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| 8-K - VONAGE HOLDINGS CORP | a8-k2011earningsrelease.htm |
EXHIBIT 99.1
Vonage Holdings Corp. Reports Fourth Quarter and Full Year 2011 Results
Company Reports Record High Annual Adjusted EBITDA1 and Net Income,
Excluding Adjustments2
Fourth Quarter 2011
Net Income of $25 Million or $0.11 per Share, Excluding Adjustments
Adjusted EBITDA of $40 Million
Revenue of $216 Million
Full Year 2011
Net Income More than Doubles to $96 Million or $0.43 per Share,
Excluding Adjustments
Adjusted EBITDA of $168 Million
Free Cash Flow3 of $108 Million
Revenue of $870 Million
Holmdel, NJ, February 15, 2012 - Vonage Holdings Corp. (NYSE: VG) a leading provider of communications services connecting people through broadband devices worldwide, today announced results for the fourth quarter and full year ended December 31, 2011.
Strong Financial Platform Enables Investment for Growth
Marc Lefar, Vonage Chief Executive Officer, said, "We are pleased to report record high annual net income, excluding adjustments and adjusted EBITDA along with free cash flow in excess of $100 million for the second consecutive year. For the quarter, we maintained adjusted EBITDA above $40 million, the fifth consecutive quarter, while net income, excluding adjustments grew 68 percent over the prior year.
“Now that we have stabilized our core business and are generating meaningful cash flow, we will accelerate our investment in strategic growth initiatives during 2012. While reducing adjusted EBITDA in the short term, we believe this investment will fund growth in mobile and geographic expansion. Even with this increased level of funding, we expect to further strengthen our cash position during the year.
“The time is right to increase our investment in organizational capacity and marketing. Early response to last week's launch of Vonage Mobile has exceeded all of our expectations. The potential to rapidly build a global calling community with many millions of users is not unrealistic. And, we plan to invest in international opportunities as our partnerships and service offerings are brought to market.”
Fourth Quarter 2011
Vonage reported adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”)1 of $40 million which was flat sequentially and down from $41 million in the year ago quarter. Revenue of $216 million decreased from $217 million sequentially and from $218 million in the year ago quarter. Income from operations was $28 million, up from $27 million sequentially and up from $26 million in the year ago quarter.
The Company reported net income of $25 million or $0.11 per share excluding adjustments2, up from $24 million or $0.11 per share sequentially and up from $15 million or $0.07 per share in the prior year's quarter.
Reflecting its sustained profitable operating performance over the past three years and continued expectations for future income, the Company determined that its net operating losses were likely to be used prior to their expiration. Accordingly, the Company released its valuation allowance, which previously reduced its net deferred tax assets, resulting in a one-time non-cash income tax benefit of $326 million and a corresponding net deferred tax asset of $326 million on December 31, 2011. As a result, GAAP net income was $350 million or $1.55 per share, up from $16 million or $0.07 per share sequentially, and up from a net loss of $42 million or $0.19 per share in the year ago quarter. This accounting adjustment will not affect the cash taxes paid by the Company, which will continue to be substantially offset by net operating loss carry forwards. As a result of releasing the valuation allowance, the Company expects to recognize non-cash income tax expense in 2012.
Telephony services ARPU was $30.12, up from $29.78 in the year ago quarter reflecting an increase in the number of customers taking higher priced rate plans and higher Universal Service Fund (“USF”) fees.
Total direct cost of telephony services (“COTS”) was $59 million, an increase from $58 million in the year ago quarter as lower domestic termination costs and savings from E-911 vendor consolidation were offset by an expected increase in international usage associated with the growth of subscribers on Vonage World. On a per line basis, the cost of telephony services was $8.24, up from $8.06 in the prior year.
Direct cost of goods sold was $10 million, down from $12 million in the year ago quarter. Direct margin4 of 68% was flat compared to the year ago quarter.
