Call-Net Reports Fourth Quarter and Year-End Results for 2004 -
Revenue $211 million for fourth quarter, $819 million for year, a
2% increase over 2003 - EBITDA $32 million for fourth quarter, $105
million for year, a 9% increase over 2003 - 99,600 local service
lines added in fourth quarter, total of 203,300 for year, a 111%
increase over 2003 - 5,000 business accounts added in fourth
quarter, total of 20,000 for year, an 82% increase over 2003
TORONTO, Feb. 23 /PRNewswire-FirstCall/ -- Call-Net Enterprises
Inc. a national facilities- based provider of competitive voice,
enhanced voice, data and IP solutions to households and businesses
across Canada, today reported financial results for the fourth
quarter and the year ended December 31, 2004. "During 2004, our
consumer revenue grew by 10 per cent and our business service by
six per cent, accelerated by a strategic acquisition," said Bill
Linton, president and chief executive officer. "Continued growth
and productivity gains resulted in improved profitability of the
Company. In the fourth quarter, local service, data, and wireless
revenues provided 52 per cent of our total revenue and exceeding
the total of long distance." Q4 2004 Highlights Consolidated
revenue for the fourth quarter of 2004 was $211 million, a three
per cent increase from the same period last year. Revenue included
the impact of slightly more than one month's revenue from the
acquisition of a significant portion of 360networks business
customers based in eastern Canada from Bell Canada in November
2004. Fourth quarter earnings before interest, taxes, depreciation
and amortization (EBITDA) were $32 million, a $7 million increase
from the fourth quarter of 2003. During the quarter the Company
generated free cash flow (EBITDA less interest, cash taxes and
capital expenditures) of $8 million. Consistent with previous
quarters, year-over-year growth in the consumer and business
services divisions was partially offset by declines in carrier
services. The Company continued to make progress selling bundled
services to households and small and medium sized businesses,
selling IP Enabled Solutions and enhanced voice services to
businesses, and winning several multi-national accounts in
partnership with Sprint in the United States. During the fourth
quarter, Call-Net added 99,600 net local equivalent lines of which
25,500 were consumer lines and 67,900 were attributed to the
Bell/360 acquisition. Call-Net also finished the quarter with
30,600 wireless lines. Consumer services revenue improved compared
with the same quarter in 2003 as increases in local and wireless
service revenue more than offset declines in dial-up Internet and
long distance services. Revenue from bundled products continued to
grow relative to revenue from stand-alone products. At the same
time churn on home phone service declined from 2.8 per cent in 2003
to 2.5 per cent in 2004. Business revenue improved in the fourth
quarter relative to the same period in 2003, fueled by the
acquisition of Bell/360 customers in Eastern Canada and growth in
local and data sales. "During the quarter we finalized the
acquisition of the business customer base and specific network
facilities of 360networks in Ontario, Quebec and Atlantic Canada.
Revenue from this new customer base accounted for approximately $8
million of our consolidated revenue for the fourth quarter and
contributed approximately $1 million of EBITDA. We expect to
finalize the assets to be acquired and related costs during the
second quarter," added Linton. Carrier charges continued to be less
than 50 per cent of revenue. Network optimization, favourable
changes in the product mix, dispute wins, regulated price changes
and aggressive contract negotiations led to an improvement in gross
profit, which totaled $109 million in the fourth quarter, a $2
million increase from the same period in 2003. Operating costs for
the quarter fell, reflecting productivity improvements brought
about by an organizational realignment. Total operating costs for
the fourth quarter were $77 million, a six per cent decrease over
the same period last year. The most significant regulatory decision
during the quarter was Telecom Decision CRTC 2004-72 which reduced
primary inter-exchange carrier (PIC) processing charges by up to 90
per cent in some cases. PIC processing charges are rates we pay to
the local exchange carrier to set up the automatic routing of long
distance calls to our network. The decision had a retroactive
component of $2 million which was credited against fourth quarter
carrier charges. Telecom Decision CRTC 2005-6 with respect to
competitor digital network services (CDN services) was released on
February 3, 2005. The impact of this decision has not been
reflected in the quarterly results. 2004 Highlights For the year
ended December 31, 2004, Call-Net reported total revenue of $819
million, a two per cent increase from the previous year. The
consumer business grew by 10 per cent and business services by six
per cent fueled by the sale of new products and services and the
acquisition of Bell/360 customer base in Eastern Canada. This
growth more than offsets continuing declines in carrier services.
Call-Net made significant inroads in the local services market
adding 104,800 net consumer lines and 98,500 net equivalent
business lines ending 2004 with 470,900 net equivalent lines.
