Q3 2020 Rogers Communications Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Rogers Communications third quarter 2020 results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
Following the presentation, we will conduct a question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead.
Thanks, Terry Good morning, everyone and thank you for joining us today.
Today, I'm here with our President and Chief Executive Officer, Joe Natale, Our Chief Financial Officer, Tony subsidiary, and our Chief Technology, and information Officer George for now.
Before we begin I want to remind everyone that today's discussion will include estimates and other forward looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2000 and I see.
Regarding the various factors assumptions and risks that could cause our actual results to differ with that let me turn it over to John.
Thanks, Paul and good morning, everyone.
Let me start by speaking briefly about our third quarter results.
Tony will provide additional detail and insight in a few minutes.
Next I will share an update on how we're continuing to adapt our business.
Both meet the needs of our customers and drive operating efficiency.
And finally, as Canada's largest fiveg provider now covering over 30 cities I'll discuss our fiveg rollout.
And the role our next generation technology plays in driving long term growth and supporting kind of his future.
First our results.
Rogers delivered significant sequential improvements in Q3 across each of our businesses with a solid performance in customer additions revenue growth.
After the ability of free cash flow.
As we previously noted after Q2.
Our results during the alcohol shutdown did not reflect the underlying fundamentals of our company nor the long term growth prospects of our wireless cable or media businesses.
This is evident in our Q3 results, which rebounded as demand growth resurfaced, we pivoted our operating model. Our results show, we are managing the environment effectively and our long term strategy is sound.
In Q2, the overall wireless market declined by more than 80%. Thanks.
In Q3, as our stores reopened and our digital sales capability ramps, we delivered strong postpaid net additions of 138000.
34% from the same period last year. In addition, we delivered 30000 prepaid net additions.
This growth was driven by a number of factors.
Pent up consumer demand.
Inactive back to school shopping period.
Growth in our digital sales and service capabilities and the continued growth.
Growth in our Fiveg ready unlimited plans.
Our Rogers Infinite unlimited plans grew by 300000 this quarter to 2.2 million customers. This represents the largest unlimited customer base by far in Canada.
Customers are no longer pay overage fees enjoy worry free data usage and are well positioned for fiveg.
Our infinite base has higher ARPU lower churn.
Far better lifetime value with a lower cost to serve and there.
And their data consumption is more than double that of customers on legacy plants.
These results are certainly in line with our expectations and create a strong foundation as we grow our ever expanding fiveg footprint and iconic fiveg devices like the exciting new I phones, arriving in Canada.
Despite the competitive intensity in the quarter. Our team continues to do a good job of managing churn.
Most paid churn in Q3 came in at 1.1% of all 10 basis points better than Q3 of last year.
Switching to our cable business, which also improved sequentially from the anomalous lows of Q2 revenue was flat adjusted EBITDA grew 2% year over year and this.
And despite kobin related delays and adjustments in the homebuilding industry and the condo rental and air BMP market dynamics, we delivered solid operating gains were very.
We're very pleased to report that our DOCSIS and fiber network investments continued to gain recognition.
Earlier this week hoopla.
A leader in network testing recognize Rogers as the internet provider with a faster speeds in Canada, and the best consistent performance nationally.
Switching to media with the return of live sports in Q3, our media business delivered year over year revenue growth and significant sequential improvements in EBITDA. This run.
This represents a material reversal. After this business experienced the most significant impact during the depths of the COVID-19 locked down.
All four major sports and their viewing audiences were back in Q3 viewing.
Viewing numbers were strong and advertising showed notable improvements from Q2.
Advertising across all media was up 18% from a year ago with sports advertising showing even stronger gains.
This underscores the essential strength and resilience of live sports above all other media categories.
Next I want to highlight some recent business improvements that will play an important role in driving both efficiency and growth into the future.
As I mentioned last quarter COVID-19 fundamentally changed how we operate in.
And greatly accelerated our business transformation plans, we fast tracked initiatives that we had planned including enhanced TV and internet self install stronger digital capability customer care agents working from home just to name a few and launching these changes in record time.
This is more important than ever as customer behaviors and expectations change rapidly our.
Our ability to be agile and adapt how we serve customers is critical and it's a muscle that is developing well and Rogers this will pay dividends well beyond the period of the pandemic.
In many cases across industries the move to online shopping is three years ahead of forecast.
Always matters and multiple sales and service channels matter.
Building on our digital gains in the early days the pandemic, our digital volumes continued to grow even as our stores reopened.
Digital sales adoption is up materially year over year, and we're seeing a healthy mix between digital and bricks and mortar retail this chat.
This channel mix and the resulting improvement in channel economics allow us to be nimble meet customer needs and drive margin improvement.
At the same time digital service and digital support is up substantially resulting in fewer service calls.
Last month, we move to digital self serve only for simple transactions, such as making bill payments changing contact information.
Today, nearly all of our top five service transactions are completed digitally.
