10-Q 1 vg-20220331.htm 10-Q vg-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________  to __________                    
Commission File Number 001-32887 
VONAGE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
 
Delaware11-3547680
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
101 Crawfords Corner Road, Suite 2416Holmdel,NJ,07733
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (732528-2600
(Former name, former address and former fiscal year, if changed since last report): Not Applicable

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001VGNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
x
  Accelerated filero
Non-accelerated filer
o  
  
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding atMay 2, 2022
Common Stock, par value $0.001256,582,410 shares


VONAGE HOLDINGS CORP.
INDEX
 
Part 1 - Financial Information
  Page
Item 1.
Item 2.
Item 3.
Item 4
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Financial Information Presentation
For the financial information discussed in this Quarterly Report on Form 10-Q, other than per share and per line amounts, dollar amounts are presented in thousands, except where noted.
2


GLOSSARY OF TERMS

When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
2018 Credit Facility$100 million senior secured term loan and $500 million revolving facility due 2023
APIApplication Program Interfaces
ASCThe FASB Accounting Standards Codification, which the FASB established as the source of authoritative GAAP
ASUAccounting Standards Updates - updates to the ASC
CCaaSContact Center as a Service
Convertible Senior Notes$345 million aggregate principal amount of 1.75% convertible notes due 2024
CPaaSCommunications Platform as a Service
CRMCustomer Relationship Management
Exchange ActThe Securities Exchange Act of 1934, as amended
EPSEarnings Per Share
FASBFinancial Accounting Standards Board
FCCFederal Communications Commission
IPInternet Protocol
LIBORLondon Inter-Bank Offered Rate
MPLSMulti-Protocol Label Switching
NOLsNet Operating Losses
SaaSSoftware as a Service
SABStaff Accounting Bulletin
SD-WANSoftware-Defined Wide Area Network
SECU.S. Securities and Exchange Commission
SIPSession Initiation Protocol
SMBSmall to medium-sized business
UCaaSUnified Communications as a Service
USFFederal Universal Service Fund
VCPVonage Communications Platform
VoIPVoice over Internet Protocol
3


PART 1 - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
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 portion23,871 23,961 
Prepaid expenses34,293 33,875 
Other current assets3,435 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 assets32,221 31,855 
Goodwill612,214 615,134 
Software, net of accumulated amortization of $149,946 and $140,565, respectively
110,707 106,516 
Deferred customer acquisition costs77,826 77,442 
Restricted cash2,172 1,967 
Intangible assets, net of accumulated amortization of $320,353 and $312,677, respectively
149,199 161,134 
Deferred tax assets121,996 109,087 
Other assets32,753 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 facility130,500 130,500 
Convertible senior notes, net340,620 305,609 
Operating lease liabilities34,040 32,663 
Other liabilities5,006 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 capital1,627,599 1,646,725 
Accumulated deficit(684,855)(691,718)
Treasury stock, at cost(383,386)(359,068)
Accumulated other comprehensive income15,608 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.
4



VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
 20222021
Revenues:
Service, access and product revenues
$344,852 $314,793 
USF revenues
13,976 18,107 
Total revenues358,828 332,900 
Operating Expenses:
Service, access and product cost of revenues (excluding depreciation and amortization)
168,409 138,680 
USF cost of revenues
13,976 18,107 
Sales and marketing
78,878 81,474 
Engineering and development
20,760 20,360 
General and administrative
70,456 44,933 
Depreciation and amortization
25,195 20,417 
Total operating expenses
377,674 323,971 
(Loss) Income from operations(18,846)8,929 
Other Income (Expense):
Interest expense
(3,653)(7,298)
Other income (expense), net
511 174 
Total other expense, net
(3,142)(7,124)
(Loss) Income before income tax (21,988)1,805 
Income tax benefit (expense)4,866 (2,181)
Net loss$(17,122)$(376)
Loss per common share:
Basic and Diluted$(0.07)$ 
Weighted-average common shares outstanding:
Basic and Diluted254,666 249,638 

See accompanying notes to condensed consolidated financial statements.
5


VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
  Three Months Ended
March 31,
20222021
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.
6


VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 

Three Months Ended
March 31,
 20222021
Cash flows from operating activities:
Net loss$(17,122)$(376)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization15,697 9,614 
Amortization of intangibles9,498 10,803 
Deferred income taxes(4,302)999 
Amortization of deferred customer acquisition costs5,899 4,762 
Allowances for doubtful accounts 804 964 
Amortization of financing costs and debt discount698 3,863 
(Gain) Loss on disposal of property and equipment and intangible assets6 (7)
Share-based expense29,042 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 expenses10,780 16,416 
Deferred revenue(6,946)(4,821)
Other assets - deferred cloud computing implementation costs(1,131)(1,017)
Other assets and liabilities4,843 307 
Net cash provided by operating activities40,871 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 period20,309 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.
7


VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Common StockAdditional
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 exercises3 619 622 
Share-based expense15,832 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 StockAdditional
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 exercises3 242 245 
Share-based expense30,755 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 

See accompanying notes to condensed consolidated financial statements.

