Investor Presentation December 2017 1
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 1995. 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 http://ir.vonage.com. 2
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 2013 2014 2015 2016 2017E Guidance 3
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
Vonage is a Leader Across the Large and Rapidly Growing Cloud Communications Market, Which is Comprised of Both UCaaS and CPaaS Delivery Models 2017 2021 $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
UCaaS Growth Driven by Two Purpose-Built Solutions Enterprise Unified Communications SaaS Integration Collaboration Contact Center Premier Video Analytics Administration SIP Trunking Quality Network Foundation MPLS QoS SmartWAN QoS SMB Essentials Flexible Network Options Cloud-based PBX Mobile SaaS Integration Collaboration Bring-Your- Own-Broadband SmartWAN QoS 6
Vonage is Driving UCaaS Service Revenue Growth Within Mid-Market AND Enterprise Segments Recent Mid-market and Enterprise Activity Strong Mid-market and Enterprise Presence 1000+ Seats 10,000 seat channel win due to: UCaaS SaaS Integration 250-999 Seats ~40% of MRR Up- Market Analytics SmartWAN and MPLS Under 50 Seats 50-249 Seats 2,400 employee win due to: SaaS Integration SmartWAN Contact Center Representative Customers 1,500 seat expansion due to: UCaaS SmartWAN SaaS Integration 7
Nexmo, the Vonage API Platform, Producing Strong Results (in 000's) 176 Registered Developers 1 207 249 309 371 Customers & Partners 3Q'16 4Q'16 1Q'17 2Q'17 3Q'17 CPaaS Revenues $38 ($ in mm's) $26 45% YoY 2 3Q'16 3Q'17 1. Excludes unqualified developer signups 2. Growth is organic. Adjusts for net-to-gross revenue reporting adjustment 8
Nexmo, the Vonage API Platform, Enables Developers to Easily Embed Communications to Drive Better Business Outcomes Nexmo programmable voice and messaging APIs enable a diverse set of use cases Enhanced Customer Engagement IoT AI/Chatbots Social Media Enterprise-Grade Developer Platform Comprehensive set of tools that allows developers to build and iterate quickly Backed by the quality, strength and reliability of the Vonage network Global reach with sales presence in 3 regions and numbers in 85 countries 9
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
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 2016 11
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 yearto-date Hired new Channel Chief to accelerate Channel UCaaS Salesforce Will Begin Selling CPaaS Products in Q3 Launched VonageReach, first packaged business communication application 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 3 sales offices in Shenzhen, Beijing and Shanghai to support APAC customers 12
Vonage Cloud Communications Products Utilize the Same Network and Termination Relationships Products Business Consumer 371K Developers 1 710K Seats 1 1.5M 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 September 30, 2017 13
VONAGE, PROPRIETARY & CONFIDENTIAL Financial Overview and Analysis
Cloud Communications Growth Strategy Organic: - Increase salesforce and geographic markets - Expand Enterprise presence Q3 Year-Over-Year Business Revenues Growth 1 $106 $129 - Accelerate Product Innovation Inorganic: - Disciplined Acquirer - Cost of capital advantage - Scaled platform to integrate future acquisitions $24 $57 Q3'14 Q3'15 Q3'16 Q3'17 1. GAAP Vonage Business Revenues 15
Optimization of Consumer for Cash Flow Yielding Strong Results 15.0% 14.5% 2.2% 14.6% Improving Consumer Trends Churn 2.2% 2.2% YoY revenue decline % 14.4% Successful optimization of Consumer driven by: - Historic-low Customer churn of 1.9% - Tenured customers 1 increased to 81% of base 14.0% 14.0% - Stable ARPU 13.5% 13.4% 1.9% 1.9% Consumer Customer Base - ~1.5 million subscribers 13.0% 12.9% - >95% of all customers are active users 12.5% Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 - Active users average more than 500 minutes per month Consumer expected to generate $700 million of allocated after tax FCF between 4Q 2017 and 2021 1. Customers with Vonage for more than two years 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% $180M+ Third quarter consolidated Adjusted OIBDA of $51 million Expect Consumer to generate more than $700 million of after-tax free cash flow through 2021 2013 2014 2015 2016 2.0% through 3Q 17 2017E Guidance 17
$995M LTM Consolidated Revenues $166M $132M $586M LTM Adjusted OIBDA LTM Adjusted OIBDA - CAPEX NOL Financial Strength and Complementary Assets are a Strategic and Competitive Advantage 160+ U.S. Patents 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, 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 $100 million authorization 19
2017 Guidance ($ in Millions) Prior Guidance Adjusted Guidance Consolidated Revenues $981 to $996 Consumer Revenues $483 to $492 At least $1,000; up to $1,005 At least $500; up to $505 Business Revenues $498 to $504 No Change Adjusted OIBDA At least $165 At least $180 20
