Covad Communications Group Announces Third 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)--Oct. 22, 2003 Covad Records Fifth Consecutive Quarter of Line Growth; Revenues Increase Nine Percent for the Quarter 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 third quarter ended September September: see month. 30, 2003. During the third 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 38,000 to 491,000, an eight percent increase over lines in service at the end of the second quarter of 2003 and a 29 percent increase from the beginning of the year; -- Increased revenue nine percent to $100.5 million from second quarter 2003 revenue of $92.4 million; -- Reduced loss before interest, taxes, depreciation and amortization (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 ) to $6.0 million compared to a loss of $8.4 million in the second quarter of 2003; and -- Posted a net loss of $25.1 million, or $0.11 per share, compared to a net loss of $27.3 million, or $0.12 per share, for the second quarter of 2003. "As we continue to take full advantage of operating the only national 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). network and executing our business strategy we remain focused on delivering results and achieving our 2003 financial objectives," 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 this quarter, we continued to grow both the wholesale and direct arms of our business and achieved our fifth consecutive quarter of line growth. We also continued our fiscal discipline, which helped us to build the foundation for EBITDA profitability in 2004 and the potential to turn the corner on EBITDA profitability in the fourth quarter of 2003." Business Highlights -- The launch of Covad's 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 ) 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 five states. -- The expansion of Covad's partnership with MCI (1) (Media Control Interface) A high-level programming interface from Microsoft and IBM for controlling multimedia devices. It provides commands and functions to open, play and close the device. (2) (Microwave Communications Inc. implementing new line splitting agreements that enable MCI to bundle their local and long distance voice services with Covad's DSL service. MCI has launched marketing efforts for its line-splitting bundle in about 20 markets. -- The expansion of Covad's partnership with Z-Tel to include a line splitting agreement, enabling Z-Tel to bundle their local and long distance voice services with Covad's DSL service. Z-Tel is expected to launch sales later this year. -- The announcement of a two-year agreement that will enable VarTec and its subsidiary, Excel A full-featured spreadsheet for Windows and the Macintosh from Microsoft. It can link many spreadsheets for consolidation and provides a wide variety of business graphics and charts for creating presentation materials. Telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. , to bundle Covad's DSL services with their local and long distance voice services. VarTec will initiate INITIATE. A right which is incomplete. By the birth of a child, the husband becomes tenant by the curtesy initiate, but his estate is not consummate until the death of the wife. 2 Bouv. Inst. n. 1725. sales in 2004. "We believe the consumer adoption of line splitting will build momentum during the remainder of 2003 and throughout 2004," Hoffman added. Revenue Total revenue for the third quarter of 2003 was $100.5 million, compared to $92.4 million for the second quarter of 2003. The company's wholesale subscribers contributed $76.0 million of revenue, or 76 percent, while direct subscribers contributed $24.5 million of revenue, or 24 percent. At September 30, 2003, Covad had approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 420,000 wholesale and approximately 71,000 direct lines in service. For the third 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 $82.4 million compared to $76.1 million for the second quarter of 2003, an eight 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 Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. 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 third quarter of 2003, gross margin was $26.5 million, or 26.3 percent of revenue, compared to 25.7 percent for the second quarter of 2003. Gross margin 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 $32.5 million for the third quarter of 2003, compared to $32.3 million for the second quarter of 2003. Third quarter SG&A included $1.4 million of migration expenses related to the Qwest customer list acquisition. EBITDA for the third quarter of 2003 was a loss of $6.0 million, compared to an EBITDA loss of $8.4 million in the second 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 third quarter of 2003 was $25.1 million, or $0.11 per share, compared to a net loss of $27.3 million, or $0.12 per share, for the second quarter of 2003. Loss from operations for the third quarter of 2003 was $23.9 million, compared to $26.2 million in the second quarter of 2003. Balance Sheet As of September 30, 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 $135.2 million compared to $154.6 million as of June June: see month. 30, 2003. Third quarter net cash usage of $19.4 million included approximately $18.8 million of capital expenditures and $4.2 million of migration expenses related to the Qwest customer list acquisition. Mark Richman Richman is a surname and may refer to:
Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. strategic partnerships, and this quarter we benefited from our transaction with Qwest as our business lines grew nine percent." "We believe our broadband subscription billings growth combined with our scalable cost structure will drive our success. This quarter our cost reduction initiatives continued to yield gains. We continue to invest in capital expenditures to support growth and network enhancements." Operating Statistics -- At the end of the third quarter, Covad had approximately 285,000 consumer lines and 206,000 business lines in service, representing approximately 58 percent and 42 percent of total lines, respectively. Total lines in service grew eight percent from the second quarter of 2003 and 29 percent from the beginning of the year. -- 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 $58 during the third quarter of 2003, down from $59 in the second quarter of 2003. -- Net customer disconnections, or churn churn: see butter. , averaged approximately 3.9 percent in the third quarter of 2003 compared to 3.4 percent in the second quarter of 2003. Over the last year, Covad has accelerated consumer line growth through wholesale agreements with its partners. As such, the company believes the increase in churn was largely due to the aggressive customer acquisition strategies employed by some of Covad's partners to target the consumer market. These strategies include offering consumers low-to-no cost DSL service for the first few months. While these "trial-to-buy" offers create an increase in subscribers, they also result in higher than average disconnects within the first few months of DSL service as these offers expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. . "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 believe this program will have a positive impact on our future consumer churn." Business Outlook Covad currently expects revenue for the fourth quarter of 2003 to be in the range of $101 million to $105 million with subscriber subscriber, 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. growth in the range of 35,000 to 38,000 lines. Broadband subscription billings for the fourth quarter of 2003 are expected to be in the range of $84 million to $88 million. For the fourth quarter of 2003, Covad expects its net loss to be in the range of $18 million to $23 million, and EBITDA to be in the range of a negative $2 million to positive $2 million. Net usage of cash, cash equivalents and short-term investments, including restricted cash and investments, in the fourth quarter of 2003 is expected to be in the range of $20 million to $25 million. Covad's expected net cash usage for the fourth quarter 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. "We continue to meet our financial objectives and are very excited about the possibility of turning the corner on EBITDA profitability in the fourth quarter," Hoffman said. "We are entering a period of transition, as we begin to move from line sharing to line splitting, which allows Covad to provide the critical ingredient
An ingredient is something that forms part of a mixture (in a general sense). of DSL in a voice and data bundle with our strategic partners. While this transition will take some time to fully implement, we believe bundling bundling, courtship custom, thought to have originated in Holland and the British Isles. It was extended to America, particularly to New England, and most widely practiced in the years prior to the Revolution of 1776. will be a major contributor to our growth in 2004 as the demand for line splitting builds momentum." Hoffman added, "We enter the fourth quarter with a 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. An example of this financial discipline is the recent move of our corporate headquarters to a new location, which will reduce our annual 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. . Combining this financial discipline with our efforts to increase customer satisfaction, Covad is achieving its goal of making broadband better for our customers and our partners." Conference Call Information Covad will conduct a conference call to discuss these financial results on Wednesday Wednesday: see week. , October October: see month. 22 at 8:30 a.m. Eastern Time (ET)/ 5:30 a.m. Pacific Time (PT). 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 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. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT on Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , October 24, 2003, by dialing (800) 642-1687 or (706) 645-9291, pass code 3074220. The webcast will be available through our web site until October 28, 2004. 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 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. 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 subscriber growth, anticipated churn, 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 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 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 December: see month. 31, 2002 and the 10-Q for the quarter ended June 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. -0
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands)
Selected Balance Sheet Data As of As of
Sep 30, Jun 30,
2003 2003
--------- ---------
Cash, cash equivalents, and short term investments $134,795 $154,199
Restricted cash and investments 400 400
Accounts receivable, net 27,770 25,105
All other current assets 16,608 18,792
Property, equipment, collocation fees, and other
intangible assets, net 137,366 136,979
Deferred costs of service activation 31,848 34,668
All other long-term assets 7,396 8,652
--------- ---------
Total assets $356,183 $378,795
========= =========
Total current liabilities $122,351 $117,994
Long-term debt 50,000 50,000
Collateralized customer deposit 62,204 64,183
Deferred gain on deconsolidation of subsidiary 53,963 53,963
Unearned revenues 63,488 68,132
Total stockholders' equity 4,177 24,523
--------- ---------
Total liabilities and stockholders' equity $356,183 $378,795
========= =========
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
Consolidated Condensed
Statements of Operations Data Three Months Ended
------------------------------------------
Sep 30, 2003 Jun 30, 2003 Sep 30, 2002
------------- ------------- --------------
Revenues, net $ 100,507 $ 92,445 $ 96,206
Operating expenses:
Network and product costs 74,052 68,727 69,546
Sales, marketing, general
and administrative 32,510 32,300 41,173
Provision for bad debts
(bad debt recoveries), net (8) (164) (1,731)
Depreciation and
amortization of property
and equipment 13,054 13,752 33,498
Amortization of collocation
fees and other intangible
assets 4,775 4,024 3,700
Litigation-related expenses - - 1,884
------------- ------------- --------------
124,383 118,639 148,070
------------- ------------- --------------
Loss from operations (23,876) (26,194) (51,864)
Other income (expense), net (1,267) (1,093) 157
------------- ------------- --------------
Net loss $ (25,143) $ (27,287) $ (51,707)
============= ============= ==============
Basic and diluted net loss
per share $ (0.11) $ (0.12) $ (0.23)
============= ============= ==============
Weighted average number of
common shares used in
computing basic and diluted
net loss per share 224,872,907 223,724,040 220,432,609
============= ============= ==============
Gross Margin (Note 1) $ 26,455 $ 23,718 $ 26,660
% of revenue 26.3% 25.7% 27.7%
EBITDA Calculation (Note 2) Three Months Ended
------------------------------------------
Sep 30, 2003 Jun 30, 2003 Sep 30, 2002
------------- ------------- --------------
Net Loss $ (25,143) $ (27,287) $ (51,707)
Plus: Other (income)
expense, net 1,267 1,093 (157)
Depreciation and
amortization of
property and
equipment 13,054 13,752 33,498
Amortization of
collocation fees and
other intangible
assets 4,775 4,024 3,700
------------- ------------- --------------
EBITDA (Note 2) $ (6,047) $ (8,418) $ (14,666)
============= ============= ==============
Net Cash Usage Calculation Three Months Ended
------------------------------------------
Sep 30, 2003 Jun 30, 2003 Sep 30, 2002
------------- ------------- --------------
Net decrease in cash, cash
equivalents, and short term
investments including
restricted cash and
investments $ (19,404) $ (23,199) $ (17,069)
Less: Cash paid for Qwest
customer list acquisition 0 3,750 0
------------- ------------- --------------
Net decrease in cash and
cash equivalents excluding
Qwest customer list
acquisition $ (19,404) $ (19,449) $ (17,069)
============= ============= ==============
Consolidated Condensed
Statements of Operations Data Nine Months Ended
---------------------------
Sep 30, 2003 Sep 30, 2002
------------- -------------
Revenues, net $ 283,812 $ 295,605
Operating expenses:
Network and product costs 211,803 236,002
Sales, marketing, general and administrative 102,189 112,210
Provision for bad debts (bad debt
recoveries), net 26 312
Depreciation and amortization of property
and equipment 41,399 92,882
Amortization of collocation fees and other
intangible assets 12,795 10,990
Litigation-related expenses - (9,029)
------------- -------------
368,212 443,367
------------- -------------
Loss from operations (84,400) (147,762)
Other income (expense), net (2,752) (1,577)
------------- -------------
Net loss $ (87,152) $ (149,339)
