Vonage

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Vonage Holdings Corp. Reports First Quarter 2012 Results

-- Adjusted EBITDA(1) of $32 Million, Reflecting Investments in Growth Initiatives --
-- Net Income of $19 Million or $0.08 per Share Excluding Adjustments(2) --
-- Revenue of $216 Million --
-- Company Enters into Partnership with Globe™ in the Philippines --

HOLMDEL, N.J., May 2, 2012 /PRNewswire/ -- Vonage Holdings Corp. (NYSE: VG), a leading provider of communications services connecting people through broadband devices worldwide, announced results for the first quarter ended March 31, 2012.

Reflecting the Company's previously stated plans to increase investment in its strategic growth initiatives, Vonage reported adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA")(1) of $32 million, which includes $7 million in growth initiative funding. Adjusted EBITDA is down from $40 million sequentially and $43 million in the year ago quarter. Similarly, income from operations was $21 million, a decrease from $28 million sequentially and $30 million in the year ago quarter. Net income was $19 million or $0.08 per share excluding adjustments(1), a decline from $26 million or $0.11 per share sequentially, and a decline from $23 million or $0.10 per share in the year ago quarter. GAAP net income was $14 million or $0.06 per share, down from $350 million or $1.55 per share sequentially due to a one-time non-cash income tax benefit recognized in the fourth quarter, and down from $21 million or $0.10 per share a year ago. Revenue totaled $216 million, flat sequentially and down from $220 million the prior year.

Marc Lefar, Vonage Chief Executive Officer, said, "Our financial results were consistent with previous guidance as we increased investment in our strategic growth initiatives. Our core business is stable and generated EBITDA which was in line with recent quarters."

"Although churn increased slightly during the first quarter, it has declined since peaking in January. Based on this positive trend, we are confident churn will be lower in the second quarter," said Lefar.

"We are making tangible progress executing on our growth initiatives. In roughly eight weeks, over one million people downloaded the new Vonage Mobile app. Our plans to expand into new international markets are gaining traction with the consummation of the exciting new partnership with Globe in the Philippines which we announced this morning," added Lefar.

First Quarter Financial and Operating Results

Revenue was $216 million, flat sequentially and down 1.8% from $220 million in the year ago quarter. Average revenue per user was $30.42, up from $30.19 sequentially due to improved customer mix and higher Universal Service Fund ("USF") fees, and down slightly from $30.45 in the first quarter of 2011.

Direct cost of telephony services ("COTS") increased to $62 million from $59 million sequentially due primarily to higher USF. COTS increased from $60 million in the year ago quarter as planned, driven by an increase in international minutes of use as the Company executed on its strategy to grow its international calling base. Vonage continued to reduce its domestic termination rates, which declined to an all-time low in the first quarter. On a per line basis, COTS was $8.68, up from $8.24 sequentially and $8.34 in the year ago quarter.

Direct cost of goods sold was $10 million, flat sequentially and down from $11 million in the first quarter of 2011. Direct margin(3) decreased to 67% from 68% sequentially and in the year ago quarter reflecting the increase in costs from higher international minutes.

Selling, general and administrative ("SG&A") expense was $62 million, an increase as expected, from $59 million sequentially and $58 million in the year ago quarter, reflecting the Company's increased funding for its growth initiatives.

Pre-marketing operating income ("PMOI")(1), which represents cash generated from the Company's existing customer base, was $95 million, down from $102 million sequentially and in the year ago quarter. PMOI per line was $13.33, down from $14.22 sequentially and $14.17 in the year ago quarter.

Marketing expense was $53 million, up from $52 million sequentially and $49 million in the year ago quarter. Subscriber line acquisition cost ("SLAC") was $323, up from $306 sequentially and $282 in the prior year.

Gross line additions were 165,000, down from 169,000 sequentially and 175,000 the prior year. The Company reported a net loss of 19,000 lines, compared to 14,000 net line losses sequentially and 3,000 net line additions in the year-ago quarter.

Churn was 2.8%, up 10 basis points sequentially and up from 2.5% in the year ago quarter. Based on actions taken in the first quarter of 2012, including reinstating contracts and improving its retention and telesales processes, the Company expects churn to decline in the second quarter of 2012 from first quarter levels.

