Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________ 
FORM 8-K  
 ____________________________ 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 5, 2020  
____________________________ 
 VONAGE HOLDINGS CORP.
(Exact Name of Registrant as Specified in Charter)  
 ____________________________ 
 
Delaware001-3288711-3547680
(State or Other Jurisdiction
of Incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
23 Main StreetHolmdel,NJ,07733
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (732) 528-2600
(Former Name or Former Address, if Changed Since Last Report)
____________________________ 
 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging 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. ☐
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



Item 2.02. Results of Operations and Financial Condition
On November 5, 2020, Vonage Holdings Corp. (the “Company”) announced its financial results for the quarter ended September 30, 2020. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Item 2.02 (including Exhibit 99.1) shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
The Company is making references to non-GAAP financial information in both the press release and the referenced conference call. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in the attached press release.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits

See accompanying Exhibit Index for a list of the exhibits furnished with this Current Report on Form 8-K.

EXHIBIT INDEX
99.1
104Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document)
 

 

2


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
VONAGE HOLDINGS CORP.
Date:November 5, 2020By:/s/ Tim Shaughnessy
Tim Shaughnessy
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
 
3
Document


Exhibit 99.1

https://cdn.kscope.io/c25360fba99d1d88556e7e01dd18b7e8-vonagelogoa051a.jpg

Vonage Reports Third Quarter 2020 Financial Results

Third Quarter 2020 Highlights:
Consolidated Revenues of $317 million
Vonage Communications Platform (VCP) Revenues of $234 million
VCP Service Revenues increased 19%
API Revenues Increased 35%
Unified Communications & Contact Center Service Revenues Increased 7%
Net Loss of $10 Million and Adjusted EBITDA of $42 million
Announcing business optimization and alignment project to accelerate growth and improve profitability
Consumer Segment marketing process to begin in November

HOLMDEL, N.J., November 5, 2020 -- Vonage Holdings Corp. (Nasdaq: VG), a global leader in cloud communications helping businesses accelerate their digital transformation, today announced results for the quarter ended September 30, 2020.

“We executed well in the third quarter and delivered solid results,” said Rory Read, Chief Executive Officer. “The Vonage Communications Platform, our single global cloud technology platform, delivers our wide range of powerful services and solutions that enable our customers to transform the way they communicate and operate as the world undergoes a secular shift in how business gets done.”

Read continued, “Vonage Communications Platform service revenues grew 19% year over year. Within this, API revenues grew 35%, highlighted by a 143% increase in high-value API revenues, driven by our leadership in video and another record quarter of new customer additions. Unified Communications and Contact Center Applications service revenue grew 7%, and we signed 17 seven-figure total contract value deals in the quarter, with a 28% increase in average deal size. Our Platform’s flexibility, scalability, security and ease of use were consistent areas of strength in our ability to win.”

Business Optimization and Alignment Project

Vonage has undertaken a multi-quarter initiative to review and optimize the Company’s operations while setting the strategy and business plans for the next two to three years. The work has provided clarity on where the Company needs to create efficiency, position its talent and invest to drive Vonage’s long-term growth and profitability.

Based on this review, the Company has implemented a number of cost saving and efficiency initiatives to improve operations and expects to reduce operating expenses by $8 to $10 million in the fourth quarter of 2020 and approximately $50 million in 2021. This resulted in a restructuring charge of approximately $15 million in the third quarter.





In parallel, Vonage is developing its business strategy and operating plan to make key investments to deliver improved growth and profitability. The Company plans to increase investments in artificial intelligence, high-value API leadership, advancements in mobility, omnichannel capabilities, and expanding its addressable market while tailoring its go-to-market initiatives to reach and win more customers.

“We are taking decisive action to improve the operational effectiveness of our business while making strategic investments where we can win a disproportionate share of the market, and where our communications platform solutions best fit the needs of our customers,” Read commented. “We are also investing in our Sales and Marketing to strengthen our channel presence, effectively reach all customer segments, and increase our cross-sell and upsell opportunities. The management team and our Board are focused on delivering on these strategic initiatives, and we expect to accelerate growth and profitability in 2021 and 2022.”

