Leslie Arena – VP, IR
Marc Lefar – CEO
Barry Rowan – EVP, CFO and Chief Administrative Officer
Michael Rollins – Citi Investment
Mike Latimore – Northland Capital
Vonage Holdings Corp. (VG) Q1 2010 Earnings Call Transcript May 5, 2010 10:00 AM ET
Good day, everyone and welcome to the Vonage Holdings Corporation first quarter 2010 earnings conference call. Just a reminder, today's call is being recorded.
At this time, for opening remarks and introduction, I would like to turn the conference over to Ms Leslie Arena, Vice President of Investor Relations. Please go ahead.
Thank you. Good morning and welcome to our first quarter 2010 conference call. Speaking on our call this morning will be Marc Lefar, Chief Executive Officer; and Barry Rowan, CFO and Chief Administrative Officer. Marc will discuss the company's progress, and review steps we are taking to drive the business forward. Barry will discuss our financial results. Slides that accompany Barry's discussion are available on the Investor Relations Web site. At the conclusion of our prepared remarks, we will be happy to take your questions.
As referenced on slide two, I would like to remind everyone that statements made during this call that are not historical facts or information may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based on management's current beliefs and expectations and depend on assumptions or data that may be incorrect or imprecise.
Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. More information about those risks and uncertainties is highlighted on the second page of the slides and contained in Vonage's SEC filings. We caution listeners not to rely unduly on forward-looking statements, and we disclaim any intent or obligation to update them.
During this call, we will be referring to non-GAAP financial measures. A reconciliation of these measures to comparable GAAP measures is available on the Investor Relations Web site.
And now, I will turn the call over to Marc.
Thank you Leslie, and thanks to all of you for joining our call. I would like to begin by welcoming Barry Rowan, our Chief Financial Officer. Barry had been with us for nearly two months now, and has hit the ground running. He brings deep wireless industry experience, and important leadership skills that are driving the planning and execution of our financial strategies. We are pleased to have him as part of our team, welcome Barry.
So let us review our results. We continued to make significant progress improving the fundamentals of our core business while laying the foundation to deliver next generation services to a rapidly evolving communications market. Our financial performance for the first quarter was very strong. We reported record high net income of $14 million or $0.07 per share, up from $5 million or $0.03 a share in the same quarter a year ago.
We generated $40 million in adjusted EBITDA, our tenth consecutive quarter of growth driven by aggressive cost management, and an increase in average revenue per subscriber, and we produced expenses in virtually every line item including customer care and SG&A. Cash from operations more than doubled sequentially, and we generated record high cash flow of $47 million, This strong cash generation enabled us to reduce our debt by prepaying $23 million in the first lien obligations at par. This prepayment will reduce 2010 interest expense by $2.5 million, and approximately $13 million over the remaining life of the debt. We expect to generate excess cash flow again next quarter, and to make another prepayment offer at that time. Over the next year, we anticipate making substantial prepayment offers to debt holders as the company continues to generate cash.
Our results are a testimony to Vonage’s solid business model that generated adjusted EBITDA margins of more than 17% during the quarter. Cash generated from the core business provides a solid financial base for driving value and funding new products and services. We also made solid operational progress as we executed against our strategic imperatives. We are very pleased with the continuing significant improvement in churn, which declined to 2.6%, the lowest level in nearly three years. This improvement was driven by two major factors; first, the quality of Vonage World customers, and second, a relentless focus on improving the end-to-end customer experience.
We also saw an improvement in non-pay churn as a result of stabilizing economy. Vonage World continues to attract customers who have a lower propensity of churn. Churn rates for these customers are less than half that of non-World customers and churn rate for international callers are even lower as these customers particularly appreciate our compelling value proposition. Clearly this product is very sticky. The majority of World customers have good or excellent credit ratings further contributing to lower churn. A 30-day return rates for new Vonage World customers continues to be approximately half that of pre-World customers as we now have approximately 750,000 subscribers on this plan.