Virtual assistant conversations jumped over 200% since last year and nearly 20% sequentially. We've now hand over 5.4 million conversations since the Rogers virtual assistant launched 18 months ago.
With ongoing improvements through AI technology, we expect this to continue to deflect more calls lowering costs and importantly, saving our customers even more time.
In cable we continue to see excellent ongoing advancements with self install capabilities of our ignite services.
Our express self install option delivered via Courier makes up a growing percentage of our ignite installs eliminating a truck roll entirely.
Together with our enhanced self installs, where our technicians drop off equipment and provide support for our customers through our virtual assistance.
These contact less installs represented 95% of our cable installations in Q3.
When our customers do call us our technical support agents also use our virtual assistance.
With the App now solved the majority initiatives right away without needing to book service appointment, we remain on track to save our customers an estimated 400000 hours of their time and save US approximately 100000 service truck rolls this year.
This is an example of how our digital capability drives an enhanced customer experience as well.
As well as increases the overall efficiency of our service processes.
In addition to efficiency and cost management opportunities.
Investing for growth remains a top priority.
Investing in networks is a critical.
A critical part of our long term and future success. In fact, it's an immediate imperative as we move to a fiveg future.
Today.
Just customers enjoy the best wireless network experience in the country.
Lots, a global leader in network testing and benchmarking that ranks the performance of typical consumer use cases and test test things like network reliability.
Unloaded upload speed call setup time video streaming stability and quality has awarded Rogers the best Wireless network in Canada for the last two years.
To get to this point has required $30 billion of investments in our wireless network over the past 35 years.
This is a scale business and the importance of scales more important now than ever as we begin the biggest generational cycle and technology and network capability.
Fiveg will transform industries fueling innovation across sectors and drive economic growth in our tech driven recovery.
It will reduce the cost of data and fundamentally change, how Canadians and businesses connect to the world.
Fiveg technology is engineered to support a thousand fold traffic increase over the next decade well.
While the full networks energy usage is expected to be half. The current levels Fiveg is not just about innovation, but also supports a better environmental outcome.
Rogers operates Canadas first and largest Fiveg network Powerbar longtime network partner Ericsson, we started the rollout in downtown Toronto Auto Montreal, and Vancouver back in January.
And we have since expanded to 130 cities and towns, including the first city in Atlantic Canada.
Just last week, coinciding with the announcement of Apple's Fiveg I phones, we announced that we doubled the reach of the Rogers Fiveg network today, our Fiveg network is 10 times bigger than our peers.
Fiveg requires the right infrastructure there.
The right partners and investments to be ready to fully capitalize on this potential we are.
We are well prepared in this regard.
In addition to our network partner Ericsson, our strategic partnerships to research incubate and commercialize fiveg solutions extend to campuses across Canada, including the University of British Columbia University of Waterloo and command attack these partnerships and investments in digital.
The structure are critical to help Canada, not just recover but rebounds from COVID-19 from tech startups to small and medium size businesses to large enterprises, we all need strong networks to unlock growth and unlock productivity.
And of course.
None of this great work and these accomplishments during this quarter could have happened without the dedication of our team members I want to thank our entire team for their incredible effort and commitment they have demonstrated since the start of a pandemic.
During the most complex business environment, we have seen in our lifetime. Our team has been there for our customers and for our communities.
This also been reflected in our recent annual employee engagement survey, where we achieved the score of 87% employee engagement.
I could not be prouder of the continuous improvement culture that has been built at Rogers.
And this will service well as we invest in more service and technology innovation and then rolling up a next generation of wireless and broadband broadband capabilities.
And with that I will turn it over to Tony to provide some more details on Q3.
Tony Thank you.
Thank you Joe and good morning, everyone.
Q3 results reflected solid improvements in each of our businesses as the country slowly emerged from the coated lockdown of the second quarter.
Consumers came back to our stores or through our digital channels in healthy numbers to meet their connectivity needs Q3 also delivered strong free cash flow and solid margin improvement in both wireless and cable as we rolled out our efficiency playbook.
In wireless service revenue declined 9% year on year, but improved four points sequentially, despite roaming revenue still being down over 70% or $90 million from one year ago.
Additionally, we saw a decrease year over year of more than $50 million in overage fees as customers continue to shift to Rogers infinite unlimited data plans we are.
We are not quite through the full overage transition.
On a year over year comparison roaming revenue combined with the overage reduction contributed eight points of our year over year revenue declines. Furthermore, transactional fees such as late payment charges and restore fees continued to be down in Q3 by another $20 million.
Representing another one point of our decline so.
So in summary, excluding overage roaming and a slight decline in onetime fees. Our underlying service revenue run rate is now flat year on year.
Wireless service revenue margins measured as wireless EBITDA over wireless service revenue grew nicely up 300 basis points to 66% compared to the same time last year, reflecting solid operating efficiency improvements.
As we transition to full device financing this measurement helps us understand the quality of our service revenue profile.
As you heard Joe speak earlier, our efficiency initiatives, along with the largest base on unlimited plans underpins this margin expansion.
