News Release

Vonage Reports Second Quarter 2021 Financial Results

August 5, 2021 at 7:00 AM EDT

Vonage Communications Platform (VCP) Service Revenues Grew 23% Year over Year
Company Raises Full-year VCP Revenue and Adjusted EBITDA Guidance

HOLMDEL, N.J., Aug. 05, 2021 (GLOBE NEWSWIRE) -- Vonage Holdings Corp. (Nasdaq: VG), a global leader in cloud communications helping businesses accelerate their digital transformation, today announced results for the quarter ended June 30, 2021.

Second Quarter 2021 Highlights:

  • Vonage Communications Platform Revenues of $276 million
    • VCP Service Revenues increased 23%
    • API Revenues increased 40%
    • Unified Communications & Contact Center Service Revenues increased 7%
  • Consolidated Net Income of $62 thousand and Adjusted EBITDA of $49 million
  • VCP adjusted EBITDA of $1 million marks the first quarter of VCP profitability

“We had a strong second quarter, demonstrating our continued operational execution and delivery against our strategic transformation plan. Our growth is being driven by product innovation and a stronger go-to-market focus in the areas where our products bring the greatest value to our customers, and we can win a disproportionate share of the market,” said Rory Read, Chief Executive Officer. “In the quarter, VCP service revenues increased 23% year over year. API revenues grew 40% driven by strong growth from new and existing customers, and broad-based demand across geographies, verticals and customer size.”

“Unified Communications (UC) and Contact Center (CC) service revenue growth increased to 7% in the second quarter. We continue to see an increasing need for combined UC and CC solutions, and 10 out of our top 15 deals in the quarter included an integrated UC and CC solution. Based on our pipeline, bookings, and improved execution, we are well positioned to accelerate revenue growth to the high single digits in the fourth quarter, and double digits growth in 2022.”

Read continued, “Customer needs are rapidly growing across their communications and engagement platforms, driven by secular tailwinds like cloud migration, digital transformation, and more recently, hybrid working models. Vonage is in a unique position to offer comprehensive Unified Communications, Contact Center and programmable APIs through our Vonage Communications Platform to meet these needs.”

Second Quarter 2021 Vonage Communications Platform Highlights (compared to the year-ago quarter)

  • Vonage Communications Platform revenues, which consist of Unified Communications, Contact Center and API revenues, were $276 million. VCP service revenues were $260 million, a 23% increase.
  • API revenues grew 40% driven by broad-based demand across geographies, verticals and customer size, and dollar-based net expansion (DBNE) was 125%.
  • Unified Communications and Contact Center service revenues grew 7%, ahead of expectations.
  • VCP Service Revenue per Customer was $632 per month, up 24%.
  • VCP Service Revenue Churn of 1.0% was essentially flat.

Second Quarter 2021 Consumer Segment Results (compared to the year-ago quarter)

  • Consumer Revenues were $75 million, down 11%.
  • Customer churn was unchanged at 1.5%.
  • Average revenue per line (ARPU) was $29.37, an increase of $1.78.
  • Ended the quarter with approximately 836 thousand consumer subscriber lines
    • 95% of these customers are tenured over two years and 81% are tenured over five years.

Product Innovation

  • Increased Vonage Video API session size to 5,000 active participants and launched Multi-party Video SDK to serve the online learning, events and other markets.
  • Launched regional media zones to expand country coverage for Vonage’s Video API.
  • Enhanced Vonage’s Messages API with HIPAA compliance to serve the healthcare market.
  • Released 50+ enterprise-grade Vonage Business Communications (UC) calling and messaging features for Microsoft Teams integration.
  • Launched Vonage Contact Center (CC) integration with Salesforce for Service Cloud Voice for Partner Telephony.

Industry Accolades

  • Named a Leader in the IDC MarketScape: Worldwide CPaaS 2021 Vendor Assessment.
  • Named a Leader in the Aragon Research Globe™ for Unified Communications and Collaboration, 2021.
  • Recognized by Gartner Peer Insights 'Voice of the Customer': UCaaS Worldwide Report.
    • Vonage received a 94% Willingness to Recommend score from customers and a rating of 4.7/5.0 in the Product Capability category.
  • Named by Salesforce.org as winner of its 2021 Cross-Industry Independent Software Vendor (ISV) Partner of the Year EMEA Award for the second consecutive year.

