Good day, everyone, and welcome to the Vonage Holdings Corporation Fourth Quarter 2013 Earnings Conference Call. Just as a reminder, today’s call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the conference over to Ms. Leslie Arena, Vice President of Investor Relations. Please go ahead, Ms. Arena.

Thank you. Good morning and welcome to our fourth quarter and full year 2013 earnings conference call. Speaking on our call this morning will be Marc Lefar, Chief Executive Officer; and Dave Pearson, CFO. Also joining on the call are Joe Redling and [indiscernible], Wain Kellum. Marc will discuss the company’s strategy and progress and Dave will review our financial results. Slides are accompanied Dave’s discussion are available on the IR website. At the conclusion of our prepared remarks, we will be happy to take your questions. As it referenced on Slide 2, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management’s expectations and depend on assumptions that maybe incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slide and in our SEC filings. We caution listeners not to rely unduly on these statements and disclaim any intent or obligation to update them. During this call, we will be referring to non-GAAP financial measures. The reconciliation to GAAP is available on the IR website. And now, I will turn the call over to Marc.

Thank you, Leslie, and good morning, everyone. I’m pleased to review our results for the fourth quarter and full year 2013 with you. Let me start with some contexts for those of you joining us for the first time. In early 2012, after completing a multi-year operational and financial turnaround, we outlined a three-year strategy to drive substantial, additional revenue growth for 2015. We established three areas of strategic focus. First, growth in our core U.S. and Canada markets by mean the needs of underserved segments including entry into the small and medium business market. Second, the development of our capabilities in mobile and third, international expansion. In 2013, we made important progress against each of these growth priorities. We launched the BasicTalk brand nationally, providing compelling value to domestic callers. In the core Vonage branded business we continue to shift marketing investments from mass reach vehicles like television, the local sales teams focused on ethnic segments. These moves and the inclusion of lines from Vocalocity in the last six weeks of the year resulted 9,000 net line additions for the year and an improvement of nearly 25,000 lines from 2012. This vehicle versus a several years of annual line losses. In addition, churn for the year improved by 10 basis points to 2.5%. We grew the adoption rate of mobile extensions, which extends our home phone service to mobile phones. And we improved our standalone mobile app with quality and feature enhancements including video calling, and a unique twist on video voicemail. Early in the year, we announced the venture to launch service in Brazil and are on track with the upcoming launch. And most recently we acquired Vocalocity what we believe the transformative transaction for the company. Financially, we produced $110 million in adjusted EBITDA and $66 million…

Thanks, Marc, and good morning everyone. I am pleased to review our financial results and 2013 outlook. Before I begin, let me provide the context for the numbers we’ve reported this morning. We’ve reported consolidated financial results for Vonage and Vocalocity combined as of November 15, closing date of the merger. As a result, the fourth quarter results included partial quarter of Vocalocity’s results. These results also reflects GAAP purchasing accounting GAAP purchase accounting rules regarding amortization for intangible assets, integration and acquisition expenses and the one-time exclusion of a portion of Vocalocity’s deferred revenue. This exclusive and resulted in a reduction to reported revenue coming from Vocalocity in the fourth quarter. In table 2, we showed consolidated result as reported in key Vocalocity operating statistics on a pro forma basis as the Vonage and Vocalocity where all periods presented and not including the effects of purchase accounting. With that let’s get to on Slide 3. For the fourth quarter adjusted EBITDA was $25 million, up from $23 million sequentially reflecting improvements in cost of telephony services, customer care cost per line. Adjusted EBITDA just down from $34 million in the year ago quarter, reflecting our planned investments in strategic growth priorities. Full year adjusted EBITDA was $110 million, down from $135 million in the prior year due to investments in growth priorities including the national launch BasicTalk in the second quarter and lower revenue. Adjusted EBITDA excludes the overlaid expenses for Vocalocity, but I think the negative impact of the $800,000 purchasing accounting adjustment I noted above and just for the 30% of our Brazil venture that we did not own in the period. Moving to Slide 4. Four quarter GAAP net income was $4 million or $0.02 per share flat sequentially. GAAP net income was down from $13…

Thank you, Dave. Operator, please open the line for questions.

Thank you. (Operator Instructions) And our first question comes from George Sutton from Craig-Hallum. Please go ahead.

