Covad reports 2000 loss of $1.4 billion

At least it’s out there.

After a three-month delay, Covad Communications reported substantial fourth-quarter and year-end losses, restated earnings from previous quarters and revealed auditors’ doubts about its ability to continue operations.

The independent DSL provider posted a fourth quarter net loss of $907.5 million, or $5.41 per share, compared to a $70.5 million loss, or 53 cents per share, for the same period one year earlier.

For all of 2000, the company posted a whopping $1.44 billion net loss, or $9.47 per share, compared to a $195.4 million loss, or $1.83 per share, for fiscal year 1999.

Covad Chairman Chuck McMinn stressed that the company’s “path to profitability” business plan laid out in December—as well as cost reduction programs that are taking root and growing revenues—would strengthen its position.

“We are extremely pleased with our progress in transforming our business,” he said. “This is really about accurately reporting the old strategy, not documenting the strategy we are on.”

In a SEC document filed yesterday, Covad said it has enough cash to take it into the second quarter 2002, not the first quarter projected earlier. The company admitted, however, that “we have limited cash reserves and uncertainty exists concerning our ability to raise additional capital and continue as a going concern.”

McMinn added the cash requirements needed to reach a cash-flow-positive position beyond Q2 2002 were between $400 million and $700 million, and that Covad is exploring several financing sources.

The SEC filing coincided with a Nasdaq hearing to consider delisting Covad from trading. McMinn said no outcome resulted from the hearing and that the company is “working diligently” to resolve Nasdaq’s concerns.

While fourth-quarter revenues increased from $30.9 million in 1999 to $55.2 million last year, the company restated revenues for the first three quarters of 2000, lowering the results by $52.8 million to $103.5 million.

McMinn said weaknesses of “internal controls” to support rapid growth, changes in management and financial staff, acquisitions and restructuring caused the accounting missteps.

Although many analysts remain pessimistic or ambivalent with respect to Covad’s future, not all say the company is doomed to total failure. With no immediate cash needs, the company is not without hope.

“There’s a lot of bad news in there [the SEC filing], but it’s not something they can’t manage their way through,” said Don Sinsabaugh, vice president of research at Punk, Ziegel & Co. “They have at least six months to complete a financing and the financial markets are going to be much more receptive to Covad [later] than they are right now.”

In late Friday trading, Covad shares were down nearly 20%, from an opening price of $1.26 to $1.01.