Third Quarter 2020 Vonage Communications Platform Highlights (compared to the year-ago quarter)

Vonage Communications Platform (VCP) revenues, which consist of Unified Communications, Contact Center and API revenues, were $234 million. VCP service revenues were $218 million, a 19% increase.
API revenues grew 35%
High-Value API revenues grew 143%, driven by strength in programmable video.
Service Revenues from Unified Communications and Contact Center (UC and CC) customers grew 7%.
Service Revenues from Mid-market and Enterprise UC and CC customers (those with greater than $12,000 of ARR) grew 13%.
VCP Service Revenue per Customer was $527 per month, up 17%.
VCP Service Revenue Churn increased to 1.2% from 1.0%.

Third Quarter 2020 Consumer Segment Results (compared to the year-ago quarter)

Consumer Revenues were $83 million, down 14%.
Customer churn was stable at 1.8%.
Average revenue per line ("ARPU") was $28.31, up $0.75.
Ended the quarter with approximately 1 million Consumer subscriber lines
96% of these customers are tenured over two years and 80% are tenured over five years.

Consolidated Income and Balance Sheet

For the third quarter of 2020, Vonage reported consolidated revenues of $317 million, up from $303 million in the year-ago quarter. GAAP net loss was $10 million, or ($0.04) per share, versus a net loss of $21 million in the prior-year period, or ($0.09) per share. Third quarter adjusted net income(1) was $17 million or $0.07 per share, an increase from a net loss of $4 million or ($0.02) per share in the prior-year period.

For the third quarter, the Company generated Adjusted EBITDA(2) of $42 million, and Adjusted EBITDA minus Capex(2) of $29 million. Net Cash from Operations was $13 million and Free Cash Flow(3) was breakeven for the quarter. As of September 30, 2020, the Company had a Net Debt to Last Twelve Months Adjusted EBITDA ratio of 3.2 times.





Strategic Review of Consumer Segment Update

The Company is nearing completion of the strategic review of its Consumer segment and has engaged advisors to proceed with its potential sale. The marketing process is expected to begin in November 2020. The Company will provide an update once a buyer is identified or at the completion of the process.

Updated 2020 and Fourth Quarter Outlook

The Company is increasing its 2020 revenue and adjusted EBITDA guidance to reflect its solid third quarter and a fourth-quarter above its prior outlook.

For the full year, Vonage now expects the following (based on constant currency as of November 2020):
Consolidated revenues in the range of $1.239 billion to $1.242 billion
Total Vonage Communications Platform Revenues in the range of $906 million to $909 million (which includes approximately $22 million of USF revenues)
Total Consumer Segment Revenues in the $332 million area (which includes approximately $41 million of USF revenues)
Consolidated Adjusted EBITDA in the $167 million area
Capex in the $53 million area

For the fourth quarter of 2020, Vonage expects the following:
Consolidated Revenues in the range of $314 million to $317 million
Total Vonage Communications Platform Revenues in the range of $236 million to $239 million (which includes approximately $6 million of USF revenues)
Total Consumer Revenues in the $78 million area (which includes approximately $11 million of USF revenues)
Consolidated Adjusted EBITDA in the $45 million area

Conference Call and Webcast

The company will host a conference call to discuss its financial results for the third quarter of 2020 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 13707113.

