GlobeNewswire Inc | Aug 5, 2021 07:00AM EDT

August 05, 2021

Vonage Communications Platform (VCP) Service Revenues Grew 23% Year over YearCompany Raises Full-year VCP Revenue and Adjusted EBITDA Guidance

HOLMDEL, N.J., Aug. 05, 2021 (GLOBE NEWSWIRE) -- Vonage Holdings Corp. (Nasdaq: VG), a global leader in cloud communications helping businesses accelerate their digital transformation, today announced results for the quarter ended June 30, 2021.

Second Quarter 2021 Highlights:

-- Vonage Communications Platform Revenues of $276 million VCP Service Revenues increased 23%API Revenues increased 40%Unified Communications & Contact Center Service Revenues increased 7% -- Consolidated Net Income of $62 thousand and Adjusted EBITDA of $49 million -- VCP adjusted EBITDA of $1 million marks the first quarter of VCP profitability

We had a strong second quarter, demonstrating our continued operational execution and delivery against our strategic transformation plan. Our growth is being driven by product innovation and a stronger go-to-market focus in the areas where our products bring the greatest value to our customers, and we can win a disproportionate share of the market, said Rory Read, Chief Executive Officer. In the quarter, VCP service revenues increased 23% year over year. API revenues grew 40% driven by strong growth from new and existing customers, and broad-based demand across geographies, verticals and customer size.

Unified Communications (UC) and Contact Center (CC) service revenue growth increased to 7% in the second quarter. We continue to see an increasing need for combined UC and CC solutions, and 10 out of our top 15 deals in the quarter included an integrated UC and CC solution. Based on our pipeline, bookings, and improved execution, we are well positioned to accelerate revenue growth to the high single digits in the fourth quarter, and double digits growth in 2022.

Read continued, Customer needs are rapidly growing across their communications and engagement platforms, driven by secular tailwinds like cloud migration, digital transformation, and more recently, hybrid working models. Vonage is in a unique position to offer comprehensive Unified Communications, Contact Center and programmable APIs through our Vonage Communications Platform to meet these needs.

Second Quarter 2021 Vonage Communications Platform Highlights (compared to the year-ago quarter)

-- Vonage Communications Platform revenues, which consist of Unified Communications, Contact Center and API revenues, were $276 million. VCP service revenues were $260 million, a 23% increase. -- API revenues grew 40% driven by broad-based demand across geographies, verticals and customer size, and dollar-based net expansion (DBNE) was 125%. -- Unified Communications and Contact Center service revenues grew 7%, ahead of expectations. -- VCP Service Revenue per Customer was $632 per month, up 24%. -- VCP Service Revenue Churn of 1.0% was essentially flat.

Second Quarter 2021 Consumer Segment Results (compared to the year-ago quarter)

-- Consumer Revenues were $75 million, down 11%. -- Customer churn was unchanged at 1.5%. -- Average revenue per line (ARPU) was $29.37, an increase of $1.78. -- Ended the quarter with approximately 836 thousand consumer subscriber lines 95% of these customers are tenured over two years and 81% are tenured over five years.

Product Innovation

-- Increased Vonage Video API session size to 5,000 active participants and launched Multi-party Video SDK to serve the online learning, events and other markets. -- Launched regional media zones to expand country coverage for Vonages Video API. -- Enhanced Vonages Messages API with HIPAA compliance to serve the healthcare market. -- Released 50+ enterprise-grade Vonage Business Communications (UC) calling and messaging features for Microsoft Teams integration. -- Launched Vonage Contact Center (CC) integration with Salesforce for Service Cloud Voice for Partner Telephony.

Industry Accolades

-- Named a Leader in the IDC MarketScape: Worldwide CPaaS 2021 Vendor Assessment. -- Named a Leader in the Aragon Research Globe for Unified Communications and Collaboration, 2021. -- Recognized by Gartner Peer Insights 'Voice of the Customer': UCaaS Worldwide Report. Vonage received a 94% Willingness to Recommend score from customers and a rating of 4.7/5.0 in the Product Capability category. -- Named by Salesforce.org as winner of its 2021 Cross-Industry Independent Software Vendor (ISV) Partner of the Year EMEA Award for the second consecutive year.