Our commitment to improving the quality of the customer experience is also paying dividends. Our onboarding queue for new customers as well as ongoing process improvement in customer care help us achieve best-in-class results for customer satisfaction. Customers who are extremely satisfied or very satisfied with Vonage reached 88% in the first quarter. Call handle times declined 9% sequentially, and we saw continued improvement in FirstCall resolution. These gains are taking place as we increased self-service capabilities online, which will reduce costs over time. This is strong progress.
We also continued to strengthen the quality and reliability of our network. We are focused on reducing the number of customer impacting outages, and have shortened the duration of outages 38% sequentially. The availability of customer level call quality metrics enables us to anticipate and address customer problems quickly. Because our churn results are built on a highly desirable customer profile and strong operating fundamentals, we believe they are sustainable in coming quarters, and we are seeing encouraging results thus far in the second quarter.
Achieving operating efficiencies and managing costs also remains a priority. A key example of the cost is telephony services. Through comprehensive supply chain management, we reduced the fees we pay for terminating our traffic leading to rate reductions of 30% in some countries since launching Vonage World. We will continue to focus on this area in the coming months, and expect to achieve continued unit cost reductions in the second quarter though overall international long distance usage and cost of telephony services is expected to increase as Vonage World penetration grows.
While some prevailing headwinds persist in our traditional domestic business such as wireless substitution, we believe we can grow our market share and continue to capitalize on the opportunities in international calling. Worldwide international long-distance traffic continues to grow at double-digit rates far outpacing domestic minute growth. Despite that growth, carrier pricing remains high creating opportunities for us to effectively compete on value by driving traffic to our low-cost network. Last year, we introduced Vonage World to capitalize in the opportunities in the ILD market and this remains an important target for our ongoing growth initiatives.
Nevertheless, we were disappointed with our gross line additions in the first quarter. We did not overcome early softness in the quarter with the $14.99 promotion, which began in March resulting in lower adds, and higher SLAC than we would have liked. While churn improvement helped, we lost 26,000 net subscriber lines in the quarter. We are taking steps on numerous fronts to improve our market penetration of both domestic and international callers.
Building on our success in certain segments of the international long-distance market, we are accelerating our multi-segment marketing strategy in others. We focused resources and higher local market agencies to assist in marketing to each segment. We recently launched a Spanish speaking sales centre and will soon be launching an Hispanic advertising campaign. Just yesterday, we launched an in-language Spanish Web site and will soon be adding a Spanish language option to our sales IVR. Over the next several months, we will enable an end-to-end Spanish language experience.
We launched a marketing program in late March targeting the Chinese segment. In addition to the local market advertising, we launched a Public Relations outreach initiative that has been picked up by over 40 Chinese publications highlighting our services and value. We believe our focused marketing efforts combined with our solid churn results will lead to an improvement in net line additions in the second quarter.
We also see opportunities for new products and rate plans that address the evolving needs of our targeted customers. Today roughly half of the customers on World do not make international calls, and as a segment of customers make a limited number of calls, we are actively evaluating opportunities such as limited usage calling plans to more explicitly address these customer needs. Limited minute plans would allow the company to better target and retain customers whose value proposition differs from that of the heavy ILD user. Because we understand these customers usage pattern, we are able to structure calling plans that deliver value while still generating meaningful margins for Vonage.
As we look ahead, our future direction will be built on strong and improving market fundamentals. Demand for mobility, growing Smartphone penetration, and the increased availability of broadband networks and WiFi are changing the communications landscape. The explosion of social networking, interactive gaming, and online dating services for example, dramatically increase the opportunity to connect people regardless of location or device. These market dynamics provide Vonage with opportunities to leverage our SIP based network to deliver compelling new services to consumers regardless of how they are connected to the Internet, whether it is on a PC, a gaming console, television, e-reader, or mobile phone. With a single identity such as a user name or number, customers can initiate and receive calls and messages from their contact book, from their social network for mobile contacts across any device.
