Good day, everyone. And welcome to the Vonage Holdings Corporation Second Quarter 2014 Earnings Conference Call. Just as a reminder, today’s call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the conference over to David Pearson, Chief Financial Officer. Sir, please go ahead.

Thank you. Good morning and welcome to our second quarter 2014 earnings conference call. Speaking on our call this morning will be Marc Lefar, Chief Executive Officer and I. Also joining us are Joe Redling, President, Consumer Services; and by phone in Atlanta, Wain Kellum, President, Vonage Business Solutions. Marc will discuss the company’s strategy and progress, and I will review our financial results. Slides that accompany today’s discussion are available on the IR website. At the conclusion of our prepared remarks, we’ll be happy to take your questions. As referenced on slide two, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management’s expectations and depend on assumptions that maybe incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slide and contained in our SEC filings. We caution listeners not to rely unduly on these statements and disclaim any intent or obligation to update them. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available on the IR website. And now, I will turn the call over to Marc.

Thanks Dave. Good morning, everyone, and thank you for joining us. Earlier today we reported a solid second quarter highlighted by record revenue growth of 51% in the business solutions group. North American consumer business continue to generate strong cash flow and expanded the distribution of BasicTalk to be carried in more than 7,000 CBS pharmacy locations. On the international front we successfully completed the first phase of our Brazil consumer launch in two markets and expanded sales and marketing activities to Sao Paulo last week. And just yesterday we released important new capabilities to Vonage Mobile to allow a single account to operate concurrently across multiple devices including iPads. In addition we announced commitments for new expanded $225 million bank facility including $125 million revolver providing substantial flexibility to invest in growth as opportunities arise. The new facility is larger, lower coupon and longer tenure with less restrictive covenant than the one it is replacing. At closing we will be only 0.5 times net levered. GAAP revenue was up 7% year-over-year reflecting the accelerated growth driven by the successful acquisition and integration of Vocalocity. Adjusted EBITDA for the quarter was $29 million, this is equal to our highest adjusted EBITDA in five quarters and reflects the stability of our core business and continued focus on operational efficiency. Consolidated gross line additions were 172,000 driven by strong results in business solutions. The strength was offset by weaker than expected new customer additions and consumer services. Net lines were negative 7,000 for the quarter. Consolidated churn was flat sequentially at 2.6% and up 2.4% versus the prior year due to the higher churn rate of customers acquired through assisted sales channels and the rapid growth of BasicTalk which now represents a larger percentage of our customer base than a year ago.…

Thanks Mark and good morning everyone. I am pleased to review our second quarter financial results. For beginning I would like to note that this is the second quarter that the company is reporting consolidated results which include Vonage Business Solutions for the entire quarter. Similar to last quarter table two of our earnings release shows VBS key operating statistics on a pro forma basis as if Vonage owned VBS for all periods presented. Beginning on slide four, adjusted EBITDA was $29 million, same as last quarter. Primary drivers of the strong EBITDA performance were reduction in SG&A, better than expected performance in VBS, offset by lower consumer revenues. The context as Marc mentioned, we’ve been operating VBS in the area of EBITDA breakeven for the year, but that will fluctuate from quarter to quarter. Adjusted EBITDA was up from $27 million in the year ago quarter due to lower comps and savings in marketing and G&A within the consumer business that offset lower revenue in that segment. While we are on EBITDA, I would like to expand on the cost synergies from the acquisition of Vocalocity that Marc referenced. At the time we announced the acquisition, we have projected recurring cost synergies in the high single-digit million dollar range by 2015. We are pleased to report that we are well on our way toward meeting this goal. With $5 million of actual cost synergies projected to be realized in 2014, we have seen synergies across multiple categories. This includes cost line items, domestic termination, E911 and international long-distance and administrative functions including finance, audit, legal and device shipping. In addition to continuing to realize cost synergies, we are driving revenue synergies in the areas of better search yield and higher close rates, in addition to deriving higher ARPU on…

Thank you. (Operator Instructions). Our first question comes from the line of George Sutton from Craig-Hallum.

