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Vonage In The News
Vonage Holdings Corp. Reports Fourth Quarter and Full Year 2013 Results

Carolyn Katz Elected to Board of Directors of Vonage Holdings Corp.

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Vonage Holdings Corp. Reports Fourth Quarter and Full Year 2013 Results


Vonage Press Releases

Fourth Quarter 2013
-- Company Closes Vocalocity Acquisition --
-- Third Consecutive Quarter of Positive Net Line Additions --
-- Revenue of $211 Million --
-- Adjusted EBITDA(1) of $25 Million --
-- Net Income of $10 Million or $0.05 per Share Excluding Adjustments(2) --
Full Year 2013
-- Churn Declined to 2.5% for Full Year --
-- Adjusted EBITDA(1) of $110 Million --
-- Net Income of $52 Million or $0.24 per Share Excluding Adjustments(2) --
-- Revenue of $829 Million --
-- Positive Net Line Additions for the Year --
-- Repurchased 19 Million Shares for $56 million --

HOLMDEL, N.J., Feb. 12, 2014 /PRNewswire/ -- Vonage Holdings Corp. (NYSE: VG), a leading provider of communications services connecting consumers and businesses through cloud-connected devices worldwide, today announced results for the fourth quarter and full year ended December 31, 2013.



Summary of Fourth Quarter and Full Year 2013 Results

For 2013, the Company reported a positive swing of nearly 25,000 net line additions compared to the prior year, aided by the addition of subscribers to BasicTalk, an increased focus on in-person selling channels and the fourth quarter acquisition of Vocalocity, which has been renamed Vonage Business Solutions. Improvements in the customer experience contributed to a reduction in churn to 2.5% from 2.6% a year ago. Reflecting the Company's planned investment in growth initiatives, including the national launch of BasicTalk, adjusted EBITDA was $110 million, down from $135 million in the prior year.

For the quarter, Vonage reported solid core business results including positive net line additions for the third consecutive quarter due to improved churn, which declined 10 basis points sequentially to 2.5%. Vonage's consumer business and Vocalocity both achieved positive net line additions in the quarter. EBITDA for the fourth quarter increased by $2 million sequentially to $25 million, and declined from $34 million in the prior year due to investments in growth priorities.

"In 2013, we made important progress against each of our growth priorities," said Marc Lefar, Vonage Chief Executive Officer. "We grew our base of BasicTalk customers. We laid the foundation for our business in Brazil, and are on track for a phased market entry early in the second quarter of 2014. We increased the penetration rate of our mobile Extensions app and attracted new users to our Vonage Mobile app. And, we ended the year on a high note with the closing of our transformative acquisition of Vocalocity, a leading provider of hosted CaaS-based communications for small and medium businesses (SMBs). Based on our progress across our growth priorities, we expect to grow consolidated pro forma revenue by 1-2% in 2014."

Vonage repurchased $12 million of stock in the quarter and $56 million during 2013. The Company has repurchased $51 million worth of Vonage stock under its current $100 million authorization and remains on target to complete that authorization by the end of 2014. Since beginning its repurchase program in August of 2012, the Company has repurchased 31 million shares of Vonage stock for $84 million.

Fourth Quarter Financial and Operating Results

Results for the quarter and the year reflect continued planned investments in growth priorities in BasicTalk, international long distance, mobile, international expansion and SMB, and include Vocalocity results from November 15, 2013.

Vonage reported adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA")1 of $25 million, up from $23 million sequentially, and down from $34 million in the year ago quarter. Income from operations was $7 million, down from $9 million sequentially and down from $24 million in the year ago quarter reflecting the increase in the Company's assisted sales channels and brand-building costs for BasicTalk.

GAAP net income was $4 million or $0.02 per share, flat sequentially, and down from $13 million or $0.06 per share in the year ago quarter. Net income excluding adjustments2 was $10 million or $0.05 per share, up from $9 million or $0.04 per share sequentially, and down from $23 million or $0.10 per share in the year ago quarter.

Revenue totaled $211 million, up from $204 million sequentially, benefitting from the impact of the acquisition of Vocalocity. Revenue was down $3 million compared to the year ago quarter primarily due to lower customer acquisitions on premium plans and lower Universal Service Fund ("USF") fees, which are a pass-through. Average revenue per user ("ARPU") was $28.72, down from $28.87 sequentially due to lower customer acquisitions on premium plans. ARPU was down from $30.15 in the year ago quarter due to plan mix and lower USF fees.

Direct cost of telephony services ("COTS") was $52 million, down from $53 million sequentially primarily due to lower international termination costs and lower network and colocation costs. COTS declined from $57 million in the year ago quarter due to lower termination and interconnection costs and lower USF fees. On a per line basis, COTS was $7.09, down from $7.48 sequentially and down from $8.02 in the fourth quarter of last year.

