It quickly became apparent that Vonage's churn rate — the rate of customers signing up then leaving the service — was too high. But to lower the churn rate, Vonage offered deep discounts to existing customers, which just lengthened the amount of time it took for Vonage to make a profit off of its customers.
Groupon also has very high marketing costs. So Groupon, unlike Vonage, isn't losing money just by signing up its customers. But the monthly average revenue number is shrinking rapidly, falling by 15 percent in September. This is one metric that should have investors worried. Another point that is somewhat disturbing are the reports Groupon dramatically cut back on marketing expenses in this last quarter.
It's easy to see why they would do this leading into the IPO. Their enormous marketing budget was one of the main digs against the company. They wanted to show that they could cut back on marketing and still grow. They've done that. But I dislike these kind of moves. A temporary cutback on spending can make numbers look artificially good for a quarter because you can stop spending now and not feeling the slowdown until subsequent quarters.
This is especially true for marketing when a lot of your spending from previous quarters can keep producing customers in subsequent quarters. This looks at least a little bit gimmicky. My bottom line is Groupon is not necessarily the next Vonage. It may even be the next Amazon , another company that many Tech bears loved to hate for years. Amazon did well initially but then fell as the air hissed out of the dot com bubble. For years, its management sacrificed profits for growth, which seems to be the likely path for Groupon.
The idea being that Amazon had to scale up before it could start really making money. Many early holders of Amazon, however, had to wait years and years before they made any money on their shares assuming they didn't sell before the bubble deflated. Eventually, their loyalty was rewarded.
But you didn't have to get in on the IPO to make money on Amazon, and you didn't have to wait years and years. An investor who just decided to hang back and wait out the "scale up" phase would have done very well buying Amazon a decade after its IPO. Dividend yield. Expected life in years. Recent Accounting Pronouncements. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The provisions of FIN 48 are effective for fiscal years beginning after December 15, Earlier application is permitted as long as the enterprise has not yet issued financial statements, including interim financial statements, in the period of adoption. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard.
Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN The cumulative effect of applying the provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings or other appropriate components of equity for that fiscal year.
We believe the adoption of FIN 48 will not have a material effect on our consolidated financial statements. Note 2. Income Taxes. As of June 30, , we had net operating loss carryforwards for U. In addition, we may be able to increase the base Section limitation amount during the first five years following the ownership change to the extent we realize built-in gains during that time period.
A built-in gain generally is gain or income attributable to an asset that was held at the date of the ownership change and that had a fair market value in excess of the tax basis at the date of the ownership change. Due to the cumulative impact of our equity issuances over the past three years, a change of ownership occurred upon the issuance of our Series E Preferred Stock at the end of April As noted above, we believe we may be able to increase the base Section limitation for built-in gains during the first five years following the ownership change.
We are currently conducting research to evaluate the impact of Section in relation to our May IPO. Note 3. Convertible Notes. We plan to use the proceeds from the offering of the Notes for working capital and other general corporate purposes including the funding of our operating losses.
We may, at our option, pay interest on the Notes in cash or in kind. Interest paid in kind will increase the principal amount outstanding and will thereafter accrue interest during each period. The first interest payment was made on March 1, In addition, upon conversions in connection with certain transactions, including certain changes of control, holders of the Notes will be entitled to receive a make-whole premium as calculated in the Notes.
The Notes may, at the option of the holder, be converted into shares of Common Stock at any time. The conversion price is subject to certain anti-dilution adjustments. We have agreed to file resale shelf registration statements covering the shares of Common Stock issuable upon conversion of the Notes within 90 calendar days after the IPO and use reasonable best efforts to have such registration statement be declared effective within calendar days after the IPO.
We believe we will meet these required deadlines and will not incur these fees. We evaluate the provisions of the Notes periodically to determine whether any of the provisions would be considered embedded derivatives that would require bifurcation under Statement of Financial Accounting Standards No. Because the shares of Common Stock underlying the Notes have not been registered for resale, they are not readily convertible to cash.
Accordingly, the Notes do not contain an embedded conversion feature that must be bifurcated. Once the underlying shares of Common Stock are registered we may determine that our Notes contain an embedded conversion feature that would require bifurcation from the Notes. At that time, the fair value of the embedded derivatives would be bifurcated from the Notes and recorded as a non-current liability with an offset recorded as a discount to the Notes that would be amortized to interest expense over the remaining life of the Notes using the effective interest method.
