News Release

Vonage Reports First Quarter 2022 Financial Results

May 5, 2022 at 7:00 AM EDT

HOLMDEL, N.J., May 05, 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 ended March 31, 2022.

First Quarter 2022 Highlights:

  • Consolidated revenue of $359 million, an increase of 8% year-over-year
    • Consumer revenue of $62 million, a decrease of 19% year-over-year
    • Vonage Communications Platform (VCP) revenue of $296 million, an increase of 16% year-over-year
      • VCP Service revenue of $284 million, an increase of 18% year-over-year
        • API revenue of $162 million, an increase of 28% year-over-year
        • Unified Communications & Contact Center Service revenue of $123 million, an increase of 7% year-over-year
  • Consolidated Net Loss of $17 million, a decrease of $17 million from the prior year
  • Consolidated Adjusted EBITDA(1) of $44 million, a decrease of $4 million from the prior year
    • VCP Adjusted EBITDA of $2 million, an increase of $4 million from the prior year
    • Consumer Adjusted EBITDA of $42 million, a decrease of $8 million from the prior year

Vonage will not host a conference call to discuss its results for the first quarter 2022 or provide financial guidance for the second 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)
(unaudited)

 Three Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Statement of Operations Data:     
Service, access and product revenues$344,852  $350,167  $314,793 
USF revenues 13,976   16,138   18,107 
Total revenues 358,828   366,305   332,900 
      
Operating Expenses:     
Service, access and product cost of revenues (excluding depreciation and amortization of $17,679, $16,895, and $13,647, respectively) 168,409   174,923   138,680 
USF cost of revenues 13,976   16,138   18,107 
Sales and marketing 78,878   80,702   81,474 
Engineering and development 20,760   19,961   20,360 
General and administrative 70,456   70,164   44,933 
Depreciation and amortization 25,195   23,572   20,417 
  377,674   385,460   323,971 
(loss) Income from operations (18,846)  (19,155)  8,929 
Other Income (Expense):     
Interest expense (3,653)  (6,924)  (7,298)
Other income (expense), net 511   1,119   174 
  (3,142)  (5,805)  (7,124)
(Loss) Income before income tax (21,988)  (24,960)  1,805 
Income tax benefit (expense) 4,866   2,809   (2,181)
Net loss$(17,122) $(22,151) $(376)
Loss per common share:     
Basic and diluted$(0.07) $(0.09) $ 
Weighted-average common shares outstanding:     
Basic and diluted 254,666   252,791   249,638 


VONAGE HOLDINGS CORP.
TABLE 1. CONSOLIDATED FINANCIAL DATA - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)

 Three Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Statement of Cash Flow Data:     
Net cash provided by operating activities$40,871  $25,304  $47,318 
Net cash used in investing activities (20,417)  (20,735)  (16,480)
Net cash used in financing activities (24,073)  (33,030)  (21,019)
Capital expenditures, acquisition of intangible assets net of proceeds on sale of intangible assets, acquisition and development of software assets (20,417)  (13,735)  (16,480)


 March 31, December 31,
  2022  2021
Balance Sheet Data:   
Cash and cash equivalents$15,719 $18,342
Restricted cash 2,172  1,967
Accounts receivable, net of allowance 145,895  147,622
Prepaid expenses and other current assets 37,728  37,388
Deferred customer acquisition costs, current and non-current 101,697  101,403
Property and equipment, net 20,155  24,334
Goodwill 612,214  615,134
Operating lease right of use assets 32,221  31,855
Software, net 110,707  106,516
Intangible assets, net 149,199  161,134
Deferred tax assets 121,996  109,087
Other assets 32,753  33,362
Total assets$1,382,456 $1,388,144
    
Accounts payable and accrued expenses$232,031 $226,497
Operating lease liabilities, current and non-current 45,021  43,056
Deferred revenue, current 53,978  61,420
Total notes payable, net and indebtedness under revolving credit facility, including current portion 130,500  130,500
Convertible senior notes, net 340,620  305,609
Other liabilities 5,006  3,341
Total liabilities$807,156 $770,423
Total stockholders' equity$575,300 $617,721


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 PlatformThree Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Statement of Operations Data:     
Service, access and product revenues$289,662  $292,699  $249,040 
USF revenues 6,748   7,403   6,414 
Total revenues 296,410   300,102   255,454 
      
