Investor Presentation

Transcription

1 Investor Presentation

2 Safe Harbor Caution Concerning Forward-Looking Statements Various remarks that the Company makes contain forward-looking statements regarding potential acquisitions, acquisition integration, growth priorities or plans, new products and related investment, revenues, adjusted EBITDA, churn, seats, lines or accounts, average revenue per user, cost of telephony services, the Company s share repurchase plan, capital expenditures, and, other statements that are not historical facts or information constitute forwardlooking 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; our ability to adapt to rapid changes in the market for voice, messaging, and communications services; our ability to retain customers and attract new customers; the expansion of competition in the unified communications market; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; security breaches and other compromises of information security; risks related to the acquisition or integration of businesses, including the risks related to the acquisition of Simple Signal, Telesphere, and Vocalocity; the risk associated with developing and maintaining effective distribution channels; our ability to establish and expand strategic alliances; governmental regulation and taxes in our international operations; our ability to obtain or maintain relevant intellectual property licenses; intellectual property and other litigation that have been and may be brought against us; failure to protect our trademarks and internally developed software; obligations and restrictions associated with data privacy; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; uncertainties relating to regulation of VoIP services; risks associated with operating abroad; liability under anti-corruption laws; results of regulatory inquiries into our business practices; fraudulent use of our name or services; our dependence upon key personnel; our dependence on our customers' existing broadband connections; differences between our service and traditional phone services; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; any reinstatement of holdbacks by our vendors; 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 section and other sections of Vonage s Annual Report on Form 10-K for the year ended December 31, 2014, in the Company s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. While the Company may elect to update forwardlooking 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 earnings before interest, taxes, depreciation and amortization ( adjusted EBITDA ), adjusted EBITDA less capex, adjusted net income, net debt (cash) and free cash flow, 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 Vonage: A Compelling Investment Leadership Position in Large and Growing UCaaS Market Powerful, Iconic Brand Structural Cost Advantages and Proven Acquisition Synergies Strong, Stable Cash Flows 3

4 The UCaaS Market is Large and Growing Quickly Cloud PBX Replacement Spend US Business Market Segments $12 $10B Enterprise >1,000 Employees ~9,000 Firms ($ in Billions) $8 $4 $3B 27% CAGR Mid Market 100 1,000 Employees ~90,000 Firms Small Business Employees ~500,000 Firms Vonage Target Market: 1 to seats $0 Source: Frost & Sullivan < 100 seats > 100 seats SoHo <20 Employees ~5,000,000 Firms Source: United States Census Bureau, Jan

5 Vonage Brand Awareness is Significantly Higher Than Other Pure- Play Cloud PBX Market Participants Aided Brand Awareness Among Non-Customers Overall By Provider Type VoIP Telco Cable 77% 84% 72% 82% 8 x 8 2% 8% 0% 0% RingCentral 4% 10% 2% 0% Vocalocity 3% 5% 2% 2% The iconic Vonage brand stands for innovation, disruption and value More than $2 billion invested to build brand Extending the Vonage brand to business services has meaningfully accelerated growth Source: VG Marketing Research Sept. 2013; Online survey among small business decision makers with fewer than 25 lines using either VOIP, Telco or Cable 5

6 Vonage Has Successfully Utilized its Brand, Scale and Cost Synergies to Accelerate Business Growth Year-over-Year Vonage Business Telesphere Revenue Growth ($ in Millions) $49 VBS Telesphere Vonage Acquisition Playbook Acquired Vocalocity November 2013 Rebranded as Vonage Business Solutions (VBS) $23 Y-o-Y growth: 38% * organic 118% GAAP Directed all business leads to VBS for higher close rate and higher ARPU Reinvested synergies into marketing and sales infrastructure 2Q' 14 2Q' 15 * Year-over-year Vonage Business organic revenue growth, as if Telesphere and SimpleSignal owned for all periods Achieved more than 1,000 basis points of service margin improvement $5M in cost synergies in 2014 Vonage has a proven ability to integrate acquisitions 6

