Call-Net's total revenue grows year over year as the Company continues to make gains in the home and business local service mark
28 Juillet 2004 - 3:30PM
PR Newswire (US)
Call-Net's total revenue grows year over year as the Company
continues to make gains in the home and business local service
market - Company adds 35,200 local service lines in the quarter -
Continued reduction in churn - 18% growth in consumer revenue, year
over year - 4% growth in business revenue, year over year - 5%
increase in gross margin, year over year - Generates $2.6 million
in free cash flow, in quarter TORONTO, July 28
/PRNewswire-FirstCall/ -- Call-Net Enterprises Inc., a national
facilities-based provider of competitive telecommunications, data
and Internet Protocol (IP) solutions to households and businesses
across Canada, today reported financial results for the second
quarter ending June 30, 2004. "Our focus on selling bundles using
our home phone service as a foundation continues to be the right
growth strategy," said Bill Linton, president and chief executive
officer, Call-Net Enterprises. "Sixty per cent of consumer services
revenue now comes from customers who purchase more than one product
from us compared to 45 per cent in the same quarter last year."
Consolidated revenue for the second quarter of 2004 was $200.8
million, a 4 percent increase from the same period last year. Gross
margin for the quarter was $100.3 million, a $4.6 million increase
from the second quarter of 2003. Second quarter earnings before
interest, taxes, depreciation and amortization (EBITDA) were $22.4
million, a $1.3 million decrease from the second quarter of 2003
primarily due to an increase in operating costs. During the
quarter, the Company launched local service in several communities
in Southern Ontario and in the Greater Montreal Area. Local service
is now available in over 31 municipalities across the country
bringing the total addressable market to over seven million
household and business lines. Consumer services revenue improved by
18 per cent or $10.8 million compared with the same quarter in
2003, with increases in most consumer products including home
phone, long distance and wireless service. Churn for home phone
service bundled customers continued to improve from the same period
in the previous year, down to 2.4 per cent from an average of 3.5
per cent. Success in customer retention is attributed to the
Company's unique set of bundled services and the combined effect of
the regulatory decisions to extend the 'no winback' period from
three to 12 months and to unbundle home phone and high-speed
Internet access services. Business revenue grew by four per cent or
$3.4 million compared to the second quarter of 2003, with
improvement in every product category except long distance. The
growth is reflective of the success of the Company's IP Enabled
Solutions offering, the continued success of cross border sales
with Sprint, and growth in the small and medium-sized business
market. Revenue from data service offerings should overtake revenue
from business long distance at some point during the next year. On
May 26, Call-Net announced an agreement with Bell Canada to acquire
certain assets of 360networks Corporation including significant
portions of its business customer base and specific network
facilities in Ontario, Quebec and Atlantic Canada. Call-Net will
enter into a two-year transitional services agreement with Bell
Canada to provide technical and operational services to the newly
acquired customer base and in exchange be paid approximately 70 per
cent of the total retail revenue. The transaction is conditional on
Bell Canada's acquisition of the Canadian assets of 360networks
Corporation, which is expected to close by September of 2004. "On
closing, this transaction will greatly increase our business
customer base and will allow us to more rapidly and
cost-effectively expand our local, fibre and IP networks in Eastern
Canada, further reducing our reliance on leased facilities, added
Linton. "It will add over 4,500 new business customers to our
existing base of 14,000, provide direct access to over 1,000 office
buildings and will add a minimum of $50 million in revenue to the
business solutions group." As expected, gains in consumer and
business operations were offset by a continued decline in wholesale
carrier revenue. Wholesale carrier revenue for the second quarter
was $45.2 million, a $7.5 million decline from the second quarter
of the previous year. Wholesale carrier revenue now comprises less
than 23 per cent of Call-Net's total consolidated revenue. Carrier
charges for the quarter were $100.5 million, up two per cent over
the same quarter last year as a result of increased costs to carry
a higher volume of local, wireless and international long distance
traffic, and increases in the cost of equipment supplied to
customers, offset by a decline in the cost of providing data
services. Total operating costs for the second quarter were $77.9
million, representing an eight per cent increase over the same
period last year. The increase in operating costs was expected as
the Company redeploys cost savings generated in carrier charges to
sales, marketing, provisioning and customer care, in pursuit of its
growth objectives. "Call-Net's exposure to long distance pricing
continues to decline with long distance now comprising 55 per cent
of total revenue in the quarter, down from 60 per cent in the same
quarter last year," said Roy Graydon, executive vice president and
chief financial officer. "We have had several consecutive quarters
of consistent performance with growth in local and data services
offset by declines in long distance." Regulatory There were no
significant regulatory decisions during the second quarter. However
on July 14, 2004, the CRTC issued a decision, making changes to the
interconnection regime for the exchange of traffic. The decision
will among other things, allow Call-Net to consolidate traffic on
existing trunks thus gaining significant efficiencies. This
decision was initially triggered by an application filed by
Call-Net in June 1999 and followed a lengthy public proceeding.
