Fourth Quarter and Full Year 2018 Earnings Presentation - February 21, 2019
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Fourth Quarter and Full Year 2018
Earnings Presentation
February 21, 2019
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 revenues 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; 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; the risk associated with developing and maintaining
effective internal sales teams and 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 facilities, equipment, systems and services; 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; our
dependence on third party vendors; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; our ability to obtain or maintain
relevant intellectual property licenses or to protect our trademarks and internally developed software; restrictions in our debt agreements that may limit our operating flexibility; our
ability to obtain additional financing if required; 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 business services; risks associated with legislative, regulatory or judicial actions regarding our
business products; risks associated with operating abroad; risks associated with the taxation of our business; governmental regulation and taxes in our international operations;
liability under anti-corruption laws or from governmental export controls or economic sanctions; our dependence on our customers' unimpeded access to broadband connections;
foreign currency exchange risk; 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; certain provisions of our charter documents; and other factors that are set forth in the “Risk Factors” section and other sections of
this Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and amendments to these reports. 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 minus
capex, net debt (cash), free cash flow, adjusted business revenue and adjusted business service revenue) 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
2018 Highlights
• Increased Full Year 2018 Consolidated revenues to $1.05 Billion, up 5% year-over-year
– 2018 Vonage Business revenues of $608 Million, up 22% year-over-year
– 2018 Vonage Business Service revenues of $527 Million, up 26% year-over-year
On an Adjusted1 basis, 2018 Vonage Business Service revenues grew 23%
• Grew Fourth Quarter Consolidated revenues to $274 Million, up 8% year-over-year
– Fourth Quarter Vonage Business revenues of $170 Million, up 27% year-over-year
– Fourth Quarter Vonage Business Service revenues of $149 Million, a 32% Year-Over-Year Increase
On an Adjusted1 basis, Fourth Quarter Vonage Business Service revenues Grew 22%
• Transformed Strategic Positioning and Technology
– Executed on the Company’s Long-term Strategic Vision With the Acquisitions of TokBox and NewVoiceMedia
– Realized Significant Success with Vonage Business Cloud (VBC) Platform Development and Adoption
– Acquisitions and Success of VBC are Key Building Blocks to OneVonage Strategy
Vonage Positioned as the Only Cloud Communications Company that
Addresses the Entire Future $80B TAM with Owned Assets
1. Non-GAAP financial measure. See slide 23 for a reconciliation to the most comparable GAAP financial measure. 3
OneVonage Platform Strategy: Fully Integrated and Programmable
Communications Software that Helps Businesses Improve Customer Experience
Programmable
Communications
Unified Contact
Communications Center
Public Cloud
Infrastructure
Vonage Global
Carrier Network
4
Differentiated Customer Experience Helps Businesses Win
Experience must include
In 2 years’ time, 81% say they
both the customer and the expect to be competing mostly or
employee. completely on the basis of CX.2
Customer and employee
experiences are directly
linked and need to be
considered together.
Companies that excel at CX
have 1.5X more engaged
EX CX employees than companies
with poor CX.3
2. Gartner, Customer Experience Survey 3. Temkin Group, Experience Matters 5
Programmable Communications Enable Differentiated Experiences
Customer and employee communication needs are
getting more complex and demanding.
Customers and employees communicate across multiple channels
and devices and are increasingly mobile. They are virtual,
constantly connected, and expect a personalized experience.
