VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Assets | (Unaudited) | | |
Current assets: | | | |
Cash and cash equivalents | $ | 15,719 | | | $ | 18,342 | |
Accounts receivable, net of allowance of $5,111 and $5,299, respectively | 145,895 | | | 147,622 | |
| | | |
Deferred customer acquisition costs, current portion | 23,871 | | | 23,961 | |
Prepaid expenses | 34,293 | | | 33,875 | |
Other current assets | 3,435 | | | 3,513 | |
Total current assets | 223,213 | | | 227,313 | |
Property and equipment, net of accumulated depreciation of $88,870 and $130,053, respectively | 20,155 | | | 24,334 | |
Operating lease right-of-use assets | 32,221 | | | 31,855 | |
Goodwill | 612,214 | | | 615,134 | |
Software, net of accumulated amortization of $149,946 and $140,565, respectively | 110,707 | | | 106,516 | |
Deferred customer acquisition costs | 77,826 | | | 77,442 | |
Restricted cash | 2,172 | | | 1,967 | |
Intangible assets, net of accumulated amortization of $320,353 and $312,677, respectively | 149,199 | | | 161,134 | |
Deferred tax assets | 121,996 | | | 109,087 | |
Other assets | 32,753 | | | 33,362 | |
Total assets | $ | 1,382,456 | | | $ | 1,388,144 | |
Liabilities and Stockholders’ Equity | | | |
| | | |
Current liabilities: | | | |
Accounts payable | $ | 57,382 | | | $ | 39,662 | |
Accrued expenses | 174,649 | | | 186,835 | |
Deferred revenue, current portion | 53,978 | | | 61,420 | |
Operating lease liabilities, current portion | 10,981 | | | 10,393 | |
| | | |
| | | |
Total current liabilities | 296,990 | | | 298,310 | |
Indebtedness under revolving credit facility | 130,500 | | | 130,500 | |
| | | |
Convertible senior notes, net | 340,620 | | | 305,609 | |
Operating lease liabilities | 34,040 | | | 32,663 | |
Other liabilities | 5,006 | | | 3,341 | |
Total liabilities | 807,156 | | | 770,423 | |
Commitments and Contingencies (Note 9) | | | |
Stockholders’ Equity: | | | |
Common stock, par value 0.001 per share; 596,950 shares authorized at March 31, 2021, and December 31, 2021 | 334 | | | 331 | |
Additional paid-in capital | 1,627,599 | | | 1,646,725 | |
Accumulated deficit | (684,855) | | | (691,718) | |
Treasury stock, at cost | (383,386) | | | (359,068) | |
Accumulated other comprehensive income | 15,608 | | | 21,451 | |
Total stockholders’ equity | 575,300 | | | 617,721 | |
Total liabilities and stockholders’ equity | $ | 1,382,456 | | | $ | 1,388,144 | |
130,500 See accompanying notes to condensed consolidated financial statements.
VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| | | | | | | |
Revenues: | | | | | | | |
Service, access and product revenues | $ | 344,852 | | | $ | 314,793 | | | | | |
USF revenues | 13,976 | | | 18,107 | | | | | |
Total revenues | 358,828 | | | 332,900 | | | | | |
| | | | | | | |
Operating Expenses: | | | | | | | |
Service, access and product cost of revenues (excluding depreciation and amortization) | 168,409 | | | 138,680 | | | | | |
USF cost of revenues | 13,976 | | | 18,107 | | | | | |
| | | | | | | |
Sales and marketing | 78,878 | | | 81,474 | | | | | |
Engineering and development | 20,760 | | | 20,360 | | | | | |
General and administrative | 70,456 | | | 44,933 | | | | | |
Depreciation and amortization | 25,195 | | | 20,417 | | | | | |
Total operating expenses | 377,674 | | | 323,971 | | | | | |
(Loss) Income from operations | (18,846) | | | 8,929 | | | | | |
Other Income (Expense): | | | | | | | |
Interest expense | (3,653) | | | (7,298) | | | | | |
Other income (expense), net | 511 | | | 174 | | | | | |
Total other expense, net | (3,142) | | | (7,124) | | | | | |
(Loss) Income before income tax | (21,988) | | | 1,805 | | | | | |
Income tax benefit (expense) | 4,866 | | | (2,181) | | | | | |
Net loss | $ | (17,122) | | | $ | (376) | | | | | |
| | | | | | | |
Loss per common share: | | | | | | | |
Basic and Diluted | $ | (0.07) | | | $ | — | | | | | |
| | | | | | | |
Weighted-average common shares outstanding: | | | | | | | |
Basic and Diluted | 254,666 | | | 249,638 | | | | | |
| | | | | | | |
See accompanying notes to condensed consolidated financial statements.
VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| | | | | | | |
Net loss | $ | (17,122) | | | $ | (376) | | | | | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment, net of tax (benefit) expense of $(132) and $1,293, respectively | (5,843) | | | (2,946) | | | | | |
| | | | | | | |
Total other comprehensive loss | (5,843) | | | (2,946) | | | | | |
Comprehensive loss | $ | (22,965) | | | $ | (3,322) | | | | | |
See accompanying notes to condensed consolidated financial statements.
VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2022 | | 2021 |
Cash flows from operating activities: | | | |
Net loss | $ | (17,122) | | | $ | (376) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 15,697 | | | 9,614 | |
Amortization of intangibles | 9,498 | | | 10,803 | |
| | | |
Deferred income taxes | (4,302) | | | 999 | |
Amortization of deferred customer acquisition costs | 5,899 | | | 4,762 | |
| | | |
Allowances for doubtful accounts | 804 | | | 964 | |
Amortization of financing costs and debt discount | 698 | | | 3,863 | |
(Gain) Loss on disposal of property and equipment and intangible assets | 6 | | | (7) | |
| | | |
Share-based expense | 29,042 | | | 14,566 | |
| | | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (134) | | | 737 | |
Prepaid expenses and other current assets | (325) | | | (2,305) | |
Deferred customer acquisition costs | (6,436) | | | (7,187) | |
| | | |
Accounts payable and accrued expenses | 10,780 | | | 16,416 | |
Deferred revenue | (6,946) | | | (4,821) | |
Other assets - deferred cloud computing implementation costs | (1,131) | | | (1,017) | |
Other assets and liabilities | 4,843 | | | 307 | |
Net cash provided by operating activities | 40,871 | | | 47,318 | |
Cash flows used in investing activities: | | | |
Capital expenditures | (2,773) | | | (2,553) | |
Proceeds from sale of intangible assets, net of payment for intangible assets | (21) | | | (62) | |
Acquisition and development of software assets | (17,623) | | | (13,865) | |
| | | |
Net cash used in investing activities | (20,417) | | | (16,480) | |
Cash flows used in financing activities: | | | |
Payments for short and long-term debt | (10,000) | | | (5,000) | |
Proceeds from issuance of long-term debt | 10,000 | | | — | |
Employee taxes paid on withholding shares | (24,318) | | | (16,641) | |
Proceeds from exercise of stock options | 245 | | | 622 | |
Net cash used in financing activities | (24,073) | | | (21,019) | |
Effect of exchange rate changes on cash | 1,201 | | | (980) | |
Net increase in cash, cash equivalents, and restricted cash | (2,418) | | | 8,839 | |
Cash, cash equivalents, and restricted cash, beginning of period | 20,309 | | | 44,997 | |
Cash, cash equivalents, and restricted cash, end of period | $ | 17,891 | | | $ | 53,836 | |
Supplemental disclosures of cash flow information: | | | |
Cash paid (received) during the periods for: | | | |
Interest | $ | 1,430 | | | $ | 1,863 | |
Income taxes | $ | 1,071 | | | $ | (3,965) | |
Non-cash investing activities: | | | |
Acquisition of long-term assets included in accounts payable and accrued expenses | $ | 1,354 | | | $ | 1,302 | |
Share-based compensation capitalized in internally developed software costs | $ | 1,712 | | | $ | 1,266 | |
See accompanying notes to condensed consolidated financial statements.
VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Income | | Total |
Balance at December 31, 2020 | | $ | 324 | | | $ | 1,554,574 | | | $ | (667,221) | | | $ | (320,891) | | | $ | 35,988 | | | $ | 602,774 | |
Stock option exercises | | 3 | | | 619 | | | | | | | | | 622 | |
Share-based expense | | | | 15,832 | | | | | | | | | 15,832 | |
Employee taxes paid on withholding shares | | | | | | | | (16,641) | | | | | (16,641) | |
Foreign currency translation adjustment | | | | | | | | | | (2,946) | | | (2,946) | |
Net loss | | | | | | (376) | | | | | | | (376) | |
Balance at March 31, 2021 | | $ | 327 | | | $ | 1,571,025 | | | $ | (667,597) | | | $ | (337,532) | | | $ | 33,042 | | | $ | 599,265 | |
| | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Income | | Total |
Balance at December 31, 2021 | | $ | 331 | | | $ | 1,646,725 | | | $ | (691,718) | | | $ | (359,068) | | | $ | 21,451 | | | $ | 617,721 | |
Adoption of ASU 2020-06 | | | | (50,123) | | | 23,985 | | | | | | | (26,138) | |
Stock option exercises | | 3 | | | 242 | | | | | | | | | 245 | |
Share-based expense | | | | 30,755 | | | | | | | | | 30,755 | |
Employee taxes paid on withholding shares | | | | | | | | (24,318) | | | | | (24,318) | |
Foreign currency translation adjustment | | | | | | | | | | (5,843) | | | (5,843) | |
Net loss | | | | | | (17,122) | | | | | | | (17,122) | |
Balance at March 31, 2022 | | $ | 334 | | | $ | 1,627,599 | | | $ | (684,855) | | | $ | (383,386) | | | $ | 15,608 | | | $ | 575,300 | |
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See accompanying notes to condensed consolidated financial statements.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Note 1. Nature of Business
Nature of Operations
Vonage Holdings Corp. (“Vonage”, “Company”, “we”, “our”, “us”) is incorporated as a Delaware corporation. At Vonage, our vision is to accelerate the world's ability to connect. We are observing a secular change in the way business is done, with a fundamental shift in how communications technologies are being leveraged in almost every industry. Through the Vonage Communications Platform, our strategy is to deliver a single leading cloud communications platform that powers our customers' and partners' global engagement solutions using our APIs, Unified Communications, and Contact Center innovations. We believe that the Vonage Communications Platform's products and services are well positioned to take advantage of emerging trends with sizable, growing total addressable markets as companies look to cloud-based communications solutions and API programming architectures as part of their digital transformation.
