Covad Communications Group Announces Fourth Quarter 2003 Results.Business Editors SAN JOSE San Jose, city, United States San Jose (sănəzā`, săn hōzā`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.; founded 1777, inc. 1850. , Calif.--(BUSINESS WIRE)--Feb. 18, 2004 Covad Achieves 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 Profitability Ahead of Plan; Subscriber Lines The line from the customer site to the local telephone company. See subscriber network. Increased 36% for the Year; Net Loss Improves to $12.8 million Covad Communications Group, Inc. (OTCBB OTCBB See OTC Bulletin Board (OTCBB). :COVD COVD College of Optometrists in Vision Development COVD Covad Communications Group (stock symbol) ), a 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, today reported results for the fourth quarter ended December December: see month. 31, 2003. During the fourth quarter, Covad: -- Increased digital subscriber lines 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 by 26,000 to 517,000, a five percent increase over lines in service at the end of the third quarter of 2003 and a 36 percent increase from the beginning of the year; -- Increased revenue five percent to $105.0 million from the third quarter of 2003 revenue of $100.5 million and 19 percent over fourth quarter of 2002 revenue of $87.9 million; -- Achieved $1.9 million in earnings before interest, taxes, depreciation and amortization (EBITDA) compared to a loss of $6.0 million in the third quarter of 2003 and a loss of $10.0 million in the fourth quarter of 2002; and -- Posted a net loss of $12.8 million, or $0.06 per share, compared to a net loss of $25.1 million, or $0.11 per share, for the third quarter of 2003 and a net loss of $35.5 million or $0.16 per share for the fourth quarter of 2002. "Achieving EBITDA profitability one quarter ahead of plan is a major accomplishment for our company, our employees and our shareholders," said Charles Charles, archduke of Austria Charles, 1771–1847, archduke of Austria; brother of Holy Roman Emperor Francis II. Despite his epilepsy, he was the ablest Austrian commander in the French Revolutionary and Napoleonic wars; however, he was handicapped by Hoffman, president and chief executive officer of Covad. "In just two years we have elevated Covad out of bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most and into EBITDA profitability, and we remain on track to become cash-flow positive in mid-year 2004." Recent business highlights include: -- Announced plans to expand its nationwide coverage area and customer reach for digital subscriber line (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 ), frame access, and T1 broadband services See broadband and broadband service provider. . Covad will complete installing additional broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). equipment in approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 200 central offices across the nation around the middle of 2004, increasing its nationwide broadband network to more than 2,000 central offices. -- Announced plans to launch a nationwide Voice over Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the Protocol (VoIP) service in the second half of 2004. This VoIP offering will target small businesses and will be sold through Covad's direct sales channel. Covad also plans to offer VoIP services through its wholesale partners to consumers and small businesses. -- Continued the launch of Covad's DSL service in AT&T's voice communication bundle To sell hardware and software as a combined product or to combine several software packages for sale as a single unit. Contrast with unbundle. See bundled software and bundling. for residential users in six states, bringing the total deployment Installing, setting up, testing and running. This military term, which means the placement of troops and equipment in the field, is widely used with computers as an alternate to the word "implementation. to 11 states. -- Announced strategic partnerships with three telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. companies: ACN ACN Accenture (stock symbol) ACN Accenture ACN Australian Company Number ACN Automatic Collision Notification (US DOT) ACN Acetonitrile ACN Anglican Communion Network , a competitive local, long distance, wireless, and Internet access See how to access the Internet. service provider to offer DSL for consumers and small businesses; Broadwing Broadwing can mean:-
subsidiary of Corvis Corporation (Nasdaq:CORV), to provide its enterprise customers with more broadband choices; and Global Crossing to support its IP VPN (Virtual Private Network) A private network that is configured within a public network (a carrier's network or the Internet) in order to take advantage of the economies of scale and management facilities of large networks. Service(TM), Frame Relay A high-speed packet switching protocol used in wide area networks (WANs). Providing a granular service of up to DS3 speed (45 Mbps), it has become popular for LAN to LAN connections across remote distances, and services are offered by most major carriers. , Dedicated Internet Access (DIA (Document Interchange Architecture) An IBM SNA format used to exchange documents from dissimilar machines within an LU 6.2 session. It acts as an envelope to hold the document and does not set any standards for the content of the document, such as layout settings or ) and Voice over Internet Protocol (VoIP) services in the U.S. "Expanding our distribution channels and strategically growing Covad's network allows us to offer broadband services to an even wider market of consumers and businesses in 2004," Hoffman said. "And our VoIP offering will bring another new and important revenue stream for Covad and is one more example of how Covad offers the critical ingredients to make broadband better." Revenue Total revenue for the fourth quarter of 2003 was $105.0 million, compared to $100.5 million for the third quarter of 2003. The company's wholesale subscribers contributed $77.4 million