Vonage Holdings Posts Fourth Quarter and Full Year 2012 Results
Feb 18, 2013 (Close-Up Media via COMTEX) --
Vonage Holdings Corp., a provider of communications services connecting people through cloud-connected devices worldwide, announced results for the fourth quarter and full year ended December 31, 2012.
In addition, the Company announced three noteworthy developments including a new $145 million credit facility; a new $100 million share repurchase authorization; and its international joint venture with Datora in Brazil.
In a release dated February 14, the Company noted that capitalizing on the low interest rate environment and the Company's financial position, on February 11, Vonage entered into a new $145 million credit agreement to provide increased financial flexibility for investments in growth. The new debt agreement consists of a three-year, $70 million senior secured term loan bearing interest at LIBOR plus 3.125 percent and a $75 million revolving credit facility. The Company used $43 million of the proceeds of the term loan to retire all of the existing debt under its prior facility.
On February 7, Vonage's Board of Directors authorized a new $100 million share repurchase program to be concluded by the end of 2014. This new $100 million program replaces the Company's prior $50 million share repurchase program. As of February 12, Vonage had repurchased a total of 14 million shares of its common stock for $33 million under the prior repurchase program, including repurchases of 8 million shares of its common stock for $19 million during the fourth quarter and 12 million shares for $28 million for the full year 2012.
Vonage has entered into an agreement to form a joint venture with Brazilian-based Datora Telecom to deliver communications services in Brazil. This is Vonage's second international partnership in less than one year, and follows the Company's partnership with Globe in the Philippines announced in May of 2012.
Marc Lefar, Vonage Chief Executive Officer, commented, "We delivered strong fourth quarter financial results as we grew revenue and maintained adjusted EBITDA at third quarter levels, even as we increased our investment in growth initiatives. We attracted new customers to our international and domestic calling plans, although gains in these areas were offset by declines in other segments of our business."
"For the year, we continued to improve our business operations as we reduced customer care and termination costs. Churn declined by 30 basis points from the beginning of the year, reflecting improvements in customer care and retention processes, and higher customer satisfaction. Executing on our growth initiatives, we strengthened our mobile platform as we attracted users to our Vonage Mobile app and Extensions products, and expanded internationally through our partnership in the Philippines. We are building on this progress with our new joint venture in Brazil."
Vonage reported adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA")1 of $34 million, flat sequentially, and down from $40 million in the year ago quarter, consistent with the Company's previously stated plan to increase investment in strategic growth initiatives by $5-$10 million per quarter in 2012. The Company invested $7 million in growth initiatives in the fourth quarter. Income from operations was $24 million, up from $23 million sequentially and down from $28 million in the year ago quarter.
Revenue totaled $214 million, up from $208 million sequentially due to targeted price increases and higher Universal Service Fund ("USF") and international pay-per-use revenue. Revenue declined from $216 million in the year ago quarter primarily due to lower average lines and plan mix. Average revenue per user ("ARPU") was $30.15, up from $29.31 sequentially due primarily to targeted price increases and higher USF and international pay-per-use revenue. ARPU was down from $30.19 in the year ago quarter due to plan mix.
Direct cost of telephony services ("COTS") was $57 million, up from $55 million sequentially due to higher USF fees, which are a pass-through, and down from $59 million in the year ago quarter as a result of lower domestic and international termination costs. On a per line basis, COTS was $8.02, up from $7.80 sequentially and down from $8.24 in the fourth quarter of last year.
Direct cost of goods sold was $10 million, flat sequentially and year-over-year. Direct margin3 was 69 percent, up from 68 percent sequentially and year-over-year.
Selling, general and administrative ("SG&A") expense was $62 million, up from $60 million sequentially, and up from $59 million in the year ago quarter due to the expansion of the Company's community sales channel.
Marketing expense was $53 million, up from $51 million in third quarter, and up from $52 million in the year ago quarter. Subscriber line acquisition cost ("SLAC") was $347, up from $299 sequentially and $306 in the year ago quarter.
During the fourth quarter, the Company added new customers to its international and new BasicTalk domestic calling plans. Gains in these segments were offset by declines in the Pakistani segment as a result of the unexpected decision by the Government of Pakistan to increase the cost to terminate international calls to Pakistan by approximately 500 percent. This decision compelled Vonage to remove Pakistan from its unlimited Vonage World plan. The resulting lower customer value proposition contributed, in part, to lower gross line additions in the fourth quarter of 152,000, down from 172,000 sequentially.
Although most of the churn impact in this segment was offset by improvements in other calling segments, the total impact from Pakistan resulted in more than a 15,000 net line reduction from the third quarter. Adjusted for the impact of Pakistan, net line additions for the quarter would have been positive and roughly flat versus the third quarter.
Customer churn was 2.5 percent, flat sequentially and down from 2.7 percent a year ago as a result of sustained improvements in customer satisfaction and more effective retention processes. Net lines losses narrowed to 6,000 in the fourth quarter 2012, an improvement from 14,000 net lines lost a year ago and down from 9,000 net line additions sequentially.
As of December 31, 2012, cash and cash equivalents, including $6 million in restricted cash, totaled $103 million. Capital expenditures for the quarter were $12 million, slightly lower than the Company's expectations due to the timing of expenditures. Free cash flow4 was $49 million, up from $17 million in the third quarter due primarily to changes in working capital.
Vonage reported adjusted EBITDA of $135 million, down from $168 million the prior year reflecting the Company's investment of $23 million in growth initiatives. The Company generated income from operations of $65 million, down from $116 million in the prior year.
Revenue was $849 million, down from $870 million the prior year primarily due to plan mix and lower activation fee revenue. Cash generated from operations was $120 million and capital expenditures totaled $27 million. The resulting free cash flow was $93 million.
The Company continues to execute on its strategic growth initiatives. Over the past 18 months, Vonage has built a robust mobile platform capable of delivering high quality voice and messaging services across wired and wireless data networks for most devices running iOS and Android. Vonage Extensions, which creates a unified international calling capability for home and mobile services, has been well received. In less than two years, 28 percent of the Company's customer base has signed up to use Vonage on their mobile devices. Reflecting the Company's progress executing against its mobile strategy, 24 percent of international calling minutes now originate from mobile devices. In addition, the number of downloads and users of the Vonage Mobile app continues to accelerate.
Following the Company's technical trial of its low-cost international roaming product, which allows customers traveling outside their home country to avoid high roaming fees, the Company plans to expand its roaming service in the coming months. In this same timeframe, Vonage also plans to add video capability to the suite of communications services delivered by Vonage Mobile.
Building on this progress, in 2013, the Company expects to continue to invest in targeted ethnic segments, commercialize its Basic Talk product line in the U.S., enhance its mobile product offerings, prepare to go to market in Brazil, and pursue other international partnerships.
Vonage is a provider of communications services connecting individuals through cloud-connected devices worldwide.
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