Thank you very much. I’m not sure if this is best directed to Marc or Wain, but relative to the rebranding program and the impact that you saw in both December and January, I wondered if you could give us a little bit clarity as to was that sort of a one-time impact of the rebranding or can you give us the sense of the kind of velocity of demand that you’re seeing, that you would expect on an ongoing basis?

Hey George, it’s Marc. Thanks for the question. I’ll take the first answer and I’ll let Wain to provide some additional color. The December and January results relate a combination of both the Vonage brand and awareness as well as accelerated investment spending, which we talked about to make sure that we built awareness in the marketplace. So, we did device promotions as well as targeted advertising announcing the merger. The sustainability of that given that it’s early it’s still difficult to know, but we do expect to have a aggressive spending profile during the course of the year. And we would expect to reapply some of those programs that worked in the December and January period. I would mention that the net doubling of business actually was exclusive of direct traffic that we handed to Vocalocity that was really based upon market general interests in the brand, Vocalocity’s impressions in the marketplace as well as the overall marketing and sales activities. So, we think we’ve kind of normalized with the direct lead handoff that we pushed in and as a little bit of internal gymnastics to get that clear. But we feel very good about the progress. I don’t think it would be fair at this point to take a straight line and go gee that’s going to be sustainable for the rest of the year. But is certainly quite encouraging and we’ve seen continuing strong leads and prospects coming in over the last several weeks. So, more to come on that to be candid a lot of the activities we put in place since closing have been testing to try to understand what gives us the best financial return. And we’ll keep you posted as we go, but our objective here is to invest in those things that could accelerate the growth rate of Vocalocity and while we want to remain flexible on the investment profile, we’re looking more to reinvest the cash being generated out of business rather than using it as an EBITDA engine. We think there is a lot of opportunity to invest and then we think that, that investment will get us a long-term solid return in revenue growth. Wain, do you want to add anything to that?

As Marc said, it’s been a combination of accelerated stem and we’re early on in learning how to leverage the Vonage brand. But the Vonage brand applied to the Vocalocity business at a minimum has at least four benefits that we see. We get a lot more eyeballs now than we used to which create selling opportunities so web traffic is up. Marc described the Vonage referral program, which has enormous potential, when you look at the potential number of ours are pipeline per partnership development and recruitment appears like it’s going to benefit greatly. And even on the digital side, since we’ve rebranded, we’ve noticed the quantifiable increase in our form completion up almost 33%, which is indicates that we’ll see an additional improved efficiency in our online paper click spending.

Thanks Wain. For those who are not aware of the form completion is the key for step in qualifying a lead where we actually capture the business name and information. So, the ability to have that completed or interest in getting that form means we are getting more engage prospects. Thanks George. Next question.

Just two other questions relative to the SMB part of the business if I could. Number one, every public competitor on their call has pretty blatantly said they’re trying to move up market outside of this 20 and below market. So, I’m curious if you have started to see any positive impacts from those moves. And secondly you had talked about a white labeling program, which is the first time I heard you discuss that I’m curious if you could just expand a little on that opportunity.

Sure. So, Vocalocity’s focus has been on the 20 and under employee customer base. That’s about $9 billion of the $15 billion market. The market we think is still very under-penetrated and we think that there is lots of running room acquiring those customers very efficiently. That’s our primary focus. When we talk about competitional impact from other players, the truth is its relatively rate or the less frequent occurrence that we are competing with the other players in the marketplace for business. It tends to be whoever gets there first has a high probability of winning the business. It’s much more of the land grab phase in this marketplace than it is aggressive competitive market at least among the cloud based providers. We’re going to continue to assess the right way to move our market. That can be efficient and if we can do that with cost effective distribution and there are some serious breakpoints in how do you distribute to the move up market were assessing that. They’re might be some bolt-on opportunities. They get us into verticals that would make that a natural fit. Our platform is certainly extensible up market, but we think there is a lots of work that we can do particularly in leveraging the Vonage brand within the market space when. So, we’re assessing it. Had not seen significant impact from competition, but didn’t want to take that off the table as we partner with Wain and think about the long-term growth strategies. On the White Label front, we really have a very unique asset in Vocalocity and they really built what is a complete cloud-based platform. Think about the movement into platform as a service and we’re think very strategically about what this platform can do for us whether it becomes the core platform for expansion rapidly into international markets. We even thought about how should be using this approach to our core business in the United States. We have had significant interest from multiple large companies that service small and medium businesses or have an incumbent base of customers with one set of products that have approached us and shown real interest. And basically leveraging our platform putting their brand on it and there is any number of different business structure that supported. And we think that’s a significant opportunity as people are trying to think about quick way to market to be able to drive more revenues in there and leverage our existing small and medium business markets. That’s something that Wain and his team are focused on right now.

