Covad (DVW)

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Covad Communications Group Announces Second Quarter 2005 =1





SAN JOSE, Calif., Jul 27, 2005 (BUSINESS WIRE) -- Covad Communications Group,
Inc. (OTCBB:COVD), a leading national provider of integrated voice and data
communications, today reported revenue for the second quarter of 2005 of $109.7
million, up from the $107.7 million reported for the first quarter of 2005 and
up from $107.3 million reported in the second quarter of 2004.

Covad ended the second quarter of 2005 with approximately 554,400 broadband
lines in service, an increase of 7,000 lines from the first quarter of 2005.
More than one-third of the line growth was from sales of business T1 services.

Covad ended the second quarter of 2005 with 870 VoIP business customers using
approximately 29,900 stations, representing a 28 percent increase in VoIP
station count from March 31, 2005. VoIP stations added in the second quarter of
2005 were more than double the stations added in the first quarter of 2005.
While VoIP station growth doubled quarter over quarter in 2005 revenue does not
reflect similar growth primarily because of the treatment of installation and
equipment charges, which are deferred for revenue recognition purposes when
billed. These amounts billed will be recognized as revenue in subsequent
quarters.

The company reported a net loss of $16.4 million, or $0.06 loss per share, for
the second quarter of 2005 as compared to a net income of $34.4 million, or
$0.11 per share, for the first quarter of 2005 and a net loss of $7.4 million,
or $0.03 loss per share, in the second quarter of 2004.

Loss from operations for the second quarter of 2005 was $25.6 million compared
to $26.6 million for the first quarter of 2005 and $6.7 million in the second
quarter of 2004. The loss from operations in the second quarter of 2005 reflects
the company's continued investment in sales, marketing and implementation of
Covad's Voice over IP (VoIP) service.

Cash, cash equivalents and short-term investment balances, including restricted
cash and investments, decreased by $4.6 million to $131.0 million in the second
quarter of 2005 compared to a balance of $135.6 million at the end of the first
quarter of 2005. Covad's total cash balance as of June 30, 2005 includes
proceeds from the sale of a portion of the Company's ownership in ACCA Networks
Co. LTD (ACCA), a Japanese broadband provider, as well as an EarthLink
Line-Powered Voice Access prepayment.

"Our second quarter results, with continued growth in revenue, adding 7,000
broadband lines and increasing VoIP stations by 28 percent, are a reflection of
our commitment to building a long-term profitable business and being a leader in
voice and data services. Our direct sales force is proving to be a significant
asset as we continue to set the standard for the business-class VoIP market,"
said Charles Hoffman, Covad president and chief executive officer. "The second
quarter also indicates a change in the mix of broadband lines with an increase
in more profitable, business-class lines being added to our network.
Additionally, our new initiatives with both AOL on high-speed Internet services
and with EarthLink on Line-Powered Voice Access that were announced in the
quarter will enable Covad to continue leveraging our nationwide network to
innovate and collaborate with our partners."

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the
second quarter of 2005 was a loss of $8.0 million as compared to a loss of $7.4
million in the first quarter of 2005 and a profit of $12.5 million in the second
quarter of 2004. Refer to the Selected Financial Data, including Note 2, for a
reconciliation of this non-GAAP financial performance measure to the most
directly comparable GAAP measure and other information.

The company's wholesale subscribers contributed $78.1 million of revenue, or 71
percent, while direct subscribers contributed $31.6 million of revenue, or 29
percent. As of June 30, 2005, broadband lines in service were approximately
472,800 wholesale and 81,600 direct lines, as compared to approximately 465,900
wholesale and 81,500 direct lines as of March 31, 2005, and approximately
440,800 wholesale and 73,600 direct lines reported as of June 30, 2004.

