Vonage Holdings Corp. Reports First Quarter 2013 Results

           Vonage Holdings Corp. Reports First Quarter 2013 Results

-- Adjusted EBITDA1 of $34 Million --

-- Net Income of $21 Million or $0.10 per Share Excluding Adjustments2 --

-- Revenue of $209 Million --

-- Repurchased 6 Million Shares for $16 Million --

PR Newswire

HOLMDEL, N.J., May 1, 2013

HOLMDEL, N.J., May 1, 2013 /PRNewswire/ --Vonage Holdings Corp. (NYSE: VG), a
leading provider of communications services connecting people through
cloud-connected devices worldwide, today announced results for the first
quarter ended March 31, 2013.

Vonage reported adjusted earnings before interest, taxes, depreciation and
amortization ("EBITDA")^1 of $34 million, up from $32 million in the year ago
quarter and flat sequentially. The Company reported income from operations of
$22 million, up from $21 million in the year ago quarter and down from $24
million sequentially.

GAAP net income was $13 million, down from $14 million compared to the year
ago period and flat sequentially. GAAP earnings per share was $0.06, flat
compared to the year ago quarter and sequentially. Net income, excluding
adjustments^2 was $21 million or $0.10 per share, up from $19 million or $0.08
per share in the year ago quarter and down from $23 million or $0.10 per share
sequentially.

Commenting on the quarter, Marc Lefar, Vonage Chief Executive Officer, said,
"We again generated solid financial returns. We improved our operating margins
as we continue to implement structural improvements to lower costs. In
addition, our focus on the overall customer experience has resulted in strong
churn performance. Churn declined by 30 basis points from the prior year and
has been stable for four consecutive quarters. Although total customer
additions to our international calling plans were flat, we continued to see
strong sales growth through assisted selling in major retailers and community
sales teams.

"Executing on our growth priorities, we have made steady progress building the
foundation to deliver services in Brazil. And over the last couple of months,
we have made great improvements in the quality, capabilities and appeal of the
Vonage Mobile app. With our launch of video calling two weeks ago, Vonage
Mobile now has a level of completeness and quality that is unsurpassed by any
other communications app in the market.

"We are also excited about our upcoming national launch of our new flanker
brand, BasicTalk, which targets the low-end domestic calling market. Given the
positive results in our test markets, we anticipate that it will be a
meaningful contributor to subscriber and revenue growth."

First Quarter Financial and Operating Results

Revenue totaled $209 million, down from $216 million a year ago primarily due
tofewer subscriber lines and the expansion of lower priced plan offerings to
meet customer needs, as well as from the non-operational impact of lower
Universal Service Fund ("USF") fees which contributed $2.5 million of the
decline. Revenue declined sequentially from $214 million due to the expansion
of lower priced plan offerings and lower USF. Average Revenue per User
("ARPU") was $29.61, down from $30.42 in the prior year primarily due tothese
same factors. Similarly, ARPU declined from $30.15 sequentially.

Direct cost of telephony services ("COTS") was $55 million, down from $62
million compared to the year ago quarter as a result of lower domestic and
international termination costs and lower USF fees. COTS was down from $57
million sequentially, primarily due to lower USF fees, which are a
pass-through. On a per line basis, COTS was $7.82, down from $8.68 in the
first quarter of last year and $8.02 sequentially.

Direct cost of goods sold was $9 million, down from $10 million a year ago and
sequentially. Direct margin^3 was 69%, up from 67% in the year ago quarter
and flat sequentially.

Selling, general and administrative ("SG&A") expense was $63 million, up $1
million from the year ago quarter and sequentially.

Marketing expense was $52 million, down from $53 million in the year ago
quarter and sequentially. Subscriber line acquisition cost ("SLAC") was $349,
up from $323 in the year ago quarter and $347 sequentially.

Gross line additions were 148,000, a decrease from 165,000 in the prior year
and 152,000 sequentially. Customer churn was 2.5%, down from 2.8% a year ago
as a result of sustained improvements in the customer experience and more
effective retention processes. Churn was flat sequentially. The Company lost
12,000 net lines during the quarter, an improvement from the 19,000 net lines
lost a year ago.

