Cogeco Communications Q3 2023 Earnings Call Transcript

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Provided by Quartr
July 14, 2023

There are 10 speakers on the call.

Operator

Good day, and welcome to Cogeco Inc. And Cogeco Communications Inc. Q3 2023 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr.

Operator

Patrice Ouimet, Senior Vice President and Chief Financial Officer of CoachCo Inc. And CoachCo Communications Inc. Please go ahead, Mr. Weiwei.

Speaker 1

Good morning, everybody, and welcome to this Q3 conference call, which Philippe and I will present. Before we begin this call, as usual, I'd like to remind listeners that the call is subject to forward looking statements, which can be found in the press releases issued yesterday. And I'll turn the call over to Philippe Pejutte. Thank you, Patrice, and good morning. Thank you, everyone, for joining us.

Speaker 1

Our Q3 consolidated results were in line with our expectations.

Speaker 2

We demonstrated once again our focus on balancing subscriber growth with financial performance, While remaining disciplined on our cost structure, while Breezeline continued to face headwinds from the macroeconomic And nationwide competitive environments, Cogeco Connexion performed well in the quarter, marked by continued organic growth In its Internet customer base and further supplemented by our OXEO acquisition in March. In both Canada and the United States, we generated higher revenue per customer, driven by a better product mix and supported by our fiber powered wireline networks. We continued to execute successfully On our fiber to the home network expansion programs, which continue to drive new Internet subscribers in both markets. Overall, we've added 101,000 homes passed since the beginning of this fiscal year. If we include those added in fiscal 2022, this brings us to more than 171,000 additional homes passed, representing a 6% growth of our network.

Speaker 2

These expansions are made in attractive areas From demographic or competitive standpoints and where we are targeting very healthy penetration rates. Like the government subsidized fiber expansions that we are undertaking in Canada, We are pursuing regional programs in the United States, such as the Virginia Telecommunications Initiative, Where we recently were awarded $15,000,000 in funding to expand to 7,500 unserved homes and businesses. We also look forward to the launch of the broadband equity, access and deployment funding program in the United States. Call Bead, each state will run its own process of allocating funds by region. Within our traditional markets, our reliable high speed network, Innovative digital product offering and local customer service all position us well for future organic growth.

Speaker 2

In terms of mobile development in Canada, The CRTC released the final terms and conditions of the MVNO regulatory framework in May. And while the final decision did not introduce any material changes to the regime, We were pleased to see the CRTC establish a deadline for rate negotiations by August 7, And stated that it would consider using all the tools at its disposal should this timeframe not be met. We have initiated MVNO Access negotiations. But as you will understand, for competitive reasons, We cannot provide further details on these negotiations and securing satisfactory wholesale rates For access to incumbent wireless networks will be critical to the viability and long term success of our mobile entry. During the quarter, we also purchased spectrum licenses in the 2,500 and 3,500 megahertz bands In Quebec, with this acquisition, we have a spectrum that now covers 95% of our Canadian footprint.

Speaker 2

With regards to wholesale high speed access services, We launched a review of its existing regulatory framework. And in our submissions to the CRTC, We are urging the regulator to ensure that any new wholesale access mandate resulting from this review Does not undermine investment and innovation and that regulated wholesale rates reflect the true cost of Building Networks. To that end, we have proposed that access to the wholesale regime be limited to small carriers And that nascent fiber to the home deployments be exempt from the mandate. Finally, on ESG, Cogeco was named on this for the 6th consecutive year, 1 of the best 50 corporate citizens in Canada by Corporate Knights. This highly respected ranking Recognize Canadian companies that are setting the standards for leadership in sustainable growth.

Speaker 2

I will now review our operational results. Let's start with our Canadian operations. As mentioned earlier, we continue to connect more homes in unserved and underserved communities in both provinces, Where we added 15,000 homes passed during the quarter and a total of more than 88 1,000 homes passed, including those added in fiscal 2022. These fiber to the home expansion projects Are mostly in partnership with government and are already paying off with customer loadings. Our Canadian team continued on its path to excellence by executing effective sales and marketing strategies And by providing a distinctive customer experience, which led our Internet customer base to grow this quarter By 11,100 across our traditional markets, newly served areas and in regions where OXEO The Canadian business has also improved its ARPU with an improved customer product mix.

