Covad Communications Group Announces Fourth Quarter and Annual 2002 Results; Covad Posts Strong Line Growth; EBITDA Improves 86% Over Previous Year.Business Editors/High-Tech Writers 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 11, 2003 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 and year ended December 31, 2002, including the addition of 23,000 net new 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 lines in the fourth quarter of 2002, the highest quarterly line growth since the fourth quarter of 2000. Revenue for the year ended December 31, 2002 was $383.5 million, a 15 percent increase over the previous year. Earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
Extinguishment is sometimes confused with merger, though there is a clear distinction between them. of debt. Revenue for the fourth quarter of 2002 was $87.9 million, a decrease of nine percent from revenue of $96.2 million for the third quarter of 2002. Net loss for the fourth quarter of 2002 was $35.5 million, or $0.16 per share, compared to $51.7 million for the third quarter of 2002, or $0.23 per share, a 31 percent improvement. Net loss for the fourth quarter of 2002 includes a net reduction in operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. from prior periods. The net expense reduction consists of (i) a $3.7 million reduction of non-cash deferred stock-based compensation expense, (ii) a $5.3 million expense reduction due a change in the company's estimated liabilities for certain transaction-based taxes and property taxes, and (iii) a $1.6 million net charge to expense related to the capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. of certain network and product costs that should have been expensed. EBITDA for the fourth quarter of 2002 was a loss of $10.0 million, an improvement of 32 percent over a loss of $14.7 million in the third quarter of 2002. Net line count increased by 23,000 lines during the fourth quarter of 2002 and Covad ended the year with more than 381,000 lines in service. During the quarter, customer disconnections, or churn churn: see butter. , averaged 3.3 percent, an improvement from an average of 4.0 percent during the third quarter of 2002. Charles Hoffman, Covad president and chief executive officer, said: "During the fourth quarter Covad re-established strong quarterly line growth and reduced customer churn. Our year-over-year financial results improved significantly. We also are expecting to report good line growth for the first quarter of 2003. These successes are examples of how we are executing our business plan to improve performance in both our wholesale and direct sales operations, and we are continuing to build upon the momentum we gained in 2002." Fourth Quarter Results Revenue Total revenue for the fourth quarter of 2002 was $87.9 million compared to $96.2 million for the third quarter of 2002, a decrease of nine percent. Revenue in the third quarter of 2002 included $13.2 million in payments received from financially distressed customers compared to $3.4 million in the fourth quarter of 2002. Also, net revenues in the fourth quarter of 2002 were reduced by $2.8 million as a result of various customer rebate rebate, partial refund of the total price paid for goods or services. In the United States, rebates were historically given by railroads to favored shippers as a return on transportation charges. and incentive programs that are accounted for as reductions of revenue, compared to $0.2 million for similar programs in the third quarter of 2002. Gross Margin and EBITDA Gross margin was 29.1 percent in the fourth quarter of 2002 compared to 27.7 percent for the third quarter of 2002. Sales, marketing, general and administrative expenses were $38.2 million for the fourth quarter of 2002, compared to $41.2 million for the third quarter of 2002, a 7 percent improvement. Sales, marketing, general and administrative expenses in the fourth quarter were reduced by certain out-of-period amounts as described above of $3.2 million, which consisted primarily of non-cash reductions in deferred stock-based compensation expense that should have been recorded in prior periods as explained above. EBITDA for the fourth quarter of 2002 was a loss of $10.0 million compared to an EBITDA loss of $14.7 million in the third quarter of 2002. However, EBITDA loss for the fourth quarter of 2002 was reduced by the previously mentioned out-of-period adjustments for non-cash deferred stock-based compensation and our estimated liabilities for certain transaction-based taxes and property taxes. Without those adjustments, EBITDA would have been a loss of $17.1 million in the fourth quarter of 2002. Net Loss Net loss for the fourth quarter of 2002 was $35.5 million or $0.16 per share, compared to a net loss of $51.7 million or $0.23 per share for the third quarter of 2002, a 31 percent improvement. Operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the fourth quarter of 2002 was $33.2 million, as compared to $51.9 million in the third quarter of 2002, a 36 percent improvement. Balance Sheet As of December 31, 2002, 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 were $205.1 million, a decrease of $23.6 million from the cash, cash equivalent and short-term investment balances, including restricted cash, of $228.7 million as of September 30, 2002. Mark Richman, Covad's chief financial officer, stated: "During the fourth quarter, we invested in marketing incentive and rebate programs that supported the largest quarterly line count growth since the fourth quarter of 2000. We expect to continue to devote resources to marketing programs to support further line count growth. Prudent fiscal and operational management allowed Covad to add subscribers in 2002 at a reasonable cost, and we exited the year with a solid balance sheet and financial liquidity that we can use to support Covad's growth." Operating Statistics -- Weighted Average Revenue Per User (ARPU) remained solid at approximately $61 during the fourth quarter of 2002. -- Covad ended the fourth quarter with $205.1 million in unrestricted and restricted cash, cash equivalents and short-term investments. Quarterly net cash usage of $23.6 million included capital expenditures of approximately $11.1 million. These expenditures were principally comprised of augmentation of the network with additional IP gateways. Annual net cash usage of $88.0 million included capital expenditures of approximately $25.3 million. -- Net lines in service grew 6 percent in the fourth quarter of 2002, to more than 381,000. This compares to 351,000 lines at the end of December 31, 2001, which represents 8.5 percent annual growth. -- Churn averaged 3.4 percent during the fourth quarter of 2002, an improvement from an average of 4.0 percent in the third quarter of 2002. -- By the end of 2002, less than 3 percent of Covad's total lines were purchased by resellers for whom Covad recognizes revenue only when it