2008-08-07 07:00:00
Vonage Holdings Corp. Reports Second Quarter 2008 Results
- Second Quarter Revenue Grows 11% to $228 Million -
- Company Generates Adjusted Operating Income(1) of $12 Million -
- 2Q08 Net Loss Narrows to $7 Million or $0.04 per Share -
HOLMDEL, N.J., Aug. 7 /EMWNews/ -- Vonage Holdings Corp.
(NYSE: VG), a leading provider of broadband telephone service, today
announced results for the quarter ended June 30, 2008.
Revenue for the second quarter 2008 grew to a record $228 million, up
11% from $206 million in the second quarter 2007 and up 1% sequentially
from $225 million, driven by an increase in average revenue per line and
subscriber lines.
For the second quarter of 2008, the Company reported a GAAP net loss of
$7 million or $0.04 per share, compared to a net loss of $23 million or
$0.15 per share reported in the second quarter 2007. Adjusted operating
income(1) was $12 million in the quarter, a significant improvement from an
adjusted operating loss of $18 million in the year-ago quarter and adjusted
operating income of $8 million sequentially.
Marc Lefar, Vonage Chief Executive Officer, said, "The financial
performance of the Company's operations continued to improve in the second
quarter. Vonage delivered top line growth, continued to generate positive
adjusted operating profit and cash from operations, and narrowed its net
loss. Additionally, the Company has taken a significant step toward
strengthening its financial foundation with the signing of the commitment
letter that will permit it to refinance the convertible debt.
"Management anticipates generating future growth as it leverages its
established brand, solid franchise and strong competitive position."
Second Quarter 2008 Financial and Operating Highlights
Average monthly revenue per line in the second quarter 2008 was $29.04,
up from $28.38 in the year-ago quarter and $28.85 reported in the first
quarter 2008. Average monthly telephony services revenue per line for the
quarter increased to $27.92, up from $27.63 reported a year ago and up from
$27.87 sequentially.
In the second quarter 2008, direct cost of telephony services was $57
million, up from $52 million in the prior year and flat sequentially. On a
per line basis, average direct cost of telephony services was $7.22, up
from $7.21 in the year ago quarter and down slightly from $7.26
sequentially.
Direct cost of goods was $19 million, up from $11 million in the
year-ago quarter and down from $22 million sequentially. Direct margin(2)
was 67%, down from 69% year-over-year and up from 65% sequentially.
Selling, general and administrative ("SG&A") expense was $78 million,
flat year-over-year and down from $79 million sequentially. As a percent of
revenue, SG&A declined to 34% from 38% in the second quarter 2007 and 35%
sequentially.
Pre-marketing operating income(1) ("PMOI"), which represents the cash
generated from the existing customer base, increased to a record high $87
million, from $56 million in the year-ago quarter and $83 million
sequentially. On a per line basis, PMOI increased to $11.15 in the second
quarter 2008, up from $7.69 in the year-ago quarter and $10.66
sequentially.
Marketing expense for the quarter was $65 million, or 29% of revenue,
down from $68 million, or 33% of revenue, a year ago, and up from $61
million, or 27% of revenue, sequentially. Marketing cost per gross
subscriber line addition ("SLAC") fell slightly to $283 from $287 a year
ago and increased from $216 sequentially. The sequential increase was
driven by the timing and mix of media investments as well as the seasonal
impacts of the second quarter. The Company expects marketing expenditures
as a percent of revenue to be in the range of 28%-30% in the third quarter
2008.
Vonage added 2,000 net subscriber lines in the second quarter 2008 and
finished the quarter with more than 2.6 million lines in service.
Churn declined sequentially to 3.0% in the second quarter from 3.3% in
the first quarter 2008 as the initiatives to improve customer care have
begun to yield improvements.
Cash and marketable securities and restricted cash on June 30, 2008 was
$192 million which includes $42 million in restricted cash used for routine
business operations. The change in cash from the prior quarter was driven
by cash provided from operations of $14 million and capex of $12 million.
