Vonage Reports Fourth Quarter and Full-Year 2019 Financial Results

February 18, 2020

Fourth Quarter 2019 GAAP Highlights:

  • Business Service Revenues of $196 Million, a 32% Year-Over-Year Increase
  • API Platform Revenues Increased 50%
  • Applications Mid-market and Enterprise Growth Accelerated to 14%
  • Income from Operations of $4 Million and Adjusted OIBDA of $44 million
  • Announcing Strategic Review of Consumer Segment

HOLMDEL, N.J., Feb. 18, 2020 (GLOBE NEWSWIRE) -- Vonage Holdings Corp. (Nasdaq: VG), a global business cloud communications leader, today announced results for the quarter and full year ended December 31, 2019.

“In 2019, we took a number of decisive actions to enable long-term success,” said Alan Masarek, Chief Executive Officer. “We completed the move to our own technology across our core UCaaS, CCaaS and CPaaS products, and invested significantly in product innovation and platform enhancement. We also invested in and focused our go-to-market efforts to further drive revenue growth in high-value APIs and Mid-market and Enterprise customers in Applications.”

Strategic Review of Consumer Segment
In light of the significant scale and growth of the Business segment, the Company is initiating a strategic review of its Consumer segment, including the feasibility of its divestiture, to further the Company’s goal of becoming a pure-play Business SaaS company. The review will be led by the Board, working with management and with the assistance of financial and legal advisors, and will include an operational review with the assistance of consultants.

Mr. Masarek continued, “We finished the year with solid momentum. I’m energized by the tremendous opportunity ahead as we execute our strategy. Given the progress we have made transforming Vonage away from Consumer and into a Business SaaS company, we are undertaking a strategic review of our Consumer segment, with the aim of enhancing shareholder value.”

Fourth Quarter 2019 Business Segment Results

  • Vonage Business Revenues of $218 million, representing 28% GAAP growth.
  • Business Service Revenues of $196 million, a 32% GAAP increase
    • Adjusted to include acquisitions for all periods and other one-time items, Vonage Business Service Revenues(1) increased 24% year-over-year.
  • API Platform Revenues (which are all Service revenues) grew 50% GAAP.
  • Applications Service Revenues grew 20% GAAP and 8% adjusted.

Other Fourth Quarter Business Segment Highlights

  • Revenue growth from Applications customers with greater than $12,000 of Annual Recurring Revenue (ARR) accelerated to 14% in the fourth quarter of 2019 from 12% in the third quarter of 2019. Bookings from this cohort represented 62% of total bookings in the fourth quarter of 2019 compared to 37% in the fourth quarter of 2018.
  • Revenue growth from customers with greater than $120,000 of ARR accelerated to 21% in the fourth quarter of 2019 from 17% in the third quarter of 2019.
  • Welcomed former SAP executive Rodolpho Cardenuto to the company as President of the Applications Group.
  • High Value API revenue grew at nearly twice the rate of overall API Platform revenues.
  • Business Service Revenue per Customer was $476 per month, up 21% from the year-ago quarter.
  • Business Service Revenue Churn was 1.2%, up from 1.1% in the year-ago quarter.

Full Year 2019 Business Segment Results

  • Business Revenues were $804 million, representing 32% GAAP growth.
  • Business Service Revenues were $720 million, a 37% GAAP increase.
    • Adjusted to include acquisitions for all periods and other one-time items, Vonage Business Service Revenues(1) increased 22% year-over-year.
  • API Platform Revenues (which are all service revenues) grew 47% GAAP.
  • Applications Service Revenues grew 30% GAAP and 10% adjusted.

Other Business Segment Highlights

  • Unveiled the revitalized Vonage brand, unifying around a single global corporate identity.
  • Named a Leader in Gartner’s CCaaS Magic Quadrant for Western Europe and a Visionary in Gartner’s CCaaS Magic Quadrant for North America. Frost & Sullivan recognized Vonage as a CPaaS Market Growth and Innovation Leader and as CPaaS Provider of the Year in the Asia-Pacific (APAC) region.
  • Invested significantly in the Vonage Communications Platform. The Company deployed Artificial Intelligence across Vonage Business Cloud (VBC) and the API Platform leveraging its acquisition of Over.ai. Vonage also launched Vonage Meetings, the Company’s native video collaboration solution integrated with VBC. Vonage also launched Conversation API, which enables developers and enterprises to create customized, real-time conversations that maintain context across multiple channels, including messaging and voice.
  • Registered developers on Vonage's API Platform increased to 940,000.

Fourth Quarter 2019 Consumer Segment Results

  • Consumer Revenues were $92 million, down 11% compared to the year-ago quarter.
  • Customer churn was 1.7%, down 0.1% compared to the year-ago quarter.
  • Average revenue per line ("ARPU") was $27.57, up $1.25 compared to the year-ago quarter.
  • Ended the quarter with approximately 1.1 million Consumer subscriber lines. More than 90% of these customers are tenured, defined as customers for more than two years.