Selling, general and administrative (“SG&A”) expense of $59 million was flat compared to the year ago quarter.
Pre-marketing operating income (“PMOI”)1 was $102 million, up from $100 million in the year ago quarter. PMOI per line was $14.22, up from $13.93 in the year ago quarter.
Gross Line Additions were up modestly over the year ago quarter, as marketing expense increased to $52 million from $50 million in the year ago quarter. Subscriber line acquisition cost (“SLAC”) was $306, up from $301 in the prior year's quarter.
Churn in the fourth quarter was 2.7%, which was flat sequentially and up from 2.4% in the year ago quarter. The increase over the prior year is attributable to the impact of the Company's change to a “no contract” policy, higher churn among its growing base of Hispanic subscribers relative to other international callers, and competitive pressures in other ethnic segments. The Company lost 14,000 net lines in the fourth quarter and 30,000 lines for the year, on par with the line losses in 2010, and finished the year with 2.4 million lines in service.
Interest expense was $2 million, down from $11 million in the year ago quarter driven by the Company's recent debt refinancings, which lowered interest rates to less than 4 percent from highs of 20 percent in 2010.
As of December 31, 2011, cash and cash equivalents were $59 million and restricted cash was $7 million. Capital expenditures were $13 million in the fourth quarter.
Full Year 2011
Vonage reported adjusted EBITDA of $168 million, up from $156 million the prior year. The Company generated income from operations of $116 million, up from $95 million in the prior year.
Net income was $96 million or $0.43 per share excluding adjustments, more than double the $47 million or $0.22 per share excluding adjustments reported in 2010. Reflecting the release of the valuation allowance against the Company's net deferred tax assets, GAAP net income was $409 million or $1.82 per share, an increase from a GAAP net loss of $84 million or $0.40 per share in 2010, which included $130 million of charges related the Company's December 2010 refinancing.
Telephony services revenue was $867 million, down from $873 million the prior year primarily due to a reduction in deferred revenues from legacy activation fees which were phased out in prior periods. Total revenue was $870 million, down from $885 million in 2010 due to the reduction in deferred revenues and a reduction in customer equipment and shipping revenue.
Strong operating results and a reduction in interest expense, which declined to $17 million from $49 million in 2010, resulted in cash generated from operations of $147 million. Capital expenditures totaled $39 million. The resulting free cash flow3 was $108 million, the second consecutive year of free cash flow generation above $100 million.
2012 Outlook
Building on its strong financial platform, including sustained cash flow, the Company plans to increase the level of investment in its strategic growth initiatives. This funding will be targeted at the substantial market opportunity in mobile services, expansion into new geographies, and further penetration of international calling segments in the United States. The Company expects its increased investment in organizational capacity and marketing will range from $5-10 million per quarter versus 2011 levels.
Based on these plans, Vonage provided the following financial guidance:
• | 2012 adjusted EBITDA of $30-35 million per quarter, and $120-140 million for the year, reflecting the additional investment in strategic growth initiatives; and |
• | 2012 capital and software expenditures in the range of $40-45 million. |
(1) | This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP income from operations. |
(2) | This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income (loss). |
(3) | This is a non-GAAP financial measure. Refer to Table 5 for a reconciliation to GAAP net cash provided by operating activities. |
(4) | Direct margin is defined as operating revenues less direct cost of telephony services and direct cost of goods sold as a percentage of revenues. |
VONAGE HOLDINGS CORP.