The fair value of the embedded derivatives would be revalued each reporting period with the change in the fair value recorded as other income or expense in the statement of operations. We identified certain other embedded derivatives and concluded their value was de minimus. Since the Notes issued in December and January did not contain an embedded conversion feature that required bifurcation, we evaluated the conversion feature to determine if it was a beneficial conversion feature under EITF and The conversion price equaled the fair value of the underlying Common Stock.
As such, there was no beneficial conversion feature for those issuances. For the Notes issued on March 1, for the payment of interest in kind, the fair market value of the underlying Common Stock exceeded the conversion price. This beneficial conversion feature will be amortized over the remaining life of the Notes to interest expense on our consolidated statement of operations using the effective interest method. Note 4. Common Stock.
Stock Split. In May , our board of directors approved a 1-for All share and per share amounts contained in our financial statements have been retroactively adjusted to reflect the reverse stock split. Initial Public Offering. Directed Share Program. In connection with our IPO, we entered into an Underwriting Agreement, dated May 23, , pursuant to which we agreed to indemnify the Underwriters for any losses caused by the failure of any participant in the DSP to pay for and accept delivery of the shares that had been allocated to such participant in connection with our IPO.
In the weeks following the IPO, certain participants in the DSP that had been allocated shares failed to pay for and accept delivery of such shares. We recorded theses shares as treasury stock on the consolidated balance sheet at June 30, Note 5. Preferred Stock. In May , upon completion of our IPO, all of our outstanding preferred stock automatically converted into , shares of our common stock.
We have no outstanding shares of preferred stock as of June 30, Preferred Stock Warrant. This amount. Upon completion of our IPO, the warrants to purchase Series A-2 Preferred Stock automatically converted into warrants to purchase common stock and are included on our balance sheet under additional paid-in capital.
Note 6. Employee Benefit Plans. The plan provides for the granting of options or restricted stock awards to our officers, directors and employees. The objectives of the plan include attracting and retaining personnel, providing for additional performance incentives, and promoting our success by providing employees the opportunity to acquire stock. During , we increased the number of shares authorized for issuance pursuant to options or restricted stock awards from 4, to 7, shares under the plan, as amended.
During , the number of shares authorized for issuance pursuant to options or restricted stock awards was increased from 7, to 28, At June 30, , 4, shares were subject to exercisable options or restricted stock awards under the Stock Incentive Plan. Initially, we recorded deferred compensation in related to this option grant. Stock options generally vest over a four-year period and expire ten years after the grant date. On January 1, , we adopted SFAS R , which requires recognition of compensation expense for all stock-based awards made to employees in our consolidated financial statements.
Under the intrinsic value method, no stock-based compensation expense for employee stock options had been recognized in our results of operations in prior periods, unless the exercise price of the stock options granted to employees and directors was less than the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method that we used in adopting SFAS R , our consolidated financial statements prior to fiscal year have not been restated to reflect, and do not include, the possible impact of SFAS R.
Beginning January 1, , we estimated the volatility of our stock using historical volatility of comparable public companies in accordance with guidance in SFAS R and Staff Accounting Bulletin No. We will continue to use the volatility of comparable companies until historical volatility is relevant to measure expected volatility for future option grants.
The expected volatilities of comparable public companies used for the second quarter were between The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding, which we derive based on our historical settlement experience.
As stock-based compensation expense recognized in our results is based on awards ultimately expected to vest, the amount has been reduced for estimated forfeitures. SFAS R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience. Prior to January 1, , we also used historical experience to estimate forfeitures for the purposes of our pro forma information under SFAS Stock option activity was as follows:.
Range of. Number of. At June 30, , 11, options were available for future grant under the plan. The weighted average grant date fair value of options granted during the three and six months ended June 30, was. Compensation costs for all stock-based awards are recognized using the ratable single-option approach on an accrual basis.
The following is a summary of the status of stock options outstanding at June 30, Outstanding Options. Exercisable Options. Exercise Price Range. Additional information with respect to stock option activity is as follows:. Grant Date. Shares and Intrinsic Value in Thousands. Term in Years. Fair Value. Shares outstanding at December 31, Shares outstanding at June 30, Shares exercisable at June 30, Unvested shares at December 31, Unvested shares at June 30, In May we adopted the Incentive Plan.