By targeting mobile users who make outbound international calls, the launch of Vonage World and Vonage World for mobile represent the first step towards delivering voice and messaging to any Internet connected device. Our initial mobile application has generated more than 165,000 downloads since launch. In April we expanded our Vonage mobile offerings to additional platforms enabling AT&T mobile users to use our product (inaudible) devices.
In the next several months, we expect to launch new mobile applications enabling voice and messaging services directly from front lists on existing social communities. While mobile is still a small contributor to revenue, we are developing valuable market and technical expertise, as we systematically leverage these capabilities into this strategically important market. Going forward, Vonage will continue to introduce new services to take advantage of the changing consumer used patterns. As more households go wireless only, we will be there to meet them. Voice and messaging services will be tied to individual identities such as user name or mobile number or even shared identities as in the case of a home phone number or a small business, and these services will be usable across any Internet connected device. This is true convergence.
As I assess our progress this year, I am pleased with our financial performance. We delivered record level EBITDA, continued to improve our cost structure, and made strong progress reducing churn. We must improve marketing efficiency in our traditional business, and further penetrate international calling markets. At the same time, we are building a business for the future driven by innovative products and services that will transform our company.
I look forward to sharing our progress with you in coming quarters and now I will turn the call over to Barry.
Thank you Marc, Let me begin by saying that I am thrilled to be at Vonage. I was initially attracted to the company because I believed in both the business model and the opportunity to leverage our core network technology into the kinds of dynamic market opportunities that Marc has just described. I was also impressed by the quality of the team and my respect for this talented group of people has only deepened since I arrived. I am excited to be here and look forward to meeting with many of you in the upcoming months and quarters.
I am pleased to review our results for the quarter with you. You will see on the top graph on slide 3 that we generated record high net income of $14 million or $0.07 per share for the quarter, which represents an increase from $5 million or $0.03 in the year ago quarter, and $4 million or $0.02 in the fourth quarter of last year.
The bottom graph which excludes non cash adjustments from our convertible debt thereby depicting a more normalized view of our results, highlights the substantial progress we have made in growing net income from a loss of $8 million in the year ago quarter to $12 million of net income in the first quarter.
Moving to slide 4, adjusted EBITDA was $40 million, nearly double the $21 million reported in the year ago quarter, and up 17% sequentially driven by lower expenses, and modest topline growth. Most of the gain in EBITDA came as a result of cost management and operating efficiencies. We reduced non-media marketing cost, improved agents’ staffing levels and customer care, reduced compensation and benefits cost through lower headcount, and improved international termination rates by roughly 20% sequentially. Softer than anticipated gross line additions also contributed to the strong EBITDA as we did not incur the cost associated with acquiring these customers.
Let us walk through some of the details of the income statement beginning with revenue on slide 5. Revenue for the quarter increased to $228 million from the $224 million level achieved in both the first and fourth quarters of 2009. Telephony services revenue increased to $225 million, up 4% year over year and 3% sequentially. This improvement was driven by higher average service revenue per user, which increased 11% from the first quarter of 2009 and 4% sequentially to $30.90. The year-over-year increase in service ARPU was primarily due to an increase in the number of customers signing up for higher priced rate plans, higher USF and increases in fees. We did not anticipate this trend of increasing ARPU to continue into the second quarter due to the greater second quarter impact of our $14.99 promotion, although we expect this downward pressure to be partially offset by other rate favorability.
Moving to slide 6, our direct cost of telephony services or COTS was $62 million, up from $52 million in the prior year, and from $58 million sequentially. There are two offsetting factors affecting COTS, through active cost management rates have come down, but with the plan to increase international call volume related to Vonage World, usage has gone up. On a per line basis, COTS was $8.60 up from $7.96 sequentially, but this impact is mitigated by the other kind of expense reductions we have mentioned.
