•Virtual Phone Numbers: We offer phone numbers that are local all over the world enabling our customers to have a local presence globally. We also offer toll free numbers and short codes in the United States and Canada. Our numbers can be provisioned and de-provisioned programmatically to enable maximum utilizations.

•Messages API and Dispatch API: Together they enable brands to engage with their customers wherever they prefer, elevating customer communications by meeting customers on the channels they find most engaging.

•Video API: Our programmable video enables developers, independent software vendors, and enterprises to incorporate highly scalable point-to-point and multi-party video into websites, mobile applications and IoT devices with only a few lines of code.

Our product offerings combined with the strength of our network enable us to partner closely with our customers to ensure that they are successful through a personalized account management experience, high quality support and consulting services. The Company's CPaaS products are supported through our close relationships with tier one carriers across the globe and offer local numbers in more countries along with our private MPLS network with 21 points of presence in the United States allowing us to offer high voice quality, lower costs and increased reliability. Additionally, Nexmo has office locations all over the world, including the United States, United Kingdom, France, Germany, Hong Kong, Singapore, Japan, Korea and China. Our extensive network of developers provides customers with the ability to foster rapid innovations, including extensive developer documentation, sample codes, tutorials, libraries and free online support.

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Consumer

Our home telephone services are offered to customers through several service plans with different pricing structures. The service plans include basic features such as voicemail, call waiting, and call forwarding as well as unique features such as Simulring, Visual Voicemail and Extensions. We also charge for local and international calling outside of plan limits. We also charge for local and international calling outside of plan limits.

We have two primary Consumer offerings available in the United States: Vonage World and Vonage North America. For a flat monthly fee, Vonage World customer plans include unlimited domestic calling, which includes U.S., Canada, and Puerto Rico, and unlimited calling to landline phones in more than 60 countries, including India, Mexico, and China, and unlimited calling to mobile phones in certain of those countries. The Vonage North America plan includes unlimited calling across the U.S., Canada, Mexico and Puerto Rico. Each of our Consumer calling plans provides a number of basic features including call waiting, caller ID with name, call forwarding, and voicemail. Our plans also include unlimited Vonage Visual Voicemail, which is “readable voicemail” delivered via email or SMS text message, Vonage Extensions, which extends the plan, and ~~in-bound~~inbound calling, to additional phone numbers and devices, and selective call block, which allows users to block unwanted calls. We also offer, in some cases for additional fees, features such as area code selection, virtual phone number, and web-enabled voicemail. Additionally, we also provide similar product offerings to customers in both Canada and the United Kingdom.

Our mobile services include enhancements to our Consumer calling plans as well as mobile applications that can be initially downloaded for iPhone ® , iPad ® , iPod touch ® , and Android ® OS devices for free.

In order to access our consumer services, a customer need only connect a standard telephone to a broadband Internet connection through a small Vonage-enabled device. After connecting the device, our customers can use their telephone to make and receive calls. Vonage-enabled devices allow customers to use the Internet connection for their computer and telephones at the same time while ensuring a high quality calling experience. We also offer a cordless multi-phone system solution. Our plug-and-play Vonage-enabled devices permit portability as customers can take their Vonage device to different locations where broadband service is available. We generally have not charged new customers for the adapters permitting use of our service.

NETWORK OPERATIONS

The Vonage network uses our customer’s existing or Vonage procured high-speed broadband Internet service to allow calls over the Internet either from a standard telephone through a Vonage-enabled device or through soft phone software or mobile client applications. Our UCaaS services are not dependent on any specific type or provider of Internet service, and our customers are free to change their Internet service provider in response to a competitive alternative, or because they have moved to a different location. For many of our Vonage Enterprise customers, our UCaaS services are delivered over the Company's private, nationwide, fault tolerant, secure IP MPLS network under multi-year contracts to provide the high level of interconnection quality and the ability to offer service level agreements, or SLA, guaranteeing certain levels of voice service performance.

Our network is scalable and geographically distributed for robustness, high availability, and reliability across multiple call processing sites, using regional data interconnection points, where calls to non-Vonage customers are interconnected with the public switched telephone network. We periodically assess the locations of our regional data connection points in connection with efforts to improve the quality of and efficiency in delivering our service. Our interconnections with the public switched telephone network, or IP/SIP networks, are made pursuant to commercial agreements we have with several telecommunications providers. Under these agreements, we transfer calls originated by our customers to other carriers who connect the call to the called party or connect peer to peer. We have a varying degree of settlement arrangements with our carrier partners for indirect third party or direct termination of our calls. The calls are routed from our network to other carriers’ interconnected circuits at co-location facilities in which we lease space. This method of connecting to the public switched telephone or IP/SIP networks allows us to expand capacity quickly, as necessary to meet call volume, and to provide redundancy within our network.

Because Vonage’s system is standards based and not constrained to use any specific broadband service provider to connect to our customers, we can centrally manage and share resources across our customer base to minimize capital investment when entering new markets.

~~The following are also important in supporting our network operations:~~

~~Network Operations Center~~. We currently maintain a network operations center at our headquarters with monitoring redundancies at several points within our network. The network operations center monitors and manages the status and health of our network elements, allowing us to manage our network in real time, respond to alert notifications, and re-route network traffic as needed. We pursue a multi-faceted approach to managing our network to ensure high call quality and reliable communications services to our customers. For Business customers, we have operational centers on-site to monitor and manage network access traffic. We may consolidate these network operations centers in the future if greater efficiencies can be obtained.

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~~Back Office Systems~~. In addition to our network management systems, we have developed a number of software systems that enable us to manage our network and service offerings more efficiently and effectively. Key aspects of these systems include:

◦

~~Network Quality Metrics~~. We have implemented a suite of advanced Big Data analysis tools that allow us to monitor and troubleshoot the performance of our calling and data network, customer premises equipment, and other associated calling elements in near real-time. This suite is proprietary and was developed specifically to address the needs that Vonage has in monitoring, analyzing, understanding, troubleshooting, maintaining, and operating a world-class consumer VoIP platform.


◦	~~Web Portal~~. We provide a fully functional customer Web portal that allows our customers to configure and manage almost all aspects of their service on the Internet without requiring intervention of a customer-care representative. The portal permits customers to add and change features and phone numbers, update billing information, and access call usage and billing details.

◦

~~Emergency Calling Service and Enhanced 911 Service~~. We have deployed E-911 service to approximately 99.99% of our U.S. consumer and small and home office customer base that is comparable to the emergency calling services provided to customers of traditional wireline telephone companies in the same area. Our E-911 service does not support the calls of our soft phone software users. The emergency calls of our soft phone software users are supported by a national call center. Not all Vonage products require 911 service capabilities, such as our mobile client products but we are fully compliant with E911 requirements of the Federal Communications Commission, or FCC, for VOIP Interconnected providers. To enable us to effectively deploy and provide our E-911 service, we maintain an agreement with a provider that assists us in delivering emergency calls to an emergency service dispatcher at the public safety answering point, or PSAP, in the area of the customer’s registered location and terminating E-911 calls. We also contract for the national call center that operates 24 hours a day, seven days a week to receive certain emergency calls and for the maintenance of PSAP databases for the purpose of deploying and operating E-911 services. The databases include contact, technical infrastructure, boundary, and routing information for delivery of calls to a PSAP or emergency service providers in the United States.

◦

~~Local Number Portability~~. Our system allows our telephone replacement customers to port telephone numbers, which allows new customers to retain their existing telephone numbers when subscribing to our services. We rely on agreements with two service providers to facilitate the transfer of customer telephone numbers. In addition, we have engaged a provider that performs the third party verification of pertinent local number portability information from our subscribers prior to porting a customer from a local telephone company to us.

◦

~~Security~~. We have developed a service architecture and platform that uses industry-standard security techniques and allows us to remotely manage customer devices. Any Vonage-enabled device used by our customers can be securely managed by us, and these devices use authentication mechanisms to identify themselves to our service in order to place and receive calls. We regularly update our protocols and systems to protect against unauthorized access. As discussed in "Item 1A Risk Factors", security breaches and other cybersecurity or technological risks could compromise our information, systems and network and expose us to liability, which could have a material adverse effect on our business, financial condition, and operating results.

MARKETING

Our marketing objective is to help drive growth and revenue across our business and consumer markets. We employ an integrated multi-channel approach to marketing, whereby we evaluate and focus our efforts on efficient marketing vehicles to accomplish our goals with the greatest return on investment. To do this, we make use of both broad-reaching and highly-targeted media channels.

For our business customers, our primary source of lead acquisition is digital marketing in the form of search engine marketing, digital advertising, social media advertising, and affiliate programs. We also utilize database marketing and lead aggregators to source business leads. We use direct marketing and account-based marketing to help source leads and create interest in our solutions. We have a significant strategy of using third-party and proprietary events to source business leads and convert prospects. For our residential customers, we have highly optimized our acquisition approach and focus mainly on digital advertising channels.

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We make use of marketing research to gain consumer insights into brand, product, and service performance, and utilize those learnings to improve our messaging and media plans. Market research is also leveraged in the areas of testing, retention marketing, and product marketing to ensure we bring compelling products and services to market for our customers.

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We believe our brand is a meaningful factor for customers as they consider business services. We invest in our brand in order to retain and expand our customer base and to position Vonage as a technology leader that delivers innovative, unified communication services, serving the full range of businesses and enterprises. We expect these investments to continue as we further establish Vonage as a leading business services brand and pivot beyond our residential brand heritage.

SALES AND DISTRIBUTION

Enterprise Sales

In order to continue to expand in the enterprise sales channel, which we define as businesses larger than 1,000 seats, our enterprise sales organization is positioned to provide high quality business services for Enterprise, through our fully managed solution, which utilizes BroadSoft’s enterprise-grade call processing platform, with a broad portfolio of products delivered over our own private, national MPLS network, with 21 Points-of-Presence, or POPs, across the country and our own team of service delivery project managers using our proprietary provisioning tool Zeus, or with SmartWan, as well as our industry leading CPaaS products. Additionally, Contact Center solutions are commonly integrated into Enterprise solutions

Developer Ecosystem

Our API platform products are principally adopted and consumed by software developers all over the world. Given the nature of the business, we invest significant time and effort to build, recruit, and maintain developers and various software ecosystems. We have a large developer ecosystem worldwide with over 700,000 registered developers.

Field Sales and Inside Sales - SMB and Midmarket

We utilize our team of sales agents, primarily based in geographic territories comprising customers and prospects, which we refer to as our field sales team, to market and sell our business services. These field sales agents utilize a consistent, automated, highly-structured sales process to effectively educate prospective customers regarding our services. We have developed a scalable model applicable to both existing and new markets. We now have field sales presence in 20 markets within the United States and made significant expansion into new markets globally primarily supporting Nexmo. For customers in the SMB segment, we leverage an Inside Sales team to provide solutions across our cloud communications offerings.

Channel Sales

In addition to inside sales and our field sales team, we also have a dedicated team focused on channel sales who work with our channel partners to market and sell our business services, which helps to broaden our sales distribution. In 2017, we continued to develop and expand this channel program by adding new senior management, channel managers, and additional national master agents. We now have a broad and deep coverage of the U.S. market through a network of over 20,000 sub agents and resellers.

Self-Service

Customers can subscribe to our consumer services at our websites, http://www.vonage.com, http://www.vonage.ca, http://www.vonage.co.uk and several affiliate websites, or through multiple toll free numbers including 1-877-4VONAGE. Business customers can subscribe to our services at our websites, including https://business.vonage.com/, http://www.vonagebusiness.com, https://enterprise.vonage.com, and https://www.nexmo.com, or through toll free numbers including 1-877-862-2562 and 1- 855-593-7326. Additionally, Nexmo's API enablement and developer focus lends itself to a self-service model. Our developers can register, sign up and test, and scale their businesses easily and quickly without having to engage with anyone at Nexmo. This allows customers to self-provision their accounts with the aim of improving the customer experience while reducing customer acquisition costs.

~~Customer Support~~

~~Consumer.~~ We offer our customers support 24 hours a day, seven days a week through both our comprehensive online account management website and via our support number, chat or email. Many customers use our self-service website when they have a question or problem with their service and are able to resolve their concerns online without needing to speak to a customer care representative. Our customers can manage almost all aspects of their accounts online. This capability empowers our customers through self-service and reduces our customer care expenses.

Customers who cannot or do not wish to resolve their questions through our website may contact a customer care representative through our support number, chat or email. We staff our customer care organization through a combination of our own employees and outsourced customer care representatives. All new customer care representatives are trained through an established program developed by Vonage. We also have a separate team that provides advanced technical support for resolving customers’ complex issues. We use extensive monitoring of call quality and customer satisfaction scores to determine additional training or coaching requirements for individual associates and to drive continuous improvement in our processes, policies, and technology. We offer support in English, Spanish, Tagalog and French Canadian.

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~~Small and Medium Businesses.~~ We have specialized teams of customer care representatives to work with customers in every stage of their life cycle, including porting specialists to transfer or port existing phone numbers, an order entry team to help customers bring their new phone system online, as well as billing and product specialists. Customers can also utilize our extensive online support resources, complete with cataloged feature descriptions, how-to videos and other key resources to help them enable the many system features. Additionally, our representatives have ready access to a full support team - from technical support pros and billing specialists, to engineers and product experts.

~~Medium and Large Enterprise.~~ ~~Our larger business customers benefit from a robust service delivery team comprised of team members specializing in project management, voice and data provisioning, and line number porting.~~

INTELLECTUAL PROPERTY

We ~~believe that our technological position depends primarily on the experience, technical expertise, and creative ability of our employees. We~~ currently own over ~~185~~200 issued U.S. patents as well as a number of foreign patents and ~~have more than 60~~ pending U.S. ~~patent applications along with a number of~~and foreign patent applications. We routinely review our technological developments with our technology staff and business units to identify the aspects of our technology that provide us with a technological or commercial advantage and seek intellectual property and patent protection as appropriate to protect such key proprietary technology in the United States and internationally, based on our assessment in light of applicable law. Our company policies require our employees to assign intellectual property rights developed in the scope of or in relation to our business to us and to treat proprietary know-how and materials as our confidential information.

In addition to developing technology and intellectual property, from time to time we evaluate opportunities for potential licensing and acquisition of third-party technology and intellectual property that may provide us with a strategic or commercial advantage in exchange for royalties or other consideration. As a result of these efforts, weWe have acquired multiple U.S. and foreign patents, and obtained licenses to numerous other patents. From time to time we receive letters from third parties inviting us to obtain patent licenses that might be relevant to our business. We also have become involved in litigation alleging that our products or services infringe on third party patents or other intellectual property rights.

We are the owner of numerous United States and international trademarks and service marks and have applied for registration of our trademarks and service marks in the United States and abroad to establish and protect our brand names as part of our intellectual property strategy. ~~Examples of our registered marks include Vonage®, Vonage Mobile®, Vonage Extensions®, and Nexmo ®.~~

We endeavor to protect our internally developed systems and technologies and maintain our trademarks and service marks. Typically, we enter into confidentiality agreements with our employees, consultants, partners, customers, and vendors in an effort to control access to and dissemination of our technology, software, business plans, documentation, and other proprietary information and trade secrets.