For the second quarter of 2005, broadband and VoIP subscription revenue
increased to $93.5 million from the $91.5 million reported in the first quarter
of 2005 and the $87.5 million reported in the second quarter of 2004. Management
uses broadband and VoIP subscription revenue to evaluate the performance of its
business and believes these revenues are a useful measure for investors as they
represent a key indicator of the performance of the company's core business.
Refer to the Selected Financial Data, including Note 3, for additional
information, including a reconciliation of this non-GAAP financial performance
measure to the most directly comparable GAAP measure.

For the second quarter of 2005, gross margin was $33.5 million, or 31 percent of
revenue, as compared to $35.0 million, or 32 percent of revenue, for the first
quarter of 2005 and $44.6 million, or 42 percent of revenue, for the second
quarter of 2004. Selling, general and administrative expenses were $41.5 million
for the second quarter of 2005 as compared to $42.4 million for the first
quarter of 2005 and $31.9 million in the second quarter of 2004.

"Our second quarter results are in line with the guidance we provided and
reflect our continued commitment to invest in VoIP as well as opportunities in
the broadband area," said John Trewin, Covad senior vice president and chief
financial officer. "The year-over-year increase in operating expenses reflects
our conscious decision to invest to become a leader in the VoIP market. Going
forward, we will continue to make strategic investments in our business to
improve our VoIP, sales, marketing and delivery processes which will result in
an improved customer experience and operational efficiencies, such as faster
order processing and more automated billing."

Operating Statistics

-- At the end of the second quarter of 2005, Covad had approximately 324,700
consumer and 229,700 business broadband lines in service representing 59 percent
and 41 percent of total broadband lines, respectively. Covad had 870 VoIP
business customers and approximately 29,900 VoIP stations as of June 30, 2005.
Business customers contributed $81.6 million, or 74 percent, of total revenue.

-- Weighted Average Revenue per User (ARPU) for broadband lines was $55 per
month during the second quarter of 2005, equivalent to $55 per month for the
first quarter of 2005. Covad VoIP ARPU per customer (excluding resellers) was
$1,698 per month during the second quarter of 2005, down from $1,763 per month
for the first quarter of 2005.

-- Net customer disconnections, or churn, for broadband lines averaged
approximately 3.2 percent in the second quarter of 2005, slightly up from 3.1
percent for the first quarter of 2005.

Business Outlook

In the third quarter of 2005, Covad will be focused on equipping central offices
for the EarthLink line-powered voice trial, continuing network augmentations to
support execution of the AOL High Speed offer and other broadband growth, and
continuing investment to maintain leadership in the growing VoIP hosted-PBX
market. The AOL trial has a positive effect on revenues, but negative impact on
EBITDA and cash due to the upfront incremental expenditures to support that
volume. There also is some capital expenditure related to the EarthLink trial so
some cash received from EarthLink last quarter will be spent in the third
quarter. These expenditures are partially offset by the expectation of selling
the balance of Covad's shares in ACCA during the third quarter of 2005.

As a result, Covad expects total revenue for the third quarter of 2005 to be in
the range of $111-116 million. Broadband and VoIP subscription revenue is
expected to be in the range of $95-98 million. Covad expects its net loss to be
in the range of $16-19 million, and EBITDA loss in the range of $12-15 million.
Net change in cash, cash equivalents and short-term investments, including
restricted cash and investments, in the third quarter of 2005 is expected to be
in the range of negative $14-18 million.

Covad also announced today that it has been accepted for listing on the American
Stock Exchange (Amex) under the symbol "DVW" for data, voice and wireless. Covad
shares will begin trading on Amex on July 28, 2005. Covad was previously traded
on the OTCBB.

Conference Call Information

Covad will conduct a conference call to discuss these financial results on
Wednesday, July 27, 2005 at 5:00 p.m. Eastern Time (ET)/ 2:00 p.m. Pacific Time
(PT). The conference call will be webcast over the Internet. To listen to the
call, visit the Event Calendar section on the Covad web site at
http://www.covad.com/companyinfo/investorrelations. Investors and press may also
listen by telephone to the call by dialing 800-510-0178 and reference pass code
80786596. Participants are advised to call in 5 minutes prior to the start time.
The conference call will be recorded and available for replay listening until
11:59 p.m. EST on August 3, 2005 by dialing 888-286-8010 and reference pass code
59801621. The webcast will be available through our website until July 26, 2006.