As of March 31, 2013, cash and cash equivalents, including $4 million in
restricted cash, totaled $110 million. Capital expenditures for the quarter
were $4 million. Free Cash Flow^4 in the seasonally low first quarter was $5
million, up from $2 million in the year ago quarter and down from $49 million
sequentially reflecting working capital changes from the timing of payments.

Growth Priorities

Vonage continues to execute on its growth priorities in its core North
American markets, international expansion and mobile.

Over the next few weeks, Vonage will launch BasicTalk nationally. BasicTalk is
a low-priced home phone service with unlimited calling throughout the U.S. for
a flat rate of $9.99 per month; BasicTalk includes basic features with no
upfront costs, no hidden fees and no contract.

Vonage will launch BasicTalk with a multi-media marketing campaign, driving
customers to low-cost distribution channels and supporting them with online
customer service after purchase. An important element in BasicTalk's national
expansion is the Company's exclusive relationship with Walmart. BasicTalk will
be sold in Walmart stores nationwide, and will be supported with in-store
merchandising in approximately 1,000 stores.

Three months after announcing its joint venture with Datora, the Company is
making steady progress building the foundationto deliverservices in Brazil.
Vonage has completed the technical design for a cloud-based network
architecture and has developed plans for the implementation of a billing and
customer care platform. In addition, the Company is in the process of hiring a
team to manage and operate its business in Brazil.

Vonage continues to strengthen the capabilities of its mobile app, and two
weeks ago, launched video calling for iOS and Android. Vonage has brought
together the most popular features of mobile communications into one simple,
high-quality, multi-functional app, that allows users to communicate with each
other in whatever manner they choose - voice, video or messaging. Unlike other
apps, Vonage Mobile enables the use of an existing mobile identity and contact
list, as well as calling to phones without the app at competitive rates.

Share Repurchase Program

During the first quarter, Vonage repurchased a total of 6 million shares of
its common stock for$16 million, $11 million of which was under the new $100
million plan implemented in February. Since beginning itsinitialrepurchase
programin August of 2012 through the first quarter of 2013, Vonage has
repurchased a total of 18 million shares of stock.

Outlook

Vonage expects its ongoing investment in international expansion and mobile to
be in the range of $5-10 million per quarter. For mobile, the investment will
include development and general and administrative expenses as the Company
strengthens the capabilities of its mobile platform and prepares for the
launch of its roaming service. It also includes investment in digital
marketing behind the enhanced Global Calling Card platform. For international
expansion, the investment will include general and administrative expenses for
the build-out of Vonage's management team and systems as the Company
establishes its new business in Brazil.

Vonage expects to invest an incremental $5-7 million in the second quarter to
support its national rollout of BasicTalk, including national television,
digital media, public relations and in-store merchandising to build awareness
and drive traffic for the new BasicTalk brand. A significant portion of the
BasicTalk investment will be success-based, allowing for acceleration or
moderation of spending based upon progress. With this launch investment,
Vonage expects BasicTalk to contribute meaningfully to the Company's overall
growth and anticipates positive net line additions in the third and fourth
quarters of 2013.

The Company continues to expect 2013 capital and software expenditures to be
in the range of $30-$35 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 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 netcash provided by operating activities.



VONAGE HOLDINGS CORP.

TABLE 1. CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share amounts)
                                          ThreeMonthsEnded
                                          March 31,   December 31,  March 31,
                                          2013        2012          2012
                                          (unaudited)
Statement of Operations Data:
Revenues                                  $ 209,087   $  213,711    $ 215,903
Operating Expenses:
Direct cost of telephony services
(excluding depreciation and amortization  55,181      56,814        61,623
of $3,452, $3,534, and $3,930,
respectively)
Direct cost of goods sold                 8,878       9,568         9,846
Selling, general and administrative       62,910      62,461        61,835
Marketing                                 51,669      52,801        53,422
Depreciation and amortization             7,975       8,052         8,644
                                          186,613     189,696       195,370
Income from operations                    22,474      24,015        20,533
Other income (expense):
Interest income                           37          29            20
Interest expense                          (1,457)     (1,267)       (1,751)
Other (expense) income, net               (39)        (16)          42
                                          (1,459)     (1,254)       (1,689)
Income before income tax expense          21,015      22,761        18,844
Income tax expense                        (7,968)     (9,928)       (4,923)
Net income                                $ 13,047    $  12,833     $ 13,921
Net income per common share:
Basic                                     $ 0.06      $  0.06       $ 0.06
Diluted                                   $ 0.06      $  0.06       $ 0.06
Weighted-average common shares
outstanding:
Basic                                     214,639     219,379       225,732
Diluted                                   223,202     228,107       236,036
                                          ThreeMonthsEnded
                                          March 31,   December 31,  March 31,
                                          2013        2012          2012
                                          (unaudited)
Statement of Cash Flow Data:
Net cash provided by operating activities $ 9,752     $  61,046     $ 11,119
Net cash used in investing activities     (3,087)     (12,011)      (8,034)
Net cash provided by (used in) financing  2,646       (26,129)      (7,084)
activities
Capital expenditures, intangible asset
purchases and development of software     (4,344)     (12,009)      (9,033)
assets