Outlook Call-Net expects continued growth in its consumer and
business solutions revenue, offset somewhat by continued decline in
carrier services revenue. However, year to date, average revenue
per minute in the long distance market has declined faster than
anticipated. Should this trend continue, the Company would expect
revenue and EBITDA growth to be somewhat affected. However, Call-
Net continues to expect to be cash flow self-sufficient in 2004,
generating more in EBITDA than it spends in interest, capital and
taxes. Carrier charges should remain approximately at 50 per cent
of revenue for the year as a result of the Company's ongoing
efforts in network optimization. Sprint Canada's recent launch of
voice over Internet protocol (VOIP) telephony service to the
consumer market is expected to accelerate the growth of the
customer base in the long run, but is also expected to have a
short- term negative effect on EBITDA margins in the remainder of
2004 as the cost of selling and provisioning these customers will
be incremental to the Company's existing expenditures. The extent
of this effect will depend on the success of the product. Capital
expenditures for the remainder of 2004 will be in the range of
eight per cent of revenue, yielding an average for the year of
approximately seven per cent of revenue. The increase in expected
capital expenditures is necessary to support continued growth,
including the installation of new local switching equipment and the
purchase of other capital equipment to support local customer
growth. Quarterly Conference Call Call-Net will hold a quarterly
conference call today at 1:00 p.m. ET. To participate in the call
dial 416-695-9757 or 1-800-446-4472 (Participation code: T512862S),
or join via web cast at http://www.callnet.ca/. A replay of the
call will be available until August 4, 2004 by dialing 416-695-5275
or 1-888-509-0081. About Call-Net Enterprises Inc. Call-Net
Enterprises Inc., (TSX: FON, FON.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 148
co-locations in five major urban areas including 31 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. CALL-NET ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31,
(millions of Canadian dollars) 2004 2003
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Restated ASSETS Cash and cash equivalents 27.3 56.5 Short-term
investments 45.3 93.6
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Cash, cash equivalents and short-term investments 72.6 150.1
Accounts receivable 18.8 42.7 Other current assets 27.8 48.9
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Total current assets 119.2 241.7
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Capital assets 482.5 516.7 Other assets 65.5 80.7
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Total assets 667.2 839.1
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LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued
liabilities 127.5 149.4 Long-term debt 299.0 387.1 Other long-term
liabilities 48.5 49.1 Shareholders' equity Capital stock Common
shares, unlimited authorized 48.7 49.8 Class B non-voting shares,
unlimited authorized 299.4 297.6 Preferred shares, unlimited
authorized - - Contributed surplus 3.9 2.9 Deficit (159.8) (96.8)
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Total shareholders' equity 192.2 253.5
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Total liabilities and shareholders' equity 667.2 839.1
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CALL-NET ENTERPRISES INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEFICIT (UNAUDITED) Three Six Three Six Months Months Months Months
Ended Ended Ended Ended (millions of Canadian dollars, June 30,
June 30, June 30, June 30, except per share amounts) 2004 2004 2003
2003
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Restated Restated Revenue 200.8 403.3 194.1 396.3 Carrier charges