It is important to note that while COTS is higher for international colors on Vonage World, the net present value of these customers is very attractive. In fact, it is currently higher than that of non-ILD customers due to the low churn rates. As Marc discussed, churn for Vonage World customers is less than half that of non-World customer and churn is even lower for world customers who take advantage of the savings on international calls offered by this popular product. As it relates to our future quarters, we expect total COTS per line will increase but with a corresponding benefit to our churn performance from these high value ILD customers.
Direct cost of goods sold was $17 million flat sequentially, but down from $21 million in the year ago quarter on lower gross line additions. Let me make one final point regarding cost of goods sold. Recognizing the meaningful impact of the Vonage device on customer acquisition cost, we have successfully engineered a less expensive device, which will meaningfully reduce unit cost without negatively impacting the customer experience. We anticipate introducing this device in the fourth quarter.
The final graph on slide 6 indicates that direct margins of 65% were down from 68% in the first quarter of last year and from 66% sequentially. This was expected as it reflects the higher COTS associated with the growth in high value of international calling customers.
Moving to slide 7, our continued focus on operating efficiencies and productivity improvements resulted in SG&A reductions of 11% to $61 million from $68 million in the year ago quarter, and from $63 million sequentially. As a percent of revenue, SG&A declined to a record low 27%. This reduction was achieved through reduced overhead lowering compensation and benefits cost and 16% lower customer care expenses per line versus just three months ago. We saw improved efficiency across our customer care operations including improved agent utilization rates and lower call handle time, it is in part by lower gross line additions.
Slide 8 depicts our pre-marketing operating margin or PMOI performance which reflects the cash generated from our existing customer base as it excludes marketing, cost of goods sold, and equipment and shipping revenue. While this figure of merit should certainly not be viewed in isolation, it does indicate that the existing customer base generated more than $100 million this quarter in total, and a record high $14.07 or 46% margin on a per line basis. We believe this highlights the cash generation capability of the core business while also emphasizing the potential leverage available from continuing improvements in marketing efficiency.
Turning to slide 9, we indicated last quarter that we expected marketing to be at the low end of recent levels as we reduced marketing dollars to support promotional discounts. Marketing for the quarter was $49 million, down 25% from $66 million in the year ago quarter, and from $53 million sequentially. Our gross line additions were impacted by this lower absolute level of marketing spend and its timing within the quarter as the expense cuts were made prior to the launch of the $14.99 promotional offer. These factors combined with lower slower penetration into the ethnic segments Marc described, contributed to soft gross line additions, which came in at $155,000 for the quarter. The result in subscriber line acquisition cost of $318 were up 10% from $290 in the prior year and from $281 sequentially.
Turning to slide 10, as Marc described, we are very pleased with the meaningful improvements in churn, which declined to 2.6% this quarter, again the lowest level in nearly three years. Churn has improved nearly 25% from 3.4% in the third quarter of last year, and we are very focused on driving both customer quality and the end-to-end customer experience to hold on to these gains. While the churn results were strong, they were not enough to offset lower gross line additions and our subscriber base was reduced by 26,000 lines during the quarter.
Now let us move to a discussion of our balance sheet and cash flow results summarized on slide 11. We generated $51 million in cash from operations during the quarter increasing total cash to $123 million at quarter end of which $71 million was restricted. As our credit quality has continued to improve in recent quarters, and based on the long-term relationships we have developed with our suppliers, we believe we have opportunities to reduce the non-debt portion of restricted cash.
Capital expenditures at $4 million were well below the run rate of 2009 annual CapEx of $47 million due to the timing of projects. However, at this early point in the year, we still expect full year capital expenditures to be comparable to 2009 levels. We believe that part of the attraction of Vonage business model is the EBITDA margin level achievable in the business combined with this relatively low CapEx requirement, particularly relative to more infrastructure intensive communications operators. We are very pleased to report that we are able to use the strong cash flow results from this quarter to reduce our debt balance.
