Investor Presentation. September 2017

Transcription

1 Investor Presentation September

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; 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 medium-sized 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; failure 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 VoIP services; risks associated with legislative, regulatory or judicial actions regarding our CPaaS products; the impact of governmental export controls or sanctions on our CPaaS products; our ability to establish and expand strategic alliances; risks associated with operating abroad; risks associated with the taxation of our business; risks associated with a material weakness in our internal controls; our dependence upon key personnel; governmental regulation and taxes in our international operations; liability under anti-corruption laws; our dependence on our customers' existing broadband connections; differences between our services and traditional telephone service; restrictions in our debt agreements that may limit our operating flexibility; foreign currency exchange risk; the market for our stock; 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; 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) $376 ~$500 Powerful, iconic brand provides competitive advantage $219 Large scale network terminating billions of minutes and messages $8 $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 Cloud PBX Solution Can Be Integrated with Business Apps UCaaS SaaS Delivery CPaaS PaaS Delivery Self-accessible Components Programmable into Apps and Software Underlying Communications Platform Voice SMS / Chat Conferencing Recording Video Analytics Call Controls Other 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 UCaaS Voice Video Messaging Contact Center SaaS Business App Integration Enterprise Grade Platform Broadsoft-based Scalable White Glove Support Premier Secure and Compliant Quality Network Foundation Globally Enabled MPLS QoS Quality of Service SmartWAN QoS UCaaS Voice Video Messaging Amazon Chime SaaS Business App Integration SMB Essentials Flexible Network Options Turnkey Solution Proprietary Technology Rapid Provisioning Easy-to-Use Mobile-first Design Low Cost OTT Bring-Your- Own-Broadband SmartWAN QoS 6

7 Vonage s UCaaS Product Set is Purpose-Built for Enterprise Customers Recent Mid-market and Enterprise Activity Strong Mid-market and Enterprise Presence Significant expansion under 5 year term due to: MRR as a% of Total MRR Seats Strong UCaaS Performance Advanced Contact Center SmartWAN and MPLS CPaaS Seats 40% of MRR Up Market Fortune 500 Financial Services Provider Won customer due to: UCaaS SmartWAN Wireless Backup Under 50 Seats Seats Representative Customers Fortune 500 Real Estate Brokerage Won 20,0000+ seat customer due to: UCaaS SmartWAN and MPLS SaaS Integration 7

8 Nexmo, the Vonage API Platform, Producing Strong Results (in 000's) 155 Registered Developers Customers & Partners 2Q'16 3Q'16 4Q'16 1Q'17 2Q'17 CPaaS Revenues 2 $35 ($ in mm's) $24 44% YoY 2Q'16 n Under Full Quarter Vonage Ownership 2Q'17 Record Customer Adds in Q Excludes unqualified developer signups 2. Growth is organic. 2Q 16 pro forma to reflect full quarter of ownership and net-to-gross revenue reporting adjustment 8

9 Nexmo Enables Developers to Easily Embed Communications to Drive Better Business Outcomes VAPI offers a diverse range of call controls that enable innovative voice use cases Enterprise Grade, Global Reach Backed by the quality, strength and reliability of the Vonage network Largest global reach with numbers in 85 countries Lower Cost Pay-per-use model Per second billing Recent Enhancements Released private beta for next generation contextual communications SDKs for ios, Android and Web Added new voice application management tools Strengthened global network in EMEA by adding another data center 9

10 Integrating the Business Communications Value Chain Enhances Vonage s Value Proposition Workplace Tools for CRM & Productivity UCaaS for Employees CPaaS for Customers Voice Video Voice Call Control QoS Contact Center SMS Chat 10

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

12 Vonage has the Most Robust Omni-channel Distribution Platform in Cloud Communications Inside Sales Channel Sales Field Sales Enterprise Sales Developers Executing on NFL City Strategy in Field Sales Opened 9 new markets year-to-date Expect to have field sales presence in 21 markets by end of 2017 UCaaS Salesforce Will Begin Selling CPaaS Products in Q3 Significant force multiplier to our CPaaS sales teams Accelerating CPaaS Salesforce to Capitalize on the Growing Enterprise Adoption Added sales leadership in APAC and EMEA Expect to have 3 sales offices in mainland China by end of

13 Vonage Cloud Communications Products Utilize the Same Network and Termination Relationships Products Business Consumer 309K Developers 1 683K Seats 1 1.6M Subscriber Lines 1 CPaaS UCaaS VoIP Common Network Infrastructure Quality Cost Data Centers Termination Network Peering Connections Points of Presence Global Carrier Presence Volume Pricing Diverse Redundant Backbone Owned Phone Numbers 20 Billion Minutes and Messages Per Year 1. As of June 30,