Operating Expenses:     
Service, access and product cost of revenues excluding depreciation and amortization 160,629   167,062   129,643 
USF cost of revenues 6,748   7,403   6,414 
Sales and marketing 77,723   77,362   77,824 
Engineering and development 20,228   19,173   19,523 
General and administrative 65,565   66,720   40,768 
Depreciation and amortization 25,054   23,412   20,080 
  355,947   361,132   294,252 
Loss from operations$(59,537) $(61,030) $(38,798)


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 PlatformThree Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Revenues:     
Service revenues$284,198  $286,820  $240,442 
Access and product revenues(1) 5,464   5,879   8,598 
Service, access and product revenues excluding USF 289,662   292,699   249,040 
USF revenues 6,748   7,403   6,414 
Total revenues$296,410  $300,102  $255,454 
      
Cost of Revenues:     
Service cost of revenues(2)$150,427  $158,013  $120,017 
Access and product cost of revenues(1) 10,202   9,049   9,626 
Service, access and product cost of revenues excluding USF 160,629   167,062   129,643 
USF cost of revenues 6,748   7,403   6,414 
Total cost of revenues$167,377  $174,465  $136,057 
      
Service margin % 47.1%  44.9%  50.1%
Gross margin % excluding USF (Service, access and product margin %) 44.5%  42.9%  47.9%
Gross margin % 43.5%  41.9%  46.7%


(1)Includes customer premise equipment, access, and shipping and handling.
(2)Excludes depreciation and amortization of $17,538, $16,735, and $13,310 for the quarters ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.


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

Vonage Communications PlatformThree Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Service revenue per customer$677  $678  $582 
Vonage Communications Platform service revenue churn 0.6%  0.5%  0.5%

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:

ConsumerThree Months Ended
 March 31, December 31, March 31,
  2022  2021  2021
Statement of Operations Data:     
Service , access and product revenues$55,190 $57,468 $65,753
USF revenues 7,228  8,735  11,693
Total revenues 62,418  66,203  77,446
      
Operating Expenses:     
Service, access and product cost of revenues excluding depreciation and amortization 7,780  7,861  9,037
USF cost of revenues 7,228  8,735  11,693
Sales and marketing 1,155  3,340  3,650
Engineering and development 532  788  837
General and administrative 4,891  3,444  4,165
Depreciation and amortization 141  160  337
  21,727  24,328  29,719
Income from operations$40,691 $41,875 $47,727


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:

ConsumerThree Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Revenues:     
Service revenues$55,132  $57,405  $65,697 
Access and product revenues(1) 58   63   56 
Service, access and product revenues excluding USF 55,190   57,468   65,753 
USF revenues 7,228   8,735   11,693 
Total revenues$62,418  $66,203  $77,446 
      
Cost of Revenues:     
Service cost of revenues(2)$7,228  $7,436  $8,513 
Access and product cost of revenues(1) 552   425   524 
Service, access and product cost of revenues excluding USF 7,780   7,861   9,037 
USF cost of revenues 7,228   8,735   11,693 
Total cost of revenues$15,008  $16,596  $20,730 
      
Service margin % 86.9%  87.0%  87.0%
Gross margin % excluding USF (Service, access and product margin %) 85.9%  86.3%  86.3%
Gross margin % 76.0%  74.9%  73.2%

(1)Includes customer premise equipment and shipping and handling.
(2)Excludes depreciation and amortization of $141, $160, $337 for the quarters ended March 31, 2022, December 31, 2021 and March 31, 2021, 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:

ConsumerThree Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Average monthly revenues per line$27.23  $27.82  $29.05 
Subscriber lines (at period end) 749,108   779,179   867,243 
Customer churn 1.6%  1.4%  1.9%


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

 Three Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Net loss$(17,122) $(22,151) $(376)
Interest expense 3,653   6,924   7,298 
Income tax (4,866)  (2,809)  2,181 
Depreciation and amortization 25,195   23,572   20,417 
Amortization of costs to implement cloud computing arrangements 1,175   840   896 
EBITDA 8,035   6,376   30,416 
      
Share-based expense 29,042   32,325   14,566 
Acquisition related transaction and integration costs 1,744   10,120    
Exit activities - severance and lease abandonment (1) 2,103      1,294 
Other non-recurring items (2) 3,135   916   1,891 
Adjusted EBITDA 44,059   49,737   48,167 
      