There have been no grants made under this plan through June 30, The Incentive Plan permits the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance units, annual awards and other awards based on, or related to, shares of our common stock. Options awarded under our Incentive Plan may be nonstatutory stock options or may qualify as incentive stock options under Section of the Internal Revenue Code of , as amended.
Our Incentive Plan contains various limits with respect to the types of awards, as follows:. The maximum number of shares of our common stock that are authorized for issuance under our Incentive Plan will be determined under a formula set forth in the plan, and will equal approximately Incentive Plan. Following termination of our Stock Incentive Plan, the number of remaining shares available for issuance under our Stock Incentive Plan, or that becomes available for issuance upon expiration or cancellation, without payment or settlement, of awards under our Stock Incentive Plan, also will become available for issuance under our Incentive Plan.
Shares issued under the plan may be authorized and unissued shares or may be issued shares that we have reacquired. Shares covered by awards that are forfeited, cancelled or otherwise expire without having been exercised or settled, or that are settled by cash or other non-share consideration, will become available for issuance pursuant to a new award.
Shares that are tendered or withheld to pay the exercise price of an award or to satisfy tax withholding obligations will not be available for issuance pursuant to new awards. Note 7. During June and July , the Company, several of our officers and directors, and the firms who served as the underwriters in our IPO were named as defendants in multiple class action lawsuits.
The complaints assert claims under the federal securities laws on behalf of a professed class consisting of all those who were allegedly damaged as a result of acquiring our common stock in connection with our IPO. We expect the complaints to be consolidated at some time in the future. Although we believe that we and the individual defendants have meritorious defenses to the claims made in each of the aforementioned complaints and intend to contest each lawsuit vigorously, an adverse resolution of any of the lawsuits may have a material adverse effect on our financial position and results of operations in the period in which the lawsuits are resolved.
We are not presently able to reasonably estimate potential losses, if any, related to the lawsuits, and as such, the accompanying financial statements do not contain adjustments for this litigation. On June 12, , a lawsuit was filed against us and our subsidiary Vonage America Inc. The complaint seeks injunctive relief, compensatory and treble damages and attorney fees. We have not yet filed our answer to this litigation. We believe that we have meritorious defenses against the asserted claims, and intend to vigorously defend the lawsuit.
We are not presently able to reasonably estimate potential losses, if any, related to the lawsuit, and as such, the accompanying financial statements do not contain adjustments for this litigation. On July 10, , a lawsuit was filed against us and Vonage America in the United States District Court for the Eastern District of Texas alleging that we have infringed one patent in connection with voice mail technology.
We have not yet filed an answer to this litigation. The state attorney general of the State of New Jersey had initiated an investigation concerning our marketing disclosures and advertising. In June , we entered into an Assurance of Voluntary Compliance to resolve the issues in controversy without admitting any violation of law. State and Municipal Taxes. We have received inquiries or demands from a number of state and municipal taxing and agencies seeking payment of Taxes that are applied to or collected from customers of providers of traditional public switched telephone network services.
Although we have consistently maintained that these Taxes do not apply to our service for a variety of reasons depending on the statute or rule that establishes such obligations, a number of states have changed their statutes as part of the streamlined sales tax initiatives and numerous other states have entered into sales tax agreements with us. As of June 30, , we began collecting and remitting sales taxes in thirty-eight states and began collecting and remitting sales taxes in another two states on August 1, We also believe it is likely that we eventually will be required to collect and remit sales taxes in virtually all U.
In addition, a few states address how VoIP providers should contribute to support public safety agencies, and in those states we began to remit fees to the appropriate state agencies. We have also contacted authorities in each of the other states to discuss how we can financially contribute to the system. We do not know. Additionally, some of these Taxes could apply to us retroactively.
Universal Service Fund. This Order will be effective upon publication in the Federal Register, and require the first filing by August 1, , with USF contributions effective for the fourth quarter of Vonage is to register with the FCC and report revenue for contribution using one of three methods, 1 using the interim safe harbor of While our reporting methodology is still under review, we would anticipate a nominal price increase to appear on customer invoices on or about October 1, The Company has also filed an appeal with respect to this Order.
Note 8. Subsequent Events. State Attorney General Proceedings. As we disclosed in our Registration Statement on Form S-1, several state attorneys general had initiated investigations and, in two states, had commenced litigation concerning our marketing disclosures and advertising. We were cooperating with those investigations and pursuing joint settlement negotiations with the attorneys general of Florida, Illinois, Massachusetts, Texas and Michigan and separate negotiations with the attorney general of Connecticut.
