Good day everyone and welcome to the Vonage Holdings Corporation’s Fourth Quarter and Full Year 2014 Earnings Conference Call. Just as a reminder today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Hunter Blankenbaker, Vice President of the Investor Relations. Pleas go ahead sir.

Good thank you, Dave. And good morning everyone and welcome to our fourth quarter 2014 earnings conference call. Speaking on our call this morning will be Alan Masarek, Chief Executive Office; and David Pearson, CFO. Also joining us are Joe Redling, Chief Operating Officer; and Clark Peterson, President of Telesphere, a Vonage Company. Slides that accompany today’s discussion are available on the IR Web-site. At the conclusion of our prepared remarks, we’ll be happy to take your questions. As referenced on Slide 2, I would like to remind everyone that statements made during this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management’s expectations and depend on assumptions that may be 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 slides 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 Web-site. And now, I’d like to turn the call over to Alan.

Thanks, Hunter. Good morning everyone and thanks for joining us. I’m excited to be with you today and be reporting a very solid quarter, highlighted by our highest EBITDA in ten quarters, 56% year-over-year organic revenue growth at Vonage Business Solutions, and the completion of the Telesphere acquisition. Since this is my first earnings call as CEO, I’d like to take a few moments to share some of my background, as well as a few of the reasons why I was attracted to the Vonage. I joined Vonage from Google, which acquired my company Quickoffice in 2012. I was the CEO and Co-Founder of Quickoffice, the world’s most widely embedded mobile office software. Quickoffice had shipped pre loaded on more than 500 million smartphones and tablets and it has 26 million registered users at the time of Google’s purchase. Including Quickoffice I spent the last two decades, leading technology center of companies and I have always pursued growth strategies that include organic and inorganic growth and I planned to bring this same focus to Vonage. Since joining just four months ago, I’ve immersed myself in the company, I’ve traveled to all various offices, conducted operating and strategic business reviews have listened to and learned from our employees, investors, and business partners and inevitably one of the first questions I’m asked is, why leave Google and that California weather for Vonage. And my answer is pretty straightforward. I joined because Vonage has a powerful set of assets that I felt were under leveraged. I believe can be optimized to create significant shareholder value and innovative new services to customers and I tend to think about these assets in four buckets. The first asset that attracted me was the Vonage brand. The company has invested more than $2 billion over the past…

Thanks, Alan, and good morning, everyone. I’m pleased to review our financial results for the fourth quarter and full year 2014 and outlook for 2015. Before I begin, let me provide context for the numbers we reported this morning. We closed the acquisition of Telesphere on December 15, 2014. Fourth quarter results therefore include approximately two weeks of Telesphere’s financial results further adjusted down for purchase accounting which had a very modest impact on the financials. When we discuss VBS, those numbers do not include any contribution from Telesphere. I’d also like to note the beginning, in the first quarter of 2015, our disclosure structure will evolve to take into account the growing proportion of business service revenues, which as Alan noted, we expect to be in the 20% range for 2015. These changes will enable investors to better compare Vonage to our peers in the SaaS space. With that, let’s begin on Slide 5. For the fourth quarter, adjusted EBITDA was $35 million, up from $30 million sequentially, plus in continued cost reductions including in consumer sales and marketing. Adjusted EBITDA was up 38% from $25 million in the year-ago quarter reflecting lower cost of telephony services and lower marketing expense. Full year adjusted EBITDA was up 13% from the prior year to $124 million and well ahead of our guidance. VBS results reflect a strong cash flow generation capacity of our consumer business. Moving to Slide 6, revenue for the fourth quarter was $215 million flat sequentially Vonage Business Solutions revenue improved to $27 million, a 9% sequential and 56% year-over-year increase and was offset by a sequential decline in consumer revenues. Turning to Slide 7, for the full year revenue was $869 million up 5% from the prior year and inline with our guidance, the increase of…

Thanks, Dave. Sahib [ph] we’re ready for the first question, please.

Thank you, sir. [Operator Instructions] Your first question comes from George Sutton from Craig-Hallum. Your line is open, please go ahead.

Thank you. Alan I particularly appreciated the reallocation of spend discussion earlier in part of the call.

Yes.

Wondered relative to 2015, how much are you planning to further reallocate to the business side, from the customer side, you mentioned $30 million in 2014, I’m curious from an incremental perspective?

Well we are - the reallocation is - has multiple pieces to it. So one is, we reallocated in the business services as much as we think they can productively deploy. Then within consumer services, we remixed it essentially by as I mentioned continuing to refine what we’re doing in the system selling channel, moving away from brand spending on BasicTalk, and at the same investing into the brand. And again we’re focusing more on direct response vehicles and very heavily on digital.