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 (loss) income.
(2) This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP net (loss) income.
(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 EndedNine Months Ended
 September 30, June 30, September 30, September 30,
 2020 2020 2019 2020 2019
Statement of Operations Data:
Service, access and product revenues$298,991 $296,516 $279,871 $878,584 $819,006 
USF revenues17,658 14,017 22,663 46,055 60,653 
Total revenues316,649 310,533 302,534 $924,639 $879,659 
Operating Expenses:
Service, access and product cost of revenues (excluding depreciation and amortization of $13,649, $11,148, $9,658, $35,953, and $28,220, respectively)124,243 119,971 111,170 357,252 314,812 
USF cost of revenues17,658 14,017 22,663 46,055 60,653 
Sales and marketing85,505 90,827 83,628 261,953 274,513 
Engineering and development20,110 19,784 16,901 59,097 50,318 
General and administrative56,835 42,820 41,306 140,537 113,380 
Depreciation and amortization22,887 20,692 21,319 64,064 63,195 
327,238 308,111 296,987 928,958 876,871 
(Loss) Income from operations(10,589)2,422 5,547 (4,319)2,788 
Other Income (Expense):
Interest expense(7,373)(9,321)(8,454)(24,776)(24,517)
Other income (expense), net(37)(38)58 154 (505)
(7,410)(9,359)(8,396)(24,622)(25,022)
Loss before income tax benefit(17,999)(6,937)(2,849)(28,941)(22,234)
Income tax benefit (expense) 7,937 (1,493)(18,248)6,694 5,127 
Net loss$(10,062)$(8,430)$(21,097)$(22,247)$(17,107)
Loss per common share:
Basic and diluted$(0.04)$(0.03)$(0.09)$(0.09)$(0.07)
Weighted-average common shares outstanding:
Basic and diluted246,697 245,385 242,336 245,242 241,786 







VONAGE HOLDINGS CORP.
TABLE 1. CONSOLIDATED FINANCIAL DATA - (Continued)
(Dollars in thousands, except per share amounts)
(unaudited)
Three Months EndedNine Months Ended
 September 30, June 30, September 30,September 30,
 2020 2020 2019 2020 2019
Statement of Cash Flow Data: 
Net cash provided by operating activities$12,628 $36,300 $31,783 $51,431 $59,850 
Net cash used in investing activities(12,990)(12,009)(16,809)(38,234)(39,262)
Net cash provided by (used in) financing activities807 (20,435)(14,259)12,871 (6,234)
Capital expenditures, acquisition of intangible assets, acquisition and development of software assets(12,990)(12,009)(13,809)(38,234)(36,262)
 
September 30,December 31,
  2020 2019
Balance Sheet Data:  
Cash and cash equivalents $48,370 $23,620 
Restricted cash 1,999 2,015 
Accounts receivable, net of allowance 119,553 101,813 
Inventory, net of allowance 614 1,475 
Prepaid expenses and other current assets 42,639 32,326 
Deferred customer acquisition costs, current and non-current 79,644 68,982 
Property and equipment, net 37,449 48,371 
Goodwill606,958 602,970 
Operating lease right of use assets22,971 50,847 
Software, net 69,389 40,300 
Intangible assets, net 208,507 249,905 
Deferred tax assets115,178 108,347 
Other assets 34,643 33,729 
Total assets $1,387,914  $1,364,700 
Accounts payable and accrued expenses $183,918 $179,955 
Operating lease liabilities, current and non-current33,228 58,199 
Deferred revenue, current  62,813 59,464 
Total notes payable, net and indebtedness under revolving credit facility, including current portion 240,500 220,500 
Convertible senior notes, net287,176 276,658 
Other liabilities 3,048 2,862 
Total liabilities $810,683  $797,638 
Total stockholders' equity $577,231 $567,062 