Our strategic business is the Vonage Communications Platform which delivers a single leading cloud communications platform that powers our customers' and partners' global engagement solutions using our APIs, Unified Communications, and Contact Center innovations. The Vonage Communications Platform brings unique value to businesses by providing multiple communications channels - including video, voice, messaging, email, verification, and artificial intelligence - that integrate into the applications, products and workflows that our customers are already using. We believe this delivers both the power and the flexibility to our customers to address the growing need to transform their communications, connections and experiences for customers and enables the type of business continuity, remote work, and remote delivery of services that are now essential for team members.
For our Consumer customers, we enable users to access and utilize our services and features, via their existing internet connections, including over 3G/4G, LTE, Cable, or DSL broadband networks. This technology enables us to offer our Consumer customers attractively priced voice and messaging services and other features around the world on a variety of devices. Our Consumer strategy is focused on the continued penetration of our core North American markets, which provide value in international long distance and target under-served segments.
Customers in the United States represented 66% and 66% of our consolidated revenues for the three months ended March 31, 2022 and 2021, respectively, with the balance in Canada, the United Kingdom, China, Singapore, Netherlands, and other countries around the world.
Unaudited Interim Financial Information
The accompanying unaudited interim condensed consolidated financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the SEC's regulations for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the Company's financial position, results of operations, comprehensive income, cash flows, and stockholders’ equity for the periods presented. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 24, 2022.
Use of Estimates
Our condensed consolidated financial statements and notes thereof are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, including uncertainty in the war between Russia and Ukraine.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
We base our estimates on historical experience, available market information, appropriate valuation methodologies, and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are used for such items as depreciable lives for long-lived assets including intangible assets, tax provisions, uncollectible accounts, and assets and liabilities assumed in business combinations, among others. In addition, estimates are used to test long-lived assets and goodwill for impairment.
COVID-19 has created and may continue to create uncertainty in customer payments, reduced usage, and issuance of customer credits to distressed customers served by certain product lines. As of the date of our consolidated financial statements, we are not aware of any specific event or circumstance that would require us to materially update our estimates or judgments. However, these estimates may change as new events occur and additional information is obtained, which may result in changes being recognized in our consolidated financial statements in future periods. In particular and in light of the COVID-19 pandemic, the assumptions and estimates associated with collectability assessment of revenue and credit losses of accounts receivable may have a material impact our consolidated financial statements in future periods, depending on the continued duration or degree of the impact of the COVID-19 pandemic on the global economy.
In February 2022, the Russian Federation commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not fully determinable as of the date of these financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows may be material depending on the duration and degree of the invasion.
Reclassifications
Reclassifications have been made to our condensed consolidated financial statements for the prior year periods to conform to classifications used in the current year periods. The reclassifications did not affect results of operations, net assets or cash flows.
Note 2. Summary of Significant Accounting Policies
This footnote should be read in conjunction with the complete description of our significant accounting policies under Note 2, Summary of Significant Accounting Policies to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Significant Events
On November 22, 2021, the Company, Telefonaktiebolaget LM Ericsson (publ), an entity organized and existing under the Laws of Sweden ("Ericsson"), and Ericsson Muon Holding Inc., a Delaware corporation ("Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) providing for the acquisition of the Company by Ericsson for approximately $6.2 billion to be funded by cash on hand.
The Merger Agreement provides that, among other things, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, continuing as the surviving corporation and an indirect wholly owned subsidiary of Ericsson. The proposed transaction is expected to be consummated during the first half of 2022 following the satisfaction of certain other customary conditions. The Company obtained the required approval by the stockholders on February 9, 2022.
Pursuant to the Merger Agreement, each share of common stock, par value $0.001 per share, of the Company (collectively, the “Shares”) issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than (i) Shares owned by Ericsson or Merger Sub or any of their respective subsidiaries, (ii) Shares owned by the Company as treasury stock, and (iii) Shares held by stockholders who will not have voted in favor of the adoption of the Merger Agreement (as may be amended) and who will have properly exercised appraisal rights in respect of such Shares in accordance with Section 262 of the DGCL) will be converted into the right to receive $21.00 per Share in cash, without interest.
Service, Access, and Product Cost of Revenues
Service, access, and product cost of revenues excludes depreciation and amortization expense of $17,679 and $13,647 for the three months ended March 31, 2022 and 2021, respectively. In addition, costs of goods sold included service, access, and product cost of revenues during the three months ended March 31, 2022 and 2021 were $3,459 and $2,579, respectively.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Sales and Marketing Expenses
We incurred advertising costs, which are included in sales and marketing, of $11,382 and $9,657 for the three months ended March 31, 2022 and 2021, respectively.
Fair Value of Financial Instruments
Certain of the Company's other financial instruments, which include cash and cash equivalents, restricted cash, accounts receivable and accounts payable, approximate fair value due to their short-term nature and as such are classified as Level 1. We believe the fair value of our 2018 Credit Facility at March 31, 2022 and December 31, 2021 was approximately the same as its carrying amount as the facility bears interest at a variable rate indexed to current market conditions and is classified as Level 2 within the fair value hierarchy.
As of March 31, 2022 and December 31, 2021, the fair value of the 1.75% convertible senior notes due 2024 (the “Convertible Senior Notes”) was approximately $453,503 and $425,125, respectively. The fair value was determined based on the quoted price for the Convertible Senior Notes in an inactive market on the last trading day of the reporting period and is classified as Level 2 in the fair value hierarchy.
