SAN JOSE, Calif.--(BUSINESS WIRE)--Covad Communications Group, Inc. (AMEX:DVW - News), a leading national provider of integrated voice and data communications, today announced its third quarter of 2007 financial results, including $121.9 million in net revenues, $10.3 million in A-EBITDA and a net loss of $4.9 million, or a $0.02 loss per share.
“In the third quarter, our share of subscription revenues from higher-margin growth products exceeded fifty percent for the first time and our A-EBITDA increased significantly,” said Charles Hoffman, Covad president and chief executive officer. “These results prove that our strategy of transforming our business away from legacy products is the right one, and we will continue to focus on delivering services that meet our customers’ demand for higher bandwidth and more value.”
Summary of Financial Results
Net revenues for the third quarter of 2007 totaled $121.9 million, an increase of $1.3 million from the $120.6 million reported for the second quarter of 2007, and an increase of $3.3 million from the $118.6 million reported for the third quarter of 2006.
Direct subscribers for the third quarter of 2007 contributed $45.3 million of net revenues, or 37.2 percent, as compared to $44.0 million, or 36.5 percent, for the second quarter of 2007, and $40.3 million, or 34.0 percent, for the third quarter of 2006. Wholesale subscribers for the third quarter of 2007 contributed $76.6 million of net revenues, or 62.8 percent, as compared to $76.6 million, or 63.5 percent, for the second quarter of 2007, and $78.3 million, or 66.0 percent, for the third quarter of 2006.
Subscription revenue from Growth products for the third quarter of 2007 totaled $56.8 million, an increase of $3.0 million, or 5.6 percent, from the second quarter of 2007, and an increase of $12.8 million, or 29.1 percent from the third quarter of 2006. Covad’s growth products are T-1, business ADSL, Line-Powered Voice Access (“LPVA”), Voice over Internet Protocol (“VoIP”) and wireless. The increase from the second quarter of 2007 was attributable to increases in broadband subscription revenue from T-1, business ADSL and LPVA of $2.2 million, and VoIP subscription revenue of $0.8 million. The increase from the third quarter of 2006 was attributable to increases in broadband subscription revenue from T-1, business ADSL and LPVA of $8.7 million, VoIP subscription revenue of $3.6 million and wireless subscription revenue of $0.5 million. Subscription revenue from Growth products for the third quarter of 2007 contributed 51.0 percent of total subscription revenues, an increase of 2.5 percent from the second quarter of 2007 and an increase of 10.3 percent from the third quarter of 2006. Refer to the Selected Financial Data below, including Note 3, for additional information, including a summary of subscription revenue from Growth and Legacy products and a reconciliation of subscription revenue to the most directly comparable GAAP measure.
Subscription revenue from Legacy products for the third quarter of 2007 totaled $54.5 million, a decrease of $2.5 million, or 4.4 percent, from the second quarter of 2007, and a decrease of $9.7 million, or 15.1 percent from the third quarter of 2006. Covad’s legacy products, primarily sold through wholesale channels, are consumer ADSL, business SDSL, frame relay and high-capacity transport circuits. The decreases from the second quarter of 2007 and third quarter of 2006 were primarily attributable to decreases in broadband subscription revenue from consumer ADSL and business SDSL and frame relay products. Subscription revenue from Legacy products for the third quarter of 2007 contributed 49.0 percent of total subscription revenues, a decrease of 2.5 percent from the second quarter of 2007 and a decrease of 10.3 percent from the third quarter of 2006. Refer to the Selected Financial Data below, including Note 3, for additional information, including a summary of subscription revenue from Growth and Legacy products and a reconciliation of subscription revenue to the most directly comparable GAAP measure.
Revenue from business subscribers for the third quarter of 2007 contributed $96.9 million of net revenues, a 1.3 percent increase from the second quarter of 2007 and a 5.0 percent increase from the third quarter of 2006. Revenue from business subscribers comprised 79.5 percent of net revenues, up from 79.4 percent in the second quarter of 2007 and 77.8 percent in the third quarter of 2006. Revenue from consumer subscribers for the third quarter of 2007 contributed $24.9 million of net revenues, the same as the $24.9 million in the second of 2007 and down from $26.3 million in the third quarter of 2006. Revenue from consumer subscribers for the third quarter of 2007 comprised 20.5 percent of net revenues, down from 20.6 percent in the second quarter of 2007 and 22.2 percent in the third quarter of 2006.
Adjusted earnings before interest, taxes, depreciation and amortization (“A-EBITDA”) for the third quarter of 2007 totaled $10.3 million, up from the $4.3 million A-EBITDA reported for the second quarter of 2007, and up from the $4.5 million A-EBITDA reported for the third quarter of 2006. The improvement in A-EBITDA in the third quarter of 2007 was primarily due to increased revenue from new growth products such as Line Powered Voice Access and Bonded T1 as well as savings realized as a result of reductions in Covad’s workforce during the second quarter of 2007 and other cost containment initiatives. Refer to the Selected Financial Data below, including Note 2, for additional information, including a reconciliation of this non-GAAP financial performance measure to the most directly comparable GAAP measure.
Net loss for the third quarter of 2007 totaled $4.9 million, or $0.02 loss per share, compared to the $11.6 million net loss, or $0.04 loss per share, reported for the second quarter of 2007 and the $8.7 million net loss, or $0.03 loss per share, reported for the third quarter of 2006.
Cash, cash equivalents and short-term investments, and restricted cash and cash equivalents at the end of the third quarter of 2007 totaled $64.2 million, a decrease of $1.4 million when compared to the balance of $65.6 million at the end of the second quarter of 2007. This change in cash, cash equivalents and short-term investments, and restricted cash and cash equivalents for the third quarter of 2007 included $3.6 million of on-going expenditures related to Covad LPVA services, which is being funded with the proceeds from the strategic agreement with EarthLink, and $0.6 million of post-employment benefit payments related to the reduction in workforce.
“The third quarter results reflect our continued focus on increasing sales of our growth products while managing an efficient and disciplined cost structure across all product lines,” said Justin Spencer, Covad’s chief financial officer. “Subscription revenue from our growth products exceeded that from legacy services in the third quarter, a key milestone for the company as we orient the business more to our growth services. We also improved our cash performance in the third quarter, increasing unrestricted cash by $2.3M.”
Business Outlook
Covad’s full year guidance is unchanged. For the fiscal year 2007, Covad expects:
Net revenues in the range of $485 – $505 million
A-EBITDA in the range of $25 - $35 million
Net loss in the range of $27 – $41 million