Investor Presentation. March 2018

Transcription

1 Investor Presentation March

2 Safe Harbor Caution Concerning Forward-Looking Statements Various remarks that the Company makes contain forward-looking statements regarding acquisitions, acquisition integration, growth, growth priorities or plans, new products and related investment, revenues, adjusted OIBDA, churn, seats, lines or accounts, average revenue per user, cost of telephony services, the Company s share repurchase plan, new products and related investment, capital expenditures, and other statements that are not historical facts or information constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of The forward-looking statements 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; the expansion of competition in the cloud communications market; our ability to adapt to rapid changes in the cloud communications market; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers cost-effectively; the risk associated with developing and maintaining effective internal sales teams and effective distribution channels; risks related to the acquisition or integration of businesses we have acquired; security breaches and other compromises of information security; risks associated with sales of our services to mediumsized and enterprise customers; our reliance on third party hardware and software; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; our ability to scale our business and grow efficiently; our dependence on third party vendors; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; our ability to comply with data privacy and related regulatory matters; our ability to obtain or maintain relevant intellectual property licenses or to protect our trademarks and internally developed software; fraudulent use of our name or services; intellectual property and other litigation that have been and may be brought against us; reliance on third parties for our 911 services; uncertainties relating to regulation of business services; risks associated with legislative, regulatory or judicial actions regarding our business products; risks associated with operating abroad; risks associated with the taxation of our business; governmental regulation and taxes in our international operations; liability under anti-corruption laws or from governmental export controls or economic sanctions; our dependence on our customers' unimpeded access to broadband connections; risks associated with a material weakness in our internal controls; restrictions in our debt agreements that may limit our operating flexibility; foreign currency exchange risk; our ability to obtain additional financing if required; any reinstatement of holdbacks by our credit card processors; our history of net losses and ability to achieve consistent profitability in the future; our ability to fully realize the benefits of our net operating loss carry-forwards if an ownership change occurs; certain provisions of our charter documents; and other factors that are set forth in the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016, 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. Non-GAAP Financial Measures This presentation contains non-gaap financial measures (including adjusted operating income before depreciation and amortization ( adjusted OIBDA ), adjusted OIBDA less capex, adjusted net income, net debt (cash),free cash flow, organic growth and adjusted revenues), as defined in Regulation G adopted by the SEC. The Company provides a reconciliation of these non-gaap financial measures to the most directly comparable financial measure at the end of the presentation and in the Company's quarterly earnings releases, which can be found on the Vonage Investor Relations website at 2

3 Industry Leader in Business Cloud Communications Proven growth strategy via organic growth and M&A built on Broad portfolio of Cloud Communications solutions Vonage Business Revenues ($MM) $499 ~$600 Powerful, iconic brand provides competitive advantage $219 $376 Large scale network terminating billions of minutes and messages $94 Strong cash flows and balance sheet driven by Consumer E Guidance 3

4 UCaaS and CPaaS are a Powerful Combination, Giving Vonage the Right Set of Assets to Win in Cloud Communications Prebuilt PBX and Contact Center Solution Integration with Business Apps UCaaS SaaS Delivery CPaaS PaaS Delivery Embedded Real-Time Communications Programmable into Apps and Software Underlying Communications Platform Voice SMS / Chat Conferencing Recording Video Analytics Call Controls Common Network SmartWAN QoS Bring-your-own-broadband (OTT) MPLS QoS 4

5 Vonage is a Leader Across the Large and Rapidly Growing Cloud Communications Market, Which is Comprised of Both UCaaS and CPaaS Delivery Models $1B CPaaS $8B CPaaS $20B UCaaS $33B UCaaS $21B $41B By 2021 the Cloud Communications TAM is expected to double Source: Vonage, IDC (2017) 5

6 UCaaS Growth Driven by Two Purpose-Built Solutions Enterprise Leading Technology Partners Vonage Enterprise PBX UCaaS CCaaS Integration Vonage Quality Foundation MPLS QoS SmartWAN QoS Collaboration Proprietary Vonage Technology Vonage Business Cloud PBX Reliable UCaaS Open APIs Public Cloud Infrastructure Flexible Integration Collaboration Scalable SMB Bring-Your- Own-Broadband SmartWAN QoS 6