About Covad

Covad is a leading nationwide provider of broadband voice and data
communications. The company offers DSL, Voice over IP, T1, Web hosting, managed
security, IP and dial-up, and bundled voice and data services directly through
Covad's network and through Internet Service Providers, value-added resellers,
telecommunications carriers and affinity groups to small and medium-sized
businesses and home users. Covad broadband services are currently available
across the nation in 44 states and 235 Metropolitan Statistical Areas (MSAs) and
can be purchased by more than 57 million homes and businesses, which represent
over 50 percent of all US homes and businesses. Corporate headquarters is
located at 110 Rio Robles San Jose, CA 95134. Telephone: 1-888-GO-COVAD. Web
Site: www.covad.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:

The foregoing contains "forward-looking statements" which are based on
management's current information and beliefs as well as on a number of
assumptions concerning future events made by management. Examples of
forward-looking statements include the company's expected revenue, Broadband and
VoIP subscription revenue, broadband subscriber line growth, net loss, EBITDA
loss, change in cash, cash equivalents and short term investments, including
restricted cash and investments. Readers are cautioned not to put undue reliance
on such forward-looking statements, which are not a guarantee of performance and
are subject to a number of uncertainties and other factors, many of which are
outside Covad's control, that could cause actual results to differ materially
from such statements. These risk factors include our ability to rapidly expand
and deploy new services, the impact of increasing competition, pricing
pressures, consolidation in the telecommunications industry, and uncertainty in
telecommunications regulations and changes in technologies, among other risks.
For a more detailed description of the risk factors that could cause such a
difference, please see Covad's 10-K, 8-K and other filings with the Securities
and Exchange Commission. Covad disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. This information is presented solely to
provide additional information to further understand the results of Covad.


COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA (unaudited)
(in thousands)

Selected Condensed Balance Sheet Data As of As of As of
Jun 30, Mar 31, Dec 31,
2005 2005 2004
---------- ---------- ----------

Cash, cash equivalents, and short-term
investments $128,444 $133,018 $150,996
Restricted cash and cash equivalents 2,533 2,533 2,533
Short term investments in equity
securities 14,288 27,671 -
Accounts receivable, net 29,401 27,862 30,041
All other current assets 16,012 14,990 12,211
Property and equipment, net 71,494 71,444 78,707
Collocation fees and other intangible
assets, net 26,843 29,452 34,561
Goodwill 36,626 36,626 36,626
Deferred costs of service activation 28,198 29,128 30,152
Deferred debt issuance costs 3,727 3,979 4,231
All other long-term assets 4,280 4,710 5,167
---------- ---------- ----------
Total assets $361,846 $381,413 $385,225
========== ========== ==========

Total current liabilities $116,176 $109,825 $116,717
Long-term debt 125,000 125,000 125,000
Collateralized customer deposit 40,152 42,237 44,444
Deferred gain resulting from
deconsolidation of subsidiary - - 53,963
Unearned revenues 48,032 49,728 51,518
Other long-term liabilities 6,773 2,108 2,218
Total stockholders' equity (deficit) 25,713 52,515 (8,635)
---------- ---------- ----------
Total liabilities and stockholders'
equity (deficit) $361,846 $381,413 $385,225
========== ========== ==========



COVAD COMMUNICATIONS GROUP, INC.
SELECTED FINANCIAL DATA (unaudited)
(in thousands, except per share amounts)

Consolidated
Condensed Statements
of Operations Data Three Months Ended Six Months Ended
----------------------------- -------------------
Jun 30, Mar 31, Jun 30, Jun 30, Jun 30,
2005 2005 2004 2005 2004