Full Year 2019 Consumer Segment Results

  • Consumer Revenues were $385 million, down 13% from the prior year.
  • Customer churn was 1.8%, unchanged from the prior year.
  • Average revenue per line ("ARPU") was $27.04, up $0.62 from the prior year.

Consolidated Income and Balance Sheet
For the fourth quarter of 2019, Vonage reported consolidated revenues of $310 million, up from $274 million in the year-ago quarter. Income from operations was $4 million, down from $6 million in the prior year quarter. GAAP net loss was $2 million, or ($0.01) per share, an improvement from a loss of $7 million in the prior year period, or ($0.03) per share. Fourth quarter adjusted net income(2) was $15 million or $0.06 per share, an increase from $11 million or $0.05 per share in the prior year period.

For the full year 2019, Vonage reported consolidated revenues of $1.19 billion, up from $1.05 billion in the prior year. Income from operations was $7 million, down from $52 million in the prior year. GAAP net loss was $19 million, or ($0.08) per share, for the full year 2019, compared with income of $36 million, or $0.15 per share, in 2018. Full-year 2019 adjusted net income(2) was $46 million or $0.19 per share, down from $81 million or $0.34 per share in the prior year.

For the fourth quarter, the Company generated Adjusted OIBDA(3) of $44 million, and Adjusted OIBDA minus Capex(3) of $32 million. Net Cash from Operations was $33 million and Free Cash Flow(4) was $20 million for the quarter. The Company paid down $15 million of debt during the quarter, resulting in a net debt to Last Twelve Months Adjusted OIBDA ratio of 3.4 times, as of December 31, 2019.

For the full year, Adjusted OIBDA(3) was $158 million and Adjusted OIBDA minus Capex(3) was $109 million. Net Cash from Operations was $93 million and Free Cash Flow(4) was $44 million for the year.

2020 Outlook
To better reflect the Company’s transformation into a Business SaaS company, Vonage expects to make several changes to its reporting and disclosure in the first quarter of 2020. These changes include:

  • Moving from Adjusted OIBDA to Adjusted EBITDA;
  • Moving Applications customer subscription references from MRR, monthly recurring revenue, to ARR, annual recurring revenue;
  • Providing more comparable customer retention metrics; and
  • Reviewing the application and reporting structure of its Universal Service Fund (USF) fees to better highlight operating performance. Vonage collects USF fees for payment to the FCC, and these revenues are a 100% pass-through and do not impact adjusted EBITDA or cash flow. As a result, the Company’s 2020 guidance does not include what it estimates would have been 2020 USF revenues of $46 million in Business and $37 million in Consumer (if reporting and collecting USF were under the fourth quarter 2019 approach).

For the full year 2020, Vonage expects the following (based on constant currency as of February 2020; percentage references represent mid-point of the guidance range), excluding USF:

  • Consolidated revenues in the range of $1.165 billion to $1.185 billion
  • Vonage Business segment revenues in the range of $875 million to $895 million; within this:
    • Business Service revenues are expected to grow 16% to 18% on an adjusted basis
    • Product and access revenues will decline by approximately $10 million from 2019 levels
  • Consumer revenues in the area of $290 million
  • Consolidated Adjusted EBITDA of at least $155 million
  • Capex in the area of $60 million.

For the first quarter of 2020, Vonage expects the following, excluding USF:

  • Consolidated revenues in the $277 million area
  • Vonage Business revenues in the $200 million area
    • Business Service revenues in the $190 million area
  • Consumer revenues in the $77 million area
  • Consolidated Adjusted EBITDA in the $32 million area.

Conference Call and Webcast
The company will host a conference call to discuss its financial results for the fourth quarter and full year 2019 and other matters at 8:30 AM Eastern Time. To participate, please dial (866) 891-8177. International callers should dial (412) 902-6756.

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 (877) 344-7529 or (412) 317-0088 for international callers, and entering the passcode 10139007.

About Vonage

Vonage (Nasdaq:VG) is redefining business communications once again. We're making communications more flexible, intelligent, and personal, to help enterprises the world over, stay ahead. We provide unified communications, contact centers and programmable communications APIs, built on the world's most flexible cloud communications platform. True to our roots as a technology disruptor, our flexible approach helps us to better serve the growing collaboration, communications, and customer experience needs of companies, across all communications channels.

Vonage Holdings Corp. is headquartered in New Jersey, with offices throughout the United States, Europe, Israel, Australia and Asia. To follow Vonage on Twitter, please visit www.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, [email protected]

Media Contact: Jo Ann Tizzano 732.365.1363, [email protected]

(1) This is a non-GAAP financial measure. Refer below to Table 5 for a reconciliation to GAAP total business revenues and business service revenues.
(2) This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income (loss).
(3) This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP income from operations.
(4) This is a non-GAAP financial measure. Refer below to Table 6 for a reconciliation to GAAP cash from operations.

See the full press release, including financial tables, here.

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