Vonage : 4Q20 Earnings Presentation

Fourth Quarter and

Full Year 2020

Earnings Presentation

February 18, 2021

Safe Harbor

Caution Concerning Forward-Looking Statements

Various remarks that the Company makes contain forward-looking statements regarding future financial results, growth, growth priorities or plans, new products and related investment, revenues, adjusted EBITDA, churn, seats, lines or accounts, average revenues per customer, cost of communications services, 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; our ability to adapt to rapid changes in the cloud communications market; realizing the expected benefits of our business optimization or other cost-savings plans; risks related to the acquisition or integration of businesses we have acquired; our ability to scale our business and grow efficiently; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers cost-effectively; developing and maintaining effective distribution channels; risks associated with sales of our services to medium-sized and enterprise customers; the effects of COVID-19 on our business; our reliance on third-party hardware and software; our dependence on third-party vendors; reliance on third parties for our 911 services; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; the effects of significant foreign currency fluctuations; developing and maintaining market awareness and a strong brand; retaining senior executives and other key employees; security breaches and other compromises of information security; system disruptions or flaws in our technology and systems; our ability to comply with data privacy and related regulatory matters; unfavorable litigation or governmental investigations; our ability to obtain or maintain relevant intellectual property licenses or to protect our trademarks and internally developed software; fraudulent use of our name or services; intellectual property and other litigation that have been and may be brought against us; rapid developments in global API regulation and uncertainties relating to regulation of VoIP services; liability under anti-corruption laws or from governmental export controls or economic sanctions; risks associated with the taxation of our business; governmental regulation and taxes in our international operations; our history of net losses and ability to achieve consistent profitability in the future; our ability to fully realize the benefits of our net operating loss carry-forwards if an ownership change occurs; actions of activist shareholders; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; risks associated with the settlement and conditional conversion of our Convertible Senior Notes; potential effects the capped call transactions may have on our stock in connection with our Convertible Senior Notes; certain provisions of our charter documents; and other factors that are set forth in the "Risk Factors" section and other sections of our 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 EBITDA, adjusted EBITDA minus capex, constant currency, net debt (cash), 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 athttp://ir.vonage.com

Fourth Quarter 2020 Highlights

• • Grew Consolidated revenues to $323 million, up 4%

  Vonage Communications Platform revenues of $245 Million, up 12%

  Vonage Communications Platform Service revenues of $230 million, up 17%

• • Increased API revenues to $119 million, up 33%

  High-value revenue growth of 130% driven by continued strength in programmable video

• • Grew Unified Communications and Contact Center Service revenues to $111 million, up 4%

• • Reported more detailed segment results for Vonage Communications Platform and Consumer segments

• • Retaining Consumer business after comprehensive review

Driven by valuation and expected $600 million dollars of cash flow over the next five years. Ensures a strong balance sheet and financial flexibility to invest in VCP capabilities and M&A

Fourth Quarter API Highlights

• • Revenues increased 33% Y/Y

• • Broad-based momentum across nearly every industry

• • High value API revenues increased 130% Y/Y

• • DBNE improved to 121%

• • Travel and hospitality verticals improving, but have not yet returned to pre-COVID levels

API Revenues

$119

$103

$108

$90

$80

$86

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Fourth Quarter UC and CC Highlights

• • Service Revenues increased 4% Y/Y

• • Service Revenues from Mid-Market & Enterprise customers (>$12K ARR) grew 12% Y/Y

• • Signed 13 seven-figure TCV deals

• • Total bookings up sequentially for second quarter in a row but down Y/Y

UC and CC Service Revenues

$111

$110

$110

$109

$107

$103

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Financial Results

Consolidated Income Statement

Consolidated RevenuesGross ProfitOperating Expenses 1 (S&M, E&D, G&A, D&A)Net loss

Adj. EBITDA 2 % Margin

$ IN MILLIONS

Numbers may not foot due to rounding

Q4 2020

Y/Y Chg.

$323 $173

4%

(1%)

$169

(1%)

($14)

($12)

$48

$3

• 15% +1 pt.

FY2020

Y/Y Chg.