Consolidated Income and Balance SheetFor the second quarter of 2021, Vonage reported consolidated revenues of $351 million, up from $311 million in the year-ago quarter. GAAP net income was $62 thousand, or $0.00 per share, versus a net loss of $8 million in the prior-year period, or ($0.03) per share. Second quarter adjusted net income(1) was $13 million or $0.05 per share, up from adjusted net income(1) of $10 million or $0.04 per share in the prior-year period.

For the second quarter, the Company generated Adjusted EBITDA(2) of $49 million, and Adjusted EBITDA minus Capex(2) of $36 million. Net Cash from Operations was $42 million and Free Cash Flow(3) was $29 million for the quarter. As of June 30, 2021, the Company had a Net Debt to Last Twelve Months Adjusted EBITDA ratio of 2.5 times.

Updated 2021 and Third Quarter OutlookFor the full year 2021, the Company now expects the following:

-- Vonage Communications Platform segment revenues in the range of $1.095 billion to $1.106 billion; within this: Vonage Communications Platform service revenues are expected to grow in the low 20% area -- Consumer revenues in the $288 million range -- Consolidated revenues in the range of $1.383 billion to $1.394 billion -- Vonage Communications Platform adjusted EBITDA in the range of $4 million to $9 million -- Consumer adjusted EBITDA in the $185 million range -- Consolidated adjusted EBITDA in the range of $189 million to $194 million -- Capex in the $65 million range

For the third quarter of 2021, Vonage expects the following:

-- Vonage Communications Platform revenues in the range of $276 million to $280 million Vonage Communications Platform service revenues are expected to grow in the low 20% area -- Consumer revenues in the $69 million range -- Consolidated revenues in the range of $345 million to $349 million -- Vonage Communications Platform adjusted EBITDA in the $1 million to $3 million range -- Consumer adjusted EBITDA in the $45 million range -- Consolidated Adjusted EBITDA in the range of $46 million to $48 million -- Capex in the $16 million range

Conference Call and WebcastThe company will host a conference call to discuss its financial results for the second quarter of 2021 and other matters at 8:30 AM Eastern Time. To participate, please dial (877) 407-9716. International callers should dial (201) 493-6779.

A live webcast of the conference call will be available on the Vonage Investor Relations website. A replay of the webcast will also be available shortly after the conclusion of the call, and may be accessed through Vonage's Investor Relations website or by dialing (844) 512-2921 or (412) 317-6671 for international callers, and entering the passcode 13714228.

About VonageVonage (Nasdaq:VG), a global cloud communications leader, helps businesses accelerate their digital transformation. Vonage's Communications Platform is fully programmable and allows for the integration of Video, Voice, Chat, Messaging and Verification into existing products, workflows and systems. Vonage's fully programmable unified communications and contact center applications are built from the Vonage platform and enable companies to transform how they communicate and operate from the office or anywhere, providing enormous flexibility and ensuring business continuity.

Vonage Holdings Corp. is headquartered in New Jersey, with offices throughout the United States, Europe, Israel and Asia. To follow Vonage on Twitter, please visit twitter.com/vonage. To become a fan on Facebook, go to facebook.com/vonage. To subscribe on YouTube, visit youtube.com/vonage.

Investor Contact: Hunter Blankenbaker, 732.444.4926, hunter.blankenbaker@vonage.com

Media Contact: Jo Ann Tizzano, 732.365.1363, joann.tizzano@vonage.com

(1) This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income (loss).(2) This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP net income (loss).(3) This is a non-GAAP financial measure. Refer below to Table 5 for a reconciliation to GAAP cash from operations.