VONAGE HOLDINGS CORP.

TABLE 1. SUMMARY CONSOLIDATED FINANCIAL DATA - (Continued)

(Dollars in thousands, except per share amounts)
                                                     March 31,    December 31,
                                                     2013         2012
                                                     (unaudited)  (audited)
Balance Sheet Data (at period end):
Cash and cash equivalents                            $  105,894   $  97,110
Restricted cash                                      4,392        5,656
Accounts receivable, net of allowance                20,759       20,416
Inventory, net of allowance                          8,203        5,470
Prepaid expenses and other current assets            16,803       15,487
Deferred customer acquisition costs                  5,354        5,765
Property and equipment, net                          57,615       60,533
Software, net                                        19,384       19,560
Debt related costs, net                              2,393        772
Intangible assets, net                               6,088        6,681
Total deferred tax assets, including current         297,992      306,113
portion, net
Other assets                                         3,672        3,826
Total assets                                         $  548,549   $  547,389
Accounts payable and accrued expenses                $  110,845   $  129,815
Deferred revenue                                     35,409       36,533
Total notes payable, including current portion       64,166       42,500
Capital lease obligations                            14,979       15,561
Other liabilities                                    1,581        1,565
Total liabilities                                    $  226,980   $  225,974
Total stockholders' equity                           $  321,569   $  321,415





VONAGE HOLDINGS CORP.

TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA

(unaudited)
                                        ThreeMonthsEnded
                                        March 31,    December 31,  March 31,
                                        2013         2012          2012
Gross subscriber line additions         148,003      152,319       165,454
Change in net subscriber lines          (12,400)     (5,708)       (18,739)
Subscriber lines (at period end)        2,347,416    2,359,816     2,356,148
Average monthly customer churn          2.5       %  2.5        %  2.8       %
Average monthly operating revenue per   $   29.61    $   30.15     $   30.42
line
Average monthly direct cost of          $   7.82     $   8.02      $   8.68
telephony services per line
Marketing costs per gross subscriber    $   349      $   347       $   323
line addition
Employees (excluding temporary help)    966          983           1,004
(at period end)
Direct margin as a % of revenues        69.4      %  68.9       %  66.9      %





VONAGE HOLDINGS CORP.

TABLE 3. RECONCILIATION OF GAAP INCOME FROM OPERATIONS

TO ADJUSTED EBITDA

(Dollars in thousands)

(unaudited)
                                            ThreeMonthsEnded
                                            March 31,  December 31,  March 31,
                                            2013       2012          2012
Income from operations                      $ 22,474   $  24,015     $ 20,533
Depreciation and amortization               7,975      8,052         8,644
Share-based expense                         3,982      2,374         2,623
Adjusted EBITDA                             34,431     34,441        31,800
VONAGE HOLDINGS CORP.
TABLE 4. RECONCILIATION OF GAAP NET INCOME TO
NET INCOME EXCLUDING ADJUSTMENTS
(Dollars in thousands, except per share amounts)
(unaudited)
                                            ThreeMonthsEnded
                                            March 31,  December 31,  March 31,
                                            2013       2012          2012
Net income                                  $ 13,047   $  12,833     $ 13,921
Income tax expense                          7,968      9,928         4,923
Net income excluding adjustments            $ 21,015   $  22,761     $ 18,844
Net income per common share:
Basic                                       $ 0.06     $  0.06       $ 0.06
Diluted                                     $ 0.06     $  0.06       $ 0.06
Weighted-average common shares outstanding:
Basic                                       214,639    219,379       225,732
Diluted                                     223,202    228,107       236,036
Net income per common share, excluding
adjustments:
Basic                                       $ 0.10     $  0.10       $ 0.08
Diluted                                     $ 0.09     $  0.10       $ 0.08
Weighted-average common shares outstanding:
Basic                                       214,639    219,379       225,732
Diluted                                     223,202    228,107       236,036





VONAGE HOLDINGS CORP.