Consolidated Income and Balance Sheet
For the second quarter of 2021, Vonage reported consolidated revenues of $351 million, up from $311 million in the year-ago quarter. GAAP net income was $62 thousand, or $0.00 per share, versus a net loss of $8 million in the prior-year period, or ($0.03) per share. Second quarter adjusted net income(1) was $13 million or $0.05 per share, up from adjusted net income(1) of $10 million or $0.04 per share in the prior-year period.

For the second quarter, the Company generated Adjusted EBITDA(2) of $49 million, and Adjusted EBITDA minus Capex(2) of $36 million. Net Cash from Operations was $42 million and Free Cash Flow(3) was $29 million for the quarter. As of June 30, 2021, the Company had a Net Debt to Last Twelve Months Adjusted EBITDA ratio of 2.5 times.

Updated 2021 and Third Quarter Outlook
For the full year 2021, the Company now expects the following:

  • Vonage Communications Platform segment revenues in the range of $1.095 billion to $1.106 billion; within this:
    • Vonage Communications Platform service revenues are expected to grow in the low 20% area
  • Consumer revenues in the $288 million range
  • Consolidated revenues in the range of $1.383 billion to $1.394 billion
  • Vonage Communications Platform adjusted EBITDA in the range of $4 million to $9 million
  • Consumer adjusted EBITDA in the $185 million range
  • Consolidated adjusted EBITDA in the range of $189 million to $194 million
  • Capex in the $65 million range

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

  • Vonage Communications Platform revenues in the range of $276 million to $280 million
    • Vonage Communications Platform service revenues are expected to grow in the low 20% area
  • Consumer revenues in the $69 million range
  • Consolidated revenues in the range of $345 million to $349 million
  • Vonage Communications Platform adjusted EBITDA in the $1 million to $3 million range
  • Consumer adjusted EBITDA in the $45 million range
  • Consolidated Adjusted EBITDA in the range of $46 million to $48 million
  • Capex in the $16 million range

Conference Call and Webcast
The company will host a conference call to discuss its financial results for the second quarter of 2021 and other matters at 8:30 AM Eastern Time. To participate, please dial (877) 407-9716. International callers should dial (201) 493-6779.

A live webcast of the conference call will be available on the Vonage Investor Relations website. A replay of the webcast will also be available shortly after the conclusion of the call, and may be accessed through Vonage's Investor Relations website or by dialing (844) 512-2921 or (412) 317-6671 for international callers, and entering the passcode 13714228.

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

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

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

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

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


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

  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Statement of Operations Data:                  
Service, access and product revenues $ 332,559     $ 314,793     $ 296,516     $ 647,352     $ 579,593  
USF revenues 18,910     18,107     14,017     37,017     28,397  
Total revenues 351,469     332,900     310,533     $ 684,369     $ 607,990  
                   
Operating Expenses:                  
Service, access and product cost of revenues (excluding
depreciation and amortization of $15,515, $13,647,
$11,148, $29,162, and $22,304, respectively)
149,887     138,680     119,971     288,567     233,009  
USF cost of revenues 18,910     18,107     14,017     37,017     28,397  
Sales and marketing 86,215     81,474     90,827     167,689     176,448  
Engineering and development 22,710     20,360     19,784     43,070     38,987  
General and administrative 43,301     44,933     42,820     88,234     83,702  
Depreciation and amortization 22,284     20,417     20,692     42,701     41,177  
  343,307     323,971     308,111     667,278     601,720  
Income from operations 8,162     8,929     2,422     17,091     6,270  
Other Income (Expense):                  
Interest expense (7,081 )   (7,298 )   (9,321 )   (14,379 )   (17,403 )
Other income (expense), net (288 )   174     (38 )   (114 )   191  
  (7,369 )   (7,124 )   (9,359 )   (14,493 )   (17,212 )
Income (Loss) before income tax expense 793     1,805     (6,937 )   2,598     (10,942 )
Income tax expense (731 )   (2,181 )   (1,493 )   (2,912 )   (1,243 )
Net income (loss) $ 62     $ (376 )   $ (8,430 )   $ (314 )   $ (12,185 )
Income (Loss) per common share:                  
Basic $     $     $ (0.03 )   $     $ (0.05 )
Diluted $     $     $ (0.03 )   $     $ (0.05 )
Weighted-average common shares outstanding:                  
Basic 251,430     249,638     245,385     250,539     244,506  
Diluted 259,962     249,638     245,385     250,539     244,506  