14 VONAGE, PROPRIETARY & CONFIDENTIAL Financial Overview and Analysis

15 Cloud Communications Growth Strategy Organic: - Increase salesforce and geographic markets - Expand Enterprise presence - Accelerate Product Innovation Inorganic: - Disciplined Acquirer - Cost of capital advantage - Scaled platform to integrate future acquisitions Q2 Year-Over-Year Business Revenues Growth 1 $124 $86 $49 $23 Q2'14 Q2'15 Q2'16 Q2'17 1. GAAP Vonage Business Revenues 15

16 Optimization of Consumer is Driving Strong Cash Flows Vonage Annual Adjusted OIBDA Customer Churn 2.5% $110M 2.6% $124M $144M 2.3% $160M 2.2% ~$165M Second quarter consolidated Adjusted OIBDA of $41 million Expect Consumer to generate more than $600 million of after-tax free cash flow through % 1H E Guidance 16

17 $990M LTM Consolidated Revenues $156M $124M $586M LTM Adjusted OIBDA LTM Adjusted OIBDA - CAPEX NOL Financial Strength and Complementary Assets are a Strategic and Competitive Advantage 160+ U.S. Patents 17

18 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, salesforce, 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 18

19 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 Graham McGonigal SVP of Networks Since

20 THANK YOU 20 20

21 VONAGE, PROPRIETARY & CONFIDENTIAL Second Quarter Financial Results

22 Recent Highlights Grew total consolidated revenues to $252 million, an 8% GAAP increase, and the 9th consecutive quarter of year-over-year growth - Grew Vonage Business organic revenues 23% year-over-year - Grew Nexmo organic revenues 44% year-over-year Accelerated traction in Mid-Market and Enterprise segments - Closed four UCaaS deals with a total contract value greater than $30 million - Launched several product enhancements leading to Mid-Market and Enterprise wins Invested in Omni-channel distribution platform to drive growth - Expanded field sales presence to 9 new markets year-to-date - Hired CPaaS sales leadership in APAC and DHAC Optimizing the value of Consumer Services - Achieved best-ever reported Customer churn of 1.9% - Delivered the lowest sequential revenue decline in 13 quarters 22

23 Consolidated Revenues ($ in millions) $234 $243 $252 8% GAAP YoY Consolidated revenues up 8% GAAP from the prior year due to: - UCaaS organic growth - Addition of Nexmo and subsequent organic growth and reporting adjustment - Offset by Consumer decline 2Q'16 1Q'17 2Q'17 Business revenues represented 49% of total revenues 23

24 Segment Revenues ($ in millions) $86 Business Service Product & USF $112 $124 23% Organic YoY 1 44% GAAP YoY Vonage Business revenues up 23% organically from the prior year UCaaS organic revenues growth Addition of Nexmo and subsequent organic growth 2Q'16 1Q'17 2Q'17 Consumer $148 Service Product & USF $132 $128 Consumer revenues down 13% year-overyear Lowest sequential dollar decline in more than 3 years Lowest ever reported Customer churn 2Q'16 1Q'17 2Q'17 1. Growth rate is organic. We define organic growth as the increase in Business revenues after giving pro forma effect for the acquisition of Nexmo, the change in accounting treatment with respect to certain CPaaS revenues being recognized on a gross rather than net basis and the exclusion of one-time items. 24

25 Consumer: Record Churn Driving Lowest Sequential Revenue Decline in 13 Quarters Churn Sequential dollar decline ($ in millions) $8.3 $ % 2.6% $7.1 $6.0 $5.4 $ % 2.4% $ % $ % 2.2% $ % $5.0 $5.9 $ % 2.2% $ % $4.0 $ % $ % $2.0 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 4Q'16 1Q'17 2Q'17 25

26 Adjusted OIBDA 1 ($ in millions) Income From Operations $5 $5 $7 Operating Income up from the prior year due to: Lower Consumer marketing spend 2Q'16 1Q'17 2Q'17 Adjusted OIBDA 1 $40 $37 $41 Operating Income down from the prior year due to: Lower Consumer marketing spend Partially offset by higher G&A 2Q'16 1Q'17 2Q'17 1. This is a non-gaap financial measure. Please refer to the end of the presentation for a reconciliation to GAAP income from operations. 26

27 Cash Flow, Stock Buyback and Balance Sheet Cash Flow ($ in millions) Q Cash from operations $16 Capital expenditures and software ($9) Free cash flow 2 $7 Stock Repurchase Program Year-to-date, repurchased 1.6 million shares for $10 million at an average price of $5.95 Repurchased 57 million shares for $191 million since August 2012 Cash 1 : $29 million Total debt: $317 million Net debt 2 : $290 million (Gross Debt less Unrestricted Cash and Marketable Securities) Net debt/adjusted OIBDA = 2.1x Significant strategic and financial flexibility 27

28 2017 Guidance ($ in Millions) Prior Guidance Adjusted Guidance Consolidated Revenues $966 - $981 $981 - $996 Vonage Business Revenues $483 - $489 $498 - $504 Adjusted OIBDA At least $165 No Change 28

