Covad Group Announces First Quarter 2005 Results

Covad Communications Group, Inc. (www.covad.com), a provider of integrated voice and data communications, today reported revenue for the first quarter of 2005 of $107.7 million, unchanged from the $107.7 million reported for the fourth quarter of 2004 and down from $108.5 million reported in the first quarter of 2004.

The company reported net income of $34.4 million, or $0.11 per share, for the first quarter of 2005 as compared to a net loss of $26.0 million, or $0.10 loss per share, for the fourth quarter of 2004 and a net loss of $13.5 million, or $0.06 loss per share, in the first quarter of 2004.

Net income for the first quarter of 2005 includes the recognition of a $54.0 million gain that was deferred when the company deconsolidated its former subsidiary, BlueStar Communications Group, Inc., in 2001.

Loss from operations for the first quarter of 2005 was $26.6 million, compared to $25.1 million for the fourth quarter of 2004 and $12.9 million in the first quarter of 2004.

Cash, cash equivalent and short-term investment balances, including restricted cash and investments, decreased by $17.9 million to $135.6 million in the first quarter of 2005 compared to a balance of $153.5 million at the end of the fourth quarter of 2004.

Covad ended the first quarter of 2005 with approximately 547,400 broadband lines in service, an increase of 14,200 lines from the fourth quarter of 2004. Covad ended the first quarter of 2005 with 690 VoIP business customers using approximately 23,400 stations, representing a 14 percent increase in VoIP station count from December 31, 2004.

"Our strong performance in adding more than 14,000 broadband access lines in the quarter along with the 14 percent increase in VoIP stations is evidence that we continue to execute our strategic plan of making Covad a national leader in voice and data services," said Charles Hoffman, Covad president and chief executive officer.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of 2005 was a loss of $7.4 million as compared to a loss of $5.5 million in the fourth quarter of 2004 and a gain of $6.3 million in the first quarter of 2004.

The company's wholesale subscribers contributed $76.3 million of revenue, or 71 percent, while direct subscribers contributed $31.4 million of revenue, or 29 percent.

For the first quarter of 2005, broadband and VoIP subscription revenue increased to $91.5 million from the $90.8 million reported in the fourth quarter of 2004 and the $89.6 million reported in the first quarter of 2004.

Management uses broadband and VoIP subscription revenue to evaluate the performance of its business and believes these revenues are a useful measure for investors as they represent a key indicator of the performance of the company's core business.

For the first quarter of 2005, gross margin was $35.0 million, or 33 percent of revenue, as compared to $38.5 million, or 36 percent of revenue, for the fourth quarter of 2004 and $40.2 million, or 37 percent of revenue, for the first quarter of 2004.

"Our first quarter results are well within the guidance we provided and reflect prudent management of our financial and operational resources," said John Trewin, Covad senior vice president and chief financial officer.

Covad will conduct a conference call to discuss these financial results on Wednesday, April 27, 2005 at 5:00 p.m. Eastern Time (ET)/ 2:00 p.m. Pacific Time (PT). The conference call will be webcast over the Internet.