Then there were 14…

Digital subscriber line provider Covad Communications restated third quarter earnings late yesterday, revising revenues downward and increasing its cashflow losses for the quarter. The action was taken because since reporting results on October 17, five more of Covad’s Internet Service Provider (ISP) customers were found to be delinquent on payments.

The addition of the five brings the number of ISPs for which Covad has decided not to recognize revenue on for third quarter transactions to 14. Covad said that although it received payments from some of the delinquent ISPs in late September and early October, revenue for all 14 customers would only be recognized after they have satisfied past due balances.

“The health of a portion of our ISP channel has deteriorated very rapidly as the capital markets have pushed many of these enterprises into financial distress,” said Charles McMinn, Covad chairman, in a prepared statement. “We are focused on increasing our volume with more stable ISPs such as Earthlink and XO Communications.”

The 14 ISPs represent 28% of Covad’s total billed third quarter revenues and 32% of Covad’s total lines, said Mark Kastan, analyst at Credit Suisse First Boston. One of the additional five ISPs, according to Kastan, is Flashcom, a customer that accounts for about 25,000, or 12% of Covad’s total installed line base. “We would not be surprised to see similar announcements not only from [Covad] but also from the other data CLECs, as we note that approximately 13% of Rhythms NetConnections’ installed line base is attributable to Flashcom,” Kastan said in a report.

Covad’s revenue for the third quarter ended September 30, 2000, was reduced by $10.4 million to $56.3 million, compared to the $66.7 million reported on October 17. Covad’s loss before earnings before interest, taxes, depreciation and amortization for the quarter was increased by $4.9 million to $125.3 million.

Covad’s original net loss for the third quarter was $189.9 million, or $1.22 per share, 4¢ greater than analysts’ expectations of a $1.18 per share. A Covad spokeswoman said the revised figures added two to three cents a share to the company’s net loss for the third quarter.