Covad Communications Group Announces Fourth Quarter 2005 Results
Company closes 2005 with positive revenue growth, and a significant EBITDA improvement over the previous quarter.
San Jose, Calif. (February 15, 2006) - Covad Communications Group, Inc. (AMEX: DVW), a leading national provider of integrated voice and data communications, today reported its fourth consecutive quarter of increased revenues and a significant improvement in its EBITDA performance over the third quarter of 2005.
“We are pleased with the trends and progress we are making towards our goal of becoming EBITDA positive by mid-year and cash flow positive by the end of the year,” said Charles Hoffman, Covad president and chief executive officer. “In 2005, we made major investments in our network and customer operations to automate and scale VoIP processes and enable our growth. We continue to take control of our destiny by doubling our VoIP customer base in 2005 and by shifting more of our business to higher-margin, business-class services sold through direct channels under the Covad brand.”
Covad reported revenues of $113.7 million for the fourth quarter of 2005, an increase of 1.4 percent from the $112.1 million reported for the third quarter of 2005, and an increase of 5.6 percent from the $107.7 million reported in the fourth quarter of 2004.
Covad ended the fourth quarter of 2005 with approximately 567,200 broadband lines in service, representing a 6.4 percent increase from 2004. While total broadband lines in service decreased by 1.9 percent from the third quarter of 2005, Covad business broadband lines in service increased by 1,360 to 232,400. Covad ended the fourth quarter of 2005 with 1,147 VoIP business customers, a 102.3 percent increase over 2004 and a 10.8 percent increase over the third quarter of 2005.
For the fourth quarter of 2005, broadband and VoIP subscription revenue increased to $98.3 million, an increase of 1.8 percent from the $96.6 million reported in the third quarter of 2005, and an increase of 8.3 percent from the $90.8 million reported in the fourth quarter of 2004. Management uses broadband and VoIP subscription revenue to evaluate the performance of its business and believes these revenues are a useful measure for investors as they represent a key indicator of the performance of the company’s core business. Refer to the Selected Financial Data, including Note 3, for additional information, including a reconciliation of this non-GAAP financial performance measure to the most directly comparable GAAP measure.
For the fourth quarter of 2005, Covad’s wholesale subscribers contributed $80.1 million of revenue, or 70.4 percent, while direct subscribers contributed $33.6 million of revenue, or 29.6 percent. At the end of the fourth quarter of 2005, broadband lines in service were approximately 488,100, or 86.1 percent, wholesale and 79,100, or 13.9 percent, direct, as compared to approximately 498,500, or 86.2 percent, wholesale and 79,900, or 13.8 percent, direct at the end of the third quarter of 2005, and approximately 454,600, or 85.3 percent, wholesale and 78,600, or 14.7 percent, direct at the end of fourth quarter of 2004.
Covad reported a loss from operations of $17.8 million for the fourth quarter of 2005, an improvement of $10.2 million, or 36.4 percent, over the loss from operations of $28.0 million reported in the third quarter of 2005, and an improvement of $7.3 million, or 29.1 percent, over the loss from operations of $25.1 million reported in the fourth quarter of 2004.
For the fourth quarter of 2005 earnings before interest, taxes, depreciation and amortization, or EBITDA, was a loss of $3.4 million, an improvement of $8.5 million, or 71.4 percent, over the EBITDA loss of $11.9 million reported in the third quarter of 2005, and an improvement of $2.1 million, or 38.2 percent from the EBITDA loss of $5.5 million reported in the fourth quarter of 2004. Covad’s EBITDA for the fourth quarter of 2005 include a reduction in network costs of approximately $4.2 million, primarily as a result of a billing settlement it reached with Verizon Communications, Inc. This benefit was partially offset by an increase in employee compensation and other operating expenses of approximately $2.5 million, primarily as a result of reductions in Covad’s workforce during the fourth quarter of 2005. Refer to the Selected Financial Data, including Note 2, for a reconciliation of this non-GAAP financial performance measure to the most directly comparable GAAP measure and other information.
Covad reported a net loss of $17.9 million, or $0.07 per share, for the fourth quarter of 2005 as compared to a net loss of $15.8 million, or $0.06 per share, for the third quarter of 2005, and a net loss of $26.0 million, or $0.10 per share, for the fourth quarter of 2004.