7 Vonage Business Cloud: Integrating UCaaS and CPaaS on a Common Platform Enhanced Mid-Market Capabilities Built on the public cloud, enhancing reliability, scalability, and deployment flexibility Conferencing + collaboration powered by Amazon Chime SmartWAN for QoS over any broadband connection Improved User Experience Redesigned mobile-first user experience improving the way employees communicate Automated onboarding and admin capabilities 7

8 Vonage is Driving UCaaS Service Revenue Growth Within Mid-Market AND Enterprise Segments Fortune 500 Real Estate Firm Largest UCaaS Win in industry 20,000+ seats Analytics 2,400 employee win due to SaaS Integration SaaS Integration CPaaS SmartWAN and MPLS Contact Center $60M Total Contract Value from $1M+ TCV customer wins in 2017 Seven-figure TCV win 27% Contact SmartWAN CPaaS Center Seven-figure TCV renewal SmartWAN and MPLS Contact Center Expected 2018 growth rate from Mid-Market and Enterprise 1 Customers (1) Defined as customers with more than 100 seats 8

9 Nexmo, the Vonage API Platform, Producing Strong Results Customers & Partners (in 000's) 207 Registered Developers Q'16 1Q'17 2Q'17 3Q'17 4Q'17 CPaaS Revenues $140 ($ in mm's) $92 51% GAAP 2 39% Organic 3 FY'16 (1) Excludes unqualified developer signups (2) As if owned by Vonage for full year 2016 (3) Adjusts for net-to-gross revenue reporting adjustment FY'17 9

10 Nexmo, the Vonage API Platform, Enables Developers to Easily Embed Communications to Drive Better Business Outcomes Key APIs Enterprise-Grade Developer Platform Limitless Use Cases Voice SIP Trunks Analytics SMS Chat Comprehensive set of developer tools Backed by the Vonage network Direct to carrier connections Global reach with sales presence in 3 regions Phone numbers in 85 countries Enhanced Customer Engagement AI/Chatbots Social Media Workflow Integration In-App Calling & Messaging Geo-fenced Communications Security User Authentication Proxy Communications Call Control 10

11 Integrating the Business Communications Value Chain Enhances Vonage s Value Proposition Workplace Tools for CRM & Productivity UCaaS for Employees CPaaS for Customers Voice Video QoS Contact Center Voice Call Control SMS Chat 11

12 Vonage Brand Awareness is Significantly Higher Than Other Pure-Play UCaaS Market Participants 56% More than $2 billion invested to build brand Extending the Vonage brand to business services has accelerated growth Aided Brand Awareness Among Non-Customers 5% 8% Source: Vonage small business brand tracking study, Fourth Quarter

13 Vonage has the Most Robust Omni-channel Distribution Platform in Cloud Communications Inside Sales Channel Sales Field Sales Enterprise Sales Developers Executing on Omni-channel Distribution Strategy Opened 20 new field sales markets in 2017 Hired new Channel Chief to accelerate Channel UCaaS Salesforce Will Begin Selling CPaaS Products Launched VonageReach first integrated product using the Vonage API Platform Significant force multiplier to UCaaS sales teams Accelerating CPaaS Salesforce to Capitalize on the Growing Enterprise Adoption Opened New European headquarters in London Opened 4 sales offices in Shenzhen, Beijing, Shanghai and Tokyo 13

14 Vonage Cloud Communications Products Utilize the Same Network and Termination Relationships 430K Developers 1 CPaaS Business 727K Seats 1 UCaaS Consumer 1.5M Subscriber Lines 1 VoIP Common Network Infrastructure Quality Data Centers Points of Presence Diverse Redundant Backbone Global Carrier Presence Cost Termination Network Peering Connections Volume Pricing Owned Phone Numbers 20 Billion Minutes and Messages Per Year As of December 31,

15 VONAGE, PROPRIETARY & CONFIDENTIAL Financial Overview and Analysis

16 Cloud Communications Growth Strategy Organic Expand Enterprise presence Grow Contact Center and SD-WAN Upsell existing customers Accelerate Channel Improve churn Deliver Product Innovation Inorganic Disciplined Acquirer Cost of capital advantage Scaled platform to integrate future acquisitions $27 Q4 Year-Over-Year Business Revenues Growth 1 $71 $111 $134 Q4'14 Q4'15 Q4'16 Q4'17 1. GAAP Vonage Business Revenues 16