$1,248 5%

$694 2%

Fourth Quarter 2020

• • Consolidated revenues of $323 million up 4%, driven by:

12% VCP growth, offset by continued managed decline in Consumer

VCP now represents 76% of total up from 70% a year ago

$695 3% • Adjusted EBITDA of $48 million, up 8%

($36) ($17)

$170 $12

Full Year 2020

• • Consolidated revenues of $1.2 billion up 5%, driven by:

14%

+1 pt.

14% VCP growth, offset by continued managed decline in Consumer

• • Adjusted EBITDA of $170 million, up 8%

• (1) Operating expense include share-based expense, restructuring charges and other non recurring items

• (2) Non-GAAP measure. See slides 18 and 19 for reconciliation to the most comparable GAAP measure

Vonage Communications Platform Revenues

UC and CC Service

APIUSF

Product & Access

Numbers may not foot due to rounding

• • VCP total revenues of $245 million, up 12%

  VCP Service revenues of $230 million grew 17%

  USF revenues of $6 million dollars decreased $5

  million

  Product & Access revenues decreased $2 million

• • API revenues now represent 52% of VCP Service revenues

  Up from 46% in the prior year quarter

• • Revenue churn was 1.3% in the fourth quarter

• • Service Revenue per customer of $552 increased 16%

VCP Income Statement

Fourth Quarter 2020
Q4 2020	Y/Y Chg.	FY2020	Y/Y Chg.
• VCP total revenues of $245 million
VCP Revenues	$245	12%	$915	14%
VCP Service revenues of $230
million grew 17%
Service Revenues	$230	17%	$856	19%
Gross Profit	$113	11%	$438	16%
Gross Margin %	46%	(1 pt.)	48%	1 pt.
Operating Expenses1
(S&M, E&D, G&A, D&A)	$160	(1%)	$656	5%
Adj. EBITDA2	($4)	$14	($57)	$46
% Margin	(2%)	+6 pts.	(6%)	+7 pts.
$ IN MILLIONS
Numbers may not foot due to rounding

Full Year 2020

• • API revenues now represent 52% of VCP

  Service revenues, up from 46% in the prior year quarter

• • VCP total revenues of $915 million

VCP Service revenues of $856

million grew 19%

FY 2020 adjusted EBITDA of ($57)

up $46

• (1) Operating expense include share-based expense, restructuring charges and other non recurring items

• (2) Non-GAAP measure. See slides 18 and 19 for reconciliation to the most comparable GAAP measure

Consumer segment

Consumer RevenuesGross ProfitGross Margin %Operating Expenses1 (S&M, E&D, G&A, D&A)

Adj. EBITDA2 % Margin

$ IN MILLIONS

Numbers may not foot due to rounding

Q4 2020

$79 $60

Y/Y Chg. (15%)

(17%)

• 76% (2 pts.)

  $9

  (18%)

  $52

  ($10)

• 66% (2 pts.)FY2020

Y/Y Chg.

$333 (14%)

$257 (15%)

77% (1 pt.)

$39 (20%)

$227 ($34) 68% (0 pts.)

Fourth Quarter 2020

• • Consumer Revenues declined 15% Y/Y, in line with expectations

• • Ended the quarter with 900k subscriber lines

  Tenured customers >2 years

  represent 94% of the customer

  base while those >5 years

  represent 79%

• • Average Revenue Per Line of $28.13 was up $0.56 due to select price increases and higher USF

• • Customer churn stable at 1.7%

• • Consumer Segment expected to provide ~$600 million of cash flowover the next five years

• (1) Operating expense include share-based expense, restructuring charges and other non recurring items

• (2) Non-GAAP measure. See slides 18 and 19 for reconciliation to the most comparable GAAP measure

Cash Flow and Balance Sheet
Cash Flow ($ in millions)	Q4 2020
Cash from Operations	$32
Capital Expenditures, Software & Intangible Assets	$14
Free Cash Flow1	$18

•	Cash	$43 million
•	Gross Debt	$561 million
•	Net Debt1	$517 million (Gross Debt less Unrestricted Cash)
•	Net Debt / LTM Adjusted EBITDA	3.0x (vs 4.5x total debt covenant)
•	Debt Maturities	$216 million revolver due 7/2023 and
$345 million convertible debt due 6/2024