of revenue, or 74 percent, while direct subscribers contributed $27.6 million of revenue, or 26 percent. At December 31, 2003, Covad had approximately 445,000 wholesale and 72,000 direct lines in service. For the fourth quarter of 2003, broadband subscription billings Billings, city (1990 pop. 81,151), seat of Yellowstone co., S Mont., on the Yellowstone River, in a valley surrounded by seven mountain ranges; inc. as a city 1885. were $86.5 million compared to $82.4 million for the third quarter of 2003, a five percent increase. Management uses broadband subscription billings to evaluate the performance of its business and believes broadband subscription billings are a useful measure for investors as they represent a key indicator of the growth of the company's core business. Please 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 comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure. Gross Margin, SG&A, and EBITDA For the fourth quarter of 2003, gross margin was $33.2 million, or 32 percent of revenue, compared to 26 percent for the third quarter of 2003. The third quarter gross margin was $26.5 million which included $5.2 million of migration expenses related to the Qwest (Qwest Communications International Inc., Denver, CO, www.qwest.com) A telecommunications company that offers services to telecom carriers, businesses and homes using an extensive fiber-optic network throughout the U.S. and Mexico. customer list acquisition. Sales, marketing, general and administrative (SG&A) expenses were $31.2 million for the fourth quarter of 2003, compared to $32.5 million for the third quarter of 2003. Third quarter SG&A included $1.4 million of migration expenses related to the Qwest customer list acquisition. EBITDA for the fourth quarter of 2003 was a profit of $1.9 million, compared to an EBITDA loss of $6.0 million in the third quarter of 2003. Third quarter EBITDA includes $6.6 million of expenses related to migration expenses for the Qwest customer list acquisition. Refer to the Selected Financial Data, including Note 2, for a reconciliation of this non-GAAP financial performance measure to the most comparable GAAP measure and other information. Net Loss and Loss from Operations Net loss for the fourth quarter of 2003 was $12.8 million, or $0.06 per share, compared to a net loss of $25.1 million, or $0.11 per share, for the third quarter of 2003. Included in the fourth quarter net loss was other income of $5.0 million resulting from a modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. license agreement with ACCA ACCA Air Conditioning Contractors of America Association, Inc. ACCA Association of Chartered Certified Accountants ACCA American Corporate Counsel Association ACCA Association Communale de Chasse Agréée (France) Networks, Co., LTD LTD 1 Laron-type dwarfism 2 Leukotriene D 3 Long-term depression, see there 4. Long-term disability , a Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and telecommunications company See telecom company. in which Covad is an investor. Loss from operations for the fourth quarter of 2003 was $17.8 million, compared to $23.9 million in the third quarter of 2003. Balance Sheet As of December 31, 2003, cash, cash equivalent and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investment balances, including restricted cash and investments, were $117.2 million compared to $135.2 million as of September September: see month. 30, 2003. Fourth quarter net cash usage included approximately $17.6 million of capital expenditures. Covad's net cash usage for the fourth quarter also includes the first interest payment of $5.5 million due on the company's term note payable to 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. . The payment represents interest accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. during the first year of the four-year note. Mark Richman Richman is a surname and may refer to:
n the person, usually the employee, who represents the family unit in relation to the prepayment plan. Other family members are dependents. Also called certificate holders or enrollees. base allowing us to leverage fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). while continuing cost reduction efforts. We continue to invest in capital expenditures to support growth and network enhancements. The ongoing central office expansion will allow us to increase our customer orders within our existing markets at attractive financial returns." Operating Statistics -- At the end of the fourth quarter, Covad had approximately 304,000 consumer and 213,000 business net lines in service, representing approximately 59 percent and 41 percent of total net lines, respectively. -- Weighted Average Revenue per User (ARPU (Average Revenue Per User) A calculation often used to determine the overall value of an application. It is also used to rate particular customers, especially in the wireless space, by comparing someone's account to the overall average. ) was approximately $57 during the fourth quarter of 2003, down from $58 in the third quarter of 2003. The ARPU decrease is due to a larger percentage of consumer lines and price reductions in response to market trends. -- Net customer disconnections, or churn churn: see butter. , averaged approximately 3.9 percent in the fourth quarter of 2003 flat from the third quarter of 2003. Aggressive pricing strategies There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use. Competition-based pricing Setting the price based upon prices of the similar competitor products. in the industry resulted in lower than expected orders for consumer stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." data services using line sharing and higher than projected churn rates (1) The percentage of customers who cancel their online, cellphone or other subscription service during a certain time period. (2) The percentage of employees who leave the company during a certain time period. See churning. for Covad in both the wholesale and direct business units. "Covad is actively