VONAGE HOLDINGS CORP.
TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA
(Dollars in thousands, except per line amounts)
(unaudited)
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 Nine Months Ended
 September 30, June 30, September 30, September 30,
 2020 2020 2019 2020 2019
Revenues:
   Service revenues$218,456 $212,310 $183,701 $626,416 $523,060 
   Access and product revenues(1)
8,757 9,109 12,120 27,987 35,524 
      Service, access and product revenues excluding USF227,213 221,419 195,821 654,403 558,584 
   USF revenues6,613 4,830 10,709 15,925 27,563 
Total revenues$233,826 $226,249 $206,530 $670,328 $586,147 
Cost of Revenues:
   Service cost of revenues(2)
$105,593 $100,638 $87,352 $298,588 $243,496 
   Access and product cost of revenues(1)
9,894 10,266 13,858 31,756 41,323 
      Service, access and product cost of revenues excluding USF115,487 110,904 101,210 330,344 284,819 
   USF revenues6,613 4,830 10,709 15,925 27,563 
Total cost of revenues$122,100 $115,734 $111,919 $346,269 $312,382 
Service margin %51.7 %52.6 %52.4 %52.3 %53.4 %
Gross margin % excluding USF (Service, access and product margin %)49.2 %49.9 %48.3 %49.5 %49.0 %
Gross margin %47.8 %48.8 %45.8 %48.3 %46.7 %
(1) Includes customer premise equipment, access, professional services, and shipping and handling.
(2) Excludes depreciation and amortization of $12,691, $9,891, and $8,492 for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively, and $32,370 and $24,684 for the nine months ended September 30, 2020 and 2019, 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:
ConsumerThree Months Ended Nine Months Ended
 September 30, June 30, September 30, September 30,
 2020 2020 2019 2020 2019
Revenues:
   Service revenues$71,693 $75,045 $83,981 $223,981 $260,225 
   Access and product revenues(1)
85 52 69 200 197 
      Service, access and product revenues excluding USF71,778 75,097 84,050 224,181 260,422 
   USF revenues11,045 9,187 11,954 30,130 33,090 
Total revenues$82,823 $84,284 $96,004 $254,311 $293,512 
Cost of Revenues:
   Service cost of revenues(2)
$8,287 $8,671 $8,587 $25,470 $26,706 
   Access and product cost of revenues(1)
469 396 1,373 1,438 3,287 
      Service, access and product cost of revenues excluding USF8,756 9,067 9,960 26,908 29,993 
   USF revenues11,045 9,187 11,954 30,130 33,090 
Total cost of revenues$19,801 $18,254 $21,914 $57,038 $63,083 
Service margin %88.4 %88.4 %89.8 %88.6 %89.7 %
Gross margin % excluding USF (Service, access and product margin %)87.8 %87.9 %88.1 %88.0 %88.5 %
Gross margin %76.1 %78.3 %77.2 %77.6 %78.5 %
(1) Includes customer premise equipment, access, professional services, and shipping and handling.
(2) Excludes depreciation and amortization of $958, $1,257, $1,166 for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively, and $3,583 and $3,536 for the nine months ended September 30, 2020 and 2019, 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 Nine Months Ended
 September 30, June 30, September 30, September 30,
 2020 2020 2019 2020 2019
Service revenue per customer$527 $509 $451 $504 $435 
Vonage Communications Platform revenue churn1.2 %0.9 %1.0 %1.0 %1.1 %
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 Nine Months Ended
 September 30, June 30, September 30, September 30,
 2020 2020 2019 2020 2019
Average monthly revenues per line$28.31 $27.59 $27.56 $27.71 $26.91 
Subscriber lines (at period end)951,729 998,475 1,136,112 951,729 1,136,112 
Customer churn1.8 %1.5 %1.8 %1.7 %1.8 %


VONAGE HOLDINGS CORP.
TABLE 3. RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA AND TO ADJUSTED EBITDA MINUS CAPEX
(Dollars in thousands)
(unaudited)
 
