Vonage 2013 Annual Report Download - page 2

Dear Shareholders:
Vonage was built on a fundamental belief that technology should enhance people’s
lives. Leveraging the power of the Internet, Vonage helped shape a new form of
communications— one that had no boundaries and delivered unprecedented value—
ultimately changing the way people connect around the world.
Vonage has been innovating in support of this belief from the
start, and 2013 was no exception. We moved steadfastly against
our mission of connecting individuals and businesses through
cloud-connected devices worldwide. We successfully launched
new services, improved the customer experience and entered
into new high-growth business markets.
Our progress was made possible by the strategic, operational
and fi nancial turnaround that the Company completed several
years prior. This turnaround included a successful balance sheet
restructuring, material cost improvements and a dramatic
reduction in customer defections, resulting in Free Cash Flow*
that was $214 million higher in 2012 than at the start of 2008.
We emerged as a stronger, more stable company, and focused
our eff orts on three strategic areas: fi rst, targeting growth in our
core U.S. and Canadian markets by meeting the needs of under-
served segments, including ultra-value shoppers and the small
and medium business market; second, expanding internationally;
and third, developing our capabilities in mobile. In 2013, we made
important gains on all three fronts.
Our Strategic Growth Initiatives
Core U.S. and Canadian Markets Our Vonage World plan and
comprehensive feature set are the hallmarks of our customer
value proposition. While we continue to a ract new customers
to many of our plans, our gains in U.S. ethnic markets over the past
several years are particularly compelling. We now count 36%
of Asian Indian households in the U.S. among Vonage customers.
In addition, we have grown our Hispanic international calling
customer base to nearly 200,000 households, and we have generated
over $10 million in annualized revenue through programs that
meet the needs of Filipinos. Underscoring these results, nearly
45% of all Vonage customers now make international calls
on a regular basis, a dramatic increase from just three years ago.
Contributing to our progress, in 2013 we shi ed our marketing
investments from mass-reach vehicles like television to more
targeted in-person selling channels. We expanded our targeting
to new ethnic segments, and focused recent marketing eff orts on
high value features including virtual numbers, which allow friends
and families of Vonage customers to call the U.S. at local rates
from other countries. This feature has become especially popular
among Hispanic customers. We have also intensifi ed our market-
ing and distribution investments in Canada as we launched our
popular Extensions service.
We are also improving our digital platforms and tools. We have
undertaken a complete redesign of our online experience to
increase prospect traffi c, enhance the customer learning and
buying experience and improve conversion. We are also optimizing
our platform to be er support customers using smartphones
and tablets.
BasicTalk™ Ultra-value shoppers looking for very basic, reliable
low-cost domestic calling represent a market of more than
40million households.
1 Direct margin is defi ned as operating revenues less direct cost of telephony services and direct cost of goods sold as a percentage of operating revenues.
BasicTalk™ BasicTalkis
our $9.99 per month
low-end domestic calling
product launched nation-
ally in the second quarter
of 2013. BasicTalk is sold
in all Walmart stores
nationwide and online.
Revenue
IN MILLIONS
Direct Margin Net Line Additions
IN THOUSANDS
Average Monthly Customer Churn
()
()
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