7 Vonage Business is Uniquely Positioned to Deliver UCaaS to Customers from Seats Acquisition Date Average seats/ Customer ARPU/ Customer Sales Channel November 2013 Vonage Acquisitions March 2015 <10 seats >20 seats December 2014 >40 seats; typically across multiple locations Multiple customers with more than 1,000 seats ~$200 ARPU ~$1,000 ARPU ~$3,000 ARPU Primarily direct Primarily VAR/Channel Contracts None 2 to 3-year contract 3-year contract Delivery Cloud services over-the-top Combines QoS with overthe-top services using edge router technology Cloud services bundled with MPLS service for QoS and SLAs Technology Proprietary Broadsoft for telephony and some UC services; Additional platforms for other UCaaS solutions 7

8 Vonage Business Go-to-Market Strategy Aligns Sales Channels and Products with the Customer Need and Presents One Company to the Market Vonage Business Product Channel Telesales Online Indirect Channel Enterprise Direct Vonage Essentials Vonage Premier Powered By Telesphere Key Messages Benefits of cloud/ucaas Lower costs Enhanced features Reliable Service and Support Scalable, mobile The right platform and products to serve customers from seats Enterprise-grade cloud solution/app Multi-location focus via MPLS network QoS service level agreements ChannelSphere - proprietary customer management tool Trusted partner Single point of contact for service issues 8

9 "The Business of Better Campaign Is Designed to Drive Organic Growth and Broaden the Appeal of the Vonage Brand Launched in mid-june; accelerated investment in second half of 2015 Viewer data suggests campaign effectively demonstrates that Vonage: Is a technology leader Provides innovative services for businesses Serves small, medium and large businesses Provide a halo effect for our consumer business 9

10 Vonage Consumer VoIP Products Deliver High Value and Are Increasingly Adopted in the Mobile Environment Vonage World Unlimited calling in the U.S. and to + 60 countries 38% of Asian Indian households in the U.S. 47% of Vonage customers make international calls $9.99/month for the first year Unlimited calling across the U.S., Canada and Puerto Rico Talk as much as you want to anywhere, from anywhere Vonage Extensions / Mobile App 35% of international calls over Vonage network are from a mobile phone 47% of Extensions calls over Wi-Fi New Extensions functionality Home phone number is family identity in the home and mobile environment 10

11 Consumer Generates Strong, Stable Cash Flows and Benefits from a Low-Churn Tenured Base of Customers ($ in Millions) Vonage Adjusted EBITDA Consumer Customer Churn 2.6% 2.6% 2.6% 2.6% 2.5% $23 $25 $35 $29 $29 $30 $38 $38 2.4% 2.4% 2.2% Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Continue to drive efficiencies Sales and Marketing Cost of Service Customer Care High gross margins and low capex Adjusted EBITDA improvement key drivers: Sequential Consumer marketing reduced by $7 million; $17 million YTD Year-over-year customer churn improved to 2.2% from 2.6% Last quarter of consumer-only 11

12 Vonage Consumer and Business Segments are Highly Complementary Mobile-centric UCaaS Low-end Domestic Premium Domestic International Long Distance Small Business Mid-Market Enterprise Consumer Great brand Increasing cash flows Cost advantages > 2 million subscribers Business UCaaS solutions and technology High revenue growth 403,000 seats 12

13 Vonage s Financial Strength and Complementary Assets are a Strategic and Competitive Advantage Financial Strength $871 Million LTM Revenue $116 Million LTM Adjusted EBITDA Minus Capex Net leverage of 0.8x $640 Million NOL 86 U.S. Patents Consumer High Cash Flow Vonage Business High Growth 13

14 Vonage has a Proven and Experienced Leadership Team Further Strengthened by Recent Hires and Talent Added Through Acquisition Name/Title Experience Name/Title Experience Alan Masarek Chief Executive Officer Clark Peterson President, Business Solutions Group Joseph Redling Chief Operating Officer Graham McGonigal SVP Network Operations David Pearson Chief Financial Officer Pablo Calamera Chief Technology Officer Ted Gilvar Chief Marketing Officer Omar Javaid Chief Product Officer Kurt Rogers Chief Legal Officer and Secretary 14