Both postpaid gross and net loading were very strong in Q3 postpaid net additions of 138000 were up 34% year over year and gross loading was up 3%.
Unlimited plans were up 300000 sequentially from Q2, reflecting Canadians embracing the value of unlimited plans known in Canada as more customers on unlimited plans in Rogers does and Nolan as a bigger Fiveg network.
This positions us very well as the marketplace moves into a fiveg world.
Following the significant Ovid driven slowdown in Q2, where the market was down over 80% we.
We estimate that the overall market may only be down about 5% in Q3 compared to last year. This.
This level of recovery clearly highlights the priority consumers place on wireless services as well as how effectively our operations are able to respond.
Blended ARPU is down 9% on a year over year basis, but up $2 or 4% sequentially.
$251.12 year over year decline was largely due to reductions in roaming and overage revenues as I previously mentioned, while sequentially, we benefitted benefitted from higher volume related fees fewer concessions and bigger data plans.
With our leading position in unlimited plans, we continue to focus on driving the best long term ARPA grew ARPA growth as we move into Fiveg.
We saw significant competition during the quarter, most notably in the flanker brands and we matched pricing promotions as needed.
I think it's important to highlight that the short term nature nature of promotions in our industry corresponds to active consumer shopping and are reflective of healthy competition in the market. As you saw in Q2 and Q1 of this year promotional activity was low as the market was essentially shutdown and very quiet.
With a significant upturn in business activity, we were pleased to see that handset costs are no longer a drag on our PML.
Owing to increased MSRP more OEM funding and stronger discipline and handset pricing, we now see accretive margins from asset sales overall the shift to the IP has had a positive effect on the Canadian industry Economics last year in Q3 equipment margins were negative two point.
7% and today they are positive 1.6%.
The reversal in margins is even more start if you look to equipment margins before the launch of VIP at the beginning of Q3 last year.
Despite the increased competitive intensity and expected disconnects from some customers dealing with the economic followed from Govan churn was lower at 1.1% compared to 1.2% last year.
The improvement reflects the benefit of our growing unlimited plans, which continue to improve the customer experience through no more overages simple billing and great value offered by these plans.
Wireless adjusted EBITDA was down 4% versus last year, but up 19% sequentially from Q2.
Unlike Q2, where we booked a 90 million dollar incremental provision for potential bad debt exposure no additional provision was needed this quarter.
The ongoing impact from Cove. It is still unclear. However, the performance to date within our bad debt allowance is currently running better than anticipated and the $90 million provision previously established continues to provide sufficient coverage as the economy continues to work its way through the coated in.
Women.
Moving to cable service revenue was flat year over year and up three points sequentially. Despite the slowdown in the rental and home development markets as we highlighted last quarter no price increases are in our Q3 results as we chose to defer increases earlier this year during the pandemic.
Homes past and customer relationships, each grew year over year and sequentially, while internet and ignite TV net additions were down they both recovered from Q2 with Internet net additions up threefold to 16000, and ignite TV net additions doubling to 38000.
On the financial side, the cable operations performed well on a year over year and sequential basis, EBITDA grew 2% year over year, and 12% sequentially and EBITDA margins in Q3 grew to 51.4% the highest in our history.
This improvement was driven by capturing efficiency initiatives throughout our cable business lower churn and the elimination of some of the concessions provided to customers during the extra challenging period in Q2.
Additionally, no incremental provisions for bad debt were required.
We continue to be very efficient with our capital spending self install now represents 95% of all installations and the hardware costs continue to come down Capex intensity for cable was 22% achieving the target. We were initially anticipating to achieve by the end of 2021 as it.
Results cash margins for cable were at an all time high of 29%.
And our media business, we delivered notable improvements in Q3 with a return to revenue growth and profitability revenue was up 1% year over year and was up 65% sequentially as live sports return and advertising started to recover the pay.
The pace and size of this improvement demonstrates the attractiveness of sports properties to advertisers and the significant appetite consumers have for our sports Brad Klatt Broadcasting properties. This improvement was also achieved despite no contributing revenue from Blue Jays home games.
While adjusted EBITDA and media was down 32% on a year over year basis, we saw very healthy recovery on a sequential basis second quarter EBITDA went from a negative $35 million in Q2, two positive $89 million in Q3, reflecting the improvement in advertising revenue.
On a consolidated basis total service revenue was down 5% and adjusted EBITDA was down 4%.
If you exclude the impact of roaming in overage, we would have been flat in revenue and adjusted EBITDA.
Or said another way in Q2, we had estimated total coven related impacts in the quarter of 720 to 25 million in revenue and 300 million on adjusted EBITDA.
In Q3, the estimated impacts were $195 million in revenue and $80 million in adjusted EBITDA.
While these are still notable numbers and there remains significant uncertainty in the coming months and quarters due to the potential impact of a second wave of Cove. It our teams are managing the environment very effectively.
We invested $504 million in Capex for the quarter, which was a year over year decrease of 23% and reflected a consolidated vie ratio of 14% the deal.
