Vonage 2013 Annual Report Download - page 43

37 VONAGE ANNUAL REPORT 2013
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LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table sets forth a summary of our cash flows for the periods indicated:
For the years ended December 31,
(dollars in thousands) 2013 2012 2011
Net cash provided by operating activities $ 88,243 $119,843 $146,786
Net cash used in investing activities (120,985) (25,472) (37,604)
Net cash provided by (used in) financing activities 21,891 (56,257) (130,138)
For the three years ended December 31, 2013, 2012, and
2011 we generated income from operations. We expect to continue to
balance efforts to grow our customer base while consistently achieving
profitability. To grow our customer base, we continue to make
investments in marketing and application development as we seek to
launch new services, network quality and expansion, and customer
care. Although we believe we will maintain consistent profitability in the
future, we ultimately may not be successful and we may not achieve
consistent profitability. We believe that cash flow from operations and
cash on hand will fund our operations for at least the next twelve months.
Acquisition of Vocalocity
Vocalocity was acquired for $130,000 adjusted for $2,869 of
excess cash as of the closing date and the increase in value of the 7,983
shares of Vonage common stock from the signing date to the closing
date of $1,298, resulting in a total acquisition cost was $134,167. We
financed the transaction through $32,981 of cash and $75,000 from our
credit facility. The acquisition of Vocalocity immediately positions
Vonage as a leader in the SMB hosted VoIP market. SMB and SOHO
services will be offered under the Vonage Business Solutions brand.
February 2013 Financing
On February 11, 2013 we entered into Amendment No. 1 to
the 2011 Credit Agreement (as further amended by Amendment No. 2
to our 2011 Credit Facility, the "2013 Credit Facility"). The 2013 Credit
Facility consists of a $70,000 senior secured term loan and a $75,000
revolving credit facility. The co-borrowers under the 2013 Credit Facility
are us and Vonage America Inc., our wholly owned subsidiary.
Obligations under the 2013 Credit Facility are guaranteed, fully and
unconditionally, by our other United States subsidiaries and are secured
by substantially all of the assets of each borrower and each of the
guarantors. On July 26, 2013 we entered into Amendment No. 2 to our
2011 Credit Agreement, which amends our financial covenant related
to our consolidated fixed charge coverage ratio by increasing the amount
of restricted payments excluded from such calculation from $50,000 to
$80,000.
Use of Proceeds
We used $42,500 of the net available proceeds of the 2013
Credit Facility to retire all of the debt under our 2011 Credit Facility.
Remaining net proceeds of $27,500 from the senior secured term loan
and the undrawn revolving credit facility under the 2013 Credit Facility
will be used for general corporate purposes. We used $75,000 from the
2013 revolving credit facility in connection with the acquisition of
Vocalocity on November 15, 2013. We also incurred $2,009 of fees in
connection with the 2013 Credit Facility, which is amortized, along with
the unamortized fees of $670 in connection with the 2011 Credit Facility,
to interest expense over the life of the debt using the effective interest
method.
2013 Credit Facility Terms
The following description summarizes the material terms of
the 2013 Credit Facility:
The loans under the 2013 Credit Facility mature in February
2016. Principal amounts under the 2013 Credit Facility are repayable
in quarterly installments of $5,833 per quarter for the senior secured
term loan. The unused portion of our revolving credit facility incurs a
0.45% commitment fee.
Outstanding amounts under the 2013 Credit Facility, at our
option, will bear interest at:
> LIBOR (applicable to one-, two-, three- or six-month periods)
plus an applicable margin equal to 3.125% if our consolidated
leverage ratio is less than 0.75 to 1.00, 3.375% if our
consolidated leverage ratio is greater than or equal to 0.75
to 1.00 and less than 1.50 to 1.00, and 3.625% if our
consolidated leverage ratio is greater than or equal to 1.50
to 1.00, payable on the last day of each relevant interest
period or, if the interest period is longer than three months,
each day that is three months after the first day of the interest
period, or
> the base rate determined by reference to the highest of (a)
the federal funds effective rate from time to time plus 0.50%,
(b) the prime rate of JPMorgan Chase Bank, N.A., and (c) the
LIBOR rate applicable to one month interest periods plus
1.00%, plus an applicable margin equal to 2.125% if our
consolidated leverage ratio is less than 0.75 to 1.00, 2.275%
if our consolidated leverage ratio is greater than or equal to
0.75 to 1.00 and less than 1.50 to 1.00, and 2.625% if our
consolidated leverage ratio is greater than or equal to 1.50
to 1.00, payable on the last business day of each March, June,
September, and December and the maturity date of the 2013
Credit Facility.
The 2013 Credit Facility provides greater flexibility to us in funding
acquisitions and restricted payments, such as stock buybacks, than the
2011 Credit Facility.
We may prepay the 2013 Credit Facility at our option at any
time without premium or penalty. The 2013 Credit Facility is subject to
mandatory prepayments in amounts equal to:
> 100% of the net cash proceeds from any non-ordinary course
sale or other disposition of our property and assets for
consideration in excess of a certain amount subject to
customary reinvestment provisions and certain other
exceptions and
> 100% of the net cash proceeds received in connection with
other non-ordinary course transactions, including insurance
proceeds not otherwise applied to the relevant insurance loss.
Subject to certain restrictions and exceptions, the 2013 Credit
Facility permits us to obtain one or more incremental term loans and/or
revolving credit facilities in an aggregate principal amount of up to
$60,000 plus an amount equal to repayments of the senior secured term
loan upon providing documentation reasonably satisfactory to the
administrative agent, without the consent of the existing lenders under
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