working with our partners to reduce churn," Hoffman said. "For example, we have implemented an assisted installation program to help the customer get up and running on DSL faster. We also have instituted a retention program and are seeing positive results from these efforts, which we believe will help reduce future churn." Business Outlook Covad currently expects revenue for the first quarter of 2004 to be in the range of $106 million to $109 million with subscriber growth of up to 10,000 lines. Broadband subscription billings for the first quarter of 2004 are expected to be in the range of $88 million to $91 million. For the first quarter of 2004, Covad expects its net loss to be in the range of $13.0 million to $17.0 million, and EBITDA profit to be in the range of $3.0 million to $6.0 million. Net usage of cash, cash equivalents and short-term investments, including restricted cash and investments, in the first quarter of 2004 is expected to be in the range of $12 million to $17 million, including the cash required to build out the central office expansion. Hoffman said: "We are experiencing more uncertainty in our consumer business, in particular with our ISP (1) See in-system programmable. (2) (Internet Service Provider) An organization that provides access to the Internet. Connection to the user is provided via dial-up, ISDN, cable, DSL and T1/T3 lines. partners. The result is that we anticipate lower line count growth than in previous quarters. We are continuing the transition from line sharing to line splitting, which allows Covad to provide DSL in a voice and data bundle with our strategic partners. While this transition will take some time to fully implement, we believe line splitting will be a significant contributor to our growth in 2004 as the demand for bundled bun·dle n. 1. A group of objects held together, as by tying or wrapping. 2. Something wrapped or tied up for carrying; a package. 3. Biology A cluster or strand of closely bound muscle or nerve fibers. services builds momentum. We are continuing our relentless focus on becoming more efficient to grow a sustainable business A business is sustainable if it has adapted its practices for the use of renewable resources and holds itself accountable for the environmental and human rights impacts of its activities. with financial discipline, improving customer service, expanding distribution channels, and developing innovative new products, while achieving our financial objectives." Conference Call Information Covad will conduct a conference call to discuss these financial results on Wednesday Wednesday: see week. , February February: see month. 18, 2004 at 8:30 a.m. Eastern Time (ET)/ 5:30 a.m. Pacific Time (PT). The conference call will be webcast over the Internet. To listen to the call, visit the Covad web site at www.covad.com/companyinfo/investorrelations. Investors and press may also listen by telephone to the call by dialing 706-634-1308 and are advised to call in 10 minutes prior to the start time. The conference call will be recorded and available for replay listening until 12:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy on Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , February 20, 2004 by dialing 800-642-1687 or 706-645-9291, pass code 5398997. About Covad Communications Covad is a leading national broadband service provider of high-speed Internet and network access utilizing Digital Subscriber Line (DSL) 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. and bundled voice and data services directly to end users and to 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 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 Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized businesses and home users. Covad's network currently serves 96 of the top Metropolitan Statistical Areas (MSAs) and covers more than 40 million homes and businesses or approximately 45 percent of all US homes and businesses. Corporate headquarters is located at 110 Rio See RapidIO and MP3. Robles Robles is a common surname in the Spanish language meaning oaks, and may refer to:
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 Covad's expected revenue, net loss, EBITDA, broadband subscription billings, net usage of cash, cash equivalents and short-term investments and other financial measures, anticipated demand for services, anticipated churn, network expansion plans, deployments of new services and the statements made by the president and 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 CFO See Chief Financial Officer. 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, future FCC (1) (Federal Communications Commission, Washington, DC, www.fcc.gov) The U.S. government agency that regulates interstate and international communications including wire, cable, radio, TV and satellite. The FCC was created under the U.S. rulemaking In administrative law, rulemaking refers to the process that executive agencies use to create, or promulgate, regulations. In general, legislatures first set broad policy mandates by passing laws, then agencies create more detailed regulations through rulemaking. , the terms and interpretations of the Triennial tri·en·ni·al adj. 1. Occurring every third year. 2. Lasting three years. n. 1. A third anniversary. 2. A ceremony or celebration occurring every three years. Review order published August 21, 2003 by the FCC, Covad's ability to successfully market its services to current and new 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 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 reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. , 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. Covad disclaims any obligation to update any forward-looking statement contained in this press release. 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, 2002 and the 10-Q for the quarter ended September 30, 2003, along with Current Reports on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. filed from time to time with the SEC.
