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Vonage Holdings Corp. Reports Operating Results (10-Q)

November 04, 2010 | About:
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10qk

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Vonage Holdings Corp. (VG) filed Quarterly Report for the period ended 2010-09-30.

Vonage Holdings Corp. has a market cap of $493.3 million; its shares were traded at around $2.32 with a P/E ratio of 12.9 and P/S ratio of 0.6. VG is in the portfolios of Bruce Kovner of Caxton Associates, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

On October 19, 2008, we entered into definitive agreements (collectively, the Credit Documentation) for a financing consisting of (i) a $130,300 senior secured first lien credit facility (the First Lien Senior Facility), (ii) a $72,000 senior secured second lien credit facility (the Second Lien Senior Facility), and (iii) the sale of $18,000 of our 20% senior secured third lien notes due 2015 (the Convertible Notes and, together with the First Lien Senior Facility and the Second Lien Senior Facility, the Financing). The funding for this transaction was completed on November 3, 2008.

On November 2, 2010, we entered into definitive agreements to refinance our existing debt. Consistent with these agreements, we plan to (i) exercise our existing right to retire debt under our First Lien Senior Facility for 100% of the contractual make-whole price, (ii) retire debt under our Second Lien Senior Facility at a discount to the contractual make-whole price, and (iii) cause the conversion of all outstanding Convertible Notes. During the fourth quarter of 2010, we will seek to refinance this existing debt with a new senior secured term loan having significantly lower interest rates and less restrictive covenants. Completion of a refinancing on such terms (as to which there can be no assurance) will provide us greater flexibility to operate and grow our business. As a result of the progress of the negotiations and other facts and circumstances occurring in the third quarter of 2010, we have ascribed $60,000 of value as of September 30, 2010 to the make-whole premiums, which under FASB ASC 815, Derivatives and Hedging (FASB ASC 815) require separate valuation and evaluation each reporting period. This value may be adjusted upward or downward in subsequent periods reflecting changes in our assumptions and does not reflect the actual value that might ultimately be paid. In addition, at the time the repurchase is completed, we expect to record a loss on extinguishment of debt of approximately $35,000, representing acceleration of unamortized debt discount, acceleration of debt related costs, acceleration of administrative agent fees, the call premium on the First Lien Senior Facility, and fees paid to existing lenders. In addition, the balance of the make-whole premium not previously recorded will be recognized.

Average monthly revenue per line. Average monthly revenue per line for a particular period is calculated by dividing our total revenue for that period by the simple average number of subscriber lines for the period, and dividing the result by the number of months in the period. The simple average number of subscriber lines for the period is the number of subscriber lines on the first day of the period, plus the number of subscriber lines on the last day of the period, divided by two. Our average monthly revenue per line decreased slightly to $29.72 for the three months ended September 30, 2010 compared to $29.89 for the three months ended September 30, 2009.

Average monthly telephony services revenue per line. Average monthly telephony services revenue per line for a particular period is calculated by dividing our total telephony services revenue for that period by the simple average number of subscriber lines for the period, and dividing the result by the number of months in the period. Our average monthly telephony services revenue per line increased slightly to $29.45 for the three months ended September 30, 2010 from $29.16 for the three months ended September 30, 2009. This increase was due to an increase in the number of customers signing up for higher priced rate plans, higher service fees, and improved customer quality that reduced bad debt costs.

Average monthly direct cost of telephony services per line. Average monthly direct cost of telephony services per line for a particular period is calculated by dividing our direct cost of telephony services for that period by the simple average number of subscriber lines for the period, and dividing the result by the number of months in the period. We use the average monthly direct cost of telephony services per line to evaluate how effective we are at managing our costs of providing service. Our average monthly direct cost of telephony services per line was $8.36 for the three months ended September 30, 2010 compared to $7.02 for the three months ended September 30, 2009, due primarily to higher costs from higher international call volume associated with Vonage World, partially offset by more favorable rates negotiated with our service providers. Direct cost of telephony services both overall and on a per line basis is expected to continue to increase for the remainder of the year and into next year. The drivers of this increase are international calling by our growing base of Vonage World customers and, in 2011, potential regulatory termination charges in certain high volume countries.

Marketing cost per gross subscriber line addition. Marketing cost per gross subscriber line addition is calculated by dividing our marketing expense for a particular period by the number of gross subscriber line additions during the period. Marketing expense does not include the cost of certain customer acquisition activities, such as rebates and promotions, which are accounted for as an offset to revenues, or customer equipment subsidies, which are accounted for as direct cost of goods sold. As a result, it does not represent the full cost to us of obtaining a new customer. Marketing cost per gross subscriber line addition increased to $302.07 for the three months ended September 30, 2010 compared to $300.75 for the three months ended September 30, 2009, due to lower gross subscriber line additions compared to the prior year.

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