Good day everyone, and welcome to the Vonage Holdings Corporation Fourth Quarter 2012 Earnings Conference Call. Just as a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Leslie Arena, Vice President of Investor Relations. Please go ahead Ms. Arena.

Thank you operator. Good morning and welcome to our fourth quarter and full year 2012 earnings conference call. Speaking on our call this morning will be Marc Lefar, Chief Executive Officer and Barry Rowan, CFO. Marc will discuss the company’s strategy and progress and Barry will review our financial results. Slides that accompany Barry's discussion are available on the IR website. 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 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 expectations and depend on assumptions that maybe incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. More information can be highlighted on the second page of the slides and contained in our SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them. During this call, we will be referring to non-GAAP financial measures. A reconciliation to GAAP is available on the IR website. And now, I will turn the call over to Marc.

Thank you, Leslie. Good morning, and everyone and thank you for joining us on the call today. I am pleased to have the opportunity to review our results for the fourth quarter and 2012 with you. Before I review our results and discuss the announcements we made this morning, I would like to briefly provide context on the meaningful progress we've made throughout our business. For the past five years, we fundamentally transformed our company, operationally, financially and strategically. These changes have resulted in a swing of nearly $200 million in EBITDA and free cash flow. Our focus on operations as a result of a greatly improved cost structure, we reduced network and domestic termination costs by 63% and international long distance termination rates are down 30%. In addition, we've reduced customer care cost per line by 50% resulting in $50 million in annual savings. Perhaps more importantly, we've been able to execute these structural cost enhancements while significantly improving our call quality and customer service performance. We've also dramatically improved our balance sheet resulting in strong stable cash flow and significant interest expense savings. Our previous two refinancings in December of 2010 and July of 2011 resulted in interest savings of $48 million annually. Strategically, we shifted our primary focus to the rapidly growing but under served ethnic segments in the United States with international calling needs. We deployed a robust mobile platform that delivers high-quality voice and messaging services and we started to pursue international expansion opportunities which began with our partnership with Globe in the Philippines. We're committed to delivering shareholder value and growing our business. While we’ve made progress towards these objectives, much work remains to be done. This morning, we made three exciting announcements. The first is a new $145 million credit facility, which provides…

Thanks Marc and good morning everyone. I'm pleased to discuss our financial and operating performance with you. I would like to begin with the review of our new debt facility and share repurchase plan. With the objective of continually improving our balance sheet, we determined that our strong financial position and the attractive debt markets provided an opportunity to further optimize our capital structure. Late last year we began the process of identifying financing alternatives and last week we closed on a new $145 million facility consisting of a three year $70 million senior secured term loan and a $75 million revolver. This credit facility has been enhanced in several important respects from the refinancing put in place in July of 2011. First we've increased the size from $120 million to $145 million. Second, the revolver component has increased from $35 million to $75 million with a low annual carrying cost of 45 basis points. Third, we've reduced our interest rate from the already low LIBOR plus 3.75 rate to LIBOR plus 3.125 and further we are able to modify the debt covenants to facilitate a larger stock buyback. This new facility also provides increased flexibility to invest in organic and inorganic growth. Our balance sheet remained strong and conservatively leveraged. As of December 31, 2012, pro forma for the financing we were $37 million net cash positive with a leverage ratio of 0.6 times. As Marc discussed, Vonage’s Board of Directors authorized a program to repurchase up to $100 million of our common stock by the end of 2014. This new authorization replaces the prior $50 million plan and is in addition to the $33 million or 14 million shares we’ve purchased since beginning the program last August. With ample cash to fund the operational needs of our business…

And thank you Barry. I'll turn the call back over to Leslie to initiate the Q&A session.

Thank you Barry. Operator, please open the line for questions.

(Operator instructions) Our first question comes from the line of Michael Rollins with Citi Investment Research. Your line is open.

Just a couple of housekeeping items and then more of a high level question. Just a housekeeping first, do you have an update on what the specific USF tax and fees number was? Secondly, what percentage of net ads or gross ads in the quarter may have come from the BasicTalk, I realized it’s in a select number of markets and just been a limited trial for you guys, just curious, if there is a number to put on that? And then just more strategically, did you talk more about the partnership in Brazil that you announced. Where is that company historically been positioned in the marketplace in terms of customer target segments and how fast should we expect to ramp there and I realized you talked about, the totality of your growth programs, having the revenue go by the end of ‘14 but just trying to think about the milestones we should be tracking as we watch over the new partnership you announced today? Thanks.

Mike, let me take the first question on USF and then I will turn over to Marc to handle some of the more strategic question. USF for the quarter was $19.7 million, up from $17.7 million sequentially of which that's the $2 million that I spoke to. And 277 per line up from 250 per line in the prior quarter.

Mike relative to BasicTalk. We continue the trend that we've had previously. We haven't disclosed specific volumes driven by the direct marketing trial that we started in the third quarter nor what’s been a relatively small two market trial, although it is nationally representative in terms of the samples, they are very two micro markets so the absolute number of GLA’s in those two markets during the trials would not be material to gross adds during the period. Relative to Datora, their primary source of revenues has been largely wholesale interconnection. They have got points of presence in most of the major Brazil economically dense or population dense markets and they have got interconnection agreements with several hundred international carriers. In terms of our progress and timelines, we don’t anticipate material revenues of this calendar year. We have a tremendous amount of work to be done to actually implement and operationalize both the organization as well as OSS/BSS and network operations. We see significant opportunities however both with increasing broadband penetration as well as increasing mobile penetration for a full suite of products over the long haul that parallels many of the places we have been successful in the US over the past couple of years.