By taking advantage of the excess cash flow provision in our debt agreements, we retired over $23 million of our debt at par. The agreements provide that once our unrestricted cash balance exceeds $75 million, half of the excess cash flow amount is offered to the debt holders to retire the debt at par. As a result, on April 22, we offered to prepay $24 million in first lien debt. While certain holders waived their right to receive a prepayment, others accepted the offer reducing our principal balance on this 16% interest debt by $23 million with the balance going towards accrued interest. In the second quarter, $4 million would be booked against net income as a cost of early debt retirement resulting from this prepayment.
As we said in the past, we are comfortable that we can continue to satisfy our debt obligations. That said, this early debt retirement is great news and is part of our continuing focus on opportunities to reduce our debt. This prepayment of loan will result in interest savings of $2.5 million for the balance of this year, and total savings of $13 million over the remaining term of the debt. We anticipate generating excess cash flow again next quarter, and would then offer 50% of this excess product cash flow to our debt holders. Assuming our operating performance continues at expected levels, we would generate sufficient excess cash flow to make additional prepayment offers in subsequent quarters.
Another benefit of the company’s strong cash flow this quarter was the impact on our net debt position. At the end of the quarter, we had a total debt balance of $263 million comprised of debt principal and also including capitalized leases and settlement obligations. Offsetting this against our unrestricted cash of $52 million, and cash collateral of $30 million, and giving effect to our recent $23 million debt repayment, our net debt balance was $158 million. This results in a leverage ratio that is net debt to trailing fourth quarter EBITDA of 1.1 times.
The combination of improvement in our financial condition and relatively open credit markets give us room to continue to explore opportunities for improving our capital structure. As the company discussed last quarter in assessing these opportunities we must take into account the premiums for early retirement and will only pursue a transaction that makes sense for our company and our shareholders. We continually access our capital structure, and from time to time discuss with lenders opportunities to repay, refinance, or revise the terms of our credit agreements, but of course there can be no assurance that such efforts will be successful on terms acceptable to us or to them.
One last minute on our capital structure is that we continue to see additional conversions of our third lien debt to equity during the quarter. Of the original $18 million in third lien notes, approximately $15 million has now been converted leaving $3 million still in place. After these conversions, we had 211 million shares outstanding at the end of the quarter. As many of you are aware, Vonage achieved full compliance with NYSE listing requirements in March of this year. The decision by the Exchange to remove us from below compliance on an accelerated basis came several months earlier than required and was a result of Vonage’s sustained positive financial performance consistent with the business plan that the company presented to the NYSE in March of 2009. We are now in full compliance with all NYSE listing requirements.
In summary, it was a strong quarter on many fronts operationally, financially, and with tangible progress in improving our balance sheet through strong cash flow generation. As we look ahead, we do expect some pressure on EBITDA form ARPU dynamics we discussed and from increased gross line additions that we reiterate our expectations for EBITDA growth for the full year 2010. As we lay the foundation for revenue growth, we also recognize that many of the growth initiatives we are undertaking will take time to impact our topline results and we would not expect them to significantly affect the financial trajectory of annual revenues until 2011.
Again, I am personally delighted to have joined the Vonage team. We look forward to providing you with an update on our progress at the end of the second quarter.
Now operator, please open the line for questions.
Thank you. (Operator instructions) Our first question comes from Michael Rollins from Citi Investment. Your line is open.
Michael Rollins – Citi Investment
Hi, good morning. Just had a couple of questions for you, just wondering if you can give us a little bit more detail in terms of what you are seeing from the current mobile platform experience, you said it was not a substantial contributor to revenue but maybe if you could just give us a little bit more sense of what you are seeing out of that with some metrics. And then the second question is just on the gross adds for the core business, so you have been throwing some new promotions at the market, you described I think the impact from some of that but is this a situation where investors should just expect a stable to declining base of subscriptions over time or do you see a path to getting back to positive net subscriber growth call in the next 12 months? Thanks.
