10-Q 1 vg-20210930.htm 10-Q vg-20210930
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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 September 30, 2021
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.)
23 Main StreetHolmdel,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 atNovember 1, 2021
Common Stock, par value $0.001252,473,758 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) 
September 30,
2021
December 31,
2020
Assets
(Unaudited) 
Current assets:
Cash and cash equivalents$48,386 $43,078 
Accounts receivable, net of allowance of $6,313 and $8,878, respectively
138,630 116,304 
Deferred customer acquisition costs, current portion22,897 18,161 
Prepaid expenses36,469 32,131 
Other current assets4,186 6,230 
Total current assets
250,568 215,904 
Property and equipment, net of accumulated depreciation of $126,917 and $117,761, respectively
25,742 31,621 
Operating lease right-of-use assets32,202 29,330 
Goodwill613,774 624,328 
Software, net of accumulated amortization of $131,695 and $111,642, respectively
99,933 80,638 
Deferred customer acquisition costs73,310 67,529 
Restricted cash2,461 1,919 
Intangible assets, net of accumulated amortization of $303,041 and $275,346, respectively
168,175 204,267 
Deferred tax assets104,705 106,374 
Other assets34,359 33,926 
Total assets
$1,405,229 $1,395,836 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$44,046 $17,464 
Accrued expenses
186,000 158,080 
Deferred revenue, current portion
56,325 65,506 
Operating lease liabilities, current portion
10,260 11,554 
Total current liabilities
296,631 252,604 
Indebtedness under revolving credit facility150,500 215,500 
Convertible senior notes, net301,807 290,784 
Operating lease liabilities33,855 31,019 
Other liabilities3,083 3,155 
Total liabilities
785,876 793,062 
Commitments and Contingencies (Note 9)
Stockholders’ Equity:
Common stock, par value 0.001 per share; 596,950 shares authorized at
    September 30, 2021, and December 31, 2020
329 324 
Additional paid-in capital1,608,182 1,554,574 
Accumulated deficit(669,567)(667,221)
Treasury stock, at cost(342,497)(320,891)
Accumulated other comprehensive income22,906 35,988 
Total stockholders’ equity
619,353 602,774 
Total liabilities and stockholders’ equity
$1,405,229 $1,395,836 
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 EndedNine Months Ended
September 30,September 30,
 2021202020212020
Revenues:
Service, access and product revenues
$341,544 $298,991 $988,896 $878,584 
USF revenues
16,797 17,658 53,814 46,055 
Total revenues358,341 316,649 1,042,710 924,639 
Operating Expenses:
Service, access and product cost of revenues (excluding depreciation and amortization)
161,067 124,243 449,634 357,252 
USF cost of revenues
16,797 17,658 53,814 46,055 
Sales and marketing
86,826 85,505 254,515 261,953 
Engineering and development
17,636 20,110 60,706 59,097 
General and administrative
44,063 56,835 132,297 140,537 
Depreciation and amortization
22,507 22,887 65,208 64,064 
Total operating expenses
348,896 327,238 1,016,174 928,958 
Income (Loss) from operations9,445 (10,589)26,536 (4,319)
Other Income (Expense):
Interest expense
(7,045)(7,373)(21,424)(24,776)
Other income (expense), net
(100)(37)(214)154 
Total other expense, net
(7,145)(7,410)(21,638)(24,622)
Income (Loss) before income tax 2,300 (17,999)4,898 (28,941)
Income tax (expense) benefit(4,332)7,937 (7,244)6,694 
Net loss$(2,032)$(10,062)$(2,346)$(22,247)
Loss per common share:
Basic and Diluted$(0.01)$(0.04)$(0.01)$(0.09)
Weighted-average common shares outstanding:
Basic and Diluted252,101 246,697 251,065 245,242 

See accompanying notes to condensed consolidated financial statements.
5


VONAGE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)
(In thousands)
(Unaudited)
 
