Covad Communications Announces Record Fourth Quarter and 2001 Results; Revenues for Year More Than Doubled to $332.6 Million; Financial Performance Continues to Improve.Business Editors SANTA CLARA Santa Clara, city, Cuba Santa Clara (sän`tä klä`rä), city (1994 est. pop. 217,000), capital of Villa Clara prov., central Cuba. , Calif.--(BUSINESS WIRE)--March 27, 2002 Covad Communications, (OTCBB OTCBB See OTC Bulletin Board (OTCBB). :COVD COVD College of Optometrists in Vision Development COVD Covad Communications Group (stock symbol) ) announced its financial results for the fourth quarter and year ended December 31, 2001. Revenue for the year was $332.6 million, a 110 percent increase over revenue of $158.7 million for the year ended December 31, 2000. Revenue for the fourth quarter was $89.5 million, an increase of 62 percent over revenue of $55.2 million for the fourth quarter of 2000. "During one of the most challenging years in the history of telecommunications The history of telecommunication began with the use of smoke signals and drums in Africa, the Americas and parts of Asia. In the 1790s the first fixed semaphore systems emerged in Europe however it was not until the 1830s that electrical telecommunication systems started to appear. , Covad more than doubled its revenue and built a strong base for 2002," said Charles E. Hoffman, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and president of Covad. "We strengthened our balance sheet with the elimination of $1.4 billion of debt and worked hard to reduce our cost structure. We expect that the combination of these achievements with our anticipated revenue growth will result in our ability to achieve cash positive operations by the second half of 2003." Through cost improvement measures, Covad was able to decrease its cash usage during the year from a high of over $200 million during the first quarter of 2001 to under $60 million for the fourth quarter of 2001. Cash on hand at the end of the year 2001 was $293 million, including approximately $9.2 million of restricted cash. (Cash usage is defined as the change in net cash used for operating activities plus capital expenditures and may be defined differently by other companies). Continued improvements are expected to enable the company to reach cash flow positive from operations in the second half of 2003. At the end of 2001, Covad had over 40 of its 50 markets contributing positive cash flows to the business, excluding allocations of indirect costs Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. See also
For the year, network and product costs increased by 6 percent, which reflects the growth of the subscriber base on the network. Despite the higher revenue, sales, marketing, general and administrative expenses declined 30 percent for the year to $205.2 million. Loss from operations for the year ended December 31, 2001, was $536.9 million, a 60 percent improvement when compared to a $1.4 billion loss for the year ended December 31, 2000. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become for the year ended December 31, 2001, was $386.0 million loss compared to a $1.2 billion loss for the year ended December 31, 2000, a 67 percent improvement. (EBITDA is defined as loss from operations excluding expenses for depreciation and amortization of property and equipment and amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. and may be defined differently by other companies.) For the fourth quarter of 2001, loss from operations was $112.3 million compared to a loss of $854.1 million for the comparable period in 2000. EBITDA for the quarter ended December 31, 2001, was a loss of $74.5 million compared to a loss of $778.0 million for the quarter ended December 31, 2000. Network and product costs for the fourth quarter of 2001 amounted to $96.7 million, a 34 percent improvement over the fourth quarter of 2000. Sales, marketing, general and administrative expenses of $36.5 million were down 58 percent over the fourth quarter of 2000. In addition, sales, marketing, general and administrative expenses decreased from the third to the fourth quarter of 2001 by 22 percent. Net income for the year was $344.8 million compared to a net loss of $1.4 billion for the previous year. Included in 2001 net income is a $1.0 billion extraordinary item representing a gain on the elimination of long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. . This gain reflects the impact of Covad's successful reorganization. Covad ended 2001 with $50 million in debt from SBC (1) (SBC Communications Inc., San Antonio, TX, www.sbc.com) A large, national telecommunications company that grew from a multitude of local and regional companies, including Southwestern Bell, Pacific Bell and Nevada Bell, into a single, unified brand by 2002. , down from $1.3 billion at the end of 2000 from prior issuance of long-term debt. Net income for the fourth quarter was $858.5 million for 2001 compared to a net loss of $907.5 for the fourth quarter of 2000. Excluding the extraordinary item for the gain on the elimination of debt, net loss for the year would have been $689.0 million and net loss for the quarter would have been $175.2 million. For the year ended December 31, 2001, basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. income per share was $1.94, compared to a net loss of $9.47 for the year ended December 31, 2000. Net income per share was $4.69 for the fourth quarter of 2001, compared to a net loss of $5.40 in the fourth quarter of 2000. The basic and diluted income per share attributable to the extraordinary gain on the elimination of debt was $5.83 and $5.65 for the year and quarter ended December 31, 2001, respectively. If the extraordinary income for the year was not included, net loss per share for the year would have been $3.89 and loss for the quarter would have been $0.96. Covad's subscriber lines The line from the customer site to the local telephone company. See subscriber network. in service at the end of 2001 increased 28 percent to 351,000 from 274,000 at December 31, 2000. "We are focused on financial and business discipline," continued Hoffman. "We have sliced our cash usage, grown the number of customers using our network and services and anticipate that we will have enough cash to get us to a