6
Product Highlights: Vonage Business Cloud Gaining Significant Traction
~100K Customers 85% 45%
ON VBC PLATFORM OF Q4 NEW BOOKINGS IN Q4 MESSAGING ON
ON VBC PLATFORM VONAGE FLOW
AI & Chatbots 30% 25%
IN 2018 CUSTOMER
USED TO IMPROVE CUSTOMER IN MOBILE APP USAGE CARE CALLS
ONBOARDING AND EXPERIENCE
Vonage Business Cloud (VBC)
7
Go-to-Market Initiatives
Increase Sales From Drive Sales of Integrated Grow the Long-tail
MME Customers UCaaS/CCaaS/CPaaS Customer Base
Products
8
Go-to-Market Highlights: Business Service Revenues from Customers with
$10,000+ in Monthly Revenue Increased 40% Year-over-Year in the Fourth Quarter
Applications Key New Customer Wins
• Signed seven deals in the fourth quarter with TCV 1
A Fortune 14,000 seat win due to:
greater than $1 million, and most included
500
programmable solutions Financial UCaaS Verify API SmartWAN
• Channel bookings grew 60% in the fourth quarter, and Services
six of the top ten deals originated from the Channel Firm
2
A Fortune
100 1,000 seat win due to:
API Platform Athletic
Apparel UCaaS Contact Center API Platform
Brand
• Revenues from new API use case only customers added
in the fourth quarter increased 82% year-over-year
3
• Revenues from long-tail customers increased 90% year- A World Won due to:
over-year in the fourth quarter, and we ended the year Leading
with 735,000 developers Pizza
Verify API UCaaS
Restaurant
Chain
9
Growth Priorities for 2019
Accelerate OneVonage Focus on High Value, Strengthen Omni-Channel
Platform Development Long-tail and US API Sales Execution and
to Broaden Portfolio Penetration Leverage CRM Relationships
10Vonage Business Revenues
Prod. & USF
Quarterly
Service
• Fourth quarter Business revenues
$170 increased 27% year-over-year on a
$154
$134 GAAP basis, and 19% on an Adjusted1
basis
– Fourth quarter Business Service revenues
grew 32% (GAAP) and 22% (Adjusted1)
4Q'17 3Q'18 4Q'18
Annual
• Full year Business revenues grew 22%
$608 on a GAAP basis, and 19% on an
$499
Adjusted1 basis
$376
– Full year Business Service revenues grew
26% (GAAP) and 23% (Adjusted1)
GAAP Business Revenues reflect acquisitions of TokBox on 7/31/18
and NewVoiceMedia on 10/31/18; adjusted growth rates reflect full-year
2016 2017 2018 ownership of these assets, and effects of significant one-time items.
($ in millions)
1. Non-GAAP financial measure. See slide 23 for a reconciliation to the most comparable GAAP financial measure. 11Vonage Business KPIs
Service Revenue Per Customer
• Service Revenue per customer up 20%
$362
$392 year-over-year
$328 – Driven by successful move up-market and
land-and-expand strategy
4Q'17 3Q'18 4Q'18
Business Revenue Churn
• Business Revenue churn down to
1.1% from 1.2% in the prior year period
1.2%
1.1% 1.1% – Driven by significantly higher customer
satisfaction on the VBC platform
4Q'17 3Q'18 4Q'18
12Consumer Segment
Quarterly Revenues Prod. & USF Consumer ARPU
Service
Stable ARPU
$120
$108 $104
$26.33 $26.30 $26.32
4Q'17 3Q'18 4Q'18 4Q'17 3Q'18 4Q'18
Annual Revenues Consumer Customer Churn
$579
$503 Improved Churn
$441
1.9% 1.8% 1.8%
2016 2017 2018 4Q'17 3Q'18 4Q'18
($ in millions, except ARPU)
13Consolidated Revenues
Consumer
Quarterly
Business
• Fourth quarter Consolidated revenues
$254 $262 $274 up 8% GAAP from the prior year due
to:
– Vonage Business organic growth
Business grew
to 62% of – Partial quarter of NewVoiceMedia and full
Consolidated quarter of TokBox revenues
revenues
– Offset by continued managed decline in
4Q'17 3Q'18 4Q'18 Consumer
Annual
• Full year Consolidated revenues up 5%
$956 $1,002 $1,049 due to:
– Vonage Business growth
– Vonage Business revenues represented 58%
of total revenues, up from 50% in 2017
($ in millions)
2016 2017 2018
14Sales & Marketing
Quarterly
• Sales & Marketing expense increased in
$78 $74
$82 the fourth quarter, primarily due to
– Addition of TokBox and NewVoiceMedia
expenses
– Partially offset by the year-over-year benefit
from ASC 606 commission accounting, and
the shift of certain sales operations into
product development
4Q'17 3Q'18 4Q'18
Annual
• Sales & Marketing expense decreased
$331 $313 $311 for the full year 2018 due to:
– Benefit from ASC 606
– Partially offset by addition of TokBox and