TABLE 1. CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
(unaudited) | |||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||
Operating Revenues: | |||||||||||||||||||
Telephony services | $ | 215,218 | $ | 215,824 | $ | 214,568 | $ | 866,560 | $ | 872,934 | |||||||||
Customer equipment and shipping | 472 | 683 | 3,056 | 3,763 | 12,108 | ||||||||||||||
215,690 | 216,507 | 217,624 | 870,323 | 885,042 | |||||||||||||||
Operating Expenses: | |||||||||||||||||||
Direct cost of telephony services (excluding depreciation and amortization of $3,969, $3,864, $4,428, $15,824, and $18,725, respectively) | 58,847 | 59,230 | 58,067 | 236,149 | 243,794 | ||||||||||||||
Direct cost of goods sold | 10,125 | 10,711 | 12,051 | 41,756 | 55,965 | ||||||||||||||
Selling, general and administrative | 58,579 | 59,451 | 58,523 | 234,754 | 238,986 | ||||||||||||||
Marketing | 51,604 | 51,044 | 50,352 | 204,263 | 198,170 | ||||||||||||||
Depreciation and amortization | 8,638 | 8,683 | 12,727 | 37,051 | 53,073 | ||||||||||||||
187,793 | 189,119 | 191,720 | 753,973 | 789,988 | |||||||||||||||
Income from operations | 27,897 | 27,388 | 25,904 | 116,350 | 95,054 | ||||||||||||||
Other income (expense): | |||||||||||||||||||
Interest income | 23 | 33 | 139 | 135 | 519 | ||||||||||||||
Interest expense | (2,002 | ) | (2,926 | ) | (11,338 | ) | (17,118 | ) | (48,541 | ) | |||||||||
Change in fair value of embedded features within notes payable and stock warrant | — | — | (29,782 | ) | (950 | ) | (99,338 | ) | |||||||||||
Loss on extinguishment of notes | — | (7,985 | ) | (26,531 | ) | (11,806 | ) | (31,023 | ) | ||||||||||
Other expense, net | (266 | ) | (47 | ) | (59 | ) | (271 | ) | (18 | ) | |||||||||
(2,245 | ) | (10,925 | ) | (67,571 | ) | (30,010 | ) | (178,401 | ) | ||||||||||
Income (loss) before income tax benefit (expense) | 25,652 | 16,463 | (41,667 | ) | 86,340 | (83,347 | ) | ||||||||||||
Income tax benefit (expense) | 324,494 | (426 | ) | (22 | ) | 322,704 | (318 | ) | |||||||||||
Net income (loss) | $ | 350,146 | $ | 16,037 | $ | (41,689 | ) | $ | 409,044 | $ | (83,665 | ) | |||||||
Net income (loss) per common share: | |||||||||||||||||||
Basic | $ | 1.55 | $ | 0.07 | $ | (0.19 | ) | $ | 1.82 | $ | (0.40 | ) | |||||||
Diluted | $ | 1.48 | $ | 0.07 | $ | (0.19 | ) | $ | 1.69 | $ | (0.40 | ) | |||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic | 225,572 | 225,281 | 214,586 | 224,324 | 209,868 | ||||||||||||||
Diluted | 237,342 | 241,189 | 214,586 | 241,744 | 209,868 | ||||||||||||||
VONAGE HOLDINGS CORP.
