Vonage Narrows Losses; Inks Deal with Covad

(MoneyWatch)  Vonage is still losing money, but the bottom line is moving in the right direction. The company also signed a deal with Covad to offer DSL service.

The VOIP provider on Thursday reported a first quarter net loss of $9 million, or 6 cents a share, compared to a loss of $72 million, or 47 cents a share, a year ago (statement). Excluding charges, Vonage had operating income of $8 million. The results topped estimates by a penny. Revenue for the quarter was in line with estimates at $225 million, up 15 percent from a year ago.

For a company that was arguably about to disappear, Vonage has managed to stop the bleeding. The company is off life support, but it's unclear whether it can grow with high churn rates. Vonage is hoping a deal with Covad to offer digital subscriber line (DSL) service in a bid to boost lines in service (statement).

Under the Covad pact, Vonage will launch Vonage Broadband, which will offer maximum download speeds of 3 to 6 megabits per second to residential and small business customers. The Covad deal may get Vonage some incremental revenue, but DSL is being lapped by both cable and next-generation services from Verizon and AT&T.

By the numbers:

• Vonage reported churn of 3.3 percent in the first quarter, up from 3 percent from a year ago.
• Vonage added 30,000 net subscriber lines in the first quarter and had more than 2.6 million lines in service.
• Vonage had first quarter average monthly revenue per line of $28.85 million, up from $28.19 in the fourth quarter.
• Average cost per line was $7.26, down from $8.03 a year ago, but up from $7.11 in the fourth quarter.
• Selling, general and administrative expense was $79 million, down from $91 million a year ago. Marketing expenses were $61 million, down from $91 million a year ago. The company said:

Marketing cost per gross subscriber line addition ("SLAC") was $216 in the first quarter 2008, down from $273 in the year-ago quarter and $223 sequentially. The Company expects SLAC to increase in the second quarter, consistent with prior year seasonal trends. Vonage expects to gradually increase marketing expenditures in the second half of 2008 to accelerate growth but continues to expect the cost of acquisition to fall within $225-$250 for the full year 2008.

• Cash on hand was $190 million as of March 31.

Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations. Credit: ZDNet.