is paid. 2002 Year-end Results Revenue Revenue for the year ended December 31, 2002 was $383.5 million compared to $332.6 million for the year ended December 31, 2001, which represents 15.3 percent annual growth. The wholesale segment contributed approximately $326.7 million or 85 percent of revenue while the direct segment contributed approximately $56.8 million or 15 percent of revenue. EBITDA EBITDA loss was $53.9 million for the year ended December 31, 2002, compared to a loss of $386.0 million in fiscal 2001, an improvement of 86 percent. EBITDA loss for the year ended December 31, 2002, includes an $11.6 million non-cash reduction of 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. expenses, while the EBITDA loss for the comparable period in 2001 included $57.5 million of expenses related to restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , asset impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. and litigation. Sales, marketing, general and administrative expenses were $150.4 million in fiscal 2002, compared to $199.9 million for fiscal 2001, a reduction of 24.8 percent. Net Loss Covad's net loss for the year ended December 31, 2002 was $184.8 million or $0.84 per share, compared to the net income of $344.8 million or $1.94 per share for fiscal 2001, which included an extraordinary gain of $1,033.7 million from the extinguishment of debt. Operating loss for the year ended December 31, 2002 was $181.0 million, compared to $536.9 million for fiscal 2001, a 66 percent improvement. 2002 Company Highlights
-- Introduced three new products across our business and consumer
markets:
-- TeleXchange: Bundled voice and data product, which is
currently offered on a test basis in the San Francisco Bay
Area.
-- TeleDefend: Security/firewall service for small
businesses.
-- TeleSurfer Link: A consumer broadband option, which led
the industry in making consumer broadband more affordable.
-- Introduced enhanced service level agreements, including a
30-day money back guarantee for consumer services.
-- Expanded TeleXtend coverage from 10 test markets at the
beginning of 2002 to offer T1 to approximately 90 percent of
our markets at the end of 2002.
-- Extended coverage to 96 Metropolitan Statistical Areas (MSAs)
served, and ended the year with approximately 1,800 central
offices in service.
-- Strengthened wholesale partnerships by signing new agreements
with Sprint for business customers and AOL for consumer
customers, and expanded relationships with EarthLink and AT&T.
-- Migrated many customers from Direct TV, Internet Connect and
other ISPs who exited the broadband business.
-- Appointed two new board members, L. Dale Crandall and Richard
A. Jalkut, who bring over 60 years of combined business
experience to the company. Mr. Crandall has more than 30 years
of experience in public accounting and finance and has been
appointed chairperson of the audit committee. Mr. Jalkut is
the former CEO of NYNEX, which merged with Bell Atlantic to
form Verizon.
Business Outlook Covad currently expects revenue for the first quarter of 2003 to be in a range of $90 million to $92 million with continued subscriber growth in the range of 9 to 11 percent, or 35,000 to 40,000 lines. For the first quarter of 2003, the company expects EBITDA loss to be in a range of $18 million to $20 million and net cash usage to be approximately $30 million to $35 million, including capital expenditures. Covad continues to believe that it has a solid business plan and will adjust it, if necessary, as more information regarding the specifics of the Federal Communications Commission's 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 are published. "To further increase customer service and sales and marketing efficiency, we began 2003 with newly defined business segments, Covad 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). Solutions and Covad Strategic Partnerships," Hoffman said. "We believe this arrangement creates greater sales force accountability and better utilizes our marketing resources." Covad Broadband Solutions (CBS (Cell Broadcast Service) See cell broadcast. ) focuses on direct sales to the small business and small office/home office See SOHO. (SoHo) markets and also sells its services to resellers focused on a broad business spectrum. Under this arrangement, Covad started 2003 with over 92,000 lines being serviced by CBS. Covad Strategic Partnerships (CSP (1) (Certified Systems Professional) An earlier award for successful completion of an ICCP examination in systems development. See ICCP. (2) (Commerce Service P ) serves Covad's largest customers and partners, primarily ISPs and telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. carriers that deliver broadband to consumers and businesses. For comparative purposes, the subscriber line The line from the customer site to the local telephone company. See subscriber network. mix between the CSP and CBS segments would have been 76 percent and 24 percent, respectively, for both the third and the fourth quarters of 2002. Conference Call Information Covad will conduct a conference call to discuss these financial results on Tuesday, March 11, 2003 at 5:00 p.m. Eastern Standard Time (EST EST electroshock therapy. EST abbr. electroshock therapy )/2:00 p.m. Pacific Standard Time (PST PST Paroxysmal supraventricular tachycardia, see there ). The conference call will be webcast over the Internet. To listen to the call visit the Covad website at www.covad.com/companyinfo. Investors and press may also listen by telephone to the call by dialing (703) 871-3627 and are advised to call in ten minutes prior to the start time. The conference call telephone replay will be available until 9:00 p.m. PST on Thursday, March 13, 2003 by dialing 888-266-2081 or 703-925-2533, pass code 6434559. The webcast will be available until March 31, 2003. About Covad Communications Covad is a leading national broadband service provider of high-speed Internet 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) 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 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'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 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 Covad's expected revenue, EBITDA, broadband subscription billings and other financial measures, anticipated subscriber line additions, Covad's ability to reduce the number of subscriber lines purchased by resellers for whom Covad recognizes revenue only when it is paid, 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 the 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, the terms and interpretations of the decision announced February 20, 2003 by the FCC, 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 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, 2001 and its Report on Form 10-Q Form 10-Q See 10-Q. for the period ended September 30, 2002, 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.