Direct cost of goods sold was $10 million, flat sequentially and year-over-year. Direct margin3 was 71%, up from 69% sequentially and year-over-year due to lower network and termination costs.

Selling, general and administrative ("SG&A") expense was $73 million, up from $65 million sequentially, and up from $62 million in the year ago quarter. The sequential increase was driven by higher assisted selling expense, acquisition-related costs associated with Vocalocity and the absence of a one-time insurance reimbursement benefit in the third quarter. SG&A increased from the year-ago quarter due to an increase in assisted selling expense, and other acquisition-related costs. Offsetting a portion of these increases were declines in customer care costs per line, which were reduced by 7% sequentially and 14% from the year ago quarter, excluding Vocalocity.

Marketing expense was $58 million, down from $59 million in third quarter, and up from $53 million in the year ago quarter. Subscriber line acquisition cost ("SLAC") was $331, down from $339 sequentially and $347 in the year ago quarter.

Vonage reported gross line additions ("GLAs") of 175,000, flat sequentially, as Vocalocity line additions were offset by a reduction in GLAs on Vonage premium domestic plans. GLAs increased from 152,000 in the year-ago quarter due primarily to BasicTalk and line additions from Vocalocity. Customer churn was 2.5%, an improvement from 2.6% sequentially and flat versus the year-ago quarter. Net line additions were 9,000, an improvement from a loss of 6,000 net lines a year ago, and the third consecutive quarter of positive net line additions. Net lines declined from 11,000 net line additions sequentially.

As of December 31, 2013, cash and cash equivalents, including $4 million in restricted cash, totaled $89 million. Capital expenditures for the quarter were $6 million. Free cash flow4 was $30 million, up from $20 million in the third quarter primarily due to changes in working capital.

Full Year 2013 Financial and Operating Results

Vonage reported adjusted EBITDA of $110 million, down from $135 million the prior year, reflecting the Company's continued investment in growth initiatives, including the national launch of BasicTalk. The Company generated income from operations of $52 million, down from $65 million in the prior year.

GAAP net income was $28 million or $0.13 per share, a decrease from $37 million or $0.16 per share in 2012. Net income, excluding adjustments, was $52 million or $0.24 per share, down from $84 million or $0.37 per share excluding adjustments in the prior year.

Revenue was $829 million, down from $849 million the prior year primarily due to plan mix and lower USF fees, partially offset by Vocalocity. A decline in USF fees, which are a pass-through, accounted for 39% of this reduction. Churn was 2.5%, an improvement from 2.6% in 2012. The Company reported its first year of positive net line additions since 2008 with net lines of 9,000, a positive swing of nearly 25,000 lines from the prior year.

Cash generated from operations was $88 million, down from $120 million in 2012, and capital expenditures totaled $22 million, down from $27 million in the prior year. The resulting free cash flow4 was $66 million.

Growth Priorities

Vocalocity serves 25,000 business customers and is among the fastest growing providers in the SMB market, with pro forma revenue of $17 million in the fourth quarter of 2013, up 40% from the year ago quarter, and $62 million for the full year, up 38% from the prior year, excluding the deferred revenue reduction required by purchase accounting. Shortly after close of the acquisition, Vocalocity fully interconnected to Vonage's intelligent call routing platform, delivering cost synergies in domestic and international cost of telephony services. The combination of new marketing initiatives and the brand recognition and lead generation capacity of Vonage is expected to accelerate the growth of Vocalocity.

BasicTalk, the Company's low-end domestic calling product, launched in the second quarter of 2013 and has performed well, validating a retail-oriented distribution strategy and contributing to positive net line additions for the year. The Company expects to continue to invest and grow this segment through expanded distribution, enhanced product features and continued expansion across marketing channels.

Mobile has become an essential component of the Company's core service through Extensions and the standalone Vonage Mobile app. Approximately 87% of the Company's home phone customers who call internationally have an Extension, and 28% of Vonage customers' international calls made over the Vonage network are made from a mobile phone. Enhanced features such as video calling and video voicemail have helped to attract new users to Vonage Mobile.

Vonage has made strong progress building the foundation to deliver communication services in Brazil and is on track for a phased launch early in the second quarter of 2014. The Company has completed development of the core components of the service and is currently performing integrated production testing. Vonage has an experienced local management team in place and has established customer care centers in preparation for the launch. The Company's joint venture partner in Brazil, Datora, has been a strong operating partner in preparation for launch. In late 2013, Datora was unable to meet certain of its capital call obligations. As a result, Vonage's ownership in the joint venture will increase to approximately 90%. Vonage does not expect this funding issue to increase risk to the planned market entry. Datora continues to be Vonage's operating partner and maintains an equity position in the Brazil venture.

