Vonage to focus on customer cancellations and debt
During a morning conference call, Vonage Holdings Corp. (NYSE: VG) interim CEO Jeffrey Citron acknowledged the Internet phone service provider’s difficulties and said the firm will focus on improving its customer churn rate and refinancing debt.
“Without a doubt 2007 was an extremely challenging year,” Citron said. “Litigation took center stage and it monopolized much of the company’s time and resources.”
For the quarter, Citron said the customer churn rate — or percentage of customers who cancel service — was an “unacceptable” 3%, compared with 2.3% a year earlier. To combat cancellations, Vonage hired a new head of customer care and is focused on improving the customer experience.
“We know that a majority of the churn is self-inflicted and driven by poor user experiences,” Citron said. “In order to resolve these issues, we are focused on people, process and technology.”
The company aims to improve customer satisfaction and the percentage of problems that are fixed on the first customer support call, he said. Although churn rate problems persist, the company lowered the cost of acquiring new customers to $223 from $306 during the fourth quarter of 2006.
The interim CEO also mentioned that the sour economy might help the company, since its main sales pitch is cheap phone service.
Vonage has $253 million in convertible debt, which can be transferred into stock year’s end. CFO John Rego said refinancing the debt is a top priority for the company and is currently in discussions with several parties regarding a refinancing of the debt.
“While the result of such discussions cannot be predicted with certainty, Vonage believes it will be able to resolve its financial issues and meet its obligations,” Rego said. “There can be no assurance, however, that Vonage will be able to resolve these issues in the near-term.”
If Vonage does not resolve the debt issue by the time it files its annual report with the SEC, Rego said he expects the company’s auditors to include an explanatory paragraph regarding the firm’s ability to continue operating as a going concern.
The Holmdel, N.J.-based company’s fourth-quarter loss totaled $11.1 million, or $0.07 per share, up substantially from a loss of $111.7 million, or $0.76 per share, during the year-ago period. Vonage added 56,000 subscriber lines during the quarter to finish the fiscal year at about 2.6 million lines. Wall Street analyst, on average, expected earnings of $0.10 per share.
“Overall, I’m pleased with the progress we have made throughout the year. Our business fundamentals are solid and improving,” Citron said. “I am confident in the business and our ability to grow profitably. We need to attack churn and refinance the debt.”
In negative news, Vonage said it will restate its results for the second and third quarters of 2007. Stock compensation costs were overstated by $14 million because of the departure of its former CEO and other employees.
Quarterly revenue rose 19% to $215.9 million, from $181.5 million during the year-ago period. The consensus analyst estimate was $219.4 million.
In midday trading, VG shares are up 5.42%, or $0.11, at $2.14. Over the last 52 weeks, shares have ranged from $0.89 to $5.91.
