Covad financial picture brighter

Covad Communications posted its best-ever financial quarter, and although revenue growth was small, company officials say the competitive carrier is well-positioned for growth.

Covad reported net revenues of $118.5 million, Adjusted EBITDA of $25.6 million and net income of $12.5 million, or 4 cents per share. A-EBITDA and net income included a $19.5 million benefit from a one-time tax adjustment. Net revenues rose less than one percent over the first quarter of 2006 to $118.5 million, an increase of 8% over the year-previous quarter.

Covad CEO Charlie Hoffman pointed to an improved balance sheet and greater financial flexibility as keys to Covad’s future growth.

“We have laid the foundation for growth from four main drivers – next-generation network services, business class broadband, wireless and VoIP, all the while, we continue to improve profitability and achieve solid operating results,” he told analysts. “We met guidance on revenue and cash flow and beat our guidance on Adjusted EBITDA, validating our plans to grow the business reliably by reducing our reliance on sales of consumer wholesale and increasing our focus on direct sales to business. We are pleased that our conservative fiscal policies have lead to a reversal of a long-time liability, and our Adjusted EBITDA demonstrates solid progress toward profitability.”

By year’s end, Covad will have completed the buildout of what Hoffman called the second-largest next-generation network in the U.S., being financed by EarthLink, and will be offering line-powered voice access in 11 major markets, along with higher speed broadband access for business.

The company was able to pay AT&T a $33.6 million payment related to the redemption of Covad's secured collateralized customer deposit with AT&T, in advance and at a discount, Hoffman said. In addition, the company secured a $50 million revolving credit facility from Silicon Bank.

Covad’s income from operations for the quarter was $14.1 million, but that included a $19.5 million benefit from a one-time tax adjustment. In the year-previous quarter, the company posted a $25.6 million loss.

Revenues from broadband and VoIP subscriptions grew about 2% in the quarter to $102.9 million, an increase of 10% from the year-previous quarter. Wholesale revenues were $78.9 million or two-thirds of the total revenue, down from 68.9% for the first quarter of 2006. Direct subscription revenues accounted for 33.4% of revenue. Business subscribers made up 76.4% of net revenues, up from 74.3%.

The company posted its best-ever T-1 direct sales effort, Hoffman said, in part because it was able to lower prices in some areas to be more competitive and raise them in other areas to maintain Average Revenue Per Customer.

The company is beginning to reap the benefits of its NextWeb wireless acquisition, Hoffman said, seeing growth in that segment. “We maintain an impressive roster of wireless customers including Intel, NASA and Nickelodeon,” he said. “We are looking for opportunities to expand our wireless network.”