Covad Announces Fourth Quarter 2004 Results

Covad Communications Group, Inc. (www.covad.com), a provider of integrated voice and data communications, today reported revenue for the fourth quarter of 2004 of $107.7 million, a three percent increase over the $105.0 million reported in the fourth quarter of 2003, and an increase of $2.0 million from the third quarter of 2004.

The company reported a net loss for the fourth quarter of 2004 of $26.0 million, or $0.10 per share, as compared to a net loss of $16.9 million, or $0.07 per share in the fourth quarter of 2003, and a net loss of $13.8 million, or $0.05 per share for the third quarter of 2004.

Cash, cash equivalent and short-term investment balances, including restricted cash and investments, decreased by $12.3 million to $153.5 million in the fourth quarter of 2004 compared to a balance of $165.8 million at the end of the third quarter of 2004.

Covad ended the year with approximately 533,200 broadband lines in service, an increase of 8,300 lines from the third quarter of 2004. Covad ended the fourth quarter of 2004 with 567 Voice over IP (VoIP) business customers using approximately 20,500 stations.

"In the fourth quarter we achieved our financial and operational guidance, and continued to build momentum for Covad VoIP and broadband services," said Charles Hoffman, president and chief executive officer of Covad.

"In 2005, we will continue our commitment to aggressively meet the demand for business-class VoIP services as we move forward in our first full year as an integrated voice and data provider," Hoffman continued.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter of 2004 was a loss of $5.5 million as compared to a loss of $2.2 million in the fourth quarter of 2003 and a profit of $4.1 million in the third quarter of 2004.

The company's wholesale subscribers contributed $77.0 million of revenue, or 71 percent, while direct subscribers contributed $30.7 million of revenue, or 29 percent.

For the fourth quarter of 2004, broadband and VoIP subscription revenue increased five percent to $90.8 million from $86.5 million reported in the fourth quarter of 2003, and up from the $88.8 million reported in the third quarter of 2004.

For the fourth quarter of 2004, gross margin was $38.5 million or 36 percent of revenue, as compared to $31.6 million or 30 percent of revenue for the fourth quarter of 2003, and $39.7 million or 38 percent of revenue for the third quarter of 2004.

"Our fourth quarter results reflect our commitment to building a world-class VoIP offering. We invested to create a strong organization to support our sales and operations efforts surrounding the Covad VoIP product," said Susan Crawford, interim Chief Financial Officer.

Weighted Average Revenue per User (ARPU) for our broadband lines was approximately $56 per month during the fourth quarter of 2004, in line with the third quarter of 2004. Covad VoIP ARPU per customer (excluding resellers) was $1,934 per month during the fourth quarter of 2004.

Covad expects total revenue for the first quarter of 2005 to be in the range of $105-109 million. Broadband and VoIP subscription revenue is expected to be in the range of $89-93 million with broadband subscriber line growth to be in the range of 10,000-15,000 lines.

Covad will conduct a conference call to discuss these financial results on Wednesday, February 23, 2005 at 8:30 a.m. Eastern Time (ET)/ 5:30 a.m. Pacific Time (PT).