense):
Interest income                                           5               3              14             17               79
Interest expense                                          (3,483)         (3,821)        (3,565)        (14,868)         (13,042)
Other income (expense), net                               322             465            (109)          1,253            (346)
                                                          (3,156)         (3,353)        (3,660)        (13,598)         (13,309)
Income before income tax expense                          19,829          21,270         1,554          45,793           30,845
Income tax expense                                        (75,102)        (10,668)       (3,592)        (79,726)         (17,694)
Net (loss) income                                         $    (55,273)   $    10,602    $    (2,038)   $    (33,933)    $    13,151
Net (loss) income per common share:
Basic                                                     $    (0.24)     $    0.05      $    (0.01)    $    (0.15)      $    0.06
Diluted                                                   $    (0.24)     $    0.04      $    (0.01)    $    (0.15)      $    0.06
Weighted-average common shares outstanding:
Basic                                                     $    229,339    $    227,943   $    218,375   $    225,311     $    215,751
Diluted                                                   229,339         242,720        218,375        225,311          231,941
(1) Revised due to the correction of prior period financial statements.
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,
                                                                     2017            2017            2016 (1)        2017             2016 (1)
                                                                     (unaudited)                                     (audited)
Statement of Cash Flow Data:
Net cash provided by operating activities                            $      47,458   $      47,907   $      23,842   $      128,058   $      93,456
Net cash used in investing activities                                (7,111)         (9,349)         (2,812)         (30,737)         (191,449)
Net cash (used in) provided by financing activities                  (39,485)        (35,379)        (25,210)        (96,242)         68,054
Capital expenditures, intangible assets, and development of software (8,061)         (9,349)         (8,767)         (33,289)         (37,734)
assets
(1) Revised due to the adoption of new Accounting Standard Updates and the correction of prior period financial statements.
                                                                                                                            For the years ended December
                                                                                                                            31,
                                                                                                                            2017              2016 (1)
                                                                                                                            (audited)         (audited)
Balance Sheet Data (at period end):
Cash and cash equivalents                                                                                                   $       31,360    $       29,078
Marketable securities                                                                                                       --                601
Restricted cash                                                                                                             1,967             1,851
Accounts receivable, net of allowance                                                                                       44,159            36,688
Inventory, net of allowance                                                                                                 2,971             4,116
Prepaid expenses and other current assets                                                                                   30,196            29,188
Deferred customer acquisition costs, current and non-current                                                                1,418             3,136
Property and equipment, net                                                                                                 46,754            48,415
Goodwill                                                                                                                    373,764           360,363
Software, net                                                                                                               22,252            21,971
Intangible assets, net                                                                                                      173,270           199,256
Deferred tax assets                                                                                                         110,892           184,210
Other assets                                                                                                                19,678            16,793
Total assets                                                                                                                $       858,681   $       935,666
Accounts payable and accrued expenses                                                                                       $       115,176   $       139,946
Deferred revenue, current and non-current                                                                                   30,576            32,892
Total notes payable, net of debt related costs and indebtedness under revolving credit facility, including current portion  232,515           318,874
Capital lease obligations                                                                                                   140               3,428
Other liabilities                                                                                                           7,376             3,985
Total liabilities                                                                                                           $       385,783   $       499,125
Total stockholders’ equity                                                                                                  $       472,898   $       436,541
(1) Revised due to the correction of prior period financial statements.
VONAGE HOLDINGS CORP.
TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA
(Dollars in thousands, except per line/seat 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,
                                                     2017                         2017                         2016                         2017                         2016
Revenues:
Service                                              $            113,992         $            109,483         $            91,663          $            419,591         $            301,877
Product (1)                                          12,661                       13,085                       12,655                       52,498                       52,450
Service and Product                                  126,653                      122,568                      104,318                      472,089                      354,327
USF                                                  7,447                        6,738                        6,193                        26,833                       22,025
Total Business Revenues                              $            134,100         $            129,306         $            110,511         $            498,922         $            376,352
Cost of Revenues:
Service (2)                                          $            51,716          $            50,777          $            38,697          $            190,934         $            111,485