Speaker 2

Now moving on to the U. S. Operations. During the quarter, we continued our fiber network expansion With 15,500 new homes passed this quarter or 83,000 homes passed, Including those added in fiscal 2022, which resulted in new Internet subscribers. But the market remained challenging due to the macroeconomic environment and competitive intensity.

Speaker 2

Within our traditional markets, we reported 2,600 Internet customer losses, Which were not expected and mainly driven by aggressive offers by competitors in response to Fixed wireless access competition, they are facing in other areas. However, the product mix has improved with a greater proportion of new connections taking faster Internet speeds And therefore, driving a higher average revenue per unit. In Ohio, Internet net losses stood at 4,000, which is a small improvement over previous quarters, but below our expectations. During the quarter, we continued to densify and interconnect the network To Breezeline's core, there is still more work on our plate to return to growth in our Internet customer base in Ohio and it will take more time to gain greater brand awareness in that market. For Cogeco Media, we continue to face headwinds from an industry wide challenging radio advertising market, Now, let me turn the call over to Patrice, We will provide more details on our financial performance for the quarter.

Speaker 1

So thank you, Philippe. So in Canada, Cogeco Connections revenue was up by 3.2% resulting mainly from a higher Internet service customer base, higher revenue per customer and the OXEO acquisition. EBITDA was stable due to revenue growth, offsetting higher operating expenses to drive and support customer growth. In the U. S, Breezeline's revenue was down 5.7% in constant currency, mainly driven by a lower customer base in Ohio Over the past year and an overall decline in video and phone customers, partially offset by higher revenue per customer and a better product mix.

Speaker 1

EBITDA decreased by 3.6%, reflecting lower revenue, partly offset by a higher gross margin, Reflecting more Internet within the revenue mix as well as the impact of cost reduction initiatives. Turning to our consolidated numbers. At the consolidated level, revenue was down by 1.3% In constant currency, which led to a decline in adjusted EBITDA of 1.8%, mainly due to GreenSky's performance, which I just explained, And stable EBITDA at Cogeco Connexion. Capital intensity as reported was 22.9% Compared to 25% last year, mainly from reduced CapEx spending in Canada. Excluding network expansion projects, Capital intensity was 18.6%.

Speaker 1

Our free cash flow remains stable and excluding network expansion projects, free cash flow would have decreased 5.4 percent in the quarter. A dividend of $0.776 per share was declared in the quarter. We anticipate dividends to represent a payout ratio of about 36% of free cash flow this year and 24% when we exclude network expansions. At the end of the quarter, our net debt EBITDA was 3.4 turns, which reflects a higher U. S.

Speaker 1

Dollar against the Canadian dollar. Now at Cogeco Inc. Revenue in constant currency declined by 1.4% and EBITDA by 2.2% As a result of Cogeco Communications performance, radio operations revenue decreased by 3.2% as the advertising market During the quarter, we recognized a pretax non cash impairment charge of $88,000,000 related to our radio operations, Following an industry wide reduction in radio advertising demand and a higher cost of capital. A dividend of $0.731 per share was during the quarter at Cogeco Inc. In terms of outlook, we are maintaining our fiscal 2023 financial guidelines as issued in January for both corporations And no real change in our full year expectations from what we outlined in our last call.

Speaker 1

At Cogeco Connexion, We expect low to mid single digit revenue growth for the full year and low single digit EBITDA growth. In terms of Q4 outlook at Physical Connection, we expect mid single digit growth In revenue, driven by organic growth from our traditional markets, incremental benefit from our expansion into newly built areas And a contribution from the recent OXXIEL acquisition. We expect a low single digit decline in EBITDA Due to margin contraction stemming from higher OpEx to drive customer growth, including with our OXXO brand, which is in a high growth phase at the moment. And also note that in last year's Q4 Results and EBITDA, we had certain favorable year end adjustments. Now at Bridgeline, for the full year, We expect in constant currency a low single digit decline in revenue, while EBITDA is expected to be slightly negative.