17 Optimization of Consumer for Cash Flow Yielding Strong Results Improving Consumer Trends Successful optimization of Consumer driven by 15.0% 14.5% 14.0% 14.6% 2.2% 2.2% 14.4% 2.2% 14.0% Total Customer churn of 1.9% Tenured customers 1 increased to 82% of base Stable ARPU 13.5% 13.0% 12.5% 12.0% 11.5% 13.4% 12.9% 1.9% 1.9% 1.9% 12.0% Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 ~1.5 million subscribers Consumer Customer Base 95% of all customers are active users Active users average more than 500 minutes per month 1) Customers with Vonage for more than two years 17

18 Optimization of Consumer is Driving Strong Cash Flows Vonage Annual Adjusted OIBDA Consumer Customer Churn 2.5% $110M 2.6% $124M $144M $160M $180M Fourth quarter consolidated Adjusted OIBDA of $51 million % % % 2017 Record 2018 Adjusted OIBDA of $180 million and Adjusted OIBDA - CAPEX of $147 million 18

19 $1.02B 2017 Consolidated Revenues $180M $147M $556M Adjusted OIBDA Financial Strength and Complementary 2017 Adjusted OIBDA - CAPEX NOL U.S. Patents Assets are a Strategic and Competitive Advantage 19

20 Capital Allocation Strategy Invest to grow Vonage Business organically Acquire selectively to grow Vonage Business Maintain strategic and financial flexibility Invest in new markets, salesforce and product expansion Accretively acquire customers, sales force, technologies, geographic footprint and / or product Operate Consumer for cash flow and profitable subscriber base Manage leverage Return capital to shareholders Opportunistically execute share repurchase through $100 million authorization 20

21 Proven and Experienced Leadership Team Alan Masarek Chief Executive Officer Since 2014 David Pearson Chief Financial Officer Since 2013 Kenny Wyatt Chief Revenue Officer Since 2017 Vinod Lala Chief Strategy Officer Since 2014 Randy Rutherford Chief Legal Officer Since 2016 Omar Javaid Chief Product Officer Since 2015 Sue Quackenbush Chief Human Resources Officer Since 2015 Ted Gilvar Chief Marketing Officer Since 2015 Johan Hybinette Chief Information Security Officer Since 2017 Sagi Dudai SVP, Software Engineering and Network Since

22 THANK YOU 22 22

23 VONAGE, PROPRIETARY & CONFIDENTIAL Fourth Quarter Financial Results

24 2017 Highlights Grew 2017 total consolidated revenues to $1.0 billion, the fourth consecutive year of growth - Grew Vonage Business revenues 33% GAAP year-over-year - Grew Nexmo, the Vonage API Platform revenues 50% GAAP; 36% pro-forma year-over-year Delivered Operating Income of $59 million; record Adjusted OIBDA of $180 million and Adjusted OIBDA - CAPEX of $147 million Launched Vonage Business Cloud, a next-gen cloud communications platform built on the public cloud Realized value of joint UCaaS and CPaaS offering and cross-selling - Multiple wins with customers using both UCaaS and CPaaS Expanded geographic coverage and strengthened leadership of omni-channel sales infrastructure Continued mid-market and enterprise penetration - $60 million of total contract value from $1 million+ TCV customer wins Earned Frost and Sullivan Strategy Innovation and Leadership Award 24

25 Consolidated Revenues ($ in millions) Fourth Quarter $247 $253 $254 Business Consumer Fourth quarter Consolidated revenues up 3% year-over-year due to: Vonage Business organic growth Lower decline in Consumer 4Q'16 3Q'17 4Q'17 $956 Full Year $1,002 Full year Consolidated revenues up 5% Business revenues accounted for 50% of Consolidated revenues Positioned for long-term consolidated revenue and cash flow growth

26 Business Revenues ($ in millions) $111 Fourth Quarter Service Product & USF $129 $134 21% GAAP YoY Fourth quarter GAAP Vonage Business revenues up 21% due to: UCaaS organic service revenue growth of 16% CPaaS organic revenue growth of 36% 4Q'16 3Q'17 4Q'17 $376 Service Full Year Product & USF $499 33% GAAP YoY Full year GAAP Vonage Business revenues up 33% due to: UCaaS organic service revenue growth of 17% CPaaS organic revenue growth of 39%