VONAGE HOLDINGS CORP. TABLE 1. CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share amounts) (unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Statement of Operations Data:Service, accessand product $ 332,559 $ 314,793 $ 296,516 $ 647,352 $ 579,593 revenuesUSF revenues 18,910 18,107 14,017 37,017 28,397 Total revenues 351,469 332,900 310,533 $ 684,369 $ 607,990 Operating Expenses:Service, accessand product costof revenues(excludingdepreciation andamortization of 149,887 138,680 119,971 288,567 233,009 $15,515,$13,647,$11,148,$29,162, and$22,304,respectively)USF cost of 18,910 18,107 14,017 37,017 28,397 revenuesSales and 86,215 81,474 90,827 167,689 176,448 marketingEngineering and 22,710 20,360 19,784 43,070 38,987 developmentGeneral and 43,301 44,933 42,820 88,234 83,702 administrativeDepreciation and 22,284 20,417 20,692 42,701 41,177 amortization 343,307 323,971 308,111 667,278 601,720 Income from 8,162 8,929 2,422 17,091 6,270 operationsOther Income (Expense):Interest expense (7,081 ) (7,298 ) (9,321 ) (14,379 ) (17,403 )Other income (288 ) 174 (38 ) (114 ) 191 (expense), net (7,369 ) (7,124 ) (9,359 ) (14,493 ) (17,212 )Income (Loss)before income 793 1,805 (6,937 ) 2,598 (10,942 )tax expenseIncome tax (731 ) (2,181 ) (1,493 ) (2,912 ) (1,243 )expenseNet income $ 62 $ (376 ) $ (8,430 ) $ (314 ) $ (12,185 )(loss)Income (Loss)per common share:Basic $ ? $ ? $ (0.03 ) $ ? $ (0.05 )Diluted $ ? $ ? $ (0.03 ) $ ? $ (0.05 )Weighted-averagecommon shares outstanding:Basic 251,430 249,638 245,385 250,539 244,506 Diluted 259,962 249,638 245,385 250,539 244,506

VONAGE HOLDINGS CORP. TABLE 1. CONSOLIDATED FINANCIAL DATA - (Continued) (Dollars in thousands, except per share amounts) (unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Statement ofCash Flow Data:Net cashprovided by $ 42,203 $ 47,318 $ 36,300 $ 89,521 $ 38,803 operatingactivitiesNet cash usedin investing (12,736 ) (16,480 ) (12,009 ) (29,216 ) (25,244 )activitiesNet cash(used in)provided by (41,222 ) (21,019 ) (20,435 ) (62,241 ) 12,064 financingactivitiesCapitalexpenditures,acquisitionof intangibleassets, (12,736 ) (16,480 ) (12,009 ) (29,216 ) (25,244 )acquisitionanddevelopmentof softwareassets

June 30, December 31, 2021 2020Balance Sheet Data: Cash and cash equivalents $ 39,977 $ 43,078 Restricted cash 2,097 1,919 Accounts receivable, net of allowance 124,426 116,304 Prepaid expenses and other current 38,050 38,361 assetsDeferred customer acquisition costs, 91,350 85,690 current and non-currentProperty and equipment, net 28,244 31,621 Goodwill 622,423 624,328 Operating lease right of use assets 34,320 29,330 Software, net 94,515 80,638 Intangible assets, net 182,993 204,267 Deferred tax assets 104,752 106,374 Other assets 34,481 33,926 Total assets $ 1,397,628 $ 1,395,836 Accounts payable and accrued expenses $ 198,933 $ 175,544 Operating lease liabilities, current 46,978 42,573 and non-currentDeferred revenue, current 61,721 65,506 Total notes payable, net andindebtedness under revolving credit 170,500 215,500 facility, including current portionConvertible senior notes, net 298,060 290,784 Other liabilities 3,379 3,155 Total liabilities $ 779,571 $ 793,062 Total stockholders' equity $ 618,057 $ 602,774



VONAGE HOLDINGS CORP. TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA (Dollars in thousands, except per line amounts) (unaudited)

The table below includes summarized income statement information that our management uses to measure the operating performance of the Vonage Communications Platform focused portion of our business:

VonageCommunications Three Months Ended Six Months EndedPlatform June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Statement ofOperations Data:Revenues,access and $ 269,217 $ 249,040 $ 221,419 $ 518,257 $ 427,190 productrevenuesUSF revenues 7,196 6,414 4,830 13,610 9,312 Total revenues 276,413 255,454 226,249 531,867 436,502 Operating Expenses:Service,access andproduct costof revenues 140,979 129,643 110,904 270,622 214,857 excludingdepreciationandamortizationUSF cost of 7,196 6,414 4,830 13,610 9,312 revenuesSales and 82,304 77,824 87,853 160,128 170,018 marketingEngineeringand 21,721 19,523 17,890 41,244 34,728 developmentGeneral and 41,009 40,768 38,764 81,777 75,432 administrativeDepreciationand 22,055 20,080 19,650 42,135 38,848 amortization 315,264 294,252 279,891 609,516 543,195 Loss from $ (38,851 ) $ (38,798 ) $ (53,642 ) $ (77,649 ) $ (106,693 )operations

