Citi Global Internet, Media & Telecommunications Conference January 7, 2014

Transcription

1 Citi Global Internet, Media & Telecommunications Conference January 7, 2014

2 2 Safe Harbor Caution Concerning Forward-Looking Statements Various remarks that the Company make about Vonage Holdings Corp. future expectations, plans and prospects, including concerning growth priorities, including new products and related investment and sales channels, revenues, cost of telephony services, the Company s repurchase plan, and other statements, 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; our ability to adapt to rapid changes in the market for voice and messaging services; our ability to retain customers and attract new customers; our ability to establish and expand strategic alliances; governmental regulation and related actions and taxes in our international operations; increased market and competitive risks, including currency restrictions, in our international operations; risks related to the acquisition or integration of businesses or joint ventures including the risks related to the integration of Vocalocity; our ability to obtain or maintain relevant intellectual property licenses; intellectual property and other litigation that have been and may be brought against us; failure to protect our trademarks and internally developed software; security breaches and other compromises of information security; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; uncertainties relating to regulation of VoIP services; liability under anti-corruption laws; results of regulatory inquiries into our business practices; fraudulent use of our name or services; our ability to maintain data security; our dependence upon key personnel; our dependence on our customers' existing broadband connections; differences between our service and traditional phone services, including our 911 service; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; any reinstatement of holdbacks by our vendors; our 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 December 31, 2012, 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 earnings before interest, taxes, depreciation and amortization ( adjusted EBITDA ) and free cash flow, 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

3 3 About Vonage Leading Provider of High-Quality Voice and Messaging Services over Broadband Networks Markets Residential, mobile, small office/home office and SMB products 2.5 million total customer lines 23,000 Vocalocity SMB customers Compelling Value Proposition Unlimited calling to 60+ countries for flat rate through Vonage World Targeted international plans; BasicTalk low-end domestic plan Comprehensive SMB solutions with rates 40-50% below traditional carriers VoIP & Mobile Platforms Proprietary IP-based network with scale and low termination rates Mobile Extensions widely adopted by customer base Vonage Mobile app with free talk, text, video calling and voic Attractive Business Model Direct margin 1 at ~70% Capex <5% of revenue Low-cost debt (<4%) leverage of 0.6x; $750 million in NOLs 1) Direct margin is defined as operating revenues less direct cost of telephony services and direct cost of goods sold as a percentage of operating revenues.

4 Strategic, Financial and Operational Turnaround Enables Investment in Growth Dramatic Improvement in Adjusted EBITDA 1 Growth Initiatives ($M) $150 $119 $156 $168 Core North America Target Markets: $54 $50 ($46) ($50) Structural Cost Reductions 2 Network & Domestic Termination 63% International Termination Rates 30% Customer Care Costs $50 million Interest Expense $43 million - International Long Distance - BasicTalk International Expansion - Brazil Mobile - Extensions - Vonage Mobile App SMB - Vocalocity Est. $355 Billion 3 1) This is a non-gaap financial measure. 2) Change from for Network and Domestic Termination, ILD and Customer Care Costs. Interest expense change from ) BMI Telecommunications report, TRAI Nov 2012; ILD Telegeography 2009; Mobile Portio Research February 2012,; Roaming Juniper Research Oct

5 5 Meaningful Progress on Objectives in 2013 Launched BasicTalk brand nationwide and deployed in all WalMart stores Shifted marketing investment from mass-reach vehicles to more efficient "live" selling channels Positive Net Lines Mobile Service penetration at 87% of international callers Brazil JV on track to launch in 2Q, 2014 Acquired Vocalocity, a leading provider of hosted VoIP to SMBs Enhanced Senior Leadership Team

6 Strengthening Customer Base through Penetration of ILD and Low-end Domestic Market with BasicTalk 6 Core and International Long Distance Calling Base Replicate success with callers to India and the Philippines in Hispanic and other segments Continued optimization of marketing and distribution, emphasizing digital and low-cost inperson channels Maintain stable churn in premium domestic base and replace cost-efficiently BasicTalk Drive growth after successful launch and brand building Potential to expand distribution and features Attracting wireless-only customers as a complement to cell phone