COMPETITION

In connection with our cloud communications products, we face competition from the traditional telephone and cable companies as discussed below, as well as from vendors of premises-based solutions or hosted solutions including the following:

Independent cloud service providers;

Premises-based business communication equipment providers;

Hosted communication services providers;

Traditional technology companies; and

Emerging competitors in technology companies.

As the cloud communications market evolves, and the convergence of voice, video, messaging, mobility and data networking technologies accelerates, we may face competition in the future from companies that do not currently compete in the market, including companies that currently compete in other sectors, companies that serve consumers rather than business customers, or companies which expand their market presence to include cloud communications.

We face ~~continued~~ strong competition from traditional telephone companies, cable companies, wireless companies, alternative communication providers, direct unified communications providers, legacy consumer VOIP businesses, large technology incumbents, and collaboration providers in the consumer, mobile, SMB and enterprise markets. Because most of our target customers are already purchasing communications services from one or more of these providers, our success is dependent upon our ability to attract these customers away from their existing providers. We believe that the principal competitive factors affecting our ability to attract and retain customers are price, call quality, brand awareness, customer service, network and system reliability, service features and capabilities, scalability, usability, simplicity, mobile integration and the unique ability to deliver CPaaS communications tools to business customers in addition to our UCaaS and CCaaS offerings.

There is a continuing trend toward consolidation of ~~compeitive~~competitive companies, including the acquisition of alternative communication providers by Internet product and software companies with significant resources. In addition, certain of our competitors have partnered and may in the future partner with other competitors to offer products and services, leveraging their collective competitive positions. We also are subject to the risk of future disruptive technologies, which could give rise to significant new competition.

~~Business~~

In connection with our cloud communications products, we face competition from the traditional telephone and cable companies as discussed above, as well as from vendors of premises-based solutions and/or hosted solutions including the following:

~~Independent cloud services providers;~~

~~Premises-based business communication equipment providers;~~

~~Hosted communication services providers;~~

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~~Traditional technology companies; and~~

~~Emerging competitors in technology companies.~~

~~Consumer~~

~~Traditional telephone and cable companies~~

The traditional telephone and cable companies are our primary competitors for our broadband telephone services. Traditional telephone companies in particular have historically dominated their regional markets. These traditional phone and cable company competitors are substantially larger and better capitalized than we are and have the advantage of a large existing customer base. Many of these competitors are continuing to make substantial investments in delivering broadband Internet access, VoIP phone service, and cable television to their customers and they often have larger product development and marketing budgets than us. Providing home phone, Internet access, and cable television to many of our existing and potential customers may enhance their image as trusted providers of services.

The traditional phone and cable companies own networks that include a “last mile” connection to substantially all of our existing and potential domestic customers as well as the places our customers call domestically. As a result, the vast majority of the calls placed by a Vonage customer are carried over the “last mile” by a traditional phone company, and we indirectly pay access charges to these competitors for each of these calls. In contrast, traditional wireline providers do not pay us when their customers call our customers.

Cable companies and, in many cases traditional phone companies, are also aggressively using their existing customer relationships to bundle services. For example, they bundle Internet access, cable television, and home phone service with an implied price for the phone service that may be significantly below ours. In addition, such competitors may in the future require new customers or existing customers making changes to their service to purchase voice services when purchasing high speed Internet access. Certain traditional phone companies are also able to bundle wireless telephone service. Many of these competitors are able to advertise on their local access channels with no significant out-of-pocket cost and through mailings in bills with little marginal cost. They also receive advertising time as part of their relationships with television networks and are able to use this time to promote their telephone service offerings.

Traditional phone and cable companies’ ownership of Internet connections to our customers could enable them to detect and interfere with the completion of our customers’ calls. While we are not aware of any such occurrence, it is unclear whether current regulations would permit these companies to degrade the quality of, give low priority to or block entirely the information packets and other data we transmit over their lines. In addition, these companies may attempt to charge their customers more for using our services.

Many traditional phone and cable companies routinely send technicians to customers’ premises to initiate service. Although this is expensive, it also can be more attractive to customers than installing their own router. In addition, these technicians may install an independent source of power, which can give customers assurance that their phone service will not be interrupted during power outages.

The traditional phone and cable companies have long-standing relationships with regulators, legislators, lobbyists, and the media. This can be an advantage for them because legislative, regulatory or judicial developments in our rapidly evolving industry could have a negative impact on us.

In many cases, we charge prices that are lower than prices charged by the traditional phone and cable companies. We believe that we also currently compete successfully with the traditional phone and cable companies on the basis of the features we offer that they may not, such as area code selection, portable service, virtual phone numbers, and readable voice mail. We offer many of these features at no extra charge.

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~~Wireless telephone companies~~

We also compete with wireless phone companies for both our broadband telephone services, international long distance, and our mobile services. Some consumers use wireless phones, instead of VoIP phones, as a replacement for a wireline phone. Also, wireless phone companies increasingly are providing wireless broadband Internet access to their customers. As wireless providers offer more minutes at lower prices and other services that improve calling quality, their services have become more attractive to households as a competitive replacement for wireline service. In addition, wireless providers are also offering standalone wireless home services as well as the ability to link multiple devices for telephony service. Wireless telephone companies have a strong retail presence and have significant financial resources. We are developing next-generation services to meet the emerging needs of mobile and other connected device users by delivering easy-to-use applications that provide significant cost savings in large existing markets. We believe that our efforts will capitalize on favorable trends including the proliferation of low or no-cost Wi-Fi and other broadband around the world, accelerating smart phone adoption rates, and the growth of social communities.

~~Alternative communications providers~~

We also compete against alternative communication providers some of which are larger than us and have the ability to devote greater resources to their communications services. Some of these service providers, including Internet product and software companies, have chosen to sacrifice telephony revenue in order to gain market share or attract users to their platform and have offered their services at low prices or for free. While not all of these competitors currently offer the ability to call or be called by anyone not using their service, line portability, E-911 service, and customer service, in the future they may integrate such capabilities into their service offerings. As we continue the introduction of applications that integrate different forms of voice, video, messaging, and other services over multiple devices, we face competition from emerging competitors focused on similar integration, as well as from alternative communication providers.

~~FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS~~

We currently have UCaaS and consumer operations in the United States, United Kingdom, and Canada and believe that our low-cost Internet based communications platform enables us to cost effectively deliver voice and messaging services to other locations throughout the world. Through Nexmo, we have operations in the United States, United Kingdom, Hong Kong, and Singapore providing our CPaaS solutions to customers located in many countries around the world.

We had approximately 2.2 million combined subscriber lines and business seats as of December 31, 2017. Customers in the United States represented 85% of our consolidated revenues at December 31, 2017, with the balance in Canada, the United Kingdom, and other countries.

~~For further information regarding the Company's revenues and long-lived assets attributable to our U.S. and foreign countries for the last three fiscal years see Note 16,~~ ~~Industry Segment and Geographical Information~~ ~~to the Company's Consolidated Financial Statements.~~

EMPLOYEES

As of December 31, ~~2017,~~2018, we had ~~1,780~~2,248 employees. None of our employees are subject to a collective bargaining agreement.

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AVAILABLE INFORMATION

We were incorporated in Delaware in May 2000 and changed our name to Vonage Holdings Corp. in February 2001. We maintain a website with the address www.vonage.com. References to our website are provided as a convenience, and the information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own Internet access charges, we make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the U.S. Securities and Exchange Commission, or SEC. Copies are also available, without charge, by writing to Vonage’s Investor Relations Department at Vonage Holdings Corp., 23 Main Street, Holmdel, NJ 07733 or calling us at 732.365.1328 or sending an email through the Vonage Investor Relations website at http://ir.vonage.com/. Reports filed with the SEC may be viewed at www.sec.gov or obtained at the SEC Public Reference Room inat 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

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ITEM 1A. Risk Factors

You should carefully consider the risks below, as well as all of the other information contained in this Annual Report on Form 10-K and our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K, in evaluating our company and our business. Any of these risks could materially adversely affect our business, financial condition and results of operations and the trading price of our common stock.

~~For the financial information discussed in this Annual Report on Form 10-K, other than per share and per line amounts, dollar amounts are presented in thousands, except where noted.~~

If we are unable to compete successfully, we could lose market share and revenue.

The business cloud communications markets and consumer services market in which we participate are highly competitive. We face intense competition from a broad set of companies, including:

software as a service companies, ~~and~~contact center as a service companies, other alternative communication providers, and other providers of cloud communications services; and

traditional telephone, wireless service providers, cable companies and alternative communications providers with consumer offerings

Many of these providers are substantially larger and better capitalized than weus are and have the advantage of greater name and brand name recognition and a large existing customer base. These service providers may have the ability to devote greater resources to their communications services and may be able to respond more quickly and effectively than we can to new or changing opportunities. Our competitors' financial resources may allow them to offer services at prices below cost or even for free in order to maintain and gain market share or otherwise improve their competitive positions. Some of our competitors also could use their greater financial resources to develop and market telephony and messaging services with more attractive features and more robust customer service. In addition, because of the other services our competitors provide, some of these service providers choose to offer cloud communications services as part of a bundle that includes other products, such as high speed Internet access and wireless telephone service. These bundled offers may enable our competitors to offer cloud communications services at prices with which we may not be able to compete or to offer functionality that integrates cloud communications services with their other offerings, both of which may be more desirable. As we continue the introduction of applications that integrate different forms of voice, video, and messaging services over multiple devices, we face competition from emerging competitors focused on similar integration, as well as from established alternative communication providers. Any of these competitive factors could make it more difficult for us to attract and retain customers, reduce our market share and revenues, or cause us to lower our prices or offer additional features that may result in additional costs without commensurate price increases. In order to compete with such service providers, we may have to reduce our prices, which would impair our profitability, or offer additional features that may cause us to incur additional costs without commensurate price increases. To the extent that these or other companies strengthen their offerings, we may have to reduce our prices, increase promotions, or offer additional features, which may adversely impact our revenues and profitability.

With the addition of NewVoiceMedia and our offering of cloud-based contact center services, we also compete with large legacy technology vendors that offer on-premise enterprise telephony and contact center systems and legacy on-premise software companies that come from a computer-telephony integration heritage. These companies are supplementing their traditional on-premise contact center systems with cloud offerings, either through acquisition or in-house development. Additionally, we compete with vendors that historically provided other contact center services and technologies and expanded to offer cloud contact center software. We also face competition from smaller contact center service providers with specialized contact center software offerings. Our actual and potential competitors may enjoy competitive advantages over us, including greater name recognition, longer operating histories, and larger marketing budgets, as well as greater financial or technical resources. With the introduction of new technologies and market entrants, we expect competition to intensify in the future.

In connection with our emphasis on the international long distance market for consumer customers, we face competition from low-cost international calling cards, digital calling cards and VoIP providers in addition to traditional telephone companies, cable companies, and wireless companies. To the extent that these providers target marketing to the same ethnic segments that we target or strengthen their offerings to these segments, we may have to reduce our prices or increase promotions, which would impair our profitability, or offer additional features that may cause us to incur additional costs without commensurate price increase.

As a result of increasing competition, domestic and international telephony and messaging rates have generally decreased during the past few years, and we expect this trend to continue. Continued rate pressures or increasing cost to use our services could lessen or eliminate the pricing advantage that we maintain over certain competitors and cause customers or potential customers to select alternative providers or cause us to lower our prices, which would adversely impact our revenues and profitability.

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As the cloud communications services market evolves, and the convergence of voice, video, messaging, mobility and data networking technologies accelerates, we may face competition in the future from companies that do not currently compete in the cloud communications services market, including companies that currently compete in other sectors, companies that serve consumer rather than business customers, or companies which expand their market presence to include business communications.market.

As the cloud communications services market evolves, combining voice, video, messaging and data networks, and information technology and communication applications, opportunity is created for new competitors to enter the cloud communications services market and offer competing ~~products.~~products, including companies that currently compete in other sectors, companies that serve consumer rather than business customers, or companies which expand their market presence to include business communications. This new competition may take many forms, and may offer products and applications similar to ours. If these new competitors emerge, the cloud communications services market will become increasingly competitive and we may not be able to maintain or improve our market position. Our failure to do so could materially and adversely affect our business and results of operations.

We may face difficulties related to the acquisition or integration of businesses, which could harm our growth or operating results.

In August 2018, we acquired TokBox Inc. with the intention of integrating and adding video to our Business offerings in voice, SMS, and IP messaging. In October 2018, we completed the acquisition of NewVoiceMedia as a CCaaS provider, with the intention of combining our UCaaS and CPaaS solutions to provide an end-to-end communications experience for a company's employees and customers. In addition, we have made several acquisitions over the past several years to build our business services and continue to periodically review acquisition opportunities.

Acquisition and integration activities require substantial management time and resources. Acquisitions of existing businesses involve substantial risks, including the risk that we may not be able to integrate the operations, personnel, services, or technologies, the potential disruption of our ongoing businesses, the diversion of management attention, the maximization of financial and strategic opportunities, the difficulty in developing or maintaining controls and procedures, and the dilution to our existing stockholders from the issuance of additional shares of common stock. We may elect to acquire additional businesses or assets in the future. However, we cannot predict or guarantee that we will be able to identify suitable acquisition candidates or consummate any acquisition. As a result of these and other risks, we may not produce anticipated revenue, profitability, or synergies.

Acquisitions may require us to issue debt or equity securities, use our cash resources, incur debt or contingent liabilities, amortize intangibles, or write-off acquisition-related expenses. If we are unable to successfully integrate any acquired businesses or assets we may not receive the intended benefits of such acquisition. In addition, we cannot predict market reactions to any acquisitions we may make or to any failure to announce any future acquisitions.

Further, while we conduct due diligence in connection with acquisition and joint venture opportunities, there may be risks or liabilities that such due diligence efforts fail to discover, are not disclosed to us, or that we inadequately assess. The discovery of material liabilities associated with acquisitions or joint venture opportunities, economic risks faced by joint venture partners, or any failure of joint venture partners to perform their obligations could adversely affect our business, results of operations, and financial condition.

If we fail to adapt to rapid changes in the market for cloud communications services, then our products and services could become obsolete.

The market for our products and services is constantly and rapidly evolving as we and our competitors introduce new and enhanced products and services and react to changes in the cloud communications services industry and customer demands. We may not be able to develop or acquire new products and plans or product and plan enhancements that compete effectively with present or emerging cloud communications services technologies or differentiate our products and plans based on functionality and performance. In addition, we may not be able to establish or maintain strategic alliances that will permit enhancement opportunities or innovative distribution methods for our products and plans.