15 Vonage's Capital Allocation Strategy is a Balance of Organic Investments, Acquisitions and Buybacks Supported by High Cash Flow and a Strong Balance Sheet Maximize Consumer Cash Flow and Invest to Grow Vonage Business Invest in business market at attractive customer acquisition cost Disciplined innovation in Consumer Exploit synergies across business lines Continue as a Disciplined Acquirer Vocalocity acquired in 2013 Telesphere acquired in 2014 SimpleSignal acquired in April 2015 gunify acquired in May 2015 Return Capital to Shareholders Repurchased 48 million shares for $146 million since year $100 million buyback began in 2015 Maintain Strategic and Financial Flexibility Significant acquisition capacity at < 1x net leverage $350 million bank debt facility at low cost L+3.00% Revolving credit facility primarily pre-payable at anytime 15

16 Vonage: A Compelling Investment Leadership Position in large and growing UCaaS market for business Platforms and product to serve seat customers Powerful, iconic brand Strong, increasing cash flows Structural cost advantages and proven acquisition synergies Disciplined acquirer with a balanced capital allocation strategy Experienced and scalable senior leadership 16

17 Appendix

18 Vonage Essentials: a Full Suite of Telephony Services and Add-on Features for the Small to Medium Business Premium Features efax Call Group Call Queue Conference Bridge Main Company No. Paging Group Toll Free Number Local or Geographic Number Virtual Mailbox On-Demand Call Recording Voic Transcription Company Call Recording Service Standard offer includes unlimited domestic calling, number porting, extension dialing, business name caller ID Extensive range of premium features available as add-ons Mobile app provides outbound calling with business number as caller ID, simultaneous ringing and voic IP phones from Cisco, Panasonic, Polycom; Softphone client feature Advanced analytics and support through customized desktop application and web portal interface Integration with SaaS apps Lower pricing than traditional providers Desktop Softphone Web Portal Interface Tracking Analytics Mobile App

19 Vonage Premier, Powered by Telesphere: a Comprehensive Suite of UCaaS Products and Services for the Mid-market and Small Enterprise Key UCaaS Solutions Virtual PBX Collaboration (Web, IM&P) Mobile office Contact center Call recording Multipoint HD video conferencing CRM Lync integration SMS text Services provisioned through a proprietary and scalable autoprovisioning and customer management platform highly valued for large scale installations QoS Management / Security MPLS Managed firewall SIP trunking Potential Future Services Virtual desktop Expanded CRM/IVR integration Lync hosting Cloud enterprise storage 19

20 gunify is the Middleware Solution that Integrates Vonage s Cloud Communication Platform with Today s Most Widely Used SaaS Business Applications Connects Vonage communications platform with SaaS business applications Only cloud-based SaaS connector fully integrated with BroadSoft In high demand by businesses who want to move to cloud communications 20

21 Second Quarter 2015 and Recent Business Highlights Increased Adjusted EBITDA 1 to $38 million, a 29% year-over-year increase Reported consolidated revenues of $222 million, a $3 million yearover-year increase Grew Vonage Business revenues by 118% year-over-year Completed SimpleSignal and gunify acquisitions on April 1 and May 15, respectively Continued return of value to shareholders through buyback New, expanded $350 million credit facility lowers cost of capital and expands liquidity 1) This is a non-gaap financial measure. Please refer to the end of the presentation for a reconciliation to GAAP income from operations. 21

22 Consolidated Revenues Up Sequentially and Year-Over-Year Due to Vonage Business Growth ($ in Millions) Consolidated Revenues $222 $219 $220 Consolidated revenues up sequentially and year-over-year Strong business growth reflects continued execution of Vonage Business organic growth and acquisition strategy 2Q '14 1Q '15 2Q '15 22

23 Vonage Continues to Drive Efficiencies in Sales and Marketing Spend ($ in Millions) Sales and Marketing $98 $86 $84 2Q '14 1Q '15 2Q '15 Sequential and year-over-year reduction reflects: - Continued efficiencies in Sales and Marketing spend - Focus on quality and profitability of subscribers acquired - Focus on generating cash flow to drive growth in Vonage Business Includes significant ramp in Vonage Business sales and marketing costs to capture strong demand for UCaaS 23

24 Non-GAAP Reconciliation 24

25 Non-GAAP Reconciliation 25

26 Non-GAAP Reconciliation 26

27 Non-GAAP Reconciliation 27