The decrease in capital expenditures was driven by deferral of projects, including Greenfield projects, given the pandemic as well as improvements in cable capex efficiency associated with self install internet and ignite TV.
I think it's important to note that even as our consolidated Capex spend is down we're not holding back on key strategic investments, our CIO ratios in our cable and wire wireless businesses affirm our investment leadership in these assets today, our entire cable footprint already enjoys one gig enter.
SV and ignite TV platform is up over 115% and we have the largest fiveg network in the country with a 130 communities already enjoying fiveg fiveg pace is particularly impressive given our rollout started in mid January.
With the improvements to adjusted EBITDA and lower Capex, we generated free cash flow of $868 million this quarter, a 13% increase year on year.
Our cash tax rate as a percentage of adjusted EBITDA was 4.6% in the quarter and should be in that same range for the rest of the year 2020.
The company's liquidity remains very healthy at $5.5 billion available. Additionally, our balance sheet is well structured with long term maturities and low interest rates on our outstanding debt our weighted average interest rate at quarter end was 4.16% with an average term to maturity.
Three of 13.2 years.
In terms of an outlook, we won't provide specific guidance, but similar to last quarter, Let me share some color as to what we see at this point in general we anticipate additional sequential financial and operating improvements in Q4.
In wireless the current loading environment remains healthy with competition driven by consumers upgrading phones and increasing data plans, whether the industry will repeat the same level of subscriber growth in the traditionally busy Q4 holiday season is difficult to predict at this point, but nevertheless, the.
Industry has recovered well off the depth of Q2.
We believe ARPU in Q4, it will improve slightly on a sequential dollar basis compared to Q3, but will remain under pressure year over year as we do not anticipate roaming to recover in the near term.
However.
With a more active market looking to upgrade as highlighted by our 300000 sequential increase in unlimited plans. We continue to have the right focus on ARPU drivers as the underlying fundamentals of these plans remain positive.
In terms of overage revenue, we anticipate Q4 will be down $30 million on a year over year basis, given the near term transition to our unlimited plans as we continue to work through the near term overage declines, we do anticipate multiple financial and operational benefits to be reflected in our.
Results as this transition is completed.
As we have highlighted in the past these plants have improved ARPU lower churn and higher cat customer satisfaction for the consumer and also drive the simplicity dividend for us in the form of fewer calls to call centres E billing and other areas.
In our cable business, we expect sequential improvement in revenue EBITDA and margins and loading should continue with a modest sequential improvement in Q4 as housing starts seem to be improving.
Capital intensity in both wireless and cable business should continue at around the current Q3 levels. We have seen significant savings. This year as we continue to benefit from the scale and historical relationships, we enjoy with our current vendors and realize ongoing efficiency opportunities in the capital projects we are.
We are implementing as our Fiveg progress today shows we remain as committed as always to investing for growth.
In our sports and media business, we will see some sequential declines in revenue and adjusted EBITDA as such.
As some of the key sports transition to late fall and early winter seasons, our losses for the year are expected to be much less than we anticipated earlier this year and excluding the Blue Jays, our media business will be net positive on adjusted EBITDA.
In terms of cash flow, we anticipate the fourth quarter could remain at approximately the same dollar range as Q3 based on improved adjusted EBITDA and the continuation of efficient capital spending.
We're very proud of how the Rogers team is navigating the current environment. While there continues to be significant uncertainty in terms of how the ongoing impacts of Covidien will influence the Canadian economy through the rest of the year. Our Q3 results show, we are effectively managing growth opportunities profit.
Stability improvements operating efficiency cash flow generation and disciplined capital investment during this period, let me.
Let me now turn the call back to the operator to commence with arc unit.
Thank you.
We'll now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
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Our first question comes from drew Mcreynolds of RBC. Please go ahead.
Thanks, very much and good morning, two for me first on the wireless side on the competitive intensity front Joe.
Joe you alluded to the wireless market being down.
5% or maybe Tony you did I believe that was up 4% pre cogan.
I think there's concern out there in a market that's contracting or expanding less going forward that promotional activity gets too aggressive so would love to get updated thoughts here on how.
You see in this lower growth market balancing acquisition with retention and then.
And any changes here in growth versus profitability on the wireless side.
And second question.
Somewhat related.
Clearly Rogers leading on unlimited.
Coverage I believe you had the largest iPhone base among among your peers seems like you're well possess position here.
Hi, Angie neighborhood handsets, particularly on some time into the Canadian market. This quarter can you talk to your broad expectations on.
Bob sub but particularly the migration that you're seeing or you expect to see to premium tiers as.
Consumers gravitate towards.
Bigger fiveg capability. Thank you.
Hi, Andrew.
It's Joe.
We saw quite a bit of price aggression in Q3 to your first question.
Our views of market was down call it 10 or 15%.
We're down to the level of 250% of the previous year and Q twos are down radically in Q2. Thank you.