We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:
•Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
•Level 2 - observable prices that are based on inputs not quoted on active markets but corroborated by market data; and
•Level 3 - unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Supplemental Balance Sheet Information
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to amounts included in the consolidated statements of cash flows:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, | | As of December 31, |
| 2022 | | 2021 | | 2021 | | 2020 |
Cash and cash equivalents | $ | 15,719 | | | $ | 51,623 | | | $ | 18,342 | | | $ | 43,078 | |
Restricted cash | 2,172 | | | 2,213 | | | 1,967 | | | 1,919 | |
Total cash, cash equivalents and restricted cash | $ | 17,891 | | | $ | 53,836 | | | $ | 20,309 | | | $ | 44,997 | |
The following tables provides supplemental information of intangible assets and accrued expenses within the consolidated balance sheets:
Intangible assets, net
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Gross Carrying Value | Accumulated Amortization | Net Carrying Value | | Gross Carrying Value | Accumulated Amortization | Net Carrying Value |
Customer relationships | $ | 274,938 | | $ | (172,245) | | $ | 102,693 | | | $ | 277,435 | | $ | (168,292) | | $ | 109,143 | |
Developed technology | 173,082 | | (127,294) | | 45,788 | | | 174,862 | | (123,585) | | 51,277 | |
Patents and patent licenses | 21,074 | | (20,356) | | 718 | | | 21,056 | | (20,342) | | 714 | |
Trade names | 458 | | (458) | | — | | | 458 | | (458) | | — | |
| | | | | | | |
Total intangible assets | $ | 469,552 | | $ | (320,353) | | $ | 149,199 | | | $ | 473,811 | | $ | (312,677) | | $ | 161,134 | |
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Accrued expenses
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Compensation and related taxes and temporary labor | $ | 32,350 | | | $ | 45,712 | |
Marketing | 25,845 | | | 32,312 | |
Taxes and fees | 32,334 | | | 28,214 | |
Telecommunications | 58,964 | | | 59,934 | |
Severance | 1,009 | | | 845 | |
Interest | 2,433 | | | 884 | |
Customer credits | 3,188 | | | 4,461 | |
Professional fees | 10,513 | | | 7,324 | |
Inventory | 1,484 | | | 886 | |
Other accruals | 6,529 | | | 6,263 | |
Accrued expenses | $ | 174,649 | | | $ | 186,835 | |
Goodwill
The Company's goodwill is derived primarily from the acquisitions of Vocalocity, Telesphere, iCore, Simple Signal, Nexmo, TokBox, and NewVoiceMedia which are included in the Company's Vonage Communications Platform segment. The following table provides a summary of the changes in the carrying amounts of goodwill:
| | | | | |
Balance at December 31, 2021 | $ | 615,134 | |
Foreign currency translation adjustment | (2,920) | |
Balance at March 31, 2022 | $ | 612,214 | |
Recent Accounting Pronouncements
The following standard was adopted by the Company during the quarter ended March 31, 2022.
In August 2020, the FASB issued ASU 2020-06, "Debt - Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity". This ASU simplifies the accounting for certain convertible instruments such that the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC 815, or that do not result in substantial premiums accounted for as paid-in-capital. As a result, more convertible debt instruments will be accounted for as a single liability measured at its amortized cost. In addition, the ASU requires the use of the if-converted method to be applied to convertible instruments when calculating earnings per share. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, using either a modified retrospective or a full retrospective approach. Early adoption is permitted for fiscal years beginning after December 15, 2020. The Company adopted the ASU on a modified retrospective basis on January 1, 2022. Upon adoption, the Company recorded a $50.1 million decrease to additional paid-in capital, a $34.5 million increase to convertible senior notes, net, a $8.4 million increase in deferred tax assets, and a $23.9 million decrease to accumulated deficit.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Note 3. Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers which is further described in Note 2, Summary of Significant Accounting Policies and Note 3, Revenue Recognition to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
Disaggregation of Revenue
The following tables detail our revenue from customers disaggregated by primary geographical market and source of revenue. The tables also include a reconciliation of the disaggregated revenue for our Vonage Communications Platform, or VCP, and Consumer segments.
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| Three Months Ended | | Three Months Ended |
| March 31, 2022 | | March 31, 2021 |
| VCP | | Consumer | | Total | | VCP | | Consumer | | Total |
Primary geographical markets | | | | | | | | | | | |
Americas | $ | 177,957 | | | $ | 60,254 | | | $ | 238,211 | | | $ | 150,072 | | | $ | 74,932 | | | $ | 225,004 | |
EMEA | 73,768 | | | 2,164 | | | 75,932 | | | 62,835 | | | 2,514 | | | 65,349 | |
APAC | 44,685 | | | — | | | 44,685 | | | 42,547 | | | — | | | 42,547 | |
| $ | 296,410 | | | $ | 62,418 | | | $ | 358,828 | | | $ | 255,454 | | | $ | 77,446 | | | $ | 332,900 | |
Major Sources of Revenue | | | | | | | | | | | |
Service revenues | $ | 284,198 | | | $ | 55,132 | | | $ | 339,330 | | | $ | 240,442 | | | $ | 65,697 | | | $ | 306,139 | |
Access and product revenues | 5,464 | | | 58 | | | 5,522 | | | 8,598 | | | 56 | | | 8,654 | |
USF revenues | 6,748 | | | 7,228 | | | 13,976 | | | 6,414 | | | 11,693 | | | 18,107 | |
| $ | 296,410 | | | $ | 62,418 | | | $ | 358,828 | | | $ | 255,454 | | | $ | 77,446 | | | $ | 332,900 | |
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In addition, the Company recognizes service revenues from its customers through subscription services provided or through usage or pay-per-use type arrangements. During the three months ended March 31, 2022, the Company recognized $144,752 related to subscription services, $167,166 related to usage, and $46,910 related to other revenues such as USF, other regulatory fees, and credits. During the three months ended March 31, 2021, the Company recognized $150,453 related to subscription services, $133,652 related to usage, and $48,795 related to other revenues such as USF, other regulatory fees, and credits.
