Covad Communications Group Announces Second Quarter 2002 Results.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)--August 8, 2002 New Wholesale Deal to Increase Distribution; New Consumer Product to Drive Demand; Media Campaign to Enhance Direct Sales; Company Announces Operating Statistics and Business Outlook 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) ) today reported second quarter results. Revenue was $97.7 million, in line with expectations. 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 improved to a loss of $7.3 million. Gross margin grew to 23.6 percent from 12.7 percent for the first quarter of 2002. Net loss of $40.8 million or $0.19 per share improved 28.2 percent and 26.9 percent, respectively, compared to a net loss of $56.8 million or $0.26 per share for the first quarter of 2002. Cash and investment balances as of June June: see month. 30, 2002 were $245.8 million representing a net cash usage of approximately $4.6 million for the quarter. "We delivered solid results with sequential improvement in the bottom line as we continued to drive for increasing margin dollars," 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, Covad 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. . "Revenue increased 12 percent versus the second quarter of 2001, which is great performance in one of the toughest times in the telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. industry. In addition, our strong balance sheet positions us to aggressively compete for market share in the growing 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). industry." Highlights -- Cash usage for the second quarter of 2002 was approximately $4.6 million, which includes $4.5 million for capital expenditures, the elimination of approximately $5.0 million in overdraft liabilities, and the benefit of $13.3 million in net proceeds from the sale of a company facility in Manassas, Virginia. -- As of June 30, 2002, the cash and investment balance was $245.8 million, including $6.6 million set aside to cover potential claims under the company's bankruptcy proceedings. -- As of June 30, 2002, the subscriber line mix between business-class and consumer-class service was 50 percent to 50 percent, unchanged from the previous quarter. -- The subscriber line mix between our wholesale and direct channels was 92 percent and 8 percent compared to 93 percent and 7 percent at the end of the first quarter of 2002. -- The company ended the quarter with approximately 357,000 lines in service, a decrease of approximately 2,000 lines in service from March 31, 2002. -- Approximately 10.6 percent of these lines are served through resellers for whom Covad recognizes revenue only when it is paid, down from 13.3 percent at the end of the first quarter of 2002. -- Churn during the quarter was approximately 4.2 percent, unchanged from the previous quarter. Excluding churn associated with partners facing financial difficulties, churn for the quarter would have been 3.7 percent, which is mostly concentrated in the wholesale channel for consumer services. "Our partnerships and new product are aimed at increasing awareness and driving demand by meeting the public's needs for reliable, cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. broadband Internet access Broadband Internet access, often shortened to just "broadband", is high speed Internet access—typically contrasted with dial-up access over modem. Dial-up modems are generally only capable of a maximum bitrate of 56 kbit/s (kilobits per second) and require the full use of a ," said Hoffman. "Our TeleSurfer Link product targets Internet users Internet user n → internauta m/f Internet user Internet n → internaute m/f with a dedicated line for their dial-up Internet access See dial-up. who want to upgrade to an `always on' connection. We expect this service to be well received, to expand our user base and to grow our line count. In addition, we expect our new and expanded partnerships to strengthen our wholesale distribution channel." Operating Statistics -- Cash usage for the second quarter of 2002 was approximately $4.6 million, which includes $4.5 million for capital expenditures, the elimination of approximately $5.0 million in overdraft liabilities, and the benefit of $13.3 million in net proceeds from the sale of a company facility in Manassas, Virginia. -- As of June 30, 2002, the cash and investment balance was $245.8 million, including $6.6 million set aside to cover potential claims under the company's bankruptcy proceedings. -- As of June 30, 2002, the subscriber line mix between business-class and consumer-class service was 50 percent to 50 percent, unchanged from the previous quarter. -- The subscriber line mix between our wholesale and direct channels was 92 percent and 8 percent compared to 93 percent and 7 percent at the end of the first quarter of 2002. -- The company ended the quarter with approximately 357,000 lines in service, a decrease of approximately 2,000 lines in service from March 31, 2002. -- Approximately 10.6 percent of these lines are served through resellers for whom Covad recognizes revenue only when it is paid, down from 13.3 percent at the end of the first quarter of 2002. -- Churn during the quarter was approximately 4.2 percent, unchanged from the previous quarter. Excluding churn associated with partners facing financial difficulties, churn for the quarter would have been 3.7 percent, which is mostly concentrated in the wholesale channel for consumer services. "Although we continue to experience strong demand for our services, we are experiencing high 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. which reduced our net line count for the quarter," said Hoffman. "We have a concentration of churn churn: see butter. in our wholesale consumer segment based on high customer move rates and competition in pricing as well as three of our top ten wholesale partners in 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 , which has resulted in net line count performance that is not acceptable. "We are taking a variety of measures, including working with our wholesale partners to improve the quality of the customer experience, developing a pre-qualification  This article has no lead section.To comply with Wikipedia's lead section guidelines, one should be written. program for users that are moving and wish to re-establish re-establish Verb to create or set up (an organization, link, etc.) again re-establishment n service and continuing to introduce services to meet the needs of the marketplace," continued Hoffman. "We are beginning to execute on these programs and expect to reduce churn in future quarters." Second Quarter Financial Results Revenue for the quarter ended June 30, 2002 was $97.7 million, representing a 12.2 percent increase over revenue of $87.1 million for the second quarter ended June 30, 2001 and a 3.9 percent decrease over revenues of $101.7 million for the quarter ended March 31, 2002. The decrease from the first quarter ended March 31, 2002, is attributable to the timing of the recognition of payments from certain wholesale customers that are facing financial difficulties. The company's wholesale channel contributed $83.5 million or 85.5 percent of revenue while the direct channel contributed $14.2 million or 14.5 percent of revenue during the quarter ended June 30, 2002. Network and product costs were $74.7 million for the second quarter of 2002. Network and product costs decreased by 38.5 percent from $121.4 million for the second quarter of 2001 and 15.8 percent from $88.8 million for the first quarter of 2002. For the second quarter of 2002, gross margin was a positive 23.6 percent, an increase from a negative 39.4 percent from the quarter one year ago and a positive 12.7 percent from the quarter ended March 31, 2002. Included in the results for the second quarter is a credit of approximately $5.6 million as a result of the settlement of certain disputed network service obligations with a 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. service provider. Exclusive of this credit, network and product costs for the quarter would have been $80.3 million, providing gross margin of 17.9 percent. Sales, marketing, general and administrative expenses were $35.4 million for the second quarter of 2002, a 40.3 percent decrease from $59.3 million for the second quarter of 2001 and an 8.4 percent decrease from $38.6 million for the first quarter of 2002. EBITDA for the quarter ended June 30, 2002, was a loss of $7.3 million compared to a loss of $104.0 million for the quarter ended June 30, 2001 and a loss of $21.9 million for the quarter ended March 31, 2002, representing improvements of 92.8 percent and 66.5 percent, respectively. EBITDA loss includes a $7.1 million non-cash recovery of previously recorded 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. related expenses and a $5.6 million non-cash reduction of network and product costs as a result of the settlement of certain disputed network service obligations with a telecommunication service provider. 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 second quarter of 2002 was $39.5 million, which is a 72.1 percent improvement from the second quarter of 2001 and a 29.9 percent improvement from the first quarter of 2002. Covad's net loss for the second quarter of 2002 was $40.8 million or $0.19 per share. This is an improvement of 76.8 percent and 81.2 percent, respectively, compared to the net loss of $175.5 million or $1.01 per share for the second quarter of 2001. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. Financial Results Revenue for the six months ended June 30, 2002 was $199.4 million, an increase of 25.9 percent over revenue of $158.3 million for the six months ended June 30, 2001. Covad's wholesale channel contributed $171.9 million or 86.2 percent of revenue while the direct channel contributed $27.5 million or 13.8 percent of revenue during the first six months of 2002. Network and product costs were $163.5 million for the six months ended June 30, 2002. Network and product costs decreased by approximately 36.3 percent from $256.6 million for the comparable period in 2001. Sales, marketing, general and administrative expenses were $74.0 million for the first six months of 2002, a 39.4 percent decrease from $122.1 million for the same period in 2001. EBITDA loss was $29.2 million for the six months ended June 30, 2002, an improvement of $212.1 million compared to the same period in 2001. Covad's net loss for the six months ended June 30, 2002 was $97.6 million or $0.45 per share. This is an improvement of 73.9 percent and 79.2 percent, respectively, compared to the net loss of $374.0 million or $2.16 per share for the six months ended June 30, 2001. Hoffman continued, "We have built a solid foundation and operational infrastructure with a strong financial position. In order to leverage these assets, we have increased our marketing efforts to improve brand awareness and increase demand in future periods. We believe these new initiatives, combined with our new products, our wholesale partnerships and a strong balance sheet will enable us to aggressively grow our business." Business Outlook Based on the results for the first six months, the anticipated timing of payments from certain customers and the limited visibility from its wholesale channel, Covad currently expects revenue for the third quarter to be flat to slightly down in a range of $93 million to $97 million. As indicated above, the