HOLMDEL,
N.J., May 8, 2008 /PRNewswire-FirstCall via COMTEX News Network/ --
Vonage Holdings Corp. (NYSE: VG), a leading provider of broadband
telephone service, today announced results for the quarter ended March
31, 2008.
Revenue
for the first quarter 2008 grew to a record $225 million, up 15% from
$196 million in the first quarter 2007 and up 4% sequentially, driven
by an increase in subscriber lines and higher average revenue per user.
For the first quarter of 2008, the Company reported a GAAP net
loss of $9 million or $0.06 per share, down from a loss of $72 million
or $0.47 per share reported in the first quarter 2007. Adjusted
operating income(1) was $8 million in the quarter, a significant
improvement from an adjusted operating loss of $58 million in the
year-ago quarter and adjusted operating income of $3 million
sequentially.
Jeffrey Citron, Vonage Chairman, said, "We are
pleased with our results this quarter, as we further strengthened
relationships with existing customers and captured new subscribers
through targeted marketing. Our business fundamentals are improving and
for the second consecutive quarter we reported positive adjusted
operating income. Additionally, we have taken a significant step toward
restructuring our convertible debt.
"We
remain confident in our ability to grow the business profitably and
deliver innovative products and services which enable customers to
control the way they communicate. Today's announcement of a strategic
relationship with Covad to deliver Vonage Broadband is an exciting step
in that direction."
First Quarter 2008 Financial and Operating Highlights
Average
monthly revenue per line in the first quarter 2008 was $28.85, up from
$28.31 in the year-ago quarter and $28.19 reported in the fourth
quarter 2007. Average monthly telephony services revenue per line for
the quarter increased to $27.87, up from $27.36 reported a year ago and
up from $27.42 sequentially.
In
the first quarter 2008, direct cost of telephony services was $56
million, flat versus last year and up slightly from $54 million in the
fourth quarter 2007. On a per line basis, average direct cost of
telephony services was $7.26, down from $8.03 in the year ago quarter
and up from $7.11 sequentially.
Direct cost of goods sold was
$22 million, up from $13 million in the year-ago quarter and $17
million in the prior quarter as the Company utilized a large portion of
its remaining inventory of higher cost CPE devices. Direct margin(2)
remained flat year-over-year at 65% and fell 200 basis points from 67%
in the fourth quarter 2007 driven by the increase in the CPE subsidy.
The Company expects direct margin to improve in the second quarter as
it fully exhausts the remaining inventory.
Selling, general and
administrative ("SG&A") expense was $79 million, down from $91
million in the year-ago quarter, and flat sequentially.
Pre-marketing
operating income(1) ("PMOI"), which represents the cash generated from
the existing customer base, increased to $83 million, from $39 million
in the year-ago quarter and $78 million sequentially. On a per line
basis, PMOI increased to $10.66 in the first quarter 2008, up from
$5.68 in the year-ago quarter and $10.23 sequentially.
Marketing
expense for the quarter was $61 million, or 27% of revenue, down
sharply from $91 million, or 46% of revenue, a year ago, and down from
$63 million, or 29% of revenue, sequentially. Marketing cost per gross
subscriber line addition ("SLAC") was $216 in the first quarter 2008,
down from $273 in the year-ago quarter and $223 sequentially. The
Company expects SLAC to increase in the second quarter, consistent with
prior year seasonal trends. Vonage expects to gradually increase
marketing expenditures in the second half of 2008 to accelerate growth
but continues to expect the cost of acquisition to fall within
$225-$250 for the full year 2008.
Vonage
added 30,000 net subscriber lines in the first quarter 2008 and
finished the quarter with more than 2.6 million lines in service. The
Company is taking steps to strengthen and grow its customer base. To
expand Vonage's competitive position in the marketplace and offer
customers control over how they communicate, Vonage today announced a
relationship with Covad whereby Vonage will offer a DSL service to both
residential and small business customers. The Company expects this new
service, called Vonage Broadband, to be available to customers by the
end of the year.
In addition, the Company is focused on
increasing the quality of its customer base by targeting customers with
low acquisition costs and high lifetime value. This effort, which
involves evaluating media channel investments and returns, will lead to
lower gross line additions in the second quarter, with an expectation
for accelerating growth the remainder of the year. The Company expects
this will increase profitability over time.
Average
monthly customer churn increased to 3.3% in the first quarter 2008 from
3.0% in the fourth quarter 2007. The Company believes it has
implemented process improvements in customer care that will result in
an improved user experience and lower churn. As such, the Company
expects churn in the second quarter to be below first quarter levels.
Cash
and marketable securities and restricted cash on March 31, 2008 was
$190 million. This includes $42 million in restricted cash used as
collateral for routine business operations. The change in cash from the
prior quarter was driven by cash provided from operations of $11
million, capital expenditures of $10 million, and an increase in
restricted cash of $2 million.
Convertible Debt Refinancing Update
On
April 25th, the Company announced that it had signed a non-binding
letter of intent with a third party financing source to provide $215
million in a private debt financing. The letter of intent is a proposal
that will be used as a basis for financing and does not constitute a
commitment. The Company expects that approximately two-thirds of the
financing will be provided through a senior secured credit facility and
approximately one-third will be provided through issuance of
convertible secured notes.