The table below includes revenues and cost of revenues that our management uses to measure the growth and operating performance of the Vonage Communications Platform focused portion of our business:

VonageCommunications Three Months Ended Six Months EndedPlatform June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Revenues: Service $ 260,452 $ 240,442 $ 212,310 $ 500,894 $ 407,959 revenuesAccess andproduct 8,765 8,598 9,109 17,363 19,231 revenues^(^1)Service,access andproduct 269,217 249,040 221,419 518,257 427,190 revenuesexcluding USFUSF revenues 7,196 6,414 4,830 13,610 9,312 Total revenues $ 276,413 $ 255,454 $ 226,249 $ 531,867 $ 436,502 Cost of Revenues:Service costof revenues^(^ $ 130,351 $ 120,017 $ 100,638 $ 250,368 $ 192,995 2)Access andproduct cost 10,628 9,626 10,266 20,254 21,862 of revenues^(^1)Service,access andproduct cost 140,979 129,643 110,904 270,622 214,857 of revenuesexcluding USFUSF cost of 7,196 6,414 4,830 13,610 9,312 revenuesTotal cost of $ 148,175 $ 136,057 $ 115,734 $ 284,232 $ 224,169 revenues Service margin 50.0 % 50.1 % 52.6 % 50.0 % 52.7 %%Gross margin %excluding USF(Service, 47.6 % 47.9 % 49.9 % 47.8 % 49.7 %access andproduct margin%)Gross margin % 46.4 % 46.7 % 48.8 % 46.6 % 48.6 %

(1) Includes customer premise equipment, access, and shipping and handling.(2) Excludes depreciation and amortization of $15,286, $13,310, and $9,891 for the quarters ended June30, 2021, March31, 2021 and June30, 2020, respectively, and $28,596 and $19,679 for the six months ended June30, 2021 and 2020, respectively.

The table below includes key operating data that our management uses to measure the growth and operating performance of the Vonage Communications Platform focused portion of our business:

VonageCommunications Three Months Ended Six Months EndedPlatform June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Servicerevenue per $ 632 $ 582 $ 509 $ 607 $ 492 customerVonageCommunicationsPlatform 1.0 % 0.5 % 0.9 % 0.7 % 0.9 %servicerevenue churn

The table below includes summarized income statement information that our management uses to measure the operating performance of the Consumer focused portion of our business:

Consumer Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Statement ofOperations Data:Revenues,access and $ 63,342 $ 65,753 $ 75,097 $ 129,095 $ 152,403 productrevenuesUSF revenues 11,714 11,693 9,187 23,407 19,085 Total revenues 75,056 77,446 84,284 152,502 171,488 Operating Expenses:Service,access andproduct costof revenues 8,908 9,037 9,067 17,945 18,152 excludingdepreciationandamortizationUSF cost of 11,714 11,693 9,187 23,407 19,085 revenuesSales and 3,911 3,650 2,974 7,561 6,430 marketingEngineeringand 989 837 1,894 1,826 4,259 developmentGeneral and 2,292 4,165 4,056 6,457 8,270 administrativeDepreciationand 229 337 1,042 566 2,329 amortization 28,043 29,719 28,220 57,762 58,525 Income from $ 47,013 $ 47,727 $ 56,064 $ 94,740 $ 112,963 operations

The table below includes revenues and cost of revenues that our management uses to measure the growth and operating performance of the Consumer focused portion of our business:

Consumer Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Revenues: Service $ 63,289 $ 65,697 $ 75,045 $ 128,986 $ 152,288 revenuesAccessandproduct 53 56 52 109 115 revenues^(^1)Service,accessandproduct 63,342 65,753 75,097 129,095 152,403 revenuesexcludingUSFUSF 11,714 11,693 9,187 23,407 19,085 revenuesTotal $ 75,056 $ 77,446 $ 84,284 $ 152,502 $ 171,488 revenues Cost of Revenues:Servicecost of $ 8,412 $ 8,513 $ 8,671 $ 16,925 $ 17,183 revenues^(^2)Accessandproduct 496 524 396 1,020 969 cost ofrevenues^(^1)Service,accessandproduct 8,908 9,037 9,067 17,945 18,152 cost ofrevenuesexcludingUSFUSF costof 11,714 11,693 9,187 23,407 19,085 revenuesTotalcost of $ 20,622 $ 20,730 $ 18,254 $ 41,352 $ 37,237 revenues Service 86.7 % 87.0 % 88.4 % 86.9 % 88.7 %margin %Grossmargin %excludingUSF(Service, 85.9 % 86.3 % 87.9 % 86.1 % 88.1 %accessandproductmargin %)Gross 72.5 % 73.2 % 78.3 % 72.9 % 78.3 %margin %