Product (1)                                          12,666                       12,702                       12,664                       51,026                       51,129
Service and Product                                  64,382                       63,479                       51,361                       241,960                      162,614
USF                                                  7,447                        6,738                        6,193                        26,833                       22,036
Cost of Revenues                                     $            71,829          $            70,217          $            57,554          $            268,793         $            184,650
Service margin %                                     54.6                      %  53.6                      %  57.8                      %  54.5                      %  63.1                      %
Gross margin % ex-USF (Service and product margin %) 49.2                      %  48.2                      %  50.8                      %  48.7                      %  54.1                      %
Gross margin %                                       46.4                      %  45.7                      %  47.9                      %  46.1                      %  50.9                      %
(1) Includes customer premise equipment, access, professional services, and shipping and handling.
(2) Excludes depreciation and amortization of $5,169, $5,053, $5,013 for the quarters ended December 31, 2017, September 30, 2017 and December 30, 2016, respectively and $20,100 and $18,820 for the years ended December 31, 2017 and 2016, 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,
                                                     2017                         2017                         2016                         2017                         2016
Revenues:
Service                                              $            107,674         $            111,913         $            123,114         $            454,340         $            522,515
Product (1)                                          27                           94                           188                          525                          702
Service and Product                                  107,701                      112,007                      123,302                      454,865                      523,217
USF                                                  12,219                       11,770                       12,950                       48,499                       56,052
Total Business Revenues                              $            119,920         $            123,777         $            136,252         $            503,364         $            579,269
Cost of Revenues:
Service (2)                                          $            17,485          $            19,434          $            22,834          $            80,454          $            100,054
Product (1)                                          1,733                        1,517                        3,198                        7,208                        14,394
Service and Product                                  19,218                       20,951                       26,032                       87,662                       114,448
USF                                                  12,219                       11,770                       12,950                       48,499                       56,052
Cost of Revenues                                     $            31,437          $            32,721          $            38,982          $            136,161         $            170,500
Service margin %                                     83.8                      %  82.6                      %  81.5                      %  82.3                      %  80.9                      %
Gross margin % ex-USF (Service and product margin %) 82.2                      %  81.3                      %  78.9                      %  80.7                      %  78.1                      %
Gross margin %                                       73.8                      %  73.6                      %  71.4                      %  72.9                      %  70.6                      %
(1) Includes customer premise equipment, access, professional services, and shipping and handling.
(2) Excludes depreciation and amortization of $1,642, $1,799, $2,198 for the quarters ended December 31, 2017, September 30, 2017 and December 30, 2016, respectively and $7,208 and $9,669 for the years ended December 31, 2017 and 2016, 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,
                                      2017                             2017                             2016                             2017                             2016
Revenues (1)                          $              134,100           $              129,306           $              110,511           $              498,922           $              376,352
Average monthly revenues per seat (2) $              43.71             $              43.53             $              44.65             $              43.86             $              44.94
Seats (at period end) (2)             727,085                          709,736                          638,096                          727,085                          638,096
Revenue churn (2)                     1.2                           %  1.2                           %  1.4                           %  1.3                           %  1.4                           %
(1) Includes revenues of $39,885, $38,364, and $26,541, respectively, for the three months ended December 31, 2017, September 30, 2017, and December 31, 2016 and $139,665 and $58,148, respectively, for the year ended December 31, 2017 and 2016 from CPaaS, which was acquired on June 3, 2016.
(2) UCaaS only.
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,
                                  2017                 2017                 2016                 2017                 2016
Revenues                          $        119,920     $        123,777     $        136,252     $        503,364     $        579,269
Average monthly revenues per line $        26.33       $        26.29       $        26.11       $        26.19       $        26.43
Subscriber lines (at period end)  1,492,067            1,543,760            1,711,366            1,492,067            1,711,366
Customer churn                    1.9               %  1.9               %  2.2               %  2.0               %  2.2               %
VONAGE HOLDINGS CORP.
TABLE 3. RECONCILIATION OF GAAP BUSINESS REVENUES TO ADJUSTED BUSINESS REVENUES
(Dollars in thousands)
(unaudited)
                                          Three Months Ended                           For the Years Ended
                                          December 31,   September 30,  December 31,   December 31,
                                          2017           2017           2016           2017          2016
Total Business revenues(1)                $    134,100   $    129,306   $    110,511   $   498,922   $   376,352
Total UCaaS revenues (1)                  $    94,215    $    90,942    $    83,971    $   359,257   $   318,205
Early termination letter                  --             --             --             --            (500)
Bad debt policy reclassification          --             --             --             --            (431)
Accounts receivable write-down            --             --             300            319           --
Adjusted total UCaaS revenues             94,215         90,942         84,271         359,576       317,274
Hosted Infrastructure Sale                --             --             (1,660)        (2,721)       (6,262)
Adjusted total UCaaS revenues             94,215         90,942         82,611         356,855       311,012
Less: Product revenues                    12,661         13,085         12,655         52,498        52,450
