From InsiderScore: The chairman of Vonage (VG) has invested another $1.3M into the voice-over-Internet-protocol ["VoIP"] play, buying stock after the company delivered a disappointing second-quarter earnings report amid continued controversy related to its May initial public offering. Jeffrey Citron, the founder, chairman, and chief strategist of VG, bought 188K shares at prices ranging from $6.41 to $6.90 on August 4th.
As a result of the buy, Citron now controls approximately 53.863M shares of VG, or a more than 33% stake. Included in Citron's holdings are more than 4.74M unexercisable options, and about 1.392M exercisable options. In a ceremonial move, Citron bought 100 shares at $17.00 when VG went public. Citron and venture capital firms 3i Group plc, Bain Capital, LLC, Institutional Venture Partners, Meritech Capital Partners, and New Enterprise Associates invested more than $450M into VG before the company's IPO, and Citron is the largest shareholder.
Citron served as chairman and CEO from January 2001 to February 2006, when he resigned from the latter post. Citron's resignation from the CEO slot was the result of investor and institutional angst related to his past as chairman and CEO of Datek Securities. The Securities and Exchange Commission accused Citron and other Datek executives and employees of improperly using the Nasdaq's Small Order Execution System ("SOES") for illegal trades. Citron did not admit or deny guilt, but he paid a $22.5M fine, one of the largest ever levied by the SEC on an individual. Citron was also barred from associating with any securities broker or dealer. In its prospectus, VG said, "We believe that some financial institutions and accounting firms have declined to enter into business relationships with us in the past, at least in part because of these matters."
In his current role, Citron is responsible for VG's overall strategy, technology matters, employee culture, and public relations. His current contract calls for a $600K annual salary, plus a performance bonus. Last year, Citron received a salary of $400K, a bonus of $650K, other compensation of $68.4K, and options of about 3.94M shares, most with a strike price of $8.82.
VG's first few months as a public company have been disastrous. The outfit went public on May 24th at $17.00 per share, raising approximately $531M. The stock rose only as high as $17.25, and then "broke," falling to a day one close of $14.85. Since then, the stock has consistently traded down, ending the day in the black on just 18 of 52 trading days (through August 7th), and hitting a low of $6.30 on August 2nd.
Even worse for the company, angry customers who were allowed to participate in the IPO quickly balked at actually completing their share purchases, resulting in more than 1M shares being floated with no actual buyers. Last week, when VG reported Q2 results, the company said that it spent $11.7M in the quarter to cover the costs of about 25% of those shares, and it dished out another $6.2M to its underwriters to handle the problem.
For Q2, VG posted a net loss of -$74.1M, or -$1.16 per share, up from -$63.6M a year ago. Analysts had forecasted a loss of -56 cents per share, but individually, their forecasts ranged from a loss of -38 cents per share to -$1.18 per share. Revenue, meanwhile, grew from $59.4M to $143.4M, but came up about -$5M shy of the consensus forecast. VG spent $90M on marketing in Q2, up 46% from a year ago, though subscriber acquisition costs rose only modestly, from $236 to $239. The company ended the quarter with 1.9M subscribers, a 16% sequential increase, and monthly revenue per line rose from $26.63 a year ago to $27.70. Churn, however, rose from 2.1% to 2.3%.
Mike Snyder, CEO of VG, told analysts that the company views Q2 "as a key inflection point on our path to profitability" and that it expects to begin generating adjusted operating profits in Q108.
"Improving our metrics in customer care is our single most important priority," Snyder said.
Worth Noting: VG has a host of regulatory issues to deal with on the state and federal level, not to mention patent infringement lawsuits filed against it by Verizon (VZ) and Klausner Technologies, and shareholder class action suits.
Citron, who began working at Datek when he just was 18, founded The Island ECN.