Consumer Adjusted EBITDA$41,893  $43,297  $50,013 
VCP Adjusted EBITDA 2,166   6,440   (1,846)
Adjusted EBITDA 44,059   49,737   48,167 
Less:     
Capital expenditures (2,773)  (2,214)  (2,553)
Intangible assets (21)  (62)  (62)
Acquisition and development of software assets (17,623)  (11,459)  (13,865)
Adjusted EBITDA Minus Capex$23,642  $36,002  $31,687 

(1)Exit activities - severance and lease abandonment relate to the Company's business-wide optimization and alignment project initiated in 2020 which included employee related exits and further facility exit costs executed upon as part of the overall project.
(2)Other non-recurring items principally include certain litigation charges including defense costs, acquisition related consideration accounted for as compensation, long term incentive award and other non-recurring project costs such as the review of the Consumer business.



VONAGE HOLDINGS CORP.
TABLE 4. RECONCILIATION OF GAAP NET (LOSS) INCOME TO
NET INCOME EXCLUDING ADJUSTMENTS
(Dollars in thousands, except per share amounts)
(unaudited) 

 Three Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Net loss$(17,122) $(22,151) $(376)
Amortization of acquisition - related intangibles 9,483   10,823   10,794 
Amortization of costs to implement cloud computing arrangements 1,175   840   896 
Amortization of debt discount    3,402   3,261 
Acquisition related transaction and integration costs 1,744   10,120    
Exit activities - severance and lease abandonment (1) 2,103      1,294 
Other non-recurring items (2) 3,135   916   1,891 
Tax effect on adjusting items (4,586)  (6,787)  (4,715)
Net (loss) income excluding adjustments$(4,068) $(2,837) $13,045 
Loss per common share:     
Basic and diluted$(0.07) $(0.09) $ 
Weighted-average common shares outstanding:     
Basic and diluted 254,666   252,791   249,638 
(Loss) Income per common share, excluding adjustments:     
Basic$(0.02) $(0.01) $0.05 
Diluted$(0.02) $(0.01) $0.05 
Weighted-average common shares outstanding:     
Basic 254,666   252,791   249,638 
Diluted 254,666   252,791   259,031 

(1)Exit activities - severance and lease abandonment relate to the Company's business-wide optimization and alignment project initiated in 2020 which included employee related exits and further facility exit costs executed upon as part of the overall project.
(2)Other non-recurring items principally include certain litigation charges including defense costs, acquisition related consideration accounted for as compensation, long term incentive award and other non-recurring project costs such as the review of the Consumer business.



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

 Three Months Ended
 March 31, December 31, March 31,
  2022   2021   2021 
Net cash provided by operating activities$40,871  $25,304  $47,318 
Less:     
Capital expenditures (2,773)  (2,214)  (2,553)
Proceeds from sale of intangible assets, net of payment for intangible assets (21)  (62)  (62)
Acquisition and development of software assets (17,623)  (11,459)  (13,865)
Free cash flow$20,454  $11,569  $30,838 


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

 March 31, December 31,
  2022  2021
Notes payable and indebtedness under revolving credit facility, net of current maturities$130,500 $130,500
Convertible senior notes, net 340,620  305,609
Unamortized discount on debt 4,380  3,919
Unamortized debt related costs   35,472
Gross debt 475,500  475,500
Less:   
Unrestricted cash 15,719  18,342
Net debt$459,781 $457,158


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, exit activities - severance and lease abandonment, and other non-recurring items.

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, exit activities - severance and lease abandonment, and other non-recurring items. Exit activities - severance and lease abandonment relate to the Company's business-wide optimization and alignment project initiated in 2020 which included employee related exits and further facility exit costs executed upon as part of the overall project. Other non-recurring items principally include certain litigation charges including defense costs, acquisition related consideration accounted for as compensation, long term incentive award and other non-recurring project costs such as the review of the Consumer business. The items excluded from adjusted EBITDA are not separately evaluated for each reportable operating segment.

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, exit activities - severance and lease abandonment, 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, exit activities - severance and lease abandonment, other non-recurring items, and tax effect on adjusting items are not reflective of operating performance. Exit activities - severance and lease abandonment relate to the Company's business-wide optimization and alignment project initiated in 2020 which included employee related exits and further facility exit costs executed upon as part of the overall project. Other non-recurring items principally include certain litigation charges including defense costs, acquisition related consideration accounted for as compensation, long term incentive award and other non-recurring project costs such as the review of the Consumer business.

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.

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.

(vg-f)