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Call-Net Enterprises Inc. Reports Continued Growth in Consumer and Business
Operations for the First Quarter 2004  -
    
    Company adds 34,000 local service lines in the quarter-
    
    Churn in local services down to 2.2%-
    
    10% growth in consumer revenue, year over year-
    
    5% growth in business revenue, year over year-
    
    8% increase in EBITDA, year over year-
    
    12% increase in gross margin, year over year TORONTO,
May 6 /CNW/ - 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 first quarter ending March 31, 2004. Gains from the introduction of new bundles, products, services and new
pricing plans, delivered continued growth in our consumer and business
operations, compared to the same period last year, said Bill Linton, president
and chief executive officer, Call-Net Enterprises. During the first quarter,
we added 34,000 net local equivalent lines, more than 25,000 were for
consumers. Our total local service line count now stands at over 300,000. Our
wireless customer base grew by close to 6,000 with 15 per cent of new home
phone service customers now opting to add a second wireless line. Consolidated revenue for the first quarter of 2004 was $202.5 million, a
slight increase from the same period last year. First quarter earnings before
interest, taxes, depreciation and amortization (EBITDA) were $26.5 million,
representing a eight per cent or $2.0 million increase from the first quarter
of 2003. Gross margin for the quarter was $107 million, a 12 per cent or $11.4
million increase from the first quarter of 2003. Consumer services revenue improved by 10 per cent compared with the same
quarter in 2003, as increases in local and wireless service revenue more than
offset decreases in dial-up Internet and long distance. Revenue from bundled
products continued to grow relative to revenue from stand-alone products. Business revenue grew by five per cent compared to the first quarter of
last year with improvement in every product category including local, long
distance, and data including IP. The results reflect stronger product offerings
including IP Enabled Solutions, an increase in long distance minutes, the
continued success of cross border sales with Sprint, and growth in the small
and medium-sized business market. Customer churn in local services declined significantly to 2.2 per cent in
first quarter of 2003, representing a significant improvement from the same
quarter last year and from the previous quarter. The improvement is attributed
to the success of the Companys customer retention program, improvements to the
credit profile of the customer base, and implementation of recent Canadian
Radio-television and Telecommunications Commission (CRTC) decisions. These
decisions included the unbundling of high-speed Internet service (DSL) from
local service by the incumbent telephone companies and extending the period of
time during which an incumbent telephone company is prohibited from attempting
to win former customers back from three to 12 months. As expected, gains in consumer and business operations were offset by a
continued decline in wholesale carrier revenue. Wholesale carrier revenue for
the first quarter was $47.9 million, a $10 million decline from the first
quarter of the previous year. Wholesale carrier revenue comprises less than 24
per cent of Call-Nets total consolidated revenue. During the quarter the Company repurchased U.S.$76.4 million of senior
secured notes, at a cost of CDN$104.6 million. This repurchase reduces the
interest costs on long term debt by U.S.$8 million or CDN$11 million per year. Carrier costs continued to decline to $95.1 million in the first quarter
of 2004 as a result of success of both network optimization and international
carrier negotiations. Total operating costs for the first quarter were $80.9
million, representing a 13 per cent increase over the same period last year.
The increase in
operating costs was expected as the Company invested in sales, marketing,
provisioning and customer care in pursuit of its growth objectives.