  Three Months EndedNine Months Ended
September 30,September 30,
2021202020212020
Net loss$(2,032)$(10,062)$(2,346)$(22,247)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax expense (benefit) of $698, $(1,086), $1,529, and $(1,275), respectively
(13,160)19,776 (13,082)218 
Unrealized loss on derivatives, net of tax expense (benefit) of $, $, , and $(4), respectively
   1,001 
Total other comprehensive (loss) income(13,160)19,776 (13,082)1,219 
Comprehensive (loss) income$(15,192)$9,714 $(15,428)$(21,028)


See accompanying notes to condensed consolidated financial statements.
6


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

Nine Months Ended
September 30,
 20212020
Cash flows from operating activities:
Net loss$(2,346)$(22,247)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization32,863 22,531 
Amortization of intangibles32,345 41,533 
Deferred income taxes3,181 (8,130)
Amortization of deferred customer acquisition costs15,164 11,653 
Allowances for doubtful accounts 1,353 4,778 
Amortization of financing costs and debt discount11,632 11,127 
(Gain) Loss on disposal of property and equipment and intangible assets(487)743 
Share-based expense47,575 33,972 
Changes in derivatives 1,055 
Changes in operating assets and liabilities:
Accounts receivable(27,779)(19,825)
Prepaid expenses and other current assets(2,130)(10,453)
Deferred customer acquisition costs(26,076)(22,342)
Accounts payable and accrued expenses58,614 1,612 
Deferred revenue(8,062)2,997 
Other assets - deferred cloud computing implementation costs(3,002)(5,394)
Other assets and liabilities562 7,821 
Net cash provided by operating activities133,407 51,431 
Cash flows provided by (used in) investing activities:
Capital expenditures
(6,782)(7,718)
Proceeds from sale of intangible assets, net of payment for intangible assets318 (260)
Acquisition and development of software assets
(35,520)(30,256)
Net cash used in investing activities(41,984)(38,234)
Cash flows provided by (used in) financing activities:
Payments for short and long-term debt
(65,000)(55,000)
Proceeds from issuance of long-term debt
 75,000 
Employee taxes paid on withholding shares
(21,606)(15,180)
Proceeds from exercise of stock options
2,379 8,051 
Net cash (used in) provided by financing activities(84,227)12,871 
Effect of exchange rate changes on cash
(1,346)(1,334)
Net increase in cash, cash equivalents, and restricted cash5,850 24,734 
Cash, cash equivalents, and restricted cash, beginning of period44,997 25,635 
Cash, cash equivalents, and restricted cash, end of period$50,847 $50,369 
Supplemental disclosures of cash flow information:
Cash paid (received) during the periods for:
Interest
$8,563 $10,887 
Income taxes
$865 $(4)
Non-cash investing activities:
Acquisition of long-term assets included in accounts payable and accrued expenses
$4,125 $2,791 
   Share-based compensation capitalized in internally developed software costs$3,659 $3,042 

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 June 30, 2020$320 $1,519,055 $(643,194)$(319,314)$(9,228)$547,639 
Stock option exercises3 7,805 7,808 
Share-based expense12,667 12,667 
Employee taxes paid on withholding
  shares
(597)(597)
Foreign currency translation
  adjustment
19,776 19,776 
Net loss(10,062)(10,062)
Balance at September 30, 2020$323 $1,539,527 $(653,256)$(319,911)$10,548 $577,231 
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Balance at June 30, 2021$328 $1,588,222 $(667,535)$(339,024)$36,066 $618,057 
Stock option exercises1 1,486 1,487 
Share-based expense18,474 18,474 
Employee taxes paid on withholding
  shares
(3,473)(3,473)
Foreign currency translation
  adjustment
(13,160)(13,160)
Net loss(2,032)(2,032)
Balance at September 30, 2021$329 $1,608,182 $(669,567)$(342,497)$22,906 $619,353 
See accompanying notes to condensed consolidated financial statements.
8