To address these issues, we are targeting revenue growth in large, existing markets, which require us to enhance our current products and plans, and develop new products and plans on a timely basis to keep pace with market needs and satisfy the increasingly sophisticated requirements of customers. If we are unable to attract users of these services our net revenues may fail to grow as we expect.

Cloud communications services are complex, and new products and plans and enhancements to existing products and plans can require long development and testing periods. Any delays in developing and releasing new or enhanced products and plans could cause us to lose revenue opportunities and customers. Any technical flaws in products we release could diminish the innovative impact of the products and have a negative effect on customer adoption and our reputation.

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We also are subject to the risk of future disruptive technologies. New products based on new technologies or new industry standards could render our existing products obsolete and unmarketable. If new technologies develop that are able to deliver competing voice and messaging services at lower prices, better or more conveniently, it could have a material adverse effect on us.

The market for our CPaaS products and platform is relatively nascent and may not experience the growth that we anticipate.

The utilization of APIs to embed contextual, programmable real time communications into mobile apps, websites and business systems workflows, remains a relatively new market, and developers and organizations may not yet recognize the need for, or benefits of, our products and platform. It is important that we are able to educate developers, organizational leaders, and other potential customers regarding our products and platform in order to help grow the market and to realize our market ~~share, The~~share. If we fail to achieve the foregoing, the market for our products and platform or our share of that market could fail to grow significantly. If the CPaaS market, or our share of that market, does not experience significant growth, then our business, results of operations and financial condition could be adversely affected.

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If we are unsuccessful at retaining customers or attracting new consumer or business customers we may experience a reduction in revenue or may be required to spend more money or alter our marketing approaches to grow our customer base.

Our rate of customer terminations for our UCaaS services could increase in the future if customers are not satisfied with the quality and reliability of our network, the value proposition of our products, and the ability of our customer service to meet the needs and expectations of our customers. For our CPaaS and CCaaS customers, our ability to grow revenue depends, in part, on our ability to maintain and grow usage of our platform by new and existing customers. If we are not able to increase customer usage of our products, our revenue may decline which would adversely impact our business, results of operations and financial condition. Our CPaaS customers are charged based on their usage of our products and generally our customers do not have long-term contractual financial commitments to us, therefore, usage rates may fluctuate at any time. In addition, our agreements with business customers typically provide for service level commitments. If we are unable to meet these commitments or if we suffer extended periods of downtime for our products or platform, our business, results of operations and financial condition could be adversely affected. Our ability to attract and retain customers for our consumer services are impacted by our pricing, brand awareness, customer service, network and system reliability and service features and capabilities. Competition from traditional telephone companies, cable companies, wireless companies, alternative communication providers, low-cost international calling cards, disruptive technologies, general economic conditions, and our ability to activated and register new customers on our network also influence churn rate. A material decline in the usage of our business and consumer products could cause us to spend significantly more on sales and marketing than we currently budget in order to maintain or increase revenue from customers, which could adversely affect our business, results of operations and financial condition.

The success of our CPaaS products depends in part on attracting new customers in a cost-effective manner. The failure to do so could materially and adversely affect our business.

The success of our business relies on our ability to attract new customers in a cost effective manner by using a variety of marketing channels. We use developer events and developer evangelism, search engine marketing and optimization, and other marketing efforts such as regional customer events, email campaigns, advertising and public relations events. These methods are prioritized depending on effectiveness and efficiency, and may be altered if costs increase dramatically or if the results do not meet expectations. Alternative, less expensive channels, may not be as effective as our preferred channels. Our continued success requires that we continue to attract new customers in a cost-effective manner. If we fail to do so, our revenues may decrease and our operating results would suffer.

Our success in the cloud communications market for our business services depends in part on developing and maintaining effective distribution channels. The failure to develop and maintain these channels could materially and adversely affect our business.

A portion of our business revenue is generated through our direct sales, or “field sales,” team. This channel consists of sales agents that market and sell our business services products to customers to customers through direct, commonly face-to-face interaction. Our continued success requires that we continue developing and maintaining a successful sales organization. If we fail to do so, or if our sales agents are not successful in their sales efforts, our sales may decrease and our operating results would suffer.

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A portion of our business revenue is generated through indirect channel sales. These channels consist of third-party resellers and value-added distributors that market and sell our business services products to customers. These channels may generate an increasing portion of our business revenue in the future. Generally, we do not have long-term contracts with these third-party resellers and value-added distributors, and the loss of or reduction in sales through these third parties could materially reduce our revenues. We also compete for preference amongst our current or potential resellers with our competitors. Our continued success requires that we continue developing and maintaining successful relationships with these third-party resellers and value-added distributors. If we fail to do so, or if our resellers are not successful in their sales efforts, our sales may decrease and our operating results would suffer.

~~We may face difficulties related to the acquisition or integration of businesses, which could harm our growth or operating results.~~

We have made several acquisitions over the past several years to build our business services and continue to periodically review acquisition opportunities. Acquisition and integration activities require substantial management time and resources. Acquisitions of existing businesses involve substantial risks, including the risk that we may not be able to integrate the operations, personnel, services, or technologies, the potential disruption of our ongoing businesses, the diversion of management attention, the maximization of financial and strategic opportunities, the difficulty in developing or maintaining controls and procedures, and the dilution to our existing stockholders from the issuance of additional shares of common stock. We may elect to acquire additional businesses or assets in the future. However, we cannot predict or guarantee that we will be able to identify suitable acquisition candidates or consummate any acquisition. As a result of these and other risks, we may not produce anticipated revenue, profitability, or synergies.

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Security breaches and other cybersecurity or technological risks could compromise our information systems and network and expose us to liability, which ~~would~~could cause our business and reputation to suffer and which could have a material adverse effect on our business, financial condition, and operating results.

There are several inherent risks to engaging in a technology business, including our reliance on our data centers and networks, and the use and interconnectivity of those networks. A significant portion of our operations relies heavily on our ability to provide secure processing, storage and transmission of confidential and other sensitive data, including intellectual property, proprietary business information, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, storage, and transmission of this information is critical to our operations and business strategy. As seen in our industry and others, these activities have been, and will continue to be, subject to continually evolving cybersecurity or other technological risks. Targeted attacks, such as advanced persistent threat is prevalent throughout the Internet and associated with the theft of intellectual property and state-sponsored espionage. Due to the nature of our business and reliance on the Internet, we are susceptible to this type of attack. In addition, physical security of devices located within our offices, and/or remote devices, pose cybersecurity and other technological risks that could negatively impact our business and reputation.

We also operate Internet based, worldwide data, voice, video communications, and messaging services and electronic billing, which require the transmission of confidential and at times personal or sensitive customer or employee information over public networks that may or may not support end to end security. Despite our security measures, which include the development, operation and maintenance of systems and processes that are designed to protect consumer and employee information and prevent fraudulent credit card transactions and other security breaches, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to error, malfeasance or other disruptions by a current or former employee or third-party provider and our failure to mitigate such fraud or breaches may adversely affect our operating results. Any such breach could compromise our systems and network and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption to our operations, damage to our reputation, and a loss of confidence in our products and services, and our ability to keep personally identifiable information confidential, which could adversely affect our business.

We have been subject to ~~cyber~~cybersecurity incidents from external sources including “brute force” and distributed denial of service attacks, as well as attacks that introduce fraudulent ~~VoiP~~VoIP traffic. Although these incidents have not had a material adverse effect financially or on our ability to provide services, this may not continue to be the case going forward. There can be no assurance that ~~cyber~~cybersecurity incidents will not occur in the future, potentially more frequently and/or on a more significant scale.

~~We have taken steps designed to improve the security of our networks and computer systems and our physical space. Despite these defensive measures, there~~There can be no assurance that we are adequately protecting our information or that we will not experience future incidents. The expenses associated with protecting our information could reduce our operating margins. We maintain insurance intended to cover some of these risks, however, this insurance may not be sufficient to cover all of our losses from any future breaches of our systems. In addition, third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions, which results in the storage and processing of customer information by third parties. While we engage in certain actions to reduce the exposure resulting from outsourcing, unauthorized access, loss or destruction of data or other ~~cyber~~cybersecurity incidents could occur, resulting in similar costs and consequences as those discussed above.

We make available on our website our privacy policy, which describes how we collect, use, and disclose our customers' personal information. To the extent we expand our operations into new geographies, we may become subject to local data security, privacy, data retention, and disclosure laws and regulations. It may be difficult for us to comply with these laws and regulations if they were deemed to be applicable to us. In addition, risks related to cybercrime and fraud increase when establishing a global presence.

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We are subject to Payment Card Industry, or PCI, data security standards, which require periodic audits by independent third parties to assess compliance. PCI data security standards are a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council including American Express, Discover Financial Services, JCB International, MasterCard Worldwide, and VISA Inc., to help facilitate the broad adoption of consistent data security measures. Failure to comply with the security requirements as identified in subsequent audits or rectify a security issue may result in fines. While we believe it is unusual, restrictions on accepting payment cards, including a complete restriction, may be imposed on companies that are not compliant. Further, the law relating to the liability of providers of online payment services is currently unsettled and states may enact their own rules with which we may not comply.

We rely on ~~third party~~third-party providers to process and guarantee payments made by Vonage and its affiliates’ subscribers, up to certain limits, and we may be unable to prevent our customers from fraudulently receiving goods and services. Our liability risk will increase if a larger fraction of our Vonage transactions involve fraudulent or disputed credit card transactions. Any costs we incur as a result of fraudulent or disputed transactions could harm our business. In addition, the functionality of our current billing system relies on certain third party vendors delivering services. If these vendors are unable or unwilling to provide services, we will not be able to charge for our services in a timely or scalable fashion, which could significantly decrease our revenue and have a material adverse effect on our business, financial condition and operating results.

Sales of our business services to medium-sized and enterprise customers involve significant risks which, if not managed effectively, could materially and adversely affect our business and results of operations.

As we continue to expand our sales efforts to medium-sized and larger businesses, we may incur higher selling expense and longer, more complex, sales cycles. Customers in this market segment may also require bespoke features and integration services, increasing the complexity and expense related to the sales and delivery process. As a result, we may devote greater sales and support to these customers, which may result in increased costs and a strain on our support resources. These factors could materially and adversely affect our results of operations and our overall ability to grow our customer base.

Our ability to provide our telephony service and manage related customer accounts is dependent upon third-party facilities, equipment, and systems, the failure of which could cause delays of or interruptions to our service, damage our reputation, cause us to lose customers, limit our growth, and affect our financial condition.

Our success depends on our ability to provide quality and reliable telephony service, which is in part dependent upon the proper functioning of facilities and equipment owned and operated by third parties and is, therefore, beyond our control. Unlike traditional wireline telephone service or wireless service, our telephony service typically requires our customers to have an operative broadband Internet connection and an electrical power supply, which are provided by the customer's Internet service provider and electric utility company, respectively, and not by us. The quality of some broadband Internet connections may be too poor for customers to use our telephony services properly. In addition, if there is any interruption to a customer's broadband Internet service or electrical power supply, that customer will be unable to make or receive calls, including emergency calls, using our telephony service.

We outsource several of our network functions to third-party providers. For example, we outsource the maintenance of our regional data connection points, which are the facilities at which our network interconnects with the public switched telephone network. If our third-party service providers fail to maintain these facilities properly, or fail to respond quickly to problems, our customers may experience service interruptions. Interruptions in our service caused by third-party facilities have in the past caused and may in the future cause us to lose customers or cause us to offer substantial customer credits, which could adversely affect our revenue and profitability. If interruptions adversely affect the perceived reliability of our service, we may have difficulty attracting new customers, and our brand, reputation, and growth will be negatively impacted.

In order to access our consumer services, a customer needs to connect a standard telephone to a broadband Internet connection through a Vonage-enabled device that we provide. Although we closely monitor inventory levels, if we are unable to procure a sufficient number of devices from our suppliers in a timely manner, including as a result of a failure by a component supplier, we would be delayed in activating new customers and may lose these customers.

~~While we believe that relations with our current third party providers are good, and we have contracts in place with these vendors, there~~There can be no guarantee that these third party providers will be able or willing to supply services to us in the future on commercially reasonable terms, or that we will be able to engage alternative or additional providers. ~~We believe that we could replace our current third party providers, however, our~~Our ability to provide our services may be impacted during any transition, which could have an adverse effect on our business, financial condition or results of operations.

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We rely on third-party vendors that may be difficult to replace or may not perform adequately.

For our CPaaS customers, we rely on IBM Softlayer to provide substantially all of the cloud infrastructure that hosts our CPaaS products and platform. Our CPaaS customers require uninterrupted performance of this platform and we are therefore vulnerable to service interruptions ~~at Softlayer.~~third-party data center providers, such as IBM Softlayer and Amazon Web Services, or AWS. We may experience interruptions, delays and outages in ~~Softlayer’s~~third-party service and availability due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints caused by technical failures, natural disasters, fraud or security attacks. To the extent that we do not effectively address interruptions, delays and outages in Softlayer’s service and availability or capacity constraints, our business, results of operations and financial condition may be adversely affected.

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In some cases we rely on purchased or leased hardware and software licensed from third parties in order to provide our UCaaS services. For example, Broadsoft, Inc. provides us with infrastructure, call termination and origination services, and other hardware and software in connection with our Vonage Enterprise offerings. We also integrate third-party licensed software components into our platform. This hardware and software may not continue to be available on commercially reasonable terms or pricing or may fail to continue to be updated to remain competitive. The loss of the right to use this third party hardware or software may increase our expenses or impact the provisioning of our services. The failure of this third party hardware or software could materially impact the performance of our UCaaS services and may cause material harm to our business or results of operations.

We outsource some of our cloud infrastructure to ~~Amazon Web Services, or~~ AWS which hosts certain of our products and platform. Customers of our products need to be able to access our platform at any time, without interruption or degradation of performance. AWS runs its own platform that we access, and we are, therefore, vulnerable to service interruptions at AWS. To the extent that we do not effectively address capacity constraints, either through AWS or alternative providers of cloud infrastructure, our business, results of operations and financial condition may be adversely affected. In addition, any changes in service levels from AWS may adversely affect our ability to meet our customers’ requirements.

Flaws in our technology and systems or our failure to adapt our systems to any new Internet Protocol could cause delays or interruptions of service, which could damage our reputation, cause us to lose customers, and limit our growth.

~~Although we have designed our service network to reduce the possibility of disruptions or other outages, our~~Our service may be disrupted by problems with our technology and systems that we provide to customers, software or facilities and overloading of our network. As we attract new ~~subscribers,~~customers, we expect increased call volume that we need to manage to avoid network interruptions. Interruptions have caused and may in the future cause us to lose customers and offer substantial customer credits, which could adversely affect our revenue and profitability. Network interruptions have also impaired our ability at times to sign-up new customers and the ability of customers to manage their accounts. If service interruptions or other outages adversely affect the perceived reliability of our service or customer service, we may have difficulty attracting and retaining customers and our brand reputation and growth may suffer.