In July we reached an agreement in principle to settle the litigation with the state attorney general of Texas and the investigations being conducted by the state attorneys general of Florida, Illinois, Massachusetts and Michigan. This agreement in principle is subject to finalizing the documentation memorializing the settlement and executing such settlement documentation. With respect to our joint settlement negotiations, we have recorded a reserve to cover the potential exposure relating to these investigations, which was not material to our June 30, financial statements.
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Form Q and our audited financial statements included in our Registration Statement on Form S-1 File No. This discussion contains forward-looking statements, which involve risks and uncertainties. We are a leading provider of broadband telephone services with over 1.
Our services use Voice over Internet Protocol, or VoIP, technology, which enables voice communications over the Internet through the conversion and compression of voice signals into data packets. In order to use our service offerings, customers must have access to a broadband Internet connection with sufficient bandwidth generally 60 kilobits per second or more for transmitting those data packets.
We earn revenue and generate cash primarily through our broadband telephone service plans, each of which offers a different pricing structure based on a fixed monthly fee. We have invested heavily in an integrated marketing strategy to build a strong brand awareness that supports our sales and distribution efforts. We acquire customers through a number of sales channels, including our websites, toll free numbers and a presence in major retailers located in the United States, Canada and the United Kingdom.
We also acquire a significant number of new customers through Refer-a-Friend, our online customer referral program. Since our U. Although our net losses initially were driven primarily by start-up costs and the cost of developing our technology, more recently our net losses have been driven by our growth strategy. In order to grow our customer base and revenue, we have chosen to increase our marketing expenses significantly, rather than seeking to generate net income.
In addition, we plan to continue to invest in research and development and customer care. We are pursuing growth, rather than profitability, in the near term to capitalize on the current expansion of the broadband and VoIP markets, and to establish and maintain a leading position in the market for broadband telephone services. We intend to continue to pursue growth because we believe it will position us as a strong competitor in the long term.
Although we believe we will achieve profitability in the future utilizing this strategy, we ultimately may not be successful and we may never achieve profitability. Trends in Our Industry and Business. A number of trends in our industry and business have a significant effect on our results of operations and are important to an understanding of our financial statements. These trends include:.
Broadband adoption. The number of U. We expect this trend to continue. We benefit from this trend because our service requires a broadband Internet connection and our potential addressable market increases as broadband adoption increases. Changing competitive landscape. We are facing increasing competition from other companies that offer multiple services such as cable television, voice and broadband Internet service.
Several of these competitors are offering VoIP or other voice services as part of a bundle, in which they offer voice services at a lower price than we do to new subscribers. In addition, several of these competitors are working to develop new integrated offerings that we cannot provide and that could make their services more attractive to customers.
We also compete against established alternative voice communication providers and independent VoIP service providers. Some of these service providers may choose to sacrifice revenue in order to gain market share and have offered their services at lower prices or for free. These offerings could negatively affect our ability to acquire new customers or retain our existing customers. Subscriber line growth. Since our launch, we have experienced rapid subscriber line growth. For example, we grew from 85, subscriber lines as of December 31, to , as of December 31, to 1,, as of December 31, In addition, we grew from , subscriber lines as of June 30 to 1,, as of June 30, or over 1 million incremental subscriber lines.
We believe we will continue to add a significant number of subscriber lines in future periods; however, we do not expect to sustain our historical subscriber line growth rate on a percentage basis due to a combination of increased competition, a significantly larger and growing customer base and increasing saturation among our initial target customer base, which included many early adopters.
Average monthly customer churn. For the three months ended June 30, , we experienced average monthly customer churn of 2. We believe this increase was driven by our continued rapid growth and inability to hire enough qualified customer care employees which led to less than satisfactory customer care during the first half of We are working to improve our customer care. We believe that our churn will fluctuate over time and may continue to increase as we shift our marketing focus from early adopters to mainstream customers and acquire customers from new sources, such as outbound telemarketing, that historically have had a higher churn rate.
Average monthly revenue per line. For , we believe that our average monthly revenue per line will remain steady or slightly increase. We recently began charging customers an Emergency Cost Recovery fee, which has increased average monthly revenue per line.
