The Wall Street Journal-20080214-Vonage Narrows Quarterly Loss- Heavy Debt Obligation May Prompt Auditors To Issue a Warning

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Vonage Narrows Quarterly Loss; Heavy Debt Obligation May Prompt Auditors To Issue a Warning

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Vonage Holdings Corp. narrowed its fourth-quarter loss amid a financial restatement, but said its heavy debt has its auditors examining its ability to continue as a going concern.

The Holmdel, N.J., pioneer of Internet phone service said revenue rose 19% in the quarter, although the average revenue per user fell six cents to $28.19.

Vonage is sitting on $253 million in convertible debt, which can be put back to the company at the end of 2008. Refinancing the debt is a priority of the company, said founder and Chief Executive Jeffrey Citron in an interview. He declined to comment on any specific plans.

There is no guarantee that Vonage will reach a new financing agreement, the company said in a release. It added that "assuming the company has no resolution by the time it files its annual report on Form 10-K, the company expects that its auditors' report on our 2007 financial statements will include an explanatory paragraph regarding the company's ability to continue as a going concern."

Vonage also said it will have to restate its financial results for the second and third quarters of 2007 as a result of a change in the impact of its stock options after the former chief executive and other senior executives left the company.

The changes are for noncash expenses and won't affect prior revenue, cash flow from operations or total cash.

The concerns come after Vonage fended off and eventually settled a number of lawsuits with larger telecom companies, such as AT&T Inc. and Verizon Communications Inc. Vonage was accused of dropping the ball on customer service and spent lavishly on an ineffective marketing campaign. A large number of customer defections continue to plague the company.

Since taking over last year, Mr. Citron has succeeded in cutting the marketing expenses, but the programs he put in place to improve customer care haven't stemmed defections.

Customer turnover was 3%, unchanged from the third quarter. "It's an unacceptable rate," Mr. Citron said.