Vonage CEO Resigns, Company Outlines Cost Cuts

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Vonage CEO Michael Snyder resigned Thursday as the troubled Internet phone company reported weak preliminary first-quarter results and announced a restructuring plan that includes an unspecified number of jobs cuts.

Chairman and founder Jeffrey A. Citron will act as interim chief executive as the company seeks a replacement for Snyder, who joined Vonage in advance of last year's initial public offering of stock, a debacle for investors.

The sudden management change and disappointing first-quarter update follow a month of legal setbacks in which Vonage was found guilty of infringing on patents held by Verizon Communications Inc.

Despite the unsettling developments, a late morning bounce boosted Vonage's battered share price by 13 percent.

Vonage Holdings Corp. (VG) is attempting to overturn the federal jury's verdict, but the trial judge ordered Vonage to stop signing up new customers if it continues using the disputed technology during the appeal. A federal appeals court is expect to decide soon whether that injunction should be delayed until the bid to overturn the verdict is resolved.

The legal problems led Vonage to delay its official first-quarter report so it could assess the financial impact of the jury's decision, which included $58 million in compensation to Verizon for past use of the patents, plus future royalties for their continued use.

In Virginia on Thursday, the trial judge rejected a request from Verizon that would have required the Vonage to post $255 million in bonds while it appeals the verdict. Instead, Vonage will have to post a $66 million bond and then deposit 5.5 percent of its revenues into an escrow account on a quarterly basis.

If Vonage loses its appeal, it would need to either strike a deal with Verizon or deploy a substitute technology to connect its customer's calls to the traditional telephone network.

Though Thursday's preliminary update on the first quarter didn't reveal an exodus of customers rattled by the threat of a disruption in service, the numbers were shy of analyst expectations.

First-quarter revenue totaled an estimated $195 million as Vonage's customer base grew by 166,000 phone lines to about 2,390,000.

The overall customer growth was roughly equal to the fourth quarter's increase, but the pace of subscriber losses increased slightly: for every two new customers, one existing subscriber left, meaning that Vonage turned on 332,000 new lines and turned off 166,000 over the three-month period.

Marketing costs averaged $275 for each new customer, down from $306 per addition in the fourth quarter.

The company said it plans to reduce annual marketing costs by about $110 million, down to about $310 million, in 2007. The company also said it would cut general and administrative expenses by $30 million by consolidating operations and cutting an undisclosed number of jobs.

Vonage's shares jumped 40 cents to $3.40 in midday trading on the New York Stock Exchange after an early bob to $3.13. The stock has been clobbered since the high-profile IPO last May, plunging more than 80 percent and wiping out more than $2 billion in market value.