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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________  to __________                    
Commission File Number 001-32887 
VONAGE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
 
Delaware11-3547680
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
23 Main StreetHolmdel,NJ,07733
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (732528-2600
(Former name, former address and former fiscal year, if changed since last report): Not Applicable

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001VGNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
x
  Accelerated filero
Non-accelerated filer
o  
  
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding atJuly 31, 2020
Common Stock, par value $0.001245,551,723  shares


VONAGE HOLDINGS CORP.
INDEX
 
Part 1 - Financial Information
  Page
Item 1.
Item 2.
Item 3.
Item 4
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Financial Information Presentation
For the financial information discussed in this Quarterly Report on Form 10-Q, other than per share and per line amounts, dollar amounts are presented in thousands, except where noted.
2

GLOSSARY OF TERMS

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2018 Credit Facility$100 million senior secured term loan and $500 million revolving facility due 2023
Convertible Senior Notes$345 million aggregate principal amount of 1.75% convertible notes due 2024
APIApplication Program Interfaces
API Platform GroupComprised of CPaaS programmable communication solutions for business customers
Applications GroupComprised of UCaaS and CCaaS communication solutions for business customers
ASCThe FASB Accounting Standards Codification, which the FASB established as the source of authoritative GAAP
ASUAccounting Standards Updates - updates to the ASC
CCaaSContact Center as a Service
CPaaSCommunications Platform as a Service
CRMCustomer Relationship Management
Exchange ActThe Securities Exchange Act of 1934, as amended
EPSEarnings Per Share
FASBFinancial Accounting Standards Board
FCCFederal Communications Commission
IPInternet Protocol
LIBORLondon Inter-Bank Offered Rate
MPLSMulti-Protocol Label Switching
NOLsNet Operating Losses
SaaSSoftware as a Service
SABStaff Accounting Bulletin
SD-WANSoftware-Defined Wide Area Network
SECU.S. Securities and Exchange Commission
SIPSession Initiation Protocol
SMBSmall to medium-sized business
SMSShort Message Service
UCaaSUnified Communications as a Service
USFFederal Universal Service Fund
VoIPVoice over Internet Protocol
3

PART 1 - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value) 
June 30,
2020
December 31,
2019
Assets
(Unaudited) 
Current assets:
Cash and cash equivalents
$47,565  $23,620  
Accounts receivable, net of allowance of $9,708 and $5,494, respectively
114,554  101,813  
Inventory, net of allowance of $65 and $76, respectively
997  1,475  
Deferred customer acquisition costs, current portion
15,868  13,834  
Prepaid expenses
24,413  22,338  
Other current assets
6,211  9,988  
Total current assets
209,608  173,068  
Property and equipment, net of accumulated depreciation of $115,807 and $109,646, respectively
40,163  48,371  
Operating lease right-of-use assets31,329  50,847  
Goodwill593,722  602,970  
Software, net of accumulated amortization of $102,665 and $102,133, respectively
60,521  40,300  
Deferred customer acquisition costs60,545  55,148  
Restricted cash2,046  2,015  
Intangible assets, net of accumulated amortization of $247,635 and $221,182, respectively
214,284  249,905  
Deferred tax assets110,040  108,347  
Other assets33,631  33,729  
Total assets
$1,355,889  $1,364,700  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$29,383  $42,366  
Accrued expenses
145,467  137,589  
Deferred revenue, current portion
65,171  59,464  
Operating lease liabilities, current portion
11,396  12,477  
Total current liabilities
251,417  251,896  
Indebtedness under revolving credit facility245,500  220,500  
Convertible senior notes, net283,619  276,658  
Operating lease liabilities25,042  45,722  
Other liabilities2,672  2,862  
Total liabilities
808,250  797,638  
Commitments and Contingencies (Note 9)
Stockholders’ Equity:
Common stock, par value 0.001 per share; 596,950 shares authorized at June 30, 2020, and December 31, 2019
320  316  
Additional paid-in capital1,519,055  1,494,469  
Accumulated deficit(643,194) (631,009) 
Treasury stock, at cost(319,314) (306,043) 
Accumulated other comprehensive (loss) income(9,228) 9,329  
Total stockholders’ equity
547,639  567,062  
Total liabilities and stockholders’ equity
$1,355,889  $1,364,700  
See accompanying notes to condensed consolidated financial statements.
4


VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months EndedSix Months Ended
June 30,June 30,
 2020201920202019
Revenues:
Service, access and product revenues
$296,516  $279,025  $579,593  $539,135  
USF revenues
14,017  18,559  28,397  37,990  
Total revenues310,533  297,584  607,990  577,125  
Operating Expenses:
Service, access and product cost of revenues (excluding depreciation and amortization)
119,971  109,662  233,009  203,642  
USF cost of revenues
14,017  18,559  28,397  37,990  
Sales and marketing
90,827  95,362  176,448  190,885  
Engineering and development
19,784  16,891  38,987  33,417  
General and administrative
42,820  36,615  83,702  72,074  
Depreciation and amortization
20,692  20,662  41,177  41,876  
Total operating expenses
308,111  297,751  601,720  579,884  
Income (loss) from operations2,422  (167) 6,270  (2,759) 
Other Income (Expense):
Interest expense
(9,321) (8,487) (17,403) (16,063) 
Other income (expense), net
(38) (147) 191  (563) 
Total other expense, net
(9,359) (8,634) (17,212) (16,626) 
Loss before income tax benefit(6,937) (8,801) (10,942) (19,385) 
Income tax (expense) benefit(1,493) 13,325  (1,243) 23,375  
Net (loss) income$(8,430) $4,524  $(12,185) $3,990  
(Loss) Earnings per common share:
Basic
$(0.03) $0.02  $(0.05) $0.02  
Diluted
$(0.03) $0.02  $(0.05) $0.02  
Weighted-average common shares outstanding:
Basic
245,385  242,475  244,506  241,507  
Diluted
245,385  249,720  244,506  249,521  

See accompanying notes to condensed consolidated financial statements.
5

VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME
(In thousands)
(Unaudited)
 
  Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Net (loss) income$(8,430) $4,524  $(12,185) $3,990  
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax expense (benefit) of $281, $(342), $(189), and $91, respectively
4,069  (6,343) (19,558) (1,135) 
Unrealized gain (loss) on derivatives, net of tax expense (benefit) of $46, $264, $(4) and $292, respectively
1,419  (794) 1,001  (1,481) 
Total other comprehensive income (loss)5,488  (7,137) (18,557) (2,616) 
Comprehensive (loss) income$(2,942) $(2,613) $(30,742) $1,374  


See accompanying notes to condensed consolidated financial statements.
6

VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
Six Months Ended
June 30,
 20202019
Cash flows from operating activities:
Net (loss) income$(12,185) $3,990  
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization12,967  13,120  
Amortization of intangibles28,210  28,756  
Deferred income taxes(1,952) (24,852) 
Amortization of deferred customer acquisition costs7,567  4,921  
Allowances for doubtful accounts and obsolete inventory3,509  475  
Amortization of financing costs and debt discount7,367  1,769  
Loss on disposal of property and equipment740  444  
Share-based expense22,442  19,231  
Changes in derivatives1,055  (265) 
Changes in operating assets and liabilities:
Accounts receivable(16,927) (23,268) 
Inventory484  444  
Prepaid expenses and other current assets1,413  1,494  
Deferred customer acquisition costs(15,389) (15,372) 
Accounts payable and accrued expenses(4,318) 18,139  
Deferred revenue6,533  6,399  
Other assets - deferred cloud computing implementation costs(3,013) (8,310) 
Other assets and liabilities300  952  
Net cash provided by operating activities38,803  28,067  
Cash flows used in investing activities:
Capital expenditures
(4,855) (9,456) 
Purchase of intangible assets
(190)   
Acquisition and development of software assets
(20,199) (12,997) 
Net cash used in investing activities(25,244) (22,453) 
Cash flows provided by/(used in) financing activities:
Payments for short and long-term debt
(50,000) (406,000) 
Proceeds from issuance of long-term debt
75,000  479,000  
Payments of debt issuance costs
  (8,891) 
Payments for capped call transactions and costs
  (28,325) 
Common stock repurchases
  (10,000) 
Employee taxes paid on withholding shares
(13,179) (19,023) 
Proceeds from exercise of stock options
243  1,264  
Net cash provided by financing activities12,064  8,025  
Effect of exchange rate changes on cash
(1,647) (1,101) 
Net increase in cash, cash equivalents, and restricted cash23,976  12,538  
Cash, cash equivalents, and restricted cash, beginning of period25,635  7,104  
Cash, cash equivalents, and restricted cash, end of period$49,611  $19,642  
Supplemental disclosures of cash flow information:
Cash paid (received) during the periods for:
Interest
$8,856  $13,462  
Income taxes
$(2,766) $2,226  
Non-cash investing activities:
Acquisition of long-term assets included in accounts payable and accrued expenses
$1,980  $67  
Debt issuance costs included in accounts payable and accrued liabilities
$  $1,154  
See accompanying notes to condensed consolidated financial statements.
7

VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Balance at March 31, 2019$314  $1,424,173  $(612,061) $(293,575) $11,291  $530,142  
Stock option exercises1  783  784  
Share-based expense11,216  11,216  
Employee taxes paid on
withholding shares
(457) (457) 
Common stock repurchases(1) (9,999) (10,000) 
Equity component of convertible
notes, net of issuance costs and tax
50,123  50,123  
Purchase of capped calls, net of tax(21,553) (21,553) 
Foreign currency translation
adjustment
(6,343) (6,343) 
Unrealized gain on derivatives(794) (794) 
Net income4,524  4,524  
Balance at June 30, 2019$314  $1,464,742  $(607,537) $(304,031) $4,154  $557,642  
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Balance at March 31, 2020$320  $1,506,664  $(634,764) $(318,791) $(14,716) $538,713  
Stock option exercises  88  88  
Share-based expense12,303  12,303  
Employee taxes paid on withholding
shares
(523) (523) 
Foreign currency translation
adjustment
4,069  4,069  
Unrealized loss on derivatives1,419  1,419  
Net loss(8,430) (8,430) 
Balance at June 30, 2020$320  $1,519,055  $(643,194) $(319,314) $(9,228) $547,639  
See accompanying notes to condensed consolidated financial statements.
8

VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Balance at December 31, 2018$310  $1,415,682  $(611,985) $(275,009) $6,770  $535,768  
Cumulative effect adjustment upon
the adoption of Topic 842
458  458  
Stock option exercises5  1,259  1,264  
Share-based expense19,231  19,231  
Employee taxes paid on
withholding shares
(19,023) (19,023) 
Common stock repurchases(1) (9,999) (10,000) 
Equity component of convertible
notes, net of issuance costs and tax
50,123  50,123  
Purchase of capped calls, net of tax(21,553) (21,553) 
Foreign currency translation
adjustment
(1,135) (1,135) 
Unrealized gain on derivatives(1,481) (1,481) 
Net income3,990  3,990  
Balance at June 30, 2019$314  $1,464,742  $(607,537) $(304,031) $4,154  $557,642  
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Balance at December 31, 2019$316  $1,494,469  $(631,009) $(306,043) $9,329  $567,062  
Stock option exercises4  239  243  
Share-based expense24,347  24,347  
Employee taxes paid on withholding
shares
(13,271) (13,271) 
Foreign currency translation
adjustment
(19,558) (19,558) 
Unrealized loss on derivatives1,001  1,001  
Net loss(12,185) (12,185) 
Balance at June 30, 2020$320  $1,519,055  $(643,194) $(319,314) $(9,228) $547,639  

See accompanying notes to condensed consolidated financial statements.

9


VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Note 1.    Nature of Business
Nature of Operations
Vonage Holdings Corp. (“Vonage”, “Company”, “we”, “our”, “us”) is incorporated as a Delaware corporation. At Vonage, our strategy is to continually redefine business communications. We are making communications more flexible, intelligent and personal to help enterprises the world over stay ahead. We provide unified communications, contact centers and programmable communications APIs, built on what we believe to be the world's most flexible cloud communications platform. True to our roots as a technology disruptor, our flexible approach helps us better serve the growing collaboration, communications, and customer experience needs of companies, across all communications channels.
For our Business customers, we provide innovative, cloud-based Applications, comprised of integrated voice, text, video, data, collaboration, and mobile applications over our flexible, scalable SIP-based VoIP network. We also offer API solutions designed to enhance the way businesses communicate with their customers by embedding communications into apps, websites and business processes. In combination, our products and services permit our business customers to communicate with their customers and employees through any cloud-connected device, in any place, at any time without the often costly investment required with on-site equipment. We have a robust set of product families tailored to serve the full range of the business value chain, from the SMB market, through mid-market and enterprise markets. We provide customers with multiple deployment options, designed to provide the reliability and quality of service they demand. We provide customers the ability to integrate our cloud communications platform with many cloud-based productivity and CRM solutions, including Google’s G Suite, Zendesk, Salesforce’s Sales Cloud, Oracle, and Clio. With our ability to integrate these cloud-based, workplace tools, Vonage integrates the entire business communications value chain - from employee communications that maximize productivity to the direct engagement with customers that APIs provides. When combined with our MPLS network, as well as voice services over customers' broadband networks via our SmartWan solution, we create a differentiated offering.
We also provide a robust suite of feature-rich residential communication solutions that allow consumers to connect their home phones and mobile phones on one number and we offer attractive international long distance rates that help create a loyal base of satisfied customers.
Customers in the United States represented 68% and 71% of our consolidated revenues for the three months ended June 30, 2020 and 2019 and 69% and 72% for the six months ended June 30, 2020 and 2019, respectively, with the balance in Canada, the United Kingdom, China, Singapore, Netherlands, and other countries around the world.
Unaudited Interim Financial Information
The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the SEC's regulations for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the Company's financial position, results of operations, comprehensive income, cash flows, and stockholders’ equity for the periods presented. The results for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 21, 2020.
Use of Estimates
Our condensed consolidated financial statements and notes thereof are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, including uncertainty in the current economic environment due to the recent outbreak of the novel coronavirus COVID-19.