(1) Includes customer premise equipment and shipping and handling.(2) Excludes depreciation and amortization of $229, $337, $1,257 for the quarters ended June30, 2021, March31, 2021 and June30, 2020, respectively, and $566 and $2,625 for the six months ended June30, 2021 and 2020, respectively.

The table below includes key operating data that our management uses to measure the growth and operating performance of the Consumer focused portion of our business:

Consumer Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Averagemonthly $ 29.37 $ 29.05 $ 27.59 $ 29.11 $ 27.4 revenuesper lineSubscriberlines (at 836,243 867,243 998,475 836,243 998,475 periodend)Customer 1.5 % 1.9 % 1.5 % 1.7 % 1.6 %churn

VONAGE HOLDINGS CORP. TABLE 3. RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED EBITDA AND TO ADJUSTED EBITDA MINUS CAPEX(Dollars in thousands) (unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Net income $ 62 $ (376 ) $ (8,430 ) $ (314 ) $ (12,185 )(loss)Interest 7,081 7,298 9,321 14,379 17,403 expenseIncome tax 731 2,181 1,493 2,912 1,243 Depreciationand 22,284 20,417 20,692 42,701 41,177 amortizationAmortization ofcosts toimplement cloud 961 896 668 1,857 1,277 computingarrangementsEBITDA 31,119 30,416 23,744 61,535 48,915 Share-based 15,762 14,566 11,326 30,328 22,442 expenseOrganizationaltransformation ? ? 3,925 ? 5,119 ^(1)Restructuring 1,361 1,294 ? 2,655 ? activities ^(2)Othernon-recurring 563 1,891 2,549 2,454 3,905 items ^(3)Adjusted EBITDA 48,805 48,167 41,544 96,972 80,381 Consumer $ 47,707 $ 50,013 $ 59,057 $ 97,720 $ 118,982 Adjusted EBITDAVCP Adjusted 1,098 (1,846 ) (17,513 ) (748 ) (38,601 )EBITDAAdjusted EBITDA 48,805 48,167 41,544 96,972 80,381 Less: Capital (2,171 ) (2,553 ) (1,968 ) (4,724 ) (4,855 )expendituresIntangible (51 ) (62 ) (115 ) (113 ) (190 )assetsAcquisition anddevelopment of (10,514 ) (13,865 ) (9,926 ) (24,379 ) (20,199 )software assetsAdjusted EBITDA $ 36,069 $ 31,687 $ 29,535 $ 67,756 $ 55,137 Minus Capex

(1) The costs identified as Organizational transformation are related to the Companys previously announced goal of becoming a pure-play software-as-a-service (SaaS) company, offering a suite of communications solutions for businesses. These costs include employee related exits including CEO succession, system change management, facility exit costs, and rebranding.(2) Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 and include employee related exits and facility exit costs executed upon as part of the overall project..(3) Other non-recurring items principally include certain litigation charges and other non-recurring project costs such as the review of the Consumer business and the business optimization project, both of which were initiated in 2020.

VONAGE HOLDINGS CORP.TABLE 4. RECONCILIATION OF GAAP NET INCOME (LOSS) TONET INCOME EXCLUDING ADJUSTMENTS(Dollars in thousands, except per share amounts)(unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Net income $ 62 $ (376 ) $ (8,430 ) $ (314 ) $ (12,185 )(loss)Amortization ofacquisition - 10,791 10,794 13,681 21,585 27,460 relatedintangiblesAmortization ofcosts toimplement cloud 961 896 668 1,857 1,277 computingarrangementsAmortization of 3,217 3,261 3,109 6,478 6,163 debt discountOrganizationaltransformation ^ ? ? 3,925 ? 5,119 (1)Restructuring 1,361 1,294 ? 2,655 ? activities ^(2)Othernon-recurring 563 1,891 2,549 2,454 3,905 items ^(3)Tax effect on (4,392 ) (4,715 ) (5,026 ) (9,107 ) (9,224 )adjusting itemsNet incomeexcluding $ 12,563 $ 13,045 $ 10,476 $ 25,608 $ 22,515 adjustmentsIncome (Loss)per common share:Basic $ ? $ ? $ (0.03 ) $ ? $ (0.05 )Diluted $ ? $ ? $ (0.03 ) $ ? $ (0.05 )Weighted-averagecommon shares outstanding:Basic 251,430 249,638 245,385 250,539 244,506 Diluted 259,962 249,638 245,385 250,539 244,506 Income percommon share, excludingadjustments:Basic $ 0.05 $ 0.05 $ 0.04 $ 0.10 $ 0.09 Diluted $ 0.05 $ 0.05 $ 0.04 $ 0.10 $ 0.09 Weighted-averagecommon shares outstanding:Basic 251,430 249,638 245,385 250,539 244,506 Diluted 259,962 259,031 253,509 259,326 252,116