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Our revenue has been quite stable over the past eight quarters, said Roy
Graydon, executive vice president and chief financial officer. One of our most
significant trends has been a steady improvement in gross profit. Over the past
two years gross profit as a percentage of revenue has risen by almost 11 per
cent. This incremental gross profit has been reinvested in our business to grow
both consumer and business revenues. Regulatory On January 27, 2004 the CRTC agreed with Call-Nets assessment of the lack
of competition in the home phone service market, directing the former
monopolies to provide the same quality of service to consumers whether they use
an incumbent telephone companys service or Sprint Canadas. The CRTC also
agreed to Call-Nets request to inform consumers about the availability and
terms of local competition and extended the prohibited winback period from
three months to 12 months. On the same day, the CRTC issued an interim decision
on Ethernet access, applying an interim tariff to certain services, which
should bring to an end the price discrimination by the ILECs in providing these
services to Canadian business consumers. The Company continues to be engaged in
a number of proceedings including the resale of DSL and Ethernet services and
follow-up matters pertaining to the 2002 price cap decision. Outlook The Companys outlook has not changed since it released its fourth
quarter 2003 results in February 2004. Call-Net expects continued growth in its
consumer and business solutions revenue offset somewhat by continued decline in
carrier services revenue. Top line revenue growth will be modest, up one to
five per cent over 2003. In the consumer market, Call-Net will focus on attracting home phone
service customers and expects to continue the momentum in adding home phone
service customers in 2004. The business market will remain highly competitive,
particularly in the large corporate and mid-sized market segments. Call-Net is
committed to maintaining a profitable carrier service operation with
anticipated revenue declines in per unit pricing throughout 2004, offset by
declining costs. Carrier charges should decline from the 2003 level as a result of the
Companys ongoing efforts at network optimization. The savings will be
redeployed to customer acquisition programs. The Company expects to continue to
be cash flow self-sufficient, generating more in EBITDA in 2004 than it spends
in interest, capital and taxes. In 2004, capital expenditures will be in the range of six per cent of
revenue, approximately half of which will be allocated to maintenance and the
other half on growth. Initiatives include the expansion of the Companys
co-location footprint from 134 to 148 wire centres announced in April, the
installation of new local switching equipment and the purchase of other capital
equipment to support local customer growth. Annual Meeting of Shareholders, followed by Quarterly Conference Call
Call-Net will hold its annual meeting of shareholders at 2:00 p.m. (ET) this
afternoon in the Imperial Room of the Fairmont Royal York hotel, followed by a
quarterly conference call at 3:30 p.m. (ET). Both the annual meeting and the
quarterly call will be web cast live. To join the annual meeting via web log in
at www.callnet.ca. To participate in the quarterly conference call (question
and answer session) at 3:30 p.m., dial 416-695-5259 or 1-877-888-7019
(Participation code: T492927S), or join via web cast at www.callnet.ca. 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
www.callnet.ca and www.sprint.ca.




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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) March 31,
    
    December 31,(millions of Canadian dollars)
    
    2004
    
    2003RestatedASSETSCash and cash equivalents
    
    
    51.4
    
    
    
    56.5Short-term investments
    
    
    27.6
    
    
    
    93.6Cash, cash equivalents and short-term investments
    
    
    79.0
    
    
    
    150.1Accounts receivable
    
    
    26.7
    
    
    
    42.7Other current assets
    
    
    19.8
    
    
    
    48.9Total current assets
    
    
    125.5
    
    
    
    241.7Capital assets
    
    
    497.3
    
    
    
    516.7Other assets
    
    
    73.8
    
    
    
    80.7Total assets
    
    
    696.6
    
    
    
    839.1LIABILITIES AND SHAREHOLDERS EQUITYAccounts payable and accrued liabilities
    
    
    131.6
    
    
    
    149.4Long-term debt
    
    
    292.3
    
    
    
    387.1Other long-term liabilities
    
    
    48.6
    
    
    
    49.1Shareholders equityCapital stockCommon shares, unlimited authorized
    
    
    48.7
    
    
    
    49.8Class B non-voting shares, unlimited authorized
    
    
    298.7
    
    
    
    297.6Preferred shares, unlimited authorized
    
    
    
    
    
    
    Contributed surplus
    
    
    3.4
    
    
    
    2.9Deficit
    
    
    (126.7
    )
    
    
    (96.8
    )Total shareholders equity
    
    
    224.1
    
    
    
    253.5Total liabilities and shareholders equity
    
    
    696.6
    
    
    
    839.1




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CALL-NET ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED) Three
    
    ThreeMonths
    
    MonthsEnded
    
    EndedMarch 31,
    
    March 31,(millions of Canadian dollars, except per share amounts)
    
