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

November 06, 2009 | About:
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10qk

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Vonage Holdings Corp. (VG) filed Quarterly Report for the period ended 2009-09-30.

VONAGE HOLDINGS CORP. is a leading provider of digital phone services with over two million subscriber lines. Their award-winning technology enables anyone to make and receive phone calls with a touch tone telephone almost anywhere a broadband Internet connection is available. They offer feature-rich and cost-effective communication services that offer users an experience similar to traditional telephone services.The 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 throughnational 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. Vonage Holdings Corp. has a market cap of $237.9 million; its shares were traded at around $1.35 with and P/S ratio of 0.2.

Highlight of Business Operations:

We received notification from the New York Stock Exchange (the NYSE) that we have regained compliance with the NYSEs continued listing standard for minimum average share price. On October 24, 2008 we received notification from the NYSE that we had fallen below the continued listing standard, which requires a minimum average closing price of $1.00 per share over 30 consecutive trading days. We regained compliance after our closing share price for the 30 trading days ended September 28, 2009 and our closing price on September 28, 2009 exceeded $1.00. In addition to regaining compliance with the price listing standard, we continue to follow all NYSE requirements to regain market capitalization compliance including providing quarterly operational updates to the NYSE. The NYSE requires average market capitalization of not less than $100 million over a 30 day trading period. Our market capitalization as of October 31, 2009 was $316 million. We could regain compliance either at the end of the 18 month plan period available or based on two consecutive quarterly monitoring periods in compliance.

From August 27, 2009 through September 8, 2009, we received Notices of Conversion from certain holders of our 20% senior secured third lien notes due 2015 (the Convertible Notes) indicating their desire to convert a portion of the Convertible Notes. The Convertible Notes were converted into shares of our common stock at a rate equal to 3,448.2759 shares for each $1,000 principal amount of Convertible Notes, or approximately $0.29 per share. In the aggregate $11,631 principal amount of Convertible Notes were converted into 40,107 shares of our common stock. As of September 30, 2009, $2,070 was paid for accrued interest along with the conversion of the Convertible Notes. In addition, from October 1, 2009 through November 6, 2009, an additional $674 principal amount of Convertible Notes were converted into shares of our common stock, which leaves us with remaining Convertible Notes of $5,695 as of November 6, 2009, which are convertible into 19,638 shares of our common stock. In connection with those conversions, $137 was paid for the Convertible Notes interest.

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 increased to $29.89 for the three months ended September 30, 2009 compared to $28.75 for the three months ended September 30, 2008. This increase was due primarily to pricing actions that we have taken in the past year.

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 to $29.16 for the three months ended September 30, 2009 from $27.52 for the three months ended September 30, 2008. This increase was due primarily to pricing actions that we have taken in the past year.

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 $7.02 for the three months ended September 30, 2009 compared to $7.20 for the three months ended September 30, 2008 due primarily to the decrease in customer base, continued emphasis on management of call routing for domestic and international calls and the implementation of more favorable rates with our service providers. These improvements were partially offset by costs from higher international call volume associated with Vonage World.

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 $300.75 for the three months ended September 30, 2009 compared to $272.24 for the three months ended September 30, 2008 due primarily to a reduction in gross subscriber line additions compared to the prior year primarily due to worsening economic conditions and customer acquisition and targeting efforts not being as effective as planned.

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