Contract Assets and Liabilities
The following table provides information about receivables and contract liabilities from contracts with customers:
| | | | | | | | |
| March 31, 2022 | December 31, 2021 |
Receivables (1) | $ | 145,895 | | $ | 147,622 | |
Contract liabilities (2) | 53,978 | | 61,420 | |
(1) Amounts included in accounts receivables on our condensed consolidated balance sheets.
(2) Amounts included in deferred revenues on our condensed consolidated balance sheet.
Our deferred revenue represents the advance consideration received from customers for subscription services and is predominantly recognized over the following month as transfer of control occurs. During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $102,363 and $106,037, respectively, related to its contract liabilities. We expect to recognize $53,978 into revenue over the next twelve months related to our deferred revenue as of March 31, 2022.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Remaining Performance Obligation
Transaction price allocated to the remaining performance obligation represents contracted revenue that has not yet been recognized. The typical subscription term may range from 1 month to 3 years. Contracted revenue as of March 31, 2022 that has not yet been recognized was approximately $0.4 billion. This excludes contracts with an original expected length of less than one year. The Company expects to recognize the majority of its remaining performance obligation over the next 18 months.
Contract Acquisition Costs
We have various commission programs for internal sales personnel and channel partners that are incremental to the acquisition of customer contracts. These costs are recorded as deferred contract acquisition costs on the consolidated balance sheets which eligible employees and third parties may earn a commission on sales of services and products to customers. We expect that these commission fees are recoverable and, therefore, we have capitalized $101,697 and $101,403 as contract costs, net of accumulated amortization, as of March 31, 2022 and December 31, 2021, respectively, included within deferred customer acquisitions costs, current portion and deferred customer acquisition costs on our condensed consolidated balance sheets. Capitalized commission fees are amortized to sales and marketing expense over estimated customer life, which is 7 years for Vonage Communications Platform customers. The amounts amortized to sales and marketing expense were $5,899 and $4,762 for the three months ended March 31, 2022 and 2021, respectively. There were no impairment losses recognized in relation to the costs capitalized during the three months ended March 31, 2022 and 2021. In addition, the Company expenses sales commissions for commission plans related to customer arrangements deemed less than a year and for residuals and renewals.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Note 4. Earnings Per Share
The following table sets forth the computation for basic and diluted loss per share for the three months ended March 31, 2022 and 2021:
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| | Three Months Ended | | |
| | March 31, | | |
| | 2022 | | 2021 | | | | |
Numerator | | | | | | | | |
Net loss | | $ | (17,122) | | | $ | (376) | | | | | |
Denominator | | | | | | | | |
Weighted average common shares outstanding for basic and diluted net loss per share | | 254,666 | | | 249,638 | | | | | |
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Basic and diluted loss per share | | | | | | | | |
Basic and diluted loss per share | | $ | (0.07) | | | $ | — | | | | | |
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For the three months ended March 31, 2022 and 2021, the following were excluded from the calculation of diluted loss per common share because of their anti-dilutive effects:
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| | Three Months Ended | | |
| | March 31, | | |
| | 2022 | | 2021 | | | | |
Restricted stock units | | 13,534 | | | 15,795 | | | | | |
Stock options | | 360 | | | 1,387 | | | | | |
Convertible senior notes | | 20,634 | | | — | | | | | |
| | 34,528 | | | 17,182 | | | | | |
Upon adoption of ASU 2020-06 on January 1, 2022, the Company utilizes the if-converted method when calculating any potential dilutive effect on diluted net income per share, if applicable. Under the if-converted method, shares related to our convertible senior notes, to the extent dilutive, are assumed to be converted into common stock at the beginning of the period. Prior to the adoption of ASU 2020-06, as the Company expected to settle the principal amount of its outstanding convertible senior notes in cash and any excess in cash or shares of the Company’s common stock, the Company used the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread would have had a dilutive impact on diluted net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the conversion price of $16.72 per share. The Company's Convertible Senior Notes are further described in Note 6, Long-Term Debt.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Note 5. Income Taxes
The income tax consisted of the following:
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| | Three Months Ended | |
| | March 31, | |
| | 2022 | | 2021 | | | | |
(Loss) Income before income taxes | | $ | (21,988) | | | $ | 1,805 | | | | | |
Income tax benefit (expense) | | 4,866 | | | (2,181) | | | | | |
Effective tax rate | | 22.1 | % | | 120.8 | % | | | | |
Generally, provisions for income taxes during interim reporting periods apply an estimate of the annual effective tax rate for the full year. The provision for income taxes will vary with levels of pre-tax income (loss) and non-deductible expenses, NOL valuation allowances and other permanent non-deductible charges which can cause the rate to fluctuate from quarter to quarter. An alternative approach may be recorded under a discrete method which applies actual adjustments for the period including specific permanent adjustments and geographic distribution of our pre-tax income (loss). Consistent with the prior interim period, the discrete method was determined to be the appropriate method for calculating the interim tax provision as using the estimated annual effective tax rate method would have produced an unreliable rate stemming from an estimated annual marginal loss and large permanent adjustments.
For the three months ended March 31, 2022, our effective tax rate was different than the statutory rate primarily due to the permanent items related to limitations on executive compensation, the benefit related to equity compensation, and limitation on foreign nondeductible losses.
