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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, 2020
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 atOctober 31, 2020
Common Stock, par value $0.001248,332,776 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
Convertible Senior Notes$345 million aggregate principal amount of 1.75% convertible notes due 2024
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
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
SMSShort Message Service
UCaaSUnified Communications as a Service
USFFederal Universal Service Fund
VCPVonage Communications Platform, formerly referred to as Business
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,
2020
December 31,
2019
Assets
(Unaudited) 
Current assets:
Cash and cash equivalents$48,370 $23,620 
Accounts receivable, net of allowance of $8,808 and $5,494, respectively
119,553 101,813 
Inventory, net of allowance of $64 and $76, respectively
614 1,475 
Deferred customer acquisition costs, current portion16,884 13,834 
Prepaid expenses36,362 22,338 
Other current assets6,277 9,988 
Total current assets
228,060 173,068 
Property and equipment, net of accumulated depreciation of $120,127 and $109,646, respectively
37,449 48,371 
Operating lease right-of-use assets22,971 50,847 
Goodwill606,958 602,970 
Software, net of accumulated amortization of $106,857 and $102,133, respectively
69,389 40,300 
Deferred customer acquisition costs62,760 55,148 
Restricted cash1,999 2,015 
Intangible assets, net of accumulated amortization of $264,820 and $221,182, respectively
208,507 249,905 
Deferred tax assets115,178 108,347 
Other assets34,643 33,729 
Total assets
$1,387,914 $1,364,700 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$34,442 $42,366 
Accrued expenses
149,476 137,589 
Deferred revenue, current portion
62,813 59,464 
Operating lease liabilities, current portion
11,481 12,477 
Total current liabilities
258,212 251,896 
Indebtedness under revolving credit facility240,500 220,500 
Convertible senior notes, net287,176 276,658 
Operating lease liabilities21,747 45,722 
Other liabilities3,048 2,862 
Total liabilities
810,683 797,638 
Commitments and Contingencies (Note 9)
Stockholders’ Equity:
Common stock, par value 0.001 per share; 596,950 shares authorized at September 30, 2020, and December 31, 2019
323 316 
Additional paid-in capital1,539,527 1,494,469 
Accumulated deficit(653,256)(631,009)
Treasury stock, at cost(319,911)(306,043)
Accumulated other comprehensive income10,548 9,329 
Total stockholders’ equity
577,231 567,062 
Total liabilities and stockholders’ equity
$1,387,914 $1,364,700 
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,
 2020201920202019
Revenues:
Service, access and product revenues
$298,991 $279,871 $878,584 $819,006 
USF revenues
17,658 22,663 46,055 60,653 
Total revenues316,649 302,534 924,639 879,659 
Operating Expenses:
Service, access and product cost of revenues (excluding depreciation and amortization)
124,243 111,170 357,252 314,812 
USF cost of revenues
17,658 22,663 46,055 60,653 
Sales and marketing
85,505 83,628 261,953 274,513 
Engineering and development
20,110 16,901 59,097 50,318 
General and administrative
56,835 41,306 140,537 113,380 
Depreciation and amortization
22,887 21,319 64,064 63,195 
Total operating expenses
327,238 296,987 928,958 876,871 
(Loss) Income from operations(10,589)5,547 (4,319)2,788 
Other Income (Expense):
Interest expense
(7,373)(8,454)(24,776)(24,517)
Other income (expense), net
(37)58 154 (505)
Total other expense, net
(7,410)(8,396)(24,622)(25,022)
Loss before income tax benefit(17,999)(2,849)(28,941)(22,234)
Income tax benefit (expense)7,937 (18,248)6,694 5,127 
Net loss$(10,062)$(21,097)$(22,247)$(17,107)
Loss per common share:
Basic and diluted$(0.04)$(0.09)$(0.09)$(0.07)
Weighted-average common shares outstanding:
Basic and diluted246,697 242,336 245,242 241,786 

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,
2020201920202019
Net loss$(10,062)$(21,097)$(22,247)$(17,107)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax expense (benefit) of $(1,086), $847, $(1,275), and $938, respectively
19,776 (16,459)218 (17,594)
Unrealized gain (loss) on derivatives, net of tax expense (benefit) of $, $71, $(4) and $364, respectively
 (307)1,001 (1,788)
Total other comprehensive income (loss)19,776 (16,766)1,219 (19,382)
Comprehensive income (loss)$9,714 $(37,863)$(21,028)$(36,489)