In Q3, a bounce back we'll see whenever reports, where it looks like but we believe was maybe five percentage points off of last year roughly the same as last year. So I think when the market opened up again, everyone said okay.
Game on.
Game on and we saw a lot of competition in the flanker brand and the.
On the flanker brands, we were not the aggressive just to be absolutely clear.
Most a lot of competition the flanker brand as the market kind of woke up again and when the markets active it does create profit does create opportunity.
For loading overall.
Our view is always been to balance.
Volume with profitability as a whole.
But we will always be there in the market and always be present in the market.
Overall when it comes to.
The opportunities for customers.
To transact and we kind of timed our store openings and tightened our capability around.
Around digital wrapping up et cetera, as the market kind of came to fruition.
But don't forget we also have.
Some tools at our disposal around overall growth I mean, the unlimited plans are one of those tools are opportunities around profitability.
Yeah. So.
The average unlimited customer is giving us about $20 plus of increased ARPU coming.
Compared to the legacy base. So there are leavers and things happening to take advantage of the volume and get.
So the net.
The net loss for the same time, we have capabilities to drive people up the tier of different price plans into unlimited.
And even from pre to post along the way so that the profitability is part of a balancing act as well.
We're not overly worried about that balance as a whole you add to that the handset discipline that Tony talked about in the beginning or say you know.
Equipment margins positive.
The positive equipped March probably for the first time in the history of the industry.
As a whole so it's the nature of the game is changing but there's still a square focus on growth versus profitability as I described on.
On your second question.
We're really pleased with how well we're positioned for the future.
It's not by accident that we've got the largest fiveg network in the country as we were upgrading to Fourg LTE advanced we had fiveg squarely in mind as we pick Ericsson for our partner, we did so because of their capability and readiness to do.
Do a software upgrade from LTE advanced to Fiveg and you saw that come to fruition in a very short period of time from January to now with 130 cities. We're very pleased.
We're very pleased with.
With our.
Growth in unlimited unlimited at 2.2 million customers. We believe is the largest.
Unlimited based by far in Canada and the.
The.
Fiveg is only available on those plants as a whole so that sort of also not by accident that we connected the dots on that point.
As well.
As it relates to the new I phone, we're quite excited about the new iPhone, we've seen very robust preorders.
Bear in mind that over half.
Our base is on an iPhone. So it's a very significant part.
Our day to day business and we believe we have the largest iPhone base in Canada. So you kind of have that together and you say we are ready to go as it relates to fiveg in the future ready to go as we you know.
Move from a marketplace of scarcity of data to a marketplace of abundance of data and that's where the markets going the market's going to abundance of data in fiveg will enable that capability and we're ready for it as a shift happens that's why we launched unlimited a year ago.
And that's why we took the pain around the overage melt through the course of last year. So that we're well prepared for this moment in time and whats going to transpire into the future.
Thank you.
Great. Thanks to our next question area.
Our next question comes from Vincent Caintic PD. Please go ahead.
Hi, Thanks.
Kind of a different variation on Andrew's question, you mentioned the equipment margins being positive and obviously he is starting to have a positive impact and thats. Great can you talk about the impact Joe ARPU from the lower equipment subsidies. Tony is that something that is starting to show up in your numbers and maybe a bit of the re.
Reason why you bounce back to over 51 in ARPU versus 49.
In the second quarter.
And then and then just a follow up you haven't mentioned cogeco. It also I'll just throw it in there. If there is anything you can say as an update there is a lot of market speculation that year.
And you are considering selling all of your Ccam Cdot shares if they continue to refuse to sell to you. So if you can say anything publicly about that I think it would help a lot of people. Thanks.
One of my answer the second question first Tony and then there are two.
Vince Thanks for the questions.
Let me say this on cogeco.
Altice Rogers have put forward.
What we believe is a very compelling offer.
One that materially benefits all shareholders and all stakeholders.
The offer expires on November the 18th.
I don't think it's fair to provide any other comments on the dynamics of the situation the dynamics of the offer it.
If it's not accepted.
We would do what you would expect us to do we review our capital allocation priorities with our board as part of our normal course of planning and strategic priority setting.
When we come back to the investment community, what our thoughts and plans are around that capital allocation.
I think thats pretty much all I would say about cogeco today, and really want to focus the energy and attention.
On the hard work of the quarter and what the team has delivered but.
Thank you Brad and the question is are people have been wondering about that Vince.
Vince on the first part of your question on equipment margins the sequential improvement in ARPU from Q2 to Q3 I was predominantly as a result of improvements in the three categories that I mentioned.
Earlier on.
Overage revenue in terms of the amount that it was down as a proportion of service revenue came down a little bit.
Roaming revenue, while still down quite a bit year on year.
Bounce back a little bit it was down 30% year on year compared to sorry.
Sorry down 70% year on year compared to down 95% in Q2.
And then there is also other fees that that I referred to in terms of set up our roster of the restoril fees or late payment charges. So each of those sort of more of an impact sequentially.
