Vonage Announces Strong Third Quarter 2016 Results, Highlighted by 86% Revenue Growth in Vonage Business

HOLMDEL, N.J., Oct. 26, 2016 /PRNewswire/ -- Vonage Holdings Corp. (NYSE: VG), a leading provider of Cloud Communications for Business, today announced results for the third quarter ended September 30, 2016.

Third Quarter Consolidated Financial Results

For the third quarter of 2016, Vonage reported revenues of $248 million, up from $223 million in the year ago quarter. GAAP Income from Operations was $15 million, up from $9 million in the prior year. Adjusted Operating Income Before Depreciation and Amortization ("Adjusted OIBDA")¹ for the third quarter was $41 million, up from $34 in the prior year period. GAAP net income was $9 million or $0.04 per share, up from $3 million or $0.02 per share in the year ago quarter. Adjusted net income² was $19 million or $0.09 per share, up from $11 million or $0.05 per share in the year ago quarter.

"Our results reflect good progress integrating our acquisitions and building a winning product and go-to-market value proposition for our customers," said Vonage CEO Alan Masarek. "The significant investments in Vonage Business continue to support our growth initiatives, highlighted by 86% revenue growth in the third quarter. Our disciplined focus on profitability continues to produce strong results, highlighted by a 21% increase in adjusted OIBDA."

Mr. Masarek continued, "We are very pleased with the progress we've made executing on our strategy to be the Clear Leader in Business Cloud Communications. The integration of our UCaaS and CPaaS solutions will create the most vertically integrated communications company in our industry, with the scale and capabilities to provide better outcomes for our business customers."

Third Quarter Operating Results

• Vonage Business revenue, which includes $24 million of Nexmo revenue, was $106 million, an 86% year-over-year increase on a GAAP basis.
• Ending seats at Vonage Business were 616,000, up from 514,000 seats in the year ago quarter, a 20% increase.
• Vonage Business revenue churn was 1.4%, compared to 1.3% in the year ago quarter.
• The Vonage API platform, formerly Nexmo, launched its next generation voice application interface, effectively doubling the Company's addressable market in CPaaS by opening up the broader, programmable voice market.
• Revenue from Consumer Services was $142 million, compared to $166 million in the prior year period. This decline is consistent with the Company's strategy to optimize the profitability of Consumer Services, while redeploying capital into the high-growth Business Cloud Communications sector.
• Consumer customer churn improved to 2.2%, down from 2.3% in the year ago quarter.

Patent Portfolio

Vonage continues to execute on its strategy to develop innovative technologies and to protect its valuable intellectual property. The Company was granted 11 new patents in the third quarter and now owns 132 U.S. patents, with 200 U.S. patent applications pending, along with many foreign patents and pending applications in jurisdictions worldwide.

Guidance Update

The Company is updating its 2016 full year guidance due to greater visibility on its full year results. Vonage continues to expect consolidated annual GAAP revenue of $950 to $960 million. Within this, the Company is raising guidance for Vonage Business revenues to a range of $374 to $377 million, up from $365 to $370 million. Adjusted OIBDA is expected to be in the range of $158 to $160 million, up from "at least $150 million."

Conference Call and Webcast

Management will host a webcast discussion of the third quarter 2016 on Wednesday, October 26, 2016 at 8:30 AM Eastern Time. To participate, please dial (877) 359-9508 approximately 10 minutes prior to the call. International callers should dial (224) 357-2393.

The webcast will be broadcast live through Vonage's Investor Relations website at http://ir.vonage.com. A replay of the call and webcast will be available shortly after the conclusion of the call and may be accessed through Vonage's Investor Relations website at http://ir.vonage.com or by dialing (855) 859-2056. International callers should dial (404) 537-3406. The replay passcode is 91321658.

(1)   This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP income from operations.

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

About Vonage
Vonage (NYSE: VG) is a leading provider of cloud communications services for business. Vonage transforms the way people work and businesses operate through a portfolio of cloud-based communications solutions that enable internal collaboration among employees, while also keeping companies closely connected with their customers, across any mode of communication, on any device. Vonage's API Platform provides tools for voice, messaging and phone verification services, allowing developers to embed contextual, programmable communications into mobile apps, websites and business systems, enabling enterprises to easily communicate relevant information to their customers in real time, anywhere in the world, through text messaging, chat, social media and voice. The Company also provides a robust suite of feature-rich residential communication solutions. In 2015 and 2016, Vonage was named a Visionary in the Gartner Magic Quadrant for Unified Communications as-a-Service, Worldwide. Vonage has also earned the Frost & Sullivan Growth Excellence Leadership Award for Hosted IP and Unified Communications and Collaboration (UCC) Services. For more information, visit www.vonage.com.

Use of Non-GAAP Financial Measures

This press release includes measures defined as non-GAAP financial measures by the Securities and Exchange Commission, including: adjusted Operating Income Before Depreciation and Amortization ("adjusted OIBDA"), adjusted OIBDA less Capex, adjusted net income, net debt (cash) and free cash flow.

Adjusted OIBDA

Vonage uses adjusted OIBDA as a principal indicator of the operating performance of its business.