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,
 20202019
Cash flows from operating activities:
Net loss$(22,247)$(17,107)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization22,531 20,098 
Amortization of intangibles41,533 43,097 
Deferred income taxes(8,130)(7,630)
Amortization of deferred customer acquisition costs11,653 7,981 
Allowances for doubtful accounts and obsolete inventory4,778 1,384 
Amortization of financing costs and debt discount11,127 5,311 
Loss on disposal of property and equipment743 745 
Share-based expense33,972 32,152 
Changes in derivatives1,055 (398)
Changes in operating assets and liabilities:
Accounts receivable(19,825)(23,211)
Inventory869 552 
Prepaid expenses and other current assets(10,453)(2,238)
Deferred customer acquisition costs(22,342)(21,708)
Accounts payable and accrued expenses1,612 24,043 
Deferred revenue2,997 6,867 
Other assets - deferred cloud computing implementation costs(5,394)(11,929)
Other assets and liabilities6,952 1,841 
Net cash provided by operating activities51,431 59,850 
Cash flows used in investing activities:
Capital expenditures
(7,718)(15,426)
Purchase of intangible assets
(260) 
Acquisition and development of software assets
(30,256)(20,836)
Acquisitions, net of cash acquired
 (3,000)
Net cash used in investing activities(38,234)(39,262)
Cash flows provided by/(used in) financing activities:
Payments for short and long-term debt
(55,000)(418,500)
Proceeds from issuance of long-term debt
75,000 479,000 
Payments of debt issuance costs
 (9,715)
Payments for capped call transactions and costs
 (28,325)
Common stock repurchases
 (10,000)
Employee taxes paid on withholding shares
(15,180)(20,372)
Proceeds from exercise of stock options
8,051 1,678 
Net cash provided by/(used in) financing activities12,871 (6,234)
Effect of exchange rate changes on cash
(1,334)(663)
Net increase in cash, cash equivalents, and restricted cash24,734 13,691 
Cash, cash equivalents, and restricted cash, beginning of period25,635 7,104 
Cash, cash equivalents, and restricted cash, end of period$50,369 $20,795 

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, 2019$314 $1,464,742 $(607,537)$(304,031)$4,154 $557,642 
Stock option exercises1 414 415 
Share-based expense12,921 12,921 
Employee taxes paid on
withholding shares
(1,350)(1,350)
Common stock issued for acquisition of assets3,000 3,000 
Foreign currency translation
adjustment
(16,459)(16,459)
Unrealized gain on derivatives(307)(307)
Net loss(21,097)(21,097)
Balance at September 30, 2019$315 $1,481,077 $(628,634)$(305,381)$(12,612)$534,765 
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 
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, 2018$310 $1,415,682 $(611,985)$(275,009)$6,770 $535,768 
Cumulative effect adjustment upon
the adoption of Topic 842
458 458 
Stock option exercises5 1,673 1,678 
Share-based expense32,152 32,152 
Employee taxes paid on
withholding shares
(20,372)(20,372)
Common stock repurchases(10,000)(10,000)
Equity component of convertible
notes, net of issuance costs and tax
50,123 50,123 
Purchase of capped calls, net of tax(21,553)(21,553)
Common stock issued for acquisition of assets3,000 3,000 
Foreign currency translation
adjustment
(17,594)(17,594)
Unrealized gain on derivatives(1,788)(1,788)
Net loss(17,107)(17,107)
Balance at September 30, 2019$315 $1,481,077 $(628,634)$(305,381)$(12,612)$534,765 
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 loss 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 

