Despite No Growth, Has Vonage Finally Made It? (VG)

Vonage Holdings Corporation (NYSE: VG) is seeing a surge in shares this morning after the VoIP telephony company announced a quarterly profit.  Yep, a profit.  This was a $5 million gain or $0.03 EPS on a GAAP basis.  Revenue of $224 million was flat year-over-year, and increased 1% sequentially.  Just keep in mind that its  net income was due to an item.

Net income in the first quarter included a $13 million mark-to-market adjustment, which was relating to the derivative liability in its convertible debt. Vonage’s net loss excluding this adjustment was $8 million or -$0.05 EPS.

This was also the sixth consecutive quarter of positive and increasing adjusted EBITDA of $21 million, up from $8 million in the year ago quarter and $20 million sequentially.

The company noted that it has been bringing costs down.  On a per line basis, direct cost of telephony services was $6.67, down from $7.26 a year ago and down from $7.22 sequentially.  This was due to routing optimization and supplier cost management, as well as a reduction in the USF rate.

Vonage’s growth story is beginning to be a tough one as the company lost 6,493 in gross subscriber lines, although it listed 2,583,861 lines in service.  Vonage had 2,607,156 lines in service as of December 31, 2008 and listed 2,610,360 as the number of lines as of March 31, 2008.  We are also seeing a higher churn rate that rose to 3.1% from 2.9% sequentially, which Vonage noted was driven in part by seasonality.

Cash provided by operations was $7 million, and it noted that cash and restricted cash on March 31, 2009 was $85 million (the balance sheet note was $44.729 million in regular cash and $39.995 million in restricted cash).  It ended the quarter with $197.657 million in total debt.

Vonage stock is up 37% today after the earnings report.  At $0.65, it is up more than 100% of the 52-week low of $0.31 and still down over 65% from its 52-week high of $2.03.

JON C. OGG