============= =============
Basic and diluted net loss per share $ (0.39) $ (0.68)
============= =============
Weighted average number of common shares used
in computing basic and diluted net loss per
share 224,019,089 218,901,267
============= =============
Gross Margin (Note 1) $ 72,009 $ 59,603
% of revenue 25.4% 20.2%
EBITDA Calculation (Note 2) Nine Months Ended
---------------------------
Sep 30, 2003 Sep 30, 2002
------------- -------------
Net Loss $ (87,152) $ (149,339)
Plus:Other (income) expense, net 2,752 1,577
Depreciation and amortization of
property and equipment 41,399 92,882
Amortization of collocation fees and
other intangible assets 12,795 10,990
------------- -------------
EBITDA (Note 2) $ (30,206) $ (43,890)
============= =============
Net Cash Usage Calculation Nine Months Ended
---------------------------
Sep 30, 2003 Sep 30, 2002
------------- -------------
Net decrease in cash, cash equivalents, and
short term investments including restricted
cash and investments $ (69,873) $ (64,359)
Less: Cash paid for Qwest customer list
acquisition 3,750 0
------------- -------------
Net decrease in cash and cash equivalents
excluding Qwest customer list acquisition $ (66,123) $ (64,359)
============= =============
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands, except key operating data)
Consolidated Revenue
Data Three Months Ended Nine Months Ended
----------------------------- -------------------
Sep 30, Jun 30, Sep 30, Sep 30, Sep 30,
2003 2003 2002 2003 2002
--------- --------- --------- --------- ---------
Broadband subscription
billings (Note 3) $ 82,420 $ 76,101 $ 64,698 $229,469 $197,376
High-capacity
circuit billings 5,014 5,036 6,457 15,847 22,094
Dial-up billings 1,377 1,528 1,864 4,638 8,754
--------- --------- --------- --------- ---------
Total Billings,
net $ 88,811 $ 82,665 $ 73,019 $249,954 $228,224
Financially
distressed partners
(Note 4) (84) 88 5,750 (237) 8,095
Customer rebates and
incentives not
subject to deferral
(Note 5) (3,917) (4,755) (207) (11,939) (232)
Other revenues, net
(Note 6) 15,697 14,447 17,644 46,034 59,518
--------- --------- --------- --------- ---------
Revenues, net $100,507 $ 92,445 $ 96,206 $283,812 $295,605
========= ========= ========= ========= =========
Consolidated Network
& Product Costs Data Three Months Ended Nine Months Ended
----------------------------- -------------------
Sep 30, Jun 30, Sep 30, Sep 30, Sep 30,
2003 2003 2002 2003 2002
--------- --------- --------- --------- ---------
Direct Cost of Total
Billings, net (Note
8) $ 16,828 $ 17,072 $ 14,454 $ 51,232 $ 50,041
Other Network and
Product Costs (Note
9) 57,224 51,655 55,092 160,571 185,961
--------- --------- --------- --------- ---------
Network and
Product Costs $ 74,052 $ 68,727 $ 69,546 $211,803 $236,002
========= ========= ========= ========= =========
Key Operating Data Three Months Ended
------------------------------
Sep 30, Jun 30, Sep 30,
2003 2003 2002
--------- --------- ----------
Lines
Wholesale 419,721 394,874 326,242
Direct 71,204 58,585 32,252
--------- --------- ----------
Total Company 490,925 453,459 358,494
Total Company ARPU $ 58 $ 59 $ 59
Business
Lines 206,415 189,379 175,733
ARPU $ 92 $ 90 $ 85
Consumer
Lines 284,510 264,080 182,761
ARPU $ 33 $ 35 $ 35
COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA
(in thousands)
Three Months Ending December 31, 2003 - Business Outlook
--------------------------------------------------------
EBITDA Calculation (Note 2) Three Months Ending
Dec 31, 2003
---------------------
Projected Range of
Results
---------------------
Net Loss $(23,000)to $(18,000)
Plus: Other (income) expense, net 1,000 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 2) $ (2,000)to $ 2,000
========= =========
Consolidated Revenue Data Three Months Ending
Dec 31, 2003
---------------------
Projected Range of
Results
---------------------
Broadband subscription billings (Note 3) $ 84,000 to $ 88,000
High-capacity circuit billings 4,500 to 5,500
Dial-up billings 1,200 to 1,400
--------- ---------
Total Billings, net $ 89,700 to $ 94,900
Financially distressed partners (Note 4): (100)to (1,500)
Customer rebates and incentives not subject to
deferral (Note 5) (1,500)to (3,000)
Other revenues, net (Note 6) 12,900 to 14,600
--------- ---------
Revenues, net $101,000 to $105,000
========= =========
Three Months Ending March 31, 2004 - EBITDA Breakeven
------------------------------------------------------
EBITDA Calculation (Note 2) Three Months Ending
Mar 31, 2004
---------------------
Projected Results
---------------------
Net Loss $(22,000)to $(17,000)
Plus: Other (income) expense, net $ 1,000 to $ 1,000
Depreciation and amortization of
property and equipment 17,500 to 16,500
Amortization of collocation fees and
other intangible assets 3,500 to 3,500
--------- ---------
EBITDA (Note 2) $ 0 to $ 4,000
========= =========
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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