(Operator Instructions) Our next question comes from the line of Matt Sherwood with CCP. Your line is open.

Just had a question for you on the contribution margin you are expecting from the growth projects. I know that core business does high 60s percent contribution margin and it would seem like if you are spending $20 million to $40 million on the projects you would expect the same from the growth business just wanted to understand how you are thinking about that?

Well each of the business is really quite different in terms of contribution margin and we think about this very much in terms of the investment we make to acquire our customers. We have got some of the investment you see in the $5 million to $10 million investment which is kind of a long-term upfront investment, a lot of that is people and development expense could be amortized over the life of these programs. As you think about the BasicTalk product which is probably the one that is largest and most current and people looking for parallels. The gross margins are actually quite comparable to what we expect we will get today from our core products. Obviously, the ARPU itself is quite a bit lower but with domestic cards being relatively low and cost to serve is also quite low. We have also seen although it’s a limit experience in our test markets, the churn levels on these customers tend to be quite low as well. Interestingly, we are actually seeing in the trail markets not just people that are turning off and getting out of bundles as part of their conversion, we've actually seen roughly 25% of the new gross adds in these test markets are coming from people who previously cut the cord, so actually taking numbers and adding new service. So you really do believe this is prop really interesting opportunity. As we look to the international markets, its probably a little bit early to talk about gross margins on Datora we are not talking specifically yet about the products, we could be offering but you can think about the offering with Globe and the Philippines as again comfortable plus or minus 10% to what the range of our additional rate plans happen to be, and mobile the gross margins really vary by uses by countries. Since it’s very much an international long distance business, it varies by competitor. However, the acquisition cost to acquire subscribers is exceptionally low. So the contribution marks we do receive has a very high return on investment.

And then one final question. Do you have any sort of pro forma churn without Pakistan, because you just said the effect on net lines and you didn't break it down between gross and churn.

Yeah, it’s a good question. So I think what we said and is really kind of where we will leave it is, we maintain flat churn despite having had significant churn of the Pakistani segment and the total impact GLAs and churn combined was in excess of 15,000 net lines in the fourth quarter versus the third.

Right. But I mean 15,000 net lines if they were all on churn which I know it isn't, but that would be like a 1.9% churn which would be incredible so just trying to sort of dimensionalized it.

Yeah the majority of the short fall was in gross line additions.

We have a follow-up question from the line of Michael Rollins with City Investment Research.

I just thought I would throw another question for you. I was wondering if you could just talk a little bit more about how you've come to the decision to pursue share repurchase relative to your dividend options or other possible uses of cash, and with the change in the replacement of the old credit facility for the new financing that you have, how should the buy side think about your appetite for financial leverage even if you don't do an acquisition but just organically pursue opportunities from here. Thanks.

Just to provide some context; as you know, we have embarked on what we’d describe as a balanced approach to capital allocation now that the company has achieved the kind of cash flow levels that we have. When we think about balancing that really across four quadrants, first is maintaining adequate cash in the business obviously. Secondly is having some cash available to do buybacks. Thirdly is investing in organic growth which we do to the $5 million to $10 million a quarter; and fourthly is to provide some dry powder for appropriate acquisitions as those may arise. So that really is the context. With regard to the stock buyback versus dividends, we looked at that, you know the puts and takes on that are that dividends clearly are essentially a committed return of capital to shareholders notwithstanding major changes in the business. But on the other hand the share buyback offers some additional flexibility. But I think I would also point out that the Board and the company take these announcements very seriously. The fact that we announced the $50 million share buyback last August, which we expected to execute before the end of 2013. You can see that we were on track to achieve that well in advance of that. So the company is going to follow through on those kinds of commitments. So that's how we think about dividends versus buybacks, and the new credit facility does offer some additional flexibility. We are very pleased to now to increase the size of the facility from the $120 million to $145 million, but we were able to significantly enhance the revolver component of that based on the company's financial performance and the long standing really quality relationship with these four banks that Marc thanked in his script. We were able to increase the revolver component from $35 million to $75 million; that is undrawn currently. So we have drawn the $70 million term loan, used that to retire the $43 million or so in debt that was on the books before that. So we now have the $75 million undrawn facility that will provide flexibility for acquisitions. So with regard to the overall capital structure, I think we still remain relatively low leverage, but we can put it that at this point, it didn’t make sense to lever up dramatically to do a share buyback for example but to take on the amount of leverage that we did that enables us to announce, a very meaningful buyback of $100 million over the next two years. The possibility still exist for the company to add leverage if appropriate under right set of conditions and for the right set of opportunities.

(Operator Instructions)

There are no further questions, operator. We will conclude the call.

(Operator Instructions)

That’s it operator. Thank you everyone for joining us today.

Ladies and gentlemen, this does conclude your conference. You all may disconnect and have a good day.