In addition, we utilize third-party Internet-based or “cloud” computing services in connection with some of our business operations. Any disruption to the ~~internet~~Internet or to our third-party Web hosting or cloud computing providers, including technological or business-related disruptions, could adversely impact the experience of our customers and have adverse effects on our operations. In addition, fires, floods, earthquakes, power losses, telecommunications failures, and similar "Acts of God" could damage these systems and hardware or cause them to fail completely. While we do maintain redundant systems consistent with industry best practices certain events could result in downtime for our operations and could adversely affect our business.

The storage, processing, and use of personal information and related data subjects us to evolving governmental laws and regulation, commercial standards, contractual obligations, and other legal obligations related to consumer and data privacy, which may have a material impact on our costs, use of our products and services, or expose us to increased liability.

Federal, state, local and foreign laws and regulations, commercial obligations and industry standards, each provide for obligations and restrictions with respect to data privacy and security, as well as the collection, storage, retention, use, processing, transmission, sharing, disclosure and protection of personal information and other customer data. The evolving nature of these obligations and restrictions dictates that differing interpretations, inconsistency or conflicts among countries or rules, and general uncertainty impact the application to our business.

These obligations and restrictions may limit our ability to collect, store, process, use, transmit and share data with our customers, employees, and third party providers, which in turn could limit the ability of our customers to collect, store, retain, protect, use, process, transmit, share and disclose data with others through our products and services. Compliance with, and other burdens imposed by, such obligations and restrictions could increase the cost of our operations and impact our ability to market our products and services through effective segmentation.

An example of data privacy and security obligations and restrictions include the European Union General Data Protection Regulation, GDPR. The GDPR was adopted in April 2016 and comprehensively regulates the processing of personal data of any individual residing in the EU. The GDPR effectively requires any company processing data of EU individuals to develop a comprehensive privacy program. The GDPR becomes effective on May 25, 2018. In addition, in January 2017, the European Commission introduced a new proposed ePrivacy regulation that would restrict communications service provider’s ability to use metadata and content from communications services. In order to become effective, the proposal needs to be adopted by the European Council and European Parliament. In October 2016, the Federal Communications Commission adopted a new privacy rules for the U.S. communications industry. These rules greatly extended the scope of FCC privacy regulation. Numerous parties have filed petitions for reconsideration at the FCC on the new privacy rules.

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Failure to comply with obligations and restrictions related to applicable data protection laws, regulations, standards, and codes of conduct, as well as our own posted privacy policies and contractual commitments could subject us to lawsuits, fines, criminal penalties, statutory damages, consent decrees, injunctions, adverse publicity, loss of user confidence in our services, and loss of users, which could materially harm our business. Additionally, third-party contractors may have access to customer or employee data. If these or other third-party vendors violate obligations and restrictions related to applicable data protection laws or our policies, such violations may also put our customers’ or employees’ information at risk and could in turn have a material and adverse effect on our business.

Our Business segment is growing rapidly, and any inability to scale our business and grow efficiently could materially and adversely harm our business and results of operations.

As our Business segment expands, we will need to continue to improve our application architecture, integrate our products and applications across our technology platforms, integrate with third-party systems, and maintain infrastructure performance. We expect the number of users, the amount of data transferred and processed, the number of locations where our service is being used, and the volume of communications over our networks to continue to expand. To address this growth, we will need to scale our systems and customer services organization. Our ability to execute on these initiatives may impact system and network performance, customer satisfaction, and ultimately, sales and revenue. These efforts may also divert management resources. These factors may materially and adversely harm our business and results of operations.

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We depend on ~~third party~~third-party vendors to supply, configure and deliver the phones that we sell. Any delays in delivery, or failure to operate effectively with our own servers and systems, may result in delay or failure of our services, which could harm our business, financial condition and results of operations.

We rely on Yealink Inc. and Polycom, Inc. to provide, and a single fulfillment agent to configure and deliver, the phones that we offer for sale to our customers that use our UCaaS services. If these third parties are unable to deliver phones of acceptable quality or quantity, or in a timely manner, we may be forced to offer replacements at a higher cost than what is currently contracted. In addition, these phones must interoperate with our servers and systems. If either of our providers changes the operation of their phones, we may be required to engage in development efforts to ensure that the new phones interoperate with our system. The failure of our vendor-supplied phones to operate effectively with our system could impact our customers’ ability to use our services and could cause customers to cancel our services, which may cause material harm to our business or results of operations.

We market our products and services to small and medium-sized businesses, which may be disproportionately impacted by fluctuations in economic conditions.

We market our products to small and medium-sized businesses. Customers in this market may be affected by economic downturns to a greater extent, and may have more limited financial resources, than larger or more established businesses. If customers in our Business markets experience financial hardship as a result of a weak economy, the demand for our services could be materially and adversely affected.

~~The storage, processing,~~Significant foreign currency exchange rate fluctuations could adversely affect our financial results.

Federal, state, local and foreign laws and regulations, commercial obligations and industry standards, each provide for obligations and restrictions with respect to data privacy and security, as well as the collection, storage, retention, protection, use, processing, transmission, sharing, disclosure and protection of personal information and other customer data. The evolving nature of these obligations and restrictions dictates that differing interpretations, inconsistency or conflicts among countries or rules, and general uncertainty impact the application to our business.

These obligations and restrictions may limit our ability to collect, store, process, use, transmit and share data with our customers, employees, and third party providers and to allow our customers to collect, store, retain, protect, use, process, transmit, share and disclose data with others through our products and services. Compliance with, and other burdens imposed by, such obligations and restrictions could increase the cost of our operations and impact our ability to market our products and services through effective segmentation.

~~Examples of key data privacy and security related obligations and restrictions include~~voters approved an exit from the European Union, ~~General Data Protection Regulation, GDPR. The GDPR was adopted~~or E.U., commonly referred to as "Brexit." As a result of the referendum, the British government is undergoing negotiations of the terms of the U.K.'s withdrawal from the E.U. Brexit has continued to cause significant volatility in ~~April 2016~~global stock markets and ~~comprehensively regulates the processing of personal data of any individual residing~~currency exchange rate fluctuations that resulted in the ~~EU. The GDPR effectively requires any company processing data~~strengthening of ~~EU individuals~~the U.S. dollar against foreign currencies in which we conduct business, such as the British Pound, Euro and other currencies. Such strengthening of the U.S. dollar relative to ~~develop a comprehensive privacy program. The GDPR becomes effective on May 25, 2018.~~other currencies may adversely affect our revenue and operating results. In addition, ~~in January 2017, the European Commission introduced~~changes to U.K. border and immigration policy could likewise occur as a ~~new proposed ePrivacy regulation that would restrict communications service provider’s~~result of Brexit, affecting our U.K. operation's ability to ~~use metadata~~recruit and ~~content~~retain employees from ~~communications services. In order to become effective,~~outside the proposal needs to be adopted by the European Council and European Parliament. In October 2016, the Federal Communications Commission adopted a new privacy rules for the U.S. communications industry. These rules greatly extended the scope of FCC privacy regulation. Numerous parties have filed petitions for reconsideration at the FCC on the new privacy rules.U.K.

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If we fail to protect unique aspects of our internally developed systems, technology, products, and software and our trademarks, we may become involved in costly litigation or our business or brand may be harmed.

Our ability to compete effectively is dependent in large part upon the maintenance and protection of systems and software that we have developed internally based on open standards. While we own over ~~185~~200 issued U.S. patents as well as a number of foreign patents and ~~more than 60~~over 40 pending U.S. patent applications along with a number of foreign patent applications, we cannot patent much of the technology that is important to our business. Our pending patent applications may not be granted. Any issued patent that we own may be challenged, narrowed, invalidated, or circumvented. To date, we have relied on patent, copyright and trade secret laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our rights to this technology. We typically enter into confidentiality agreements with our employees, consultants, customers, partners, and vendors in an effort to control access to and distribution of technology, software, documentation, and other information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology without authorization. Policing unauthorized use of this technology is difficult. The steps we take may not prevent misappropriation of the technology we rely on. In addition, effective protection may be unavailable or limited in some jurisdictions outside the United States, Canada, and the United Kingdom. Litigation may be necessary in the future to enforce or protect our rights or to determine the validity and scope of the rights of others. That litigation could cause us to incur substantial costs and divert resources away from our daily business, which in turn could materially adversely affect our business.

The unlicensed use of our brands by third parties could harm our reputation, cause confusion among our customers, and impair our ability to market our services. To that end, we have registered numerous trademarks and service marks and have applied for registration of our trademarks and service marks in the United States and abroad to establish and protect our brand names as part of our intellectual property strategy. If our applications receive objections or are successfully opposed by third parties, it may be difficult for us to prevent third parties from using our brand without our permission. Moreover, successful opposition to our applications might encourage third parties to make additional oppositions or commence trademark infringement proceedings against us, which could be costly and time consuming to defend against. If we decide to take limited or no action to protect our trademarks, our trademark rights may be diluted and subject to challenge or invalidation, which could materially and adversely affect our brand in the marketplace.

Third parties may be capable of fraudulently ~~use~~using our name to obtain access to customer accounts and other personal information, use our services to commit fraud or steal our services or equipment, which could damage our reputation, limit our growth, and cause us to incur additional expenses.

Our customers have been subject to “phishing,” which occurs when a third party calls or sends an email or pop-up message to a customer that claims to be from a business or organization that provides services to the customer. The purpose of the inquiry is typically to encourage the customer to visit a bogus website designed to look like a website operated by the legitimate business or organization or provide information to the operator. At the bogus website, the operator attempts to trick the customer into divulging customer account or other personal information such as credit card information or to introduce viruses through “Trojan horse” programs to the customers’ computers. This has resulted in identity theft from our customers and the unauthorized use of Vonage services. Third parties have also used our communications services to commit fraud. Although we have engaged a third party to assist in the shutdown of purported phishing sites, if we are unable to detect and prevent “phishing,” use of our services for fraud, and similar activities, our brand reputation and growth may suffer and we may incur additional costs, including costs to increase security, or be required to credit significant amounts to customers.

Third parties also have used our communications services and obtained delivery of our equipment without paying, including by submitting fraudulent credit card information. This has resulted in our incurring the cost of providing the services, including incurring call termination fees, or providing the equipment without any corresponding revenues. We have implemented anti-fraud procedures in order to limit the expenses resulting from theft of service or equipment. If our procedures are not effective, theft of service or equipment could significantly increase our expenses and negatively impact our profitability.

The debt agreements governing our financing contain restrictions that may limit our flexibility in operating our business or executing on our acquisition strategy.

On July 31, 2018, we replaced our 2016 Credit Facility previously consisting of a $125 million senior secured term loan and a $325 million revolving credit facility with the 2018 Credit Facility consisting of a $100 million senior secured term loan and a $500 million revolving facility. The 2018 Credit Facility contains customary representations and warranties and affirmative covenants that limit our ability and/or the ability of certain of our subsidiaries to engage in specified types of transactions. These covenants and other restrictions may under certain circumstances limit, but not necessarily preclude, our and certain of our subsidiaries’ ability to, among other things:

consolidate or merge;

create liens;

incur additional indebtedness;

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dispose of assets;

consummate acquisitions;

make investments; or

pay dividends and other distributions.

Under the 2018 Credit Facility, we are required to comply with financial covenants, including the following financial covenants:

specified maximum consolidated leverage ratio;

specified minimum consolidated fixed coverage charge ratio, minimum cash position and maximum capital expenditures.

Our ability to comply with such financial and other covenants may be affected by events beyond our control, so we may not be able to comply with these covenants. A breach of any such covenant could result in a default under the 2018 Credit Facility. In that case, the lenders could elect to declare due and payable immediately all amounts due under the 2018 Credit Facility, including principal and accrued interest.

If we require additional capital, we may not be able to obtain additional financing on favorable terms or at all.

We may need to pursue additional financing to respond to new competitive pressures, pay extraordinary expenses such as litigation settlements or judgments or fund growth, including through acquisitions. Because of our past significant losses and our limited tangible assets, we do not fit traditional credit lending criteria, which, in particular, could make it difficult for us to obtain loans or to access the capital markets. In addition, the credit documentation for our recent financing contains affirmative and negative covenants that affect, and in many respects may significantly limit or prohibit, among other things, our and certain of our subsidiaries’ ability to incur, refinance or modify indebtedness and create liens. Our credit card processors have the ability to impose significant holdbacks in certain circumstances. The reinstatement of such holdbacks likely would have a material adverse effect on our liquidity. Under our credit card processing agreements with our Visa, MasterCard, American Express, and Discover credit card processors, the credit card processor has the right, in certain circumstances, including adverse events affecting our business, to impose a holdback of our advanced payments purchased using a Visa, MasterCard, American Express, or Discover credit card, as applicable, or demand additional reserves or other security. If circumstances were to occur that would allow any of these processors to reinstate a holdback, the negative impact on our liquidity likely would be significant. In addition, our Visa and MasterCard credit card processing agreement may be terminated by the credit card processor at its discretion if we are deemed to be financially insecure. As a significant portion of payments to us are made through Visa and MasterCard credit cards, if the credit card processor does not assist in transitioning our business to another credit card processor, the negative impact on our liquidity likely would be significant. There were no cash reserves and cash-collateralized letters of credit with any credit card processors as of December 31, 2018.

We may be subject to damaging and disruptive intellectual property disputes that could materially and adversely affect our business, results of operations, and financial condition, as well as the continued viability of our company.

There has been substantial litigation in the cloud communications, UCaaS, VoIP, telecommunications, hosted services, and related industries regarding intellectual property rights and, given the rapid technological change in our industry, expansion into new technological and geographical markets, and our continual development of new products and services, we and/or our commercial partners may be subject to infringement claims from time to time. For example, we may be unaware of filed patent applications and issued patents that could include claims that might be interpreted to cover our products and services. We have been subject to patent infringement claims in the past, are currently named as a defendant in several proceedings that relate to alleged patent infringement, and from time to time we receive letters from third parties offering an opportunity for us to obtain licenses to patents that may be relevant to our business or alleging that our services infringe upon third party patents or other intellectual property. We may seek to obtain rights to third party technology in the future, but may not be able to agree upon commercially reasonable terms or at all with respect to obtaining such rights. If we are unable to extend existing licenses or are unable to obtain rights to other technology that may be commercially advantageous or necessary for our product and service offerings, we may experience a decrease in the quality of our products or services or we may lose the ability to provide our products and services on a non-infringing basis until alternative technology or suitable alternative products and services can be developed, identified, obtained either through acquisition, license or other grants of rights, and integrated.

Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our services and could cause us to pay substantial royalties, licensing fees, damages or settlement fees. Our agreements with certain customers, vendors, or partners may obligate us to defend or indemnify them in connection with such claims of infringement, further increasing our costs of defense and potential liability. Although we generally limit our contractual liability regarding such obligations, we may incur significant liability with respect to them, and disputes with our customers, vendors or partners over such obligations may have an adverse relationship on our relations with those entities. The defense of

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any lawsuit could divert management’s efforts and attention from ordinary business operations and result in time-consuming and expensive litigation, regardless of the merits of such claims. These outcomes may:

result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;

cause us to accelerate expenditures to preserve existing revenues;

cause existing or new vendors to require prepayments or letters of credit;

cause our credit card processors to demand reserves or letters of credit or make holdbacks;

result in substantial employee layoffs;

materially and adversely affect our brand in the marketplace and cause a substantial loss of goodwill;

cause our stock price to decline significantly;

materially and adversely affect our liquidity, including our ability to pay debts and other obligations as they become due;

cause us to change our business methods or services;

require us to cease certain business operations or offering certain products and services; and

lead to our bankruptcy or liquidation.

We rely on third parties to provide a portion of our customer service representatives, provide aspects of our E-911 service, which differs from traditional 911 service, and initiate local number portability for our customers. If these third parties do not provide our customers with reliable, high-quality service, our reputation will be harmed and we may lose customers.

We offer our customers support 24 hours a day, seven days a week through both our comprehensive online account management website and our toll free number. Our customer support is currently provided via United States based employees as well as third party partners located in the United States, Philippines, Costa Rica, ~~Chile,~~Czechoslovakia, Mexico, Poland and India. We can offer support in English, Spanish, and French Canadian. Our third-party providers generally represent us without identifying themselves as independent parties. The ability to support our customers may be disrupted by natural disasters, inclement weather conditions, civil unrest, and other adverse events in the locations where our customer support is provided.

We also contract for services required to provide E-911 services including assistance in routing emergency calls, terminating E-911 calls, operating a national call center that is available 24 hours a day, seven days a week to receive certain emergency calls, and maintaining PSAP databases for the purpose of deploying and operating E-911 services. Interruptions in service from our vendor could cause failures in our customers’ access to E-911 services and expose us to liability and damage our reputation.

We also have agreements with companies that initiate our local number portability, which allow new customers to retain their existing telephone numbers when subscribing to our services.

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If any of these third parties do not provide reliable, high-quality service, our reputation and our business will be harmed. In addition, industry consolidation among providers of services to us may impact our ability to obtain these services or increase our expense for these services.

Our services are subject to regulation in the United States, United Kingdom, and Canada, and ~~future~~in additional countries as we expand globally. Future legislative, regulatory or judicial actions could adversely affect our business and expose us to ~~liability.~~liability and limit our growth potential.

Our business has developed in a relatively lightly regulated environment. However, the United States, United Kingdom, and Canada have applied some traditional telephone company regulations to VoIP and continue to evaluate how VoIP should be ~~regulated.~~regulated, as are other countries as we expand globally. The effects of future regulatory developments are uncertain. At the federal level in the U.S., the Federal Communications Commission has imposed certain telecommunications regulations on VoIP services ~~including:~~including, but not limited to:

Requirements to provide E-911 service;

Communications Assistance for Law Enforcement Act obligations;

Obligation to support Universal Service;

Customer Proprietary Network Information, or CPNI, requirements;

Disability access obligations;

Local Number Portability requirements;

~~Service discontinuance notification obligations;~~

~~Outage reporting requirements;~~ and

~~Rural call completion reporting~~Consumer protection, including protection from unwanted telemarketing and ~~rules related~~other calls.

As we expand globally, these types of regulations are likely to ~~ring signal integrity.~~be similarly enacted and enforced by local regulatory authorities.

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In general, the focus of interconnected VoIP telecommunications regulation is at the federal level. On November 12, 2004, the FCC issued a declaratory ruling providing that our service is subject to federal regulation and preempted the Minnesota Public Utilities Commission from imposing certain of its regulations on us. While this ruling does not exempt us from all state oversight of our service, it effectively prevents state telecommunications regulators from imposing certain burdensome and inconsistent market entry requirements and certain other state utility rules and regulations on our service. ~~As such,~~Despite this, Vonage ismay be subject to ~~relatively few~~ state and local regulatory requirements including:

Payment of state and local E-911 fees; and

State Universal Service support obligations.

In Canada, the Canadian ~~Radio-television~~Radio-Television and Telecommunications Commission, or ~~CRTC.~~CRTC, regulates ~~VoIP service. CRTC VoIP regulations include:~~

~~Requirement to provide 911 service; and~~

~~Local Number Portability requirements.~~

VOIP Service. In the UK, ~~we are subject to regulation in the UK by~~ the Office of Communications, or ~~OFCOM.~~ OFCOM, ~~VoIP regulations include:~~

~~Requirement~~regulates voice services. Other regulatory bodies in various jurisdictions regulate services Vonage offers its customers. These regulated services are similar to ~~provide 999/112 service; and~~

~~Number Portability requirements.~~

Vonage seeks to comply with all applicable regulatory requirements. We could, however, be subject to regulatory enforcement action if a regulator does not believe that we are complying with applicable regulations.

~~In addition,~~those regulated in the regulatory framework for VoIP service is still evolving and it is possible that Vonage could be subject to additional regulatory obligations and/or existing regulatory obligations could be modified or expanded particularly at the state and local level. For instance, several states public utility commissions are attempting to regulate ‘fixed’ VoIP provided by cable companies versus the nomadic nature of Vonage's services. These states believe that the FCC’s 2004 Vonage Preemption Order did not preempt regulation of these ‘fixed’ services. The effects of future regulatory developments are uncertain.United States discussed above. Future legislative, judicial or other regulatory actions could have a negative effect on our business. If we become subject to the rules and regulations applicable to telecommunications providers in individual states or other foreign jurisdictions, we may incur significant litigation and compliance costs, and we may have to restructure our service offerings, exit certain markets, or raise the price of our services, any of which could cause our services to be less attractive to customers. In addition, future regulatory developments could increase our cost of doing business and limit our growth.

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The regulatory framework for CPaaS services iscontinues to develop, as many existing regulations may not ~~developed;~~fully contemplate this type of service or business model; future legislative, regulatory or judicial actions onimpacting CPaaS could adversely affect our business and financial results of operations, increase the cost and complexity of compliance, and expose us to liability.

In ~~most~~many countries where we offer CPaaS products, it is not clear how CPaaS fits into the communications regulatory framework. Regulators could claim that our CPaaS products are subject to licensing and substantive communications regulatory requirements, or could modify their ~~regulatory requirements~~regulations to ~~make it clear that~~explicitly expand the obligations to which CPaaS products are ~~covered.~~subject, or could increase the level of scrutiny and enforcement they apply.

Future legislative, judicial or other regulatory actions could have a negative effect on our business. If our CPaaS products become subject to ~~the~~additional rules and regulations applicable to technology or communications providers, we may incur significant litigation and compliance ~~costs,~~costs. We may also experience interruptions or limitations on the delivery and weuse of our CPaaS products on our platform, or incur significant losses based on the timing of customer payments and any difficulty in collecting accounts receivable from CPaaS customers. Any decreased use of our products and services or limitation on our ability to collect payments from our customers could adversely affect our business, results of operations, and financial condition.

We may also have to restructure or discontinue certain of our service offerings, exit certain markets, or raise the price of our services in response to regulatory changes or actions, any of which could cause our services to be less attractive to customers. In addition, future regulatory developments could increase our cost or complexity of doing business, ~~and~~ limit our ~~growth.~~growth, or impact our results of operations.

Customer misuse of our CPaaS products in violation of the Telephone Consumer Protection Act may cause us to face litigation risk.

The Telephone Consumer Protection Act of 1991 restricts telemarketing and the use of automatic SMS text messages without proper consent. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face liability.

Our business is subject to country-specific governmental regulation and related actions and taxes that may increase our costs or impact our product offerings.

In ~~the United States, Canada, and United Kingdom,~~many countries, we are not a regulated telecommunications business subject primarily to regulations surrounding provision of emergency services and payment into universal service type funds. ~~Our services are also in use in~~In some countries, ~~outside of the United States, Canada, and the United Kingdom, including countries where~~ providing VoIP services is or may be illegal. We may need to change our service offerings to avoid regulation as a telecommunications business in a jurisdiction, or if we are treated as a fully regulated telecommunications business, we may be required to incur additional expenses. In addition, if governments believe that we are providing unauthorized service in their countries, they may pursue fines, penalties, or other governmental action, including criminal action, that may damage our brand and reputation. If we use a local partner to provide services in a country and the local partner does not comply with applicable governmental regulations, we may face additional regulation, liabilities, penalties or other governmental action, and our brand and reputation may be harmed.

In addition to the risk of being directly subjected to regulation, decisions by foreign regulators to increase the charge for terminating international calls into their countries could cause increased costs, impact margin, and impact churn. These regulatory actions may be taken without notice and cause us to react quickly to changing market conditions. These efforts could divert

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management’s efforts and attention from ordinary business operations which could materially and adversely affect our results of operations.

As a United States-based company, any foreign subsidiary or joint venture that we use for international operations may be subject to a variety of governmental regulations in the countries where we market our products, including tariffs, taxes and employment regulations different from those in the U.S. For example, distributions of earnings and other payments, including interest, received from our foreign subsidiaries may be subject to withholding taxes imposed by the jurisdiction in which such entities are formed or operating, which will reduce the amount of after-tax cash we can receive. In general, as a United States corporation, we may claim a foreign tax credit against our federal income tax expense for such foreign withholding taxes and for foreign income taxes paid directly by foreign corporate entities in which we own 10% or more of the voting stock. The ability to claim such foreign tax credits and to utilize net foreign losses is, however, subject to numerous limitations, and we may incur incremental tax costs as a result of these limitations or because we are not currently in a tax-paying position in the United States. We may also be required to include in our income for United States federal income tax purposes our proportionate share of certain earnings of those foreign subsidiaries that are classified as “controlled foreign corporations” without regard to whether distributions have been actually received from such subsidiaries.

Our CPaaS offerings may be subject to liability for historic and future sales, use and similar taxes, that may increase our costs or impact our product offerings.

In some United States tax jurisdictions in which we conduct operations, sales and use and telecommunications taxes could apply to our CPaaS products. Historically, we have not billed or collected these taxes from our CPaaS customers. It is possible that some tax jurisdictions may assert that such taxes are applicable to our CPaaS products, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes on our CPaaS customers in the future. Such tax assessments, penalties and interest or future requirements may adversely affect our business, results of operations and financial condition. To the extent that we decide to collect such taxes from our CPaaS customers in the future, we may have some customers that question the incremental tax charges and some may seek to negotiate lower pricing from us, which could adversely affect our business, results of operations and financial condition.

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The global scope of our operations may subject us to potentially adverse tax consequences.

We generally report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Intercompany relationships are subject to complex transfer pricing regulations in various jurisdictions. If revenue and taxing authorities disagree with positions we have taken we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. In addition, changes in tax laws of countries in which we do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, and therefore could harm our business, cash flows, results of operations and financial position.

We may be exposed to liabilities under anti-corruption, export control and economic sanction regulations, and similar laws and regulations, and any determination that we violated any of these laws or regulations could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, the UK Bribery Act and other laws that prohibit improper payments or offers of payments to foreign governments and their officials, political parties, and/or private parties by persons and entities for the purpose of obtaining or retaining business. We have operations, agreements with third parties, and make sales internationally. In addition, we plan to expand our international operations through potential joint ventures with local partners. Our international activities create the risk of unauthorized payments or offers of payments by one of our employees, consultants, partners, sales agents or distributors, even though these parties are not always subject to our control. It is our policy to prohibit these practices by our employees, consultants, partners, sales agents or distributors, however, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, partners, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA, the UK Bribery Act or other laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results, and financial condition.

Our products and services may be subject to export control and economic sanctions regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Controls. Our products and services must be offered and sold in compliance with these laws and regulations. If we do not comply with these laws or regulations or if we become liable under these laws or regulations due to the failure of our customers to comply with these laws by obtaining proper consent, we could face liability. In addition, changes in our products or services, changes in applicable regulations, or change in the target of such regulations, could also result in decreased use of our products and services, or in our decreased ability to sell our products or provide our services to existing or prospective customers with international operations. Any decreased use of our products and services or limitation

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on our ability to export our products and provide our services could adversely affect our business, results of operations and financial condition.

The success of our business relies on customers’ continued and unimpeded access to broadband service. Providers of broadband services may be able to block our services or charge their customers more for also using our services, which could adversely affect our revenue and growth.

Our customers must have broadband access to the Internet in order to use our service. Some providers of broadband access, including outside of the United States, may take measures that affect their customers’ ability to use our service, such as degrading the quality of the data packets we transmit over their lines, giving those packets low priority, giving other packets higher priority than ours, blocking our packets entirely or attempting to charge their customers more for also using our services.

In the United States, there continues to be some uncertainty regarding whether suppliers of broadband Internet access have a legal obligation to allow their customers to access and use our service without interference. On February 26, 2015, the FCC adopted neutrality rules that would protect against interference by suppliers of broadband Internet access. On December 14, 2017, the FCC voted to reverse its 2015 neutrality rules. The FCC's recent reversal of its stance on net neutrality may have a negative long term impact on businesses such as ours who rely on the Internet to create and deliver products and services. Challenges to the FCC's ruling are underway, with public interest groups, states, local municipalities and companies seeking redress in the courts and/or through legislation.

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~~An unremediated material weakness in our internal control over financial reporting could adversely affect our reputation, business or stock price.~~

As described under Item 9A - Controls and Procedures, we identified a control deficiency constituting a material weakness in our internal control over financial reporting related to our controls over the preparation of the annual tax provision for the year ended December 31, 2016. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Although we remediated this material weakness during 2017, we cannot assure you that we will not identify additional material weaknesses in our internal control over financial reporting in the future. If we are unable to remediate any future material weakness, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the Securities and Exchange Commission, could be adversely affected. The occurrence of or failure to remediate any future material weakness may adversely affect our reputation and business and the market price of our common stock and any other securities we may issue.

~~The debt agreements governing our financing contain restrictions that may limit our flexibility in operating our business or executing on our acquisition strategy.~~

On June 3, 2016, we entered into Amendment No. 1 to the Amended and Restated Credit Agreement, or the 2016 Credit Facility, consisting of a $125,000 senior secured term loan and a $325,000 revolving credit facility. The 2016 Credit Facility contains customary representations and warranties and affirmative covenants that limit our ability and/or the ability of certain of our subsidiaries to engage in specified types of transactions. These covenants and other restrictions may under certain circumstances limit, but not necessarily preclude, our and certain of our subsidiaries’ ability to, among other things:

~~consolidate or merge;~~

~~create liens;~~

~~incur additional indebtedness;~~

~~dispose of assets;~~

~~consummate acquisitions;~~

~~make investments; or~~

~~pay dividends and other distributions.~~

Under the 2016 Credit Facility, we are required to comply with the following financial covenants: specified maximum consolidated leverage ratio, specified minimum consolidated fixed coverage charge ratio, minimum cash position and maximum capital expenditures. Our ability to comply with such financial and other covenants may be affected by events beyond our control, so we may not be able to comply with these covenants. A breach of any such covenant could result in a default under the 2016 Credit Facility. In that case, the lenders could elect to declare due and payable immediately all amounts due under the 2016 Credit Facility, including principal and accrued interest.

