Vonage Holdings Corp. Reports First Quarter 2007 Results

Vonage Holdings Corp. Reports First Quarter 2007 Results

-First Quarter Revenues Grow 64% to $196 Million-

Vonage Holdings Corp. (NYSE: VG) , a leading provider of broadband telephone service, today announced results for the quarter ended March 31, 2007.

Revenue for the first quarter 2007 grew to a record $196 million, a 64% increase from $120 million in the first quarter 2006, driven by strong customer line growth over the course of the year and higher average revenue per line.

Adjusted loss from operations(1) narrowed to $58 million in the quarter, a 20% improvement from $73 million in the year-ago quarter. Adjusted loss from operations excluding royalty(1) narrowed to $48 million in the first quarter 2007, a 34% improvement from $73 million in the first quarter 2006 and a 10% improvement from $53 million last quarter.

For the first quarter of 2007, the Company’s net loss narrowed to $72 million, or $0.47 per share, from a net loss of $85 million reported in the first quarter 2006. Net loss excluding royalty and associated interest(2) improved to $61 million, or $0.39 per share, from $65 million in the fourth quarter 2006.

Vonage added approximately 166,000 net subscriber lines during the quarter and finished with nearly 2.4 million lines in service.

Jeffrey Citron, Vonage Chairman, said, “We have battled through an extremely difficult quarter and will continue the fight in the courtroom. While the patent litigation has challenged our business, it has not distracted our focus on providing consumers with the opportunity to choose a better phone service.

“We believe we have workable designs for the two name translation patents and intend to begin deploying the solution to our customers shortly. In addition, we are continuing our development of the workaround for the wireless patent.”

First Quarter 2007 Financial and Operating Highlights

First quarter 2007 revenue grew to $196 million, up 64% from $120 million in the year-ago quarter. The year-over-year increase was driven by growth in subscriber lines and an increase in average monthly revenue per line.

Average monthly revenue per line in the first quarter 2007 was $28.31, up $0.46 from $27.85 in the year-ago quarter and roughly in line with $28.25 reported in the fourth quarter 2006. Average monthly telephony services revenue per line for the quarter grew to $27.36, up 5% from $26.17 in the year-ago quarter.

In the first quarter 2007, direct cost of telephony services increased to $56 million, up from $38 million year-over-year and $52 million sequentially driven by an increase in subscriber lines. On a per line basis, cost of telephony services fell to $8.03, down from $8.94 in the first quarter 2006 and $8.13 sequentially as the Company continues to benefit from cost savings associated with traffic flow optimization and supplier management. Total direct cost of telephony services was $66 million, which includes a $10 million patent royalty.

Direct cost of goods sold for the quarter was $13 million versus $18 million last year and $12 million in the prior quarter. Direct margin(3) improved to 60% of revenues from 53% a year ago.

In the first quarter 2007, selling, general and administrative (”SG&A”) expense rose to $91 million, a 72% increase from $53 million in the year-ago quarter, as the Company scaled to support a growing subscriber base. Sequentially, SG&A expense rose 11% from $82 million, driven primarily by litigation costs of $10 million and the timing of compensation and benefits expense. As a percent of revenue, SG&A was 46% in the first quarter 2007, up from 44% in last year’s quarter and 45% in the fourth quarter 2006.

Marketing spend for the first quarter of 2007 was $91 million, or 46% of revenue, versus $88 million, or 74% of revenue, a year ago. Sequentially, marketing expenditures fell 5% from $96 million. Marketing cost per gross subscriber line addition was $273 in the first quarter 2007, a reduction of $33 from $306 last quarter and up $64 from $209 a year ago. As previously announced, the Company expects to spend approximately $310 million in marketing in 2007.