Q3 2021 Cogeco Inc and Cogeco Communications Inc Earnings Call
Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day and welcome to the Cogeco, Inc, and Cogeco Communications, Inc. Third quarter 2021 earnings Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Patrice Mei Senior Vice.
<unk> and Chief Financial Officer of Cogeco, Inc, and Cogeco Communications, Inc. Please go ahead Mr. Mimi.
Thank you so good morning, everybody and welcome to our third quarter conference call in which I said it was yesterday and I will present, so as usual before we begin this call I'd like to remind listeners on the call is subject to forward looking statements, which can be found in our press releases issued yesterday I will turn the call over now to finish with it.
And you'll see that there's good morning, all and thank you for joining us to discuss the finance the financial results of Cogeco Communications and Cogeco, Inc.
Yeah.
Lets me first node debt, we're satisfied with Cogeco communications overall performance for the third quarter of fiscal 'twenty 'twenty 1.
Which is in line with expectations at both our Canadian and American broadband segments.
On the media side for the first time since the start of the pandemic our radio business.
This has grown with a 23, 6% increase in revenue.
And a significant improvement in our EBITDA margin.
With the gradual loosening of restrictions and the economy opening up again in Quebec, we are optimistic about the future.
So all in all of these results position us well to start our fiscal 'twenty 'twenty 2.
Well on a strong footing.
Before going with the specifics in our segments.
I'm excited to discuss our most recent announcements from our U S broadband subsidiary Atlantic broadband.
<unk> entered into a definitive agreement 2 weeks ago with wide open west known as well.
To purchase.
All of its broadband systems located in Ohio.
The while Ohio systems pass approximately 688000 homes and businesses in Cleveland and Columbus.
And serve approximately a 1 on 196000 Internet 61000 video <unk>.
35000 TV customers.
For the 12 months ended March 31st 2021.
Our revenue was 244 million U S dollars and pro forma adjusted EBITDA would have been 103 million U S dollars.
Including adjustments to reflect the expected cost structure of a b B L.
And the run rate synergies.
This acquisition allows us to add significant scale to our growing and profitable U S broadband business.
It is a strong strategic fit for the company.
As it is complementary to abb's existing footprint and.
And capitalize on existing platforms.
Under the guidance of Atlantic broadband experienced management team, we are in the unique position to grow our customer base revenues and EBITDA to pursue our market expansion strategy.
In Canada.
The Canadian radio television and Telecommunications Commission, the CRT D C.
Rendered 2 important decisions during the quarter.
These decisions were balance demonstrating a regulatory approach that takes into account the importance of investment to the expansion of communication services and competition.
They provide morris certainty for both our wireline broadband network expansion investments.
And our plan to enter the wireless market in Canada us.
Under the right conditions.
Regarding wholesale rates.
For Internet services.
The CRT sees made decision to maintain the 2016 wholesale rates.
Provides a more stable regulatory framework.
This decision.
Alps ensure continuity in our current and planned investment.
To increase access to.
2 is speed internet in underserved and Unserved communities.
While we wait for the C or D. C's decision following their review on the methodology to establish fair rates.
Separately Cogeco also welcome the CRT C's decision on mobile wireless to allow regional players in.
Investing in telecommunication infrastructure and spectrum to access the wireless networks of Canada's dominant providers.
This new regulatory framework is very similar to the 1 cogeco advocated for years, where investments can be gradually deployed as a new entrant.
Gain market share.
Very shortly a couple of key milestones will be reach as the incumbents filed their old sort of on wholesale terms and conditions.
And the results of the 3500 megahertz spectrum auctions are known.
Yeah.
Fiscal 'twenty 'twenty 2 it should be a landmark year with the integration of the recent Ohio acquisition.
The continued expansion of our network in Canada and in the United States.
And a possible entry into the wireless business.
In Canada, we have a rare opportunity to expand our network in underserved and on serve areas with the support of government at various levels.
The areas we are building.
Could not be done economy, Lee on our own.
And we will help close the digital divide.
In the United States.
There isn't a portion at the at the moment to accelerate network expansions.
In areas with good demographics and growth potential.
The areas, we plan to build in the U S can be done the economy on our own and.