Speaker 1

In Q4, we expect low single digit growth in revenue driven by a rate increase implemented in June As well as continued growth from the network expansion projects. As for EBITDA, we expect stronger growth From higher revenue, less direct costs, a better product mix and less OpEx due to certain cost efficiencies. Below EBITDA at the consolidated level, I'll note that Q4 should normally have a similar level of Acquisition, integration, restructuring and other costs as we recorded in Q3. In terms of CapEx, our guidelines account for the anticipated increase in capital intensity in Q4 as the summer months are typically a busier time to build. It also reflects investments related to strategic growth initiatives, including preparing for an eventual launch of mobile services in Canada.

Speaker 1

Now, Philippe and I will be happy to take your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer First question comes from Maher Yaghi at Scotiabank. Please go ahead.

Speaker 3

Thank you for taking my questions. I wanted to ask you on your U. S. Business. Last quarter, You highlighted your expectation that you were expecting to see growth in Broadband subscribers outside of Ohio, but the results show that you lost Subscribers both in Ohio and outside Ohio.

Speaker 3

So can you maybe highlight or discuss what changed versus your prior When it comes to your broadband business outside of Ohio, what Are the factors that brought those numbers into the negative territory? And I have a follow-up question on why I was after. Thank you.

Speaker 1

Sure. Good morning, Maher. Yes, so I mean we operate in different states and the level of is higher than before as you know, so it's no different than the last few quarters. So if you look at the last year, we've had quarters where we were negative in terms of if I focus on the Internet subscribers and some quarters we were flat Some others where we were positive. So it's a fine balance.

Speaker 1

We do have different levels of competition in different areas And we have to manage a balance between ARPUs profitability and also subscriber loadings. So I would say there's nothing particular that happened during the quarter. It's also a small these are small values compared to the overall base we have in the U. S. But it is more than competitive than it used to be, especially from the fixed wireless access Providers at the moment, but overall I would say outside Ohio we've been able over the past year to maintain our base.

Speaker 3

So how should we approach the rest of the year going forward in terms of your loading Since fixed wireless is likely to remain a competitor for you for the foreseeable future, Should we be forecasting continued broadband losses outside of Ohio or this should be a resort Somehow

Speaker 1

soon. Well, as I said, this quarter was negative outside Ohio, but the previous quarter was positive. If you look before that, we've had ups and downs as well. So these numbers change by the So obviously, our goal is to be at a minimum flat and to grow market share, but they will vary by quarter. So it's to answer at this point exactly where Q4 will stand.

Speaker 1

But again, it's managing ARPUs and especially on the acquisition front of new customers and the subscriber holdings.

Speaker 3

Okay. I'll move on to wireless because you have moved you have made some moves In wireless over the last quarter, like you said, you bought some spectrum on the 2,500 and 3,500. So Can you maybe update us on where your discussions for wholesale roaming and MVNO Are at and when do you expect some resolution to allow you to operationalize the whole Investments so far.

Speaker 2

So Maher, it's Philippe. As you saw and as you heard me say, we're still determined to launch a mobile service And we are now in negotiations with the MNO. For competitive reasons, we won't go further on this call, But it remains a critical element of our business case to enter for the long term this market. So we are expecting To close these negotiations in line with our aspiration, but we're into it right now. So more to come in the next quarter.

Speaker 3

And do you believe that the spectrum that you bought is enough For you to support over time building up yourself, your network and Moving the transfer of frequency usage from the MNO to your own network over time?

Speaker 2

Yes. Well, it will be a combination of the spectrum we can acquire. It will be also A combination of different partnerships of the MVNO framework. So for the next 7 years, we don't need to have all the spectrum In every territory, right now we cover 95% of our operating footprint where we have fiber backbone To evolve a wireless operation later in time, so we're starting with an MVNO operation And as time progress, we will accumulate the assets that we need and or the partnerships

Speaker 4

Thank you. Next question will be from Drew McReynolds at RBC. Please go ahead.