cash flow positive position. Our job is to continue to load our network, and with broadband demand still growing, we see only opportunity ahead of us." Additional highlights during the year included: -- Introduction of new business class products, TeleSoho and TeleXtend, which bring big business services to small and medium sized businesses. -- Securing additional funding through restructured agreements with SBC. -- Strengthened executive management team with key additions. -- Achieving almost exclusively 100 percent line sharing for all new consumer installs. -- Introduction of Covad JumpStart kit, an award winning self-install kit that is key to keeping upfront consumer costs low. For the first quarter of 2002, Covad expects to show a nominal revenue improvement. This expected revenue growth along with expected cost improvements, specifically reductions in network and product costs and sales marketing, general and administrative expenses, is expected to result in a continued improvement in loss from operations for the first quarter of 2002. EBITDA loss is expected to improve to under $45 million and cash usage is expected to improve to under $50 million for the quarter. "Covad is a much stronger company today than we were at the beginning of 2001," said Hoffman. "We have a new mix of products that elevates revenue as a measure of success, not just lines in service. We are focused on selling our services and re-energizing the Covad brand to make customers feel that they made a smart choice in buying Covad's services, which can be a pivotal part of their operational strategy and business success." About Covad Communications Covad is the leading national broadband service provider An ISP, telephone company, cable company or other carrier that offers high-speed communications to homes and businesses, typically for Internet access. Cable modems, DSL and T1 lines are the common technologies. See broadband, cable modem, DSL and T1. of high-speed Internet See broadband. and network access utilizing Digital Subscriber Line See DSL. (communications, protocol) Digital Subscriber Line - (DSL, or Digital Subscriber Loop, xDSL - see below) A family of digital telecommunications protocols designed to allow high speed data communication over the existing copper telephone lines between end-users and (DSL DSL in full Digital Subscriber Line Broadband digital communications connection that operates over standard copper telephone wires. It requires a DSL modem, which splits transmissions into two frequency bands: the lower frequencies for voice (ordinary ) technology. It offers DSL, T1, managed security, IP and dial-up services An information service on demand. The term was popular when analog modems were the only way to connect to a remote system. See dial-up. directly through Covad and through Internet Service Providers Internet service provider (ISP) Company that provides Internet connections and services to individuals and organizations. For a monthly fee, ISPs provide computer users with a connection to their site (see data transmission), as well as a log-in name and password. , value-added resellers A value-added reseller (VAR) is a company that adds some feature(s) to an existing product(s), then resells it (usually to end-users) as an integrated product or complete "turn-key" solution. , telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. carriers and affinity groups A special interest group. This is a marketing term for a group of people with similar interests. to small and medium-sized businesses and home users. Covad services are currently available across the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. in 94 of the top Metropolitan Statistical Areas (MSAs). Covad's network currently covers more than 40 million homes and business and reaches approximately 40 to 45 percent of all US homes and businesses. Corporate headquarters is located at 3420 Central Expressway The following roads are named Central Expressway:
Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995: The statements contained in this press release that are not historical facts are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. ," including statements concerning Covad's anticipated growth, revenue expectations, anticipated reductions of costs and losses, expected reductions in cash usage, ability to continue as a going concern, sufficiency of Covad's cash on hand, additional capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. , ability to secure additional financing, ability to become cash flow positive and achieve profitability and the statements made by the president and CEO and the assumptions underlying such statements. Actual events or results may differ materially as a result of risks facing Covad or actual results differing from the assumptions underlying such statements. Such risks and assumptions include, but are not limited to, Covad's ability to continue as a going concern, to continue to service and support its customers, to successfully market its services to current and new customers, to manage the consolidation of sales to a fewer number of wholesale customers, to successfully migrate end users, Covad's ability to generate customer demand, to achieve acceptable pricing, to respond to competition, to develop and maintain strategic relationships, to manage growth, to receive timely payment from customers, to access regions and negotiate suitable interconnection in·ter·con·nect v. in·ter·con·nect·ed, in·ter·con·nect·ing, in·ter·con·nects v.intr. To be connected with each other: The two buildings interconnect. v.tr. agreements, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as regulatory, legislative, and judicial developments and the absence of an adverse result in litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. against Covad. All forward-looking statements are expressly qualified in their entirety The whole, in contradistinction to a moiety or part only. When land is conveyed to Husband and Wife, they do not take by moieties, but both are seised of the entirety. by the "Risk Factors" and other cautionary statements included in Covad's SEC Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2000 and in Covad's SEC Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended September 30, 2001.