Three Months EndedNine Months Ended
 September 30,June 30, September 30, September 30,
20202020 2019 20202019
Net loss$(10,062)$(8,430)$(21,097)$(22,247)$(17,107)
Interest expense7,373 9,321 8,454 24,776 24,517 
Income tax(7,937)1,493 18,248 (6,694)(5,127)
Depreciation and amortization22,887 20,692 21,319 64,064 63,195 
Amortization of costs to implement cloud computing arrangements670 668 411 1,947 682 
EBITDA12,931 23,744 27,335 61,846 66,160 
Share-based expense11,530 11,326 12,941 33,972 32,152 
Acquisition related transaction and integration costs— — 174 — 621 
Organizational transformation (1)
— 3,925 3,317 5,119 11,186 
Restructuring activities (2)
15,182 — — 15,182 — 
Other non-recurring items (3)
1,959 2,549 1,014 5,864 3,174 
Adjusted EBITDA41,602 41,544 44,781 121,983 113,293 
Less:
Capital expenditures(2,863)(1,968)(5,970)(7,718)(15,426)
Intangible assets(70)(115)— (260)— 
Acquisition and development of software assets(10,057)(9,926)(7,839)(30,256)(20,836)
Adjusted EBITDA Minus Capex$28,612 $29,535 $30,972 $83,749 $77,031 

(1) 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 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.
(3) Other non-recurring items principally include certain litigation charges and other non-recurring project costs.





VONAGE HOLDINGS CORP.
TABLE 4. RECONCILIATION OF GAAP NET LOSS TO
NET INCOME (LOSS) EXCLUDING ADJUSTMENTS
(Dollars in thousands, except per share amounts)
(unaudited) 
Three Months EndedNine Months Ended
September 30,June 30,September 30,September 30,
20202020201920202019
Net loss$(10,062)$(8,430)$(21,097)$(22,247)$(17,107)
Amortization of acquisition - related intangibles12,948 13,681 13,962 40,408 41,959 
Amortization of costs to implement cloud computing arrangements670 668 411 1,947 682 
Amortization of debt discount3,159 3,109 2,948 9,322 3,435 
Acquisition related transaction and integration costs— — 174 — 621 
Organizational transformation (1)
— 3,925 3,317 5,119 11,186 
Restructuring activities (2)
15,182 — — 15,182 — 
Other non-recurring items (3)
1,959 2,549 1,014 5,864 3,174 
Tax effect on adjusting items(7,123)(5,026)(4,583)(16,347)(12,822)
Net income (loss) excluding adjustments$16,733 $10,476 $(3,854)$39,248 $31,128 
Loss per common share:
Basic and diluted$(0.04)$(0.03)$(0.09)$(0.09)$(0.07)
Weighted-average common shares outstanding:
Basic and diluted246,697 245,385 242,336 245,242 241,786 
Earnings per common share, excluding adjustments:
Basic$0.07 $0.04 $(0.02)$0.16 $0.13 
Diluted$0.07 $0.04 $(0.02)$0.15 $0.12 
Weighted-average common shares outstanding:
Basic246,697 245,385 242,336 245,242 241,786 
Diluted256,318 253,509 242,336 253,585 250,094 

(1) 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 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.
(3) Other non-recurring items principally include certain litigation charges and other non-recurring project costs.





VONAGE HOLDINGS CORP.
TABLE 5. FREE CASH FLOW
(Dollars in thousands)
(unaudited)
 
Three Months EndedNine Months Ended
September 30,June 30,September 30,September 30,
20202020201920202019
Net cash provided by operating activities$12,628 $36,300 $31,783 $51,431 $59,850 
Less:
Capital expenditures(2,863)(1,968)(5,970)(7,718)(15,426)
Intangible assets(70)(115)— (260)— 
Acquisition and development of software assets(10,057)(9,926)(7,839)(30,256)(20,836)
Free cash flow$(362)$24,291 $17,974 $13,197 $23,588 


VONAGE HOLDINGS CORP.
TABLE 6. RECONCILIATION OF INDEBTEDNESS UNDER REVOLVING CREDIT FACILITY AND CONVERTIBLE SENIOR NOTES TO NET DEBT
(Dollars in thousands)
(unaudited)
 
September 30,December 31,
20202019
Notes payable and indebtedness under revolving credit facility, net of current maturities 240,500 220,500 
Convertible senior notes, net287,176 276,658 
Unamortized discount on debt5,912 7,108 
Unamortized debt related costs51,912 61,234 
Gross debt585,500 565,500 
Less:
Unrestricted cash48,370 23,620 
Net debt$537,130 $541,880 