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

  Three Months Ended   Six Months Ended
  June 30, March 31,   June 30,   June 30,
  2021 2021   2020   2021   2020
Statement of Cash Flow Data:                
Net cash provided by operating activities $ 42,203      $ 47,318      $ 36,300      $ 89,521      $ 38,803   
Net cash used in investing activities (12,736 )   (16,480 )   (12,009 )   (29,216 )   (25,244 )
Net cash (used in) provided by financing activities (41,222 )   (21,019 )   (20,435 )   (62,241 )   12,064   
Capital expenditures, acquisition of intangible assets, acquisition
and development of software assets
(12,736 )   (16,480 )   (12,009 )   (29,216 )   (25,244 )


    June 30,   December 31,
    2021   2020
Balance Sheet Data:        
Cash and cash equivalents   $ 39,977      $ 43,078   
Restricted cash   2,097      1,919   
Accounts receivable, net of allowance   124,426      116,304   
Prepaid expenses and other current assets   38,050      38,361   
Deferred customer acquisition costs, current and non-current   91,350      85,690   
Property and equipment, net   28,244      31,621   
Goodwill   622,423      624,328   
Operating lease right of use assets   34,320      29,330   
Software, net   94,515      80,638   
Intangible assets, net   182,993      204,267   
Deferred tax assets   104,752      106,374   
Other assets   34,481      33,926   
Total assets   $ 1,397,628      $ 1,395,836   
         
Accounts payable and accrued expenses   $ 198,933      $ 175,544   
Operating lease liabilities, current and non-current   46,978      42,573   
Deferred revenue, current   61,721      65,506   
Total notes payable, net and indebtedness under revolving credit facility, including current portion   170,500      215,500   
Convertible senior notes, net   298,060      290,784   
Other liabilities   3,379      3,155   
Total liabilities   $ 779,571      $ 793,062   
Total stockholders' equity   $ 618,057      $ 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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Statement of Operations Data:                  
Revenues, access and product revenues $ 269,217     $ 249,040     $ 221,419     $ 518,257     $ 427,190  
USF revenues 7,196     6,414     4,830     13,610     9,312  
Total revenues 276,413     255,454     226,249     531,867     436,502  
                   
Operating Expenses:                  
Service, access and product cost of revenues excluding
depreciation and amortization
140,979     129,643     110,904     270,622     214,857  
USF cost of revenues 7,196     6,414     4,830     13,610     9,312  
Sales and marketing 82,304     77,824     87,853     160,128     170,018  
Engineering and development 21,721     19,523     17,890     41,244     34,728  
General and administrative 41,009     40,768     38,764     81,777     75,432  
Depreciation and amortization 22,055     20,080     19,650     42,135     38,848  
  315,264     294,252     279,891     609,516     543,195  
Loss from operations $ (38,851 )   $ (38,798 )   $ (53,642 )   $ (77,649 )   $ (106,693 )


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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Revenues:                  
Service revenues $ 260,452      $ 240,442      $ 212,310      $ 500,894      $ 407,959   
Access and product revenues(1) 8,765      8,598      9,109      17,363      19,231   
Service, access and product revenues excluding USF 269,217      249,040      221,419      518,257      427,190   
USF revenues 7,196      6,414      4,830      13,610      9,312   
Total revenues $ 276,413      $ 255,454      $ 226,249      $ 531,867      $ 436,502   
                   
Cost of Revenues:                  
Service cost of revenues(2) $ 130,351      $ 120,017      $ 100,638      $ 250,368      $ 192,995   
Access and product cost of revenues(1) 10,628      9,626      10,266      20,254      21,862   
Service, access and product cost of revenues
excluding USF
140,979      129,643      110,904      270,622      214,857   
USF cost of revenues 7,196      6,414      4,830      13,610      9,312   
Total cost of revenues $ 148,175      $ 136,057      $ 115,734      $ 284,232      $ 224,169   
                   
Service margin % 50.0  %   50.1  %   52.6  %   50.0  %   52.7  %
Gross margin % excluding USF (Service, access and
product margin %)
47.6  %   47.9  %   49.9  %   47.8  %   49.7  %
Gross margin % 46.4  %   46.7  %   48.8  %   46.6  %   48.6  %

(1) Includes customer premise equipment, access, and shipping and handling.
(2) Excludes depreciation and amortization of $15,286, $13,310, and $9,891 for the quarters ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively, and $28,596 and $19,679 for the six months ended June 30, 2021 and 2020, 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 Platform Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Service revenue per customer $ 632      $ 582      $ 509      $ 607      $ 492   
Vonage Communications Platform service revenue churn 1.0  %   0.5  %   0.9  %     0.7  %   0.9  %


