First Quarter 2017 Earnings. May 9, 2017

Transcription

1 First Quarter 2017 Earnings May 9,

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 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; 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 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 Recent Highlights Grew total revenues to $243 million, a 7% GAAP year-over-year increase Grew Business revenues 51% year-over-year Grew Nexmo proforma revenues 31% year-over-year Gained traction in enterprise segment Signed largest UCaaS deal in Company history at more than 20,000 seats across 550 locations Closed four deals with total contract value greater than seven figures in UCaaS Invested in Omni-channel Distribution Platform to Drive Growth Expanded field sales presence to 4 new markets year-to-date Expect to have field sales coverage in 21 markets by end of 2017 Continued to Integrate the Business Communications Value Chain to Enhance Value Proposition Multiple customer wins based on the integration of UCaaS and CPaaS 3

4 Vonage s UCaaS Product Set is Purpose-Built for Enterprise Customers Recent mid-market and enterprise activity Strong mid-market and enterprise presence Global Leader in Residential Real Estate More than 20,000 corporate seats across 550 locations Details on slide 7 Large Radio Broadcast Company Owns 500 stations across the U.S Won customer due to: - Integration into productivity tools - Carrier-grade voice QoS via SmartWAN and MPLS MRR as % of Total MRR 50% 25% Representative Customers Seats Leading Practice Management software provider Won customer due to: - Integration into CRM and ERP solutions - Contact center 4

5 Vonage Continues to Invest in its Omni-channel Distribution Platform to Drive Growth Inside Sales Channel Sales Field Sales Enterprise Sales Developers Executing on NFL city strategy in Field Sales Opened 4 new markets year-to-date in Detroit, San Diego, San Francisco and Los Angeles Expect to have field sales presence in 21 markets by end of 2017 Amazon partnership provides distribution and Chime product integration Consolidated UCaaS and CPaaS sales channels under CRO Kenny Wyatt to promote lead sharing across sales organization 5

6 Integrating the Business Communications Value Chain Enhances Vonage s Customer Value Proposition Q1 wins with UCaaS and CPaaS Case 1: MedXM Case 2: Publicly Traded Restaurant Chain 5,000 employee Healthcare technology company Operates more than 550 stores in the United States UCaaS for Contact Center and Google Integration Carrier-Grade Voice QoS over SmartWAN Opportunity to embed CPaaS into business processes for better patient communication Opportunity to embed CPaaS into business processes for enhanced customer experiences 6

7 Signed One of the Largest Deals in UCaaS Global leader in residential real estate franchising and brokerage with many of the best-known industry brands Delivering 20,000+ corporate seats across 550 locations in the U.S. Partnership to sell into additional 4,000+ franchise locations in the U.S. Won competitive process due to: - Enterprise grade voice QoS via SmartWAN and MPLS - Real-time reporting and analytics - Mobility, video conferencing and collaboration - Integration of communications into Productivity tools 7

8 Nexmo, the Vonage API Platform, Producing Strong Results Registered Developers Q'16 2Q'16 3Q'16 4Q'16 1Q'17 (1) New Product Updates Integrated Amazon Lex enabling natural language understanding and speech recognition capabilities Enhanced Number Insights API to enable more advanced use cases Expanded global reach by adding 40 SMS and 10 voice carriers to platform CPaaS Revenues $20 1Q'16 31% YoY $26 1Q'17 New Customers & Partners Under Vonage Ownership (1) Excludes developer signups expected to be bots 8

9 Consolidated Revenues ($ in millions) $227 $247 $243 7% GAAP YoY Consolidated revenues up 7% GAAP from the prior year due to: UCaaS growth Addition of Nexmo and subsequent organic growth 1Q'16 4Q'16 1Q'17 Business revenues represented 46% of total revenues 9

10 Segment Revenues ($ in millions) Business $74 Service Product & USF $111 $112 51% GAAP YoY Vonage Business revenues up 51% GAAP from the prior year UCaaS organic revenues growth Addition of Nexmo and subsequent organic growth 1Q'16 4Q'16 1Q'17 Consumer $153 Service Product & USF $136 $132 Consumer revenues down 14% year-overyear Consistent with expectations Lowest sequential revenues decline since Q'16 4Q'16 1Q'17 10

11 Operating Expenses ($ in millions) Sales & Marketing $84 $82 $80 1Q'16 4Q'16 1Q'17 Consolidated Sales and Marketing up from the prior year due to: Significant investments in business salesforce headcount across all sales channels Offset by continued optimization of Consumer Sales and Marketing $27 General & Administrative $34 $35 General and Administrative up from the prior year due to: Addition of Nexmo G&A expenses Nexmo acquisition-related expenses, including vesting deal consideration 1Q'16 4Q'16 1Q'17 11