Profitability continued to improve with EBITDA at $105 million
compared to $96 million in 2003. "Our 2004 operating and financial
results mark another turning point in the evolution of our business
as we continued to grow both revenue and EBITDA," said Roy Graydon,
executive vice president and chief financial officer. "The effects
of our product diversification strategy have resulted in a stronger
more viable company." 2005 Outlook In 2005, Call-Net expects to
continue to grow its consumer and business divisions offset
somewhat by continued decline in carrier services revenue. Top line
revenue is expected to be $870 million to $885 million, up six to
eight per cent from 2004. On a consolidated basis, the Company's
total revenue mix is expected to be approximately 33 per cent local
and other services, 24 per cent data and IP services and 43 per
cent long distance. In the consumer market, Call-Net intends to
launch a high-speed Internet access product using next generation
digital subscriber line (DSL) technology during the third quarter.
The focus will remain on attracting home phone service customers
and home phone service revenue is expected to comprise more than 55
per cent of total consumer revenue. The business market will remain
highly competitive, particularly in the large corporate and
mid-sized market segments. Growth will come from the full
integration of the Bell/360 business and the Company's local
service, IP-enabled and enhanced voice solutions. This growth is
expected to offset declining long distance revenue. Call-Net is
committed to maintaining a profitable carrier service operation
with anticipated revenue declines in per unit pricing throughout
2005, offset by declining costs. Carrier charges should remain at
less than 50 per cent of revenue in 2005. On February 3, 2005, the
Canadian Radio-television and Telecommunications Commission issued
a decision regarding CDN services provided to competitive local
exchange carriers. The decision is expected to result in annualized
savings in carrier charges of at least $25 million. EBITDA is
expected to be in the range of $125 to $135 million up 19 to 29 per
cent over 2004. After deducting cash interest and taxes, and
capital expenditures, the Company expects free cash flow of between
$16 to $21 million in the year. Capital expenditures are expected
to be in the range of seven to eight per cent of revenue for 2004,
60 per cent of which will be invested in growth including the
deployment of residential high-speed access and 40 per cent on
maintaining current operations and improving operational
efficiency. Conference call Call-Net will host a conference call to
discuss its fourth quarter results later today, Wednesday, February
23, 2005 at 1:00 p.m. ET. To participate, dial 416-695-5259 or
1-877-888-7019. The call will be audio webcast live at
http://www.callnet.ca/ or by entering
http://www.newswire.ca/webcast. The call will also be available on
replay until March 2, 2005 at 416-695-5275 or 1-888-509-0081. About
Call-Net Enterprises Inc. Call-Net Enterprises Inc., (TSX: FON,
FON.NV.B) primarily through its wholly owned subsidiary Sprint
Canada Inc., is a leading Canadian integrated communications
solutions provider of home phone, wireless, long distance and IP
services to households, and local, long distance, toll free,
enhanced voice, data and IP services to businesses across Canada.
Call-Net, headquartered in Toronto, owns and operates an extensive
national fibre network, has over 151 co-locations in five major
urban areas including 33 municipalities and maintains network
facilities in the United States and the United Kingdom. For more
information, visit http://www.callnet.ca/ and
http://www.sprint.ca/. Note for Investors: This news release may
include statements about expected future events and/or financial
results that are forward-looking in nature and subject to risks and
uncertainties. For those statements, we claim the protection of the
safe harbour for forward-looking statements provisions contained in
the Private Securities Litigation Reform Act of 1995. The Company
cautions that actual performance will be affected by a number of
factors, many of which are beyond its control. Future events and
results may vary substantially from what the company currently
foresees. Discussion of the various factors that may affect future
results is contained in the Company's recent filings with the
Securities and Exchange Commission, the Ontario Securities
Commission and SEDAR. Non GAAP Financial Measures Certain financial
measures used in this news release do not have any standardized
meaning under Canadian generally accepted accounting principles
(GAAP). Below is a definition of each of the non-GAAP financial
measures used in this news release. EBITDA Earnings before
interest, taxes, depreciation and amortization (EBITDA) is a
financial metric used to analyze operating results. The Company
defines EBITDA as revenue less carrier charges and operating costs.
EBITDA is used as a benchmark of operating performance and as a
performance threshold in the management incentive plan. EBITDA as
calculated by the Company may not be comparable to similarly titled
amounts reported by other companies. Free Cash Flow The Company
defines free cash flow as EBITDA less financing costs (including
interest expense on long-term debt, servicing fees, bank charges
and any late payment charges), cash income taxes paid, net capital
expenditures and the cash component of changes in deferred costs.
The Company uses free cash flow as a measure of our ability to
maintain operations and service debt. Call-Net Enterprises Inc.
