Q1 2020 Earnings Call
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The conference is now being recorded.
[noise] [noise] [noise] [noise], good day, ladies and gentlemen, thank you first.
Funding by walking into the core income for school Oh like trying to use your guess you know Chief Financial Officer of Evercore, Inc. Please go ahead [noise].
[noise] good afternoon, ladies and gentlemen, welcome to this getting <unk> conference call. My name is very small I'm, the CFO and joining me here to discuss our financial and operating results for the first quarter of 2020.
RPF Kelcy that <unk>, President and Chief Executive Officer, John plus what we know <unk>, President and CEO with video at home.
In South, Louisiana, President and CEO of TV a group.
You will be able to listen to this conference call on tape until August 13, 2020 by dialing 877 to nine three eighth 133, [laughter] Conference access code for AIDS 006, Dash and playback access code the same for a little below six dashed. This information is also available.
Good Becor's web site at Triple double you cut back or dotcom.
I also want to inform you that certain statements made on the call today, maybe considered forward looking and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with regulatory authorities.
Let's now move onto our first speaker, yes calculation.
Let's see here again, good afternoon, everyone [noise].
First and foremost ER I hope you are always keeping safe and.
Following the dispensing dispensing directors. So we cannot collectively get on top of the situation then start getting back to normal over the next week in months.
Before we get to our comments on our first quarter results I would like to address the extraordinary situation, we're all living in Quebec in Canada and around the world.
These are unprecedented times, which call for sure leadership and get back or is proud to assume its role as the connect leading corporate citizen by flawlessly executing is essential mission of keeping qubec connected.
And for and entertain Andrew I'm, feeling support to our employees our clients our partners and come back population and diesel dire circumstances.
[noise] after its doing all we are the first telecom we were the first telecom company.
Removed the data caps on March 13, we canceled international roaming charges and granted the free access to numerous on them and content and live equal series.
I've been watching that closely monitoring our networks and are pleased to see that they remain solid and able to cope very well with the significant increase in traffic and demand a tribute to our discipline facility based investment.
Since our 100% digital brand is doing exceptionally well in these circumstances bolt and wireless and broadband providing low price contact less and often self install alternatives.
Our media sector has been doubling its efforts to keep picking back population inform and entertain Andy's unfortunate times.
Confinement.
Oh C N sands continues to be an even more of these days.
The reference for immediate and continuous information.
We are again the first two on scrambled the chain, thereby providing everyone with free access to important government updates and G breaking news.
Despite the Atas complexities of the confinement RTT teams remain creative and agile as demonstrated by the creation of daily show sub generally from the various OWS and which draws closer to 1 million viewers everything [noise].
In addition, Stevie instead of giving.
In collaboration with the government of Quebec.
Together last Sunday, a major TV events and shopko itself. So don't be outstanding resiliency of can becker's during this crisis.
Bringing together more than 80 local artist.
The show raised $2 million for early but right and that's the west a generalist goes go Jerry.
Also what did you have to support our local art just we accelerated the largest Kim is it the first streaming platform design and produce in Quebec.
Accessible.
A mobile application and on the web getting music offers an impressive international caliber catalog of 50 million songs available on demand as well as hundreds of playlist created by Haven, local curators and understand becker's needs and pace.
[noise] couldn't music is a local brought up which offers a unparallel showcase for local talent and does it part to improve artist and music rights holders remuneration.
In our sports and Entertainment Division, which has been forced to postpone or cancel all shows and events. We reacted immediately to protect our employees and freelance is putting in place an emergency fund a $500000 the tie them over and these are financial Bert.
And more generally for all our employees, who have unfortunately being impacted by this crisis, we decided early on to offer supplemental salary mergers applied on top of government programs to maintain as much as 95% of their regular salary in some cases.
Dust minimize the financial hardship on them and their families and keep that motivated to come back as soon as they are allowed to do so.
Despite the difficult times, we're living we're fortunate that get back or that our core business is sound and resilient.
Our cash flows are stable and that our historical financial discipline and rigorous management I produced a solid balance sheet and a very favorable liquidity situation.
Well now let's.
Review, our consolidated financial results.
Yes, Yes go.
Because of course revenues were up 3% in the quarter. So $1.6 billion revenues from our telecom segment grew 4% to $875 million and revenues from our media segment grew 1% to $175 million.
Backwards EBITDA was up 4% to $437 million.
Our telecom segment recorded EBITDA growth the growth of 3% to 436 million well our media segment recorded an EBITDA of 4 million a 3 million dollar increase.
We reported a net income attributable to shareholders of $132 million in the quarter or 52 cents per share.
Compared to a net income of 189 million or 74 cents per share reporting in the same quarter last year. The decrease is explained by the gain on the sale of four degrees in the first quarter of last year.
Partly offset by favorable variance in the valuation of financial instruments.
Adjusted income from continuing operations, excluding unusual items or gains and losses or losses on valuation of financial instruments came in at a $112 million or 44 cents per share flat from the same quarter last year.