Thanks Mike. Let me take those in sequence. So relative to the mobile platform, in a world of communications, it is easy for people to think about the traditional way that identity and numbers have worked. I would encourage you to think less about our first steps on to mobile devices as a mobile strategy as much as this is about real convergence. This is about no longer being tied to a physical location like the home but taking an identity or multiple identities that somebody has whether it is a user name from a social community, whether it is a phone number, or whether it is a community identity as in the case of a small business that has a small business name or even a home phone with a home phone number, which is used by multiple family members and that all of those identities will be accessible across any Internet connected device.
The most prevalent is obviously the mobile phone and Smartphones give you the flexibility to really be able to propagate this in a good user experience. We should be thinking about this in the context of not just mobile phones, but everything from gaming consoles, to PCs, to pads, anything that is Internet connected will have the ability to do messaging and voice enablement and will launch that voice and messaging enablement directly from the community, from existing contact list, from existing information you have already got in multiple (inaudible).
So we are talking about what is very much a fledgeling [ph] business in our mobile space. It is really limited only to those that are outbound calling to date for international users. So it is relatively small in the grand scheme of things. We are not going to provide specific detailed metrics on that platform because they represent such a small piece of the broader strategy, and you will see products and services in the balance of this year and into 2011 when we think that vision will become much more clear to you and you will be able to see how it is a broad communications service that we are selling that is usable across multiple devices including the traditional plastic home phone but not necessarily as folks simply chose to cut cords to eliminate the excess fees they pay to traditional carriers. We just need Internet connection and then we can enable all communciation across multiple devices that is really the direction we are going.
Let us talk about the gross adds situation with new promotions and a pattern to where we see ourselves going. We do envision a pattern, a path to positive net adds. We expect the next quarter to be improved versus the quarter that we are just reporting now. We have significant opportunities, we still believe in the international long-distance market within specific ethnic communities where in-language experiences are critical. We have got to get those built and supported to be able to drive the gains we expect.
We also are seeing additional opportunities at the light user level, folks who still have affinity for the home phone, the home phone number and their identity with the ability to provide them a better value proposition that is included in the $25 plan for folks who are not using international long-distance calling. We are seeing that and starting to understand that the usage is a result of some of the promotions we put in place, and you can expect us to be able to tap into that market in the coming months, and as Barry mentioned, a lower cost adaptor device gives us the opportunity to do that at lower acquisition cost, and still have good margins while managing migrations from our banks.
So, we still think there is a lot of opportunity, but we are disappointed with the quarter and did not feel like we have got as much penetration in the ethnic segments as we had expected, but we still have optimism going forward.
If I can just build on Marc’s comments in terms of how this translates into a financial strategy, we think about a company in three parts, and really three corresponding financial strategies with that. First is a traditional business and our real objective there is to continue to generate very positive cash flow from that business can be the growth engine, and then building on that the second part of that is extensions off of that business like Marc described in the international piece [ph] and Vonage World and particularly the ILD color portion of that is probably the best example. We talked about the value of those customers even though they use higher COTS they also have less churns. So they are very attractive customers, so we can extend their capability into that piece and then layering on top of that Mike, we would have what you might call next generation Vonage as we are able to tap into and extend some of our initial reach into the some of the attractive markets that Marc described.
Michael Rollins – Citi Investment
Thanks very much.
Next question operator?
Our next question comes from Mike Latimore from Northland Capital.
Mike Latimore – Northland Capital
Yes, good morning, nice job on the cash flow there in the quarter. Just a question, I guess looking into the second quarter, is there any working capital changes that might have an effect on just kind of cash flow trend?
Mike we actively work on managing our working capital obviously and you saw some of that in this quarter. We believe that there are some opportunities for that although working capital is at a relatively normalized level at this point. We do think that there are opportunities however related to that to free up some of the restricted cash that we have. Some of that for example with credit card companies that were required in the early days of Vonage and we think with the very strong financial performance there will be opportunities to continue to generate cash from those kind of things.