Convertible Debt Refinancing Update
On July 24th, the Company announced that it had signed a commitment
letter with Silver Point Finance, LLC ("Silver Point") establishing the
terms and conditions for up to $215 million in private debt financing.
Silver Point has committed to be allocated $125 million of this amount and
it is a condition to closing of the initial private debt financing that the
Company identify other lenders that will commit to provide up to $60
million. Silver Point has also agreed, subject to certain conditions, to
use commercially reasonable efforts to assemble a syndicate of lenders to
provide up to $30 million of incremental private debt financing.
The Company and Silver Point are currently negotiating definitive
documentation for the financing while the Company is concurrently working
diligently towards satisfying all the expected conditions to closing. Those
conditions include holding a stockholders meeting to obtain stockholder
approval of matters related to the financing in accordance with New York
Stock Exchange rules. The stockholder meeting is scheduled for August 20,
2008.
Vonage intends to use the net proceeds from the financing, plus cash on
hand, to repurchase its existing convertible notes which can be put to the
Company on December 16, 2008 and have a principal amount outstanding of
approximately $253 million. On July 30, 2008, the Company launched a tender
offer for the Company's outstanding convertible notes. Assuming gross
proceeds from an initial closing under the financing of $185 million and
remaining expenses of $21 million, the Company will need to set aside up to
an additional $93 million from cash on hand to satisfy its obligation to
repurchase existing convertible notes if all notes are tendered and pay for
remaining financing expenses. At June 30, 2008, the Company had
approximately $150 million of unrestricted cash.
For the first full quarter after the closing of the private debt
financing, assuming no material increase in the interest rate environment,
the Company expects that its quarterly cash interest payments will be
slightly higher than the second quarter of 2008 and interest expense will
be more than double.
At present, the Company anticipates satisfying all closing conditions
and closing on the private debt financing in the third quarter 2008.
(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 Six Months Ended
June 30, June 30,
2008 2007 2008 2007
(unaudited) (unaudited)
Statement of Operations Data:
Operating Revenues:
Telephony services $218,738 $200,470 $435,718 $389,837
Customer equipment and
shipping 8,786 5,432 16,423 12,005
227,524 205,902 452,141 401,842
Operating Expenses:
Direct cost of telephony
services (excluding
depreciation and
amortization
of $4,728, $4,191, $9,429,
and $8,304, respectively) 56,586 52,335 113,084 107,901
Royalty - 11,052 - 21,467
Total direct cost of
telephony services 56,586 63,387 113,084 129,368
Direct cost of goods sold 18,533 11,243 40,605 24,576
Selling, general and
administrative 77,931 77,802 157,323 168,794
Marketing 65,300 67,906 126,199 158,756
Depreciation and
amortization 11,114 8,191 21,323 16,050
229,464 228,529 458,534 497,544
Loss from operations (1,940) (22,627) (6,393) (95,702)
Other income (expense), net
Interest income 1,021 4,761 2,421 10,828
Interest expense (5,535) (5,127) (11,106) (10,276)
Other, net 52 (50) (112) (33)
(4,462) (416) (8,797) 519
Loss before income tax
expense (6,402) (23,043) (15,190) (95,183)
Income tax expense (480) (183) (653) (377)
Net loss $(6,882) $(23,226) $(15,843) $(95,560)
Net loss per common share:
Basic and diluted $(0.04) $(0.15) $(0.10) $(0.62)
Weighted-average common
shares outstanding:
Basic and diluted 156,103 155,506 156,068 155,329
VONAGE HOLDINGS CORP.
TABLE 1. SUMMARY CONSOLIDATED FINANCIAL DATA - (Continued)
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
(unaudited) (unaudited)
Statement of Cash Flow Data:
Net cash provided by (used in)
operating activities $13,572 $(52,731) $24,094 $(111,450)
Net cash provided by (used in)
investing activities 5,758 41,557 30,779 45,434
Net cash provided by (used in)
financing activities (187) 70 (388) 297
June 30, December 31,
2008 2007
(unaudited)
Balance Sheet Data (at period end):
Cash, cash equivalents and marketable securities $149,627 $151,484
Restricted cash 42,192 38,928
Property and equipment, net of accumulated
depreciation 108,755 118,666
Total assets 466,156 462,297
Convertible notes, net 253,366 253,320
Capital lease obligations 22,745 23,235
Total liabilities 551,959 537,424
Total stockholders' equity (deficit) (85,803) (75,127)
VONAGE HOLDINGS CORP.