8



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.

9



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.
10



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,
2022202120212020
Cash and cash equivalents$15,719 $51,623 $18,342 $43,078 
Restricted cash2,172 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, 2022December 31, 2021
Gross Carrying ValueAccumulated AmortizationNet Carrying ValueGross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships$274,938 $(172,245)$102,693 $277,435 $(168,292)$109,143 
Developed technology173,082 (127,294)45,788 174,862 (123,585)51,277 
Patents and patent licenses21,074 (20,356)718 21,056 (20,342)714 
Trade names458 (458) 458 (458) 
Total intangible assets$469,552 $(320,353)$149,199 $473,811 $(312,677)$161,134 
11



VONAGE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)


Accrued expenses
March 31, 2022December 31, 2021
Compensation and related taxes and temporary labor$32,350 $45,712 
Marketing25,845 32,312 
Taxes and fees32,334 28,214 
Telecommunications58,964 59,934 
Severance1,009 845 
Interest2,433 884 
Customer credits3,188 4,461 
Professional fees10,513 7,324 
Inventory1,484 886 
Other accruals6,529 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.

12



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.
Three Months EndedThree Months Ended
March 31, 2022March 31, 2021
VCPConsumerTotalVCPConsumerTotal
Primary geographical markets
Americas$177,957 $60,254 $238,211 $150,072 $74,932 $225,004 
EMEA73,768 2,164 75,932 62,835 2,514 65,349 
APAC44,685  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 revenues5,464 58 5,522 8,598 56 8,654 
USF revenues6,748 7,228 13,976 6,414 11,693 18,107 
$296,410 $62,418 $358,828 $255,454 $77,446 $332,900 

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, 2022December 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.
13



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.
14



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:
 
 Three Months Ended
March 31,
 20222021
Numerator
Net loss$(17,122)$(376)
Denominator
Weighted average common shares outstanding for basic and diluted net loss per share254,666 249,638 
Basic and diluted loss per share
Basic and diluted loss per share$(0.07)$ 

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: 
 Three Months Ended
March 31,
 20222021
Restricted stock units13,534 15,795 
Stock options360 1,387 
Convertible senior notes20,634  
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.

15



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:
Three Months Ended
March 31,
 20222021
(Loss) Income before income taxes$(21,988)$1,805 
Income tax benefit (expense)4,866 (2,181)
Effective tax rate22.1 %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:
 March 31, 2022December 31, 2021
Balance as of January 1$1,271 $632 
Increase due to current year positions26 1,061 
Increase (decrease) due to prior year positions3 (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 
16



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:
March 31, 2022December 31, 2021
Revolving credit facility - due 2023130,500 130,500 
Convertible senior notes - due 2024345,000 345,000 
Long-term debt including current maturities475,500 475,500 
Less unamortized discount 35,472 
Less debt issuance costs4,380 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.
17



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:
March 31, 2022
Principal$345,000 
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:
Three Months Ended
March 31,
20222021
Contractual interest expense$1,509 $1,509 
Amortization of debt discount 3,261 
Amortization of debt issuance costs495 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.

18



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:
Three Months Ended
March 31, 2022March 31, 2021
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:
March 31, 2022December 31, 2021
2022 (1)
$10,736 11,825 
202311,871 11,089 
20248,195 7,193 
20258,430 7,404 
20267,512 6,431 
Thereafter3,669 3,280 
Total lease payments50,413 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.
19



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:
For the Three Months Ended
(in thousands)IssuedTreasuryOutstanding
Balance at December 31, 2020323,815 (74,841)248,974 
Shares issued under the 2015 Equity Incentive Plan3,612  3,612 
Employee taxes paid on withholding shares (1,316)(1,316)
Balance at March 31, 2021327,427 (76,157)251,270 
Balance at December 31, 2021331,330 (77,324)254,006 
Shares issued under the 2015 Equity Incentive Plan3,637 3,637 
Employee taxes paid on withholding shares(1,208)(1,208)
Balance at March 31, 2022334,967 (78,532)256,435 
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.  
20