Our cash flow from operations for the first quarter of 2020 increased by $19 million or 7% to $295 million once again, demonstrating the resilience and strength US go backwards business model.
Our financial profitability propelled by the strong returns from our telecom and media segments remains very solid.
As of the ended the quarter, our net debt to EBITDA ratio was 2.8 times.
Down from 3.1 times reported at the end of the first quarter of last year and similar to ours telecom peers.
Available liquidity of $1.8 billion as of the ended the quarter and our growing free cash flows or more than sufficient to fulfill our commitment and fuel our growth.
Our normal course issuer bid program remains in place.
In the quarter, we purchased and cancel 1.1 million class B shares for a total investment of more than $34 million.
Since we initiated our NC IB nine years ago, approximately 35.3 million class B shares have been purchased and canceled.
As we have demonstrated in the past our financial position remains healthy and solid enabling us to pursue our business strategy.
I will that now let us how fast will review our telecom segments operations.
[noise] Sig.
Good afternoon, everyone I hope that the everyone is well and staying safe.
So from inception of this unprecedented crisis were clearly lived up to our reputation of taking good care of our customers and employees as we implemented important measures to ALP and protect our customers and employees.
Indeed, we're worried a first Canadian operator to live data caps for home and business internal plans as many of our customers transition to working from home.
In addition, wireless roaming fees for customers outside of Canada, I've been waived in order for them to stay connected with their relatives.
Entertainment at home was also a priority for us and we more and we more than any other broadcast distributor significantly broadened our free content offering in total it is 68 channels that we unscrambled on helix and illegal as well as providing 1200 50 hours.
Additional free video on demand content.
And just a few days, we were able to relocate the vast majority of our employees, including our customer count agents.
Who are now working from home since the early days of this pandemic.
We also introduced additional measures to protect the health of our employees, who couldn't work from home, mainly our service decks.
For instance, our Dexcom now in many cases assist our customers from their trucks through video chat without having to enter homes for installation purposes.
As requested by government authorities, we closed on March 17, almost all of our retail stores.
Recent announcements will permit the reopening of all of our storefront locations, bringing our total or a total retail footprint or approximately 50% of our original capacity.
Shopping mall stores and kiosks was will remain closed for the moment.
Obviously, we have taken all necessary measures to protect our employees and customers who visit these locations.
From a social responsibility perspective, we have been working relentlessly to support governments health care providers and communities.
We recently provided thousands of cellular phones with unlimited packages to the University of Montreal hospitals Center.
Long term care residences as well as you protection centers.
Through these initiatives and donations, we favor less physical contact between patients and healthcare workers.
And allow patients and youth to stay connected to their connected with their loved ones.
Fifth also supported if I got my back Dodge a local non for profit organization, which helps local communities and people in need by donating one dollar for each gigabyte of data sharing between our fiscal customer community.
In total it is $50000 that fits donated to this local organization.
Furthermore, our.
Our beauty segment and dedicated technical engineering teams also provided connectivity and record time to several new Kogan 19 testing service centers.
Following healthcare workers to quickly test and treat covert patients and get back.
Finally, I'd like to thank all of our employees, especially our frontline techs four day sustain work and all of our customers for their continued loyalty during these difficult times.
No matter the circumstances, we remain focused on providing the best customer experience.
I believe that all the measures taken during this crisis clearly demonstrate our true commitment to staying there privileged partner and connecting the population of cutback.
Turning to our first quarter results our performance in wireless services remains impressive although significantly weakened since depend they make took place mid March.
As of March 31st we powered 1.370 million mobile lines fueled by a growth of 39000 lines during the quarter better than the respective growth of each of the three national operators during the period and stable compared to last year and the growth of one 100.
In 76000 lines on a year over year basis.
We reported service revenue growth of 13% in the quarter, driven mainly by solid subscriber growth.
We continue to lead the market in terms of share of gross adds and overall, we captured 26% of gross adds in our market during the quarter.
Consolidated wireless Abu decreased to 51 daughters, and 60 cents from $52.50 recorded in the first quarter of last year, resulting from the increase proportion of be why would you customers.
Do you continue to represent a substantial portion of our new at.
Although our overall wireless abbey as decreased it is important to know that on a standalone basis. Once again this quarter their wireless abbey, you for both fixed and videotron as much actually increased year over year.
Finally, our monthly churn rate decreased to 1%.
Moving onto wireline services due to the pandemic situation and the need for additional protective measures. We have focused our installation activities on connecting new customers and prior prior I tasting repairs now, but have stalled migration activities to helix.
It has therefore slowed down our subscriber growth for helix in the quarter.
At the end of the quarter, we've gone to the approximately 2000 220000 video and broadband RG use to the platform.
We have recently resumed migration to Alex and we continue to see sustain interest for helix, especially considering it's improved own entertainment experience better wife, I coverage and control and a high self install a ratio.
Despite the recent slow down in our activities, we continue to work on improving product and fund functionalities awareness for helix.
Overall during the quarter, we recorded growth of 9000 broadband customers and 25000 over the last 12 months.