For the three months ended March 31, 2021, our effective tax rate was different than the statutory rate primarily due to an increase in permanent items related to limitations on executive compensation, the inclusion of foreign income in the U.S. due to foreign disregarded entities, and limitation on foreign losses.
Uncertain Tax Positions
The Company had uncertain tax benefits of $1,296 and $1,271 as of March 31, 2022 and December 31, 2021, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. The Company incurred interest expense and/or penalties of $9 and $2, during the three months ended March 31, 2022 and 2021, respectively. The following table reconciles the total amounts of uncertain tax benefits:
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| March 31, 2022 | | December 31, 2021 |
Balance as of January 1 | $ | 1,271 | | | $ | 632 | |
Increase due to current year positions | 26 | | | 1,061 | |
Increase (decrease) due to prior year positions | 3 | | | (5) | |
Decrease due to settlements and payments | — | | | (355) | |
Decrease due to lapse of applicable statute of limitations | — | | | (60) | |
Decrease due to foreign currency fluctuation | (4) | | | (2) | |
Uncertain tax benefits as of the end of the period | $ | 1,296 | | | $ | 1,271 | |
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Net Operating Loss Carry Forwards
As of March 31, 2022, the Company has U.S. Federal and state NOL carryforwards of $352,077 and $184,914, respectively, which expire at various times through 2037. We have non-US NOLs of $170,366 primarily related to the United Kingdom which has no expiration date. Under Section 382 of the Internal Revenue Code, if we undergo an “ownership change” which is generally defined as a greater than 50% change by value in our equity ownership over a three-year period, our ability to use our pre-change of control NOLs and other pre-change tax attributes against our post-change income may be limited. The Section 382 limitation is applied so as to limit the use of our pre-change NOLs to an amount that generally equals the value of our stock immediately before the ownership change multiplied by a designated federal long-term tax-exempt rate. At March 31, 2022, there were no limitations on the use of our NOLs except for a certain portion of the NOLs acquired with Vocalocity, which the Company has reflected in the deferred tax asset.
Note 6. Long-Term Debt
This footnote should be read in conjunction with the complete description of our financing arrangements under Note 8, Long-Term Debt, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
The following table summarizes the Company's long-term debt as of March 31, 2022 and December 31, 2021:
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| March 31, 2022 | | December 31, 2021 |
Revolving credit facility - due 2023 | 130,500 | | | 130,500 | |
Convertible senior notes - due 2024 | 345,000 | | | 345,000 | |
Long-term debt including current maturities | 475,500 | | | 475,500 | |
Less unamortized discount | — | | | 35,472 | |
Less debt issuance costs | 4,380 | | | 3,919 | |
Total long-term debt | $ | 471,120 | | | $ | 436,109 | |
Convertible Senior Notes
In June 2019, the Company issued $300.0 million aggregate principal amount of 1.75% convertible senior notes due 2024 in a private placement and an additional $45.0 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment option of the initial purchasers (collectively, "Convertible Senior Notes"). The Convertible Senior Notes are the Company's senior unsecured obligations. The Convertible Senior Notes will mature on June 1, 2024, unless earlier redeemed, repurchased or converted. We may not redeem the notes prior to June 5, 2022.
Each $1,000 principal amount of the Convertible Senior Notes is initially convertible into 59.8256 shares of the Company's common stock, which is equivalent to an initial conversion price of approximately $16.72 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change or a redemption period, each as defined in the indenture setting forth the terms of the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Senior Notes in connection with such make-whole fundamental change or during the relevant redemption period.
Prior to December 1, 2023, the notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. We will satisfy any conversion election by paying or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock. During the three months ended March 31, 2022, the conditions allowing holders of the Convertible Senior Notes to convert were not met.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
The net carrying amount of the liability component of the Convertible Senior Notes was as follows:
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| | March 31, 2022 |
Principal | | $ | 345,000 | |
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Unamortized issuance cost | | (4,380) | |
Net carrying amount | | $ | 340,620 | |
The following table sets forth the interest expense recognized related to the Convertible Senior Notes:
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| Three Months Ended | |
| March 31, | |
| 2022 | | 2021 | | | | |
Contractual interest expense | $ | 1,509 | | | $ | 1,509 | | | | | |
Amortization of debt discount | — | | | 3,261 | | | | | |
Amortization of debt issuance costs | 495 | | | 399 | | | | | |
Total interest expense related to the Convertible Senior Notes | $ | 2,004 | | | $ | 5,169 | | | | | |
In connection with the pricing of the Convertible Senior Notes and subsequently in connection with the exercise of the initial purchaser's option to purchase additional notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls"). The Capped Calls each have a strike price of $16.72 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Senior Notes. The Capped Calls have initial cap prices of $23.46 per share, subject to certain adjustments. The Capped Calls are expected generally to reduce potential dilution to the Company's common stock upon any conversion of notes and/or offset any cash payments the Company is required to make in excess of the aggregate principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. The initial cap price of the Capped Call transactions was $23.46.
2018 Term Note and Revolving Credit Facility
On July 31, 2018, the Company entered into the 2018 Credit Facility consisting of a $100 million senior secured term loan and a $500 million revolving credit facility. The co-borrowers under the 2018 Credit Facility are the Company and Vonage America Inc., the Company’s wholly owned subsidiary. Obligations under the 2018 Credit Facility are guaranteed, fully and unconditionally, by the Company’s other United States subsidiaries and are secured by substantially all of the assets of each borrower and each guarantor.
