Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cogeco Inc (CGECF, Financial) reported consolidated results in line with expectations, focusing on balancing subscriber growth with financial performance.
- The company added close to 12,000 new homes passed in the quarter, bringing the total to 239,000 homes passed since fiscal 2022, representing over 8% organic growth.
- Cogeco Inc (CGECF) launched its first AI chatbot, Charlie, in the US, which has successfully handled tens of thousands of customer interactions, exceeding expectations.
- The company's Canadian telecommunications business grew its Internet subscriber base by close to 6,000 customers, contributing to a 2.9% year-on-year EBITDA growth.
- Cogeco Media reported year-over-year growth in revenue, with radio advertising sales rebounding and digital advertising solutions contributing to revenue growth.
Negative Points
- The US Affordable Connectivity Program (ACP) was discontinued, leading to a temporary impact on Internet subscriber figures, with 3,300 ACP subscriber losses in the quarter.
- Diluted earnings per share declined by 22.7% due to restructuring costs related to the new organizational structure.
- Free cash flow in constant currency declined by 16.3%, largely due to restructuring costs recorded in the quarter.
- The company's net debt to EBITDA ratio remained flat at 3.4 times, despite a significant payment for spectrum acquired last fall.
- The restructuring charges and organizational changes are expected to result in further costs in Q4, although they should be lower than the Q3 restructuring costs.
Q & A Highlights
Q: Can you provide more details on the restructuring charges in Q3 and when we should start seeing the benefits on margins?
A: The restructuring charges are primarily related to severances and are aimed at giving us operating leverage to reinvest in future growth areas like marketing and digital. The benefits will be seen over time as we reinvest in these areas to drive top-line and bottom-line growth.
Q: What are the prospects for EBITDA growth in the US, considering customer up-tiering and price increases?
A: We had a good quarter and expect similar performance in Q4. The transformation plan will provide benefits on both revenue and cost in the future. While subscriber growth is currently not the main focus, we are working towards it, especially in Ohio, where we saw the best quarter since the acquisition.
Q: Can you explain the impact of the Affordable Connectivity Program (ACP) discontinuation on your US operations?
A: The ACP discontinuation led to a temporary impact on our reported Internet subscriber figures, but we do not expect a material impact on revenue and EBITDA. The impact should ease off by Q4, with minimal residual effects beyond that.
Q: How do you see the broadband growth trajectory in Canada, especially given the competitive landscape?
A: Our broadband growth engine in Canada is robust, driven by diversified factors like the Cogeco and Oxyfuel brands and rural network expansion. While the market remains competitive, we are not seeing any impact from Fixed Wireless Access (FWA) and expect continued growth.
Q: What is the rationale behind the new North American operating model, and what are the expected cost synergies?
A: The new model aims to create larger centers of expertise in key areas like marketing, digital, and analytics. This will not only reduce costs but also accelerate performance. The initial results, such as the successful deployment of our AI chatbot, are promising.
Q: Can you provide more details on the US MVNO wireless service and its expected impact on margins and ARPU?
A: The wireless service is still in its early stages, so its impact on revenue and EBITDA will be limited initially. The business case focuses on increasing customer retention and attracting new customers through bundled offers. Over time, the wireless business could become accretive.
Q: What should we expect in terms of restructuring charges and their impact on margins in the future?
A: There will be some additional restructuring charges in Q4, but they will be smaller than in Q3. These charges are part of a broader transformation plan aimed at creating cost synergies and investing in growth areas.
Q: How should we interpret the guidance for stable EBITDA for the full year, given the expected performance in Q4?
A: Our guidance for stable EBITDA means being around zero, but given our performance, we should have some upside versus being exactly zero. We expect to trend well within our free cash flow guidance range, despite higher CapEx in Q4.
Q: What is the expected impact of higher CapEx in Q4 on homes passed and network expansion?
A: The higher CapEx in Q4 is primarily related to the Ontario build. The impact on homes passed will be seen in the next fiscal year, as it takes time to build the infrastructure. We expect to grow homes passed in a material fashion in Canada next year.
Q: Can you provide more details on the expected free cash flow performance and the timing of government subsidies?
A: We expect free cash flow to be down year-over-year due to the timing of CapEx in Q4. Government subsidies are accrued based on good visibility, but there can be delays in actual cash receipts. We expect to trend well within our free cash flow guidance range for the full year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