The Company intends to use the net
proceeds from this financing, plus cash on hand, to repay, tender for
or redeem its existing convertible notes, which can be put to the
Company on December 16, 2008 and have a principal amount due of
approximately $253 million.
Negotiations
regarding a financing commitment are ongoing but there can be no
assurance that the financing will be successful. The Company will
provide additional details once a commitment letter is signed.
(1) This is a non-GAAP financial measure. Refer below to Table 3 for a
reconciliation to GAAP loss from operations.
(2) Direct margin is defined as operating revenues less direct cost of
telephony services and direct cost of goods sold.
VONAGE HOLDINGS CORP.
TABLE 1. SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
2008 2007
(unaudited)
Statement of Operations Data:
Operating Revenues:
Telephony services $216,980 $189,367
Customer equipment and shipping 7,637 6,573
224,617 195,940
Operating Expenses:
Direct cost of telephony services
(excluding depreciation and amortization
of $4,701 and $4,113, respectively) 56,498 55,566
Royalty - 10,415
Total direct cost of telephony services 56,498 65,981
Direct cost of goods sold 22,072 13,333
Selling, general and administrative 79,392 90,992
Marketing 60,899 90,850
Depreciation and amortization 10,209 7,859
229,070 269,015
Loss from operations (4,453) (73,075)
Other income (expense), net
Interest income 1,400 6,067
Interest expense (5,571) (5,149)
Other, net (164) 17
(4,335) 935
Loss before income tax expense (8,788) (72,140)
Income tax expense (173) (194)
Net loss $(8,961) $(72,334)
Net loss per common share:
Basic and diluted $(0.06) $(0.47)
Weighted-average common shares outstanding:
Basic and diluted 156,034 155,151
VONAGE HOLDINGS CORP.
TABLE 1. SUMMARY CONSOLIDATED FINANCIAL DATA - (Continued)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
2008 2007
(unaudited)
Statement of Cash Flow Data:
Net cash provided by (used in) operating
activities $10,522 $(58,719)
Net cash provided by (used in) investing
activities 25,021 3,877
Net cash provided by (used in) financing
activities (201) 227
March 31, December 31,
2008 2007
(unaudited)
Balance Sheet Data (at period end):
Cash, cash equivalents and marketable
securities $148,278 $151,484
Restricted cash 41,501 38,928
Property and equipment, net of accumulated
depreciation 114,072 118,666
Total assets 458,365 462,297
Convertible notes, net 253,331 253,320
Capital lease obligations 22,994 23,235
Total liabilities 540,597 537,424
Total stockholders' equity (deficit) (82,232) (75,127)
VONAGE HOLDINGS CORP.
TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA
(unaudited)
Three Months Ended
March 31, December 31, March 31,
2008 2007 2007
Gross subscriber line additions 281,329 283,907 332,493
Net subscriber line additions 30,133 56,016 165,646
Subscriber lines (at period end) 2,610,360 2,580,227 2,389,757
Average monthly customer churn 3.3% 3.0% 2.4%
Average monthly revenue per line $28.85 $28.19 $28.31
Average monthly telephony
services revenue per line $27.87 $27.42 $27.36
Average monthly direct cost of
telephony services per line $7.26 $7.11 $8.03
Marketing costs per gross
subscriber line addition $216.47 $223.06 $273.24
Employees (excluding temporary
help) (at period end) 1,722 1,543 1,729
CPE subsidy $51.31 $40.83 $20.33
Direct margin as a % of total
revenue 65.0% 66.7% 64.8%
VONAGE HOLDINGS CORP.
TABLE 3. RECONCILIATION OF GAAP LOSS FROM OPERATIONS TO ADJUSTED INCOME (LOSS)
FROM OPERATIONS AND PRE-MARKETING OPERATING INCOME
(Dollars in thousands)
(unaudited)
Three Months Ended
March 31, December 31, March 31,
2008 2007 2007
Income (loss) from operations $(4,453) $(9,366) $(73,075)
Depreciation and amortization 10,209 11,105 7,859
Non-cash stock compensation 1,886 1,663 6,914
Adjusted income (loss) from
operations 7,642 3,402 (58,302)
Marketing 60,899 63,327 90,850
Customer equipment and shipping (7,637) (5,891) (6,573)
Direct cost of goods sold 22,072 17,484 13,333
Pre-marketing operating income $82,976 $78,322 $39,308
As a % of telephony services
revenue 38.2% 37.3% 20.8%
Use of Non-GAAP Financial Measures
This press release
includes the following measures defined as non-GAAP financial measures
by the Securities and Exchange Commission: adjusted income (loss) from
operations, pre-marketing operating income.
Vonage uses
adjusted income (loss) from operations and pre-marketing operating
income as principal indicators of the operating performance of its
business.
We believe that adjusted income (loss) from
operations permits a comparative assessment of our operating
performance, relative to our performance based on our GAAP results,
while isolating the effects of depreciation and amortization, which may
vary from period to period without any correlation to underlying
operating performance, and of non-cash stock compensation expense,
which is a non-cash expense that also varies from period to period.