Patent Portfolio

In 2013, Vonage continued to execute on its strategy to develop and protect its valuable intellectual property. The Company more than doubled the size of its patent portfolio, which grew from 18 to 37 issued U.S. patents, and with the filing of 99 U.S. patent applications, now has over 210 pending U.S. patent applications. The Company also owns over 50 patents and over 110 patent applications in foreign jurisdictions.

Outlook

For 2014, the Company expects revenues to increase in the range of 1-2%, assuming Vonage had owned Vocalocity for all of 2013. On a reported basis, the Company expects total revenue in 2014 to increase in the range of 7- 9%. The Company expects 2014 capital expenditures and software of approximately $30 million.

(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.

(3)

Direct margin is defined as operating revenues less direct cost of telephony services and direct cost of goods sold as a percentage of revenues.

(4)

This is a non-GAAP financial measure. Refer below to Table 5 for a reconciliation to GAAP cash provided by operating activities.

Vonage HOLDINGS CORP.

TABLE 1. CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share amounts)



Three Months Ended


For the Years Ended


December 31,


September 30,


December 31,


December 31,


2013


2013


2012


2013


2012


(unaudited)


(audited)

Statement of Operations Data:










Revenues

$

211,220



$

203,984



$

213,711



$

829,067



$

849,114












Operating Expenses:










Direct cost of telephony services (excluding depreciation

and amortization of $4,408, $3,522, $3,534, $14,892, and

$15,115, respectively)

52,122



52,882



56,814



213,712



231,877


Direct cost of goods sold

9,956



9,535



9,568



37,586



39,133


Selling, general and administrative

73,159



64,752



62,461



262,302



242,368


Marketing

57,920



59,133



52,801



227,052



212,540


Depreciation and amortization

11,427



8,459



8,052



36,066



33,324


Loss from abandonment of software assets









25,262



204,584



194,761



189,696



776,718



784,504


Income from operations

6,636



9,223



24,015



52,349



64,610


Other expense:










Interest income

99



97



29



307



109


Interest expense

(1,859)



(1,509)



(1,267)



(6,557)



(5,986)


Other (expense) income, net

(33)



(15)



(16)



(104)



(11)



(1,793)



(1,427)



(1,254)



(6,354)



(5,888)


Income before income tax expense

4,843



7,796



22,761



45,995



58,722


Income tax expense

(1,521)



(3,811)



(9,928)



(18,194)



(22,095)


Net income

3,322



3,985



12,833



27,801



36,627


Plus: Net loss attributable to noncontrolling interest

266



222





488




Net income attributable to Vonage

$

3,588



$

4,207



$

12,833



$

28,289



$

36,627


Net income per common share:










Basic

$

0.02



$

0.02



$

0.06



$

0.13



$

0.16


Diluted

$

0.02



$

0.02



$

0.06



$

0.13



$

0.16


Weighted-average common shares outstanding:










Basic

209,928



209,589



219,379



211,563



224,264


Diluted

219,600



217,059



228,107



220,520



232,633



Three Months Ended


For the Years Ended


December 31,


September 30,


December 31,


December 31,


2013


2013


2012


2013


2012


(unaudited)


(audited)

Statement of Cash Flow Data:










Net cash provided by operating activities

$

36,089



$

23,550



$

61,046



$

88,243



$

119,843


Net cash used in investing activities

(106,481)



(3,760)



(12,011)



(120,985)



(25,472)


Net cash provided by (used in) financing activities

56,104



(19,292)



(26,129)



21,891



(56,257)


Capital expenditures and development of software assets

(6,422)



(3,758)



(12,009)



(22,180)



(26,750)



Vonage HOLDINGS CORP.

TABLE 1. SUMMARY CONSOLIDATED FINANCIAL DATA - (Continued)

(Dollars in thousands, except per share amounts)




For the years ended December 31,



2013


2012



(audited)

Balance Sheet Data:





Cash and cash equivalents


$

84,663



$

97,110


Restricted cash


4,405



5,656


Accounts receivable, net of allowance


19,649



20,416


Inventory, net of allowance


10,584



5,470


Prepaid expenses and other current assets


16,892



15,487


Deferred customer acquisition costs


5,184



5,765


Property and equipment, net


52,243



60,533


Goodwill


83,627




Software, net


20,557



19,560


Debt related costs, net


1,313



772


Intangible assets, net


76,850



6,681


Total deferred tax assets, including current portion, net


264,900



306,113


Other assets


1,882



3,826


Total assets


$

642,749



$

547,389


Accounts payable and accrued expenses


$

130,994



$

129,815


Deferred revenue


37,335



36,533


Total notes payable and indebtedness under revolving credit facility, including current portion


121,666



42,500


Capital lease obligations


13,090



15,561


Other liabilities


1,628



1,565


Total liabil




 
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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See www.vonage.com/911 for details.

** Certain call types excluded.

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