As of March 31, 2012, cash and cash equivalents, including $6 million in restricted cash, totaled $61 million. Capital expenditures for the quarter were $9 million. Free cash flow(4) was $2 million.

Growth Initiatives

Executing on its growth initiative in international expansion, Vonage today announced its first international partnership with Globe in the Philippines. The partnership marks a significant milestone in Vonage's broader strategy to expand its services beyond North America and the United Kingdom. The Company remains actively involved in discussions with several prospective partners and expects to announce additional alliances before the end of this year.

On April 18, 2012, the Company announced key milestones for its Vonage Mobile® and Extensions™ products. Launched in February 2012, the Vonage Mobile app surpassed one million downloads in approximately eight weeks, with usage now approaching 10 million minutes per month. Since launch, the Company has steadily updated the app to enhance ease of use and performance and has implemented new releases for iOS and Android addressing top priorities including connection quality, latency load times when opening the app and battery life. Most recently, the Company yesterday updated the app to enhance its messaging capability to allow photo and location sharing and sharing of the app with friends on Facebook and Twitter.

In the coming months, Vonage expects to add desirable features such as Bluetooth functionality and a low-cost international roaming capability that will allow customers traveling outside their home country to avoid high roaming fees. In addition, the Company plans to launch standalone mobile services for customers without smartphones, including low-cost international calling plans.

Vonage Extensions, which expands the benefits of the Company's core service beyond the walls of the home to any other phone, including mobile, has been well received. More than 500,000 customers have signed up for Extensions, and have already made more than 70 million mobile calls. Reflecting the Company's progress executing against its mobile strategy, approximately 15% of international calling minutes now originate from mobile devices.

2012 Outlook

Consistent with prior guidance for 2012, the Company expects to achieve adjusted EBITDA of $30-35 million per quarter, and $120-140 million for the year, reflecting the additional investment of $5-10 million per quarter in strategic growth initiatives; and 2012 capital and software expenditures in the range of $40-45 million.

 

 

(1)  This is a non-GAAP financial measure. Refer below to Table 3 for a reconciliation to GAAP income from operations.

(2)  This is a non-GAAP financial measure. Refer below to Table 4 for a reconciliation to GAAP net income.

(3)  Direct margin is defined as revenues less direct cost of telephony services and direct cost of goods sold as a percentage of revenues.

(4)  This is a non-GAAP financial measure.  Refer to Table 5 for a reconciliation to GAAP net cash provided by operating activities.

 

 

VONAGE HOLDINGS CORP.

TABLE 1. CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share amounts)

   
 

Three Months Ended

 

March 31,

 

December 31,

 

March 31,

 

2012

 

2011

 

2011

 

(unaudited)

Statement of Operations Data:

       

Revenues

215,903

 

215,690

 

219,841

           

Operating Expenses:

         

Direct cost of telephony services (excluding depreciation and
          amortization of 
$3,930, $3,969, and $4,124, respectively)

61,623

 

58,847

 

60,189

Direct cost of goods sold

9,846

 

10,125

 

11,055

Selling, general and administrative

61,835

 

58,579

 

58,243

Marketing

53,422

 

51,604

 

49,404

Depreciation and amortization

8,644

 

8,638

 

11,066

 

195,370

 

187,793

 

189,957

Income from operations

20,533

 

27,897

 

29,884

Other income (expense):

         

Interest income

20

 

23

 

42

Interest expense

(1,751)

 

(2,002)

 

(6,602)

Change in fair value of stock warrant

 

 

(950)

Loss on extinguishment of notes

 

 

(593)

Other income (expense), net

42

 

(266)

 

(2)

 

(1,689)

 

(2,245)

 

(8,105)

Income before income tax benefit (expense)

18,844

 

25,652

 

21,779

Income tax benefit (expense)

(4,923)

 

324,494

 

(666)

Net income

$

13,921

 

$

350,146

 

$

21,113

Net income per common share:

         

Basic

$

0.06

 

$

1.55

 

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