TABLE 1. SUMMARY CONSOLIDATED FINANCIAL DATA - (Continued)
(Dollars in thousands, except per share amounts)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
(unaudited) | |||||||||||||||||||
Statement of Cash Flow Data: | |||||||||||||||||||
Net cash provided by operating activities | $ | 38,645 | $ | 45,533 | $ | 18,858 | $ | 146,786 | $ | 194,212 | |||||||||
Net cash provided by (used in) investing activities | (13,249 | ) | (11,938 | ) | 24,735 | (37,604 | ) | (4,686 | ) | ||||||||||
Net cash used in financing activities | (22,522 | ) | (40,708 | ) | (101,672 | ) | (130,138 | ) | (143,762 | ) | |||||||||
Capital expenditures, intangible asset purchases and development of software assets | (13,250 | ) | (11,939 | ) | (15,774 | ) | (38,653 | ) | (40,386 | ) | |||||||||
December 31, 2011 | December 31, 2010 | ||||||||||||||||||
Balance Sheet Data (at period end): | |||||||||||||||||||
Cash and cash equivalents | $ | 58,863 | $ | 78,934 | |||||||||||||||
Restricted cash | 6,929 | 7,978 | |||||||||||||||||
Accounts receivable, net of allowance | 17,862 | 15,207 | |||||||||||||||||
Inventory, net of allowance | 6,715 | 6,143 | |||||||||||||||||
Prepaid expenses and other current assets | 16,820 | 17,231 | |||||||||||||||||
Deferred customer acquisition costs | 5,685 | 7,574 | |||||||||||||||||
Property and equipment, net | 67,978 | 79,050 | |||||||||||||||||
Software, net | 45,661 | 35,516 | |||||||||||||||||
Debt related costs, net | 2,007 | 5,372 | |||||||||||||||||
Intangible assets, net | 9,056 | 4,186 | |||||||||||||||||
Total deferred tax assets, including current portion, net | 325,601 | — | |||||||||||||||||
Other assets | 3,038 | 3,201 | |||||||||||||||||
Total assets | $ | 566,215 | $ | 260,392 | |||||||||||||||
Accounts payable and accrued expenses | $ | 135,740 | $ | 126,535 | |||||||||||||||
Deferred revenue | 39,981 | 45,181 | |||||||||||||||||
Total notes payable, including current portion, net of discount | 70,833 | 193,004 | |||||||||||||||||
Capital lease obligations | 17,665 | 19,448 | |||||||||||||||||
Other liabilities | 2,429 | 5,871 | |||||||||||||||||
Total liabilities | $ | 266,648 | $ | 390,039 | |||||||||||||||
Total stockholders' equity (deficit) | $ | 299,567 | $ | (129,647 | ) | ||||||||||||||
VONAGE HOLDINGS CORP.
TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA
(unaudited)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Gross subscriber line additions | 168,538 | 170,344 | 167,435 | 672,274 | 640,205 | ||||||||||||||
Change in net subscriber lines | (13,834 | ) | (8,939 | ) | 5,848 | (29,996 | ) | (30,013 | ) | ||||||||||
Subscriber lines (at period end) | 2,374,887 | 2,388,721 | 2,404,883 | 2,374,887 | 2,404,883 | ||||||||||||||
Average monthly customer churn | 2.7 | % | 2.7 | % | 2.4 | % | 2.6 | % | 2.4 | % | |||||||||
Average monthly revenue per line | $ | 30.19 | $ | 30.16 | $ | 30.20 | $ | 30.35 | $ | 30.48 | |||||||||
Average monthly telephony services revenue per line | $ | 30.12 | $ | 30.06 | $ | 29.78 | $ | 30.22 | $ | 30.06 | |||||||||
Average monthly direct cost of telephony services per line | $ | 8.24 | $ | 8.25 | $ | 8.06 | $ | 8.23 | $ | 8.40 | |||||||||
Marketing costs per gross subscriber line addition | $ | 306 | $ | 300 | $ | 301 | $ | 304 | $ | 310 | |||||||||
Employees (excluding temporary help) (at period end) | 1,008 | 1,035 | 1,140 | 1,008 | 1,140 | ||||||||||||||
Direct margin as a % of total revenue | 68.0 | % | 67.7 | % | 67.8 | % | 68.1 | % | 66.1 | % | |||||||||
VONAGE HOLDINGS CORP.