The effective interest rate was 3.25% as of March 31, 2022. During three months ended March 31, 2022, we borrowed $10 million and repaid $10 million under the revolving facility, respectively. During the three months ended March 31, 2021, we repaid $5 million under the revolving facility. As of March 31, 2022, we were in compliance with all covenants, including financial covenants, for the 2018 Credit Facility.
Note 7. Leases
The Company entered into various non-cancelable operating lease arrangements for certain of our existing office and telecommunications co-location space as well as operating leases for certain equipment. The operating leases expire at various times through 2028, some of which provide the Company options to extend the lease for terms up to 5 years beyond the original term. We are committed to pay a portion of the buildings’ operating expenses as required under the arrangements which we will separate as a non-lease component when readily determinable. The Company did not have any finance leases as of March 31, 2022 and December 31, 2021.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
The Company incurred operating lease expense of $2,472 and $2,558, respectively, during the three months ended March 31, 2022 and 2021, related to its operating leases. In addition, the Company received sub-lease income of $287 and $284, respectively, during the three months ended March 31, 2022 and 2021. Additionally, the remaining weighted average lease term for our operating leases was 4.50 years and the weighted average discount rate utilized to measure the Company's operating leases was 4.09% as of March 31, 2022.
Supplemental cash flow related to the Company's operating leases is as follows:
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| Three Months Ended |
| March 31, 2022 | | March 31, 2021 |
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Cash paid for amounts included in the measurement of lease liabilities | $ | 2,924 | | | $ | 2,628 | |
Right-of-use assets obtained in exchange for lease obligations | $ | 4,759 | | | $ | 8,431 | |
Maturities of operating lease liabilities as of March 31, 2022 and December 31, 2021 are as follows:
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| March 31, 2022 | | December 31, 2021 |
2022 (1) | $ | 10,736 | | | 11,825 | |
2023 | 11,871 | | | 11,089 | |
2024 | 8,195 | | | 7,193 | |
2025 | 8,430 | | | 7,404 | |
2026 | 7,512 | | | 6,431 | |
Thereafter | 3,669 | | | 3,280 | |
Total lease payments | 50,413 | | | 47,222 | |
Less imputed interest | (5,392) | | | (4,166) | |
Total | $ | 45,021 | | | $ | 43,056 | |
(1) Excluding three months ended March 31, 2022 for the period ended March 31, 2022.
During the year ended December 31, 2021, the Company entered into a new lease agreement to relocate its corporate headquarters to a new leased facility located in Holmdel, New Jersey. As a result, the Company incurred a charge associated with the abandonment of its former corporate headquarters during the first quarter of 2022 of $2,103.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Note 8. Common Stock
As of March 31, 2022 and December 31, 2021, the Company had 596,950 shares of common stock authorized and had 8,540 shares available for grants under our share-based compensation programs as of March 31, 2022. For a detailed description of our share-based compensation programs refer to Note 11, Employee Stock Benefit Plans in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. The following table reflects the changes in the Company's common stock issued and outstanding:
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For the Three Months Ended | | | | | |
(in thousands) | Issued | | Treasury | | Outstanding |
Balance at December 31, 2020 | 323,815 | | | (74,841) | | | 248,974 | |
Shares issued under the 2015 Equity Incentive Plan | 3,612 | | | — | | | 3,612 | |
Employee taxes paid on withholding shares | — | | | (1,316) | | | (1,316) | |
Balance at March 31, 2021 | 327,427 | | | (76,157) | | | 251,270 | |
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Balance at December 31, 2021 | 331,330 | | | (77,324) | | | 254,006 | |
Shares issued under the 2015 Equity Incentive Plan | 3,637 | | | | | 3,637 | |
Employee taxes paid on withholding shares | | | (1,208) | | | (1,208) | |
Balance at March 31, 2022 | 334,967 | | | (78,532) | | | 256,435 | |
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Note 9. Commitments and Contingencies
Litigation
From time to time we are subject to legal proceedings, governmental inquiries, claims and investigations relating to our business, including claims of alleged infringement of commercial, employment, intellectual property rights, and other matters. In addition, we receive letters or other communications from third parties inviting us to obtain patent licenses that might be relevant to our business or alleging that our services infringe upon third-party patents or other intellectual property. In accordance with generally accepted accounting principles, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. We believe that we have valid defenses with respect to the legal matters pending against us and are vigorously defending these matters. Given the uncertainty surrounding litigation and our inability to assess the likelihood of a favorable or unfavorable outcome in such matters and our inability to reasonably estimate the amount of loss or range of loss, it is possible that the resolution of one or more of these matters could have a material adverse effect on our condensed consolidated financial position, cash flows or results of operations.
Regulation
Telephony services are subject to a broad spectrum of state, federal and foreign regulations. Because of the uncertainty over whether VoIP should be treated as a telecommunications or information service, we have been involved in a substantial amount of state and federal regulatory activity. Implementation and interpretation of the existing laws and regulations is ongoing and is subject to litigation by various federal and state agencies and courts. Due to the uncertainty over the regulatory classification of VoIP service, there can be no assurance that we will not be subject to new regulations or existing regulations under new interpretations, and that such change would not introduce material additional costs to our business. The Company continues to monitor federal regulations relating to net neutrality, rural call completion issues, number slamming, 911 access, access to telecommunication equipment and services by persons with disabilities, caller ID services, number portability, unwanted calls to reassigned numbers, and robocalling. As we continue to expand globally, these types of regulations are likely to be similarly enacted and enforced by the local regulatory authorities.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
State and Municipal Taxes
In accordance with generally accepted accounting principles, we make a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount of the liability or range of liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. From time to time, we have received inquiries from a number of states and local taxing agencies with respect to the remittance of sales, use, telecommunications, and excise taxes. Several jurisdictions are currently conducting tax audits of the Company's records. While the Company collects or has accrued for taxes that it believes are required to be remitted, it has reviewed its positions in those various jurisdictions as well as other regulatory fees and has established appropriate reserves. As such, we have established reserves of $10,428 and $10,010 as of March 31, 2022 and December 31, 2021, respectively, as our best estimate of the potential tax exposure for any retroactive assessment.
VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Note 10. Industry Segment and Geographic Information
ASC 280, Segment Reporting, establishes reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Under ASC 280, the method for determining what information to report is based upon the way management organizes the reportable operating segments within the Company for making operating decisions and assessing financial performance. Our chief operating decision-maker reviews revenue and Adjusted EBITDA for each of our reportable operating segments. In addition, with the exception of goodwill and intangible assets, we do not identify or allocate our assets by the reportable operating segments as this information is not utilized by management to allocate resources or capital.
Vonage Communications Platform
The Vonage Communications Platform is our single enterprise cloud communications platform, offering our wide range of enterprise communications services and solutions including Communications APIs, Unified Communications, and Contact Center Communications. The Vonage Communications Platform brings unique value to businesses by providing multiple communications channels - video, voice, messaging, email and verification - that integrate into applications, products and workflows. This delivers both the power and the flexibility our customers need to disrupt their industries, and enables the type of business continuity, remote work, and remote delivery of services that are now essential for companies to work and serve customers from anywhere. Vonage products and services enable our business customers to fundamentally change how they engage with their customers and team members. We have a robust set of solutions and services that meet the needs of businesses of all sizes, from micro, to SMB through mid-market and enterprise. We provide customers with multiple deployment options designed to provide the reliability and quality of service they demand. Vonage solutions also integrate with today's leading business applications, CRM and productivity tools, including Google’s G Suite, Zendesk, Salesforce’s Sales and Service Clouds, Microsoft Dynamics, ServiceNow, Oracle, and Clio among others, to drive internal communications and collaboration among team members and external engagement with customers.
Consumer
For our Consumer customers, we enable users to access and utilize our UCaaS services and features, via a single “identity,” either a number or user name, regardless of how they are connected to the Internet, including over 3G/4G, LTE, Cable, or DSL broadband networks. This technology enables us to offer our Consumer customers attractively priced voice and messaging services and other features around the world on a variety of devices.
Information about our segment results for the three months ended March 31, 2022 and March 31, 2021 were as follows:
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Three Months Ended | | Service Revenue | | Revenue | | | | Adjusted EBITDA | | Depreciation and Amortization |
March 31, 2022 | | | | | | | | | | |
Vonage Communications Platform | | $ | 284,198 | | | $ | 296,410 | | | | | $ | 2,166 | | | $ | 25,054 | |
Consumer | | 55,132 | | | 62,418 | | | | | 41,893 | | | 141 | |
Total Vonage | | $ | 339,330 | | | $ | 358,828 | | | | | $ | 44,059 | | | $ | 25,195 | |
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March 31, 2021 | | | | | | | | | | |
Vonage Communications Platform | | $ | 240,442 | | | $ | 255,454 | | | | | $ | (1,846) | | | $ | 20,080 | |
Consumer | | 65,697 | | | 77,446 | | | | | 50,013 | | | 337 | |
Total Vonage | | $ | 306,139 | | | $ | 332,900 | | | | | $ | 48,167 | | | $ | 20,417 | |
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VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
The Company uses Adjusted EBITDA as the measure of profit or loss for the evaluation of performance and allocation of resources of our reportable operating segments. Adjusted EBITDA is defined as net income or net loss before income tax expense or benefit, interest expense, depreciation and amortization, amortization of costs to implement cloud computing arrangements, share-based expense, acquisition related transaction and integration costs, exit activities - severance and lease abandonment, and other non-recurring items. Exit activities - severance and lease abandonment 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, acquisition related consideration accounted for as compensation, long term incentive award and other non-recurring project costs such as the review of the Consumer business. This is also consistent with the measure used under our bank credit assessment. Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated income before taxes is presented below:
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| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
Adjusted EBITDA | $ | 44,059 | | | $ | 48,167 | | | | | |
Interest expense | (3,653) | | | (7,298) | | | | | |
Depreciation and amortization | (25,195) | | | (20,417) | | | | | |
Amortization of costs to implement cloud computing arrangements | (1,175) | | | (896) | | | | | |
Share-based expense | (29,042) | | | (14,566) | | | | | |
Acquisition related transaction and integration costs | (1,744) | | | — | | | | | |
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Exit activities - severance and lease abandonment | (2,103) | | | (1,294) | | | | | |
Other non-recurring items | (3,135) | | | (1,891) | | | | | |
(Loss) Income before taxes | $ | (21,988) | | | $ | 1,805 | | | | | |
Information about our operations by geographic location is as follows:
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| March 31, 2022 | | December 31, 2021 |
Long-lived assets: | | | |
United States | $ | 622,093 | | | $ | 627,243 | |
United Kingdom | 268,519 | | | 278,173 | |
Israel | 1,663 | | | 1,702 | |
| $ | 892,275 | | | $ | 907,118 | |