Vonage Sees 'Inflection Point'

It says losses will narrow in coming quarters.
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posted a bigger second-quarter loss but said it expects its operating losses to narrow in coming quarters.

The Holmdel, N.J., Internet phone company lost $74.1 million, or $1.16 a share, for the second quarter ended June 30, compared with the year-ago $63.6 million, or $46.32 a share. Revenue rose to $143.4 million from $59.4 million a year earlier. Vonage said its adjusted loss from operations was $60 million in the latest quarter, against $73 million in the first quarter.

The company said it added 256,000 net subscriber lines in the latest quarter, its second-highest total ever.

"This quarter represents an important milestone for Vonage, as we begin to report our results as a newly public company," said CEO Mike Snyder. "We also see this quarter as a key inflection point on our path to profitability. Adjusted loss from operations declined by 18% from the prior quarter even as we continued to make meaningful investments in marketing to achieve continued growth.

"We anticipate that our adjusted loss from operations will continue to decline over the next six quarters, and based on our current outlook, we believe we will generate adjusted operating profits as early as the first quarter 2008," Snyder added.

Average monthly revenue per line in the second quarter 2006 was $27.70, an increase of $1.07 from $26.63 in the second quarter 2005.Improvement in average monthly revenue per line was primarily attributable to the telephony services component, which rose 62 cents to $26.40 on a year-over-year basis.

Total marketing costs were $90 million in the second quarter 2006, 46% above the year-ago quarter amount of $62 million, and 2% above the 2006 prior quarter amount of $88 million. Marketing costs per gross subscriber line addition were $239 for the second quarter 2006. The comparable amount for the year-ago quarter was $236. Customer premise equipment subsidy, a measure representing the net cost of a Vonage-enabled device per gross subscriber line addition, was down $3.32 to $24.68 for the second quarter 2006 from $28 in the year-ago quarter.

Average monthly customer churn for the second quarter 2006 was 2.3% vs. 2.1% the prior quarter. The increase was attributable in part to the rapid growth in subscriber lines during the first half of 2006, a period in which approximately 800,000 gross lines were added.

The company said it booked $18 million in costs to indemnify its underwriters for subscribers who didn't pay for or accept delivery of more than a million shares they were allocated in the company's initial public offering. The company said it "expects to pursue the collection of monies owed from the DSP participants who failed to pay for their shares" but doesn't "anticipate making any further purchase of common stock pursuant to its indemnification obligations under the Underwriting Agreement."

Vonage guided to full-year revenue of $600 million to $615 million and said it expects to have 2.3 million to 2.45 million subscriber lines by year-end, up from 1.85 million at midyear.