In addition, an increasing number of customers are choosing the residential unlimited plan as a result of the first month free promotion which has a positive effect on longer term average monthly revenue per line. These increases could be negatively impacted by the timing and duration of promotions such as the second line promotion introduced in late May In addition, in May we started offering free calls to certain countries in Europe for customers on our unlimited plans, which will decrease average monthly revenue per line.
Average monthly direct cost of telephony services per line. These decreases were partially offset by the costs of E compliance. Our business has developed in an environment largely free from regulation. However, the United States and other countries have begun to examine how VoIP services should be regulated, and a number of initiatives could have an impact on our business. For example, the FCC has concluded that wireline broadband Internet access, such as DSL and Internet access provided by cable companies, is an information service and is subject to lighter regulation than telecommunications services.
This order may give providers of wireline broadband Internet access the right to discriminate against our services, charge their customers an extra fee to use our service or block our service. We believe it is unlikely that this will occur on a widespread basis, but if it does it would have a material adverse effect on us.
Other regulatory initiatives include the assertion of state regulatory authority over us, FCC rulemaking regarding emergency calling services and proposed reforms for the intercarrier compensation system. On a positive note, the Internal Revenue Service has discontinued the requirement to collect the Federal Excise Tax which we stopped collecting on June 24, Complying with regulatory developments will impact our business by increasing our operating expenses, including legal and consulting fees, requiring us to make significant capital expenditures or increasing the taxes and regulatory fees we pay.
E roll-out. We expect to complete the E roll-out to nearly all of our remaining subscriber lines within the year. If the FCC orders us to disconnect customers or stop accepting new customers in areas where we have not yet implemented E capability, it would reduce our subscriber growth while we work to complete the roll-out. This may result in an increase in our marketing cost per gross subscriber line addition, since most of our marketing programs are national in nature and we cannot significantly reduce our marketing costs in areas in which we could not accept new customers.
Operating Revenues. Operating revenues consists of telephony services revenue and customer equipment and shipping revenue. Telephony services revenue. Substantially all of our operating revenues are telephony services revenue. Under our basic plans, we charge on a per minute basis when the number of domestic calling minutes included in the plan is exceeded for a particular month. International calls except for calls to certain European countries under our unlimited plans are charged on a per minute basis.
These per minute fees are not included in our monthly subscription fees. We offer similar plans in Canada and the United Kingdom. We derive most of our telephony services revenue from monthly subscription fees that we charge our customers under our service plans.
We also offer residential fax service, virtual phone numbers, toll free numbers and other services, for each of which we charge an additional monthly fee. One business fax line is included with each of our two small office and home office plans, but we charge monthly fees for additional business fax lines.
By collecting monthly subscription fees in advance and certain other charges immediately after they are incurred, we are able to reduce the amount of accounts receivable that we have outstanding, thus allowing us to have lower working capital requirements. Collecting in this manner also helps us mitigate bad debt exposure, which is recorded as a reduction to revenue.
Historically, in most cases, we are able to correct the problem with the customer within the current monthly billing cycle. We also generate revenue by charging a fee for activating service. Through June , we charged an activation fee to our direct channel customers, or those customers who purchase equipment directly from us. Beginning in July , we also began charging an activation fee to our retail channel customers, or customers who purchase equipment from retail stores.
For our direct channel customers, activation fees, together with the related customer acquisition amounts for equipment are deferred and amortized over the estimated average customer relationship period. For our retail channel customers, rebates and retailer commissions up to but not exceeding the activation fee, are also deferred and amortized over the estimated average customer relationship period.
The amortization of deferred customer equipment expense is recorded to direct cost of goods sold. The amortization of deferred rebates is recorded as a reduction to telephony services revenue. The amortization of deferred retailer commissions is recorded as marketing expense.
Through December 31, , we estimated that the average customer relationship period would be 30 months based upon comparisons to other telecommunications companies. For , this period was reevaluated based on our experience to date and we now estimate it will be 60 months. We have applied the month customer relationship period on a prospective basis beginning January 1, For , we have confirmed that the customer relationship period should be 60 months.
In the United States, we charge regulatory recovery fees on a monthly basis to defray the costs associated with regulatory consulting and compliance as well as related litigation, E compliance and to cover taxes that we are charged by the suppliers of telecommunications services. We record these fees as revenue. Prior to June 30, , we generally charged a disconnect fee to customers who did not return their customer equipment to us upon termination of service, regardless of the length of time between activation and termination.