12 Adjusted OIBDA 1 ($ in millions) $19 Income From Operations $5 $5 Operating Income down from the prior year due to: Acquisition of Nexmo and Nexmo acquisition-related expenses 1Q'16 4Q'16 1Q'17 $42 Adjusted OIBDA 1 $37 $37 Consolidated Adjusted OIBDA down from the prior year primarily due to: Accelerated Nexmo growth investment in 1Q Expect continued investment to exploit enhanced market opportunity 1Q'16 4Q'16 1Q'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. 12

13 Cash Flow, Stock Buyback and Balance Sheet Cash Flow ($ in millions) Q Cash from operations $17 Capital expenditures and software ($7) Free cash flow 2 $10 Stock Repurchase Program In Q1, 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 : $28 million Total debt: $333 million Net debt 2 : $306 million (Gross Debt less Unrestricted Cash and Marketable Securities) (1) Includes $2 million of restricted cash (2) This is a non-gaap measure. Please refer to the end of the presentation for a reconciliation to GAAP. Net debt/adjusted OIBDA = 2.0x Significant strategic and financial flexibility 13

14 2017 Guidance Adjusted for Sale of Hosted Infrastructure Business $ in Millions Prior Guidance Adjusted for Sale (1) Consolidated Revenues $970 - $985 $966 - $981 Vonage Business Revenues $487 - $493 $483 - $489 (1) Represents $4M of foregone revenues from sale of hosted infrastructure business (May 31, 2017 close) 14

15 UCaaS Revenues Reconciliation to Adjust for Sale of Hosted Infrastructure Business and One-time Items Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 GAAP Total UCaaS Revenues $73.8 $78.0 $82.4 $84.0 $85.6 Accounting change - (0.4) Early termination fee - (0.5) Accounts receivable write-off - - (0.3) Total UCaaS revenues incl. one-time items (Non-GAAP) $73.8 $77.1 $82.1 $84.3 $85.9 Hosted infrastructure business (1.4) (1.6) (1.6) (1.7) (1.6) Adjusted Total UCaaS Revenues (Non-GAAP) $72.4 $75.5 $80.5 $82.6 $

16 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. TABLE 3. RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO ADJUSTED OIBDA AND TO ADJUSTED OIBDA MINUS CAPEX (Dollars in thousands) (unaudited) Three Months Ended March 31, December 31, March 31, Income from operations $ 5,124 $ 5,214 $ 18,524 Depreciation and amortization 17,947 19,070 16,979 Share-based expense 7,064 9,462 6,303 Acquisition related transaction and integration costs 139 (219) 93 Change in contingent consideration (4,110) Acquisition related consideration accounted for as compensation 6,763 6,813 Loss on sublease 744 Adjusted OIBDA 37,037 36,974 41,899 Less: Capital expenditures (3,701) (6,166) (8,895) Intangible assets $ $ (50) $ Acquisition and development of software assets (3,380) (2,551) (2,312) Adjusted OIBDA Minus Capex $ 29,956 $ 28,207 $ 30,692 16

17 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. TABLE 4. 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 March 31, December 31, March 31, (revised) (1) Net income $ 5,913 $ (2,038) $ 7,931 Amortization of acquisition - related intangibles 8,999 8,706 6,962 Acquisition related transaction and integration costs 139 (219 ) 93 Acquisition related consideration accounted for as compensation 6,763 6,813 Change in contingent consideration (4,110 ) Loss on sublease 744 Tax effect on adjusting items (6,569 ) (4,932 ) (2,915 ) Adjusted net income $ 15,245 $ 4,964 $ 12,071 Net income per common share: Basic $ 0.03 $ (0.01) $ 0.04 Diluted $ 0.02 $ (0.01) $ 0.04 Weighted-average common shares outstanding: Basic 220, , ,039 Diluted 239, , ,225 Net income per common share, excluding adjustments: Basic $ 0.07 $ 0.02 $ 0.06 Diluted $ 0.06 $ 0.02 $ 0.05 Weighted-average common shares outstanding: Basic 220, , ,039 Diluted 239, , ,225 (1) Revised due to the correction of prior period financial statements. 17

18 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. TABLE 5. FREE CASH FLOW (Dollars in thousands) (unaudited) Three Months Ended March 31, December 31, March 31, (Revised) (1) (Revised) (1) Net cash provided by operating activities $ 17,261 $ 23,842 $ 17,468 Less: Capital expenditures (3,701) (6,166) (8,895) Purchase of intangible assets (50) Acquisition and development of software assets (3,380) (2,551) (2,312) Free cash flow $ 10,180 $ 15,075 $ 6,261 (1) Revised due to the adoption of new Accounting Standard Updates. 18

19 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. TABLE 6. RECONCILIATION OF NOTES PAYABLE, INDEBTEDNESS UNDER REVOLVING CREDIT FACILITY, AND CAPITAL LEASES TO NET DEBT (Dollars in thousands) (unaudited) March 31, December 31, Current maturities of capital lease obligations $ 2,184 $ 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 310, ,124 Unamortized debt related cost 959 1,064 Capital lease obligations, net of current maturities Gross debt 332, ,366 Less: Unrestricted cash and marketable securities 26,520 29,679 Net debt $ 305,995 $ 293,687 19