Next question Operator?

And your next question comes from Greg Burns from Sidoti & Company. Please go ahead.

Hi, good morning. I was just hoping to get a little more color on the gross line additions in the quarter. If you back out any contribution from Vocalocity they will be down sequentially. So, I was just wanted to get a feel for the slowdown and BasicTalk growth or are you seeing accelerated declines in your domestic calling Ohio high ARPU calling subscriber base.

Sure Greg it's Marc let me take that one as well. So, as I mentioned, both of our consumer and Vocalocity businesses were positive net lines for the quarter. That said, the core business was down sequentially slightly. There’s a couple of factors. One is, we are pouring some amount of bucket of customers from the core business into Vocalocity as we shift lead. That’s why these numbers become fairly blended over time. That was one driver. The second driver was, we did see some continuous softness in domestic premium customers particularly in the October period, was a little bit of softness. We saw some shifts in media in an effort to become more efficient that frankly while there are less expensive broadcast networks than we thought would be achieving the same kind of regional frequency that was not the case and we had to pull back on that and reinstate our prior media approaches, which showed a bit of a bounce back. So October was soft. The other contributor to that was, this is the first full-year December that we’ve had with BasicTalk. And as you are aware, this is a largely mass merchant retail-driven product. We didn’t know what to expect, but during the holiday season BasicTalk sales did slowdown. You might have intuitive this, but it’s not been the case our Vonage business, but BasicTalk is very much a shopping experience destination shop. We don’t do assisted store selling for BasicTalk and as a result during the Christmas holiday, we saw softness in BasicTalk which is since bounced back post holiday. So those two factors gave a sequential softness. But again I reiterate that both the consumer total with net adds positive as with Vocalocity, which was only six weeks of the quarter.

Next question operator.

Thank you. And our next question comes from Michael Latimore from Northland Capital. Please go ahead.

Yeah, great thanks. I was just trying to think of a few things on Vocalocity here. I think you did about $16.5 million or $16.6 million in the third quarter, looks like you grew about 2% sequentially. Can you help I think there is a seasonality in the business there or can you think it looks like the number of businesses that grew a lot more than that and obviously year-over-year were strong sales. May be talk a little bit about that?

Yes, sure there really isn’t significant seasonality and Wain can comment further on that in the Vocalocity business. The sequential increase was 7% on revenue and without the purchase accounting and you may be looking at the purchase accounting adjusted number which took about $800,000 net of revenue for the fourth quarter. So, it really, it was a positive trend and the fourth quarter was 40% higher than the fourth quarter of 2012.

Great. And then on the traditional Vonage SoHo business let’s say, what percentage of revenue was that in the quarter?

We don’t track that usually on a segment-specific break out, but I would tell you that relative to our run rate we’ve talked about it being ballpark around 4.5% to 5% of total revenues and we’ve talked about it being roughly $40-ish million in revenue, that wouldn’t have changed based on the size of that base in the fourth quarter. I would reiterate the comment I made before which is, we have eliminated the proactive selling of small business plan under the Vonage brand. We are moving all of the traffic increase that relate to the business even if you go to the Vonage website, links you to fully branded Vonage business solutions pages that access the Vocalocity rate plans and sales teams. So, while we will continue to have churn out of the Vonage core business you will not see replacements that’s hitting the consumer business all of that will move to Vocalocity which makes a tremendous amount of sense. And you’ll also see blended marketing efforts because you see a lot of small and medium business owners who take advantage of the same kind of consumer media that our consumers do. And that’s why we look at this really very much of a blended business and we now have to look at total revenues and total additions as a measure of progress.

Next question operator?

Thank you. And our next question comes from Michael Rollins from Citi Investment Research. Please go ahead.