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, we are observing a secular shift in the way businesses need to operate. We believe that this shift is driving a growing communications revolution across all industries and modes of communications. We believe that Vonage's Communications APIs, Unified Communications and Contact Center products and services are well positioned to take advantage of this emerging trend 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 formerly referred to as "Business," which 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.
We also provide a robust suite of feature-rich residential communication solutions that allow consumers to connect their home phones and mobile phones on one number, and we offer attractive international long distance rates that help create a loyal base of satisfied customers.
Customers in the United States represented 68% and 72% of our consolidated revenues for the three months ended September 30, 2020 and 2019 and 69% and 72% for the nine months ended September 30, 2020 and 2019, 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, 2020 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, 2019 filed with the Securities and Exchange Commission on February 21, 2020.
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 current economic environment due to the recent 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, convertible notes, 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, 2019.
Service, Access, and Product Cost of Revenues
Service, access, and product cost of revenues excludes depreciation and amortization expense of $13,649 and $9,658 for the three months ended September 30, 2020 and 2019 and $35,953 and $28,220 for the nine months ended September 30, 2020 and 2019, respectively. In addition, costs of goods sold included in service, access, and product cost of revenues during the three months ended September 30, 2020 and 2019 were $2,707 and $5,921 and during the nine months ended September 30, 2020 and 2019 were $8,802 and $17,112, respectively.
Sales and Marketing Expenses
We incurred advertising costs, which are included in sales and marketing of $10,785 and $11,437 for the three months ended September 30, 2020 and 2019 and $34,535 and $45,773 for the nine months ended September 30, 2020 and 2019, 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, 2020 and December 31, 2019 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.
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.
As of September 30, 2020 and December 31, 2019, the fair value of the 1.75% convertible senior notes due 2024 (the “Convertible Senior Notes”) was approximately $333,953 and $309,641, 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.
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,
2020201920192018
Cash and cash equivalents$48,370 $18,741 $23,620 $5,057 
Restricted cash1,999 2,054 2,015 2,047 
Total cash, cash equivalents and restricted cash$50,369 $20,795 $25,635 $7,104 

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

Intangible assets, net
September 30, 2020December 31, 2019
Gross Carrying ValueAccumulated AmortizationNet Carrying ValueGross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships$275,205 $(139,232)$135,973 $272,767 $(115,583)$157,184 
Developed technology169,175 (97,151)72,024 169,722 (80,523)89,199 
Patents and patent licenses20,905 (20,395)510 20,554 (19,228)1,326 
Trade names7,025 (7,025) 7,074 (4,878)2,196 
Non-compete agreements1,017 (1,017) 970 (970) 
Total intangible assets$473,327 $(264,820)$208,507 $471,087 $(221,182)$249,905 
12



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


Accrued expenses
September 30, 2020December 31, 2019
Compensation and related taxes and temporary labor$35,154 $40,101 
Marketing18,987 15,294 
Taxes and fees25,736 22,922 
Telecommunications42,511 40,498 
Severance9,121  
Interest2,378 873 
Customer credits3,867 2,772 
Professional fees2,770 4,482 
Inventory910 871 
Other accruals8,042 9,776 
Accrued expenses$149,476 $137,589 
During the third quarter of September 30, 2020, the Company initiated a business-wide optimization and alignment project to focus the Company's resources and drive stronger operational execution, which includes the previously announced Consumer evaluation. In connection with this project, the Company initiated a reduction in workforce incurring accrued severance costs of $9,121 related to employee exits as well as abandoning 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 during the three months ended September 30, 2020 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, 2019$602,970 
Foreign currency translation adjustment3,988 
Balance at September 30, 2020$606,958 
Recent Accounting Pronouncements
The following standards were adopted by the Company during the current year:
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-captial. 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 is currently evaluating the impact of this standard on our condensed consolidated financial statements.
13



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

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)". This ASU provides an easier and more cost efficient way for companies to modify contracts that reference the London Interbank Offered Rate ("LIBOR") and other rates that are being phased out. The ASU (1) allows eligible contracts that are modified to be accounted for as a continuation of those contracts - a simplification that eliminates the need for companies to reassess or remeasure the contracts for accounting purposes; (2) permits companies to preserve their hedge accounting during the transition period; and (3) enables companies to make a one-time election to transfer or sell held-to-maturity debt securities that are affected by rate reform. It is effective as of March 12, 2020 through December 31, 2022. The Company adopted the ASU when effective. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes by removing certain exceptions currently permissible under ASC Topic 740. This ASU also requires entities to: (1) recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amounts incurred as non-income based tax; (2) evaluate when a step-up in the tax basis of goodwill should be considered as part of the business combination and when it should be considered a separate transaction;(3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation and other minor improvements. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. The Company adopted the new standard on January 1, 2020. The adoption of the ASU did not have a material impact on our condensed consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which requires the use of a new current expected credit loss ("CECL") model in estimating allowances for doubtful accounts with respect to accounts receivable. Receivables from revenue transactions, or trade receivables, are recognized when the corresponding revenue is recognized under ASC Topic 606, Revenue from Contracts with Customers. The CECL model requires that the Company estimate its lifetime expected credit loss with respect to these receivables and record allowances that when deducted from the balance of the receivables, represent the estimated net amounts expected to be collected. Given the generally short term nature of trade receivables, we do not apply a discounted cash flow methodology. However, the Company considers whether historical loss rates are consistent with expectations of forward-looking estimates for our trade receivables. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted the new standard on January 1, 2020. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements and related disclosures. Due to the COVID-19 pandemic and impact on economic conditions, the Company included in its estimate of expected credit losses additional reserves related to trade receivables for those customers in industries most significantly impacted by these events. The Company will continue to actively monitor the impact of the COVID-19 pandemic on its estimate of expected credit losses.
14