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands)
Selected Balance Sheet Data As of As of
Dec 31, 2003 Sep 30, 2003
------------ ------------
Cash, cash equivalents, and short term
investments $114,345 $132,474
Restricted cash and investments 2,892 2,721
Accounts receivable, net 28,528 27,770
All other current assets 14,860 16,608
Property, equipment, collocation fees, and
other intangible assets, net 135,127 137,366
Deferred costs of service activation 31,486 31,848
All other long-term assets 7,473 7,396
------------ ------------
Total assets $334,711 $356,183
============ ============
Total current liabilities $114,317 $122,351
Long-term debt 50,000 50,000
Collateralized customer deposit 60,258 62,204
Deferred gain on deconsolidation of
subsidiary 53,963 53,963
Unearned revenues 61,726 63,488
Total stockholders' equity (deficit) (5,553) 4,177
------------ ------------
Total liabilities and stockholders' equity $334,711 $356,183
============ ============
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
Consolidated Condensed
Statements of Operations Data Three Months Ended
--------------------------------------
Dec 31, 2003 Sep 30, 2003 Dec 31, 2002
------------ ------------ ------------
Revenues, net $105,039 $100,507 $87,891
Operating expenses:
Network and product costs 71,840 74,052 62,334
Sales, marketing, general and
administrative 31,235 32,510 38,163
Provision for bad debts (bad
debt recoveries), net 73 (8) 7
Depreciation and amortization
of property and equipment 15,160 13,054 19,556
Amortization of collocation
fees and other intangible
assets 4,530 4,775 3,660
Litigation-related expenses - - (2,599)
------------ ------------ ------------
122,838 124,383 121,121
------------ ------------ ------------
Loss from operations (17,799) (23,876) (33,230)
Other income (expense), net 5,020 (1,267) (2,259)
------------ ------------ ------------
Net loss $(12,779) $(25,143) $(35,489)
============ ============ ============
Basic and diluted net loss per
share $(0.06) $(0.11) $(0.16)
============ ============ ============
Weighted average number of common shares
used in computing
basic and diluted net loss
per share 227,703,141 224,872,907 222,243,450
============ ============ ============
Gross Margin (Note 1) $33,199 $26,455 $25,557
% of revenue 31.6% 26.3% 29.1%
EBITDA Calculation (Note 2) Three Months Ended
--------------------------------------
Dec 31, 2003 Sep 30, 2003 Dec 31, 2002
------------ ------------ ------------
Net Loss $(12,779) $(25,143) $(35,489)
Plus: Other (income) expense,
net (5,020) 1,267 2,259
Depreciation and
amortization of property
and equipment 15,160 13,054 19,556
Amortization of
collocation fees and
other intangible assets 4,530 4,775 3,660
------------ ------------ ------------
EBITDA (Note 2) $1,891 $(6,047) $(10,014)
============ ============ ============
Net Cash Usage Calculation Three Months Ended
--------------------------------------
Dec 31, 2003 Sep 30, 2003 Dec 31, 2002
------------ ------------ ------------
Net decrease in cash, cash
equivalents, and short term
investments, including
restricted cash and investments $(17,958) $(19,404) $(23,639)
Less: Cash paid for Qwest
customer list acquisition 0 0 0
------------ ------------ ------------
Net decrease in cash and cash
equivalents excluding Qwest
customer list acquisition $(17,958) $(19,404) $(23,639)
============ ============ ============
Twelve Months Ended
-------------------------
Dec 31, 2003 Dec 31, 2002
------------ ------------
Revenues, net $388,851 $383,496
Operating expenses:
Network and product costs 283,643 298,336
Sales, marketing, general and
administrative 133,424 150,373
Provision for bad debts (bad debt
recoveries), net 99 319
Depreciation and amortization of property
and equipment 56,559 112,438
Amortization of collocation fees and other
intangible assets 17,325 14,650
Litigation-related expenses - (11,628)
------------ ------------
491,050 564,488
------------ ------------
Loss from operations (102,199) (180,992)
Other income (expense), net 2,268 (3,836)
------------ ------------
Net loss $(99,931) $(184,828)
============ ============
Basic and diluted net loss per share $(0.44) $(0.84)
============ ============
Weighted average number of common shares used
in computing basic and diluted net loss per