Given
that our strategy currently results in operating losses, we believe
that pre-marketing operating income is an important metric to evaluate
the profitability of the existing customer base to justify the level of
continued investment in growing that customer base. In addition, as we
are currently growing both our revenue and customer base, we have
chosen to invest significant amounts on our marketing activities to
acquire and replace subscribers. We provide information relating to our
adjusted income (loss) from operations and pre-marketing operating
income so that investors have the same data that we employ in assessing
our overall operations. We believe that trends in our adjusted income
(loss) from operations and pre-marketing operating income are valuable
indicators of the operating performance of our company on a
consolidated basis and of our ability to produce operating cash flow to
fund working capital needs, to service debt obligations and to fund
capital expenditures.
The
non-GAAP financial measures used by us may not be directly comparable
to similarly titled measures reported by other companies due to
differences in accounting policies and items excluded or included in
the adjustments, which limits its usefulness as a comparative measure.
These non-GAAP financial measures should be considered in addition to
results prepared in accordance with GAAP, but should not be considered
a substitute for, or superior to, GAAP results.
Vonage defines
adjusted income (loss) from operations as GAAP loss from operations
excluding depreciation and amortization and non-cash stock compensation
expense.
Vonage defines pre-marketing operating income as GAAP
loss from operations excluding customer equipment and shipping revenue,
direct cost of goods sold, depreciation and amortization, marketing and
non-cash stock compensation expense.
Conference Call and Webcast
Management
will host a webcast discussion of the quarter's results on Thursday,
May 8, 2008 at 10:00 AM Eastern Time. To participate, please dial (877)
419-6594 approximately ten minutes prior to the call. International
callers should dial (719) 325-4932. A replay will be available
approximately two hours after the conclusion of the call until midnight
May 23, 2008, and may be accessed by dialing (888) 203-1112.
International callers should dial (719) 457-0820. The replay passcode
is: 5532664
The webcast will be broadcast live through Vonage's Investor Relations website at http://ir.vonage.com [1]. Windows Media Player or RealPlayer is required to listen to this webcast. A replay will be available shortly after
the live webcast.
Safe Harbor Statement
This press release contains forward-looking statements regarding the
Company's ability to grow profitably, the Company's ability to complete
a financing with party with whom it has entered a non-binding letter of
intent, the Company's gross line additions and churn in the second
quarter of 2008 and the Company's cost of acquisition for 2008. In
addition, other statements in this press release that are not
historical facts or information may be forward-looking statements. The
forward-looking statements in this release are based on information
available at the time the statements are made and/or management's
belief as of that time with respect to future events and involve risks
and uncertainties that could cause actual results and outcomes to be
materially different. Important factors that could cause such
differences include the Company's ability to consummate the financing
arrangement, which is subject to numerous uncertainties, including but
not limited to completion of due diligence review by the financing
party, successful negotiation between the Company and the financing
party of a commitment for the financing arrangement and successful
negotiation of definitive documentation for the financing arrangement.
Other important factors include, but are not limited to, our damaging
and disruptive intellectual property and other litigation; our
convertible notes, which can be put to us in December 2008; our rate of
customer terminations; our history of net operating losses and our need
for cash to finance our growth; the competition we face; our reliance
on third parties to provide portions of our service; our dependence on
our customers' existing broadband connections; differences between our
service and traditional phone services, including our 911 service;
uncertainties relating to regulation of VoIP services; system
disruptions or flaws in our technology; the risk that VoIP does not
gain broader acceptance; and other factors that are set forth in the
"Risk Factors" section, the "Legal Proceedings" section, the
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" section and other sections of Vonage's Annual
Report on Form 10-K for the year ended December 31, 2007, as well as in
our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
While we may elect to update forward-looking statements at some point
in the future, we specifically disclaim any obligation to do so, and
therefore, you should not rely on these forward-looking statements as
representing our views as of any date subsequent to today.
About Vonage
Vonage
(NYSE: VG) is a leading provider of broadband telephone services with
2.6 million subscriber lines. Our award-winning technology enables
anyone to make and receive phone calls with a touch tone telephone
almost anywhere a broadband Internet connection is available. We offer
feature-rich and cost- effective communication services that offer
users an experience similar to traditional telephone services.
Our
Residential Premium Unlimited and Small Business Unlimited calling
plans offer consumers unlimited local and long distance calling, and
popular features like call waiting, call forwarding and voicemail - for
one low, flat monthly rate.
Vonage's service is sold on the web
and through national retailers including Best Buy, Circuit City,
Wal-Mart Stores Inc. and Target and is available to customers in the
U.S., Canada and the United Kingdom. For more information about
Vonage's products and services, please visit http://www.vonage.com [2].
Vonage Holdings Corp. is headquartered in Holmdel, New Jersey.
Vonage(R) is a registered trademark of Vonage Marketing Inc., a
subsidiary of Vonage Holdings Corp.
(vg-f)
SOURCE Vonage Holdings Corp.
Links:
[1] http://ir.vonage.com/
[2] http://www.vonage.com/