Speaker 5

This question from Maher. Assuming or whenever commercial negotiations are completed, let's be aspirational here. What would be the timing in terms of ending those negotiations into an actual commercial launch? And then second question in the Canadian Broadband business, good to see the uptick in Internet net additions. When you attribute it to footprint expansion, OXEO and organic growth in existing territories, you give us a sense of kind of what the relative contribution of each would be?

Speaker 5

Thank you.

Speaker 2

Hello, Drew. It's Philippe. Let me start. In terms of dates, I've already indicated earlier that part of the CRTC process, there is the August 7th date that was set as a deadline for MVNOs and MNOs to agreed in negotiations. Failing that, there will be an FOA process, an arbitration process.

Speaker 2

So let's 1st, get to August 7. Hopefully, we will have close. If not, we will work With the CRTC, what the arbitration process needs to be and we'll take it from there.

Speaker 1

On the other one, Drew, so we were very happy actually with the PSUs in Canada as you saw, Despite some challenges in the U. S, the Canadian ones were very strong and actually the previous quarter was good as well. Not to necessarily slice and dice the number into these 3 buckets, but I can say that the three Areas, which are the legacy business, the network expansions and the OXEO additions in quarter This contributed meaningfully during the quarter. And just to be clear, also these numbers obviously don't include What we acquired in OXXO, it just includes the change in the quarters of the additions during the quarter.

Speaker 5

Okay. Got it. Just a quick follow-up, sorry to be back to wireless. Just whenever The process is finalized and you're good to go with agreements in place, whether negotiated or through final offer arbitration. Are you good to go almost within kind of week or weeks?

Speaker 5

Or does it still take a little bit of time to After getting everything in place agreement wise to launch?

Speaker 2

We've previously indicated that we have set up a team. So from the team point of view, we're there. There is some work that We could have done regardless of the negotiations. There are some systems and some technical work that will need to happen Pending what we are able to secure or negotiate in those negotiations, so there will be some work after negotiation to set up the interconnections of systems for example, but we'll have to finalize the negotiation to see What exactly this work is and how long it's going to be. So unfortunately, we can't be more precise than that today.

Speaker 5

No, that's great. Thank you.

Speaker 4

Thank you. Next question will be from Vince Valentini at TD Securities. Please go ahead.

Speaker 6

Thanks very much. First on the Q4 outlook for the U. S. Patrice, sorry, I think I heard you right, but Revenue down low single digits and a very slight decline in EBITDA, is that what you said for Breezeline?

Speaker 1

Yes, exactly. Low single digit decline in revenue sorry, that's the full year. So for Q4, so yes, it's the same thing. So low single digit Growth in revenue at Bridgeline, if that's your question, and higher growth than this And EBITDA in Q4 in the U. S.

Speaker 6

Okay. So I mixed up the full year. So for the quarter, you expect both of those to be up year over year?

Speaker 1

Exactly.

Speaker 6

And that is driven I mean, we see what the subscribers are. So obviously, it can't be driven by that. It's driven by A rate increase, can you give us any sense of how big the rate increase was in June?

Speaker 1

Yes. It was not a large one, but it was across the base. So I would say it was smaller than what we normally do, but there's also other elements. We did proceed with some reductions in FTEs at the early part of the quarter. So there's some benefits there.

Speaker 1

There's more cord cutting on video as well in the U. S. Across the board In the industry, so that reduces some revenue, but it also offsets some costs on video. And we have other elements as well in terms of cost reductions that are in motion. So I would say it's the mix of these four elements.

Speaker 6

That makes sense. Yes, go ahead.

Speaker 2

Sorry, Vince, if I may compliment that. Patrice indicated the price increase. But specific to OIO, let's remember that we have not Increased the price since we've acquired these assets. So it actually gave us a good position to better compete. But this price increase is across the whole base, including Ohio.

Speaker 2

So, we feel we're good with a price increase, including Ohio this time.

