- Second Quarter Revenue Grows 11% to $228 Million - - Company Generates Adjusted Operating Income(1) of $12 Million -
HOLMDEL, N.J., Aug. 7 /PRNewswire-FirstCall/ -- 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 5,43216,42312,005
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) 56,58652,335 113,084 107,901
Royalty -11,052 -21,467
Total direct cost of
telephony services 56,58663,387 113,084 129,368
Direct cost of goods sold18,53311,24340,60524,576
Selling, general and
administrative 77,93177,802 157,323 168,794
Marketing65,30067,906 126,199 158,756
Depreciation and
amortization11,114 8,19121,32316,050
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 2,42110,828
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 activities5,758 41,55730,779 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 assets466,156 462,297
Convertible notes, net 253,366 253,320
Capital lease obligations22,745 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,
200820082007
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 additions512,161 569,333
Net subscriber line additions 32,213 222,337
Subscriber lines (at period end) 2,612,440 2,446,448
Average monthly customer churn3.2% 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$22.08
Direct margin as a % of total revenue66.0% 67.0%
VONAGE HOLDINGS CORP.
TABLE 3. RECONCILIATION OF GAAP LOSS FROM OPERATIONS TO ADJUSTED INCOME (LOSS)
FROM OPERATIONS AND PRE-MARKETING OPERATING INCOME
(Dollars in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2008 2008 2007 2008 2007
Income (loss) from
operations$(1,940) $(4,453) $(22,627) $(6,393) $(95,702)
Depreciation and
amortization11,114 10,209 8,19121,32316,050
Non-cash stock
compensation 3,1501,886(3,463)5,036 3,451
Adjusted income (loss)
from operations12,3247,642 (17,899) 19,966 (76,201)
Marketing65,300 60,89967,906 126,199 158,756
Customer equipment and
shipping(8,786) (7,637) (5,432) (16,423) (12,005)
Direct cost of goods
sold18,533 22,07211,24340,60524,576
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)
SOURCE Vonage Holdings Corp.
