Vonage settles with AT&T; vows positive cash in '08

Embattled VoIP operator, Vonage has broken even on its operations for the third quarter and is predicting positive cash flow next year after provisionally settling its patent case with AT&T for $39 million. Big patent litigation payments of $133 million saw Vonage's net loss rise sharply to $161.8 million, or $1.04 a share, compared with a net loss of $62.2 million, or 40 cents a share, for the same period a yer ago.

But a further reduction in marketing costs saw the loss from operations excluding its litigation settlement costs with Verizon and Sprint  narrow to $1 million, compared with a $53 million loss in the third quarter a year ago and an improvement from $3 million in the previous quarter.

The Company said it expects to generate positive adjusted operating income for 2008 and said its free cash reserves had been reduced from  $356 million to $194 million, which is comprised of $154 million in free cash and $40 million in restricted cash--money set aside as part of the Verizon patent settlement. CFO John Rego told analysts he expected adjusted cash reserves at the end of Q4 to be $54 million. The market reacted positively to the results with the stock up 40 cents to $2.59 in early trading.

A continued wind down in promotions has seen customer growth flatten with Vonage saying it now has 2.5 million subs compared with 2.45 million in June. The flattening in growth comes as the major cable companies have enjoyed big uptakes in internet voice subscriptions.

Churn continues to be an issue with an average monthly customer churn of  3.0% in the third quarter 2007--up from 2.5% in Q2--a number founder and CEO Jeffrey Citron told analysts was unacceptable. Citron said improvements would take time as the company worked on improving the service and support. This is an increase from 2.5% in the prior quarter, which Vonage said would have been 2.7% if not for the extension of the customer grace period.

Revenue for the third quarter 2007 grew to $211 million --in line with market expectations--a 30% increase from $162 million in the third quarter 2006, driven by modest customer line growth and an increase in average revenue per line.

However average revenue per line in the third quarter 2007 was $28.24, slightly down from $28.38 reported in the second quarter 2007.

For More:
-  Vonage Q3 Earnings Release
-  CNNmoney Report  

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