You are right as you point out with better equipment margins and reduce subsidies over time, we'll see a positive impact to ARPU through the way the accounting allocation works between.
The service revenue and equipment revenue.
But it's very small still today since we launched it in earnest in Q3 of last year.
And volumes in Q1, and Q2 have been relatively light.
On a year over year basis, there there hasn't been enough in the base to cause that movement in ARPU of their volumes continue at a healthy base then we should expect particularly by Q1.
To see that equipment margin help the service revenue ARPU as well.
Thank you guys.
Thanks, Dan.
Next question area.
Aerial next question. Our next question comes from Tim Casey of BMO. Please go ahead.
Yeah. Thanks, good morning.
Couple for me one could you just talk about the sustainability as you see it on the wireless side.
Obviously, so many moving parts in terms of shutdown and reopen.
But also less integration less foreign students and still you posted a.
Very strong number Im just wondering is how sustain.
How sustainable you think that trend is and could you talk a little bit about the progression through the quarter.
Just wondering if September was a particularly strong months because.
The public comments you made.
You made.
Earlier in September.
I thought were a little more cautious than the numbers that came out today and just wondering if September finished very strong. Thanks.
Hi, Tim Thanks for the questions.
We started the second question first.
You know.
Starting in late June the market kind of woke up.
People felt more comfortable.
You know going to malls and shopping.
We opened up stores and we saw this incredible pent up demand hit.
And the question we have to ask ourselves is how much of this is pent up demand and how much this is sort of seasonal ramps.
And if you saw any sort of.
Moderate view from us.
In earlier in the quarter through some of the conference discussions really because we weren't quite sure. If it was how much was pent up demand versus seasonal demand. What we did see is that the volumes and the activity persisted throughout the whole quarter.
Right from the starters pistol right to the finish there was volume weekend and we go.
And.
For us even as the stores opened we saw our digital volume continue to build and do well.
Clearly before the stores opening it was largely all.
Digital and direct volume, except for a handful of stores, we kept opened for health workers, etc.
And.
Seeing both both those things continue on the right path was encouraging.
As we kind of marched into Q4, the early part of Q4, showing as Tony mentioned in his commentary.
Still lots of activity in the marketplace I think what it underscores is that productivity.
Is an important part of life as a whole and mobile conductivity matters matters.
Matters, whether you're out and about the matters, whether you're in your car matters with whether you're at home and people enjoy having conductivity in their pocket or within arm's reach all the time. So I think we're seeing the essential nature of the services, we provide as a whole in terms of sustainability.
I think it's really a first derivative of the economy right now.
Right now what we're seeing is that you know listen to the banks and credit card balances are declining.
You know Tony talked about our bad debt performance people are paying their bills. So the general health of the economy looks.
Hi, good right now.
The question everybody is asking is we're in the middle of stage two of coated and what will this play out like what I do know is that we are ready.
Really ready in terms of however, this might go in terms of People's propensity to want to visit a store and I've visited a store shop online, let a technician in their home or not let a technician in their home, we've got all modalities fully functioning and well polished.
And we are ready to transact in whatever means a mechanism that's out there.
And so far we're seeing a very healthy focus on wireless you're right in terms of temporary visitors to Canada and foreign students those volumes are down.
And when they do.
When they do come back that we do very well in that market it will be even more accretive.
To the overall volume opportunity is there for the Rogers team as a whole.
Pause there and leave it at that.
Thanks.
Thanks, Tim.
Our next question area.
Our next question comes from David Barden.
Really Merrill Lynch. Please go ahead.
Hi, good morning guidance not sitting in for David Thanks for taking the question I just wanted to touch on.
The wireless sales margin and get your views I understand what's in.
What's been driving it to date is that the efficiency gains that you're getting there is the.
Margins on equipment, but I wanted to look ahead and get your thoughts on how sustainable you think those components are going forward and what you think that trajectory is as we look into.
Maybe next year on what those service margins in wireless should be and then just on quickly on.
Cable capex intensity on it sounds like Youre.
Claiming victory in thing you've achieved your previous target of the 22% capital intensity and should we.
Yeah.
Those goals had been advanced is there any more progression that we should see out past 2022, now or is this kind of that steady state from here on out thanks.
Thanks for the question Matt.
Both of them I don't want to get too far ahead of ourselves in terms of.
Looking out into 2021.
What I can say.
Well things on wireless margins.
We continue to execute on our playbook and we're really pleased with the progress we made in Q3.
We will continue to execute that for Q4.
And so we do see good prospect for continued margin expansion on a year over year basis, as we head into 2021, it will depend on a number of factors and.
And probably Thats, all say about 21, but.
They are enduring.
And they are fundamental in nature, and as Joe talked about and we pivoted.
Several and maybe many of our operating models.
Capturing digital.
Much more fundamental way not only at the customer level, but if you think about our back office.
And those transactions and so.
This fundamental shift in the cost structure going on and we do.
We do see it as enduring so.
As you look to Q4 expect.