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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Statement of Operations Data:                  
Revenues, access and product revenues $ 63,342      $ 65,753      $ 75,097      $ 129,095      $ 152,403   
USF revenues 11,714      11,693      9,187      23,407      19,085   
Total revenues 75,056      77,446      84,284      152,502      171,488   
                   
Operating Expenses:                  
Service, access and product cost of revenues excluding
depreciation and amortization
8,908      9,037      9,067      17,945      18,152   
USF cost of revenues 11,714      11,693      9,187      23,407      19,085   
Sales and marketing 3,911      3,650      2,974      7,561      6,430   
Engineering and development 989      837      1,894      1,826      4,259   
General and administrative 2,292      4,165      4,056      6,457      8,270   
Depreciation and amortization 229      337      1,042      566      2,329   
  28,043      29,719      28,220      57,762      58,525   
Income from operations $ 47,013      $ 47,727      $ 56,064      $ 94,740      $ 112,963   


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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Revenues:                  
Service revenues $ 63,289      $ 65,697      $ 75,045      $ 128,986      $ 152,288   
Access and product revenues(1) 53      56      52      109      115   
Service, access and product revenues excluding USF 63,342      65,753      75,097      129,095      152,403   
USF revenues 11,714      11,693      9,187      23,407      19,085   
Total revenues $ 75,056      $ 77,446      $ 84,284      $ 152,502      $ 171,488   
                   
Cost of Revenues:                  
Service cost of revenues(2) $ 8,412      $ 8,513      $ 8,671      $ 16,925      $ 17,183   
Access and product cost of revenues(1) 496      524      396      1,020      969   
Service, access and product cost of revenues excluding USF 8,908      9,037      9,067      17,945      18,152   
USF cost of revenues 11,714      11,693      9,187      23,407      19,085   
Total cost of revenues $ 20,622      $ 20,730      $ 18,254      $ 41,352      $ 37,237   
                   
Service margin % 86.7  %   87.0  %   88.4  %   86.9  %   88.7  %
Gross margin % excluding USF (Service, access and product margin %) 85.9  %   86.3  %   87.9  %   86.1  %   88.1  %
Gross margin % 72.5  %   73.2  %   78.3  %   72.9  %   78.3  %

(1) Includes customer premise equipment and shipping and handling.
(2) Excludes depreciation and amortization of $229, $337, $1,257 for the quarters ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively, and $566 and $2,625 for the six months ended June 30, 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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Average monthly revenues per line $ 29.37     $ 29.05     $ 27.59     $ 29.11     $ 27.4  
Subscriber lines (at period end) 836,243     867,243     998,475     836,243     998,475  
Customer churn 1.5  %   1.9  %   1.5  %   1.7  %   1.6  %


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

  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Net income (loss) $ 62     $ (376 )   $ (8,430 )   $ (314 )   $ (12,185 )
Interest expense 7,081     7,298     9,321     14,379     17,403  
Income tax 731     2,181     1,493     2,912     1,243  
Depreciation and amortization 22,284     20,417     20,692     42,701     41,177  
Amortization of costs to implement cloud computing arrangements 961     896     668     1,857     1,277  
EBITDA 31,119     30,416     23,744     61,535     48,915  
                   
Share-based expense 15,762     14,566     11,326     30,328     22,442  
Organizational transformation (1)         3,925         5,119  
Restructuring activities (2) 1,361     1,294         2,655      
Other non-recurring items (3) 563     1,891     2,549     2,454     3,905  
Adjusted EBITDA 48,805     48,167     41,544     96,972     80,381  
                   
Consumer Adjusted EBITDA $ 47,707     $ 50,013     $ 59,057     $ 97,720     $ 118,982  
VCP Adjusted EBITDA 1,098     (1,846 )   (17,513 )   (748 )   (38,601 )
Adjusted EBITDA 48,805     48,167     41,544     96,972     80,381  
Less:                  
Capital expenditures (2,171 )   (2,553 )   (1,968 )   (4,724 )   (4,855 )
Intangible assets (51 )   (62 )   (115 )   (113 )   (190 )
Acquisition and development of software assets (10,514 )   (13,865 )   (9,926 )   (24,379 )   (20,199 )
Adjusted EBITDA Minus Capex $ 36,069     $ 31,687     $ 29,535     $ 67,756     $ 55,137  

(1) 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 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 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 INCOME (LOSS) TO
NET INCOME EXCLUDING ADJUSTMENTS
(Dollars in thousands, except per share amounts)
(unaudited) 