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.
21



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:

Three Months EndedService RevenueRevenueAdjusted EBITDADepreciation and Amortization
March 31, 2022
Vonage Communications Platform$284,198 $296,410 $2,166 $25,054 
Consumer55,132 62,418 41,893 141 
Total Vonage$339,330 $358,828 $44,059 $25,195 
March 31, 2021
Vonage Communications Platform$240,442 $255,454 $(1,846)$20,080 
Consumer65,697 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:
Three Months Ended
March 31,
20222021
Adjusted EBITDA$44,059 $48,167 
Interest expense(3,653)(7,298)
Depreciation and amortization(25,195)(20,417)
Amortization of costs to implement cloud computing arrangements(1,175)(896)
Share-based expense(29,042)(14,566)
Acquisition related transaction and integration costs(1,744) 
Exit activities - severance and lease abandonment(2,103)(1,294)
Other non-recurring items(3,135)(1,891)
(Loss) Income before taxes$(21,988)$1,805 

Information about our operations by geographic location is as follows:
  March 31, 2022December 31, 2021
Long-lived assets:
United States$622,093 $627,243 
United Kingdom268,519 278,173 
Israel1,663 1,702 
$892,275 $907,118 
 

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K. This discussion contains forward-looking statements. These 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: realizing the benefits of optimization and cost-saving initiatives; the impact of the COVID-19 pandemic; the competition we face; the expansion of competition in the cloud communications market; risks related to the acquisition or integration of businesses we have acquired; our ability to adapt to rapid changes in the cloud communications market; the nascent state of the cloud communications for business market; our ability to retain customers and attract new customers cost-effectively; the risk associated with developing and maintaining effective internal sales teams and effective distribution channels; security breaches and other compromises of information security; risks associated with sales of our services to medium-sized and enterprise customers; our reliance on third-party hardware and software; our dependence on third-party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; our ability to comply with data privacy and related regulatory matters; our ability to scale our business and grow efficiently; our dependence on third party vendors; the impact of fluctuations in economic conditions, particularly on our small and medium business customers; our ability to obtain or maintain relevant intellectual property licenses or to protect our trademarks and internally developed software; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; our ability to raise funds necessary to settle conversion of the 2024 convertible senior notes; conditional conversion features of the convertible senior notes; the cash settlement of the convertible senior notes; the effects of the capped call transactions in connection with the convertible senior notes; fraudulent use of our name or services; intellectual property and other litigation that have been and may be brought against us; reliance on third parties for our 911 services; uncertainties relating to regulation of business services; risks associated with legislative, regulatory or judicial actions regarding our business products; risks associated with operating abroad; risks associated with the taxation of our business; governmental regulation and taxes in our international operations; liability under anti-corruption laws or from governmental export controls or economic sanctions; our dependence on our customers' unimpeded access to broadband connections; foreign currency exchange risk; 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; certain provisions of our charter documents; and other factors that are set forth under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date this Form 10-Q is filed with the Securities and Exchange Commission.
Financial Information Presentation
Management's discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in connection with, the consolidated financial statements and related notes thereof. For the financial information discussed in this Quarterly Report on Form 10-Q, other than per share and per line amounts, dollar amounts are presented in thousands, except where noted. All trademarks are the property of their owners.
Overview
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 business is organized under two reportable operating segments: Vonage Communications Platform and Consumer. The Vonage Communications Platform includes our Unified Communications, Contact Center Communications, and APIs service offerings and represents the Company’s strategic business as the source of future growth. Our Consumer segment includes our communications solutions for residential customers based on our roots in providing VoIP communication services.
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Vonage Communications Platform
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.
Consumer
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.
Services Outside of the United States
We have operations in the United States, United Kingdom, Canada, Israel, Hong Kong, and Singapore, and provide a wide range of communications solutions to our customers located in many countries around the world.
Impact of Russia and Ukraine Invasion
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.
Impact of COVID-19
The ongoing COVID-19 pandemic, typical business travel remains at reduced levels to protect the health of our employees and to comply with local guidelines, and we have also continued modified usage of Vonage offices worldwide to comply with social distancing (including our corporate headquarters), all of which disrupt how we typically operate our business.
COVID-19 has impacted some of our customers more than others, including customers in the travel, hospitality, retail, and other industries where physical interaction is critical. We have experienced and expect that we will continue to experience slowdowns in bookings and customer payments, customer churn and reduced usage, and issuance of customer credits to distressed customers served by certain product lines in the Vonage Communications Platform. In addition, COVID-19 may have impacts on many additional aspects of our operations, directly and indirectly, including with respect to its impacts on customer behaviors, our business and our employees, and the market generally, and the scope and nature of these impacts continue to evolve each day.
Recent Significant Events
On November 22, 2021, the Company, Telefonaktiebolaget LM Ericsson (publ) ("Ericsson"), and Ericsson Muon Holding Inc., 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 in cash. The proposed transaction received the required approval of the Company's stockholders on February 9, 2022 and is expected to be consummated during the first half of 2022 following the satisfaction of certain other customary conditions.
During the year 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.
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Trends in Our Industry
A number of trends in our industry have a significant effect on our results of operations and are important to an understanding of our financial statements.
Competitive landscape. The business cloud communications markets and consumer services market in which we participate are highly competitive. We face competition from a broad set of companies, including (i) SaaS companies, CCaaS companies, other alternative communication providers, other providers of cloud communication services and (ii) traditional telephone, wireless service providers, cable companies, and alternative communications providers with consumer offerings. As the cloud communications market evolves, and the convergence of voice, video, messaging, mobility and data networking technologies accelerates, we may face competition in the future from companies that do not currently compete in the market, including companies that currently compete in other sectors, companies that serve consumers rather than business customers, or companies which expand their market presence to include cloud communications. Moreover, as businesses and educational institutions are quickly pivoting to cloud-based communications in light the increased need for remote work and remote learning due to the COVID-19 pandemic, we are experiencing intense competition from our existing competitors, and also emerging competitors, seeking to capitalize on the growing needs for businesses and educators to transform their operations.
Regulation. Our business has developed in a relatively lightly regulated environment. See the discussion under "Regulation" in Note 9 to our condensed consolidated financial statements for a discussion of regulatory issues that impact us.