CONSOLIDATED BALANCE SHEETS As at December 31 (millions of Canadian
dollars) 2004 2003
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Restated ASSETS Cash and cash equivalents 38.9 56.5 Short-term
investments 34.8 93.6
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Cash, cash equivalents and short-term investments 73.7 150.1
Accounts receivable 22.8 42.7 Other current assets 30.2 48.9
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Total current assets 126.7 241.7
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Capital assets 458.3 516.7 Intangible assets 52.2 68.1 Other assets
11.7 12.6
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Total assets 648.9 839.1
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LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued
liabilities 149.7 149.4 Long-term debt 268.5 387.1 Other long-term
liabilities 53.3 49.1 Shareholders' equity Capital stock Common
shares, unlimited authorized 49.7 49.8 Class B non-voting shares,
unlimited authorized 298.5 297.6 Preferred shares, unlimited
authorized - - Contributed surplus 4.4 2.9 Deficit (175.2) (96.8)
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Total shareholders' equity 177.4 253.5
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Total liabilities and shareholders' equity 648.9 839.1
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Call-Net Enterprises Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEFICIT (Unaudited) (millions of Canadian dollars, Three Months
except per share amounts) Ended Dec 31, Dec 31, 2004 2003
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Restated Revenue 211.1 204.1 Carrier charges 101.9 96.8
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Gross profit 109.2 107.3 Operating costs 77.3 82.4 Realignment,
restructuring and other charges 6.5 - Depreciation and amortization
36.9 38.6
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Operating loss (11.5) (13.7) Interest on long-term debt (7.3) (8.9)
Interest and other expense (4.7) (2.7) Foreign exchange gain 13.9
12.8
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Loss before taxes (9.6) (12.5) Income tax expense (4.2) (4.4)
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Net loss for the period (13.8) (16.9) Deficit, beginning of period
(161.4) (76.8) Adjustment for stock-based compensation - (2.4)
Adjustment for asset retirement obligation - (0.7)
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Deficit, beginning of period as adjusted (161.4) (79.9) Deficit,
end of period (175.2) (96.8)
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Basic earnings (loss) per share (0.39) (0.48) Fully diluted
earnings (loss) per share (0.39) (0.48)
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Call-Net Enterprises Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (millions of Canadian dollars) Three Months Ended Dec
31, Dec 31, 2004 2003
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Restated OPERATING ACTIVITIES Net loss for the period (13.8) (16.9)
Add (deduct) operating items not requiring cash: Depreciation and
amortization 36.9 38.6 Foreign exchange gain on long-term debt
(13.4) (17.4) Realignment, restructuring and other charges 6.5 -
Income taxes 3.9 4.3 Other non-cash operating expenses 1.0 0.6
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Cash provided by operations before changes in non-cash working
capital 21.1 9.2 Net change in non-cash working capital balances
related to operations (5.3) (0.8)
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Cash provided by operating activities 15.8 8.4
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INVESTING ACTIVITIES (Increase) decrease in short-term investments
11.3 (0.1) Acquisition of capital assets (14.9) (13.3) Acquisitions
(0.5) 0.3 (Increase)/decrease in deferred costs 0.1 (1.0)
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Cash used in investing activities (4.0) (14.1)
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FINANCING ACTIVITIES Decrease in right-of-way liability (0.8) (0.3)
Issuance of common shares - 5.4
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Cash provided by (used in) financing activities (0.8) 5.1
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Net increase (decrease) in cash and cash equivalents during the
period 11.0 (0.6) Cash and cash equivalents, beginning of period
27.9 57.1
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Cash and cash equivalents, end of period 38.9 56.5
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Call-Net Enterprises Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEFICIT Years ended December 31 (millions of Canadian dollars,
except per share amount or otherwise indicated) --------- Pre-
recapita- lization Nine Three Months Months Ended Ended Dec 31, Mar
31, 2004 2003 2002 2002
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Restated Restated Revenue 818.6 805.3 598.9 201.8 Carrier charges
400.6 409.9 335.7 116.8
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Gross profit 418.0 395.4 263.2 85.0 Operating costs 313.1 299.3
228.5 73.1 Realignment, restructuring and other charges 1.2 7.0
30.5 - Depreciation and amortization 146.6 157.3 120.7 41.8
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Operating loss (42.9) (68.2) (116.5) (29.9) Net gain (loss) on sale
of capital assets and rights (0.9) - 9.4 - Gain (loss) on
repurchase of long-term debt (4.0) - 93.1 - Reversal of change in
control provision 4.7 - - - Interest on long-term debt (32.7)
(43.2) (43.9) (60.3) Interest and other expense (13.4) (5.7) (2.9)
(0.8) Foreign exchange gain (loss) 17.1 85.9 4.1 (1.8)
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Loss before taxes (72.1) (31.2) (56.7) (92.8) Income tax benefit
(expense) (6.3) (6.3) (2.6) 1.0
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Net loss for the period (78.4) (37.5) (59.3) (91.8) Deficit,
beginning of period, as previously reported (93.0) (57.7) -