(1) NON-GAAP MEASURE. SEE SLIDES 21 AND 22 FOR A RECONCILIATION TO THE MOST COMPARABLE GAAP MEASURE

Full Year 2021 and First Quarter Guidance

$ in Millions	Q1 2021	FY 2021
Total VCP Revenues	$240 to $244	$1,038 to $1,054
VCP Service Revenues	$226 to $230	$986 to $1,003
VCP Service Revenue growth	16% to 18%	15% to 17%
Total Consumer Revenues Total Consolidated Revenues VCP Adjusted EBITDA1	~$75 $314 to $318 ($7) to ($3)	~$285 $1,323 to $1,339 $5 to $9
Consumer Adjusted EBITDA1	~$49	$185 to $189
Total Adjusted EBITDA1	$42 to $46	$190 to $200
Capex	~$15	~$60

(1) Non-GAAP measure. See slides 18 and 19 for reconciliation to the most comparable GAAP measure

Disaggregation of VCP Revenues

Q4 2019	Q1 2020	Q2 2020	Q3 2020	Q4 2020
UC and CC Service Revenues	$ 106.8	$ 109.7	$ 109.0	$ 110.1	$ 110.8
API Revenues	$ 89.7	$ 86.0	$ 103.3	$ 108.4	$ 119.3
Y/Y Growth Rate	32%	23%	18%	19%	17%
Access and Product Revenues	$ 10.7	$ 10.1	$ 9.1	$ 8.8	$ 8.6
USF Revenues	$ 10.6	$ 4.5	$ 4.8	$ 6.6	$ 6.0
Y/Y Growth Rate	28%	17%	13%	13%	12%

VCP Service Revenues (GAAP) $ 196.5 $ 195.6 $ 212.3 $ 218.5

$ 230.1

Total VCP Revenues (GAAP) $ 217.7 $ 210.3 $ 226.2 $ 233.8

$ 244.7

VCP Revenue: Year-over-Year Growth Rates2

Q4 2019

Q4 2020

VCP Total Revenues

GAAP

28% 12%GAAP (Constant Currency) 10%VCP Service Revenues

GAAP

32% 17%GAAP (Constant Currency) 14%UC and CC Service Revenues

As Reported

30% 4%As Reported (Constant Currency) 3%API Revenues

As Reported

50% 33%As Reported (Constant Currency) 27%

(2) INCLUDES UNAUDITED COMBINED FINANCIAL INFORMATION

Capital Expenditures & Adjusted EBITDA Less Capex1

Capital Expenditures (Capex)

$13

$13

$14

• • Capex remained stable in support of the Vonage Communications Platform (VCP)

  Adjusted EBITDA Less Capex1

  $32

  $29

  $34

• • Adjusted EBITDA less Capex1 increased year-over-year due to improved VCP profitability