29 Business Revenues Reconciliation ($ in millions) Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 GAAP total UCaaS revenues $78.0 $82.4 $84.0 $85.6 $88.5 Bad debt policy reclassification (0.4) Early termination fee (0.5) Accounts receivable write-down (0.3) Total UCaaS revenues incl. one-time items (Non-GAAP) $77.1 $82.1 $84.3 $85.9 $88.5 Hosted Infrastructure Business 1 (1.6) (1.6) (1.7) (1.6) (1.1) Adjusted total UCaaS Revenues (non-gaap) $75.5 $80.5 $82.6 $84.3 $87.4 Product USF Adjusted total UCaaS Service Revenues (non-gaap) $56.9 $60.9 $63.8 $64.7 $67.6 GAAP total CPaaS revenue $7.7 $23.9 $26.5 $26.2 $35.2 Nexmo pre-acquisition revenues $14.2 Pro forma CPaaS revenues Net-to-gross revenue reporting adjustment Adjusted total CPaaS revenues (non-gaap) $24.4 $26.4 $29.4 $29.6 $35.2 GAAP Vonage Business revenues $85.7 $106.3 $110.5 $111.8 $ Hosted Infrastructure Business sold on June 1, revenues only reported through the date of sale 29

30 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO ADJUSTED OIBDA AND TO ADJUSTED OIBDA MINUS CAPEX (Dollars in thousands) (unaudited) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, Income from operations $ 6,659 $ 5,124 $ 5,387 $ 11,783 $ 23,911 Depreciation and amortization 18,394 17,947 18,218 36,341 35,197 Share-based expense 7,412 7,064 7,962 14,476 14,265 Acquisition related transaction and integration costs , ,150 Organizational transformation 4,000 4,000 Acquisition related consideration accounted for as compensation 4,310 6,763 3,312 11,073 3,312 Adjusted OIBDA 40,793 37,037 39,936 $ 77,830 $ 81,835 Less: Capital expenditures (5,294) (3,701) (7,053) $ (8,995) $ (15,948) Acquisition and development of software assets (3,504) (3,380) (3,343) $ (6,884) $ (5,655) Adjusted OIBDA Minus Capex $ 31,995 $ 29,956 $ 29,540 $ 61,951 $ 60,232 30

31 Non-GAAP Reconciliation RECONCILIATION OF GAAP NET INCOME ATTRIBUTABLE TO VONAGE TO NET INCOME ATTRIBUTABLE TO VONAGE EXCLUDING ADJUSTMENTS (Dollars in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, (revised) (1) (revised) (1) Net income $ 4,825 $ 5,913 $ 218 $ 10,738 $ 8,149 Amortization of acquisition - related intangibles 9,069 8,999 8,274 18,068 15,236 Acquisition related transaction and integration costs , ,150 Acquisition related consideration accounted for as compensation 4,310 6,763 3,312 11,073 3,312 Organizational transformation 4,000 4,000 Tax effect on adjusting items (7,188 ) (6,569 ) (6,876 ) (13,757 ) (9,791 ) Adjusted net income $ 15,034 $ 15,245 $ 9,985 $ 30,279 $ 22,056 Earnings per common share: Basic $ 0.02 $ 0.03 $ $ 0.05 $ 0.04 Diluted $ 0.02 $ 0.02 $ $ 0.04 $ 0.04 Weighted-average common shares outstanding: Basic 223, , , , ,800 Diluted 239, , , , ,978 Earnings per common share, excluding adjustments: Basic $ 0.07 $ 0.07 $ 0.05 $ 0.14 $ 0.10 Diluted $ 0.06 $ 0.06 $ 0.04 $ 0.13 $ 0.10 Weighted-average common shares outstanding: Basic 223, , , , ,800 Diluted 239, , , , ,978 (1) Revised due to the correction of prior period financial statements. 31

32 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. FREE CASH FLOW (Dollars in thousands) (unaudited) Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, (Revised) (1) (Revised) (1) Net cash provided by operating activities $ 15,432 $ 17,261 $ 25,059 $ 32,693 $ 42,527 Less: Capital expenditures (5,294) (3,701) (7,053) (8,995) (15,948) Acquisition and development of software assets (3,504) (3,380) (3,343) (6,884) (5,655) Free cash flow $ 6,634 $ 10,180 $ 14,663 $ 16,814 $ 20,924 (1) Revised due to the adoption of new Accounting Standard Updates and the correction of prior period financial statements. 32

33 Non-GAAP Reconciliation RECONCILIATION OF NOTES PAYABLE, INDEBTEDNESS UNDER REVOLVING CREDIT FACILITY, AND CAPITAL LEASES TO NET DEBT (Dollars in thousands) (unaudited) June 30, December 31, Current maturities of capital lease obligations $ 1,021 $ 3,288 Current portion of notes payable 18,750 18,750 Notes payable and indebtedness under revolving credit facility, net of current maturities and debt related costs 295, ,124 Unamortized debt related cost 859 1,064 Capital lease obligations, net of current maturities Gross debt 316, ,366 Less: Unrestricted cash and marketable securities 26,825 29,679 Net debt $ 289,804 $ 293,687 33