~~Significant foreign currency exchange rate fluctuations could adversely affect our financial results.~~

Because our consolidated financial statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business could materially adversely affect our financial results. For example, Nexmo collects revenues in Euros, and accordingly the strengthening of the U.S. dollar relative to the Euro adversely affects our revenue and operating results presented in U.S. dollars. In addition, on June 23, 2016, the United Kingdom held a referendum in which a majority of voters approved an exit from the European Union, or E.U., commonly referred to as "Brexit." As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.'s withdrawal from the E.U. Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business, such as the British Pound, Euro and other currencies. Such strengthening of the U.S. dollar relative to other currencies may adversely affect our revenue and operating results. In addition, changes to U.K. border and immigration policy could likewise occur as a result of Brexit, affecting our U.K. operation's ability to recruit and retain employees from outside the U.K.

~~If we require additional capital, we may not be able to obtain additional financing on favorable terms or at all.~~

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~~Our credit card processors have the ability to impose significant holdbacks in certain circumstances. The reinstatement of such holdbacks likely would have a material adverse effect on our liquidity.~~

Under our credit card processing agreements with our Visa, MasterCard, American Express, and Discover credit card processors, the credit card processor has the right, in certain circumstances, including adverse events affecting our business, to impose a holdback of our advanced payments purchased using a Visa, MasterCard, American Express, or Discover credit card, as applicable, or demand additional reserves or other security. If circumstances were to occur that would allow any of these processors to reinstate a holdback, the negative impact on our liquidity likely would be significant. In addition, our Visa and MasterCard credit card processing agreement may be terminated by the credit card processor at its discretion if we are deemed to be financially insecure. As a significant portion of payments to us are made through Visa and MasterCard credit cards, if the credit card processor does not assist in transitioning our business to another credit card processor, the negative impact on our liquidity likely would be significant. There were no cash reserves and cash-collateralized letters of credit with any credit card processors as of December 31, 2017.

We have incurred cumulative losses since our inception and may not achieve consistent profitability in the future.

We incurred a net ~~loss~~income attributable to Vonage of ~~$33,933~~$35,728 for the year ended December 31, ~~2017~~2018 and our accumulated deficit is ~~$672,561~~$611,985 from our inception through December 31, ~~2017.~~2018. Although we have achieved profitability in prior years and believe we will achieve consistent profitability in the future, we ultimately may not be successful. We believe that our ability to achieve consistent profitability will depend, among other factors, on our ability to continue to achieve and maintain substantive operational improvements and structural cost reductions while maintaining and growing our net revenues. In addition, certain of the costs of our business are not within our control and may increase. For example, we and other telecommunications providers are subject to regulatory termination charges imposed by regulatory authorities in countries to which customers make calls.

We may be unable to fully realize the benefits of our net operating loss, or NOL, carry forwards if an ownership change occurs.

If we were to experience a “change in ownership” under Section 382 of the Internal Revenue Code, or Section 382, the NOL ~~carry forward~~carryforward limitations under Section 382 would impose an annual limit on the amount of the future taxable income that may be offset by our NOL generated prior to the change in ownership. If a change in ownership were to occur, we may be unable to use a significant portion of our NOL to offset future taxable income. In general, a change in ownership occurs when, as of any testing date, there has been a cumulative change in the stock ownership of the corporation held by 5% stockholders of more than 50 percentage points over an applicable three-year period. For these purposes, a 5% stockholder is generally any person or group of persons that at any time during an applicable three-year period has owned 5% or more of our outstanding common stock. In addition, persons who own less than 5% of the outstanding common stock are grouped together as one or more “public group” 5% stockholders. Under Section 382, stock ownership would be determined under complex attribution rules and generally includes shares held directly, indirectly ~~though~~through intervening entities, and constructively by certain related parties and certain unrelated parties acting as a group. We have implemented a Tax Benefits Preservation Plan intended to provide a meaningful deterrent effect against acquisitions that could cause a change in ownership, however this is not a guarantee against such a change in ownership.

Our certificate of incorporation and bylaws and the agreements governing our indebtedness contain provisions that could delay or discourage a takeover attempt, which could prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then-current market price for their shares.

Certain provisions of our ~~restated certificate~~Restated Certificate of ~~incorporation~~Incorporation and our ~~second amended~~Amended and ~~restated bylaws~~Restated By-laws may make it more difficult for, or have the effect of discouraging, a third party from acquiring control of us or changing our board of directors and management. These provisions:

permit our board of directors to issue additional shares of common stock and preferred stock and to establish the number of shares, series designation, voting powers if any, preferences, other special rights, qualifications, limitations or restrictions of any series of preferred stock;

limit the ability of stockholders to amend our ~~restated certificate~~Restated Certificate of incorporation and ~~second amended~~Amended and ~~restated bylaws,~~Restated By-laws, including supermajority requirements;

allow only our board of directors, Chairman of the board of directors or Chief Executive Officer to call special meetings of our stockholders;

eliminate the ability of stockholders to act by written consent;

require advance notice for stockholder proposals and director nominations; and

limit the removal of directors and the filling of director ~~vacancies; and~~

~~establish a classified board of directors with staggered three-year terms.~~vacancies.

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In addition, our Restated Certificate of Incorporation and Amended and Restated By-laws were amended on June 13, 2018 to declassify our Board of Directors. The declassification of the Board will be phased in commencing with the 2019 annual meeting of stockholders and will result in the Board being fully declassified (and all Board members standing for annual elections) commencing with the 2021 annual meeting of stockholders. A classified structure will therefore remain in place during the phase-in period.

Such provisions could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices. Any delay or prevention of, or significant payments required to be made upon, a change of control transaction or changes in our board of directors or management could deter potential acquirors or prevent the completion of a transaction in which our stockholders could receive a substantial premium over the then-current market price for their shares.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

~~The following is a summary of our offices~~

Our headquarters are located in Holmdel, New Jersey. We also lease office, building space and ~~locations:~~

Location Business Use
Square
Footage

Lease
Expiration
Date
Holmdel, New Jersey Corporate Headquarters, Network Operations, Customer Services, Sales and Marketing, Administration 350,000
2023
New York, New York Sales and Marketing, Administration, and Product Development 10,166
2026
Dallas, Texas Sales and Marketing, Administration, and Product Development 5,567
2021
Atlanta, Georgia Sales and Marketing, Administration, and Product Development 162,839
2020
Scottsdale, Arizona Network Operations, Customer Services, Marketing, and Administration 37,870
2021
Englewood, Colorado Sales and Marketing 19,146
2020
Minneapolis, Minnesota Sales and Marketing 2,206
2020
Oak Brook, Illinois Sales and Marketing 4,890
2019
Houston, Texas Sales and Marketing 4,040
2020
McLean, Virginia Network Operations, Customer Services, Sales and Marketing, Administration 25,475
2020
Philadelphia, Pennsylvania Sales and Marketing 5,795
2020
San Francisco, California Sales and Marketing, Administration, and Customer Services 5,000
2018
London, United Kingdom Sales and Marketing, Administration 22,361
2027
Raanana, Israel Application Development 7,158
2020
662,513

research and development sites around the world, primarily in the United States, the United Kingdom, Israel, and Poland. We sublease ~~52,000 square feet~~a portion of office space in our Holmdel, NJ location to a third party. We believe that the facilities that we occupy are in good condition, adequate for our current needs and do not anticipate leasing any material additional space.

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ITEM 3. Legal Proceedings

Refer to Note 11, Commitments and Contingencies to our Consolidated Financial Statements included in this Annual Report on Form 10-K for a discussion of recent developments regarding our legal proceedings.

ITEM 4. Mine Safety Disclosures

Not Applicable.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Our common stock has been listed on the New York Stock Exchange under the ticker symbol “VG” since May 24, 2006. Prior to that time, there was no public market for our common stock. The following table sets forth the high and low sales prices for our common stock as reported on the NYSE for the quarterly periods indicated.

    Price Range of Common Stock
   High Low
2017
Fourth quarter $ 10.57
$ 7.85
Third quarter $ 8.59
$ 6.28
Second quarter $ 7.44
$ 5.98
First quarter $ 7.88
$ 5.74
2016
Fourth quarter $ 7.57
$ 6.10
Third quarter $ 6.75
$ 5.43
Second quarter $ 6.29
$ 3.82
First quarter $ 5.88
$ 4.13

Holders

At January 31, ~~2018,~~2019, we had approximately ~~523~~506 stockholders of record. This number does not include beneficial owners whose shares are held in street name.

Dividends

We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock for at least the next 12 months. We intend to retain all of our earnings, if any, for general corporate purposes, and, if appropriate, to finance the expansion of our business.

Stock Performance Graph

The graphs below and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, or the Exchange Act, nor shall such information be deemed incorporated by reference into any filing under the Securities Act of 1933, or the Securities Act, or the Exchange Act, except to the extent we specifically request that such information be treated as soliciting material or specifically incorporate such information by reference into a document filed under the Securities Act or the Exchange Act.

The graph below compares the cumulative total return of our common stock between December 31, ~~2012~~2013 and December 31, ~~2017,~~2018, with the cumulative total return of (1) NASDAQ Telecommunications, (2) Russell 2000 Index, and (3) NASDAQ Computer. This graph assumes the investment of $100 on December 31, ~~2012~~2013 in our common stock, NASDAQ Telecommunications, Russell 2000 Index, and NASDAQ Computer, and assumes the reinvestment of dividends, if any.

COMPARISON OF THE CUMULATIVE TOTAL RETURN ON COMMON STOCK BET

2825 VONAGE ANNUAL REPORT ~~2017~~2018

Table of Contents

COMPARISON OF THE CUMULATIVE TOTAL RETURN ON COMMON STOCK BETWEEN DECEMBER 31, ~~2012~~2013 AND ~~December~~DECEMBER 31, ~~2017~~2018

Among Vonage Holdings Corp., the NASDAQ Telecommunications, the Russell 2000 Index, and the NASDAQ Computer.


	December 31,										December 31,
	2013		2014		2015		2016		2017		2014		2015		2016		2017		2018
Vonage Holdings Corp.	$	140.51	$	160.76	$	242.19	$	289.03	$	429.11	$	114.41	$	172.37	$	205.71	$	305.41	$	262.16
NASDAQ Telecommunications	$	124.02	$	135.07	$	124.94	$	143.52	$	168.54	$	108.91	$	100.74	$	115.72	$	135.90	$	140.02
Russell 2000 Index	$	137.00	$	141.84	$	133.74	$	159.78	$	180.79	$	103.53	$	97.62	$	116.63	$	131.96	$	115.89
NASDAQ Computer	$	131.95	$	158.17	$	168.05	$	188.67	$	261.81	$	119.88	$	127.36	$	142.99	$	198.42	$	191.11



Delaware		11-3547680
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
23 Main Street, Holmdel, New Jersey		07733
(Address of principal executive offices)		(Zip Code)



Title of each class		Name of each exchange on which registered
Common Stock, Par Value $0.001 Per Share		The New York Stock Exchange



		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	1210
Item 1B.	Unresolved Staff Comments	2623
Item 2.	Properties	2623
Item 3.	Legal Proceedings	2724
Item 4.	Mine Safety Disclosures	2724
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2825
Item 6.	Selected Financial Data	3027
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3531
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	45
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	47
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	48
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accountant Fees and Services	48
PART IV
Item 15.	Exhibits, Financial Statement Schedules	49
Item 16.	Form 10-K Summary	53
	Signatures	54
	Index to Financial Statements	F-1


	For the years ended December 31,														For the years ended December 31,
(In thousands, except per share amounts)	2017			2016 (1)		2015 (2)			2014 (3)			2013 (4)			2018 ⁽¹⁾		2017			2016 ⁽²⁾		2015 ⁽³⁾			2014 ⁽⁴⁾
Statement of Operations Data:
Total revenues	$	1,002,286		$	955,621	$	895,072		$	868,854		$	829,067		$	1,048,782	$	1,002,286		$	955,621	$	895,072		$	868,854
Income from operations	59,391			44,154		52,992			58,071			53,975			51,911		59,391			44,154		52,992			58,071
(Loss)/income from continuing operations	$	(33,933	)	$	13,151	$	25,035		$	29,707		$	29,427
Income/(loss) from continuing operations															35,728		(33,933		)	13,151		25,035			29,707
Discontinued operations	—			—		(2,439		)	(10,260		)	(1,626		)	—		—			—		(2,439		)	(10,260		)
Net (Loss)/Income	(33,933		)	13,151		22,596			19,447			27,801
Net Income/(Loss)															35,728		(33,933		)	13,151		22,596			19,447
Plus: Net loss from discontinued operations attributable to noncontrolling interest	$	—		$	—	$	59		$	819		$	488		—		—			—		59			819
Net (loss)/income attributable to Vonage	$	(33,933	)	$	13,151	$	22,655		$	20,266		$	28,289
Net (Loss)/Income per common share - continuing operations:
Net income/(loss) attributable to Vonage															$	35,728	$	(33,933	)	$	13,151	$	22,655		$	20,266
Earnings/(loss) per common share - continuing operations:
Basic	$	(0.15	)	$	0.06	$	0.12		$	0.14		$	0.14		$	0.15	$	(0.15	)	$	0.06	$	0.12		$	0.14
Diluted	$	(0.15	)	$	0.06	$	0.11		$	0.14		$	0.13		$	0.14	$	(0.15	)	$	0.06	$	0.11		$	0.14
Net Loss per common share - discontinuing operations attributable to Vonage:
Loss per common share - discontinued operations attributable to Vonage:
Basic	—			—		(0.01		)	(0.04		)	(0.01		)	$	—	$	—		$	—	$	(0.01	)	$	(0.04	)
Diluted	—			—		(0.01		)	(0.04		)	(0.01		)	$	—	$	—		$	—	$	(0.01	)	$	(0.04	)
Net (Loss)/Income per common share - attributable to Vonage:
Earnings/(loss) per common share - attributable to Vonage:
Basic	(0.15		)	0.06		0.11			0.10			0.13			$	0.15	$	(0.15	)	$	0.06	$	0.11		$	0.10
Diluted	(0.15		)	0.06		0.10			0.09			0.13			$	0.14	$	(0.15	)	$	0.06	$	0.10		$	0.09
Weighted-average common shares outstanding:
Basic	225,311			215,751		213,147			209,822			211,563			237,499		225,311			215,751		213,147			209,822
Diluted	225,311			231,941		224,110			219,419			220,520			248,892		225,311			231,941		224,110			219,419