Expectation of continued margin expansion in wireless.
And thats similar for the cable side as well.
Although your costs. Your question was more on that in the context of C.
The couple of things one is.
The cable CDAI, we had a concerted effort to try to get cable.
Okay, we'll see in the 20% to 22% range.
By the end of Q4 2021 in three.
Through necessity in part we were able to again pivot to better.
Better operating models that fundamentally gave us the opportunity to reverse reduce the capex spend and and capitalize on efficiency of and so I think for the next little while you can expect cable capital intensity to sit in and around 22%.
Depending on volumes you may see a little bit of a creep in Q4.
But as we head into next year.
The next wave of four ongoing wave of cost efficiency should continue to keep it in check.
In the broader 20% to 22% that we had been targeting.
Thank you Matt great. Thanks.
Thanks, Matt next question.
Our next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.
Good morning, Thanks for taking my questions a couple of follow ups to start with.
With respect to the overage numbers, Tony Thanks for providing that yet again as well as the outlook.
I know that in past you talked about getting to that target of around 1% as fast as revenue.
Is there instead of a two.
Timeline to add that I forget what the previous timeline wise, but I was wondering if stages that have an updated timeline given set of downswing, you're seeing over age and the rate of decline and.
And then secondly on the cost I mean, certainly the wireless opex. The other opex decline of 13% definitely impressive I think Joe you talked about a lot of the drive is day doing the guidance that digital touch points, which a lot of them sounds sustainable so.
Just to kind of follow up on your previous comments, how can we think about the sustainability and set up that down swing I mean should we think of those think of those cost reductions and see maybe to add to that being sustainable beyond that as the current climate conditions.
And lastly, big picture question on the regulatory.
Environment sounds like is it seems like the basis of a change of high at least on the wireline side of things I was wondering if you sort of translate that to deal.
The overall conditions, even for wireless set of easing in particular, given the the pricing and the competitive environment, we're seeing today.
Thank you.
Yeah. When you started on the overs question, maybe talk about where we started in June of last year and this sort of.
Evolve.
Our vendor you may recall as we launch.
As we launched unlimited.
And Weve progressed.
In rolling it out in the early days it exceeded our expectations you may recall by third quarter. When we had our call in October we were already at a million subscribers in at that pace. Our projections were by this period, we'd probably be at about 2.8 million subscribers.
Sales and so.
We had an initial run rate that we talked about taking six to eight quarters to run off the overage.
Given the early demand, we had shortened that to four to six quarters.
So by about this time, we thought we'd be over it over the what I would call over jump if you will.
And we ended were sitting today at about 2.2, and so while the demand for unlimited is robust.
It's trailing compared to what our.
Our heightened expectations were at this time last year still healthy, but because of cove, it slowed down a little bit and we talked about that in Q2, and so the drag on overages, probably back to the six to eight quarters.
We had originally estimated and so the expectation is probably.
Be about Q2 of next year before we are fully over it and it's now.
And it's no longer a drag on ARPU.
To put some numbers to it by the end of the year. We think we'll have left about $75 million of overage.
And so in the overall context of our wireless revenue you can see it ends up being a much smaller amount.
So we'll keep you updated and be very transparent on where that's heading.
Second part of your question where costs in wireless.
Sure Joe Yeah, I'll take I'll just cost overall in terms of the.
Aravinda I think it was more all the cost improvements as a whole are they sustainable.
Yes, cobot didn't create.
Brand new cost initiatives cobot actually accelerated the ones that we had in motion already and.
And so I just went through a mental list of all of them.
From.
The benefits of self install and cable we were.
We were at 5% full technician install we're probably running about 10% right. Now we think that's completely steady state where 90% of the installation will happen through either.
Full self install or the.
I'm going to drop and go approach that I just discussed them opening remarks.
Digital support and service will continue to ramp.
Digital and our business historically, historically have been sort of 10% of the sales.
Mix overall, it's been closer to about 40% in the last while it's not sort of an or it's a bit of an and we worked hard to create the sort of order online and pick up in store order online and pickup curbside and store. So we created all these modalities that leverage the power of our physical distribution.
And digital capability and so therefore, we can swing.
In those directions, you add to it pro on the go which allows you to order online or call into order and have someone bring it to your home agreement to wherever you might be so I think the key is choice above all else and with that choice comes.
Not just.
Economics in terms of the cost of fulfillment, but the channel economics are fundamentally different.
Between third party between.
You know a store between the channel just describe et cetera, and there there.
Sure they are very encouraging to see that channel mix.
Move in our favor from that perspective, it's not going away.
In terms of work from home for our care team.
It's working very well and although we might not remained at 100, 100% worked from home or I could see us in a place where it's 50 50 or something of that nature. So the vast majority of the cost improvements are things that are enduring and will continue to pay dividends and we will continue to invest in all of them.
Hard to a virtual assistant in my opening comments, we'll continue to invest in that capability as well. So I in my view is that I'm expecting not less but more as we go forward on that front in terms of the regulatory environment. It weve.