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 21
THANK YOU 22 22
VONAGE, PROPRIETARY & CONFIDENTIAL Third Quarter Financial Results
Recent Highlights Grew total consolidated revenues to $253 million, the 10th consecutive quarter of year-over-year growth - Grew Vonage Business revenues 21% organically year-over-year - Grew Nexmo revenues 45% organically year-over-year Invested in Vonage Business growth initiatives - UCaaS: Expanded to 20 field sales offices and hired new Channel Chief - CPaaS: Grew registered developers to over 300 thousand and expanded APAC presence with new sales offices Continued optimization of Consumer services - Reported customer churn of 1.9% and fourth consecutive quarter of lower year-over-year percentage revenue decline - Increased 2017 revenue guidance to over $500 million and 2021 allocated free cash flow projection to over $700 million Delivered record Adjusted OIBDA of $51 million and Adjusted OIBDA - CAPEX of $42 million - Paid down $37 million of debt, resulting in leverage of 1.7x LTM net debt to Adjusted OIBDA Increased full year 2017 revenue guidance to at least $1.0 and as high as $1.005 billion and increased Adjusted OIBDA guidance to at least $180 million 24
Consolidated Revenues ($ in millions) $248 $252 $253 Business Consumer GAAP Consolidated revenues up 2% from the prior year due to: - Vonage Business organic growth - Offset by managed decline in Consumer Vonage Business revenues represented 51% of total revenues - Positioned for accelerating top-line growth 3Q'16 2Q'17 3Q'17 25
Segment Revenues ($ in millions) $106 Business Service Product & USF $124 $129 22% GAAP YoY 21% Organic YoY 1 Vonage Business revenues up 22% GAAP from the prior year due to: UCaaS organic service revenue growth of 16% CPaaS organic revenue growth of 45% 3Q'16 2Q'17 3Q'17 Consumer $142 Service Product & USF $128 $124 Consumer revenues decline improving due to: Lower Consumer customer churn Strong Customer usage dynamics Stable ARPU 3Q'16 2Q'17 3Q'17 1. Growth rate is organic. We define organic growth as the increase in Business revenues after giving pro forma effect for the acquisition of Nexmo, the change in accounting treatment with respect to certain CPaaS revenues being recognized on a gross rather than net basis and the exclusion of one-time items. 26
Operating Expenses ($ in millions) $84 Sales & Marketing $80 $74 Consolidated Sales & Marketing down from the prior year due to: Reduction in Consumer marketing Offset by increased Business marketing 3Q'16 2Q'17 3Q'17 General & Administrative $37 $28 $27 3Q'16 2Q'17 3Q'17 General and Administrative down from the prior year due to lower: Employee-related costs Amortization of Nexmo deal consideration to employees Bonus accrual 27
Operating Income and Adjusted OIBDA 1 ($ in millions) Income From Operations $25 Operating Income and Adjusted OIBDA up from the prior year due to: $15 Lower S&M and G&A $7 3Q'16 2Q'17 3Q'17 Adjusted OIBDA 1 Operating Income and Adjusted OIBDA up sequentially due to: $41 $41 $51 Lower S&M and G&A Higher revenue at stable gross margin % driving higher gross profit 3Q'16 2Q'17 3Q'17 1. This is a non-gaap financial measure. Please refer to the end of the presentation for a reconciliation to GAAP income from operations. 28
Cash Flow and Balance Sheet Cash Flow ($ in millions) Q3 2017 Cash from operations $48 Capital expenditures and software ($9) Free cash flow 1 $39 Debt Repayment $37 million in debt repayment in Q3 2017 $56 million in debt repayment YTD through September Cash: $30 million Total debt: $279 million Net debt 1 : $249 million (Gross Debt less Unrestricted Cash and Marketable Securities) Net debt/adjusted OIBDA = 1.7x Significant strategic and financial flexibility 1. This is a non-gaap financial measure. Please refer to the end of the presentation for a reconciliation to GAAP income from operations. 29
Business Revenues Reconciliation ($ in millions) Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 GAAP total UCaaS revenues $82.4 $84.0 $85.6 $88.5 $90.9 Bad debt policy reclassification - - - - - Early termination fee - - - - - Accounts receivable write-down (0.3) 0.3 0.3 - - Total UCaaS revenues incl. one-time items (Non-GAAP) $82.1 $84.3 $85.9 $88.5 $90.9 Hosted Infrastructure Business 1 (1.6) (1.7) (1.6) (1.1) - Adjusted total UCaaS Revenues (non-gaap) $80.5 $82.6 $84.3 $87.4 $90.9 Product 13.6 12.7 13.4 13.4 13.1 USF 6.0 6.2 6.2 6.5 6.7 Adjusted total UCaaS Service Revenues (non-gaap) $60.9 $63.8 $64.7 $67.6 $71.1 GAAP total CPaaS revenue $23.9 $26.5 $26.2 $35.2 $38.4 Nexmo pre-acquisition revenues Pro forma CPaaS revenues 23.9 26.5 26.2 35.2 38.4 Net-to-gross revenue reporting adjustment 2.5 2.8 3.4 - - Adjusted total CPaaS revenues (non-gaap) $26.4 $29.4 $29.6 $35.2 $38.4 GAAP Vonage Business revenues $106.3 $110.5 $111.8 $123.7 $129.3 1. Hosted Infrastructure Business sold on June 1, 2017- revenues only reported through the date of sale 30
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