Giving its first earnings report as a public company, Vonage Holdings Corp. (NYSE: VG) delivered the expected mixed bag -- big subscriber growth accompanied by big costs and big losses. (See Vonage Doubles Revenues.)

In fact, losses were worse than expected, sending shares dropping 39 cents (5.5%) on Tuesday to $6.70.

An inflation report sent pretty much all stocks reeling -- the Nasdaq Composite Index was down 1.4 percent on the day -- but Vonage's call didn't help its case against critics who say the company's high costs are a lodestone.

For its second quarter, which ended June 30, Vonage reported losses of $74 million, or $1.16 per share, on revenues of $143 million, compared with losses of $85 million, $3.69 per share, on revenues of $59 million the previous quarter.

In its second quarter of 2005, before Vonage went public, the company had losses of $63.6 million, $46.32 per share, on revenues of $59.4 million.

Non-GAAP losses of $1.09 per share for the second quarter were more severe than the 47 cents per share analysts had expected, according to Reuters Research . But Vonage said there's hope on the horizon.

"We view this as an inflection point on our path to profitability," said Jeffrey Citron, Vonage's chairman and chief strategist, on a call with analysts. "We believe that our business model will lead us to positive adjusted operating income as early as the first quarter 2008."

The optimism comes from Vonage's rapid growth, with 256,000 net subscriber lines added during the second quarter. That brings its total to 1,853,000 -- roughly 1 million more than it had a year ago.

Customer churn -- at 2.3 percent per month, up from 2.1 percent the previous quarter -- was "unacceptably high," CEO Mike Snyder said on the call. He noted this was the result of diminished customer service after the fast growth of the past year.

Churn was also increased by the simple fact that most users of a service, if they're going to leave at all, leave during the first six months, Snyder said, meaning high growth comes with inherently high churn.

Marketing costs remained at $239 per subscriber, up about 1 percent from this time a year ago, officials said. During yesterday's call, Vonage reaffirmed its forecast of $360 million to $380 million in marketing costs for the year, compared with revenues of $600 million to $618 million.

Vonage continues to suffer fallout from its May IPO, which launched at $17 per share and promptly headed south. Some shares were set aside for Vonage customers to buy, but as the stock tanked, those customers declined to accept the shares. The usual lawsuits followed, and even the analysts from the IPO's underwriters couldn't give the stock a "buy" rating. (See Regulators, Lawyers Swarm Vonage and No 'Buy' From Vonage Bankers.)

As a result, Vonage reported it bought up roughly 1.06 million shares of stock from the IPO underwriters and their affiliates "at an aggregate fair market value of $11.7 million," or roughly $11 per share. Vonage added that it plans to "pursue the collection of monies owed" from those parties "who failed to pay for their shares."

Vonage also will pay its underwriters an additional $6.2 million "in accordance with the Underwriting Agreement once certain conditions are satisfied," according to a press release. Those fees are already tallied under "accrued expenses."

— Craig Matsumoto, Senior Editor, Light Reading