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, 2019.
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, 2020September 30, 2019
VCPConsumerTotalVCPConsumerTotal
Primary geographical markets
United States$140,376 $76,282 $216,658 $127,976 $88,567 $216,543 
Canada2,261 4,014 6,275 2,138 4,817 6,955 
United Kingdom17,592 2,527 20,119 13,910 2,620 16,530 
Other Countries73,597  73,597 62,506  62,506 
$233,826 $82,823 $316,649 $206,530 $96,004 $302,534 
Major Sources of Revenue
Service revenues$218,456 $71,693 $290,149 $183,701 $83,981 $267,682 
Access and product revenues8,757 85 8,842 12,120 69 12,189 
USF revenues6,613 11,045 17,658 10,709 11,954 22,663 
$233,826 $82,823 $316,649 $206,530 $96,004 $302,534 
Nine Months EndedNine Months Ended
September 30, 2020September 30, 2019
VCPConsumerTotalVCPConsumerTotal
Primary geographical markets
United States$399,743 $234,051 $633,794 $363,312 $270,270 $633,582 
Canada6,206 12,677 18,883 5,496 14,927 $20,423 
United Kingdom50,597 7,583 58,180 53,416 8,315 $61,731 
Other Countries213,782  213,782 163,923  $163,923 
$670,328 $254,311 $924,639 $586,147 $293,512 $879,659 
Major Sources of Revenue
Service revenues$626,416 $223,981 $850,397 $523,060 $260,225 $783,285 
Access and product revenues27,987 200 28,187 35,524 197 35,721 
USF revenues15,925 30,130 46,055 27,563 33,090 60,653 
$670,328 $254,311 $924,639 $586,147 $293,512 $879,659 

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, 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. During the three and nine months ended September 30, 2019, the Company recognized $146,127 and $467,893 related to subscription services, $87,677 and $242,192 related to usage, and $68,730 and $169,574 related to other revenues such as USF, other regulatory fees, and credits.
15



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, 2020December 31, 2019
Receivables (1)
$119,553 $101,813 
Contract liabilities (2)
62,813 59,464 
(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 as transfer of control occurs. 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. During the three and nine months ended September 30, 2019, the Company recognized revenue of $111,739 and $344,935, respectively, related to its contract liabilities. We expect to recognize $62,813 into revenue over the next twelve months related to our deferred revenue as of September 30, 2020.
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, 2020 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 $79,644 and $68,982 as contract costs, net of accumulated amortization, as of September 30, 2020 and December 31, 2019, respectively, included within deferred customer acquisitions costs, current portion and deferred customer acquisition costs on our condensed consolidated balance sheet. 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 $4,086 and $11,653 for the three and nine months ended September 30, 2020, and $3,060 and $7,981 for the three and nine months ended September 30, 2019, respectively. There were no impairment losses recognized in relation to the costs capitalized during the nine months ended September 30, 2020 and 2019. In addition, the Company expenses sales commissions for commission plans related to customer arrangements deemed less than a year and for residuals and renewals.
16



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, 2020 and 2019:
 
 Three Months EndedNine Months Ended
September 30,September 30,
 2020201920202019
Numerator
Net loss$(10,062)$(21,097)$(22,247)$(17,107)
Denominator
Weighted average common shares outstanding for basic and diluted net loss per share246,697 242,336 245,242 241,786 
Basic and diluted loss per share
Basic and diluted loss per share$(0.04)$(0.09)$(0.09)$(0.07)

For the three and nine months ended September 30, 2020 and 2019, 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,
 2020201920202019
Restricted stock units14,165 10,616 14,165 10,616 
Stock options2,129 5,087 2,129 5,087 
16,294 15,703 16,294 15,703 

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.

17



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,
 2020201920202019
Loss before income taxes$(17,999)$(2,849)$