Good morning, thanks for taking my question. Just first off, I’m wondering if you could be just more specific on the impact to unit volume whether it was on the net add or on the gross add or is that frankly both in terms of what Vocalocity contributed during the six weeks roughly that you had it within the financial result? And then secondly, just taking a step back, I’m wondering if you could talk a little bit more about how investor should think about the acquisitions costs of a Vonage business customer from here either on the per customer basis or per line basis whichever you think would be more helpful to think about in that form? Thanks

Sure. I’ll take the second question first. IOR of a Vocalocity customer is quite high and based on the acquisition costs so it is much more oriented towards sales than your standard Vonage customer and the all-in acquisition costs is leading to an IOR that is, above anything we’re seeing the Vonage consumer business today. So, I’d call 50% on the current course of speed and that’s using some fairly conservative approaches to that calculation. So, we feel like there is a lot of runway to add customers and very high return to doing that. And then specificity on net and gross add yes. What I can tell you is that so we reported 25,000 customer at Vocalocity for the fourth quarter we had set the accounts, we had set that we have 23,000 at the end of the third quarter. So you can do the net increase of roughly 2,000 we made some statements in the past about how to think about the size of these accounts. So I think you can, you can back into the net lines approximately net lines added and as Marc said, both the core business without the leads that we sent to Vocalocity and Vocalocity are net line positive.

Okay, thanks Wain.

Thank you. And our next question comes from Raghavan Sarathy from Dougherty & Company. Please go ahead.

Good morning, thanks for taking my questions. Two questions from my end. Marc, when you talked about Vocalocity business you indicated that the business accelerated since the acquisition. Can you talk about the pricing environment of Vocalocity and also may be Dave if you can give us some sense from the ARPUs for that business that would be great? The second question is again Marc, in your prepared comments you talked about revenue coming a little bit below what you had expected for the years. So if you look at the core business maybe how should we think about maybe from a metrics perspective net growth about nets about? Thank you.

I’m sorry. Could you cut that gross sub ads, net sub ads. Okay, so let me try to – we try to take the – take those in sequence. So first, relative to the pricing environment and pricing structure on Vocalocity, as you’re probably aware in the small and medium business market, there will be headline pricing you will see in the website, and then on a sale-by-sale basis, customers will engage in that pricing discussion. What we see is that, ARPU per line is actually not terribly dissimilar from what we see on core Vonage business. And it’s actually pretty consistent across the industry. We are not doing a lot if any kind of headline rate plan pricing promotions. The primary driver of variability in pricing tends to be device and device subsidy. And that’s the thing that we’ve done most of our experimentation with try to understand if we remove the out of pocket cost as we’ve seen in the wireless industry and we’ve seen in our Vonage core business. What kind of additional elasticity of demand can I get for us? And we’re assessing those results from some of those tests in the December and January timeframe. In terms of – the revenue for the total business, as I mentioned in the prepared comments, the primary drivers, we came into the year with lower net line ads. And with the gross margin we have in a pre-marketing operating income in the $17 range that has a pretty profound implication on both revenues and EBITDA during the following year. And while we did have positive gross net line ads – positive net line ads for the year and now we’ll continue to benefit from Vocalocity the next year. We just didn’t have enough growth in 2013 for that the partial year that you’ve acquired those customers to offset some of the hurts in the prior year. And, of course, some of that growth is also coming from BasicTalk as a percentage of the mix, which has the lower revenue level. I think the thing which you want to look at or think about going forward is, what is the trajectory of total revenues for the asset base we’ve got right now. And as we talked about, you will see reported revenues we expect in the 7% to 9% range and if you take Vocalocity numbers as though we owned it for the entire year. We fully expect to be in a 1% to 2% range. If we achieve those, you should see exceptional growth as you move into 2015 and get full year benefit of those gross line additions that we’ve added in 2014.

Okay. Thank you.

Next question operator.

Thank you. And our next question comes from Robert Routh from National Alliance Capital Markets. Please go ahead.

Yes, good morning, and thanks for taking the questions. So quick one, a few years back your reversing tour NOLs that you realized that you had hundreds of millions of dollars worth of them and you could actually use them. But I know you didn’t reverse all of them, I was curious given Vocalocity acquisition and the growth you are seeing is there any chances in some of the NOLs that you didn’t reverse before could become again in tax asset to the company. And as a follow-up to that, I’m wondering you can still subject to the 382 limitations than you were before on which limited to buyback activity?