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, 2019$316 $1,494,469 $(631,009)$(306,043)$9,329 $567,062 
Stock option exercises7 8,044 8,051 
Share-based expense37,014 37,014 
Employee taxes paid on withholding
  shares
(13,868)(13,868)
Foreign currency translation
  adjustment
218 218 
Unrealized gain on derivatives1,001 1,001 
Net loss(22,247)(22,247)
Balance at September 30, 2020$323 $1,539,527 $(653,256)$(319,911)$10,548 $577,231 
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 exercises5 2,374 2,379 
Share-based expense51,234 51,234 
Employee taxes paid on withholding
  shares
(21,606)(21,606)
Foreign currency translation
  adjustment
(13,082)(13,082)
Net loss (2,346)(2,346)
Balance at September 30, 2021$329 $1,608,182 $(669,567)$(342,497)$22,906 $619,353 

See accompanying notes to condensed consolidated financial statements.

9



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 64% and 68% of our consolidated revenues for the three months ended September 30, 2021 and 2020 and 65% and 69% for the nine months ended September 30, 2021 and 2020, 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 nine months ended September 30, 2021 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, 2020 filed with the Securities and Exchange Commission on February 19, 2021.
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 economic environment due to the ongoing outbreak of the novel coronavirus COVID-19.

10



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 condensed 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 condensed 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.
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, 2020.
Business Combinations
On October 18, 2021, the Company completed the acquisition of certain assets and liabilities of Jumper AI Pte. Ltd. for cash consideration of $7 million. The Company expects to allocate the purchase price primarily to developed technology and customer relationships. The Company may make additional payments of up to $9 million over the next two years subject to continuing employment of key individuals and achievement of certain financial targets.
Service, Access, and Product Cost of Revenues
Service, access, and product cost of revenues excludes depreciation and amortization expense of $15,817 and $13,649 for the three months ended September 30, 2021 and 2020 and $44,979 and $35,953 for the nine months ended September 30, 2021 and 2020, respectively. In addition, costs of goods sold included service, access, and product cost of revenues during the three months ended September 30, 2021 and 2020 were $3,284 and $2,707 and during the nine months ended September 30, 2021 and 2020 were $10,169 and $8,802, respectively.
Sales and Marketing Expenses
We incurred advertising costs, which are included in sales and marketing, of $10,851 and $10,785 for the three months ended September 30, 2021 and 2020 and $33,317 and $34,535 for the nine months ended September 30, 2021 and 2020, 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 September 30, 2021 and December 31, 2020 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 September 30, 2021 and December 31, 2020, the fair value of the 1.75% convertible senior notes due 2024 (the “Convertible Senior Notes”) was approximately $385,345 and $373,373, 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.
11



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

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 September 30,As of December 31,
2021202020202019
Cash and cash equivalents$48,386 $48,370 $43,078 $23,620 
Restricted cash2,461 1,999 1,919 2,015 
Total cash, cash equivalents and restricted cash$50,847 $50,369 $44,997 $25,635 

The following tables provides supplemental information of intangible assets and accrued expenses within the consolidated balance sheets:

Intangible assets, net
September 30, 2021December 31, 2020
Gross Carrying ValueAccumulated AmortizationNet Carrying ValueGross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships$277,973 $(163,713)$114,260 $284,692 $(150,094)$134,598 
Developed technology171,749 (118,513)53,236 173,572 (104,468)69,104 
Patents and patent licenses21,007 (20,328)679 20,849 (20,284)565 
Trade names487 (487) 500 (500) 
Total intangible assets$471,216 $(303,041)$168,175 $479,613 $(275,346)$204,267 
12