Similar to our wireless services.
There is value proposal now contributes more materially to our overall sub adds as we also led the market in terms of share of gross adds during the quarter. However, somehow eroding our Abu group.
Furthermore, and reflecting the competitive environment, especially coming from the resellers.
We have decided not to introduce new broadband price increases for this year.
In video services, we recorded a decline of 20000 units in the quarter.
It's worth noting that in addition to many suspended services in RMBS would be segment, we have lost more than 3000, low ARPU units with the loss of one single commercial customer.
As of the ended the quarter 472000 customers subscribe to global Eco RTT, Sir video service.
We recorded growth of 12000 customers during the quarter and 40000 over the last 12 months.
We launched our for original productions in the quarter, including our first drama miniseries called Memphis.
And financial fronts.
Consolidated revenues amounted to $875 million into first quarter up 4% compared to 841 million recorded in the same quarter of last year.
Revenue growth from our low margin elixir equipment sales mainly contributed to this growth.
Our revenue growth in March was however impacted by lower broadband overage wireless roaming and under men content revenues following the introduction of our customer carrying initiatives.
Suspended services in our beauty segment as well as stall helix equipment cells also impacted our revenue growth.
EBITDA amounted to 436 million dollar into quarter four year over year growth of 3%.
We estimate that our customer carrying initiatives impacted our EBITDA by $1 million to $2 million in March and we recorded unfavorable variances and some nonrecurring items that also impacted our EBITDA growth.
No more than ever we focus our efforts on cash flow discipline and cost containment as well as leveraging all operational efficiencies without compromising on customer experience.
For the quarter, we generated $303 million and cash flow from operations compared to 289 million during the same quarter last year.
Favored bias, our strong focus on EBITDA growth and our rigorous management of Capex investments.
Capital expenditures, including acquisitions of intangible asset amounted to 233 million dollar and the first quarter 2 million lower than last year.
Wireless capex amounted to 25 million into first quarter compared to 13 million into same quarter last year.
Finally.
In light of the potentially material impacts, resulting from the cold and crisis on the overall economy and our business for the weeks and months to come we prudently cut back on our Capex program for 2020.
Although uncertain.
Closure of businesses job losses, and lower economic activity, probably leading to a recession will likely result in more suspension and or downsize, our service plans and lower revenue growth and higher costs, resulting from our customer gaming initiatives.
Bad debts remain highly speculative at this point, but we also expect to see more of them in the months do come mostly from the beat to be segment.
We are a wherever confident that we have taken the appropriate the appropriate actions to protect our cash flow and 2020.
I'll now turn it over to France to review TV group performance [noise].
Thank you know how to I'm. Good afternoon over just pass nearly 60 years, we have been through many its trickle challenges and archon with caretakers.
And this crisis.
It is still our people only a few days just like every tremendously and focus our efforts on that do essentials services that are under core at Tds.
Hey, Tom that.
News and entertainment.
Yes mission has never been more likely will then it is now indeed unprecedented times.
Yeah accomplish it we have taken a number of measures to protect our employees and their families.
When it comes to information program [noise].
All right and you see has long been as far as people try.
So kingmakers [laughter] pass trying to TV on use an L.C.N. to find fool accurate and energetic coverage in this difficult area.
I also wanted to run this hard at work of the team that Innovatively adapted to the programming on our channels in record time.
For example.
We started a daily program called set again I'd.
Susan.
Has begun become a real social movement that breaks down the walls of isolation by reaching out nearly a million viewers every night.
He group is also playing an important social rules at this time by helping them most desirable.
In addition to initiating the television event <unk>, which raised it sounds for two Cherokees as Jack mentioned.
<unk> has joined forces with like I believe they shift in the trees in the study that project.
Russia and his.
Team.
We opened their kitchen to be fair more than 25000 meals for people and.
None of these initiated would have been.
Been possible without the efforts and.
I've already did educated and talented I'm sorry.
I think all of them warm.
Turning to our first quarter financial result.
<unk> recorded operating revenues in the amount of one Andre sturdy 7 million a year over year increase of three 3 million.
Casting revenues decreased by 2% due due to a decrease in advertising revenue and in that commercial production revenues due to lower volume of activity.
Partially offset by the addition of operating revenues Honda.
As you know and that channel for a full water and a 5% increase in subscription revenues from each other specialty services seeming from you renewal as most of our distribution agreements at rates, the reflecting the fair value of our channels.
On the ratings front, our overall viewership marketshare reach 40.4% up 2.1 points from the same period of 2019 TV on network grew and share My one final one fine.
While this officials each channels share increase one 1.0 point hasn't resolved a strong 2.2 fine roles at El Halcn, which speak at a 6.9 christened share holding its position as Quebec's most too.
Gotcha.
Specialty channel.
In that <unk> in that respect we are very proud I am grateful for our employees' hard work.
Which enable us to continue providing essential services [noise] particularity true.
Our continuous news cards magazine publishing revenues declined 30%.