On July 1, , we changed our termination policy. We no longer accept returns of any customer equipment after 30 days, and we charge a disconnect fee to customers who terminate their service within one year of activation. Disconnect fees are recorded as revenue and are recognized at the time the customer terminates service. Telephony services revenue is offset by the cost of certain customer acquisition activities, such as rebates and promotions. Customer equipment and shipping revenue.
Customer equipment and shipping revenue consists of revenue from sales of customer equipment to our wholesalers or directly to customers. In addition, customer equipment and shipping revenue includes the fees that we charge our customers for shipping any equipment to them.
Operating Expenses. Operating expenses consists of direct cost of telephony services, direct cost of goods sold, selling, general and administrative expense, marketing expense and depreciation and amortization. Direct cost of telephony services. Direct cost of telephony services primarily consists of fees that we pay to third parties on an ongoing basis in order to provide our services.
These fees include:. When a Vonage subscriber calls another Vonage subscriber, we do not pay an access charge. We lease these telephone numbers on a monthly basis. Only regulated telecommunications providers have access to the centralized number databases that facilitate this process. Because we are not a regulated telecommunications provider, we must pay other telecommunications providers to process our local number portability requests. Direct cost of goods sold primarily consists of costs that we incur when a customer first subscribes to our service.
These costs include:. The remaining cost of customer equipment is deferred and amortized over the estimated average customer relationship period. Selling, general and administrative expense. Selling, general and administrative expense includes:. We anticipate an increase in our selling, general and administrative expense as we hire additional personnel to address our growing subscriber base and to handle the obligations of a public company but expect selling, general and administrative expense to decrease as a percentage of revenue in Marketing expense.
Marketing expense consists of:. Because our marketing commitments are generally six weeks or less in duration, we are able to significantly reduce marketing expense relatively quickly if it becomes prudent to do so. Depreciation and amortization expenses. Depreciation and amortization expenses include:. Other Income Expense. Other Income Expense consists of:. This amount will increase if we pay interest in kind on these notes.
Key Operating Data. The following table contains certain key operating data that our management uses to measure the growth of our business and our operating performance:. Gross subscriber line additions. Net subscriber line additions. Subscriber lines. Average monthly telephony services revenue per line. Marketing costs per gross subscriber line addition. Employees excluding temp help. Gross subscriber line additions for a particular period are calculated by taking the net subscriber line additions during that particular period and adding to that the number of subscriber lines that terminated during that period.
This number does not include subscriber lines both added and terminated during the period, where termination occurred within the first 30 days after activation. The number does include, however, subscriber lines added during the period that are terminated within 30 days of activation but after the end of the period. Net subscriber line additions for a particular period reflect the number of subscriber lines at the end of the period, less the number of subscriber lines at the beginning of the period.
Our subscriber lines include, as of a particular date, all subscriber lines from which a customer can make an outbound telephone call on that date. Our subscriber lines include fax lines and SoftPhones but do not include our virtual phone numbers or toll free numbers, which only allow inbound telephone calls to customers. We added over 1 million subscribers from , subscriber lines as of June 30, to 1,, as of June 30, The increase in our subscriber lines was directly related to an increase in our advertising spending and our expansion to other media, such as television, direct mail, alternative media and outbound telemarketing, which have a broader customer reach.
Average monthly customer churn for a particular period is calculated by dividing the number of customers that terminated during that period by the simple average number of customers during the period, and dividing the result by the number of months in the period.
The simple average number of customers during the period is the number of customers on the first day of the period, plus the number of customers on the last day of the period, divided by two. Terminations, as used in the calculation of churn statistics, do not include customers terminated during the period if termination occurred within the first 30 days after activation.
Our average monthly customer churn was 2. We monitor churn on a daily basis and use it as an indicator of the level of customer satisfaction. Other companies may calculate churn differently, and their churn data may not be directly comparable to ours. Customers who have been with us for a year or more tend to have a significantly lower churn rate than customers who have not.
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This is the initial public offering of shares of our common stock. In this prospectus, "Vonage," "we," "us," "our" and "our company" refer to Vonage. Vonage Holdings Corp. Common Stock. This is the initial public offering of shares of our common stock. All of the 31,, shares of common stock are being. On May 23, , the initial public offering (IPO) price for Vonage's common stock was set at $ per share. This message is being sent.