NewVoiceMedia Sales & Marketing spend
($ in millions)
2016 2017 2018
15Engineering & Development
Quarterly
• Engineering & Development expense
$17 increased sequentially and year over
$14 year due to:
– The ongoing transition to owned software
$8 solutions (OneVonage platform)
– The shift of certain sales operations into
product development
4Q'17 3Q'18 4Q'18 – The full quarter run-rate of Engineering &
Annual Development expenses associated with
TokBox and NewVoiceMedia
$52
$30 $30
($ in millions)
2016 2017 2018
16General & Administrative
Quarterly
• Fourth quarter and full year General &
Administrative expense increased from
$38 $38
the prior year due to:
$24 – The impact of the run-rate expenses
associated with TokBox and NewVoiceMedia
– One-time acquisition-related items
4Q'17 3Q'18 4Q'18
Annual
$135
$123 $123
($ in millions)
2016 2017 2018
17Quarterly Operating Income & Adjusted OIBDA4
Quarterly Operating Income
• Fourth quarter Operating Income and
Adjusted OIBDA4 decreased due to:
$23
− The impact of TokBox and NewVoiceMedia
$15 deal and operating expenses
$6
− The write-down of NewVoiceMedia’s
deferred revenues
4Q'17 3Q'18 4Q'18
Quarterly Adjusted OIBDA4
$51 $50
$41
($ in millions)
4Q'17 3Q'18 4Q'18
4. Non-GAAP financial measure. See slide 24 for a reconciliation to the most comparable GAAP financial measure. 18Annual Operating Income & Adjusted OIBDA4
Annual Operating Income
• Full year Operating Income and
$59 Adjusted OIBDA4 decreased due to:
$52
$44 − The impact of TokBox and NewVoiceMedia
deal and operating expenses
− The write-down of NewVoiceMedia’s
deferred revenues
2016 2017 2018
Annual Adjusted OIBDA4
$180 $178
$160
($ in millions)
2016 2017 2018
4. Non-GAAP financial measure. See slide 24 for a reconciliation to the most comparable GAAP financial measure. 19Cash Flow and Balance Sheet
Cash Flow ($ in millions) 4Q’18
Cash from operations $29
Capital expenditures and software ($10)
Free cash flow5 $19
Debt Repayment
• $24 million in debt repayment in 4Q’18
• $313 million increase in net debt for the full year 2018
• Cash: $5 million
• Total debt: $520 million
• Net debt5: $515 million (Gross Debt less Unrestricted Cash and Marketable Securities)
Net debt/Adjusted OIBDA = 2.9x
5. Non-GAAP financial measure. See slide 25 for a reconciliation to the most comparable GAAP financial measure. 202019 Guidance
Full Year 2019 First Quarter 2019
Consolidated Revenues $1,170 to $1,195
Vonage Business Revenues $795 to $815 $177 to $179
Consumer Revenues $375 to $380 $99 to $100
Adjusted OIBDA4 $160 to $165 Low $30 Area
Capital Expenditures $40 Area
($ in millions)
4. Non-GAAP financial measure. 21Vonage Business KPI Summary
KPIs 4Q’17 1Q’18 2Q’18 3Q’18 4Q’18
Service Revenue Per Customer $328 $328 $348 $362 $392
Business Revenue Churn 1.2% 1.2% 1.2% 1.1% 1.1%
22Adjusted Revenue Reconciliation
4Q’17 1Q’18 2Q’18 3Q’18 4Q’18 FY’18
Vonage Business Revenue (GAAP) $134.1 $136.7 $147.8 $153.6 $170.0 $608.1
Y/Y Growth Rate 22% 20% 19% 27% 22%
Deferred Revenue Adjustment from Acquired Companies $ - $ - $ - $ - $ 2.2 $ 2.2
Revenue from Acquired Companies (Prior to Acquisition) Less Revenue from
$ 18.2 $ 18.8 $ 19.3 $ 19.1 $ 6.1 $ 63.2
Divested Businesses6
Outage Credits and Significant One-time Items $ (1.1) $ - $ 0.9 $ - $ 1.5 $ 2.4
Vonage Business Revenue Adjusted for Acquisitions and Significant One-time Items $ 151.2 $ 155.4 $ 168.0 $ 172.7 $ 179.8 $ 675.9
Y/Y Growth Rate 20% 21% 18% 19% 19%
Vonage Business Service Revenues (GAAP) $113.3 $116.3 $127.7 $133.7 $149.0 $526.7
Y/Y Growth Rate 27% 24% 23% 32% 26%
Deferred Revenue Adjustment from Acquired Companies $ - $ - $ - $ - $ 2.2 $ 2.2
Service Revenue from Acquired Companies (Prior to Acquisition) Less Revenue
$ 18.0 $ 18.6 $ 19.2 $ 19.0 $ 6.1 $ 62.9
from Divested Businesses6
Outage Credits and Significant One-time Items $ (1.1) $ - $ 0.9 $ - $ 1.5 $ 2.4
Vonage Business Service Revenues Adjusted for Acquisitions and Significant One-
$ 130.2 $ 134.9 $ 147.8 $ 152.7 $ 158.8 $ 594.2
time Items
Y/Y Growth Rate 23% 25% 21% 22% 23%
($ in millions)
6. Includes unaudited combined financial information. 23Non-GAAP Reconciliation
24Non-GAAP Reconciliation
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