7 International Expansion into Brazil Large and growing market opportunity 67 million households, 20 million with broadband 1 Growing broadband penetration 1 million+ expats; vibrant small business community Pro-consumer regulatory environment Cellular calling expensive and restrictive Customer service major source of dissatisfaction Staged market entry planned for Q Launch with integrated service including mobile capabilities Experienced local leadership team in place Operations center established and training progressing well Integrated production testing underway 1) Source: Anatel 7

8 Mobile Strategy to Provide Comprehensive, Cloudbased Services Over Any Device, Anywhere 8 Mobile both a product and a platform for delivery of all of Vonage s services 28% of international calls made over Vonage network are from a mobile phone 87% of home phone customers who dial internationally have Extensions New video voic and video calling features attracting users and driving usage Product roadmap to benefit consumers and business customers Multiple identities on one handset Convert non-traditional broadband devices into full-featured phones

9 Vocalocity Acquisition Positions Vonage as a Leader in Fast-growing SMB Market Vocalocity Key Facts 1 Revenue Multiple Proprietary cloud-based communications platform EV/Revenue Feature-reach product set ,000 SMB customers Low account churn of 1.6% 0.0 8x8 RingCentral Vocalocity YTD 2013 (through 3Q) revenue up 39% y/y to $43 million Adjusted EBITDA and free cash flow 2 positive TEV ($ Millions) $723 $1,043 $130 EBITDA Positive Negative Positive Acquired at an attractive valuation 1) Results as of Q3 13 2) Adjusted EBITDA and free cash flow are non-gaap financial measures. 3) Q3 revenue annualized 9

10 10 Hosted VoIP Market is Large and Growing Rapidly Total US SMB Voice market $15 billion revenue and 32 million lines Vocalocity focused on companies with 20 or fewer employees, approximately 60% of market Substantial opportunity for growth as 85% of SMBs purchase voice service from traditional carriers Revenue CAGR projected at 27.5% through Revenue ($ bn) Market Sizing SMB/SoHo Enterprise Installed Lines (mm) Installed Lines (mm) 1) Frost & Sullivan July 2013; analyst estimates

11 Meaningful Upside Opportunities from Synergies and Accelerating Vocalocity Growth 11 Meaningful Cost Synergies Ø Network Operations Domestic and International Call Termination Ø G&A Use of technology to serve customers Potential Revenue Synergies Ø SOHO, international, upmarket, white label Ø Acceleration of Vocalocity business through brand, lead generation, enhanced marketing activities Aided Brand Awareness among Non-Customers Overall Daily average dollar bookings from direct sales nearly doubled since closing By provider type VoIP Telco Cable 8x8 2% 8% 0% 0% RingCentral 4% 10% 2% 0% Vocalocity 3% 5% 2% 2% Vonage 77% 84% 72% 82%

12 12 Positioned for Growth Intense focus on revenue growth Vocalocity acquisition provides new growth engine with signifcant synergies Core business generates strong cash flow with subscriber upside in ILD and BasicTalk Phased commercial expansion in Brazil beginning Q2 Strong Mobile services becoming core to all products; robust product roadmap Expect 2014 revenue growth in range of 1-2% on applesto-apples basis and 7-9% on an absolute basis

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14 Non-GAAP Reconciliation VONAGE HOLDINGS CORP. RECONCILIATION OF GAAP (LOSS) INCOME FROM OPERATIONS TO ADJUSTED EBITDA EXCLUDING ADJUSTMENTS (Dollars in thousands) (unaudited) For the Year-to-Date Periods Ending Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, (Loss) income from operations... $ (261,780) $ (6,439) $ 57,202 $ 95,054 $ 116,350 $ 64,610 Depreciation and amortization... 35,718 48,612 53,391 53,073 37,051 33,324 Loss from abandonment of software assets ,262 Share-based expense... 7,542 12,238 8,473 8,255 14,279 11,975 Adjusted EBITDA... (218,520) 54, , , , ,171 Royalty... 32,606 IP litigation ,300 Severance... 5,242 Adjusted EBITDA excluding adjustments... $ (46,372) $ 54,411 $ 119,066 $ 156,382 $ 167,680 $ 135,171 14