Speaker 6

Okay. Thank you for that. Just, Patrice, the explanation on EBITDA with The cost reductions makes a lot of sense to me. I'm still struggling a bit with the math on how revenue turns positive when The trend line has been getting worse and the sub adds got worse again in Q3. So if it's only a 2% or something rate increase, I don't see how that's going to change its trajectory.

Speaker 6

So am I missing something else on the year over year comparison?

Speaker 1

Yes, there's a bit of a so there's price increase, there's the product mix as well changes in the quarters. And also, obviously, the reason why the revenues are down this quarter in Q3 primarily We're entirely are due to the sub losses in Ohio. But as you remember, obviously, when we made the switch over to our brand, This is where we had more losses and these losses have come down over time. So as time passes, The negative impact of those initial larger losses is reducing.

Speaker 6

Okay. Good enough on that. And then a follow-up on wireless for me as well. Well, 2 quick ones. One, you mentioned the final rules We saw from the CRTC in May, unless I've missed something, I mean, they're still saying a 7 year sunset Claws to need to build your own network.

Speaker 6

Is there any chance that there's some other revision coming at some point from either ISED or the CRTC to Potentially extend that 7 years or is that something you don't think could come for until we're 2 or 3 years into the process?

Speaker 2

Yes. Well, from a CRTC point of view, I think we need to give a chance to the framework to get going first. I am not expecting them to immediately review that term, but Let's remember that there is this is one way to expand The timeline, there are other ways in signing long term commercial MVNO agreements with larger MNO, for example, or Entering into network sharing agreements with others. So the extension of the 7 year, although In my opinion, likely in the future, it is just one of 3 options and maybe even more.

Speaker 6

Fair enough. And last one, the $60,000,000 if I saw that correctly in the MD and A that you spent on spectrum in Q3, It surprised me a little bit how much that was. Wasn't this spectrum for more smaller markets where you didn't have Spectrum before or did I miss something you actually bought Spectrum in a major city like Toronto or Montreal that would cost more?

Speaker 2

No, no. It was actually the former. So, we've expanded from 91% to 95% Coverage of our operating footprint was done.

Speaker 1

Yes. So Vince, those were in Quebec. So in the last auction, we bought mainly in Ontario. The pricing there were many areas for auction in Quebec, but we ended up buying very little in Quebec. And we had an opportunity here to buy on a private basis some spectrum in Quebec in cities where we either had nothing Or we had very little spectrum, so it helped us basically beef up the spectrum packages in the areas.

Speaker 1

And when you look at it We've seen in the last auction what we were able to secure now. So we feel comfortable with it.

Speaker 6

Do you have that figure, Patrice? Was it sub $1 per megahertz

Speaker 2

It was

Speaker 1

just above $1 so about $1.10

Speaker 6

Thank you.

Speaker 4

Thank you. Next question will be from Jerome Dubreuil at Desjardins. Please go ahead.

Speaker 7

Thanks for taking my questions. Going back to the U. S, despite The kind of mix of cost per gigabyte on fixed wireless, we've seen these large fixed wireless players now committing resources To expanding fixed wireless capacity, some have been calling it the only killer app of 5 gs right now and they've put a lot of money in 5 gs. So Maybe an incentive for them to keep going on that front. Does that make accelerated investments in the U.

Speaker 7

S. More attractive since you need growth or less attractive to this?

Speaker 2

Did you specify when you say Other investments, what do you mean?

Speaker 7

Yes. I mean, previously, maybe we were expecting the large fixed wireless players to run into Capacity issues and now it doesn't seem to be as much of a problem From recent communication from Verizon notable.

Speaker 2

So they are very targeted in their approach The market in fixed wireless access, so there is a specific amount of capacity That they have on every sector of these cell sites and that's what they allocate to fix wireless. The overall question of spectrum is still limited. So they might be adding a little bit more spectrum to expand Number of customers per cell sector, but still they will be limited By the spectrum usage and we assume that they will want to monetize furthermore the spectrum turning it to the next 5 gs applications. But it might last a little bit longer than we anticipated in the market And they are opening small, but other areas of coverage here and there, but in a very targeted manner.