(1) NON-GAAP MEASURE. SEE SLIDES 21 AND 22 FOR A RECONCILIATION TO THE MOST COMPARABLE GAAP MEASURE

VCP Segment Financials

Q119	Q219	Q319	Q4 19	Q1 20	Q2 20	Q3 20	Q4 20
Revenues
Service revenues	159,345	180,014	183,701	196,454	195,649	212,310	218,456	230,077
Access and product revenues	11,697	11,707	12,120	10,708	10,122	9,109	8,757	8,596
Service, access and product revenues	171,042	191,721	195,821	207,162	205,771	221,419	227,213	238,673
USF revenues	8,555	8,299	10,709	10,571	4,482	4,830	6,613	6,056
Total VCP Revenue	179,597	200,020	206,530	217,733	210,253	226,249	233,826	244,729
Cost of Revenues
Service cost of revenues	69,854	86,290	87,352	92,549	92,357	100,638	105,593	114,491
Access and product cost of revenues	13,871	13,594	13,858	12,132	11,596	10,266	9,894	10,723
Service, access and product cost of revenues	83,725	99,884	101,210	104,681	103,953	110,904	115,487	125,214
USF cost of revenues	8,555	8,299	10,709	10,571	4,482	4,830	6,613	6,056
Cost of Revenues	92,280	108,183	111,919	115,252	108,435	115,734	122,100	131,270
Gross Margin	87,317	91,837	94,611	102,481	101,818	110,515	111,726	113,459
Service Margin %	56.2%	52.1%	52.4%	52.9%	52.8%	52.6%	51.7%	50.2%
Gross Margin % ex-USF (Service and product margin%)	51.0%	47.9%	48.3%	49.5%	49.5%	49.9%	49.2%	47.5%
Gross Margin %	48.6%	45.9%	45.8%	47.1%	48.4%	48.8%	47.8%	46.4%
Operating Expenses:
Sales and marketing	89,692	89,894	78,796	84,375	82,165	87,853	82,601	77,083
Engineering and development	13,933	14,154	14,260	16,547	16,838	17,890	18,103	20,181
General and administrative	32,438	33,642	38,154	36,486	36,668	38,764	53,847	38,425
Depreciation and amortization	19,577	19,115	19,852	21,653	19,198	19,650	21,929	24,433
155,640	156,805	151,062	159,061	154,869	164,157	176,480	160,122
Loss from operations	(68,323)	(64,968)	(56,451)	(56,580)	(53,051)	(53,642)	(64,754)	(46,663)
Adjusted EBITDA	(36,652)	(29,536)	(19,339)	(17,739)	(21,088)	(17,513)	(14,399)	(3,968)
Adjusted EBITDA margin percentage	-20%	-15%	-9%	-8%	-10%	-8%	-6%	-2%

Consumer Segment Financials

Q119	Q219	Q319	Q4 19	Q1 20	Q2 20	Q3 20	Q4 20
Revenues
Service revenues	89,000	87,244	83,981	80,237	77,243	75,045	71,693	68,022
Access and product revenues	68	60	69	67	63	52	85	78
Service, access and product revenues	89,068	87,304	84,050	80,304	77,306	75,097	71,778	68,100
USF revenues	10,876	10,260	11,954	11,650	9,898	9,187	11,045	10,466
Total Consumer Revenue	99,944	97,564	96,004	91,954	87,204	84,284	82,823	78,566
Cost of Revenues
Service cost of revenues	9,258	8,861	8,587	7,971	8,512	8,671	8,287	8,080
Access and product cost of revenues	997	917	1,373	746	573	396	469	400
Service, access and product cost of revenues	10,255	9,778	9,960	8,717	9,085	9,067	8,756	8,480
USF cost of revenues	10,876	10,260	11,954	11,650	9,898	9,187	11,045	10,466
Cost of Consumer revenues	21,131	20,038	21,914	20,367	18,983	18,254	19,801	18,946
Gross Margin	78,813	77,526	74,090	71,587	68,221	66,030	63,022	59,620
Service Margin %	89.6%	89.8%	89.8%	90.1%	89.0%	88.4%	88.4%	88.1%
Gross Margin % ex-USF (Service an dproduct margin%)	88.5%	88.8%	88.1%	89.1%	88.2%	87.9%	87.8%	87.5%
Gross Margin %	78.9%	79.5%	77.2%	77.9%	78.2%	78.3%	76.1%	75.9%
Operating Expenses:
Sales and marketing	5,831	5,468	4,832	4,223	3,456	2,974	2,904	3,017
Engineering and development	2,593	2,737	2,641	2,595	2,365	1,894	2,007	2,206
General and administrative	3,021	2,973	3,152	2,806	4,214	4,056	2,988	3,144
Depreciation and amortization	1,637	1,547	1,467	1,408	1,287	1,042	958	420
13,082	12,725	12,092	11,032	11,322	9,966	8,857	8,787
Income from operations	65,731	64,801	61,998	60,555	56,899	56,064	54,165	50,833
Adjusted EBITDA	67,772	66,928	64,120	62,542	59,925	59,057	56,001	52,169
Adjusted EBITDA margin percentage	68%	69%	67%	68%	69%	70%	68%	66%

Thank You