7 May 2009

HOLMDEL, N.J., May 7, 2009 /PRNewswire-FirstCall via COMTEX News Network/ -- Vonage Holdings Corp. (NYSE: VG), a leading provider of broadband telephone service, today announced results for the first quarter ended March 31, 2009.

Vonage reported record high adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA")(1) of $21 million, up from $8 million in the year ago quarter and $20 million sequentially. This is the sixth consecutive quarter of positive and increasing adjusted EBITDA resulting primarily from the Company's focus on effectively managing costs and selling, general and administrative ("SG&A") expenses.

Vonage reported positive income from operations of $5 million, up from a loss of $4 million the prior year and income of $3 million sequentially. Revenue of $224 million was flat year-over-year, and increased 1% sequentially. The Company reported GAAP net income of $5 million or $0.03 per share, up from a loss of $9 million or $0.06 the prior year. Net income in the first quarter 2009 includes a $13 million mark-to-market adjustment relating to the derivative liability in the Company's convertible debt. Net loss excluding this adjustment(2) was $8 million or $0.05 per share.

Marc Lefar, Vonage Chief Executive Officer, said, "We continued to improve our financial performance during the first quarter of 2009, with solid gains in adjusted EBITDA as well as increased cash flow from our existing customer base."

"We also expanded initiatives during the quarter to improve productivity and reduce costs across the company, while continuing to invest in new growth opportunities including mobile applications and international products and services. Additionally, we announced in April the selection of TBWA\Chiat\Day, a firm known for creating impactful messaging on highly regarded brands, as our new advertising agency. We expect the launch of a new marketing campaign in late spring and look forward to improving the Company's media strategy and marketing efficiency."

First Quarter 2009 Financial and Operating Highlights

Revenue for the first quarter was $224 million, flat from the year-ago period. Average revenue per user ("ARPU") of $28.86(4) was flat year-over-year and up from $28.33 sequentially. Telephony services ARPU was $27.78(4), a decrease from $27.87 reported a year ago and up from $27.28 sequentially. The sequential increase in telephony services ARPU was driven by promotions mix, tighter controls on customer credits, and a reduction in the period over which activation fees are amortized, mitigated by a decrease in the FCC mandated Universal Service Fund rate.

The Company continues to deliver reductions in direct cost of telephony services which declined to $52 million, down from $56 million in the prior year and $57 million sequentially. On a per line basis, direct cost of telephony services was $6.67(4), down from $7.26 in the year ago quarter and $7.22 sequentially due to routing optimization and supplier cost management. The sequential decline was also driven by a reduction in the USF rate.

Direct cost of goods sold was $21 million, down from $22 million in the year-ago quarter and up from $18 million sequentially. The sequential increase was driven in part by the reduction in periods over which product costs are amortized. Direct margin(3) increased to 68% from 65% year-over-year and 66% sequentially.

SG&A expense declined significantly to $68 million from $79 million in the year ago quarter as the Company reduced overhead expenses and effectively managed customer care and compensation and benefits costs. SG&A declined from $69 million sequentially. For the sixth consecutive quarter, SG&A as a percent of revenue declined, falling to 30% from 35% in the year ago quarter and 31% sequentially.

Pre-marketing operating income ("PMOI")(1), increased to a record high $98 million, up from $83 million in the year ago quarter and $92 million sequentially. On an incremental basis, PMOI increased to $17.71(4) per line, up from $16.23 in the year ago quarter and $16.33 sequentially.

Marketing expense was $66 million, up from $61 million in the first quarter of 2008 when the Company had intentionally reduced marketing spending, and up from $62 million sequentially. Marketing cost per gross subscriber line addition ("SLAC") was $290 up from $216 in the first quarter of 2008 and down from $309 sequentially.

The Company lost 6,000 net subscriber lines, finishing the quarter with 2.6 million lines in service. Churn rose to 3.1% from 2.9% sequentially driven in part by seasonality.

Cash provided by operations was $7 million. Capital and software expenditures for the quarter were $7 million. Cash and restricted cash on March 31, 2009 was $85 million.

Vonage LLC

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