TABLE 3. RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO ADJUSTED
EBITDA AND PRE-MARKETING OPERATING INCOME
(Dollars in thousands)
(unaudited)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Income from operations | $ | 27,897 | $ | 27,388 | $ | 25,904 | $ | 116,350 | $ | 95,054 | |||||||||
Depreciation and amortization | 8,638 | 8,683 | 12,727 | 37,051 | 53,073 | ||||||||||||||
Share-based expense | 3,819 | 4,131 | 2,424 | 14,279 | 8,255 | ||||||||||||||
Adjusted EBITDA | 40,354 | 40,202 | 41,055 | 167,680 | 156,382 | ||||||||||||||
Marketing | 51,604 | 51,044 | 50,352 | 204,263 | 198,170 | ||||||||||||||
Customer equipment and shipping | (472 | ) | (683 | ) | (3,056 | ) | (3,763 | ) | (12,108 | ) | |||||||||
Direct cost of goods sold | 10,125 | 10,711 | 12,051 | 41,756 | 55,965 | ||||||||||||||
Pre-marketing operating income | $ | 101,611 | $ | 101,274 | $ | 100,402 | $ | 409,936 | $ | 398,409 | |||||||||
As a % of telephony services revenue | 47.2 | % | 46.9 | % | 46.8 | % | 47.3 | % | 45.6 | % | |||||||||
VONAGE HOLDINGS CORP.
TABLE 4. RECONCILIATION OF GAAP NET INCOME (LOSS) TO
NET INCOME EXCLUDING ADJUSTMENTS
(Dollars in thousands, except per share amounts)
(unaudited)
TABLE 4. RECONCILIATION OF GAAP NET INCOME (LOSS) TO
NET INCOME EXCLUDING ADJUSTMENTS
(Dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Net income (loss) | $ | 350,146 | $ | 16,037 | $ | (41,689 | ) | $ | 409,044 | $ | (83,665 | ) | |||||||
Change in fair value of embedded features within notes payable and stock warrant | — | — | 29,782 | 950 | 99,338 | ||||||||||||||
Deferred taxes (benefit) expense | (325,601 | ) | — | — | (325,601 | ) | — | ||||||||||||
Loss on extinguishment of notes | — | 7,985 | 26,531 | 11,806 | 31,023 | ||||||||||||||
Net income excluding adjustments | $ | 24,545 | $ | 24,022 | $ | 14,624 | $ | 96,199 | $ | 46,696 | |||||||||
Net income (loss) per common share: | |||||||||||||||||||
Basic | $ | 1.55 | $ | 0.07 | $ | (0.19 | ) | $ | 1.82 | $ | (0.40 | ) | |||||||
Diluted | $ | 1.48 | $ | 0.07 | $ | (0.19 | ) | $ | 1.69 | $ | (0.40 | ) | |||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic | 225,572 | 225,281 | 214,586 | 224,324 | 209,868 | ||||||||||||||
Diluted | 237,342 | 241,189 | 214,586 | 241,744 | 209,868 | ||||||||||||||
Net income per common share, excluding adjustments: | |||||||||||||||||||
Basic | $ | 0.11 | $ | 0.11 | $ | 0.07 | $ | 0.43 | $ | 0.22 | |||||||||
Diluted | $ | 0.10 | $ | 0.10 | $ | 0.06 | $ | 0.40 | $ | 0.21 | |||||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic | 225,572 | 225,281 | 214,586 | 224,324 | 209,868 | ||||||||||||||
Diluted | 237,342 | 241,189 | 232,290 | 241,807 | 226,874 | ||||||||||||||
VONAGE HOLDINGS CORP.
TABLE 5. FREE CASH FLOW
(Dollars in thousands)
(unaudited)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Net cash provided by operating activities | $ | 38,645 | $ | 45,533 | $ | 18,858 | $ | 146,786 | $ | 194,212 | |||||||||
Less: | |||||||||||||||||||
Capital expenditures | (3,783 | ) | (3,686 | ) | (6,328 | ) | (12,636 | ) | (17,674 | ) | |||||||||
Intangible assets | (3,725 | ) | — | — | (3,725 | ) | — | ||||||||||||
Acquisition and development of software assets | (5,742 | ) | (8,253 | ) | (9,446 | ) | (22,292 | ) | (22,712 | ) | |||||||||
Free cash flow | $ | 25,395 | $ | 33,594 | $ | 3,084 | $ | 108,133 | $ | 153,826 | |||||||||
VONAGE HOLDINGS CORP.