Speaker 7

Okay. Thank you. And maybe just one clarification and maybe you've already mentioned it, but Just want to confirm that you are fully eligible to the MVNO regime with all the CRTC requirements of Home network and all the other requirements we've seen?

Speaker 2

Yes, we have a public mobile network Insettle, it's actively offering mobile service to retail customers and This is why we started negotiation as we are compliant with the definition.

Speaker 3

Great. Thank you.

Speaker 4

Next question will be from Stephanie Price at CIBC. Please go ahead.

Speaker 8

Hi, good morning. I was hoping you could talk a little bit about the timeline for BEED funding to roll out to the telecom providers in the U. S. And give us a bit of a ballpark on how big an opportunity this

Speaker 1

Sure. Hi, Stephanie. Yes, so the allocation by State was just done by the federal government. I'm sure you've seen it. So then there is a process that the states have Follow with time limitations.

Speaker 1

They can go as fast as they want, but there's time limitations on it. And it's a Two phase project process where initially 20% of the funds get released. And when the second phase happens and it's basically defining the maths Exactly the houses, then the 80% gets released. So it will probably vary a lot by state. And what we're expecting is that some of these bidding in some states is going to start in early 2024, That's calendar 2024 and some will stretch into 2025 and it's possible that for the last pieces will be in 26, so it will be spread out.

Speaker 1

What we're doing on our side is getting ready. So we have team on it and we're operating in many states as you know. So there's a lot of work being done behind the scenes looking at the different maps So that we're ready to respond when the states launch their own processes.

Speaker 8

Great. Thank you. And just Capital allocation, it looks like you paused on buybacks in the quarter, likely just given Axio and the spectrum you acquired. How should we think about capital allocation at this point?

Speaker 1

Sure. And maybe just Before I forget what the data I gave you on the BEAT program, this would be to bid. Once you win an area, then there's a time period To do the design of the network, get the permits and start the construction, so the CapEx element would be further out. In terms of capital allocation, obviously, we are focusing on generating enough free cash flow to do These acquisitions and buybacks pay the dividend and raise the dividend and invest In these B programs and the ones we're doing in Canada right now, unfortunately, we're able to do a bit of all this. The buybacks, we do it more on an Opportunistic basis, depending on obviously how we see the value.

Speaker 1

We see value in the stock, that's for sure. But also we have to look at the leverage and the other opportunities that are there. As you know with our plans in Canada, We have been accumulating spectrum and that we had an opportunity to do some more right now. So that was, We think a good investment for us and you have to grab these opportunities when they come as the buybacks can be Increased or decreased as we see fit for now or in the future.

Speaker 4

Makes sense. Thank you. Thank you. And your next question will be from Matthew Griffiths of Bank of America. Please go ahead.

Speaker 9

Hi, good morning. Thanks for taking the question. I was wondering if you could talk a little bit about how you feel about your pricing power In the U. S. Market, you obviously are going through a price increase, so that's kind of a positive indication.

Speaker 9

You also referenced higher levels of competition than before and the it's not really the indirect impact The indirect impact that they're having on competitor pricing. So if you could just talk about How you see that playing out and if this if we should expect a kind of subscriber impact From this price increase going into Q4?

Speaker 2

Yes. And of course, we've mentioned the macroeconomic factors, The inflation that is going on, but our products are actually Well in demand, broadband is almost critical or essential service. So And we've mentioned a number of times already the improvement in the product mix. So customers are actually moving up using Broadband more and more, there is a good pricing power for the industry. That's why we can actually They're localized from fixed wireless access.

Speaker 2

It's not throughout the country. It's very localized. So of course, we have Do have marketing strategies that can address the localization of some promotions. But in general, I think while under pressure, it's still a good market as It's a the product is in good demand. Everybody needs it.

Speaker 9

Okay, good. That's helpful. And then, I think in Ohio, you referenced that there's still more work to do. And I think you used kind of similar terminology Last quarter, I was wondering if you could elaborate on what work it is that you're doing and maybe If you have some visibility on to when that work will be complete?