  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Net income (loss) $ 62     $ (376 )   $ (8,430 )   $ (314 )   $ (12,185 )
Amortization of acquisition - related intangibles 10,791     10,794     13,681     21,585     27,460  
Amortization of costs to implement cloud computing arrangements 961     896     668     1,857     1,277  
Amortization of debt discount 3,217     3,261     3,109     6,478     6,163  
Organizational transformation (1)         3,925         5,119  
Restructuring activities (2) 1,361     1,294         2,655      
Other non-recurring items (3) 563     1,891     2,549     2,454     3,905  
Tax effect on adjusting items (4,392 )   (4,715 )   (5,026 )   (9,107 )   (9,224 )
Net income excluding adjustments $ 12,563     $ 13,045     $ 10,476     $ 25,608     $ 22,515  
Income (Loss) per common share:                  
Basic $     $     $ (0.03 )   $     $ (0.05 )
Diluted $     $     $ (0.03 )   $     $ (0.05 )
Weighted-average common shares outstanding:                  
Basic 251,430     249,638     245,385     250,539     244,506  
Diluted 259,962     249,638     245,385     250,539     244,506  
Income per common share, excluding adjustments:                  
Basic $ 0.05     $ 0.05     $ 0.04     $ 0.10     $ 0.09  
Diluted $ 0.05     $ 0.05     $ 0.04     $ 0.10     $ 0.09  
Weighted-average common shares outstanding:                  
Basic 251,430     249,638     245,385     250,539     244,506  
Diluted 259,962     259,031     253,509     259,326     252,116  

(1) 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 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 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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
  2021   2021   2020   2021   2020
Net cash provided by operating activities $ 42,203     $ 47,318     $ 36,300     $ 89,521     $ 38,803  
Less:                  
Capital expenditures (2,171 )   (2,553 )   (1,968 )   (4,724 )   (4,855 )
Intangible assets (51 )   (62 )   (115 )   (113 )   (190 )
Acquisition and development of software assets (10,514 )   (13,865 )   (9,926 )   (24,379 )   (20,199 )
Free cash flow $ 29,467     $ 30,838     $ 24,291     $ 60,305     $ 13,559  


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

    June 30,   December 31,
    2021   2020
Notes payable and indebtedness under revolving credit facility, net of current maturities   $ 170,500      $ 215,500   
Convertible senior notes, net   298,060      290,784   
Unamortized discount on debt   4,716      5,512   
Unamortized debt related costs   42,224      48,704   
Gross debt   515,500      560,500   
Less:        
Unrestricted cash   39,977      43,078   
Net debt   $ 475,523      $ 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, restructuring activities, and other non-recurring items. The costs identified as “organizational transformation” are related to the Company’s announced goal of becoming a pure-play Business 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, restructuring activities 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 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 and other non-recurring project costs such as the Consumer business review and the business optimization project, both of which were initiated in 2020. 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, organizational transformation costs, restructuring activities, 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, restructuring activities, 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. Restructuring activities 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 and other non-recurring project costs such as the Consumer business review and the business optimization project, both of which were initiated in 2020.

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 regarding 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: realizing the benefits of optimization and cost-saving initiatives; the impact of the COVID-19 pandemic; the competition we face; the expansion of competition in the cloud communications market; risks related to the acquisition or integration of businesses we have acquired; our ability to adapt to rapid changes in the cloud communications market; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers cost-effectively; developing and maintaining market awareness and a strong brand; developing and maintaining effective distribution channels; security breaches and other compromises of information security; risks associated with sales of our services to medium-sized and enterprise customers; our reliance on third-party hardware and software; our dependence on third-party vendors; system disruptions or flaws in our technology and systems; our ability to comply with data privacy and related regulatory matters; our ability to scale our business and grow efficiently; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; the effects of significant foreign currency fluctuations; 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; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; retaining senior executives and other key employees; 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; risks associated with legislative, regulatory or judicial actions regarding our business products; reliance on third parties for our 911 services; liability under anti-corruption laws or from governmental export controls or economic sanctions; actions of activist shareholders; 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; risks associated with the settlement and conditional conversion of our Convertible Senior Notes; potential effects the capped call transactions may have on our stock in connection with our Convertible Senior Notes; certain provisions of our charter documents; and other factors that are set forth in the “Risk Factors” in our Annual Report on Form 10-K and in the Company's Quarterly Reports on Form 10-Q filed with the SEC. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so except as required by law, and therefore, you should not rely on these forward-looking statements as representing the Company's views as of any date subsequent to today.

(vg-f)


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