27 Consumer Revenues ($ in millions) $136 Fourth Quarter Service Product & USF $124 $120 Consumer revenue decline improved in the fourth quarter Down 12% year-over-year Lower customer churn Stable pricing 4Q'16 3Q'17 4Q'17 Full Year $579 Service Product & USF $503 Full year Consumer revenue decline improved Down 13% year-over-year Efficiencies across the consumer acquisition and retention life cycle

28 Sales & Marketing ($ in millions) $84 Fourth Quarter $74 $78 Fourth quarter consolidated Sales & Marketing up sequentially due to: Increased Business marketing 4Q'16 3Q'17 4Q'17 Full Year $331 $313 Full year and fourth quarter consolidated Sales & Marketing down from the prior year due to: Shift from Consumer marketing to Business Transition from mass media to digital media Migration from media to sales and successbased sales commission

29 General and Administrative ($ in millions) Fourth Quarter $34 $27 $24 4Q'16 3Q'17 4Q'17 Full Year $123 $122 Fourth quarter and full year General and Administrative down from the prior year due to: Headcount reductions and operational efficiencies Reduction in Nexmo employee contractual payments Demonstrating operating leverage through flat G&A

30 Income from Operations ($ in millions) $5 Fourth Quarter $25 $23 Fourth quarter Operating Income up yearover-year due to: Higher revenues Lower Sales and Marketing, and General and Administrative 4Q'16 3Q'17 4Q'17 $44 Full Year $59 Full year Operating Income up from the prior year due to: Higher revenue Lower Sales and Marketing, and General and Administrative

31 Adjusted OIBDA 1 ($ in millions) Fourth Quarter $51 $51 $37 4Q'16 3Q'17 4Q'17 Full Year Full year and fourth quarter Adjusted OIBDA driven by: Higher revenues Lower Sales and Marketing, and General and Administrative Operational efficiencies $160 $ This is a non-gaap financial measure. Please refer to the end of the presentation for a reconciliation to GAAP income from operations. 31

32 Cash Flow and Balance Sheet Cash: Cash Flow ($ in millions) Q Cash from operations $47 Capital expenditures and software ($8) Free cash flow 1 $39 $31 million Debt Repayment $46 million in debt repayment in Q $90 million reduction in net debt for full year 2017 Total debt: $233 million Net debt 1 : $202 million (Gross Debt less Unrestricted Cash and Marketable Securities) Net debt/adjusted OIBDA = 1.1x Significant strategic and financial flexibility 1. This is a non-gaap financial measure. Please refer to the end of the presentation for a reconciliation to GAAP income from operations. 32

33 Non-GAAP Reconciliation 33

34 2018 Guidance (under ASC 606) ($ in Millions) 2018 Guidance Consolidated Revenue $1,030 - $1,045 Top-line Growth Total Business Revenue $590 - $605 At the midpoint: GAAP growth of 20% Service growth of 22% Consumer Revenue $435 to $440 12% 13% decline Adjusted OIBDA At least $195 Includes ~$10 million benefit from Topic 606 CAPEX ~$35 34

35 Business Revenues Reconciliation ($ in millions) Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 GAAP total UCaaS revenues $84.0 $85.6 $88.5 $90.9 $94.2 Bad debt policy reclassification Early termination fee Accounts receivable write-down Total UCaaS revenues incl. one-time items (Non-GAAP) $84.3 $85.9 $88.5 $90.9 $94.2 Hosted Infrastructure Business 1 (1.7) (1.6) (1.1) - - Adjusted total UCaaS Revenues (non-gaap) $82.6 $84.3 $87.4 $90.9 $94.2 Product USF Adjusted total UCaaS Service Revenues (non-gaap) $63.7 $64.7 $67.5 $71.1 $74.1 GAAP total CPaaS revenue $26.5 $26.2 $35.2 $38.4 $39.9 Pro forma CPaaS revenues Net-to-gross revenue reporting adjustment Adjusted total CPaaS revenues (non-gaap) $29.3 $29.6 $35.2 $38.4 $39.9 GAAP Vonage Business revenues $110.5 $111.8 $123.7 $129.3 $ Hosted Infrastructure Business sold on June 1, revenues only reported through the date of sale 35

36 Non-GAAP Reconciliation 36

37 Non-GAAP Reconciliation 37

38 Non-GAAP Reconciliation 38