TABLE 5. FREE CASH FLOW

(Dollars in thousands)

(unaudited)
                                            ThreeMonthsEnded
                                            March 31,  December 31,  March 31,
                                            2013       2012          2012
Net cash provided by operating activities   $  9,752   $  61,046     $ 11,119
Less:
Capital expenditures                        (2,031)    (9,206)       (2,033)
Acquisition and development of software     (2,313)    (2,803)       (7,000)
assets
Free cash flow                              $  5,408   $  49,037     $ 2,086



VONAGE HOLDINGS CORP.

TABLE 6. RECONCILIATION OF NOTES PAYABLE AND CAPITAL LEASES TO NET CASH

(Dollars in thousands)

(unaudited)
                                                     March 31,    December 31,
                                                     2013         2012
Current maturities of capital lease obligations      $ 2,571      $  2,471
Current portion of notes payable                     23,333       28,333
Notes payable, net of discount and current           40,833       14,167
maturities
Capital lease obligations, net of current            12,408       13,090
maturities
Gross debt                                           79,145       58,061
Less:
Unrestricted cash                                    105,894      97,110
Net cash                                             $ (26,749)   $  (39,049)



About Vonage
Vonage (NYSE: VG) is a leading provider of communications services connecting
individuals through cloud-connected devices worldwide. Our technology serves
approximately 2.3 million subscribers. We provide feature-rich, affordable
communication solutions that offer flexibility, portability and ease-of-use
for both landline and mobile phones. Our Vonage World plan offers unlimited
calling to more than 60 countries with popular features like call waiting,
call forwarding and visual voicemail - for one low monthly rate. Our Vonage
Mobile app is a free downloadable app for iPhone® and Android™ that lets users
talk, text and video call worldwide for free with anyone else who uses the
app. Vonage's service is sold on the web and through regional and national
retailers including Walmart, Best Buy, Kmart and Sears, and is available to
customers in the U.S. (www.vonage.com), Canada (www.vonage.ca) and the United
Kingdom (www.vonage.co.uk).

Vonage Holdings Corp. is headquartered in Holmdel, New Jersey. Vonage® is a
registered trademark of Vonage Marketing LLC., owned by Vonage America Inc.

To follow Vonage on Twitter, please visit www.twitter.com/vonage. To become a
fan on Facebook, go to www.facebook.com/vonage. To subscribe on YouTube, visit
www.youtube.com/vonage.

Use of Non-GAAP Financial Measures

This press release includes the following measures defined as non-GAAP
financial measures by the Securities and Exchange Commission: adjusted
earnings before interest, taxes, depreciation and amortization ("adjusted
EBITDA"), net income excluding adjustments, net cash and free cash flow.

Vonage uses adjusted EBITDA as a principal indicator of the operating
performance of its business.

Vonage believes that adjusted EBITDA permits a comparative assessment of its
operating performance, relative to its performance based on its GAAP results,
while isolating the effects of depreciation and amortization, which may vary
from period to period without any correlation to underlying operating
performance, and of share-based expense, which is a non-cash expense that also
varies from period to period.

The Company provides information relating to its adjusted EBITDA so that
investors have the same data that the Company employs in assessing its overall
operations. The Company believes that trends in its adjusted EBITDA are
valuable indicators of the operating performance of the Company on a
consolidated basis and of its ability to produce operating cash flow to fund
working capital needs, to service debt obligations, and to fund capital
expenditures.

The Company has also excluded income tax expense from its net income. The
Company believes that excluding this item will assist investors in evaluating
the Company's operating performance and in better understanding its results of
operations as income tax expense does not reflect the taxes that we pay during
the periods reported due to the availability of significant net operating
losses.