Okay, that’s helpful and you mentioned 40% if I heard correctly 40% VBS organic growth updated [ph] for 2015 which I think would comfortably puts you above everyone else. Can you give us a sense of the composition you are expecting is it relative to less than 20 lines, greater than 20 lines I was kind of curious how you are coming up with 40%?

Yes, that’s - it’s David, that’s VBS and Telesphere combined and that’s across the platform. Both VBS and Telesphere are growing at roughly that rate.

Okay. Lastly if I could relative to acquisitions, are you planning to keep the acquisitions focused on the business side of the equation, and are you - would acquisitions look more similar to Telesphere than anything else? Thanks.

Sure, George. This is Alan again. Essentially yes, our focus is, we believe there is a long tail of acquisition opportunities and things like we’ve done with VBS and Telesphere or whatever principally focused on as we move forward.

Perfect, thanks guys.

Thank you. Our next question comes from Catharine Trebnick of Dougherty. Your line is open please go ahead.

Thanks for taking my question, nice print. Could - one of my questions is on the Business Services, would you say and or could you say in Q4 the line average lines are one to 20 year, 20 to 50 just kind of give some color around that?

Sure, I think we can update some information or reference some information we gave before. So within VBS which represent a $93 million of revenue for 2014, the average lines per customer is in the mid-single digits. For Telesphere, as we talked about at the time of acquisition and they did about $40 million of revenue in 2014, obviously, growing quickly their average lines is approaching 50 it’s in the 40s per customer. I would also note that, within Telesphere there is a - their average number of lines per customer is already high, but there is a shift happening right now, which is that line count as we add customers is actually going up. And in fact, if you think about our entire complex this includes VBS and Telesphere. More than a quarter of that revenue is coming from customers with over 50 lines. And that’s actual revenue in the quarter not revenue added. So that’s a number of that we intend to accelerate overtime.

Okay, thanks. And then the other one more towards you Alan, one of the things that a lot - some of the competitors feel because they have contact center support that they are very attractive to the mid-size market. How do you look at Telesphere’s assets and do they have contact center support and is that part of some of the customer acquisitions that you do win?

So we have excellent contact center support. Let me turn that question to Clark, he can speak more directly to it.

Yes, and I appreciate the question. On the contact center side, we’ve been offering contact center and advanced contact center services for probably five years now. Contact center customers all over the country and offer very advanced contact center features and services.

All right, thanks I’ll pass on.

Thanks, Catharine.

Thank you. And our next question comes from Mike Latimore from Northland Capital. Your line is open please go ahead.

Yes, great thanks very much. Great quarter near that. So just on the cost of telephony services, [indiscernible] does that - do you think that will trend down overtime.

I do, I mean it can be - it’s certainly can change quarter-to-quarter with USF and where rates are in India although, which is our biggest termination point internationally, but those rates are capped, so it would be essentially floating only backup to that cap. That’s the scientific answer, the practical answer is yes, termination rates are generally have been coming down and we believe that that trend not withstanding any quarterly fluctuation will continue.

Okay, with reference to the guidance on for business services, do you still assume the same amount of revenue from Telesphere as you did when you made the acquisition in 2015?

Yes, yes, what we said about Telesphere at the time stand, which is we were acquiring it for two times in that zone, and that would put their revenue into the mid-to-high fifties for 2015.

And what did they contribute to the quarter, to the fourth quarter?

It was minimus it was less than $2 million of revenue.

And then you have some discussion about consumer product development activity, I mean, that how much money is going to that and is it really more just kind of a reshuffling of our R&D.

This is Alan. Our focus in product development is not capital intensive that all. It’s really organizational and focus and perhaps to handful of in people. We see opportunities generally driven by mobile the way I like to describe it is to bend the curve in terms of the value proposition to our customers. And then large measure one of the reasons why this was hired was to bring that experience in mobile here. And so we are tapping at that.

That’s excellent.

Thank you.

Thank you. Our next question comes from Greg Burns from Sidoti & Company. Your line is open. Please, go ahead.

Good morning. Can you give us any additional color maybe underline dynamics of composition of the consumer base relative to BasicTalk’s growth and maybe the churn you are seeing your higher ARPU customers.

