Vonage Announces First Quarter 2015 Results; Delivers Adjusted EBITDA of $38 Million, the Highest in 13 Quarters, and 49% Organic Revenue Growth at Vonage Business

HOLMDEL, N.J., May 6, 2015 /PRNewswire/ -- Vonage Holdings Corp. (NYSE: VG), a leading provider of cloud communications services for consumers and businesses, today announced results for the first quarter ended March 31, 2015. This is the Company's first full quarter of results including Telesphere, a Vonage Company, which was acquired on December 15, 2014.

First Quarter Consolidated Financial Results

"We are off to a strong start in 2015. We delivered 49% year-over-year organic revenue growth at Vonage Business driven by the strong demand for our robust UCaaS product suite and ability to serve the full spectrum of the SMB market from 1 to 1,000 employees and more," said Alan Masarek, Chief Executive Officer of Vonage. "Our 28% year-over-year increase in consolidated adjusted EBITDA demonstrates the successful execution of our strategy to increase profitability in the Consumer business. This strong cash generation provides the strategic flexibility to invest in growth opportunities to drive long-term shareholder value."

For the first quarter of 2015, Vonage reported revenue of $220 million compared to $221 million in the year ago quarter. Adjusted earnings before interest, taxes, depreciation and amortization¹ ("adjusted EBITDA") for the first quarter were $38 million, the highest in 13 quarters. GAAP net income was $7 million or $0.04 per share, up from $5 million or $0.02 per share in the year ago quarter. Adjusted net income² was $20 million or $0.10 per share, up from $13 million or $0.06 per share in the year ago quarter.

Vonage Business Results

• On April 1, 2015, Vonage completed the acquisition of Simple Signal Inc. SimpleSignal is highly complementary to Vonage's existing UCaaS business. The acquisition enhances the Company's channel sales and broadens Vonage's range of product offerings with new technologies that extend MPLS-like quality to "bring-your-own-broadband" customers.
• Vonage Business results include Vonage Business Solutions ("VBS") and Telesphere, and will include SimpleSignal in the second quarter.
• Revenue at Vonage Business was $42 million in the first quarter, a year-over-year increase of 49% on a pro-forma basis, as if the Company had owned Telesphere for all periods.
• Customer churn was 2.2%, an increase from 1.6% in the year ago period.
• Ending seats were 338,000, up from 196,000 seats at the end of the first quarter of 2014, reflecting strong organic growth and the addition of Telesphere.

gUnify Acquisition

The Company announced today that it signed a definitive agreement to acquire gUnify LLC, (pronounced "gee-unify") a cloud-based technology company whose middleware solution integrates the Company's cloud communications platform with today's most widely used SaaS business applications, including Google for Work, Zendesk, Salesforce's Sales Cloud, Clio, and other CRM solutions. With this functionality, Vonage can better address the needs of larger SMBs by enabling them to extend their unified communications to core business applications. gUnify is recognized as a leading integration technology within the BroadSoft ecosystem, which has more than 10 million unified communications lines. Terms of the acquisition were not disclosed.

Consumer Results

• Vonage's Consumer business reported revenue of $178 million in the first quarter of 2015 compared to $202 million in the prior year period.
• Vonage's Consumer business had 2.1 million subscriber lines at the end of the first quarter. This was down approximately 177,000 lines from 2.4 million in the prior year's quarter, when taking into account the adjustment of approximately 79,000 second line Extensions, and was due to the Company's continued strategic approach to improving the quality of customers it acquires to drive lower churn and increased profitability, and to shift investment to the UCaaS market.
• Consumer customer churn improved to 2.4% in the first quarter of 2015, down from 2.6% in the first quarter of 2014.
• Average revenue per line ("ARPU") was $27.97, down from $28.54 in the year ago period.

Changes to Vonage's Consolidated Statement of Income and Summary Operating Data

In view of the substantial evolution of the Company's business over the past year and a half, with UCaaS now accounting for a substantial and growing portion of overall revenues, the Company has updated its Consolidated Statement of Income and Summary Operating Data, also referred to as key performance indicators ("KPIs"), to provide greater visibility into the operating metrics of the business. The Company believes these changes will enable shareholders to better understand its operations. The key changes to the income statement are as follows:

• Cost of Telephony Services has been renamed Cost of Service.
• Sales expenses have been separated from Selling, General and Administrative ("SG&A") expenses and combined with Marketing expenses in a new item captioned Sales and Marketing. This category includes traditional sales and marketing expenses, such as working media and sales commissions, as well as sales and marketing personnel salaries and benefits, tier I and II-level customer care costs and credit card processing fees, with the latter two being substantial.
• A new item captioned Engineering and Development has been separated from SG&A.
• The remaining SG&A expenses have been renamed to General and Administrative Expenses.

The reclassifications are reflected in all periods presented and do not have any impact on income from operations, adjusted EBITDA or net income.

The Company's updated KPIs provide more detail for each of the Consumer and Business operations. The KPI changes are as follows:

• Providing revenue, churn, ARPU and user metrics for both Consumer and Business.
• For Vonage Business, reporting the number of customer seats, a metric it believes enables investors to better track its progress given that Vonage Business is adding accounts across the full spectrum of SMBs, from 1 to greater than 1,000 employees.
• For Consumer operations, providing subscriber lines and account churn, rather than consolidated lines and churn as the Company had previously reported.

Patent Portfolio

Vonage continues to execute on its strategy to develop and protect its valuable intellectual property. In the first quarter of 2015, the Company was granted seven new patents and now owns 83 U.S. patents, with nearly 250 U.S. patent applications pending, along with numerous foreign patents and pending applications in jurisdictions worldwide.

Share Repurchase

Vonage repurchased 2 million shares of stock for $8 million in the first quarter. Since beginning its repurchase programs in August of 2012, the Company has repurchased 47 million shares for $141 million at an average price of $3.02. The Company is now executing on a $100 million, four-year buyback program that began January 2, 2015.

Updated Guidance

The Company is updating its 2015 revenue guidance to include the impact of the SimpleSignal acquisition. Vonage expects total 2015 revenue to be in the range of $862 million to $877 million. The Company continues to believe it can grow 2015 Vonage Business revenue 40% on a pro forma, organic, basis, as if Telesphere and Simple Signal were owned for all of 2014 and 2015. The Company continues to expect adjusted EBITDA to be at least $135 million and capital expenditures to be approximately $30 million. This revenue and EBITDA outlook reflects the Company's disciplined approach to Consumer customer life-time value, and includes significant growth from and accelerated investment into Vonage Business as the Company continues to drive growth and scale its infrastructure in UCaaS.

Conference Call and Webcast

Management will host a webcast discussion of the quarter on Wednesday, May 6, 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 30757820.

(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.