So we are actively looking at that as we explore ways to free up cash on the balance sheet and will continue to look for ways to apply that cash flow as it is generated to further the business including ways to further retire the debt like we are able to do this quarter. So we are very pleased obviously at those results, and it clearly is directionally where we want to go with regard to the debt.
Mike Latimore – Northland Capital
Good and then in terms of retiring some of the debt here, was there any debt that you operated that was not accepted or was the full amount accepted in the quarter?
The full amount was accepted in the quarter. We are not at liberty to talk about the details of that. What I can tell you is that I think the patterns were a lot to do on a generic basis. They kind of fall into three groups, first are people who hold equity as well as debt. We saw more of those people taking the offer to have their debt redeemed, which as you expect from an equity standpoint it reduces the interest expense, it reduces the debt outstanding. The second category are people who were just debt hodlers and some of them did not take the offer, which I think is a lot to do the way they think about the debt which is a quality piece of paper. And then there is a third category of people who you could describe as they are not natural holders of the debt. Circumstances change, so they had individual circumstances within their own funds. So that was really kind of the complexion of the response to the offer that we have made this quarter.
Mike Latimore – Northland Capital
Thanks. And then you mentioned you will have a lower cost of product down the fourth quarter. How shall we think about that, maybe 50% less or – you said meaningful, but I guess how should I think about the cost there?
It will be in excess of 20% reduced. We will not give the specifics now but it is a material reduction.
Mike Latimore – Northland Capital
Got it. Okay. And then you gave a number, I think you gave the number for number of subscribers on the Vonage World plan, can you give that again?
Mike Latimore – Northland Capital
Okay, thanks. It has been I guess a couple of months now for the new lower price plan to be on the market and you are in the marketing and any kind of initial read there, a little more detail in terms of the effectiveness of that offer?
Just to clarify Mike for folks what you are referring to, we from time to time will do price-based promotions. We think about that as one of the marketing elements that we leverage from time to time sometimes that will invest in the case this quarter, we will actually spend in promotion as opposed to indirect marketing expense. We launched actually in March a plan that had $14.99 as introductory price for a period of six months before stepping back up.
We did see increase in lift in the month of March versus what we saw in January, February, things were quite soft after the holidays but as I mentioned earlier, the lift in March was not sufficient to get us back to positive which was a little bit disappointing for us. I am not going to comment specifically about the second quarter progress or results relative to the $14.99 plan except to say that we are feeling pretty bullish about the opportunity for light user plans, folks who simply see the ILD product and think it is interesting but it does not (inaudible) their usage. Of all the Vonage World customers we have coming in, about half of them are actually active users of international long distance calling and if you are not an ILD caller, obviously the incremental value perceived versus a bundle is not nearly as great for just domestic use especially if you are a light user.
So we do see some opportunities both promotionally and potentially to even go directly with specific types of offering to limited channels for lighter use customers and I think you can expect to see that in the back half of the year.
Mike Latimore – Northland Capital
Great and just last question is on ARPU, you talked about some cross current in the second quarter of the year on ARPU, should we generally think about it as stable or how should we think about it?
Yes we talked about the currents Mike but we are to see the effect of the promotion longer, the $14.99 promotion as Marc mentioned that just kicked in really at the beginning of March, so we will see that effect and it will be offset by – we see some increased fees for example, but I think I would think about it as stable to declining a bit.
And just declining off of the quarter just reported but generally if you look at this over longer period of time, you can think about it as relatively stable ARPU.
Mike Latimore – Northland Capital
Got it, great, thank you.
Next question operator?
(Operator instructions) Our next question comes from Dan Sullivan from Emmerson, your line is open.
Okay operator, are there any other questions?
I see no other further questions in queue at this time. Please continue.
Okay, we will conclude our call. Thank you for joining us. Have a good day.
Ladies and gentlemen, thank you for participating and using the conferencing centre. You may now disconnect and have a great day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!