Vonage defines adjusted OIBDA as GAAP income (loss) from operations excluding depreciation and amortization, share-based expense, acquisition related costs, acquisition related consideration accounted for as compensation, change in contingent consideration, costs associated with organizational transformation, loss from discontinued operation, depreciation from discontinued operation, and net loss attributable to noncontrolling interest.

Vonage believes that adjusted OIBDA permits a comparative assessment of its operating performance, relative to its performance based on its GAAP results, while isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance; of share-based expense, which is a non-cash expense that also varies from period to period; of one-time acquisition related costs, acquisition related consideration accounted for as compensation and change in contingent consideration; of one-time costs associated with organizational transformation; and of loss from discontinued operation, depreciation from discontinued operation, and net loss attributable to our noncontrolling interest, each of which relate to one time effects caused by the termination of our Brazilian joint venture.

The Company provides information relating to its adjusted OIBDA so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its Adjusted OIBDA are valuable indicators of the operating performance of the Company on a consolidated basis.

Adjusted OIBDA less Capex

Vonage uses adjusted OIBDA less Capex as an indicator of the operating performance of its business. The Company provides information relating to its adjusted OIBDA less Capex so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its Adjusted OIBDA less Capex are valuable indicators of the operating performance of the Company on a consolidated basis because they provide our investors with insight into current performance and period-to-period performance.

Adjusted net income

Vonage defines adjusted net income, as GAAP net income (loss) excluding amortization of acquisition-related intangible assets, one-time acquisition related costs, acquisition related consideration accounted for as compensation, change in contingent consideration, and one-time costs associated with organizational transformation.

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 costs, acquisition related consideration accounted for as compensation, change in contingent consideration, and one-time costs associated with organizational transformation are not reflective of operating performance.

Net debt (cash)

Vonage defines net debt (cash) as the current maturities of capital lease obligations, current portion of notes payable, notes payable and indebtedness under revolving credit facility, net of current maturities and debt related costs, and capital lease obligations, net of current maturities, less unrestricted cash and marketable securities.

Vonage uses net debt (cash) as a measure of assessing leverage, as it reflects the gross debt under the Company's credit agreements and capital leases less cash available to repay such amounts. The Company believes that net cash is also a factor that first parties consider in valuing the Company.

Free cash flow

Vonage defines free cash flow as net cash provided by operating activities minus capital expenditures, purchase of intangible assets, and acquisition and development of software assets.

Vonage considers free cash flow to be a liquidity measure that provides useful information to management about the amount of cash generated by the business that, after the acquisition of equipment and software, can be used by Vonage for debt service and strategic opportunities. Free cash flow is not a measure of cash available for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure.

The non-GAAP financial measures used by Vonage may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments, which limits its usefulness as a comparative measure. These non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

Safe Harbor Statement

This press release contains forward-looking statements, including statements about acquisitions, acquisition integration, growth priorities or plans, revenues, adjusted OIBDA, churn, seats, lines or accounts, average revenue per user, cost of telephony services, the Company's share repurchase plan, capital expenditures, new products and related investment, and other statements that are not historical facts or information, that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. In addition, other statements in this press release that are not historical facts or information may be forward-looking statements. The forward-looking statements in this release are based on information available at the time the statements are made and/or management's belief as of that time with respect to future events and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Important factors that could cause such differences include, but are not limited to: the competition we face; the expansion of competition in the unified communications market; our ability to adapt to rapid changes in the market for voice and messaging services; risks associated with the market for CPaaS products and services; our ability to retain customers and attract new customers, including in a cost effective manner; the risk associated with developing and maintaining effective internal sales teams; the risk associated with developing and maintaining effective distribution channels; risks related to the acquisition or integration of future businesses; security breaches and other compromises of information security; risks associated with sales of our UCaaS services to medium-sized and enterprise customers; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; our ability to scale our business and grow efficiently; risks associated with our third-party vendor cloud infrastructure; our reliance on third party hardware and software; our dependence on third party vendors; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; our ability to obtain or maintain relevant intellectual property licenses; intellectual property and other litigation that have been and may be brought against us; failure to protect our trademarks and internally developed software; obligations and restrictions associated with data privacy; uncertainties relating to regulation of VoIP services; results of regulatory inquiries into our business practices; uncertainties regarding the regulation of CPaaS services; customer misuse of our CPaaS products; the impact of export controls and economic sanctions regulations; fraudulent use of our name or services; our ability to establish and expand strategic alliances; risks associated with operating abroad; liability under anti-corruption laws; governmental regulation and taxes in our international operations; the impact of domestic and international tax regulations on our CPaaS products and services; our dependence upon key personnel; our dependence on our customers' existing broadband connections; restrictions in our debt agreements that may limit our operating flexibility; foreign currency fluctuations; our ability to obtain additional financing if required; any reinstatement of holdbacks by our vendors; our history of net losses and ability to achieve consistent profitability in the future; and other factors that are set forth in the "Risk Factors" section and other sections of Vonage's Annual Report on Form 10-K for the year ended December 31, 2015, in the Company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing the Company's views as of any date subsequent to today.

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SOURCE Vonage Holdings Corp.

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