Vonage Announces Third Quarter 2015 Results: Consolidated Revenue of $223 Million, driven by 134% Year-Over-Year GAAP Revenue Growth at Vonage Business; Consolidated Adjusted EBITDA of $34 Million, a 13% Year-Over-Year Increase; Increases 2015 Full Year Revenue Guidance to $891 - $895 Million and Increases Adjusted EBITDA Guidance to $142 - $144 Million

HOLMDEL, N.J., Nov. 4, 2015 /PRNewswire/ -- Vonage Holdings Corp. (NYSE: VG), a leading provider of cloud communications services for businesses and consumers, today announced results for the third quarter ended September 30, 2015.

Third Quarter Consolidated Financial Results

"Our strong financial and operational results reflect the continued execution of our strategy to drive organic and inorganic growth in Vonage Business while taking disciplined actions to release the inherent profitability in Consumer Services. The third quarter marks our third consecutive quarter of consolidated revenue growth, driven by our strong revenue growth in Vonage Business. We also had another quarter of excellent cash flows from Consumer Services, which continue to support our investments in the high-growth UCaaS for business sector," said Alan Masarek, Chief Executive Officer of Vonage.

Mr. Masarek continued, "We made great progress building the foundation to become the clear market leader in cloud communications. We completed the acquisition of iCore Networks, solidifying our position in the mid-market and enterprise segments. We invested in the "Business of Better" campaign to establish Vonage as a leading business services brand. And, we made significant progress integrating our recent acquisitions to build a scalable, efficient organization capable of serving the full spectrum of business customers from SMB up through large enterprises."

For the third quarter of 2015, Vonage reported revenue of $223 million, up from $215 million in the year ago quarter. Income from operations was $9 million in the third quarter of 2015, down from $15 million in the prior year period.  Adjusted earnings before interest, taxes, depreciation and amortization¹ ("adjusted EBITDA") for the third quarter were $34 million, a 13% increase over the prior year period. GAAP net income was $3 million or $0.02 per share, down from $5 million or $0.02 per share in the year ago quarter. Adjusted net income² was $14 million or $0.07 per share, flat year-over-year.

Vonage Business Results

• On August 31, 2015, Vonage completed the acquisition of iCore Networks Inc. ("iCore"), which deepens the Company's penetration in the mid-market and enterprise segment, expands the Company's direct sales force and product set and strengthens the Company's national footprint. iCore is a leading provider of BroadSoft-based and Microsoft Skype for Business UCaaS solutions, as well as complementary desktop cloud services, including Infrastructure as a Service and virtual desktop. iCore's September results, adjusted down for purchase accounting, are included in the Company's operating results.
• Revenue at Vonage Business was $57 million in the third quarter, a year-over-year increase of 134% on a GAAP basis. Vonage Business revenue growth was 36% on an organic basis, as if the Company owned Telesphere and SimpleSignal for all periods, but excluding iCore.
• Revenue churn at Vonage Business was 1.3% in the third quarter, flat sequentially and year-over-year.
• Ending seats were 514,000, up from 242,000 seats in the year ago quarter, reflecting strong organic growth and the addition of Telesphere, SimpleSignal and iCore customers.
• Gartner named Vonage a Visionary in its 2015 Magic Quadrant for Unified Communications as a Service, Worldwide. Gartner highlighted Vonage's brand, account management and customer support, and ability to integrate with leading cloud applications, as key strengths and reasons for placement in the Visionary Quadrant. Also in the quarter, Vonage was awarded Frost & Sullivan's 2015 Growth Excellence Leadership Award for Hosted IP and Unified Communications and Collaboration Services. Vonage received a rating of Excellent in both Growth Performance and Customer Impact categories, scoring highest among all providers ranked by Frost & Sullivan.