FINANCIAL DATA
(In thousands)
As of As of
December December
31, 31,
2002 2001
--------- ---------
Selected Balance Sheet Data:
Cash, cash equivalents and short-term investments $204,567 $283,863
Restricted cash and investments 501 9,203
Other current assets 37,672 46,032
Property and equipment, net 108,737 215,804
Other long-term assets 90,684 120,266
--------- ---------
Total assets 442,161 675,168
Current liabilities 113,884 136,442
Long-term debt 50,000 50,000
Collateralized customer deposit 68,191 75,000
Deferred gain on deconsolidation of subsidiary 53,972 55,200
Unearned revenues 73,815 98,697
Total stockholders' equity 82,299 259,829
--------- ---------
Total liabilities and stockholders' equity 442,161 675,168
COVAD COMMUNICATIONS GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share and per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 2002 2001
------------------------- -------------------------
Revenues, net $87,891 $89,468 $383,496 $332,596
Operating
expenses:
Network and
product costs 62,334 99,232 298,336 461,875
Sales,
marketing,
general and
administrative 38,163 33,959 150,373 199,908
Provision for
bad debts (bad
debt
recoveries) 7 (1,181) 319 (658)
Depreciation
and
amortization
of property
and equipment 19,556 34,124 112,438 137,920
Amortization of
intangible
assets 3,660 3,586 14,650 12,919
Provision for
restructuring
expenses - (3,253) - 14,364
Provision for
long lived
asset
impairment - 9,999 - 11,988
Litigation-
related
expenses (2,599) 25,253 (11,628) 31,160
------------ ------------ ------------ ------------
Total
operating
expenses $121,121 $201,719 $564,488 $869,476
------------ ------------ ------------ ------------
Loss from
operations ($33,230) ($112,251) ($180,992) ($536,880)
Other income
(expense)
Realized gain
on short term
investments - (3) (17) 5,909
Other than temp
loss on short
term
investments - - - (1,311)
Provision for
impairment of
investments in
unconsolidated
affiliates (388) (602) (388) (10,069)
Equity in
losses of
unconsolidated
affiliates (102) (2,143) (806) (13,769)
Gain (loss) on
disposal of
investment in
unconsolidated
affiliates - - (636) 178
Interest income
(expense), net (406) 1,112 (459) (68,189)
Reorganization
expenses, net - (58,724) - (62,620)
Miscellaneous
income
(expense), net (1,363) (2,612) (1,530) (2,218)
------------ ------------ ------------ ------------
Other income
(expense),
net (2,259) (62,972) (3,836) (152,089)
------------ ------------ ------------ ------------
Loss before
extraordinary
item and
cumulative
effect (35,489) (175,223) (184,828) (688,969)
Extraordinary
item - gain on
extinguishment of
debt - 1,033,727 - 1,033,727
------------ ------------ ------------ ------------
Net income (loss) ($35,489) $858,504 ($184,828) $344,758
============ ============ ============ ============
Basic and diluted
net loss per
common share ($0.16) $4.69 ($0.84) $1.94
============ ============ ============ ============
------------ ------------ ------------ ------------
Weighted average
common shares 222,243,450 183,039,141 219,743,662 177,347,193
============ ============ ============ ============
EBITDA (1) ($10,014) ($74,541) ($53,904) ($386,041)
Gross Margin (2) $25,557 ($9,764) $85,160 ($129,279)
Gross Margin % 29.1% -10.9% 22.2% -38.9%
Notes to Financial Data (1) The company believes that EBITDA, defined as loss from operations excluding depreciation and amortization of property and equipment, and amortization of collocation collocation - co-location fees, is a meaningful measure of operating performance. However, this information will necessarily be different from comparable information provided 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 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. . EBITDA is not a measure under accounting principles generally accepted in the United States, is not indicative of cash provided or used by operating activities and should not be considered in isolation, nor as an alternative to more meaningful measures of performance determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with accounting principles generally accepted in the United States. (2) Gross margin is defined as revenues less network and product costs. |
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