COVAD COMMUNICATIONS GROUP, INC.
Financial Highlights
(Dollars in thousands, except share and per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2001 2000 2001 2000
-------------------------------------------------
Revenues $ 89,468 $ 55,219 $ 332,596 $ 158,736
Operating Expenses:
Network and product
costs 96,690 145,581 456,586 430,298
Sales, marketing,
general &
administrative 36,501 87,861 205,197 294,846
Provision for bad
debts (bad debt
recoveries) (1,181) 5,428 (658) 11,257
Depreciation and
amortization of
property and
equipment 34,124 37,810 137,920 91,205
Amortization of
intangible assets 3,586 38,278 12,919 87,220
Provision for
restructuring
expenses (3,253) 4,988 14,364 4,988
Provision for
long-lived asset
impairment 9,999 589,388 11,988 589,388
Litigation-related
expenses, net 25,253 - 31,160 -
Write-off of
In-process research
and development - - - 3,726
-------------------------------------------------
Total operating
expenses 201,719 909,334 869,476 1,512,928
-------------------------------------------------
Loss from operations (112,251) (854,115) (536,880) (1,354,192)
Other income (expenses)
Realized gain (loss)
on short-term
investments (3) - 5,909 13,466
Other than temporary
losses on short-term
investments - (11,579) (1,311) (11,579)
Provision for
impairment of
investment in
unconsolidated
affiliates (602) (17,826) (10,069) (17,826)
Equity in losses
of unconsolidated
affiliates (2,143) (3,026) (13,769) (6,452)
Gain on disposal
of investment in
unconsolidated
affiliate - - 178 -
Net interest
income (expense) 1,111 (20,624) (68,189) (56,962)
Miscellaneous
expense, net (2,612) (342) (2,218) (342)
Reorganization
expenses, net (58,723) - (62,620) -
Extraordinary item
-- gain on
extinguishment
of debt (A) 1,033,727 - 1,033,727 -
Cumulative effect
of change in
accounting principle - - - (9,249)
-------------------------------------------------
Net Income (Loss) $ 858,504 $ (907,512) $ 344,758 $(1,443,136)
=================================================
Basic and diluted
net loss per
common share $ 4.69 $ (5.40) $ 1.94 $ (9.47)
Weighted average
shares used in
computing net
loss per share 183,039,141 168,058,697 177,347,193 152,358,589
(A) Income attributable to the extraordinary gain recognized
during fourth quarter of 2001, was $5.65 for the fourth
quarter and $5.83 for the year.
As of As of
December 31, December 31,
2001 2000
------------------------------
Selected Balance Sheet Data:
Cash, cash equivalents and
short-term investments $ 283,863 $ 869,834
Restricted Cash and Investments 9,203 27,748
Other current assets 46,032 60,617
Net property and equipment 215,804 338,409
Other long-term assets 120,266 214,877
------------------------------
Total assets 675,168 1,511,485
Current liabilities 136,442 279,856
Long-term debt obligations 50,000 1,324,704
Other long-term liabilities 228,897 89,588
Total stockholder's equity (deficit) 259,829 (182,663)
------------------------------
Total liabilities and
stockholder's equity (deficit) 675,168 1,511,485
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