Yes, we are not anticipating a material shift in our NOL position or our tax, cash taxpaying status. Our NOLs will expire at different rates for federal and state, but that’s really the only change you are going see in that. But Vocalocity did come within NOL as well, and we’re in the process of working through exactly how to value that given our projected usage.

And the previous two limitations are you still subject to this?

Yes, it’s – we are, but it’s much lower than it was, and we’ve not seen in terms of executing on the buyback. We don’t see an issue executing on the rest of the $100 million authorization this year regarding that or any other issues.

Okay great. And then one other question, obviously you guys have a ton of patents that are worth a ton of money that are on your balance sheet as much as anything due to the accounting loss, around that. I’m just curious if you can give us any sense I know would be kind of hard to do is to what those could be worth, especially given recent announcements like the SEC having big carriers like Verizon and the AT&T to start working with voice-over-IP trials and considering you guys have been doing this for such a long time I would think some of your patents may be a tremendous value to these carriers as they do those trials. I’m wondering if you get a sense as to how to look at that in terms of the balance sheet value versus what they could be relative and also is there any opportunity for you given your, what you have that others may need in order to do what they are trying to do?

It’s a great question and astute observation, I don’t think that, perhaps it’s fully appreciated the strength and value of the patent portfolio that we built in the last few years, difficult for me to decide what that value might be and how to place that on the balance sheet. What you can look at is if you look at settlement costs for the company over last several years we’ve been extremely successful versus things in history. And a big piece of that as a result of being able to have something a patent détente if you will and that creates a kind of neutral playing field with some players and that has certainly come into negotiations, in conversations with, in between cross licensing types of agreements. In terms of going forward from monetization, it’s not something I’m really able to comment on in terms of inquires we’ve had on folks wanting to license or offering of the opportunity for companies to license our patents, but we do review that on a regular basis and consider whether it’s appropriate to make those available or encourage other entities to take a license so that they are not in violation of our intellectual properties. So it is something we pursue, but as you might imagine, commenting on specific intellectual property negotiations would be highly inappropriate.

Yeah, absolutely. [Indiscernible] some of the patents for over billion some many people realize they had and no one gave it any value. For that it seems you guys have some things that some other entities are going to need, violating in the future. So its kind of looking for hidden value there. Thank you very much.

We have time for one more question, operator.

Thank you. And our next question comes from Bill Dezellem from Tieton Capital Management. Go ahead.

Bad play devils advocate for just a moment relative to your stock buyback and is very successful when the share prices was lower, but have you any thoughts relative to holding back and reducing the buyback or stopping it for now given that the share price is up? And then the second question is, relative to the net line additions doubling in December and January relative to October and November. I just wanted to confirm that was Vocalocity I think I missed it in your opening remarks? And then how did that fit relative to your expectations?

Well I will take the second question first and let Dave comment on the stock buyback. So it was Vocalocity and it was net customers not to be confused with lines, but their surrogates since we had pretty consistent level of the types of customers coming in. And relative to expectations it exceeded our expectations. We were frankly a little concerned about what the disruption could be, we’ve actually already moved to the point of having Vonage business solutions, branding on the website we’ve had at the last couple of weeks and we haven’t seen at this point any material negatives. Perhaps there is some positives, but we are pleased to actually at the responsiveness of some of the marketing activities that Wain and his team put into the marketplace. And we think at least some of those are the kind of activities we want to continue with, because they seem to be good financial investments. So encouraged thus far, difficult to draw a trend from eight weeks, but we like the early progress.

Great, now regarding your questions on the buyback, I think, first of all we continue to believe our stock is a good value. And so we will plan as to continue to execute against the authorization which would average about $12 million a quarter is just the average of what we have left on that through the end of the year. We are constantly assessing our capital structure and the highest use of capital. Right now we’ve got the ability to execute the buyback and do the things we want to do on the growth side. Those two things start to becoming conflict or one opportunities arise where there’s clear accretion, we will direct capital that way. I’d also note that if the situation changes, through M&A you have some market opportunity, we would make a change. We’d make that assessments and cross correct at the point. I think as with the other thing I noticed is as with most buyback programs we do modulate the buyback at higher prices. That’s why you may see some variability what we are buying back quarter-to-quarter. So to your point there is some of that built-in as well which is very standard.

Thank you both.

Thanks. With that operator we’ll conclude the call. Thank everyone for joining us today.

Ladies and gentlemen thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect, everyone have a great day. Thank you.