(2,759.4) Adjustment for stock-based compensation (2.9) (1.2) - -
Adjustment for asset retirement obligations (0.9) (0.4) - -
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Deficit, beginning of period, as restated (96.8) (59.3) - (2,759.4)
Deficit, end of period (175.2) (96.8) (59.3) (2,851.2)
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Basic and diluted loss per share (2.20) (1.36) (2.49) (20.26)
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Call-Net Enterprises Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 (millions of Canadian dollars) ---------
Pre- recapita- lization Nine Three Months Months Ended Ended Dec
31, Mar 31, 2004 2003 2002 2002
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Restated Restated OPERATING ACTIVITIES Net loss for the period
(78.4) (37.5) (59.3) (91.8) Add (deduct) operating items not
requiring cash: Depreciation and amortization 146.6 157.3 120.7
41.8 Unrealized foreign exchange (gain) loss on long-term debt
(17.8) (85.9) (4.8) 1.8 Reversal of change in control provision
(4.7) - - - Loss (gain) on repurchase of long-term debt 4.0 -
(93.1) - Income taxes 3.9 4.3 - (2.4) Other non-cash operating
expenses 2.7 3.0 4.4 (0.2) Net losses on disposals and writedowns
of capital assets 0.9 - 1.3 - Realignment, restructuring and other
charges 1.2 - - - Interest accretion on long-term debt - - - 35.7
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Cash provided by (used in) operations before changes in non-cash
working capital 58.4 41.2 (30.8) (15.1) Net change in non-cash
working capital balances related to operations 28.4 2.5 60.3 (8.3)
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Cash provided by (used in) operating activities 86.8 43.7 29.5
(23.4)
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INVESTING ACTIVITIES (Increase) decrease in short-term investments
58.8 (2.7) 12.3 217.2 Acquisition of capital assets (55.4) (44.1)
(62.4) (16.0) Increase in long-term investment (0.2) - - - Net
proceeds on disposal of capital assets and rights 0.4 7.8 6.7 -
Acquisitions (0.5) (19.7) (1.0) - Increase in deferred costs (0.3)
(1.0) - (2.6)
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Cash provided by (used in) investing activities 2.8 (59.7) (44.4)
198.6
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FINANCING ACTIVITIES Decrease in right-of-way liability (2.4) (2.2)
(0.1) (0.1) Issuance of common shares - 40.6 - - Repurchase of
long-term debt (104.8) - (29.7) -
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Cash provided by (used in) financing activities (107.2) 38.4 (29.8)
(0.1)
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Net increase (decrease) in cash and cash equivalents during the
period (17.6) 22.4 (44.7) 175.1 Cash and cash equivalents,
beginning of period 56.5 34.1 78.8 15.5
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Cash and cash equivalents, end of period 38.9 56.5 34.1 190.6
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Call-Net Enterprises Inc. RECONCILIATION OF NON-GAAP MEASURES
(Unaudited)
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EBITDA (millions of Canadian dollars)
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For the year ended December 31 2004 2003 ----------------------
Operating loss (42.9) (68.2)
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Depreciation & amortization 146.6 157.3
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Realignment & other charges 1.2 7.0
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EBITDA 104.9 96.1
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For the quarter ended Dec 31, Dec 31, 2004 2003
---------------------- Operating loss (11.5) (13.7)
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Depreciation & amortization 36.9 38.6
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Realignment & other charges 6.5 -
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EBITDA 31.9 24.9
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FREE CASH FLOW
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For the year ended December 31 2004 2003 ----------------------
Free cash flow 10.8 12.0
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Change in non-cash working capital & other 20.7 (5.6)
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Acquisitions (0.5) (19.7)
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Increase in long-term investments (0.2) -
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Change in right-of-way liability (2.4) (2.2)
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Repurchase of long-term debt (104.8) -
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Issuance of equity - 40.6
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Change in cash, cash equivalents & short-term investments
(76.4) 25.1 Increase (decrease) in short-term investments 58.8
(2.7)
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Change in cash & cash equivalents (17.6) 22.4
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For the quarter ended Dec 31, Dec 31, 2004 2003
---------------------- Free cash flow 8.4 0.9
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Change in non-cash working capital & other (7.4) (6.8)
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Acquisitions (0.5) 0.3
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Change in right-of-way liability (0.8) (0.3)
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Issuance of equity - 5.4
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Change in cash, cash equivalents & short-term investments (0.3)
(0.5) Increase (decrease) in short-term investments 11.3 (0.1)
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Change in cash & cash equivalents 11.0 (0.6)
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DATASOURCE: Call-Net Enterprises Inc. CONTACT: Media Contact: Karen
O'Leary, Corporate Communications, (416) 718-6445,
Copyright