Sure. I mean as we’ve talked about before I mean you really have three pieces of the consumer base, you’ve got people who make international long distance calls and those are people who are in Vonage-branded devices by definition it’s not BasicTalk. That’s about 50% of our base and that part of the base tends to have better churn and the average and finds very good utility through extensions and that lot of the product innovations to-date has been to address that base. The second part of the base, which is smaller than that but bigger substantially, bigger than BasicTalk, it’s premium domestic, these are people on Vonage-branded devices that are not making long distance calls, they tend to have a very high ARPU and very, very high pre-marketing, operating income that’s where we see churn, it’s where the biggest issue, but it’s also very profitable phase that we are managing very, very carefully and that’s where retention offers additional features, product innovation, we think we’ll be particularly effective as we develop that. The third piece is, since BasicTalk and I think as we talked about where we were going on BasicTalk is to get the slack below 200 and let the distribution do the work, and essentially take as Alan referenced, take marketing down very, very substantially there. That product we believe is profitable and we’ll continue to toggle on essentially at its current phase, based on the dynamics. So this is distinct minority of our base right now, and it’s - likely to stay kind of in that zone.

Okay. When we look at the net adds for the quarter, I guess you use boss 79,000, so how should we think about that number, because that includes the 79,000 that you shed, for the second lines, or what does that imply for the actual net adds excluding that?

Yes, it does not include the 79,000. Yes, it does not include the 79,000 so the - essentially total net lines down 29,000 that was composed of VBS, Telesphere obviously, it was not factor. That’s composed of positive VBS net lines and pretty consistent with what we’ve seen in prior quarters, and then consumer down. So VBS accounted for all of the growth there.

Okay, then lastly on the comment for the tentative landscape for the VBS side of the business, a lot of the competitors we see out there are really almost walking away from the law into the market, what are you seeing and how are you benefiting from that?

Greg, this is Alan. So first of all, we see great economics in the low end as I mentioned in my comments. VBS has a very, very efficient customer acquisition model that enables us to grab the smaller customers very profitably. And this is our whole digital leads in, telesales, model that whole customer acquisition approach is working really, really well for us. At the same time, Telesphere is tacking ever higher and has a broader range of from a career grade set of features. So VBS also sells higher line sizes too, but we think we’ve got this market that we defined the SMB market as one to the 1,000 cover. And the economics are really exceptional at both the low end and the high end.

Thank you.

Thank you. Our next question comes from Michael Rollins from Citigroup. Your line is open please go ahead.

Yes, thanks for taking the question. The first question, I just want to make sure, I understand when you talked about the 850 to 855 for revenue guidance in 2015 is that fully inclusive of the Telesphere and the growth that you expect to get in Telesphere 2015.

Yes, it is.

And, you know, I’m sorry, go ahead please.

I no - no - yes it is that does include Telesphere.

I just more broadly just following-up immediately on some of the other questions, is there a level of line loss investor should be prepare for given what’s going on in terms of the strategic shift in the business?

Mike, I think you’re seeing it, I mean our guidance implies a level of line loss and revenue loss in consumer that we are choosing to take because we believe that does the money we would have spent getting those lines, many of which we believe would have been profitable, but the money that we would have spend is better deployed either directly into business in the form of EBITDA or into debt reduction or cash for the use of acquisitions that are accretive. The level of our guidance implies is a level of that we’re comfortable with. The factors that could change that, in the future would include product development on or that particular revenue becoming more attractive from a capital perspective than the other capital allocation choices that we have.

Okay, how should we think about the margin profile between - the gross margin profile between the VBS customer versus the consumer customer relative to what the new pro forma average under the new communication method that you’re providing?

Yes, sure, we don’t calculate gross margin directly, but obviously the slack, I mean just think about the VBS customer versus the consumer customer slack on a VBS line is lower. It’s been the kind of $250 range. The churn is better. It’s as we talk about the gross margin does tend to be higher, because your average consumer makes long distance calls, and sorry, international long distance calls, and those international long distance calls tend to be expensive. Now the overall dollar margin on an ILD caller is very, very attractive because of the ARPU that the margin is a bit lower, so your average VBS customer doesn’t have any ILD. So also has a higher gross margin or service margin than your average consumer. So when you think that - when we talk about those economics being more attractive and putting capital there are being more attractive that’s the calculation.

Thanks very much.

Thank you. [Operator Instructions] We have a follow-up question from Mike Latimore from Northland Capital. Your line is open. Please go ahead.

Yes, thanks. Dave, I just wanted to sink up two numbers that you gave. One was that you thought about 20% of the fiscal 2015 revenue would come from business which to sort of 173 million, but then you also said sort of 40% growth, which I think gives you more like 186 million. So can you just stick those two comments up a little bit?

Yes, the 20% was around estimate of implication you took away on the dollars divided into the guidance would be the more exact math.

Okay. Alright, thanks.

I’m showing no further questions at this time. I’d like to turn the conference back over for closing remarks.

Yes, great, thanks Dave [ph]. That does conclude our call today. We appreciate your support at Vonage and look forward to speaking with you during the quarter. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program. You may all disconnect.