10


VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)

We base our estimates on historical experience, available market information, appropriate valuation methodologies, and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are used for such items as depreciable lives for long-lived assets including intangible assets, tax provisions, uncollectible accounts, convertible notes, and assets and liabilities assumed in business combinations, among others. In addition, estimates are used to test long-lived assets and goodwill for impairment.
COVID-19 has created and may continue to create uncertainty in customer payments, reduced usage, and issuance of customer credits to distressed customers served by certain product lines. As of the date of our condensed consolidated financial statements, we are not aware of any specific event or circumstance that would require us to materially update our estimates or judgments. However, these estimates may change as new events occur and additional information is obtained, which may result in changes being recognized in our condensed consolidated financial statements in future periods. In particular and in light of the COVID-19 pandemic, the assumptions and estimates associated with collectability assessment of revenue and credit losses of accounts receivable may have a material impact our consolidated financial statements in future periods, depending on the continued duration or degree of the impact of the COVID-19 pandemic on the global economy.
Reclassifications
Reclassifications have been made to our condensed consolidated financial statements for the prior year periods to conform to classifications used in the current year periods. The reclassifications did not affect results of operations, net assets or cash flows.
Note 2.    Summary of Significant Accounting Policies
This footnote should be read in conjunction with the complete description of our significant accounting policies under Note 2, Summary of Significant Accounting Policies to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Service, Access, and Product Cost of Revenues
Service, access, and product cost of revenues excludes depreciation and amortization expense of $11,148 and $9,144 for the three months ended June 30, 2020 and 2019 and $22,304 and $18,562 for the six months ended June 30, 2020 and 2019, respectively. In addition, costs of goods sold included in service, access, and product cost of revenues during the three months ended June 30, 2020 and 2019 were $2,419 and $5,563 and during the six months ended June 30, 2020 and 2019 were $6,095 and $11,191, respectively.
Sales and Marketing Expenses
We incurred advertising costs, which are included in sales and marketing of $14,290 and $16,586 for the three months ended June 30, 2020 and 2019 and $23,750 and $34,336 for the six months ended June 30, 2020 and 2019, respectively.
Fair Value of Financial Instruments
Certain of the Company's other financial instruments, which include cash and cash equivalents, restricted cash, accounts receivable and accounts payable, approximate fair value due to their short-term nature and as such are classified as Level 1. We believe the fair value of our 2018 Credit Facility at June 30, 2020 and December 31, 2019 was approximately the same as its carrying amount as the facility bears interest at a variable rate indexed to current market conditions and is classified as Level 2 within the fair value hierarchy.
11


VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:
Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 - observable prices that are based on inputs not quoted on active markets but corroborated by market data; and
Level 3 - unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.
As of June 30, 2020 and December 31, 2019, the fair value of the 1.75% convertible senior notes due 2024 (the “Convertible Senior Notes”) was approximately $316,958 and $309,641, respectively. The fair value was determined based on the quoted price for the Convertible Senior Notes in an inactive market on the last trading day of the reporting period and is classified as Level 2 in the fair value hierarchy.
Supplemental Balance Sheet Information
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to amounts included in the consolidated statements of cash flows:
As of June 30,As of December 31,
2020201920192018
Cash and cash equivalents$47,565  $17,963  $23,620  $5,057  
Restricted cash2,046  1,679  2,015  2,047  
Total cash, cash equivalents and restricted cash$49,611  $