Vonage uses net cash as a measure of assessing leverage, as it reflects the
gross debt under the Company's credit agreements and capital leases less cash
available to repay such amounts. The Company believes that net cash is also a
factor that third parties consider in valuing the Company.

Vonage considers free cash flow to be a liquidity measure that provides useful
information to management about the amount of cash generated by the business
that, after the acquisition of equipment and software, can be used by Vonage
for debt service and strategic opportunities. Free cash flow is not a measure
of cash available for discretionary expenditures since the Company has certain
non-discretionary obligations such as debt service that are not deducted from
the measure.

The non-GAAP financial measures used by Vonage may not be directly comparable
to similarly titled measures reported by other companies due to differences in
accounting policies and items excluded or included in the adjustments, which
limits its usefulness as a comparative measure. These non-GAAP financial
measures should be considered in addition to results prepared in accordance
with GAAP, but should not be considered a substitute for, or superior to, GAAP
results.

Vonage defines adjusted EBITDA as GAAP income from operations excluding
depreciation and amortization and share-based expense.

Vonage defines net income excluding adjustments, as GAAP net income excluding
income tax expense.

Vonage defines net cash as the current and long-term portion of notes payable
and capital lease obligations less unrestricted cash.

Vonage defines free cash flow as net cash provided by operating activities
minus capital expenditures and acquisition and development of software assets.

Conference Call and Webcast
Management will host a webcast discussion of the quarter on Wednesday, May 1,
2013 at 10:00 AM Eastern Time. To participate, please dial (877) 359-9508
approximately ten minutes prior to the call. International callers should dial
(224) 357-2393. A replay will be available approximately two hours after the
conclusion of the call through May 6, 2013, and may be accessed by dialing
(855) 859-2056. International callers should dial (404) 537-3406. The replay
passcode is: 33064894.

The webcast will be broadcast live through Vonage's Investor Relations website
at http://ir.vonage.com. Windows Media Player or RealPlayer is required to
listen to this webcast. A replay will be available shortly after the live
webcast.

Safe Harbor Statement

This press release contains forward-looking statements regarding growth
priorities, including new products and related investment, net lines, the
Company's stock repurchase plan, and capital and software expenditures. In
addition, other statements in this press release that are not historical facts
or information may be forward-looking statements. The forward-looking
statements in this release 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 the
Company faces; the Company's ability to adapt to rapid changes in the market
for voice and messaging services; the Company's ability to retain customers
and attract new customers; the Company's ability to establish and expand
strategic alliances; governmental regulation and related actions and taxes in
the Company's international operations; increased market and competitive
risks, including currency restrictions, in the Company's international
operations; risks related to the acquisition or integration of future
businesses or joint ventures; the Company's ability to obtain or maintain
relevant intellectual property licenses; intellectual property and other
litigation that have been and may be brought against the Company; failure to
protect the Company's trademarks and internally developed software; security
breaches and other compromises of information security; the Company's
dependence on third party facilities, equipment, systems and services; system
disruptions or flaws in the Company's technology and systems; uncertainties
relating to regulation of VoIP services; liability under anti-corruption laws;
results of regulatory inquiries into the Company's business practices;
fraudulent use of the Company's name or services; the Company's ability to
maintain data security; the Company's dependence upon key personnel; the
Company's dependence on the Company's customers' existing broadband
connections; differences between the Company's service and traditional phone
services, including the Company's 911 service; restrictions in the Company's
debt agreements that may limit the Company's operating flexibility; the
Company's ability to obtain additional financing if required; any
reinstatement of holdbacks by the Company's vendors; the Company's history of
net losses and ability to achieve consistent profitability in the future; the
Company's available capital resources and other financial and operational
performance which may cause the Company not to make common stock repurchases
as currently anticipated or to commence or suspend such repurchases from time
to time without prior notice; 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 December31, 2012, as well as 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, it specifically disclaims any obligation to do so, and therefore, you
should not rely on these forward-looking statements as representing the
Company's views subsequent to today.

(vg-f)

SOURCE Vonage Holdings Corp.

Website: http://www.vonage.com
Contact: Vonage Investor Contact: Leslie Arena, 732.203.7372,
leslie.arena@vonage.com, or Vonage Media Contact: Jo Ann Tizzano,
732.365.1363, joann.tizzano@vonage.com
 
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