Location	Business Use	Square Footage	Lease Expiration Date
Holmdel, New Jersey	Corporate Headquarters, Network Operations, Customer Services, Sales and Marketing, Administration	350,000	2023
New York, New York	Sales and Marketing, Administration, and Product Development	10,166	2026
Dallas, Texas	Sales and Marketing, Administration, and Product Development	5,567	2021
Atlanta, Georgia	Sales and Marketing, Administration, and Product Development	162,839	2020
Scottsdale, Arizona	Network Operations, Customer Services, Marketing, and Administration	37,870	2021
Englewood, Colorado	Sales and Marketing	19,146	2020
Minneapolis, Minnesota	Sales and Marketing	2,206	2020
Oak Brook, Illinois	Sales and Marketing	4,890	2019
Houston, Texas	Sales and Marketing	4,040	2020
McLean, Virginia	Network Operations, Customer Services, Sales and Marketing, Administration	25,475	2020
Philadelphia, Pennsylvania	Sales and Marketing	5,795	2020
San Francisco, California	Sales and Marketing, Administration, and Customer Services	5,000	2018
London, United Kingdom	Sales and Marketing, Administration	22,361	2027
Raanana, Israel	Application Development	7,158	2020
		662,513



	Price Range of Common Stock
	High		Low
2017
Fourth quarter	$	10.57	$	7.85
Third quarter	$	8.59	$	6.28
Second quarter	$	7.44	$	5.98
First quarter	$	7.88	$	5.74
2016
Fourth quarter	$	7.57	$	6.10
Third quarter	$	6.75	$	5.43
Second quarter	$	6.29	$	3.82
First quarter	$	5.88	$	4.13


Statement of Cash Flow Data:
Net cash provided by operating activities	$	128,058		$	93,456		$	134,485		$	101,546		$	89,554		$	123,205		$	128,058		$	93,456		$	134,485		$	101,546
Net cash used in investing activities	(30,737		)	(191,449		)	(153,509		)	(119,523		)	(122,237		)	(407,230		)	(30,737		)	(191,449		)	(153,509		)	(119,523		)
Net cash provided by (used in) financing activities	(96,242		)	68,054			35,451			(23,243		)	20,580			258,212			(96,242		)	68,054			35,451			(23,243		)
Balance Sheet Data:
Total assets	858,681			935,666			784,566			674,460			642,158			1,259,488			858,681			935,666			784,566			674,460
Total notes payable and indebtedness under revolving credit facility, including current portion	232,515			318,874			210,392			156,032			121,075			519,228			232,515			318,874			210,392			156,032
Capital lease obligations	140			3,428			7,761			10,201			13,090			—			140			3,428			7,761			10,201
Total stockholders’ equity	472,898			436,541			388,741			343,497			338,074			535,768			472,898			436,541			388,741			343,497



	For the years ended December 31,						$ Change 2016 to 2017			% Change 2016 to 2017		$ Change 2015 to 2016			% Change 2015 to 2016
(in thousands, except percentages)	2017		2016		2015		$ Change 2016 to 2017			% Change 2016 to 2017		$ Change 2015 to 2016			% Change 2015 to 2016
Revenues	$	1,002,286	$	955,621	$	895,072	$	46,665		5	%	$	60,549		7	%
Cost of services ⁽¹⁾	378,960		321,373		261,768		57,587			18	%	59,605			23	%
Cost of goods sold	25,994		33,777		34,210		(7,783		)	(23	)%	(433		)	(1	)%
Gross margin	$	597,332	$	600,471	$	599,094	$	(3,139	)	(1	)%	$	1,377		—	%



	For the years ended December 31,						$ Change 2017 to 2018		% Change 2017 to 2018		$ Change 2016 to 2017			% Change 2016 to 2017
(in thousands, except percentages)	2018		2017		2016		$ Change 2017 to 2018		% Change 2017 to 2018		$ Change 2016 to 2017			% Change 2016 to 2017
Total revenues	$	1,048,782	$	1,002,286	$	955,621	$	46,496	5	%	$	46,665		5	%
Cost of revenues ⁽¹⁾	426,995		404,954		355,150		22,041		5	%	49,804			14	%
Gross margin	$	621,787	$	597,332	$	600,471	$	24,455	4	%	$	(3,139	)	(1	)%



	(in thousands)
Service gross margin increased 23% primarily due to continued growth of our service offerings to our Business customers consistent with our overall organic growth in our Business customer base of 14% as compared to the prior year period along with the acquisitions of TokBox in August 2018 and NewVoiceMedia in October 2018	$	54,547
Access and product gross margin decreased due to higher costs providing access services to Business customers during the current period	(5,078		)
USF gross margin decreased mainly due to payment during the first quarter of 2018 for USF fees not collected in 2017	(5		)
Increase in segment gross margin	$	49,464



	(in thousands)
Service gross margin increased 20% primarily due to higher CPaaS gross margin of $8,321 related to Nexmo which was acquired on June 3, 2016 along with an increase in UCaaS gross margin of $29,944 primarily due to an increase in seats of 14% during the current year	$	38,265
Product gross margin decreased 11% primarily due to lower costs during the current year period	151
	38,416



	(in thousands)
Service gross margin increased 22% primarily due to higher CPaaS gross margin of $8,321 related to Nexmo which was acquired on June 3, 2016 along with an increase in UCaaS gross margin of $34,351 primarily due to an increase in seats of 14% during the current year	$	42,672
Product gross margin decreased 322% primarily due to lower costs during the current year period	(4,256		)
USF gross margin increased slightly due to the decrease in Business seats along with the acquisitions of Simple Signal and iCore	11
Increase in segment gross margin	$	38,427



	(in thousands)
Service gross margin increased 52% due to an increase in the number of Business seats as we have shifted marketing investment to attract more profitable business customers combined with the acquisition of Simple Signal and iCore, both acquired in 2015, and the acquisition of Nexmo in June 2016 offset by higher technical care and network operations costs in support of growth within the segment	$	64,900
Product gross margin decreased 70% due to an increase in costs associated with customer's equipment and broadband access as a result of increased customer additions and installation costs	(3,039		)
USF gross margin increased slightly due to the increase in Business seats along with the acquisitions of Simple Signal and iCore	18
Increase in segment gross margin	61,879



	(in thousands)
Service gross margin decreased primarily due to a decrease in subscriber lines of 14% resulting in lower gross margin of $28,674 as we have reallocated resources focused on attracting business customers. This was offset by a slight increase in average revenue per customer and lower overall costs incurred by the Consumer segment resulting in increased gross margin of $1,738	$	(26,936	)
Access and product gross margin increased 29% primarily due lower equipment costs associated with sales to customers during the current year	1,953
USF gross margin decreased mainly due to payment during the year for USF fees not collected in 2017	(26		)
Decrease in segment gross margin	$	(25,009	)



Business	For the Years Ended December 31,
	2017			2016			2015
Revenues ⁽¹⁾	$	498,922		$	376,352		$	219,027
Average monthly revenues per seat ⁽²⁾	$	43.86		$	44.94		$	42.79
Seats (at period end) ⁽²⁾	727,085			638,096			541,884
Revenue churn ⁽²⁾	1.3		%	1.4		%	1.2		%


Consumer	For the Years Ended December 31,									For the Years Ended December 31,
	2017			2016			2015			2018			2017			2016
Revenues	$	503,364		$	579,269		$	676,045
Average monthly revenues per subscriber line	$	26.19		$	26.43		$	27.58		$	26.42		$	26.19		$	26.43
Subscriber lines (at period end)	1,492,067			1,711,366			1,940,825			1,287,649			1,492,067			1,711,366
Customer churn	2.0		%	2.2		%	2.3		%	1.8		%	2.0		%	2.2		%


	For the years ended December 31,									$ Change 2016 to 2017			% Change 2016 to 2017		$ Change 2015 to 2016			% Change 2015 to 2016		For the years ended December 31,									$ Change 2017 to 2018			% Change 2017 to 2018		$ Change 2016 to 2017			% Change 2016 to 2017
(in thousands, except percentages)	2017			2016			2015													2018			2017			2016
Revenues
Service revenues	$	419,591		$	301,877		$	170,489		$	117,714		39	%	$	131,388		77	%	$	526,707		$	417,118		$	301,877		$	109,589		26	%	$	115,241		38	%
Product revenues ⁽¹⁾	52,498			52,450			35,545			48			—	%	16,905			48	%
Service and product revenues	472,089			354,327			206,034			117,762			33	%	148,293			72	%
Access and product revenues ⁽¹⁾																				50,068			54,971			52,450			(4,903		)	(9	)%	2,521			5	%
Service, access and product revenues																				576,775			472,089			354,327			104,686			22	%	117,762			33	%
USF revenues	26,833			22,025			12,993			4,808			22	%	9,032			70	%	31,369			26,833			22,025			4,536			17	%	4,808			22	%
Total revenues	498,922			376,352			219,027			122,570			33	%	157,325			72	%	608,144			498,922			376,352			109,222			22	%	122,570			33	%

Cost of revenues
Service cost of revenues ⁽²⁾	190,934			111,485			44,997			79,449			71	%	66,488			148	%	239,096			184,054			111,485			55,042			30	%	72,569			65	%
Product cost of revenues ⁽¹⁾	51,026			51,129			31,185			(103		)	—	%	19,944			64	%
Service and product cost of revenues	241,960			162,614			76,182			79,346			49	%	86,432			113	%
Access and product cost of revenues ⁽¹⁾																				58,081			57,906			51,129			175			—	%	6,777			13	%
Service, access and product cost of revenues																				297,177			241,960			162,614			55,217			23	%	79,346			49	%
USF cost of revenues	26,833			22,036			13,022			4,797			22	%	9,014			69	%	31,374			26,833			22,036			4,541			17	%	4,797			22	%
Total cost of revenues	268,793			184,650			89,204			84,143			46	%	95,446			107	%	328,551			268,793			184,650			59,758			22	%	84,143			46	%

Segment gross margin
Service margin	228,657			190,392			125,492			38,265			20	%	64,900			52	%	287,611			233,064			190,392			54,547			23	%	42,672			22	%
Gross margin ex-USF (Service and product margin)	230,129			191,713			129,852			38,416			20	%	61,861			48	%
Total segment gross margin	$	230,129		$	191,702		$	129,823		$	38,416		20	%	$	61,879		48	%
Gross margin ex-USF (Service, access and product margin)																				279,598			230,129			191,713			49,469			21	%	38,416			20	%
Segment gross margin																				$	279,593		$	230,129		$	191,702		$	49,464		21	%	$	38,427		20	%

Segment gross margin %
Service margin %	54.5		%	63.1		%	73.6		%	(9		)%			(11		)%			54.6		%	55.9		%	63.1		%	(1.3		)%			(7.2		)%
Gross margin ex-USF (Service and product margin) %	48.7		%	54.1		%	63.0		%	(5		)%			(9		)%
Gross margin ex-USF (Service, access and product margin) %																				48.5		%	48.7		%	54.1		%	(0.2		)%			(5.4		)%
Segment gross margin %	46.1		%	50.9		%	59.3		%	(5		)%			(8		)%			46.0		%	46.1		%	50.9		%	(0.1		)%			(4.8		)%


	For the years ended December 31,									$ Change 2016 to 2017			% Change 2016 to 2017		$ Change 2015 to 2016			% Change 2015 to 2016		For the years ended December 31,									$ Change 2017 to 2018			% Change 2017 to 2018		$ Change 2016 to 2017			% Change 2016 to 2017
(in thousands, except percentages)	2017			2016			2015													2018			2017			2016
Revenues
Service revenues	$	454,340		$	522,515		$	612,822		$	(68,175	)	(13	)%	$	(90,307	)	(15	)%	$	394,389		$	454,340		$	522,515		$	(59,951	)	(13	)%	$	(68,175	)	(13	)%
Product revenues ⁽¹⁾	525			702			645			(177		)	(25	)%	57			9	%
Service and product revenues	454,865			523,217			613,467			(68,352		)	(13	)%	(90,250		)	(15	)%
Access and product revenues ⁽¹⁾																				559			525			702			34			6	%	(177		)	(25	)%
Service, access and product revenues																				394,948			454,865			523,217			(59,917		)	(13	)%	(68,352		)	(13	)%
USF revenues	48,499			56,052			62,578			(7,553		)	(13	)%	(6,526		)	(10	)%	45,690			48,499			56,052			(2,809		)	(6	)%	(7,553		)	(13	)%
Total revenues	503,364			579,269			676,045			(75,905		)	(13	)%	(96,776		)	(14	)%	440,638			503,364			579,269			(62,726		)	(12	)%	(75,905		)	(13	)%

Cost of revenues
Service cost of revenues ⁽²⁾	80,454			100,054			123,580			(19,600		)	(20	)%	(23,526		)	(19	)%	47,439			80,454			100,054			(33,015		)	(41	)%	(19,600		)	(20	)%
Product cost of revenues ⁽¹⁾	7,208			14,394			20,616			(7,186		)	(50	)%	(6,222		)	(30	)%
Service and product cost of revenues	87,662			114,448			144,196			(26,786		)	(23	)%	(29,748		)	(21	)%
Access and product cost of revenues ⁽¹⁾																				5,289			7,208			14,394			(1,919		)	(27	)%	(7,186		)	(50	)%
Service, access and product cost of revenues																				52,728			87,662			114,448			(34,934		)	(40	)%	(26,786		)	(23	)%
USF cost of revenues	48,499			56,052			62,578			(7,553		)	(13	)%	(6,526		)	(10	)%	45,716			48,499			56,052			(2,783		)	(6	)%	(7,553		)	(13	)%
Total cost of revenues	136,161			170,500			206,744			(34,339		)	(20	)%	(36,274		)	(18	)%	98,444			136,161			170,500			(37,717		)	(28	)%	(34,339		)	(20	)%

Segment gross margin
Service margin	373,886			422,461			489,242			(48,575		)	(11	)%	(66,781		)	(14	)%	346,950			373,886			422,461			(26,936		)	(7	)%	(48,575		)	(11	)%
Gross margin ex-USF (Service and product margin)	367,203			408,769			469,271			(41,566		)	(10	)%	(60,502		)	(13	)%
Total segment gross margin	$	367,203		$	408,769		$	469,271		$	(41,566	)	(10	)%	$	(60,502	)	(13	)%
Gross margin ex-USF (Service, access and product margin)																				342,220			367,203			408,769			(24,983		)	(7	)%	(41,566		)	(10	)%
Segment gross margin																				$	342,194		$	367,203		$	408,769		$	(25,009	)	(7	)%	$	(41,566	)	(10	)%

Segment gross margin %
Service gross margin %	82.3		%	80.9		%	79.8		%	1		%			1		%
Gross margin ex-USF (Service and product margin) %	80.7		%	78.1		%	76.5		%	3		%			2		%
Service margin %																				88.0		%	82.3		%	80.9		%	5.7		%			1.4		%
Gross margin ex-USF (Service, access and product margin) %																				86.6		%	80.7		%	78.1		%	5.9		%			2.6		%
Segment gross margin %	72.9		%	70.6		%	69.4		%	2		%			1		%			77.7		%	72.9		%	70.6		%	4.8		%			2.3		%