Use of Non-GAAP Financial Measures
This press release includes measures defined as non-GAAP financial measures by Regulation G adopted by the Securities and Exchange Commission, including: adjusted EBITDA, adjusted EBITDA less Capex, adjusted net income, constant currency, net debt (cash), and free cash flow.
Adjusted EBITDA
Vonage uses adjusted EBITDA as a principal indicator of the operating performance of its business.
Vonage defines adjusted EBITDA as GAAP net income (loss) before interest, tax, depreciation and amortization, share-based expense, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, organizational transformation costs and other non-recurring items. The costs identified as “organizational transformation” are related to the Company’s 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 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. Other non-recurring items principally include certain litigation charges and other non-recurring project costs.
The Company provides information relating to its adjusted EBITDA so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its adjusted EBITDA are valuable indicators of the operating performance of the Company on a consolidated basis.
The Company does not reconcile its forward-looking adjusted EBITDA to the corresponding GAAP measure of net income because stock-based compensation expense and other non-recurring items cannot be reasonably calculated or predicted at this time as they may be significantly impacted by future events, the timing and nature of which cannot be reasonably calculated or predicted at this time.  Accordingly, a reconciliation is not available without unreasonable effort.
Adjusted EBITDA less Capex
Vonage uses adjusted EBITDA less Capex as an indicator of the operating performance of its business. The Company provides information relating to its adjusted EBITDA less Capex so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its Adjusted EBITDA less Capex are valuable indicators of the operating performance of the Company on a consolidated basis because they provide our investors with insight into current performance and period-to-period performance.
Adjusted net income
Vonage defines adjusted net income, as GAAP net income (loss) excluding amortization of acquisition-related intangible assets, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, amortization of debt discount, organizational transformation costs, other non-recurring items and tax effect on adjusting items.




The Company believes that excluding these items will assist investors in evaluating the Company's operating performance and in better understanding its results of operations as amortization of acquisition-related intangible assets is a non-cash item, one-time acquisition related transaction and integration costs, organizational transformation, other non-recurring items, and tax effect on adjusting items are not reflective of operating performance. Organizational transformation consists principally of costs in connection with exits of employees and facilities, system migration costs and certain related professional fees. Other non-recurring items principally include certain litigation charges and other non-recurring project costs.
Constant Currency
Vonage reviews its results of operations on both an as reported and on a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our prior period reported results.
Net debt (cash)
Vonage defines net debt (cash) as indebtedness under revolving credit facility, convertible senior notes, discount on debt, and debt related costs less unrestricted cash.
Vonage uses net debt (cash) as a measure of assessing leverage, as it reflects the gross debt under the Company's credit agreements and capital leases less cash available to repay such amounts. The Company believes that net cash is also a factor that first parties consider in valuing the Company.
Free cash flow
Vonage defines free cash flow as net cash provided by operating activities minus capital expenditures, purchase of intangible assets, and acquisition and development of software assets.
Vonage considers free cash flow to be a liquidity measure that provides useful information to management about the amount of cash generated by the business that, after the acquisition of equipment and software, can be used by Vonage for debt service and strategic opportunities. Free cash flow is not a measure of cash available for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure.
The non-GAAP financial measures used by Vonage may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments, which limits its usefulness as a comparative measure. These non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

The Company does not reconcile its forward-looking adjusted business total revenue and adjusted business service revenue to the corresponding GAAP measures due to the significant variability and difficulty in making accurate forecasts with respect to the various acquisition-related and one-time events that we exclude, as they may be significantly impacted by future events the timing and nature of which are difficult to predict or are not within the control of management.  As such, the Company has determined that reconciliations of these forward-looking non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.




Safe Harbor Statement
This press release contains forward-looking statements, including statements about the outcome and timing of the strategic review of consumer and operational review, including whether or not the reviews result in a transaction and if so the nature and timing of any such transaction, our business transformation, financing activity, 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.
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