TABLE 6. RECONCILIATION OF NOTES PAYABLE AND CAPITAL LEASES TO NET DEBT
(Dollars in thousands)
(unaudited)
Three Months Ended | For the Years Ended | ||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||
Current maturities of capital lease obligations | $ | 2,104 | $ | 2,019 | $ | 1,783 | $ | 2,104 | $ | 1,783 | |||||||||
Current portion of notes payable | 28,333 | 43,333 | 20,000 | 28,333 | 20,000 | ||||||||||||||
Notes payable, net of discount and current maturities | 42,500 | 49,583 | 173,004 | 42,500 | 173,004 | ||||||||||||||
Capital lease obligations, net of current maturities | 15,561 | 16,126 | 17,665 | 15,561 | 17,665 | ||||||||||||||
Unamortized discount - notes payable | — | — | 6,996 | — | 6,996 | ||||||||||||||
Gross Debt | 88,498 | 111,061 | 219,448 | 88,498 | 219,448 | ||||||||||||||
Less: | |||||||||||||||||||
Unrestricted cash | 58,863 | 55,590 | 78,934 | 58,863 | 78,934 | ||||||||||||||
Net debt | 29,635 | 55,471 | 140,514 | 29,635 | 140,514 | ||||||||||||||
About Vonage
Vonage (NYSE: VG) is a leading provider of communications services connecting people through broadband devices worldwide. Our technology serves approximately 2.4 million subscriber lines. We provide feature-rich, affordable communication solutions that offer flexibility, portability and ease-of-use. Our Vonage World plan offers unlimited calling to more than 60 countries with popular features like call waiting, call forwarding and visual voicemail - for one low monthly rate. Vonage's service is sold on the web and through regional and national retailers including Wal-Mart, Best Buy, Kmart and Sears, and is available to customers in the U.S. (www.vonage.com), Canada (www.vonage.ca) and the United Kingdom (www.vonage.co.uk).
Vonage Holdings Corp. is headquartered in Holmdel, New Jersey. Vonage® is a registered trademark of Vonage Marketing LLC., owned by Vonage America Inc.
To follow Vonage on Twitter, please visit www.twitter.com/vonage. To become a fan on Facebook, go to www.facebook.com/vonage.
Vonage Investor Contact: | Vonage Media Contact: |
Leslie Arena 732.203.7372 leslie.arena@vonage.com | Jen Holzapfel 732.444.2585 jennifer.holzapfel@vonage.com |
Use of Non-GAAP Financial Measures
This press release includes the following measures defined as non-GAAP financial measures by the Securities and Exchange Commission: adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), pre-marketing operating income, net income excluding adjustments, net debt and free cash flow.
Vonage uses adjusted EBITDA and pre-marketing operating income as principal indicators of the operating performance of its business.
Vonage believes that adjusted EBITDA permits a comparative assessment of its operating performance, relative to its performance based on its GAAP results, while isolating the effects of depreciation and amortization, which may vary from period to period without any correlation to underlying operating performance, and of share-based expense, which is a non-cash expense that also varies from period to period.
Vonage believes that pre-marketing operating income is an important metric to evaluate the profitability of the existing customer base to justify the level of continued investment in growing that customer base. In addition, as the Company is focused on growing both its revenue and customer base, the Company has chosen to invest significant amounts on its marketing activities to acquire and replace subscribers.
The Company provides information relating to its adjusted EBITDA and pre-marketing operating income so that investors have the same data that the Company employs in assessing its overall operations. The Company believes that trends in its adjusted EBITDA and pre-marketing operating
income are valuable indicators of the operating performance of the Company on a consolidated basis and of its ability to produce operating cash flow to fund working capital needs, to service debt obligations, and to fund capital expenditures.
The Company has also excluded from its net income the change in fair value of embedded features within notes payable and stock warrant, loss on extinguishment of notes and the deferred tax (benefit) expense. The Company believes that excluding these items will assist investors in evaluating the Company's operating performance and in better understanding its results of operations when these events occurred on a comparative basis.