share 224,949,891 219,743,662
============ ============
Gross Margin (Note 1) $105,208 $85,160
% of revenue 27.1% 22.2%
EBITDA Calculation (Note 2) Twelve Months Ended
-------------------------
Dec 31, 2003 Dec 31, 2002
------------ ------------
Net Loss $(99,931) $(184,828)
Plus: Other (income) expense, net (2,268) 3,836
Depreciation and amortization of
property and equipment 56,559 112,438
Amortization of collocation fees and
other intangible assets 17,325 14,650
------------ ------------
EBITDA (Note 2) $(28,315) $(53,904)
============ ============
Net Cash Usage Calculation Twelve Months Ended
-------------------------
Dec 31, 2003 Dec 31, 2002
------------ ------------
Net decrease in cash, cash equivalents, and
short term investments, including restricted
cash and investments $(87,831) $-
Less: Cash paid for Qwest customer list
acquisition 3,750 0
------------ ------------
Net decrease in cash and cash equivalents
excluding Qwest customer list acquisition $(84,081) $-
============ ============
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands, except key operating data)
Consolidated Revenue
Data Three Months Ended Twelve Months Ended
---------------------------- -------------------
Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
2003 2003 2002 2003 2002
--------- --------- -------- --------- ---------
Broadband subscription
billings (Note 3) $86,546 $82,420 $67,599 $316,015 $264,975
High-capacity circuit
billings 5,555 5,014 5,343 21,402 27,437
Dial-up billings 1,241 1,377 1,964 5,879 10,718
--------- --------- -------- --------- ---------
Total Billings, net $93,342 $88,811 $74,906 $343,296 $303,130
Financially distressed
partners (Note 4) 294 (84) 311 57 8,406
Customer rebates and
incentives not
subject to deferral
(Note 5) (2,344) (3,917) (2,828) (14,283) (3,060)
Other revenues, net
(Note 6) 13,747 15,697 15,502 59,781 75,020
--------- --------- -------- --------- ---------
Revenues, net $105,039 $100,507 $87,891 $388,851 $383,496
========= ========= ======== ========= =========
Consolidated Network &
Product Costs Data Three Months Ended Twelve Months Ended
---------------------------- -------------------
Dec 31, Sep 30, Dec 31, Dec 31, Dec 31,
2003 2003 2002 2003 2002
--------- --------- -------- --------- ---------
Direct Cost of Total
Billings, net (Note
8) $17,149 $16,828 $18,355 $68,380 $68,396
Other Network and
Product Costs (Note
9) 54,691 57,224 43,979 215,263 229,940
--------- --------- -------- --------- ---------
Network and Product
Costs $71,840 $74,052 $62,334 $283,643 $298,336
========= ========= ======== ========= =========
Key Operating Data As of
----------------------------
Dec 31, Sep 30, Dec 31,
2003 2003 2002
--------- --------- --------
Lines
Wholesale 445,005 419,724 338,740
Direct 72,000 71,201 42,600
--------- --------- --------
Total Company 517,005 490,925 381,340
Total Company ARPU $57 $58 $61
Business
Lines 213,396 206,415 179,395
ARPU $94 $92 $88
Consumer
Lines 303,609 284,510 201,945
ARPU $31 $33 $35
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands)
Three Months Ending March 31, 2004 - Business Outlook
EBITDA Calculation (Note 1) Three Months Ending
Mar 31, 2004
---------------------
Projected Range of
Results
---------------------
Net Loss $(17,000)to $(13,000)
Plus: Other (income) expense, net - to (500)
Depreciation and amortization of property
and equipment 16,500 to 16,000
Amortization of collocation fees and
other intangible assets 3,500 to 3,500
--------- ---------
EBITDA (Note 1) $3,000 to $6,000
========= =========
Consolidated Revenue Data Three Months Ending
Mar 31, 2004
---------------------
Projected Range of
Results
---------------------
Broadband subscription billings (Note 2) $88,000 to $91,000
High-capacity circuit billings 4,500 to 5,500
Dial-up billings 1,100 to 1,300
--------- ---------
Total Billings, net $93,600 to $97,800
Financially distressed partners (Note 3): (100)to (1,500)
Customer rebates and incentives not subject to
deferral (Note 4) (1,500)to (3,000)
Other revenues, net (Note 5) 14,000 to 15,700
--------- ---------
Revenues, net $106,000 to $109,000
========= =========
Notes to Unaudited Selected Financial Data
1. Gross margin is calculated by subtracting network and product
costs from revenues, net.