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


Accrued expenses
September 30, 2021December 31, 2020
Compensation and related taxes and temporary labor$40,656 $43,580 
Marketing30,657 15,319 
Taxes and fees25,998 25,977 
Telecommunications64,792 52,975 
Severance1,000 3,594 
Interest2,379 847 
Customer credits3,285 4,738 
Professional fees4,460 1,953 
Inventory588 659 
Other accruals12,185 8,438 
Accrued expenses$186,000 $158,080 
In the second half of 2020, the Company initiated a business-wide optimization and alignment project to focus the Company's resources and drive stronger operational execution. In connection with this project, the Company incurred severance costs of $2,641 during the nine months ended September 30, 2021, related to further employee exits, which was included in general and administrative expense. During the nine months ended September 30, 2020, the Company incurred accrued severance costs of $9,121 related to employee exits as well as the abandonment of a portion of its office leases as further described in Note 7, Leases which together resulted in total restructuring expense included in general and administrative expense of $15,182.
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, 2020$624,328 
Foreign currency translation adjustment(10,554)
Balance at September 30, 2021$613,774 
Recent Accounting Pronouncements
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 intends to adopt the ASU on a modified retrospective basis on January 1, 2022. Under the ASU, the Convertible Senior Notes will be recorded in their entirety as a liability and will no longer be bifurcated between equity and liability components.

13



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, 2020.
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
September 30, 2021September 30, 2020
VCPConsumerTotalVCPConsumerTotal
Primary geographical markets
Americas$166,427 $67,824 $234,251 $143,800 $80,296 $224,096 
EMEA72,730 2,361 75,091 51,762 2,527 54,289 
APAC48,999  48,999 38,264  38,264 
$288,156 $70,185 $358,341 $233,826 $82,823 $316,649 
Major Sources of Revenue
Service revenues$274,031 $60,162 $334,193 $218,456 $71,693 $290,149 
Access and product revenues7,280 71 7,351 8,757 85 8,842 
USF revenues6,845 9,952 16,797 6,613 11,045 17,658 
$288,156 $70,185 $358,341 $233,826 $82,823 $316,649 
Nine Months EndedNine Months Ended
September 30, 2021September 30, 2020
VCPConsumerTotalVCPConsumerTotal
Primary geographical markets
Americas$472,023 $215,344 $687,367 $409,525 $246,728 $656,253 
EMEA204,091 7,343 211,434 154,030 7,583 $161,613 
APAC143,909  143,909 106,773  $106,773 
$820,023 $222,687 $1,042,710 $670,328 $254,311 $924,639 
Major Sources of Revenue
Service revenues$774,925 $189,148 $964,073 $626,416 $223,981 $850,397 
Access and product revenues24,643 180 24,823 27,987 200 28,187 
USF revenues20,455 33,359 53,814 15,925 30,130 46,055 
$820,023 $222,687 $1,042,710 $670,328 $254,311 $924,639 

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 and nine months ended September 30, 2021, the Company recognized $148,149 and $447,839 related to subscription services, $160,645 and $444,293 related to usage, and $49,547 and $150,578 related to other revenues such as USF, other regulatory fees, and credits. During the three and nine months ended September 30, 2020, the Company recognized $152,636 and $463,218 related to subscription services, $116,557 and $320,983 related to usage, and $47,456 and $140,438 related to other revenues such as USF, other regulatory fees, and credits.
14



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

Contract Assets and Liabilities
The following table provides information about receivables and contract liabilities from contracts with customers:
September 30, 2021December 31, 2020
Receivables (1)
$138,630 $116,304 
Contract liabilities (2)
56,325 65,506 
(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 and nine months ended September 30, 2021, the Company recognized revenue of $104,072 and $315,768, respectively. During the three and nine months ended September 30, 2020, the Company recognized revenue of $106,866 and $325,252, respectively, related to its contract liabilities. We expect to recognize $56,325 into revenue over the next twelve months related to our deferred revenue as of September 30, 2021.
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 September 30, 2021 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 $96,207 and $85,690 as contract costs, net of accumulated amortization, as of September 30, 2021 and December 31, 2020, 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 $5,356 and $15,164 for the three and nine months ended September 30, 2021 and $4,086 and $11,653 for the three and nine months ended September 30, 2020, respectively. There were no impairment losses recognized in relation to the costs capitalized during the three and nine months ended September 30, 2021 and 2020. In addition, the Company expenses sales commissions for commission plans related to customer arrangements deemed less than a year and for residuals and renewals.
15