Less: USF revenues                        7,447          6,738          6,193          26,833        22,025
Adjusted total UCaaS service revenues     $    74,107    $    71,119    $    63,763    $   277,524   $   236,537
Total CPaaS revenues (1)                  $    39,885    $    38,364    $    26,541    $   139,665   $   58,148
Nexmo pre-acquisition revenues            --             --             --             --            34,225
Pro forma CPaaS revenues                  39,885         38,364         26,541         139,665       92,373
Net-to-gross revenue reporting adjustment --             --             2,827          3,374         10,267
Adjusted total CPaaS revenues             $    39,885    $    38,364    $    29,368    $   143,039   $   102,640
(1) Total Business revenues is comprised of revenues from UCaaS and CPaaS
VONAGE HOLDINGS CORP.
TABLE 4. 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,
                                                      2017           2017           2016           2017           2016
Income from operations                                $    22,985    $    24,623    $    5,214     $   59,391     $    44,154
Depreciation and amortization                         18,003         18,179         19,070         72,523         72,285
Share-based expense                                   8,035          7,594          9,462          30,105         30,253
Acquisition related transaction and integration costs --             15             (219)          172            4,863
Acquisition related consideration accounted for as    823            886            6,813          12,782         16,780
compensation
Change in contingent consideration                    --             --             (4,110)        --             (11,472)
Organizational transformation                         1,101          --             --             5,101          2,435
Loss on sublease                                      --             --             744            --             744
Adjusted OIBDA                                        $    50,947    $    51,297    $    36,974    $   180,074    $    160,042
Less:
Capital expenditures                                  $    (6,125)   $    (6,795)   $    (6,166)   $   (21,915)   $    (26,146)
Intangible assets                                     $    --        $    --        $    (50)      $   --         $    (50)
Acquisition and development of software assets        $    (1,936)   $    (2,554)   $    (2,551)   $   (11,374)   $    (11,538)
Adjusted OIBDA Minus Capex                            $    42,886    $    41,948    $    28,207    $   146,785    $    122,308
VONAGE HOLDINGS CORP.
TABLE 5. 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,
                                                      2017            2017          2016 (1)       2017            2016 (1)
Net (loss) income                                     $    (55,273)   $    10,602   $    (2,038)   $    (33,933)   $    13,151
Amortization of acquisition - related intangibles     9,220           9,257         8,706          36,545          32,016
Acquisition related transaction and integration costs --              15            (219)          172             4,863
Acquisition related consideration accounted for as    823             886           6,813          12,782          16,780
compensation
Change in contingent consideration                    --              --            (4,110)        --              (11,472)
Organizational transformation                         1,101           --            --             5,101           2,435
Loss on sublease                                      --              --            744            --              744
Tax impact on TCJA                                    69,378          --            --             69,378          --
Tax effect on adjusting items                         (4,604)         (4,197)       (4,931)        (22,558)        (18,743)
Net income excluding adjustments                      $    20,645     $    16,563   $    4,965     $    67,487     $    39,774
Net (loss) income per common share:
Basic                                                 $    (0.24)     $    0.05     $    (0.01)    $    (0.15)     $    0.06
Diluted                                               $    (0.24)     $    0.04     $    (0.01)    $    (0.15)     $    0.06
Weighted-average common shares outstanding:
Basic                                                 229,339         227,943       218,375        225,311         215,751
Diluted                                               229,339         242,720       218,375        225,311         231,941
Net income per common share, excluding adjustments:
Basic                                                 $    0.09       $    0.07     $    0.02      $    0.30       $    0.18
Diluted                                               $    0.08       $    0.07     $    0.02      $    0.28       $    0.17
Weighted-average common shares outstanding:
Basic                                                 229,339         227,943       218,375        225,311         215,751
Diluted                                               245,725         242,720       237,670        241,933         231,941
(1) Revised due to the correction of prior period financial statements.
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,
                                               2017            2017            2016 (1)        2017             2016 (1)
Net cash provided by operating activities      $      47,458   $      47,907   $      23,842   $      128,058   $      93,456
Less:
Capital expenditures                           (6,125)         (6,795)         (6,166)         (21,915)         (26,146)
Intangible assets                              --              --              (50)            --               (50)
Acquisition and development of software assets (1,936)         (2,554)         (2,551)         (11,374)         (11,538)
Free cash flow                                 $      39,397   $      38,558   $      15,075   $      94,769    $      55,722
(1) Revised due to the adoption of new Accounting Standard Updates and the correction of prior period financial statements.
VONAGE HOLDINGS CORP.
TABLE 7. RECONCILIATION OF NOTES PAYABLE, INDEBTEDNESS UNDER REVOLVING CREDIT FACILITY, AND CAPITAL LEASES TO NET DEBT
(Dollars in thousands)
(unaudited)
                                                                                                                  For the years ended December 31,
                                                                                                                  2017                          2016
Current maturities of capital lease obligations                                                                   $             140             $             3,288
Current portion of notes payable                                                                                  18,750                        18,750
Notes payable and indebtedness under revolving credit facility, net of current maturities and debt related costs  213,766                       300,124
Unamortized debt related costs                                                                                    672                           1,064
Capital lease obligations, net of current maturities                                                              --                            140
Gross debt                                                                                                        233,328                       323,366
Less:
Unrestricted cash and marketable securities                                                                       31,360                        29,679
Net debt                                                                                                          $             201,968         $             293,687