We've never had a better relationship with our regulator and with the government of both the.
Administrative leadership levels of government or at the political level of government and I think the fact that the that the service. We offer has become a lifeline in every respect of the word.
I think is a very useful.
Platform from which to build greater trust in greater collaboration most of the conversations as of late have been around how do we bridge the gap around world conductivity, how do we do more for the 10 or 15% of Canadians that art online or don't have great ability to get online because of broadband connectivity issues arose.
And that's a it's a great comp.
It's a great conversation to have from the same side of the table looking at how do we build counted as future through fiveg fixed wireless through expenses the footprint and the like.
It's about the the results of the Edelman Trust score that I quoted I think a couple of quarters ago.
No.
Our industry is up 19 points in terms of trust.
Average ticket it just creates the foundation for a whole different dialogue and narrative with God.
Government more focused on collaboration.
Then in the past.
Okay. That's helpful Aravinda.
Let me thank you.
Thanks Aravinda aerial next question please.
Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.
Hi, Good morning. This is Diego Pearl Haas filling in for Simon. Thank you for taking my question I, just going back to wireless and the channel mix are you at all rethinking that retail store footprint or even the office footprint and you mentioned working from home I'm in a post coming environment and any any savings there.
Second.
On the shop mobile launch how do you see an immaterial impact on competitive activity, particularly in Shaw's wireline footprint.
Thank you.
Thanks Diego.
On the storefront.
We we have a great physical distribution advantage, we intend to keep it and to grow it.
We think the the one two punch as physical distribution and online capability and creating customer journeys and modalities to integrate the two talk just briefly about the fact that we are doing all with a combination of order online pickup in store.
Or order online and have problem ago like these.
In the store increasingly as a place to go experience of technology and the capability of Fiveg and our ignite roadmap et cetera. So we're a big believer of physical distribution, we believe in the integration of the two as it relates to office space.
We'll see we'll see as we decide what the working environment is coming other cobot you know a lot of our people are very comfortable.
Comfortable working from home.
I think that 100% work from home in perpetuity is not the right answer for our organization I think it depends on the roll it depends on.
The type of work that people are doing.
The more they're working on a complex tasks transformational tax tasks across organizations and different groups and departments you can't replace face to face on that front.
However, there are many people that enjoy the benefit of supporting our customers through our care operations working from home.
And there we already had a roughly 800 agents working from home permanently before coded they will come to the office every few weeks to stay connected get some training.
You know kinda culture days have been called them et cetera. So we'll find that sort of a hybrid mix in areas, where it makes sense.
Certainly, we'll be looming less office real estate versus more but how much less we're not sure right now over.
Overall, and then in terms of Shaw Movado No question created competitive intensity in Western Canada.
We fared well in.
In that intensity over the course of the quarter and you know our brand stood up well and our value proposition stood up well and we're pleased.
We're pleased with the outcome.
Okay, great. Thank you.
Thanks Diego era, we have time for one more question.
Our final question comes from David Mcfadgen of climate.
Cormark Securities. Please go ahead.
Hi, Thanks for squeezing me in two questions.
Just on the cable business you talked about your expectations for sequential improvement.
Revenue EBITDA and EBITDA margin volumes in the fourth quarter. When you previously stated that the EBITDA margin was a record for Rogers I'm just wondering.
Is there any radical pop.
So the EBITDA margin for cable agency.
Continue to improve as people do more self installs.
Put through price increases into the market.
And then secondly on the media business in the past you've talked about the fact that you thought EBITDA would be nice if there wasn't.
The home games for the days when there weren't any home games in the quarter, but yet you delivered a nice positive EBITDA on the corners sales is through mid teens right.
Thanks, David.
Both questions.
Is there with cable.
As we go into Q4 I reiterate that we are looking at sequential improvements in top line that.
That will have a very healthy flow through rate.
To EBITDA, so that'll be a natural margin lift for US we also have.
Excuse me the cost programs that will continue to.
Reduce costs year on year and that will be the sort of the second what I would call margin expansion piece of it and then the third is.
Don't forget the.
Mix shift impact that is a natural driver of margin expansion as more of the revenue comes from Internet, which carries very little ongoing variable costs compared to video that helps margin as well and so it's all three of those factors.
That were in place in Q3 and be in play in Q4, So I don't want to sort of predict deal overall margins and where they might cap out at we'll just keep driving on all three of those factors and.
We continue to have a sequential and year on year improvements and.
And then in media.
The the factor that was.
A good apco outcome for us was a higher advertising revenue during the sporting events, we were somewhat worried that.
The duplication or triple occasion of sporting events at the same time would dampen the amount of AD revenue, we'd be able to generate.
But it came in quite nicely across all sports franchises.
And so it was good upside that.
That we hadn't totally expected, but that's what contributes to that positive upside in Q3.
Thanks for the question.
Okay. Thank you.
Okay. Thanks.
David Thanks, everyone for joining us on the call and we will talk to you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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