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Vonage Holdings Corporation (NYSE: VG) is getting thrashed this morning on what appeared to be a decent to good earnings report on the surface.  It is always in the details where the devil lurks.  The VoIP telephony leader reported that net income tripled to $24 million or $0.11 EPS and its adjusted EBITDA was $40 million. Revenue was up $3 million from a year ago to $217 million, but this is down from $218 million just one quarter sequentially.  We had estimates of $0.10 EPS and $219.95 million in expected revenues.

Gross line additions increased and the company showed that churn was slightly higher than expected because of the no contract policy.  Vonage noted for ahead, “We expect improvements over the next few months as we will no longer experience the churn spike customarily associated with contract expirations. We anticipate stable to lower churn in the fourth quarter.”

The company also noted that it is focused on international expansion, but more importantly it noted that it expects to announce its first partnership early next year.  Vonage now set the stage that it must announce a deal in early 2012.

The real problem is that Vonage has just found it very difficult to grow.  The company ended with 2,388,721 net subscribers lines, down from 2,397,660 at June 30, 2011 and also down from 2,399,035 as of September 30, 2010.  More details are as follows:

• Gross line additions were 170,000, up from 163,000 the prior year and 158,000 sequentially;
• Net loss of 9,000 lines, compared to a loss of 5,000 lines in the year-ago quarter and 11,000 net line losses sequentially. 
• Churn was 2.7%, up from 2.4% in the year ago quarter and 2.5% sequentially; expects fourth quarter churn to be at or below third quarter levels.

As far as guidance goes, the company expects to achieve adjusted EBITDA of at least $165 million for the year 2011 and is also expects to report gross line additions that exceed prior year levels.  Vonage now sees full year churn of about 2.6%, at the high-end of its previous guidance of the “mid-2% level.”  Full year 2011 net line additions are likely to be slightly negative.  Capital expenditures for the year are expected to be at or under $40 million. 

Vonage shares are down 12% at $2.75 versus a $3.13 close and the 52-week trading range is $2.10 to $5.39.  Unless Vonage can figure out a way to get some growth going again, this stock is likely to keep bouncing around back and forth.

JON C. OGG