Thank you. I wondered if you could give us some more detail on the data you were receiving that ultimately resulted in the decision on the face-to-face selling side, to reduce that, just on a relative basis and at what point would you expect to have that show up in terms of the better customer metrics that you talked about?

Hi, George it's Marc. I will take that. So the source the data we've now been able to integrate individual sales team information into our warehouses from our third-party outsource providers of those assisted sales channels. So we're actually able to track individual sales and customer life acquired by individual sales agents as well as the location and the individual stores in which they did their initial sales. From that we're able to actually track the behavior of those customers including returns for their life churn longevity those that actually do those things like spending so cancelling and then coming back into front or elsewhere and we can track that behavior and set specific metrics for individual teams. And as you would expect you see certain pockets of that we've expanded to many hundreds of people in these assisted sales channels and given the rate and ramp that we have built as that channel this is necessary pruning. So we have limited roughly 10% of the total hours among that group so not an insignificant impact we started doing that in the middle of the second quarter and in terms of when we expect to see that benefit, the long-term impact you will see is improve churn. You would expect to see that over a four to nine month period kind of equating to when you would see early life churn occur. And we expect that we'll redeploy those dollars and ads over the coming same period of time prior the next six months to bring that staffing level back up to the levels we had previously. So think about the six to nine months fixit program.

And just to be clear as this goes down to an individual level to a store level or regional level I mean what sort of changes you made?

Store and individual.

Okay. And then my second question related to Brazil. You mentioned you had achieved most of your milestones before you pulled off the year during the World Cup. What do you mean by that, what kind of milestones did you set for yourself?

So as you are probably aware, we’ve built a complete new operating platform, which includes all the call processing OSS, BSS as well as all of our platforms for e-commerce linked to external distribution. We now have our service capability, so the ability to actually make and receive calls, to actually have entire footprint covering almost 9 million households in Southeast Brazil is now up, scaled and tested. Our billing system third-party partner was successfully deployed and we completed multiple real billing cycles with live customers. The cloud based networks completing calls, the intelligent routing, so that has been completed and tested, our care and sales centers are meeting all of our operational KPIs everything from abandon rates and call handle times and we're scaling those systems. So those are some of the kinds of things that you have to test and you bring up a complete new platform. In addition, the actual functionality, the product itself, so the ability to new partners to deliver domestic and international service inbound calls, outbound calls everything working over VoIP as expected and then all of the actual product feature themselves including our abilities to important numbers, the ability to use Boleto payments which is an unusual and unique to Brazil form of payment. All those things were important milestones that we wanted to make sure that we kicked the tires on in full production in those two markets. And then obviously it gave us the opportunity to test, our sales and marketing activities and we've been able to see what's working, what's not and optimize those before going into Sao Paulo.

Okay, great. If I could sneak one more and the cost per line internationally came down quite a bit. Is that a newly negotiated reduction or is that what we've talked about in prior quarters?

That’s what we have talked about in prior quarter that still falls primarily under the Tata contract that we have and as we’ve talked about, we’ve had some benefits from currency as well as most favored nation status that we get from that contract.

Okay, perfect. Thank you.

Thank you. Our next question comes from the line of Greg Burns from Sidoti.

Good morning. You mentioned adding some, I guess, value added services to BasicTalk. I know magicJack is making a push with mobile integration. Can you just give us some more color on what those services are that you're referring to that you might be adding to BasicTalk over the next 12 months?

Hey Greg, it’s Marc. I would love to give you more detail but candidly given the competitive nature of the products and the obvious direct competition with magicJack, I am going to decline on that one. But you have seen what we do in Vonage. Obviously as the premium to discount brand, dual brand strategy, you expect to see a lot of the things on your core premium brand first and those things as well as enhancement for the lower discounted product will find the way in the BasicTalk. And it will include a range of features as well as mobile capabilities down the road. So, beyond that I am just not comfortable sharing that publicly.

Okay. And back to Brazil, it sounded like a lot of operational milestones, but is there any kind of metrics or indication that you're getting in terms of subscriber adoption, or is it too early to gauge that?