TABLE 2. SUMMARY CONSOLIDATED OPERATING DATA
(unaudited)
Three Months Ended
June 30, March 31, June 30,
2008 2008 2007
Gross subscriber line additions 230,832 281,329 236,840
Net subscriber line additions 2,080 30,133 56,691
Subscriber lines (at period end) 2,612,440 2,610,360 2,446,448
Average monthly customer churn 3.0% 3.3% 2.5%
Average monthly revenue per line $29.04 $28.85 $28.38
Average monthly telephony services
revenue per line $27.92 $27.87 $27.63
Average monthly direct cost of
telephony services per line $7.22 $7.26 $7.21
Marketing costs per gross subscriber
line addition $282.89 $216.47 $286.72
Employees (excluding temporary help)
(at period end) 1,662 1,722 1,421
CPE subsidy $42.23 $51.31 $24.54
Direct margin as a % of total revenue 67.0% 65.0% 69.1%
Six Months Ended
June 30,
2008 2007
Gross subscriber line additions 512,161 569,333
Net subscriber line additions 32,213 222,337
Subscriber lines (at period end) 2,612,440 2,446,448
Average monthly customer churn 3.2% 2.5%
Average monthly revenue per line $29.02 $28.68
Average monthly telephony services
revenue per line $27.97 $27.82
Average monthly direct cost of
telephony services per line $7.26 $7.70
Marketing costs per gross subscriber
line addition $246.40 $278.85
Employees (excluding temporary help)
(at period end) 1,662 1,421
CPE subsidy $47.22 $22.08
Direct margin as a % of total revenue 66.0% 67.0%
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 Six Months Ended
June 30, March 31, June 30, June 30,
2008 2008 2007 2008 2007
Income (loss) from
operations $(1,940) $(4,453) $(22,627) $(6,393) $(95,702)
Depreciation and
amortization 11,114 10,209 8,191 21,323 16,050
Non-cash stock
compensation 3,150 1,886 (3,463) 5,036 3,451
Adjusted income (loss)
from operations 12,324 7,642 (17,899) 19,966 (76,201)
Marketing 65,300 60,899 67,906 126,199 158,756
Customer equipment and
shipping (8,786) (7,637) (5,432) (16,423) (12,005)
Direct cost of goods
sold 18,533 22,072 11,243 40,605 24,576
Pre-marketing operating
income $87,371 $82,976 $55,818 $170,347 $95,126
As a % of telephony
services revenue 39.9% 38.2% 27.8% 39.1% 24.4%
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 and 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.
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, August 7, 2008 at 10:00 AM Eastern Time. To participate, please
dial (877) 675-4756 approximately ten minutes prior to the call.
International callers should dial (719) 325-4869. A replay will be
available approximately two hours after the conclusion of the call until
midnight August 21, 2008, and may be accessed by dialing (888) 203-1112.
International callers should dial (719) 457-0820. The replay passcode is:
9983148.
The webcast will be broadcast live through Vonage's Investor Relations
website at http://ir.vonage.com. 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 future
growth, the Company's ability to complete the private debt financing
contemplated by the commitment letter with Silver Point and its effect, and
the Company's marketing expenditures in the third quarter of 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 proposed private debt financing arrangement, which is
subject to numerous uncertainties, including but not limited to successful
negotiation of definitive documentation for the financing arrangement and
satisfaction or waiver of all conditions to closing, which include
obtaining stockholder approval of the potential issuance of shares of
common stock upon the conversion of convertible notes; the Company's
ability to refinance the Company's outstanding convertible notes, which can
be put to it in December 2008; the Company's history of net operating
losses and the Company's need for cash to finance the Company's growth;
results of pending litigation and intellectual property and other
litigation that may be brought against us; the competition we face; 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 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.
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)
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