(1) The costs identified as Organizational transformation are related to the Companys previously announced goal of becoming a pure-play software-as-a-service (SaaS) company, offering a suite of communications solutions for businesses. These costs include employee related exits including CEO succession, system change management, facility exit costs, and rebranding.(2) Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 and include employee related exits and facility exit costs executed upon as part of the overall project..(3) Other non-recurring items principally include certain litigation charges and other non-recurring project costs such as the review of the Consumer business and the business optimization project, both of which were initiated in 2020.

VONAGE HOLDINGS CORP.TABLE 5. FREE CASH FLOW(Dollars in thousands)(unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, 2021 2021 2020 2021 2020Net cashprovided by $ 42,203 $ 47,318 $ 36,300 $ 89,521 $ 38,803 operatingactivitiesLess: Capital (2,171 ) (2,553 ) (1,968 ) (4,724 ) (4,855 )expendituresIntangible (51 ) (62 ) (115 ) (113 ) (190 )assetsAcquisitionanddevelopment (10,514 ) (13,865 ) (9,926 ) (24,379 ) (20,199 )of softwareassetsFree cash $ 29,467 $ 30,838 $ 24,291 $ 60,305 $ 13,559 flow

VONAGE HOLDINGS CORP.TABLE 6. RECONCILIATION OF INDEBTEDNESS UNDER REVOLVING CREDIT FACILITY AND CONVERTIBLE SENIOR NOTES TO NET DEBT(Dollars in thousands)(unaudited)

June 30, December 31, 2021 2020Notes payable and indebtedness underrevolving credit facility, net of current $ 170,500 $ 215,500 maturitiesConvertible senior notes, net 298,060 290,784 Unamortized discount on debt 4,716 5,512 Unamortized debt related costs 42,224 48,704 Gross debt 515,500 560,500 Less: Unrestricted cash 39,977 43,078 Net debt $ 475,523 $ 517,422

Use of Non-GAAP Financial Measures

This press release includes measures defined as non-GAAP financial measures by Regulation G adopted by the Securities and Exchange Commission, including: adjusted EBITDA, adjusted EBITDA less Capex, adjusted net income, constant currency, net debt (cash), and free cash flow.

Adjusted EBITDA

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

Vonage defines adjusted EBITDA as GAAP net income (loss) before interest, tax, depreciation and amortization, share-based expense, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, organizational transformation costs, restructuring activities, and other non-recurring items. The costs identified as organizational transformation are related to the Companys announced goal of becoming a pure-play Business software-as-a-service (SaaS) company, offering a suite of communications solutions for businesses. These costs include employee related exits, system change management, facility exit costs, and rebranding.

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 interest, tax, depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance; of share-based expense, which is a non-cash expense that also varies from period to period; of one-time acquisition related transaction and integration costs, organizational transformation costs, restructuring activities and other non-recurring items. Organizational transformation consists principally of costs in connection with exits of employees and facilities, system migration costs and certain professional related fees. Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 which included employee related exits and further facility exit costs executed upon as part of the overall project. Other non-recurring items principally include certain litigation charges including defense costs and other non-recurring project costs such as the Consumer business review and the business optimization project, both of which were initiated in 2020. The items excluded from adjusted EBITDA are not separately evaluated for each reportable operating segment.

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.

The Company does not reconcile its forward-looking adjusted EBITDA to the corresponding GAAP measure of net income because stock-based compensation expense and other non-recurring items cannot be reasonably calculated or predicted at this time as they may be significantly impacted by future events,the timing and nature ofwhich cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.