company has launched advertising and marketing campaigns and anticipates that sales, marketing, general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. will increase slightly in the third quarter compared to the second quarter. Covad expects the increase in sales, marketing, general and administrative expenses to be offset by continued savings in network and product costs through business efficiencies and anticipated lower telecommunication costs. For the third quarter of 2002, the company expects EBITDA loss to be in a range of $24 million to $27 million and cash usage to be approximately $30 million, including capital expenditures. "Through financial discipline we again improved our bottom-line and increased our margin dollars quarter-over-quarter," stated Mark Richman, Covad CFO See Chief Financial Officer. . "We anticipate revenue to be flat until the fourth quarter when we expect we will begin to realize the benefits of our new and expanded partnerships and marketing initiatives. While we will continue to maintain strict financial discipline, we expect 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. to increase as we execute our new marketing campaign. We are confident in the business opportunities that exist and believe that the strength of our balance sheet will provide the necessary resources to fully fund our business." Conference Call Information Covad will conduct a conference call to discuss these financial results on Thursday, August 8, 2002 at 2:00 p.m. Pacific Daylight Time (PDT PDT abbr. Pacific Daylight Time PDT Pacific Daylight Time PDT n abbr (US) (= Pacific Daylight Time) → hora de verano del Pacífico PDT ). The conference call will be webcast over the 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 . 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 847-619-6534 and are advised to call in ten minutes prior to the start time. The conference call will be recorded and available for replay until 5:00 p.m. PDT on Friday, August 16, 2002, by dialing 888-843-8996 or 630-652-3044, passcode 6045308, or by visiting the Covad website. About Covad Communications Covad is 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 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 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 sales, revenue, operating expenses, profitability, sufficiency of capital resources, losses and growth, reductions in churn and the statements made by the president and CEO and the CFO 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 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 March 31, 2002.
COVAD COMMUNICATIONS GROUP, INC.
Financial Highlights
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------------------ ------------------------
Revenues, net $ 97,733 $ 87,099 $ 199,399 $ 158,344
Operating expenses:
Network and product
costs 74,703 121,444 163,464 256,606
Sales, marketing,
general and
administrative 35,392 59,268 74,029 122,095
Provision for bad
debts (bad debt
recoveries), net 2,116 1,198 2,043 (3,049)
Depreciation and
amortization of
property and
equipment 28,531 33,895 59,384 67,704
Amortization of
collocation fees 3,661 3,969 7,290 7,570
Provision for
restructuring
expenses - 2,942 - 17,747
Provision for long-
lived asset
impairment - 2,230 - 2,230
Litigation-related
expenses (7,146) 4,000 (10,913) 4,000
------------------------ ------------------------
Total operating
expenses 137,257 228,946 295,297 474,903
------------------------ ------------------------
Loss from operations (39,524) (141,847) (95,898) (316,559)
Other income (expense):
Realized gain (loss)
on short-term
investments - (460) (17) 5,837
Other than temporary
losses on short-term
investments - - - (1,311)
Equity in losses of
unconsolidated
affiliates (212) (3,447) (603) (6,615)
Gain (loss) on
disposal of
investments in
unconsolidated
affiliates (996) 178 (636) 178
Interest expense, net (331) (30,407) (237) (56,019)
Miscellaneous income
(expense), net 270 521 (241) 492
------------------------ ------------------------
Other income
(expense), net (1,269) (33,615) (1,734) (57,438)
------------------------ ------------------------
Net loss $ (40,793) $ (175,462) $ (97,632) $ (373,997)
======================== ========================
Basic and diluted net
loss per share $ (0.19) $ (1.01) $ (0.45) $ (2.16)
======================== ========================
Weighted average
number of common
shares used in
computing
basic and diluted
net loss per
share 219,350,005 173,902,805 218,122,972 173,260,179
======================== ========================
EBITDA (A) $ (7,332) $ (103,983) $ (29,224) $ (241,285)
Gross Margin (B) $ 23,030 $ (34,345) $ 35,935 $ (98,262)
Gross Margin % 23.6% (39.4%) 18.0% (62.1%)
(A) EBITDA is defined as loss from operations excluding expenses for
depreciation and amortization of property and equipment and
amortization of intangible assets and may be defined differently
by other companies.
(B) Gross margin is defined as revenues less network and product
costs.
As of As of
June 30, December 31,
2002 2001
------------------------
Selected Balance Sheet Data:
Cash, cash equivalents and
short-term investments $ 239,176 $ 283,863
Restricted cash and investments 6,600 9,203
Other current assets 51,226 46,032
Property and equipment, net 149,075 215,804
Other long-term assets 103,227 120,266
------------------------
Total assets 549,304 675,168
Current liabilities 116,730 136,442
Long-term debt 50,000 50,000
Collateralized customer deposit 71,850 75,000
Deferred gain on deconsolidation of
subsidiary 55,200 55,200
Unearned revenues 88,266 98,697
Total stockholders' equity 167,258 259,829
------------------------
Total liabilities and
stockholders' equity 549,304 675,168
|
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion