Covad Q1 Revenue Slightly Up

SANTA CLARA, Calif. -- Covad Communications Group, Inc. (OTCBB: COVD), a leading national broadband service provider of high-speed Internet and network access, today reported results for the first quarter ended March 31, 2003, including the addition of over 35,000 digital subscriber (DSL) DSL lines, a nine percent increase over its lines in service at the end of the fourth quarter of 2002.

Revenue for the first quarter of 2003 was $90.9 million, a three percent increase over the fourth quarter of 2002. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of 2003 was a loss of $15.7 million, compared to a loss of $10.0 million in the fourth quarter of 2002. Net loss for the first quarter of 2003 was $34.7 million, or $0.16 per share, compared to a net loss of $35.5 million, or $0.16 per share, for the fourth quarter of 2002.

“The execution of our business plan in both our wholesale and direct sales operations [CBS/CSP?]is paying off,.“ said Charles Hoffman, president and chief executive officer of Covad. “Despite the regulatory uncertainty during the first quarter, we expanded our relationship with AT&T, introduced new access and hosting services, enhanced our support for the Mac operating system and launched an advertising campaign targeted at the small business market. These accomplishments, combined with financial discipline, continued the momentum we generated in the fourth quarter of 2002.”

Revenue
Total revenue for the first quarter of 2003 was $90.9 million, compared to $87.9 million for the fourth quarter of 2002. The Company’s wholesale subscribers contributed $73.4 million of revenue, or 81 percent, while direct subscribers contributed $17.5 million of revenue, or 19 percent, during the first quarter of 2003. Covad had approximately 364,000 wholesale lines in service at the end of the first quarter of 2003 and approximately 53,000 direct lines in service.

Beginning withIn the fourth quarter of 2002, Covad began reportings broadband subscription billings, which represents bills issued for broadband subscriptions and is detailed in a table below. Management believes broadband subscription billings is a useful measure for investors as it represents a key indicator of the growth of the Company’s core business. For the first quarter of 2003, broadband subscription billings were $70.9 million, a five percent increase from $67.6 million for the fourth quarter of 2002.

Gross Margin, SG&A, and EBITDA
Gross margin was 24.0 percent for the first quarter of 2003, compared to 29.1 percent for the fourth quarter of 2002.

Sales, marketing, general and administrative expenses were $37.4 million for the first quarter of 2003, compared to $38.2 million for the fourth quarter of 2002.

EBITDA for the first quarter of 2003 was a loss of $15.7 million, compared to an EBITDA loss of $10.0 million in the fourth quarter of 2002. Management considers EBITDA to be an important measure of performance because it is a meaningful indicator of cash used by the Company to fund its business has nothing to do with obligations since interest excluded], and it is an important metric often used by investors to evaluate the performance of a business.

Net Loss and Loss From Operations
Net loss for the first quarter of 2003 was $34.7 million, or $0.16 per share, compared to a net loss of $35.5 million, or $0.16 per share, for the fourth quarter of 2002. Loss from operations for the first quarter of 2003 was $34.3 million, compared to $33.2 million in the fourth quarter of 2002.

Balance Sheet
As of March 31, 2003, cash, cash equivalent and short-term investment balances, including restricted cash, were $177.8 million, a decrease of $27.3 million from the cash, cash equivalent and short-term investment balances, including restricted cash, of $205.1 million as of December 31, 2002. For the first quarter of 2003, net cash usage of $27.3 million included capital expenditures of approximately $8.8 million. These expenditures were primarily comprised of equipment purchases to support line growth and augmentation of the network.

“During the first quarter, both net revenue and broadband subscription billings continued to grow, demonstrating the benefits from our investment in marketing and customer incentive programs,” said Mark Richman, chief financial officer of Covad. “We will continue to support revenue and line count growth through bundling products, competitive pricing strategies and strong customer service. These strategic initiatives, combined with prudent financial management, have Covad tracking toward profitability.”

Business Segments
During the three months ended March 31, 2003, Covad re-defined its business segments to further increase customer service and sales and marketing efficiency. Covad Broadband Solutions (CBS) focuses on direct sales to small business and small office home office (SoHo) end-users, as well as small- and medium-sized resellers. Covad Strategic Partnerships (CSP) serves Covad’s largest customers and partners, primarily through wholesale agreements with ISPs and telecommunication carriers that deliver broadband to consumer and business end-users. CBS ended the first quarter of 2003 with approximately 99,8000 lines in service, and CSP ended the first quarter of 2003 with approximately 3189,000 lines in service. CBS revenue for the first quarter of 2003 was $34.4 million, and CSP revenue in the first quarter of 2003 was $56.5 million.

Business Outlook
Covad currently expects revenue for the second quarter of 2003 to be in a range of $93 million to $95 million with continued subscriber growth in the range of 25,000 to 30,000 lines. Broadband subscription billings for the second quarter of 2003 are expected to be approximately $74 million to $76 million.

For the second quarter of 2003, Covad currently expects loss from operations to be in the range of $32 million to $36 million, and EBITDA loss to be in a range of $14 million to $17 million. Net usage of cash, cash equivalents and short-term investments in the second quarter of 2003 is expected to be approximately $25 million to $30 million, including capital expenditures. Covad continues to believe it has a solid business plan, which will be adjusted, if necessary, as more information regarding the specifics of the Federal Communications Commission’s Triennial Review are published.

Hoffman added: “Covad is working relentlessly on utilizing the broadband expertise that we have developed over the last several years. In the first quarter of this year, we established newly defined business segments, Covad Broadband Solutions and Covad Strategic Partnerships, to further align that expertise with the needs of our partners and customers. This has proven to be a successful strategic decision and has already begun to make a positive impact on customer service and sales and marketing efficiency.”

Covad Communications Inc.