Key Operating Data

The table below includes key operating data that our management uses to measure the growth and operating performance of the Vonage Communications Platform segment:
 Vonage Communications Platform
Three Months Ended
March 31,
 20222021
Service revenue per customer$677 $582 
Vonage Communications Platform service revenue churn0.6 %0.5 %
Service Revenue per Customer. Service revenues per customer for a particular period is calculated by dividing the average monthly service revenues for the period by the average number of customers over the number of months in the period. The average number of customers is the number of customers on the first day of the period, plus the number of customers on the last day of the period, divided by two. Service revenues excludes revenues from trading and auction customers. Service revenue per customer increased from $582 for the three months ended March 31, 2021 to $677 for the three months ended March 31, 2022 primarily driven by the Company's successful efforts to attract larger VCP customers, to expand services provided to our existing VCP customers, and to growth in our API SMS services.
Vonage Communications Platform Service Revenue Churn. Vonage Communications Platform service revenue churn is calculated by dividing the service revenue from customers or customer locations that have been confirmed to be foregone during a period by the simple average of the total service revenue from all customers in that period. Service revenue for purposes of determining VCP revenue churn is service revenue excluding revenue from our trading and auction customers, and usage in excess of a customer’s contracted service plan, regulatory fees charged to customers, and credits. The simple average of total service revenue from all customers during the period is the total service revenue as defined herein on the first day of the period, plus the total service revenue as defined herein on the last day of the period, divided by two. Terminations, as used in the calculation of churn statistics, do not include customers terminated during the period if termination occurred within the first month after activation. Other companies may calculate service revenue churn differently, and their service revenue churn data may not be directly comparable to ours. Vonage Communications Platform revenue churn increased from 0.5% for the three months ended March 31, 2021 to 0.6% for the three months ended March 31, 2022.  Our service revenue churn may fluctuate over time due to economic conditions, seasonality in certain customer's operations, loss of customers who are acquired, and competitive pressures including promotional pricing. We are continuing to invest in our overall quality of service which includes customer care headcount and systems, billing systems, on-boarding processes and self-service options to ensure we scale our processes to our growth and continue to improve the overall customer experience.
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The table below includes key operating data that our management uses to measure the growth and operating performance of the Consumer segment:
ConsumerThree Months Ended
March 31,
 20222021
Average monthly revenues per subscriber line$27.23 $29.05