Due to continued decreases in advertising subscription and use them <unk> revenue.
And the discontinuation, <unk>, and Canada, and and get back magazine.
Last issues of which were released in May 2019.
No revenues increased 39%, mainly due to a significant increase in soundstage, my bio unit and equipment rental revenue.
Would you like your volume and that prisons other major production in our studios and a 55% increase in doubling in described video revenues as a result of then you see RTC license conditions for described video.
No positive variances were offset by a 21% decrease in post production revenue.
Our new production and distribution segment, creating following this the acquisition of engender. One on April 1st 2019 added 4.8 million in revenue in first quarter results.
Do you didn't group EBITDA reached 8.5 million for the first quarter, an increase of 4.5 million compared to the same quarter last year.
Our <unk> broadcasting segment reported positive EBITDA of 3.8 million a favorable variance of one point Threemillion then magazine sentiment recorded it did a of zero clients that $7 million buys you real point sevenmillion well, while my email.
Seeing no posted EBITDA of 3.2 million.
3.1 million higher than last year.
Our new production and this recent thing then made a positive EBITDA contribution Uh-huh <unk> zero point Sevenmillion to our quarterly financial results.
Cash flow from from operations Wes.
6.7 million for the first quarter and improvement of 6.8 million over last year.
Due to a 4.5 million EBITDA growth and edge 2.3 million Capex reduction.
Thank you too.
Yes, if off.
So I before concluding I would like to say if your words on that get back on interest in the subsidy.
Our interest is motivated by our will the say one of the Qubec a biggest brands internationally and a creative power out of space in Montreal, which is forced by current events to look for a long term solution with every that Bert.
Good luck on the operating track record and financial Wherewithal to structure, an accretive transaction that wouldn't shortest survivor and long term success of this great company.
I will not comment any further than to say that we will work over the next days and weeks at finding a solution that would create value for both the sick and difficult.
Before closing I would also like to make a couple of comments with respect to our main competitor.
First on leverage.
I would honestly never at thought back in 2001, what our leverage ratio was more than seven times that one day, we would have a lower ratio then bell.
And yet here, we are at two when 83 debt to EBITDA ratio compared to do 86 for Bell.
In addition, it is worth nothing that our wireless subscriber growth at more than 39000, new lines this quarter.
It's almost twice.
That a bell, even though you have a national footprint and we are only and go back.
In closing I would like to take this opportunity to recognize the exceptional dedication of all our employees who are on the fun fronts. The forefront of this crisis.
Showing encourage agility and I will to perform at all circumstances.
Thank you do our news things on television radio newspaper in magazines. Thanks.
To our video with all employees, namely the customer contact agents and technicians entering the started ends of our network and finally to all our employees, whose business activities have been brought to Oh.
We are there for you and with you.
And thank you for your attention and we will now less question various the starts.
[noise], Okay. So just to remind everyone to ask a question its start one.
And.
The first question comes from drew Mcreynolds from RBC.
Please go ahead drew.
Yeah. Thanks, Thanks, very much good afternoon first a clarification and then a couple of others are.
Jeff just on the Capex commentary that you had clearly your capex guidance as of last quarter going into 2020 here is down year over year for for a few reasons are you.
Depending on obviously circumstance going forward are you are you, bringing that down again or just reiterating that it will be down year over year consistent with what Youd previously indicated.
Thanks drew for for the question in fact, we are bringing that down again.
Okay, and any any quantification at this point toward well I would say I would say, it's more it's more likely that we're going to be at the low end of the rand rather than rather than the high on the range.
Okay.
Okay Fair enough couple of a bigger picture questions first and maybe back to you JF on.
Helix and the television performance in the quarter clearly not unusual quarter I I would guess Norwood Q2, but maybe can you talk to the TV dynamics overall.
Cord cutting.
In light of obviously sports betting on pause does the environment that we're getting into impact your ability to migrate onto you Alexa an update there and then lastly, just on the sports and entertainment side I think we're all why eyes wide open on the shutdown in terms.
Of modeling an operating loss for this segment until things begin to open up is there any kinda guidance you can give us on that it'd be great. Thank you.
So you have 15 minutes I guess for me [laughter].
Okay. So well first of all I'd like to point out that.
You know we saw how are we exhibited a decline of 20000 subs in a quarter 3000 moms them.
Oh, I'm more essentially related to one single customers or commercial customer.
And those three lines or there was the they are essentially low ARPU, mostly hotels and you know as a when hotels. There are two of those it's very very low compared to ignore residential ARPU.
So the impact on revenues will be minimal for their for those 3000, you know lines or or or our customers as we count them.
Second of all.
Judah crisis, and you know necessity to focus ourselves on the central services, we have decided.
Yeah, but I've been before more I'm in March or him in March two or two stall our migration to helix.
So essentially we have no single customer on helix since that date. So obviously he may have a a probably most likely had an impact as well on the our numbers.
[music].
That being said since the beginning of the crisis. One one thing that we that we saw is a is essentially a major slowdown.
Connecting.
