Vonage 2017 Results Powered by 33% GAAP Business Revenue Growth; Company Continues to Execute on Its Strategic Growth Initiatives

HOLMDEL, N.J., Feb. 21, 2018 -- Vonage Holdings Corp. (NYSE: VG), a business cloud communications leader, today announced results for the quarter and full year ended December 31, 2017. Consolidated Results "We had an excellent fourth quarter concluding a transformational year, highlighted by consolidated revenues crossing the billion dollar mark, Vonage Business becoming our majority revenue segment, and record OIBDA of $180 million," said Vonage CEO Alan Masarek. "In addition to our strong financial performance, we continued to innovate aggressively to transform Vonage into a differentiated business cloud communications company. Vonage's unique offering provides better business outcomes for our customers by enabling them to operate more efficiently and engage their customers in new, more meaningful ways. Our end-to-end solution is particularly critical as cloud adoption moves up market, and larger companies undergo their own digital transformations." For the full year 2017, Vonage reported revenues of $1.0 billion, up from $956 million in the prior year. Income from operations was $59 million, up from $44 million in the prior year. Adjusted Operating Income Before Depreciation and Amortization ("Adjusted OIBDA") ¹ was $180 million, a 13% increase over the prior year. GAAP net income was a loss of $34 million or $(0.15) per share for the full year 2017, compared with $13 million or $0.06per share in 2016. GAAP net income was impacted by a $69 million non-cash charge reflecting the impact of the Tax Cuts and Jobs Act, which is primarily associated with the re-measurement of the Company's deferred tax balances at the 21% income tax rate. Adjusted net income ² was $67 million or $0.30 per share, up from $40 million, or $0.18 per share in the prior year. For the fourth quarter of 2017, Vonage reported consolidated revenues of $254 million, up from $247 million in the year ago quarter. Income from operations was $23 million, up from $5 million in the prior year quarter. Adjusted OIBDA for the fourth quarter was $51 million, up from $37 million in the year ago quarter. GAAP net income was a loss of $55 million, or $(0.24) per share, down from a loss of $2 million in the prior year period, or ($0.01) per share. GAAP net income was impacted by a $69 million non-cash charge reflecting the impact of the Tax Cuts and Jobs Act as described above. Fourth quarter Adjusted net income was $21 million or $0.09 per share, up from $5 million or $0.02 per share. Business Segment Results

• Vonage Business revenues were $134 million, representing 53% of total revenues and 21% GAAP growth in the fourth quarter of 2017. Full year revenues increased 33% to $499 million.
• Fourth quarter UCaaS revenues were $94 million, of which $74 million were service revenues. Service revenues increased 16% year-over-year on an organic³ basis.
• UCaaS revenue churn was 1.2% in the fourth quarter of 2017, flat sequentially and down from 1.4% the prior year.
• Nexmo, the Vonage API Platform revenues were $40 million in the fourth quarter of 2017, a year-over-year increase of 36% on an organic⁴ basis; full year Vonage API platform revenues were $140 million, up 39% year-over-year on an organic⁴ basis.
• The Company increased its registered developers on the Vonage API Platform to 430,000, a sequential increase of 59,000.

Other Recent Vonage Business Highlights

• Released Vonage Business Cloud, the Company's next-generation, proprietary cloud communications platform. Vonage Business Cloud includes advanced mobile and desktop applications as well as collaboration built on Amazon Chime. The entire platform is deployed on Amazon Web Services, enabling faster innovation and accelerated international expansion.
• Expanded its award-winning SD-WAN solution, SmartWAN, to Vonage Business Cloud, allowing businesses to run their cloud communications using public broadband connections with Quality of Service.
• Earned Frost & Sullivan's Competitive Strategy Innovation and Leadership award for the Company's ability to deliver better business outcomes for its customers through comprehensive UCaaS and CPaaS capabilities combined with extensive third-party solutions integrations.
• Awarded FierceMarkets' Business Services Innovation Award for the Company's innovative, industry-leading Voice API.

Consumer Segment Results

• Consumer revenues were $120 million in the fourth quarter, down 12% from the prior year quarter, and the fifth consecutive quarter of a lower year-over-year rate of decline in revenue. Full year 2017 revenues were $503 million, down 13%.
• Consumer customer churn was 1.9%, flat sequentially and down from 2.2% in the year ago quarter.
• Average revenue per line ("ARPU") in Consumer was $26.33, up from $26.11 in the year ago period.
• The Consumer segment ended the fourth quarter with approximately 1.5 million subscriber lines.
• Consumer's tenured customers, defined as those with the Company for more than two years, increased to 82% of the base. The churn rate of this tenured cohort is 1.5%.

Balance Sheet The Company generated Adjusted OIBDA of $51 million, and Adjusted OIBDA minus Capex ⁵ of $43 million in the fourth quarter. For the full year, the Company generated Adjusted OIBDA of $180 million and Adjusted OIBDA minus Capex of $147 million. The Company reduced debt by $90 million in 2017, resulting in a net debt to Last Twelve Months Adjusted OIBDA ratio of 1.1x. Vonage also repurchased 1.6 million shares of stock for $10 millionat an average price of $5.95 under its current four-year $100 million program. 2018 Outlook The Company's guidance reflects the adoption of the new Revenue from Contracts with Customers (Topic 606) revenue recognition standard that is effective beginning January 1, 2018. For 2018, Vonage expects the following:

• Consolidated revenues in the range of $1,030 million to $1,045 million
• Vonage Business revenues in the range of $590 million to $605 million, with first quarter 2018 Vonage Business revenues expected to be in the range of $136 million to $137 million
• Consumer revenues in the range of $435 million to $440 million reflecting the Company's continued focus on optimizing the business for cash flow
• Consolidated Adjusted OIBDA of at least $195 million, including the impact of Topic 606, with first quarter 2018 Adjusted OIBDA in the low $40 million area.
• Capex of approximately $35 million; Adjusted OIBDA minus capex of at least $160 million.

Conference Call and Webcast Management will host a conference call to discuss fourth quarter and full year 2017 financial results and other matters at 8:30 AM Eastern Time. To participate, please dial (866) 807-9684. International callers should dial (412) 317-5415. A live webcast of the event will be available on the Vonage Investor Relations site. A replay of the call and webcast will be available shortly after the conclusion of the call and may be accessed through Vonage's Investor Relations website or by dialing (877) 344-7529 or (412) 317-0088, passcode 10116395.

1. This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP income from operations.
2. This is a non-GAAP financial measure. Refer below to Table 5 for a reconciliation to GAAP net income.
3. We define organic UCaaS growth as the increase in UCaaS revenues after giving pro forma effect for the exclusion of one-time items. See Table 3 for reference.
4. We define organic Vonage API Platform growth as the increase in Vonage API Platform revenues after giving pro forma effect for the change in accounting treatment with respect to certain Vonage API Platform revenues being recognized on a gross rather than net basis. See Table 3 for reference.
5. This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income.

More at https://ir.vonage.com/press-releases/2018/02-21-2018-130121355