Covad Communications Group Reports Second Quarter 2007 Results
Thursday July 26, 4:05 pm ET
Company Continues Focus on Growth and Profitability; Subscription Revenue from Growth Products Increased by 31%
Financial and Business Highlights
-- $120.6 million in net revenues
-- 31 percent increase in subscription revenue from Growth products from the second quarter of 2006
-- $4.3 million in A-EBITDA
-- $11.6 million ($0.04 per share) net loss
-- $6.5 million usage of cash, cash equivalents and short-term investments, and restricted cash and cash equivalents
-- 8 percent reduction in workforce resulting in expected savings of approximately $5.5 million in the second half of 2007
-- Launched Bonded T1 and the nation's first standalone ADSL 2+ service for businesses
-- Over 12,000 line-powered voice access subscribers added, an increase of approximately 51 percent from the first quarter of 2007
-- 19 percent increase in wireless subscribers, to 3,600, from the second quarter of 2006; expanded wireless network footprint in Los Angeles
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 second quarter of 2007 financial results, including $120.6 million in net revenues, $4.3 million in A-EBITDA and a net loss of $11.6 million, or a $0.04 loss per share.
Charles Hoffman, Covad president and chief executive officer, said: "In the second quarter, we continued to focus on the transformation of our business towards higher-margin growth services, such as our recently-launched Bonded T1 and ADSL 2+ services. The result of this transformation will be a leaner, more nimble enterprise that is intensely focused on doing a few things exceedingly well. Among these are providing business-class next generation broadband services, a superior customer experience, and an innovative choice for partners. In order to increase shareholder value, we will continue to optimize our business in the face of changing dynamics in our competitive industry."
Summary of Financial Results
Net revenues for the second quarter of 2007 totaled $120.6 million, an increase of $0.4 million from the $120.2 million reported for the first quarter of 2007, and an increase of $2.1 million from the $118.5 million reported for the second quarter of 2006.
Direct subscribers for the second quarter of 2007 contributed $44.0 million of net revenues, or 36.5 percent, as compared to $43.4 million, or 36.1 percent, for the first quarter of 2007, and $39.6 million, or 33.4 percent, for the second quarter of 2006. Wholesale subscribers for the second quarter of 2007 contributed $76.6 million of net revenues, or 63.5 percent, as compared to $76.8 million, or 63.9 percent, for the first quarter of 2007, and $78.9 million, or 66.6 percent, for the second quarter of 2006.
Subscription revenue from Growth products for the second quarter of 2007 totaled $53.8 million, an increase of $3.6 million, or 7.2 percent, from the first quarter of 2007, and an increase of $12.8 million, or 31.2 percent from the second 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 first quarter of 2007 was attributable to increases in broadband subscription revenue from T-1, business ADSL and LPVA of $2.6 million, VoIP subscription revenue of $0.8 million and Wireless subscription revenue of $0.2 million. The increase from the second quarter of 2006 was attributable to increases in broadband subscription revenue from T-1, business ADSL and LPVA of $8.5 million, VoIP subscription revenue of $3.6 million and wireless subscription revenue of $0.7 million. Subscription revenue from Growth products for the second quarter of 2007 contributed 48.6 percent of total subscription revenues, an increase of 2.8 percent from the first quarter of 2007 and an increase of 10.4 percent from the second 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 second quarter of 2007 totaled $57.0 million, a decrease of $2.5 million, or 4.2 percent, from the first quarter of 2007, and a decrease of $9.6 million, or 14.4 percent from the second 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 first quarter of 2007 and second 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 second quarter of 2007 contributed 51.4 percent of total subscription revenues, a decrease of 2.8 percent from the first quarter of 2007 and a decrease of 10.5 percent from the second 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 second quarter of 2007 contributed $95.7 million of net revenues, a 0.9 percent increase from the first quarter of 2007 and a 5.7 percent increase from the second quarter of 2006. Revenue from business subscribers comprised 79.4 percent of net revenues, up from 78.9 percent in the first quarter of 2007 and 76.4 percent in the second quarter of 2006. Revenue from consumer subscribers for the second quarter of 2007 contributed $24.9 million of net revenues compared to $25.4 million in the first quarter of 2007 and $28.0 million in the second quarter of 2006. Revenue from consumer subscribers for the second quarter of 2007 comprised 20.6 percent of net revenues, down from 21.1 percent in the first quarter of 2007 and 23.6 percent in the second quarter of 2006.
Adjusted earnings before interest, taxes, depreciation and amortization ("A-EBITDA") for the second quarter of 2007 totaled $4.3 million, up from the $1.2 million A-EBITDA reported for the first quarter of 2007, and down from the $25.6 million A-EBITDA reported for the second quarter of 2006. A-EBITDA in the second quarter of 2007 includes a benefit of $2.7 million as a result of a settlement with one of its vendors, and a $1.4 million charge for employee post-employment benefits, primarily severance costs, as a result of reductions in Covad's workforce during the second quarter of 2007. These cost reduction actions taken in the second quarter of 2007 are expected to result in approximately $5.5 million in savings in the second half of 2007. Included in A-EBITDA for the second quarter of 2006 are the benefits of a one-time federal excise tax adjustment that contributed approximately $19.5 million to Covad's A-EBITDA and a $2.1 million benefit from an employment related tax adjustment. 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 second qua