And D N D connecting our churn activities significant slowdown for the first for the last two weeks of March essentially we saw essentially 50% reduction in churn and 50% reduction and and connections.
[noise], because we are not losers, India environment in terms of wireline services, mostly on the on TV.
But it's it's you know that behavior that we saw in the market is essentially positive for us and it continues over the month of March. So in terms of how does it look like today with respect to wireline services it looks much better than Q1.
Because of this slow down and you know connection activities and churn activities.
On the I'd add is the opposite for wireless because on the wireless side, where net where net gain or a net gain or are you know this slowdown of activity.
You know as impacted us since mid March end. It continued in the in a in April that being said you know we're still growing we're growing less than last year about it was still growing and and that's the fact into Mary is we estimate that.
Through known from in March through and available the <unk>. The market activity was was that about for wireless services only was that about.
You know, 30% to 45% over and above normal activity in terms of you know switchers going from one operator to the other.
We're now you know, we're not up to about 65% of normal activity.
So you know there's a significant slowdown in terms of market activity, but the thing is since we capture more than our peers and even more since the beginning on a a crisis in terms of sure gross adds.
Well last week and the week before our results in wireless services, we're on top of last years and even better. This year. This week. So it looks like I've got at least at our and Ah things are getting to some you know some kind of a normal.
So I'm I'm still encourage oh the thing is will we catch up on the.
On the err on the gap that was created you know from April 1st through a to say a April thirtyth I hope so because obviously a gap was created with the slowdown in the market activity, but I think that now we're getting too we're getting on track to what our normal no normal performance with her with respect.
The wireless so no I know I spoke about a lot of things, but hopefully Andrew with answers your question I guess.
You had a last question drew on sports and Entertainment I think right on the yeah, just from a modeling standpoint, yeah. Just I mean, you know we don't we're not going to start today to give guidance, obviously, but you know I mean, it's I think it's easy to see that on that on that small division I mean revenues. A you know I mean, all shows and I've been postpone I've been canceled.
So that being said, there's obviously a.
I'm, a very important part of variable cost on that so you know I'm at the end of the day. The you know the the impact on EBITDA will be obviously, a significant for that division, but overall, you know fairly muted for us.
Okay understood. Thank you very much.
All right.
Next question.
Comes from a just fan of Scotiabank. Please go ahead.
Hi, Good afternoon hope everyone is okay.
I've got a few questions on wireless first couple as qualifications for GE US, Jeff you talked about HM neutron.
Absolutely I think increasing year over year on a standalone I'm just trying to clarify what you meant by that you mean beat the subscribers are worried in your base last year. If you looked at them again this year that you saw in HM.
The increase in that so any dilution Apple news is result of next just wanted to clarify that called that and also games.
Capex number for wireless Wonder if you can just repeat that and also if you have the wireless EBITDA as well.
And then the lost so.
Question is it just on the all four opt to however, you want to talk about the the trend looks like it started to improve this quarter I know, you're still adding a lot to be while d. and.
And says I'm wondering if we have seen kind of about inflection point of of wells improvement in Abu Dhabi outstanding obviously, the impacts from Kobe <unk> just wondering if the underlying trend is starting to move into right direction for you he's on what the mix impact. Thanks.
Okay.
Well first of all comment about a year over year, Amy you growth on a stand alone basis for both Phys and ER and videotron. So what we mean by that is if you look see if you simply look at fears.
Phys ARPU or abbey was up year over year and essentially if you remember for fears last year at the same period, we were in the launch prices essentially a and we have a new jacked up our prices in October. So obviously, we get we got the benefit of that and so it's a major in Chris but increase for fifth and even for.
Yeah for Videotron, you know if you take HBP last year versus this year, it's up obviously not to the same extend to fit is but it's still a greater than zero.
The Capex a guy the Capex and wireless this year. This quarter was $25 million last year was 13. So are we almost doubled our capex investment in wireless and obviously, it's related to de LT advance Fiveg network.
It'd been de April wireless I mean, obviously I will not disclose the idea for wireless but I can tell you that the growth is significant it's even greater than what I disclose a for the fourth quarter of 2019. So we're close to 40% of growth in wireless this quarter, obviously phase in country is they're contributing.
Quite nicely fifth a is generating positive EBITDA in the margin is a quickly approaching or getting close to our videotron brands I'm, you know margin and it's all related to do 100% or you know digital experience and a lower cost structure for for fifth.
And in terms of the trend a and ARPU well you know it's still a decline in terms of a in terms of ARPU. So it means that you know phys and to be why you would be a base is increasing therefore, eroding ARPU, which it's lower this decline is lower this quarter I know.
Good.
Hopefully, it's it's a change or and then we're going to see reduction in declines and at some point, maybe it's gonna go above zero or it's going to grow but I think it's a bit a premature to to conclude that we're going that way because still the base.
The base they'd be why would be base is increasing and our total base.
Okay. Thank you.
All right next question.
Comes from a Maher yaghi from there's I'm sorry. Please go ahead.