It’s still pretty early to be able to gauge that. We obviously had metrics to be able to understand what percentage of the addressable market in those markets we’re reaching. We look at advertising awareness which quickly got to double-digits. So, but it’s still too early and just 4 to 6 week initial launch to draw any large conclusion. We were able to understand some of the channels we're looking at, so some other retail kiosk capabilities that we were testing in small scale did not deliver the yield that we wanted. We of thought that was 50-50 proposition; so we're not going to scale that. We found that there was additional distribution opportunities but folks who already have broadband customers as direct consumer relationships and realize that there is a good opportunity for us to accelerate are thinking of deals for third-party distributors. And we also saw significant early demand from SOHO customers and possibly even small, medium business customers that we're going to work to pursue in the coming months. But still difficult until we get through the Sao Paulo launch and get the next slide of television and promotion in those initial markets, before being able to draw any conclusions about the overall subscriber adoption.

Okay, thanks. And then just lastly on the direct sales pruning, are you going to be redeploying any cost-savings there to other channels, or is it just going to be put back into that channel, as you kind of build up your staffing going forward?

In the short-term, we expect, we'll probably see some benefits there; if we can opportunistically invest and get a good return, we will. Our expectation though is we do see a large portion of this channel that can be very profitable for us. And we'd like to be able to redeploy those dollars over an extended period of time to bring staffing back up to its prior levels.

Okay. Thank you.

Thank you. Our next question comes from the line of Michael Rollins from Citi Investment Research.

Hi, thanks for taking the questions. Two questions, if I could. First question is, I was wondering if you can give a more specific breakdown of the subscriber lines by Vonage Business versus your consumer segment, so we can understand a little bit more of the nuance in the change on, maybe, gross subscriber line additions, as well as the ending subscriber lines. And, then secondly, if we just take a step back, what is the risk that there is fatigue in the home replacement category for phone service? And, not just for you guys, but for the category. And, that's a possible explanation for some of the challenges recently in trying to stabilize or improve the consumer segment, even while you're introducing new more attractively priced products. Thanks.

Hey, Mike this is Marc. Let me take the second one first and then I’ll turn to Dave to comment on subscriber lines. So, I think it’s important to understand within our consumer business there is really three sub-segments, international, premium domestic which is the $26, $27 retail price with taxes your total bill is going to be in the low 30s and then your BasicTalk product which has been as coming in just over $10 all-in monthly expense. We continue to see growth in the international long distance segment. We continue to see demand and we’re seeing the need particularly in Hispanic segment to continue to drive that not only the flat rate unlimited sometimes the out of pocket cost is a bit of barrier so we’re experimenting obviously with lower access price points as well as moving into markets like the cash pay market with calling card. We do see additional opportunity in the U.S. for that business. And we are seeing is on BasicTalk we continue to grow, so in our last quarter we’re going to that business and it continues to ramp but lower ARPU it’s not going to drive revenue as quickly as something that has got revenue of two to three times on a monthly basis. And we’re still seeing 40% plus of those are buying BasicTalk did not have home phone service before, so they were cord cutters. So we are seeing people come back for a range of reasons including everything from one in just the security of a phone in house next to a spouse’s bedside table to having extension phones for extended family call then like multiple people to be able to listen to the same line, battery life as well as some of the issues around 911 and security…

Mike, excuse me on the second part of your question regarding parsing line a bit. So if you look at our negative 7,000 net lines that without and you can do the math based on table two, the earnings release that splits out of a positive 23,000 net lines of VBS and the negative 30,000 net lines in consumer. We talked about the fact that churn on an actual number of lines basis was better this quarter. So really what led to that negative net lines and consumer is really the shortfall in GLAs that Marc referenced.

Thanks very much for the detail.

Thank you. Our next question comes from the line of Mike Latimore from Northland Capital.

Great, thank you. Just on the VBS. I think you referred account churn there, if you were to report revenue churn, would it be better or worse than your account churn number?

Yes. That’s not a metric that we’re using and I know it’s a bit of the wild west in test space right now. We have got different companies do it and whether they report churn at all. We do it on a very conservative basis looking at the entire quarter using the same definition that we do for our consumer business. But we don’t track revenue churn the way you are asking.