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 and nine months ended September 30, 2021 and 2020:
 
 Three Months EndedNine Months Ended
September 30,September 30,
 2021202020212020
Numerator
Net loss$(2,032)$(10,062)$(2,346)$(22,247)
Denominator
Weighted average common shares outstanding for basic and diluted net loss per share252,101 246,697 251,065 245,242 
Basic and diluted loss per share
Basic and diluted loss per share$(0.01)$(0.04)$(0.01)$(0.09)

For the three and nine months ended September 30, 2021 and 2020, the following were excluded from the calculation of diluted loss per common share because of their anti-dilutive effects: 
 Three Months EndedNine Months Ended
September 30,September 30,
 2021202020212020
Restricted stock units14,107 14,165 14,107 14,165 
Stock options1,051 2,129 1,051 2,129 
15,158 16,294 15,158 16,294 

As the Company expects 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 uses 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 will have 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.

16



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 EndedNine Months Ended
September 30,September 30,
 2021202020212020
Income (loss) before income taxes$2,300 $(17,999)$4,898 $(28,941)
Income tax expense(4,332)7,937 (7,244)6,694 
Effective tax rate188.3 %(44.1)%147.9 %(23.1)%

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). 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.
During the second quarter of 2021, the UK government enacted a tax rate increase from 19% to 25% effective April 1, 2023. As such, the Company has updated its deferred tax asset to reflect the increase in rate and recorded a benefit of $253 during the second quarter of 2021.
For the three and nine months ended September 30, 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. The limitation on executive compensation significantly impacted the deductibility of equity compensation and the Company recorded an expense of $2,097. In addition, the Company recorded a benefit of $1.8 million related to a partial research and development tax credit associated with earlier years.
For the three and nine months ended September 30, 2020, our effective tax rate was different than the statutory rate primarily due to a discrete tax benefit recognized during the nine months related to excess tax benefits on equity compensation. In addition, the Company’s annual effective tax rate for the current year has been impacted by an increase in permanent items related to limitations on executive compensation and the inclusion of foreign income in the U.S. due to foreign disregarded entities compared to the overall pretax loss for the quarter.
17



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

Uncertain Tax Positions
The Company had uncertain tax benefits of $650 and $632 as of September 30, 2021 and December 31, 2020, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. The Company recognized a benefit of $69 and $2 of interest and penalties, during the three and nine months ended September 30, 2021, respectively, and a benefit of $29 and $40 for the three and nine months ended September 30, 2020, respectively. The following table reconciles the total amounts of uncertain tax benefits:
 September 30, 2021December 31, 2020
Balance as of January 1$632 $914 
Increase due to current year positions375 114 
Increase due to prior year positions10  
Decrease due to settlements and payments(355)(173)
Decrease due to lapse of applicable statute of limitations(10)(238)
(Decrease) increase due to foreign currency fluctuation(2)15 
Uncertain tax benefits as of the end of the period$650 $632 
Net Operating Loss Carry Forwards
As of September 30, 2021, the Company has U.S. Federal and state NOL carryforwards of $410,731 and $207,769, respectively. With the exception of $5,822 of U.S. Federal NOL which has no expiration date, the remaining NOLs expire at various times through 2037. We have non-US NOLs of $159,152 primarily related to the United Kingdom which has no expiration date.

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, 2020.
The following table summarizes the Company's long-term debt as of September 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
Revolving credit facility - due 2023150,500 215,500 
Convertible senior notes - due 2024345,000 345,000 
Long-term debt including current maturities495,500 560,500 
Less unamortized discount38,875 48,702 
Less debt issuance costs4,318 5,514 
Total long-term debt$452,307 $506,284 
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.
18



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

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 pr