Covad Adjusts Q3 Financial Results; Continued Commitment to Strong Channel Partners and Current End Users

Business Wire, Nov 14, 2000

Business Editors/Technology Writers

SANTA CLARA, Calif.--(BUSINESS WIRE)--Nov. 14, 2000

Covad Communications (NASDAQ:COVD), the leading national broadband services provider utilizing DSL (Digital Subscriber Line) technology, today announced it is making adjustments to previously announced third quarter financial results with regards to five additional deliquent Internet Service Providers (ISPs).

The addition of these five companies brings the number of ISPs for which Covad has decided not to recognize revenue on third quarter transactions to 14. Revenue for all 14 these deliquent ISPs will be recognized only after they have satisfied their past due balances. To address the situation, Covad is developing a variety of responses with respect to each of these ISPs, including management of orders, order processing and installations.

This action was taken was a result of Covad's continued monitoring of its ISP distribution channel after the close of the third quarter 2000. Despite receiving payments from some of the presently delinquent ISPs in late September and early October, Covad received new information concerning the financial situation of these five additional ISPs after the earnings release on October 17.

Accordingly, Covad is adjusting its previously announced third quarter 2000 financial results. Covad's financial statements filed today in its Form 10-Q for the quarter ended September 30, 2000 excludes the revenue contribution from these five other ISPs, in addition to the previously excluded revenue of the nine ISPs announced on October 17. The 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. EBITDA losses for the quarter were increased by $4.9 million to $(125.3) million compared to the $(120.4) million previously reported, due to related reductions to estimates of provisions for doubtful accounts concerning the five additional ISPs. More detailed financial results are available in Covad's Form 10-Q filed today.

"Despite the strong demand for DSL, 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. "We are focused on increasing our volume with more stable ISPs such as Earthlink and XO Communications, adding the direct sales channel to our business, and adding new partners and channels, all of which will be very important to our success going forward.

"The most important aspect of this situation is our efforts to continue to bring broadband service to the end users who currently have Covad lines," McMinn continued. "We are working with each ISP to develop plans to provide end users with uninterrupted service."

About Covad Communications

Covad is the leading national broadband services provider of high-speed Internet and network access utilizing Digital Subscriber Line (DSL) technology. It offers DSL, IP and dial-up services through Internet Service Providers, telecommunications carriers, enterprises, affinity groups, PC OEMs and ASPs to small and medium-sized businesses and home users. As a result of the acquisition of BlueStar Communications, Covad services are currently available across the United States in 120 of the top Metropolitan Statistical Areas (MSAs). Covad's network currently covers more than 47 million homes and businesses and is targeted to reach approximately 45 percent of all US homes and 50 percent of all US businesses by the end of 2000. Corporate headquarters is located at 4250 Burton Drive, Santa Clara, CA 95054. Telephone: 1-888-GO-COVAD. Web Site: www.covad.com.

Safe Harbor Statement under the Private Securities Litigation

Reform Act of 1995

The statements contained in this press release that are not historical facts are "forward-looking statements," including statements concerning the Company's plans to expand its network, market opportunities, the cost, timing and scope of the deployment of the Company's network and launching of its services, anticipated capital expenditures and operating results, and success of strategic relationships. and the statements made by the chairman in this release. Actual events or results may differ materially as a result of risks facing the Company or actual results differing from the assumptions underlying such statements. Such risks and assumptions include, but are not limited to, the Company's ability to successfully market its services to current and new customers, the consolidation of sales to a fewer number of wholesale customers, the Company's ability to generate customer demand, to achieve acceptable pricing, to respond to increasing competition, to manage growth, to receive timely payment from our Internet service providers and other customers, to access regions and negotiate suitable interconnection agreements, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as regulatory, legislative, and judicial developments. All forward-looking statements are expressly qualified in their entirety by the "Risk Factors" and other cautionary statements included in the Company's SEC filings.