100.5 195.6 98.4 204.6
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Gross profit 100.3 207.7 95.7 191.7 Operating costs 77.9 158.8 72.0
143.5 Restructuring and other charges - - 7.0 7.0 Depreciation and
amortization 35.7 72.5 39.7 79.9
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Operating loss (13.3) (23.6) (23.0) (38.7) Loss on sale of capital
assets (0.9) (0.9) - - Loss on repurchase of long-term debt - (4.0)
- - Release of change in control provision - 4.7 - - Interest on
long-term debt (8.0) (17.7) (11.1) (23.2) Interest and other
expense (4.2) (6.4) - (0.4) Foreign exchange gain (loss) (6.4)
(14.5) 37.3 73.5
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Income (loss) before taxes (32.8) (62.4) 3.2 11.2 Income tax
expense (0.3) (0.6) (1.2) (1.6)
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Net income (loss) for the period (33.1) (63.0) 2.0 9.6 Deficit,
beginning of period (126.7) (93.0) (49.6) (57.7) Adjustment for
stock-based compensation - (2.9) (1.6) (1.2) Adjustment for asset
retirement obligation - (0.9) (0.5) (0.4)
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Deficit, beginning of period as adjusted (126.7) (96.8) (51.7)
(59.3)
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Deficit, end of period (159.8) (159.8) (49.7) (49.7)
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Basic and diluted earnings (loss) per share (0.93) (1.77) 0.08 0.40
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CALL-NET ENTERPRISES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Three Six Three Six Months Months Months Months Ended
Ended Ended Ended June 30, June 30, June 30, June 30, (millions of
Canadian dollars) 2004 2004 2003 2003
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Restated Restated OPERATING ACTIVITIES Net income (loss) for the
period (33.1) (63.0) 2.0 9.6 Add (deduct) operating items not
requiring cash: Depreciation and amortization 35.7 72.5 39.7 79.9
Interest and other expense 0.8 2.1 0.7 1.7 Foreign exchange (gain)
loss on long-term debt 6.7 12.7 (34.1) (67.1) Loss on sale of
capital assets 0.9 0.9 - - Reversal of change in control provision
- (4.7) - - Loss on repurchase of long-term debt - 4.0 - -
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Cash provided by operations before changes in non-cash working
capital 11.0 24.5 8.3 24.1 Net change in non-cash working capital
balances Related to operations (6.6) (16.5) 3.4 (5.0)
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Cash provided by operating activities 4.4 8.0 11.7 19.1
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INVESTING ACTIVITIES Decrease (Increase) in short-term investments
(17.7) 48.3 (30.5) 14.6 Increase in long-term investments (0.2)
(0.2) - - Acquisition of capital assets (10.6) (24.6) (8.8) (17.1)
Proceeds from sale of accounts receivable - 45.0 - - Change in
deferred costs and other assets 0.1 (0.4) - - Net proceeds on
disposal of capital assets 0.4 0.4 4.0 6.9
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Cash provided by (used in) investing activities (28.0) 68.5 (35.3)
4.4
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FINANCING ACTIVITIES Decrease in right-of-way liability (0.5) (0.9)
(0.5) (1.2) Repurchase of long-term debt - (104.8) - -
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Cash used in financing activities (0.5) (105.7) (0.5) (1.2)
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Net increase (decrease) in cash and cash equivalents during the
period (24.1) (29.2) (24.1) 22.3 Cash and cash equivalents,
beginning of period 51.4 56.5 80.5 34.1
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Cash and cash equivalents, end of period 27.3 27.3 56.4 56.4
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DATASOURCE: Call-Net Enterprises Inc. CONTACT: Media Contact: Karen
O'Leary, Corporate Communications, (416) 718-6445,
Copyright