Vonage uses net debt as a measure of assessing leverage, as it reflects the gross debt under the Company's credit agreements and capital leases less cash available to repay such amounts. The Company believes that net debt is also a factor that third parties consider in valuing the Company.
Vonage considers free cash flow to be a liquidity measure that provides useful information to management about the amount of cash generated by the business that, after the acquisition of equipment and software, can be used by Vonage for debt service and strategic opportunities. Free cash flow is not a measure of cash available for discretionary expenditures since the Company has certain non-discretionary obligations such as debt service that are not deducted from the measure.
The non-GAAP financial measures used by Vonage may not be directly comparable to similarly titled measures reported by other companies due to differences in accounting policies and items excluded or included in the adjustments, which limits its usefulness as a comparative measure. These non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.
Vonage defines adjusted EBITDA as GAAP income from operations excluding depreciation and amortization and share-based expense.
Vonage defines pre-marketing operating income as GAAP income from operations excluding customer equipment and shipping revenue, direct cost of goods sold, depreciation and amortization, marketing and share-based expense.
Vonage defines net income excluding adjustments, as GAAP net income (loss) excluding the change in fair value of embedded features within notes payable and stock warrant, the loss on extinguishment of notes and the deferred tax (benefit) expense.
Vonage defines net debt as the current and long-term portion of notes payable and capital lease obligations plus unamortized discount on notes payable less unrestricted cash and cash in a concentration account required by the Company's prior credit agreements.
Vonage defines free cash flow as net cash provided by operating activities minus capital expenditures, intangible assets, and acquisition and development of software assets.
Conference Call and Webcast
Management will host a webcast discussion of its quarterly and annual results and related matters on Wednesday, February 15, 2012 at 10:00AM Eastern Time. To participate, please dial (877) 359-9508 approximately ten minutes prior to the call. International callers should dial (224) 357-2393. A replay will be available approximately two hours after the conclusion of the call until midnight February 28, 2012, and may be accessed by dialing (855) 859-2056. International callers should dial (404) 537-3406. The replay passcode is: 46849483.
The webcast will be broadcast live through Vonage's Investor Relations website at http://ir.vonage.com. Windows Media Player or RealPlayer is required to listen to this webcast. A replay will be available shortly after the live webcast.
Safe Harbor Statement
This press release contains forward-looking statements regarding growth strategy, adjusted EBITDA, gross additions, net line additions, impact of product initiatives on revenues, debt repayment, and capital and software expenditures. In addition, other statements in this press release that are not historical facts or information may be forward-looking statements. The forward-looking statements in this release 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 the Company faces; the Company's ability to adapt to rapid changes in the market for voice and messaging services; the Company's ability to retain customers and attract new customers; the Company's ability to establish and expand strategic alliances; the Company's dependence on third party facilities, equipment, systems and services; the Company's ability to implement the Company's new billing and ordering management system; system disruptions or flaws in the Company's technology and systems; intellectual property and other litigation that have been and may be brought against the Company; failure to protect the Company's trademarks and internally developed software; the Company's ability to obtain or maintain relevant intellectual property licenses; results of regulatory inquiries into the Company's business practices; uncertainties relating to regulation of VoIP services; increased governmental regulation, currency restrictions, and other restraints and burdensome taxes and risks incident to foreign operations; the Company's dependence upon key personnel; the Company's history of net losses and ability to achieve consistent profitability in the future; fraudulent use of the Company's name or services; the Company's ability to maintain data security; security breaches and other compromises of information security; the Company's dependence on the Company's customers' existing broadband connections; differences between the Company's service and traditional phone services, including the Company's 911 service; any reinstatement of holdbacks by the Company's vendors; the Company's ability to obtain additional financing if required; restrictions in the Company's debt agreements that may limit the Company's operating flexibility; 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, 2010, as well as 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, it specifically disclaims any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing the Company's views subsequent to today.
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