About Vonage

Vonage (VG ) is a leading provider of cloud communications services for business. Vonage transforms the way people work and businesses operate through a portfolio of cloud-based communications solutions that enable internal collaboration among employees, while also keeping companies closely connected with their customers, across any mode of communication, on any device. Vonage’s API Platform provides tools for voice, messaging and phone verification services, allowing developers to embed contextual, programmable communications into mobile apps, websites and business systems, enabling enterprises to easily communicate relevant information to their customers in real time, anywhere in the world, through text messaging, chat, social media and voice. 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), free cash flow and adjusted revenues.

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, 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 Revenues

Vonage uses adjusted Business revenues to illustrate the impact of one-time items for UCaaS and CPaaS revenues.

Safe Harbor Statement

This press release contains forward-looking statements, including statements about acquisitions, acquisition integration, growth priorities or plans, revenues, adjusted OIBDA, churn, seats, lines or accounts, average revenue per user, cost of telephony services, the Company’s share repurchase plan, 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; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers; the risk associated with developing and maintaining effective internal sales teams and effective distribution channels; risks related to the acquisition or integration of businesses we have acquired; 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 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 comply with data privacy and related regulatory matters; our ability to obtain or maintain relevant intellectual property licenses; failure 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; reliance on third parties for our 911 services; uncertainties relating to regulation of VoIP services; risks associated with legislative, regulatory or judicial actions regarding our CPaaS products; the impact of governmental export controls or sanctions on our CPaaS products; our ability to establish and expand strategic alliances; risks associated with operating abroad; risks associated with the taxation of our business; risks associated with a material weakness in our internal controls; our dependence upon key personnel; governmental regulation and taxes in our international operations; liability under anti-corruption laws; our dependence on our customers’ existing broadband connections; differences between our services and traditional telephone service; restrictions in our debt agreements that may limit our operating flexibility; foreign currency exchange risk; the market for our stock; our ability to obtain additional financing if required; any reinstatement of holdbacks by our credit card processors; our history of net losses and ability to achieve consistent profitability in the future; 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, 2016, in the Company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 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, and therefore, you should not rely on these forward-looking statements as representing the Company’s views as of any date subsequent to today.

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SOURCE Vonage Holdings Corp.

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