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Business

Vonage: Some signs of life, but credit crunch looms

Vonage's fourth quarter had a little something for everyone. Optimists could say Vonage's loss was better than expected and the company isn't being sued anymore.
Written by Larry Dignan, Contributor

Vonage's fourth quarter had a little something for everyone. Optimists could say Vonage's loss was better than expected and the company isn't being sued anymore. Pessimists could say that the company still has a churn rate of 3 percent and is facing a credit crunch.

Advantage: Pessimists. That said, Vonage's current standing has improved somewhat. I have more than a passing interest since I'm a Vonage customer, but do wonder what would happen if Vonage disappears.

For the fourth quarter, Vonage reported a net loss of $11 million, or 7 cents a share, on revenue of $216 million. The loss was 3 cents a share better than Wall Street estimates, but revenue was light. The best news is that Vonage isn't lawsuit fodder anymore. The bad news is that Vonage has burned more than half its cash position on settlements.

To wit: Vonage had $190 million in cash, marketable securities and restricted cash as of Dec. 31. A year ago, Vonage had $508 million on that same basis. Forking over more than $200 million in settlements hurts--especially when you lose 3 percent of your subscriber lines each quarter. Vonage ended 2007 with 2.6 million lines total.

However, Vonage isn't out of the woods by any stretch. The company disclosed it has $253 million in convertible debt, which can be cashed in at the end of 2008. That math doesn't quite work since Vonage only has $190 million at its disposal--actually $151 million excluding restricted cash.

Vonage said it is trying to refinance this debt, but if it doesn't auditors are likely to question the company's ability to "continue as a going concern." That's shorthand for Vonage could go under if that debt isn't refinanced.

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