Yes. Thanks for taking my question I wanted to ask you heard the jail on.
On your wireline services with the pandemic.
Impacting the subscriber base have you seen the initial.
Indications that customers are downgrading.
They're packages in any way and I'm talking here on the residential side, mostly because you don't have a lot of exposure to.
The enterprise market.
And also on wireless with as you mentioned says is having a good success.
And the bigger proportion off your subscriber base have you.
Have you figured that with all the all the technical issues. There and is the is the is this the technology behind says.
As solid as you want it to be.
I just have a final question on media.
Okay. So in terms of downsizing of of service plans.
Well for for the for the first quarter why haven't we obviously I didn't see I'm not seen anything.
And the April were starting to see some but it's nothing really material on the residential site.
And the business to business side, though.
Although you know I wouldn't call that downsizing, we had to suspend many services.
You know a lot of clients of ours are bars, and restaurants and hotels and you. Obviously those a those are shut downs. So the almost all call loss to spend their services, which we did you know as a customer care initiative.
With so that's essentially the what we've seen.
Since they then you know the beat to be segment has not Oh, that's not started back in <unk> to be back in business. We don't know what's gonna be to impact in terms of the BW segment. The in terms of downsizing.
But so far on the residential side and we haven't seen any significant trend as of yet.
But if the pandemic you know last <unk> you know.
A few a few months or a few quarters.
It will have an impact on the economy overall and then if it has an impact overall in the economy. It means that at some point is going to have an impact on residential services as well. So that's that's why we prudently decided to cut back.
On our Capex program to protect our cash flow, where you know proactive here rather than being you know reactive we got to make sure that the you know when things comes to normal we have the financial resources do you know bring them to know.
And on says Oh, UNFI is I'm, sorry, I unfair, yes. The everything is fine well you know and a in July of last year or we fixed all the problems that we have with respect to the technology and since then we haven't seen anything significant.
No material.
Problems with a with our technical platform.
So no everything's a everything's on track everything works Fellow works fine, we and as you know and October of last year, we have jacked up our prices because we were confident that the platform, where solid and a and indeed it is solid.
Okay great.
My last question you had a question on a on media.
Yes, I basically with production shut down I wanted to just understand what do you think this could mean in terms of a.
Major production volume and in the CLO, how that could impact your revenue and advertising and or is there a because you run a convergence model and you believe that production and media is essential for you to continue to have like that.
Scripts and model on your wireline services I wanted to know.
You have any concern when it comes to this conversions model.
You know production continues to be shut down.
Yeah I'll start then ask a policy do have a more comment, though but you're right dimension that we've been building.
Our model and convergence a that a production television production then.
Other matters also were part of our strategy.
I guess that you know and it looks like that it's everywhere in the world I mean, it's it's a north American factor and elsewhere, either that's it production facilities on us or on a slow motion and violent or does that mean that you know we will get a we will.
<unk>.
We were we will be forced to change our model I don't think so I mean and yeah. We should think that yeah. This situation will not occur forever.
And that we're looking for alternatives right now on the advertising side. This is for sure that.
You know certain aspects of our businesses.
Our business backed it just recently.
We are repositioning I would say you know the way that.
We would like to offer our.
Platform. So our customers also on a convergence basis to compete effectively.
I guess, our competitors, which do not have the capacity to offer many platforms, which we do so we will continue to look forward to push the this model through our customers and maybe I would let the pastas to save your words on our production facilities.
All in all the teams right now or are expected some uh huh.
Different Uh huh.
Oh difficulties that I'd add another point, we prove which are a recent production that we are able to you.
With our creativity and and Uh huh.
To do to put something a forward and to add to have producing a production so where yeah. I think that's in mind and for that kind of engine and conversions I think that gets cancelled or what it is.
We will continue you end up to look forward for having productions, which are not completely local production. It is but also you. We are populating liberty go with or some purchases. Some acquisitions you know on the international basis. So it's it's a mix of both and we will continue to work.
And just direction.
Despite the fact that that's a little bit you know tougher than it used to be before.
Okay. Thank you.
Pleasure.
[noise] alright.
Next question.
Comes from a Matthew Griffitts from Bank of America. Please go ahead.
Hi, Thanks for taking the question and I Hope you guys are all doing well I sort of question on a the cost and the telecommunication ER segment. It looked like they kind of increased a quarter or sorry year over year I'm, assuming a lot of that's driven by what was going on with helix and acquire maybe you can just talk about.
ER docs that that's right and what the drivers of the costs are and then of course with things changing for the remainder of the year kind of what you see the trajectory of costs going forward I might be.
And then I had a follow up just on the.
The way that you plan to handle kind of these suspensions of service in the <unk> you were saying, mostly the beat it be segment.
I don't suppose that shows up next quarter with [noise] kind of subscriber losses, but they're not being built does it just show up I guess in the ARPU for the services you know being reduced on a per customer basis or how is that how do you think that is gonna be reflected.
Thanks.
Okay I'm not sure I got the last a the last question about that I'm going to answer the first two first so to ones and.