And then on the Vonage Business, you have some redirects of customers from the Vonage site. Can you give us some sense of how much sort of new recurring revenue comes from that channel?

Sure, it’s valuable and it’s worth more than it was worth to us in our consumer business. We talked about a higher close rate and higher ARPU. That being said that’s not what’s driving the acceleration in revenue; it’s actually in terms of the overall revenue base, it’s fairly immaterial. It will actually become more and more material over time but it’s not having much of an effect on the comparable growth rate.

You can probably think about it as something in the low double-digit, it’s probably not more than about 10% for the incremental acceleration in growth.

Okay, great. And then I think earlier in there you talked about maybe some white label opportunities for your VBS division, maybe any additional color around that?

As I mentioned earlier, we have made some improvements in the mobile platform that allow us to be third party ready. We are not at this time ready to announce anything specifically but stay tuned.

Okay. And then I know the focus of VBS tends to be on the smaller business segments but any sense of what your largest customer is in the VBS right now?

We haven’t shared specific customer sizing and I don’t think that an individual customer deployment would be terribly useful information to draw any long-term conclusions on. We said before and consistently we are focused on the under 20 market for now and that is the place where we are seeing virtually all of our gains. We do have some deployments that are larger than that, but since they are not representative, I don't think it probably does us any service to get into details.

Alright. Thanks.

Thank you. Our next question comes from the line of Catharine Trebnik from Dougherty & Company.

Hello?

Hi Catharine.

Okay, good. Sorry, I wasn't sure, if I got to the queue. My question has to do with Brazil and Canada. And can you discuss your expansion plans? I understand you saying during the call that you want to be balanced in your approach, but I do see with VBS growing at 50% year-over-year, what your expansion plans are for revenue opportunity? Thanks.

Thanks Catharine. We continue to invest in VBS and we think that we've got capacity to invest can grow as much as we can actually scale and take advantage of new opportunities. So we are not in any way putting on any kind of brakes on VBS opportunities for growth. So I want to make sure that's completely clear. Relative to Brazil, obviously the Brazil environment is -- can be difficult to operate in, there is plenty of risks, so we're taking a pretty measured and milestone driven approach to how we deploy the investment. First and foremost was building a platform that is robust that meets all the needs of our customers and that was much of the work over the last 12 months since announcing the joint venture. As we deploy, we again have plenty of investment capacity. The guidance we have given incorporates a roll out that would get us through all of our addressable market through the end of this year. And we believe the substantial sales and marketing investment to be able to measure and drive growth. If in fact we saw better than expected results, then we want to turn up the heat. We would certainly be able to provide additional sales and marketing investment, I don’t think that we would make those decisions before the next quarterly earnings call, so you will have an opportunity to understand if we’re going to increase or investment pace. But currently we feel pretty good about what’s in our current EBITDA outlook and if that accommodates our continued expansion into Sao Paulo and then pending success there and move to Rio and then we’d fill out the balance of our footprint weeks after that.

Okay, and then the follow-on question is, the consumer business is obviously somewhat of a drag so not that it isn’t and as you said, the international, and I understand going after segmentation like the Hispanic market. But, one thing, are you looking at other, smaller acquisitions to drive you’re the business segment with some of the cash you have? Is that one idea that we could think about in terms of use of cash, and in terms of helping the growth?

Dave, you want to take that?

Yes, sure. So, Catherine just talk about our new bank loan which has significantly sized revolver that’s unused as well as the success of the Vocalocity acquisition. So yes, I think most of the M&A opportunities the more compelling ones we’re seeing tend to be in the SMB space and then we’re very happy with the platform we have. The main goal is to grow VBS as quickly as possible organically. But we think there may also be more there and the ability to buy some things that it will take some time to build. That would include expanding the addressable market products that expand the customer set we are selling more to current customers. There tends to be a number of opportunities in each of those out there.

All right thanks catch the rest on your post call.

Thank you.

Thank you. And that concludes our question-and-answer session for today. I would like to thank everyone for attending the conference call. And you may now log off or disconnect.