Covad narrows loss for Q4, projects bigger losses

Covad Communications is finding success in selling higher-value products, such as line-powered voice, business ADSL, VoIP and wireless, and was able to cut its losses for the fourth quarter of 2006. But the company performed below analysts’ expectations and projected wider losses for 2007, based on the one-time costs of adding new customers in its higher value service areas such as line-powered voice and ADSL 2+.

For the quarter, Covad reported net revenues of $119.5 million, which included a 48% increase in subscription revenue from its “growth” products over the fourth quarter of 2005. The company’s adjusted EBITDA was $6.7 million, including $2 million in cost for building out the line-power voice network, and its net loss was $8.4 million or three cents per share, which was a penny a share more than analyst projected.

Covad’s strategy of selling directly to high-value business customers helped boost revenue from direct subscribers to $42.4 million net, or 35.5% of its revenues for the fourth quarter, up from $33.6 million or 29.6 percent of revenues for the year-previous quarter. Wholesale accounding for 64.5% of revenues, down from $78.3 million to $77.1 million.

Among the year’s highlights, said Covad President and CEO Charles Hoffman, was the completion of its national next-gen network, covering 758 central offices and 14 million households, the buildout of wireless capabilities to 11 cities nationwide and the new partnership with United Online, which will be selling Covad ADSL services to consumers. In addition, the company launched a bundled voice-data product for small businesses and expanded fixed wireless-broadband into Chicago, he said.

“Our focus in 2007 will be on continuing growth momentum and emphasizing profitability,” Hoffman said. “We will be focused on creating an even better customers experience.”

For 2007, Covad expects to have net revenues between $490 million and $525 million, and a net loss in the range of $15 million to $39.5 million. One reason for the wide range on the projected loss is that Covad expects its high-value services, such as the ADSL 2+ service and line-powered voice, to grow significantly this year, said Christopher Dunn, senior vice president and CFO.

“One of key drivers is that range is clearly the success in adding new customers,” he said. “There is nonrecurring expense associated with adding customers and the success rate we see in products like line-powered voice and ADSL2+ will have an impact on that performance.”