Adjusted EBITDA less Capex

Vonage uses adjusted EBITDA less Capex as an indicator of the operating performance of its business. The Company provides information relating to its adjusted EBITDA less Capex 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 less Capex are valuable indicators of the operating performance of the Company on a consolidated basis because they provide our investors with insight into current performance and period-to-period performance.

Adjusted net income

Vonage defines adjusted net income, as GAAP net income (loss) excluding amortization of acquisition-related intangible assets, amortization of costs to implement cloud computing arrangements, acquisition related transaction and integration costs, amortization of debt discount, organizational transformation costs, restructuring activities, other non-recurring items and tax effect on adjusting items.

The Company believes that excluding these items will assist investors in evaluating the Company's operating performance and in better understanding its results of operations as amortization of acquisition-related intangible assets is a non-cash item, one-time acquisition related transaction and integration costs, organizational transformation, restructuring activities, other non-recurring items, and tax effect on adjusting items are not reflective of operating performance. Organizational transformation consists principally of costs in connection with exits of employees and facilities, system migration costs and certain related professional fees. Restructuring activities relate to the Company's business-wide optimization and alignment project initiated in 2020 which included employee related exits and further facility exit costs executed upon as part of the overall project. Other non-recurring items principally include certain litigation charges including defense costs and other non-recurring project costs such as the Consumer business review and the business optimization project, both of which were initiated in 2020.

Constant Currency

Vonage reviews its results of operations on both an as reported and on a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our current period local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our prior period reported results.

Net debt (cash)

Vonage defines net debt (cash) as indebtedness under revolving credit facility, convertible senior notes, discount on debt, and debt related costs less unrestricted cash.

Vonage uses net debt (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 first parties consider in valuing the Company.

Free cash flow

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

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.

The Company does not reconcile its forward-looking adjusted business total revenue and adjusted business service revenue to the corresponding GAAP measures due to the significant variability and difficulty in making accurate forecasts with respect to the various acquisition-related and one-time events that we exclude, as they may be significantly impacted by future eventsthe timing and nature ofwhich are difficult to predict or are not within the control of management. As such, the Company has determined that reconciliations of these forward-looking non-GAAP financial measures to the corresponding GAAP measures is not available without unreasonable effort.

Safe Harbor Statement

This press release contains forward-looking statements, including statements regarding future financial results, growth priorities or plans, revenues, adjusted EBITDA, churn, seats, lines or accounts, average revenue per customer, cost of communications services, capital expenditures, new products and related investment, and other statements that are not historical facts or information, that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. 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: realizing the benefits of optimization and cost-saving initiatives; the impact of the COVID-19 pandemic; the competition we face; the expansion of competition in the cloud communications market; risks related to the acquisition or integration of businesses we have acquired; 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 cost-effectively; developing and maintaining market awareness and a strong brand; developing and maintaining effective distribution channels; 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 vendors; system disruptions or flaws in our technology and systems; our ability to comply with data privacy and related regulatory matters; our ability to scale our business and grow efficiently; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; the effects of significant foreign currency fluctuations; our ability to obtain or maintain relevant intellectual property licenses or to protect our trademarks and internally developed software; fraudulent use of our name or services; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; retaining senior executives and other key employees; intellectual property and other litigation that have been and may be brought against us; rapid developments in global API regulation and uncertainties relating to regulation of VoIP services; risks associated with legislative, regulatory or judicial actions regarding our business products; reliance on third parties for our 911 services; liability under anti-corruption laws or from governmental export controls or economic sanctions; actions of activist shareholders; risks associated with the taxation of our business; governmental regulation and taxes in our international operations; our history of net losses and ability to achieve consistent profitability in the future; our ability to fully realize the benefits of our net operating loss carry-forwards if an ownership change occurs; risks associated with the settlement and conditional conversion of our Convertible Senior Notes; potential effects the capped call transactions may have on our stock in connection with our Convertible Senior Notes; certain provisions of our charter documents; and other factors that are set forth in the Risk Factors in our Annual Report on Form 10-K and in the Company's Quarterly Reports on Form 10-Q filed with the SEC. 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 except as required by law, and therefore, you should not rely on these forward-looking statements as representing the Company's views as of any date subsequent to today.

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