Speaker 6

Well,

Speaker 2

I've specifically also mentioned the our brand presence And awareness in this market requiring a little bit more time. So we continue to raise the awareness of our Breeze line brand. Remember when we Acquired those assets, they carried a different brand name. So that's one of The major element to be known in the market, so we can sell well in that market. We also invest in As we generally do everywhere, but more so in Ohio to raise the quality Of the product and services that we sell to be the best, simply the best in the market, so we can attract more customers.

Speaker 2

And so it's a mix of building the best product portfolio, The best customer service in that market, making the brand more relevant to all customers And activating all the sales channels from door to door To Internet or the agents that we have talking to customers daily.

Speaker 1

If I can add also what's a bit new this quarter actually, we have we're now done with the service agreement we had with the seller. So now we fully control basically the network and that has its advantages for sure. And we're continuing to add capacity to it. So we're upgrading continuing to upgrade the network. So that helps with stability and upselling And lastly, we're rolling out IPTV, not a large portion takes IPTV, but there's a portion of the customers And that's a much more modern service than what's been provided before.

Speaker 9

Okay, good. Thank you. And if I could ask just one more, just touching on the wireless question. I think, Patrice, You or no, sorry, it was Philippe that mentioned that introducing a wireless service is critical to your Business case, I believe you said. Sorry if I misquoted a little there, but the criticality was an element.

Speaker 9

I was wondering if you could elaborate on that. What if you could point to what it is that you're hoping to achieve perhaps in broad strokes from Offering the wireless service?

Speaker 2

Okay. So let's go back to we've always said and still believe that We have a very strong broadband business and that business can continue to organically grow on its own and we are expanding its footprint. So There is a very solid good business there. We would like to add a mobile Product in our portfolio to expand our share in the telecom spending In the marketplace, but it's an additional growth through the additional of a product. Now what I said was that the rate negotiations with the MNO are critical to the success of The mobile business case for the long term.

Speaker 2

So that's why we're negotiating right now and We will look forward to having a set of rates to support to sustain the long term But back to broadband, we've always said that we have a good Business and we can continue to grow it on its own.

Speaker 9

Okay. Thank you for the clarification. I didn't misquote you there a little bit. So thanks for that.

Speaker 1

Operator, any other questions in mind?

Speaker 4

At this time, sir, we have no further questions. Please proceed with closing.

Speaker 1

Okay. Well, thanks to all for joining us today and we'll be available for your questions until we meet for the next call, the next 4th quarter call. Thank you and have a good

Speaker 4

day. Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today.

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Key Takeaways

  • Cogeco’s Q3 results were in line with expectations, with Canadian operations (Cogeco Connexion) showing organic subscriber growth and improved ARPU following the OXEO acquisition, while U.S. operations (Breezeline) faced macro-economic headwinds and intense competition led to lower broadband revenue and customer losses.
  • The company added 101,000 homes passed since fiscal year start (171,000 including 2022) via fiber-to-the-home expansions in attractive markets, backed by government partnerships in Canada and a $15 million award under Virginia’s broadband initiative in the U.S., and is preparing for BEAD funding rounds in early 2024.
  • Cogeco is negotiating MVNO access agreements under the CRTC’s new framework (with an August 7 deadline), having secured 2,500/3,500 MHz spectrum covering 95% of its footprint, and regards wholesale rates as critical to the long-term viability of its planned mobile entry in Canada.
  • Full-year guidance remains unchanged: Cogeco Connexion expects low-to-mid single-digit revenue and EBITDA growth; Breezeline anticipates a low-single-digit revenue decline and slightly negative EBITDA, with Q4 U.S. revenue poised to grow modestly and EBITDA to recover on rate increases and cost efficiencies.
  • At Cogeco Inc., Q3 included an $88 million non-cash impairment on radio assets amid soft ad demand, with consolidated free cash flow stable, net debt/EBITDA at 3.4x, and a dividend representing ~36% of FCF.
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Earnings Conference Call
Cogeco Communications Q3 2023
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