And maybe you could repeat a repeat after my math, so with respect to.
With respect to their cost in off course, what helix a.
You know our model this change rather than being an infrastructure play on you know investing in Capex, and then Oh, having to recoup the investment through you know our revenues were now are on their license based model. So we're not like in a SaaS model. So you know we obviously have you know additional costs in our in our structure related to this chain intermodal you know, we obviously has.
In terms of course, we already you know obviously has a normal cost inflation that we see on the on salaries and and so many you know so many entrance.
You know of our of our model. So I guess from a on a year over year bases are no. That's why would explain the including increasing costs in terms of the trends if one for the the rest of the year. A you know obviously the pandemic has created some no additional pressure on the on some of our.
Cost you know I, if I think about a bad debt you know bad debt is very speculative, but you know I I would assume that bad debt is going to go up.
I'm, sorry could you will certainly I think having impact our customer carrying initiatives there. They play on both side both on revenue that we that Weve forgiven by you know Britney on providing those customer care are carrying initiatives, but also some costs related to those so are you know retrofitting the stores as well.
You know, it's going to had core cost notice and it does sound any measures that we put in place they're gonna have some costs, but that being said on the other n.. We certainly have some some savings or you know when unfortunately had to a you know less some people go temporarily but you know there's some salaries saving that are we gonna see.
Yeah, I'm thrilled to throughout Q2, we've got done a advertising and some a in some respect a you know I've talked about Capex, we do more auto Oh for self install I should say, so there's going to be some pluses and minuses here and there isn't gonna be a total wash I'm you know maybe not.
I am going on but.
But that's probably the impact of a of the pandemic.
And maybe repeat your last question. Please.
Sure. So I was just curious with the suspension of service that is happening for for instance, like bars and restaurants now you're not going to record those as lost customers are deactivations in coming quarters, but obviously, they're not incurring a bill because they're not actually using the service or their suspended. So does this is it's just going to flow through.
As a lower ARPU in the quarters to come.
And just if I could add one more question.
I think both the your you know yourselves at all your customer, they're getting kind of a crash course in a you know how to operate a with each other.
You know online does this change or accelerate kind of how you view the kind of evolution of the business coming out of this pandemic. If you. We can look further down the road.
Yep.
Well for your no question about with respect to the ARPU in Biz, and there would be to be saying when you're right. So it's it's justice suspended service. So far so it's not a lots of a of customers. So yes, it's gonna from through a lower ARPU your perfectly right.
In terms of I would say opportunities with the this a new trend that has been created with a pandemic, which is working from home and doing more stuff online, yes, I think it's a great opportunity for our broadband business.
And a you know no doubt that people will be consuming <unk>, you know broadband or more bandwidth in the future with but you know there's there's a lot of opportunity because our created a you know how about a you know I am a working from home a plan that.
That we would Ah you know.
Ways for you know businesses to make sure that people.
Our their employees are working from home I bet, you know a flawless experience or from a security side from the broadband you know the coverage side or the speed side. That's something that we can think about if people are working from home no say everything you know what competitors are are listening as I've talked about you know that.
So I'd be if people are working from home [laughter] telephony in the cloud a you know obviously, it's going to I think is going to accelerate so there's there's many opportunities I believe that aren't created by a body spend they make but the key of it is really broadband absolutely and we'll continue to work on it.
Hi, Thanks, a lot.
Next question please okay.
Next question comes from our Vince Valentini from TD Securities. Please go ahead.
Hi, Thanks.
Jeff just to Reclarify on the operating cost increase in Q1, you said that equipment revenues were up.
He materially year over year for helix and those would be low margin. So wouldn't that you see driver the year over year Opex increase as well.
Oh, absolutely you're right that's true a that's a that's a fair point yep okay.
Okay.
Absolutely absolutely look after the boxes you.
Okay. The other way I was on Capex here, if you at the low end of 625 to 700 this year.
Can you talk a little bit of a boat projects being delayed or there are some fiveg key items or no new construction areas is it possible that that means we need to be it the high end of of 700 to or maybe even above 700 in 2020 Onest <unk>. The world is back to normal by them.
Yeah, well I would certainly not come in about 2021, Ah, but what the project that we it's it's really delays and the projects. So we've slowed down our investments we have not canceled projects so far.
So that's the obviously has to be are reflected in your and your model in terms of things that we've delayed.
Network extensions that's the that's the biggest piece of it some IP projects the retail stores as well we had a project to a you know do some improvements in our retail stores, obviously, it's been delayed because the re dels stores or shut down or close.
Under under Fiveg side, I mean, there's no major impact of this some some and nothing material impact, but nothing that is a that as major of our plan, we have experience and some some delays or you know because the Samsung team, obviously, they're stuck in Korea, and so they're not here to work with us. So I you know obviously it has.
An impact on us, but nothing that I would the that I would characterize as being material.
Okay. Thanks for that.
I'll probably few Hugo.
The taxes for the year team can you give us any sensors makes it was like a 150 million of cash taxes, All park reasonable number.
For the Super 2020, Yep Yep.
Okay.
And lastly in terms of.
Balance sheet to free cash flow priorities. So.
Is there do you have the same sort of thinking about maximum that leverage that you've talked about the last several years of.
Maybe up to close to four times temporarily as long as you see a path.
Bringing that leverage back down if you could oh remind us of your your balance sheet targets there and also.
Share buybacks be a lower priority that a good acquisition. So if you needed money to pay for something we probably see buybacks slowdown in the short term or do you think he will keep doing both thank you.
Vince no on under leverage I mean, we certainly don't anticipate leverage to to to materially increase I mean, I'm you know what we're not you know we believe we've set in the past sooner or later or or narrative is not going to change you know I'm. If we if we do something and we we we've always wanted to keep some success.
Ability on that front.
In terms of acquisitions, but a we're not looking at something that wouldn't materially impact our.
Our our leverage.
In terms of N C. I'd be we same you know that dividends and then see I'd be we're staying the course. This is you know again, there's there's nothing in our in our mind that that warrants any a any changes strategy. There I mean, our cash flows are sound and continue to increase so [noise].
As we we at at this point, we Oh, we stay the course as I say on the east on these two friends.
Thank you very much.
Thanks Ben.
Right next question comes from Oh.
Moving to go up at the gift from Canaccord Genuity. Please go ahead.
Good afternoon calls for taking my question that too for me just going back to good yeah.
Just wanted to get a sense.
What did it get offensive or the that's sort of the cost behavior. Obviously as you see some pressure on the AD fraud and other areas you're going into two sort of protect you I bet Die line, maybe just talk about some of those mitigation options that available as well as set at the cost behavior that various divisions.
Within media and then secondly, maybe first shot from Saudi can you just talk a little bit about up your cost of acquisition and wireless I know that there's going to move to would be.
The way it would be model.
That component of the cost I suspect that decline, but a is that more room for reduction there as we look through to the rest of the year.
Oh, sorry.
Media side that quickly as you know you know the the the overall a impact a regarding the EBITDA is is minimal others to say that obviously you know we're going to always be a looking at our expenses and then therefore, if we weren't you know too.
Reduce the amount of Gos inc. or you know to produce our media or to run our media. We will do in fact, you know pagination a newspaper at than had been lower everywhere across the street some of our operation and music at dinner or you know on the whole basis same thing for for book Publishing book.
Sure abuse, and so I think that what we should say is part of an overall convergent strategy, but winnable with minimal financial impacts.
In terms of Vicki.
The cost of acquisition.
Well, obviously with a with our model that is.
More than ever be why you would be based on an absolute dollar basis. Obviously it has a positive a favorable impact on the.
On cost of I acquisitions, and ER and the handset subsidies, but the thing that I would mention is I think that from a cost of acquisition per new subscriber we're doing a better job done we're doing in the past and Ah. That's you know that's approaching another project, but that's a and initiative that Oh.
Wanted to focus on a in 2019 and a I think that there were doing well I don't think I'm sure it or were definitely doing a better German it better job in terms of reducing the cost of acquisition is there any potential for further reduction or you know, maybe especially we know where the <unk> E. P model that has been.
Implemented by our competitors, which we haven't yet well it's the if the main reason for our competitors was to ultimately reduce the handset subsidies, while I think it's going to benefit to us from you know Oh no naturally so so yes, there might be some additional potential savings.
So on that front.
Thank you.
Well take the last question I think it's David Mcfadgen.
That's right well, David My Fadgen Cormark Securities. Please go ahead.
Oh, Hi, Hi, Yeah couple of questions.
So first of all I don't think you gave out these metrics I, usually do what percentage of gross ads on wireless I did you capture in the quarter and then.
Where the B Y O de net ads are still running at around two thirds of your tone that adds coming.
Are we captured 26% of a gross adds and yes, that's right about the two thirds is be waiting.
Okay and then just following up on your comment you said that the wireless EBITDA growth was around 40% corridor. So would that imply that the wireline EBITDA was down slightly.
Ah, Yes, I mean, it's from a pretty close to flat you're.
Pretty close huh okay.
And then just lastly on on pricing for says you know you talked about moving up your price as a last fall.
I think initially had to back off a lot I back is the right well to aggressively and I was just wondering.
Following that were you able to get all the price increases that you were targeting.
Yep.
Well, it's true that we've pulled back on some packagers, mostly a the low end packages. So you know a blow a data packages Oh, you know plans. So so yes, we pulled back and overall the you know I think about I would say yeah.
I would say 70, 75% of there the overall price increase has been a isn't kept.
Well maintain.
Okay alright, okay. Thank you.
So a well. Thank you all thank you for joining us a this afternoon, we Djokovic you keep your well and we'll talk to you at the next quarter Conference call.
Ladies and gentlemen, this concludes the cubic or Inc.'s financial results for the first quarter 2020 conference call. Thank you for your participation and have a nice day.
Yeah.