Vonage Announces Second Quarter 2015 Results: Delivers Adjusted EBITDA of $38 Million, a 29% Year Over Year Increase; 2.2% Consumer Churn, Best in Nine Years; and 118% Year Over Year GAAP Revenue Growth at Vonage Business

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

Second Quarter Consolidated Financial Results

"We continue to drive market-leading growth at Vonage Business, while increasing profitability in Consumer Services," said Alan Masarek, Chief Executive Officer of Vonage. "At Vonage Business, we delivered 118% revenue growth fueled by the successful execution of our acquisition strategy coupled with strong organic growth. We also made significant investments in our sales infrastructure, brand and leadership team to enhance our position in the rapidly growing Unified Communications-as-a-Service (UCaaS) market."

Mr. Masarek continued, "As a result of strong operational performance and financial discipline in Consumer Services, we delivered our highest adjusted EBITDA in four years. Our focus on adding high-quality new customers, combined with the stability of our tenured base, resulted in our lowest Consumer churn in nine years. We continue to generate strong cash flows, providing the financial flexibility to pursue organic and inorganic growth opportunities to drive long-term shareholder value."

For the second quarter of 2015, Vonage reported revenue of $222 million, up from $219 million in the year ago quarter. Adjusted earnings before interest, taxes, depreciation and amortization¹ ("adjusted EBITDA") for the second quarter were $38 million, a 29% increase over the prior year period. GAAP net income was $8 million or $0.04 per share, up from $6 million or $0.03 per share in the year ago quarter. Adjusted net income² was $20 million or $0.09 per share, up from $15 million or $0.07 per share in the year ago quarter.

Vonage Business Results

• Revenue at Vonage Business was $49 million in the second quarter, a year-over-year increase of 38% on an organic basis, as if the Company had owned Telesphere and SimpleSignal for all periods. This is the Company's first full quarter of results including SimpleSignal, which was acquired on April 1, 2015.
• On May 15, 2015, Vonage completed the acquisition of gUnify Inc., which integrates the Company's robust cloud communications platform with today's most widely used Software-as-a-Service (SaaS) business applications, including Google for Work, Zendesk, Salesforce's Sales Cloud and Clio. SaaS integration is becoming increasingly important for businesses moving to the cloud. gUnify's middleware technology integrates Vonage's communications solutions with companies' existing workflow applications, providing a significant differentiator for Vonage and a stronger customer relationship.
• Revenue churn was 1.3% in the second quarter, down from 1.4% sequentially and up from 1.2% in the year ago period. As previously announced, beginning in the second quarter, the Company is reporting revenue churn instead of account churn for Vonage Business as the Company believes revenue churn is a more meaningful metric given that a greater portion of revenue comes from larger accounts.
• Ending seats were 403,000, up from 217,000 seats in the year ago quarter, reflecting strong organic growth and the addition of Telesphere and SimpleSignal.

Consumer Services Results

• Revenue in Consumer Services was $173 million, compared to $196 million in the prior year period, reflecting the Company's continued focus on adding customers that meet its customer lifetime value objectives, and its decision to redeploy capital into Vonage Business, where it generates higher customer lifetime values.
• Average revenue per line ("ARPU") was $27.79, down from $28.02 in the year ago period.
• Consumer customer churn improved to 2.2% in the second quarter, down from 2.6% in the year ago quarter, and the best churn since the first quarter of 2006.
• Consumer net line losses improved for the third consecutive quarter, down approximately 45,000 for the quarter, due to the Company's continued strategic approach to improving the quality of customers it acquires to drive lower churn and increased profitability. Consumer net lines were down approximately 193,000 lines from the prior year's quarter, when taking into account the removal of approximately 79,000 second line Extensions, which the Company now provides for free. Vonage's Consumer Services ended the second quarter with 2.0 million subscriber lines.

New Credit Facility

On July 27, the Company closed on an expanded $350 million credit facility. This new facility is a reflection of Vonage's strong cash flow generation and provides a lower cost of capital, while increasing the Company's financial and strategic flexibility for investments in growth, including additional acquisitions in the UCaaS sector.

The new facility consists of a four-year, $100 million senior secured term loan bearing interest at a maximum of LIBOR plus 3%, and a $250 million revolving credit facility bearing the same maximum interest on drawn amounts. The Company used $167 million of the proceeds from the new facility to retire all current debt under its prior $225 million facility.

The lenders under the credit facility are JPMorgan Chase Bank, N.A., which also acted as administrative agent, Citizens Bank, N.A., Fifth Third Bank, MUFG Union Bank, SunTrust Bank, Silicon Valley Bank, Santander, Keybank National Association, Capital One and First Niagara.

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 second quarter and now owns 86 U.S. patents, with more than 250 U.S. patent applications pending, along with many foreign patents and pending applications in jurisdictions worldwide.

Share Repurchase

Vonage repurchased 1.2 million shares of stock for $5.6 million at an average price of $4.79 in the second quarter. Since beginning its repurchase programs in August 2012, the Company has repurchased 48 million shares for $146 million at an average price of $3.06. The Company is now executing on a $100 million, four-year buyback program that began January 2, 2015.

Conference Call and Webcast

Management will host a webcast discussion of the second quarter on Thursday, July 30, 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 79367058.

(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.

 

VONAGE HOLDINGS CORP.
TABLE 1. CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)