Cash, cash equivalents and short-term investment balances, including restricted cash and investments, amounted to $102.0 million at the end of the fourth quarter of 2005, a decrease of $14.1 million when compared to the balance of $116.1 million at the end of the third quarter of 2005.
“This quarter’s significant improvement in EBITDA results is a testament to the operating efficiencies from our investments throughout 2005 and puts Covad squarely on the path to becoming EBITDA positive in 2006. In addition, we are focused on increasing sales of our high-margin business products, such as T1 and VoIP, and continue to improve our churn as we manage the transition towards more profitable business subscribers.” said Christopher Dunn, Covad chief financial officer.
" At the end of the fourth quarter of 2005, Covad had approximately 334,800 consumer and 232,400 business broadband lines in service representing 59.0 percent and 41.0 percent, respectively, of total broadband lines in service. At the end of the fourth quarter of 2005, Covad had 1,147 VoIP business customers using a combined total of approximately 40,600 VoIP stations. For the fourth quarter of 2005, business customers contributed $82.7 million, or 72.7 percent, and consumer customers contributed $31.0 million, or 27.3 percent, of total revenue.
Weighted average revenue per user, or ARPU, for broadband lines was $54 per month during the fourth quarter of 2005, flat as compared to the third quarter of 2005. VoIP ARPU per customer, excluding resellers, was $1,681 per month during the fourth quarter of 2005, up from $1,578 per month for the third quarter of 2005.
Net customer disconnections, or churn, for broadband lines averaged approximately 2.8 percent in the fourth quarter of 2005, down from 3.3 percent for the third quarter of 2005.
Covad expects total net revenues for the first quarter of 2006 to be in the range of $115 - $120 million. Broadband and VoIP subscription revenue is expected to be in the range of $98 - $101 million. Covad expects its net loss to be in the range of $13 - $16 million, and Modified EBITDA (“M-EBITDA”) in the range of $1 - $3 million loss. Net usage of cash, cash equivalents and short-term investments, including restricted cash and investments, for the first quarter of 2006 is expected to be in the range of $10 - $14 million, which includes the payment of approximately $2 million of severance costs and related accrued vacation as a result of workforce reductions performed in the fourth quarter of 2005.
Conference Call Information
Covad will conduct a conference call to discuss these financial results on Wednesday, February 15, 2006 at 5:00 p.m. Eastern Time (ET)/ 2:00 p.m. Pacific Time (PT). The conference call will be webcast over the Internet. To listen to the call, visit the Event Calendar section on the Covad web site at http://www.covad.com/companyinfo/investorrelations. Investors and press may also listen by telephone to the call by dialing (800) 572-9815 and reference pass code 5036067. Participants are advised to call in 5 minutes prior to the start time. The conference call will be recorded and available for replay listening until 11:59 p.m. EST on February 22, 2006 by dialing (800) 642-1687 and reference pass code 5036067.
Covad is a leading nationwide provider of broadband voice and data communications. The company offers DSL, Voice over IP, T1, Web hosting, managed security, IP and dial-up, and bundled voice and data services directly through Covad’s network and through Internet Service Providers, value-added resellers, telecommunications carriers and affinity groups to small and medium-sized businesses and home users. Covad broadband services are currently available across the nation in 44 states and 235 Metropolitan Statistical Areas (MSAs) and can be purchased by more than 57 million homes and businesses, which represent over 50 percent of all US homes and businesses. Corporate headquarters is located at 110 Rio Robles San Jose, CA 95134. Telephone: 1-888-GO-COVAD. Web Site: www.covad.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
The foregoing contains “forward-looking statements” which are based on management’s current information and beliefs as well as on a number of assumptions concerning future events made by management. Examples of forward-looking statements include the anticipated completion of the NextWeb acquisition and the company’s expected revenue, Broadband and VoIP subscription revenue, broadband subscriber line growth, net loss, M-EBITDA loss, change in cash, cash equivalents and short term investments, including restricted cash and investments. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside Covad’s control, that could cause actual results to differ materially from such statements. These risk factors include the ability of Covad and NextWeb to satisfy the closing conditions to the NextWeb acquisition, our ability to rapidly expand and deploy new services, the impact of increasing competition, pricing pressures, consolidation in the telecommunications industry, and uncertainty in telecommunications regulations and changes in technologies, among other risks. For a more detailed description of the risk factors that could cause such a difference, please see Covad’s 10-K, 8-K and other filings with the Securities and Exchange Commission. Covad disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results of Covad.
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