Consumer Services Results

• In the third quarter, the Company continued to improve the profitability and cash flow of Consumer Services through its disciplined approach to marketing efficiency and new customer acquisitions.
• Revenue in Consumer Services was $166 million in the third quarter, compared to $190 million in the prior year period, reflecting the Company's decision to redeploy capital into the rapidly growing UCaaS for business sector.
• Consumer customer churn improved to 2.3% in the third quarter, down from 2.6% in the year ago quarter.
• Average revenue per line ("ARPU") was $27.38, down from $27.60 in the year ago period.
• Consumer net line losses were approximately 50,000 due to the Company's continued focus on improving the quality of customers it acquires and driving increased profitability.
• Vonage's Consumer Services ended the third quarter with two million subscriber lines.

Patent Portfolio

Vonage continues to execute on its strategy to develop innovative technologies and to protect its valuable intellectual property. The Company was granted seven new patents in the third quarter and now owns 98 U.S. patents, with 245 U.S. patent applications pending, along with many foreign patents and pending applications in jurisdictions worldwide.

Share Repurchase

In the third quarter, Vonage repurchased 0.4 million shares of stock for $1.8 million at an average price of $4.90 under its current, four-year $100 million program. Year-to-date, the Company has repurchased 3.3 million shares at an average price of $4.58. Since beginning its repurchase programs in August 2012, the Company has repurchased 48 million shares for $148 million at a highly accretive average price of $3.08.

Updated 2015 Guidance

The Company is updating and has increased its 2015 revenue and EBITDA guidance given greater visibility on full year results and the closing of the iCore acquisition. Vonage expects total 2015 GAAP revenue of $891 million to $895 million and adjusted EBITDA of $142 million to $144 million.

Conference Call and Webcast

Management will host a webcast discussion of the third quarter on Wednesday, November 4, 2015 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. Windows Media Player or RealPlayer is required to listen to this webcast. 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 57571351.

(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 businesses and consumers. The Company provides a robust suite of feature-rich business and residential communication solutions that offer flexibility, portability and ease-of-use across multiple devices designed to meet the needs of a wide range of customers. Vonage's portfolio of business products covers the full spectrum of business communications needs, serving single-person companies to those with thousands of employees spread over multiple locations. Vonage provides bring-your-own-broadband (BYOB) cloud products and those that offer carrier-grade reliability and Quality of Service (QoS) across BYOB options and the Company's private, national MPLS IP network, as well as integration with industry-leading CRM and business workflow applications. For more information, visit www.vonage.com. Vonage Holdings Corp. is headquartered in Holmdel, New Jersey. Vonage® is a registered trademark of Vonage Marketing LLC, owned by Vonage America Inc.

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 earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), adjusted EBITDA less Capex, adjusted net income, 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 income (loss) from operations excluding depreciation and amortization, share-based expense, acquisition related costs, loss from discontinued operation, depreciation from discontinued operation, and net loss attributable to noncontrolling interest.

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 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, 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 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 and of its ability to produce operating cash flow to fund working capital needs, to service debt obligations, and to fund capital expenditures.

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 regarding the Company's ability to generate cash from continuing operations.

Adjusted net income

Vonage defines adjusted net income, as GAAP net income (loss) excluding amortization of acquisition-related intangible assets, acquisition-related costs, and income tax expense.

The Company has excluded amortization of acquisition-related intangible assets, acquisition-related costs, and income tax expense from its net income (loss).  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 income tax expense does not reflect the taxes that we pay during the periods reported due to the availability of significant net operating losses, amortization of acquisition-related intangible assets which is a non-cash item, and one-time acquisition-related costs.

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 third 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 EBITDA, 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; our ability to adapt to rapid changes in the market for voice, messaging, and communications services; our ability to retain customers and attract new customers; the expansion of competition in the unified communications market; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; security breaches and other compromises of information security; risks related to the acquisition or integration of businesses, including the risks related to the acquisition of iCore, Simple Signal, Telesphere, and Vocalocity; the risk associated with developing and maintaining effective distribution channels; our ability to establish and expand strategic alliances; governmental regulation and taxes; 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; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; uncertainties relating to regulation of VoIP services; risks associated with operating abroad; liability under anti-corruption laws; results of regulatory inquiries into our business practices; fraudulent use of our name or services; our dependence upon key personnel; our dependence on our customers' existing broadband connections; differences between our service and traditional phone services; restrictions in our debt agreements that may limit our operating flexibility; 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, 2014, 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.