    2004
    
    2003RestatedRevenue
    
    
    202.5
    
    
    
    202.2Carrier charges
    
    
    95.1
    
    
    
    106.2Gross profit
    
    
    107.4
    
    
    
    96.0Operating costs
    
    
    80.9
    
    
    
    71.5Depreciation and amortization
    
    
    36.8
    
    
    
    40.2Operating loss
    
    
    (10.3
    )
    
    
    (15.7
    )Loss on repurchase of long-term debt
    
    
    (4.0
    )
    
    
    Release of change in control provision
    
    
    4.7
    
    
    
    Interest on long-term debt
    
    
    (9.7
    )
    
    
    (12.1
    )Interest and other expense
    
    
    (2.2
    )
    
    
    (0.4
    )Foreign exchange gain (loss)
    
    
    (8.1
    )
    
    
    36.2Income (loss) before taxes
    
    
    (29.6
    )
    
    
    8.0Income tax expense
    
    
    (0.3
    )
    
    
    (0.4
    )Net income (loss) for the period
    
    
    (29.9
    )
    
    
    7.6Deficit, beginning of period
    
    
    (93.0
    )
    
    
    (57.7
    )Adjustment for stock-based compensation
    
    
    (2.9
    )
    
    
    (1.2
    )Adjustment for asset retirement obligation
    
    
    (0.9
    )
    
    
    (0.4
    )Deficit, beginning of period adjusted
    
    
    (96.8
    )
    
    
    (59.3
    )Deficit, end of period
    
    
    (126.7
    )
    
    
    (51.7
    )Basic earnings (loss) per share
    
    
    (0.84
    )
    
    
    0.32Diluted earnings (loss) per share
    
    
    (0.84
    )
    
    
    0.32




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CALL-NET ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Three
    
    ThreeMonths
    
    MonthsEnded
    
    EndedMarch 31,
    
    March 31,(millions of Canadian dollars)
    
    2004
    
    2003RestatedOPERATING ACTIVITIESNet income (loss) for the period
    
    
    (29.9
    )
    
    
    7.6Add (deduct) operating items not
requiring cash:Depreciation and amortization
    
    
    36.8
    
    
    
    40.2Interest and other expense
    
    
    1.3
    
    
    
    1.0Foreign exchange (gain) loss on
long-term debt
    
    
    6.0
    
    
    
    (33.0
    )Reversal of change in control provision
    
    
    (4.7
    )
    
    
    Loss on repurchase of long-term debt
    
    
    4.0
    
    
    
    Cash provided by operations before changes
in non-cash working capital
    
    
    13.5
    
    
    
    15.8Net change in non-cash working capital
balances related to operations
    
    
    (9.9
    )
    
    
    (8.4
    )Cash provided by operating activities
    
    
    3.6
    
    
    
    7.4INVESTING ACTIVITIESDecrease in short-term investments
    
    
    66.0
    
    
    
    45.1Acquisition of capital assets
    
    
    (14.0
    )
    
    
    (8.3
    )Proceeds from sale of accounts receivable
    
    
    45.0
    
    
    
    Increase in deferred costs
    
    
    (0.5
    )
    
    
    Net proceeds on disposal of capital assets
    
    
    
    
    
    
    2.9Cash provided by investing activities
    
    
    96.5
    
    
    
    39.7FINANCING ACTIVITIESDecrease in right-of-way liability
    
    
    (0.4
    )
    
    
    (0.7
    )Long-term debt repurchase
    
    
    (104.8
    )
    
    
    Cash used in financing activities
    
    
    (105.2
    )
    
    
    (0.7
    )Net increase (decrease) in cash and cash
equivalents during the period
    
    
    (5.1
    )
    
    
    46.4Cash and cash equivalents,
beginning of period
    
    
    56.5
    
    
    
    34.1Cash and cash equivalents, end of period
    
    
    51.4
    
    
    
    80.5
 %SEDAR: 00004316EF For further information: Media Contact: Karen OLeary, Corporate
Communications, (416) 718-6445, karen.oleary@sprint-canada.com