2. Management believes that Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"), defined as net loss
prior to (i) depreciation and amortization of property and
equipment, (ii) amortization of intangible assets and (iii) other
income (expense), net, is a useful measure because it provides
additional information about the Company's ability to meet future
capital expenditures and working capital requirements and fund
continued growth. Management also uses EBITDA to evaluate the
performance of its business segments and as a factor in its
employee bonus program. EBITDA may be defined differently by other
companies and should not be used as an alternative to our
operating and other financial information as determined under
accounting principles generally accepted in the United States.
EBITDA is not a prescribed term under accounting principles
generally accepted in the United States, does not directly
correlate to cash provided by or used in operating activities and
should not be considered in isolation, nor as an alternative to
more meaningful measures of performance determined in accordance
with accounting principles generally accepted in the United
States. EBITDA generally excludes the effect of capital costs.
3. Broadband subscription billings is defined as customer bills
issued within the period for services provided during such period
(or to be provided in future periods). Broadband subscription
billings exclude charges for Federal Universal Service Fund
("FUSF") assessments, dial-up services, and high- capacity
circuits. Broadband subscription billings include bills issued to
customers that are classified as financially distressed and whose
revenue is only recognized if cash is received (refer to Note 4
below for a more detailed discussion on accounting for financially
distressed partners). Management believes broadband subscription
billings is a useful measure for investors as it represents a key
indicator of the growth of the Company's core business. Management
uses broadband subscription billings to evaluate the performance
of its business segments.
4. When the Company determines that (i) the collectibility of a bill
issued to a customer is not reasonably assured or (ii) its ability
to retain some or all of the payments received from a customer
that has filed for bankruptcy protection is not reasonably
assured, the customer is classified as "financially distressed"
for revenue recognition purposes. A bill issued to a financially
distressed customer is recognized as revenue when services are
rendered and cash for those services is received, assuming all
other criteria for revenue recognition have been met, and only
after the collection of all previous outstanding accounts
receivable balances. Consequently, significant timing differences
may occur from the time a bill is issued, the time the services
are provided and the time that cash is received and revenue is
recognized.
5. Customer rebates and incentives not subject to deferral consist of
amounts paid or accrued under marketing, promotion and rebate
incentive programs with certain customers. Rebates and incentives
paid or accrued under these programs are not accompanied by any
up-front charges billed to customers. Therefore, these charges are
accounted for as reductions of revenue as incurred.
6. Other revenues consist primarily of revenue recognized from
amortization of prior period SAB 101 deferrals (refer to Note 7
below for a discussion of SAB 101), FUSF and dial-up charges
billed to our customers and other revenues not subject to SAB 101
deferral because they do not relate to an on-going customer
relationship or performance of future services.
7. In the fourth quarter of 2000, retroactive to January 1, 2000, the
Company adopted an accounting policy to account for up-front fees
associated with service activation and the related incremental
direct costs in accordance with SAB 101. The Company recognizes
up-front fees associated with service activation, net of any
amounts concurrently paid or accrued under certain marketing,
promotion and rebate incentive programs, over the expected term of
the customer relationship, which is presently estimated to be 24
months, using the straight-line method. The Company also treats
the incremental direct costs of service activation (which consist
principally of customer premises equipment, service activation
fees paid to other telecommunications companies and sales
commissions) as deferred charges in amounts that are no greater
than the up-front fees that are deferred, and such deferred
incremental direct costs are amortized to expense using the
straight-line method over 24 months.
8. Direct costs of total billings, net consists of monthly charges we
receive from telecommunications carriers to support the delivery
of broadband services to our customers. Direct costs of total
billings, net includes the on-going costs associated with
high-capacity circuits provisioned for our wholesalers and the
costs associated with local loops provisioned for our broadband
and dial-up end-users.
9. Other network and product costs consist of all other costs,
excluding depreciation and amortization, associated with
operating, maintaining and monitoring our networks and delivering
service to our customers.
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