	(in thousands)			(in thousands)
Service gross margin decreased 11% primarily due to a decline in subscriber lines of 13% over the current year reflecting planned actions to enhance profitability by restructuring pricing offers and targeting customers with lower subscription acquisition costs	$	(48,575	)	$	(48,575	)
Higher product gross margin of 51% primarily due to lower costs incurred primarily related to retail equipment as the Company shifted away from utilizing retailers in the current year	7,009			7,009
	(41,566		)
Decrease in segment gross margin				$	(41,566	)



	(in thousands)
Lower service gross margin of 14% due to fewer subscriber lines reflecting planned actions to enhance profitability by aligning marketing spend, restructuring pricing offers and targeting consumers with lower subscription acquisition costs and churn profiles	$	(66,781	)
Higher product gross margin as a result of a decrease in products costs of 31% due to decreased customer equipment costs resulting from lower new customer additions in the period and a decrease in reserves related to inventory	6,279
Decrease in segment gross margin	(60,502		)


	Payments Due by Period										Payments Due by Period
(dollars in thousands)	Total		Less than 1 year		2-3 years		4-5 years		After 5 years		Total		1 year or less		2-3 years		4-5 years		After 5 years
	(unaudited)										(unaudited)
Contractual Obligations:
2016 term note	$	92,187	18,750		73,437		—		—
2016 revolving credit facility	$	141,000	—		141,000		—		—
Interest related to 2016 term note	$	8,335	3,996		4,339		—		—
Interest related to 2016 revolving credit facility	$	16,551	6,624		9,927		—		—
Capital lease obligations	$	140	140		—		—		—
Operating lease obligations	$	57,928	11,481		21,012		12,441		12,994
2018 term note											$	95,000	$	10,000	$	20,000	$	65,000	$	—
2018 revolving credit facility											425,000		—		—		425,000		—
Interest related to 2018 term note											17,473		4,754		7,931		4,788		—
Interest related to 2018 revolving credit facility											101,228		22,150		44,228		34,850		—
Operating lease obligations net of committed sub-leases											65,198		16,591		23,361		15,338		9,908
Purchase obligations	$	53,650	38,956		13,698		996		—		57,173		32,177		16,475		8,521		—
Total contractual obligations	$	369,791	$	79,947	$	263,413	$	13,437	$	12,994	761,072		85,672		111,995		553,497		9,908
Other Commercial Commitments:
Standby letters of credit	$	1,562	$	1,562	$	—	$	—	$	—	1,516		1,516		—		—		—
Total contractual obligations and other commercial commitments	$	371,353	$	81,509	$	263,413	$	13,437	$	12,994	$	762,588	$	87,188	$	111,995	$	553,497	$	9,908



~~Reporting Unit (Segment)~~	~~% Fair Value Over Carrying Value~~
~~UCaaS (Business)~~	~~392~~	%
~~CPaaS (Business)~~	~~295~~	%



/s/ ALAN MASAREK		/s/ DAVID T. PEARSON
Alan Masarek Director, Chief Executive Officer		David T. Pearson Chief Financial Officer(Principal Financial Officer and Duly Authorized Officer)


	Balance at Beginning of Period		Additions							Less Deductions			Other		Balance at End of Period		Balance at Beginning of Period		Additions							Less Deductions			Other		Balance at End of Period
			Revenue			Expense													Revenue			Expense
Allowance for Doubtful Accounts:
Year ended December 31, 2018																	$	2,258	$	(489	)	$	1,773			$	—		$	—	$	3,542
Year ended December 31, 2017	$	2,093	$	(1,822	)	$	1,987			$	—		$	—	$	2,258	2,093		(1,822		)	1,987				—			—		2,258
Year ended December 31, 2016	1,091		(51		)	1,053				—			—		2,093		1,091		(51		)	1,053				—			—		2,093
Year ended December 31, 2015	607		492			(8		)		—			—		1,091
Inventory Obsolescence:
Year ended December 31, 2018																	$	108	$	—		$	237			$	(193	)	$	—	$	152
Year ended December 31, 2017	$	117	$	—		$	412			$	(421	)	$	—	$	108	117		—			412				(421		)	—		108
Year ended December 31, 2016	686		—			589				(1,158		)	—		117		686		—			589				(1,158		)	—		117
Year ended December 31, 2015	181		—			1,882				(1,377		)	—		686
Valuation Allowance for Deferred Taxes:
Year ended December 31, 2018																	$	22,390	$	—		$	1,425		(1)	$	—		$	—	$	23,815
Year ended December 31, 2017	$	18,546	$	—		$	3,844		(1)	$	—		$	—	22,390		18,546		—			3,844			(1)	—			—		22,390
Year ended December 31, 2016	20,456		—			(1,910		)	(1)	—			—		18,546		20,456		—			(1,910		)	(1)	—			—		18,546
Year ended December 31, 2015	17,451		—			3,005			(1)	—			—		20,456



Exhibit Number		Description of Exhibit
2.1		Agreement and Plan of Merger, dated ~~October 9, 2013, by and among Vonage, Vista Merger Corp., Vocalocity and the Representative (11).~~
~~2.2~~		~~Agreement and Plan of Merger, dated November 4, 2014, by and among Vonage, Thunder Acquisition Corp., Telesphere and the Representative (18)~~
~~2.3~~		~~Agreement and Plan of Merger, dated August 19, 2015, by and among Vonage Holdings Corp., Cirrus Acquisition Corp., iCore Networks, Inc. and Stephen G. Canton, as the Representative (15)~~
~~2.4~~		~~Agreement and Plan of Merger, dated~~ May 5, 2016, by and among Vonage Holdings Corp., Neptune Acquisition Corp., Nexmo and the Representative ~~(24)~~(19)
~~2.5~~2.2		Amendment No. 1 to Agreement and Plan of Merger, dated June 2, 2016, by and among Vonage Holdings Corp., Neptune Acquisition Corp., Nexmo and the Representative ~~(25)~~(20)
2.3		Stock Purchase Agreement, dated July 30, 2018, by and among Nexmo Inc., Telefonica Digital Ltd and Telefonica Digital, Inc (23)
2.4		Recommended Offer by Vonage Holdings Corp. for NewVoiceMedia Limited, dated September 20, 2018 (24)
3.1		Restated Certificate of Incorporation, ~~of Vonage Holdings Corp.(3)~~effective June 13, 2018 (25)
3.2		Amended and Restated ~~By-Laws~~By-laws of Vonage Holdings ~~Corp.,~~Corp, effective ~~as of December 10, 2015 (7)~~June 13, 2018 (25)
4.1		Form of Certificate of Vonage Holdings Corp. Common ~~Stock(2)~~Stock (2)
4.2		Tax Benefits Preservation Plan, dated as of June 7, 2012, by and between Vonage Holdings Corp. and American Stock Transfer & Trust Company, LLC, as Rights Agent, including as Exhibit A the form of Certificate of Designation of the Company's Series A Participating Preferred Stock and as Exhibit B the forms of Right Certificate and of Election to Purchase ~~(14)~~(11)
10.1		Vonage Holdings Corp. 2015 Equity Incentive ~~Plan.~~ Plan (28)*
10.2		Nexmo Inc. 2011 Stock Plan ~~(26)~~(21)*
10.3		Vonage Holdings Corp. 2006 Incentive Plan (Amended and Restated through June 6, 2013)~~(10)~~ (8)*
10.4		Form of Restricted Stock Unit Agreement under the Vonage Holdings Corp. 2006 Incentive ~~Plan(4)~~Plan (3)*
10.5		Form of Nonqualified Stock Option Agreement under the Vonage Holdings Corp. 2006 Incentive ~~Plan(12)~~Plan (9)*
10.6		Form of Restricted Stock Agreement under the Vonage Holdings Corp. 2006 Incentive ~~Plan(4)~~Plan (3)*
10.7		Form of Restricted Stock Agreement for Non-Executive Directors under the Vonage Holdings Corp. 2006 Incentive Plan ~~(8)~~(6)*
10.8		Form of Nonqualified Stock Option Agreement for Non-Executive Directors ~~(Quarterly Grants)~~(Annual Grant) under the Vonage Holdings Corp. 2006 Incentive Plan ~~(8)~~(6)*
10.9		Form of Nonqualified Stock Option Agreement for Non-Executive Directors (Sign-on Grant) under the Vonage Holdings Corp. 2006 Incentive Plan ~~(8)~~(6)*
10.10		Vonage Holdings Corp. 401(k) Retirement ~~Plan(1)~~Plan (1)*
10.11		Lease Agreement, dated March 24, 2005, between 23 Main Street Holmdel Associates LLC and Vonage USA Inc.(1)
10.12		Amendment to Lease Agreement, dated November 1, 2006, between 23 Main Street Holmdel Associates LLC and Vonage USA Inc.~~(23)~~ (18)



10.13		Amendment to Lease Agreement, dated December 1, 2015, between 23 Main Street Holmdel Associates LLC and Vonage USA Inc.~~(23)~~ (18)
10.14		Amended and Restated Non-Compete Agreement dated as of October 17, 2008 by and between Vonage Holdings Corp. and Jeffrey A. ~~Citron(9)~~Citron (7)
10.15		Form of Nonqualified Stock Option Agreement for Jeffrey A. Citron under the Vonage Holdings Corp. 2006 Incentive ~~Plan(21)~~Plan (16)*



10.16		Employment Agreement dated as of April 25, 2013 by and between Vonage Holdings Corp. and David T. Pearson ~~(16)~~(12)*
10.17		Letter Agreement, dated April 2, 2015, between Vonage Holdings Corp. and Edward M. Gilvar ~~(17)~~(13)*
10.18		Separation Agreement and General Release, by and among Vonage Holdings. Corp. and Edward M. Gilvar, dated May 14, 2018 (26)*
10.19		Letter Agreement dated as of June 9, 2015 by and between Vonage Holdings Corp. and Omar Javaid ~~(13)~~(10)*
~~10.19~~10.20		Letter Agreement dated as of January 30, 2017 by and between Vonage Holdings Corp. and Kenny Wyatt (29)*
10.21		Non-Executive Director Compensation Program ~~(23)~~(18)*
~~10.20~~10.22		Form of Indemnification Agreement between Vonage Holdings Corp. and its directors and certain ~~officers(5)~~officers (4)*
~~10.21~~10.23		Employment Agreement dated as of October 6, 2014 by and between Vonage Holdings Corp. and Alan Masarek ~~(22)~~(17)*
~~10.22~~10.24		First Amendment to Employment Agreement by and between Vonage Holdings Corp. and Alan Masarek ~~(23)~~(18)*
~~10.23~~10.25		Settlement and Patent License Agreement, dated December 21, 2007, between Vonage Holdings Corp. and AT&T Corp.~~(6)~~ (5)
~~10.24~~10.26		Credit Agreement, dated August 13, 2014, by and among Vonage America Inc. and Vonage Holdings Corp., as borrowers, various lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent, Citizens Bank, N.A., as Syndication Agent, and Silicon Valley Bank and Suntrust Bank, as Documentation Agents ~~(19)~~(14)
~~10.25~~10.27		Amended and Restated Credit Agreement among Vonage America Inc., Vonage Holdings Corp., the Lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Citizens Bank, N.A., as Syndication Agent, and Fifth Third Bank, MUFG Union Bank, N.A., Silicon Valley Bank and SunTrust Bank, as Documentation Agents. ~~(20)~~(15)
~~10.26~~10.28		Amendment No. 1 to Amended and Restated Credit Agreement, dated June 3, 2016, by and among Vonage America Inc., a Delaware corporation, Vonage Holdings Corp., Citizens Bank, N.A., Fifth Third Bank, MUFG Union Bank, N.A., Silicon Valley Bank, SunTrust Bank, Keybank National Association, Santander Bank, N.A., Capital One National Association, First Niagara Bank, N.A., and JPMorgan Chase Bank, N.A., as Administrative Agent (22)
10.29		Second Amended and Restated Credit Agreement, dated July 31, 2018, by and among Vonage America Inc., Vonage Holdings Corp., JPMorgan Chase Bank, N.A., as Administrative Agent, Citizens Bank, N.A. and Bank of America, N.A. as Syndication Agent, and the Lenders party thereto(27)
10.30		Form of Irrevocable Undertaking (Director) (24)
10.31		Form of Irrevocable Undertaking (Officer) (24)
10.32		Implementation and Management Warranty Deed, dated September 20, 2018, among each Warrantor provided therein, NewVoiceMedia Limited and Vonage Holdings Corp. (24)
21.1		List of Subsidiaries of Vonage Holdings Corp.~~(28)~~ (29)
23.1		Consent of Deloitte & Touche LLP, independent registered public accounting ~~firm(28)~~firm (29)
23.2		Consent of BDO USA, LLP, independent registered public accounting ~~firm(28)~~firm (29)
31.1		Certification of our Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002(28)~~2002 (29)
31.2		Certification of our Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002(28)~~2002 (29)
32.1		Certification of our Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002(28)~~2002 (29)


(1)	Incorporated by reference to Amendment No. 1 to Vonage Holdings Corp.’s Registration Statement on Form S-1 (File No. 333-131659) filed on April 7, 2006.


(3)	Incorporated by reference to Vonage ~~Holdings Corp.’s Quarterly Report on Form 10-Q (File No. 001-32887) filed on August 4, 2006.~~


~~(4)~~	~~Incorporated by reference to Vonage~~ Holding Corp.’s Annual Report on Form 10-K (File No. 001-32887) filed on April 17, 2007.


~~(5)~~(4)	Incorporated by reference to Vonage Holding Corp.’s Quarterly Report on Form 10-Q (File No. 001-32887) filed on November 14, 2007.


~~(6)~~(5)	Incorporated by reference to Vonage Holding Corp.’s Annual Report on Form 10-K (File No. 001-32887) filed on March 17, 2008.


~~(7)~~	~~Incorporated by reference to Vonage Holding Corp.’s Current Report on Form 8-K (File No. 001-32887) filed on December 11, 2015.~~


~~(8)~~(6)	Incorporated by reference to Vonage Holding Corp.’s Quarterly Report on Form 10-Q (File No. 001-32887) filed on August 11, 2008.


~~(9)~~(7)	Incorporated by reference to Vonage Holding Corp.’s Quarterly Report on Form 10-Q (File No. 001-32887) filed on November 10, 2008.


~~(10)~~(8)	Incorporated by reference to Vonage Holding Corp.’s Current Report on Form 8-K (File No. 001-32887) filed on June 6, 2013.


~~(11)~~	~~Incorporated by reference to the Current Report on Form 8-K (File No. 001-32887) filed by on October 10, 2013.~~


~~(12)~~(9)	Incorporated by reference to Vonage Holding Corp.’s Quarterly Report on Form 10-Q (File No. 001-32887) filed on May 7, 2010.

Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the fiscal year ended December 31, ~~2017~~2018

For the transition period from to