And will also contribute to close the digital divide.
Let's now look at Cogeco connexion.
The integration of the retail income acquired in December 'twenty 'twenty is progressing as planned on.
All employees have now been integrated into our Quebec operations and primary network interconnections I've been completed.
The overall EBITDA performance is slightly above our initial expectations.
Driven by a favorable internet revenue.
N. The identified cost synergies are being gradually realize.
Over the course of the third quarter.
Digital connection announced several network expansion projects.
First we announced on March 22nd that we will carry out 13 fiber to the home network expansion projects to connect more than 54000 homes and businesses in Quebec.
We also recently announced that we would connect.
3500 homes in Ontario.
Our expansion into rural areas with financial contribution from the federal and provincial governments.
Ah represents a unique opportunity over the next few years to connect households, and more rural and remote areas.
So far.
We have secured government funding for more than 80000 homes pass.
Which we plan to build over the next 3 year period.
We expect to increase on past by approximately 3% in fiscal 'twenty 'twenty 2.
And since we expect to be awarded government funding for further network expansion projects in Ontario over the next year.
Homes pass ambitions for fiscal 'twenty 'twenty 3 could be as large as in 'twenty 'twenty 2.
Yeah.
Cogeco has deep roots in regions and rural communities should continue to can to country Butte to it to our success.
In securing grants to help close the gap and high speed digital access.
And true to our commitment to offer the best Internet experience to our customers.
Jacob connection as lunch and then that's Wifi solution.
This solution includes pods, which improved Wi Fi propagation to further optimize the customer Wifi experience inside homes and businesses.
In the coming months, we will further enhance this Wi Fi experience.
Looking ahead.
Some of our key priorities at Cogeco connexion for fiscal 'twenty 'twenty 2.
We are committed to continue delivering the most reliable connection at all times.
Committed to save our customers' time by answering we answer their needs right from the start.
To expand the distribution of ethical or I P. T V solution.
To expand our network, bringing the internet to more unserved and underserved areas.
And to increase our marketing efforts to become the number 1 brand choices.
Now turning to Atlantic broadband.
We are also very pleased with the strong financial performance in the quarter, where EBITDA has grown by 8% in constant currency.
If you exclude the nonrecurring gain on disposal of assets disclosed last year.
This strong performance was achieved despite a higher level of marketing and advertising investment.
These expense were deferred to the second half of fiscal 'twenty, 1 in the context of the pandemic.
Similar to Cogeco connexion.
A b B is also planning to be more active with network extensions.
Some of those expansions will be network builds and underserved or unserved areas supported by government grants.
However, we expect the bulk of expansions to be in the form of fiber to the home edge outs in a Jason cities with solid demographic and the economy growth.
As we have been successful with our network expansions in Florida for some time.
We intend to replicate such a model in other states, which generally have less competition.
We expect to increase on pass by close to 7% in fiscal 'twenty 2.
Paste, which could be realistically pursue in fiscal 'twenty 3 as well.
We continue to be very pleased with the progress of our broadband first offer strategy.
Which has contributed to continued improvement in the gross margin.
The speed mix, we are selling with a high proportion of speeds of 400 megabit per second to 1 gig.
Shows that today's customers.
See the value of ice speed Internet.
The modular design of our offer.
As a nights with customers because of its transparency and.
And flexibility so a customer can select the product they prefer.
Priorities for fiscal 'twenty 'twenty 2 at Atlantic broadband.
We will focus on the integration of the Ohio acquisition.
By welcoming our new colleagues into the ABB and Cogeco families.
And by quickly integrating the integration of technical and operational systems.
We will also be active in network edge outs.
We will continue to implement and refine our new broadband first off our strategy.
And we will accomplish all this with focus.
With our focus to remain on putting customer first with a highly engaged and committed workforce.
Okay.
As for Cogeco media, we are optimistic about the radio outlook as the Quebec economy is recovering and we see the continued commitment of our listeners as many of our stations were at the top of the spring numerous ranking.
For our Montreal.
<unk> station 98, 5 for example, it was rank once again, the most listening to radio station.
In the country.
We were also pleased to welcome our new President of Cogeco media cash.
In pet care.
Who joined our team on July 5th.
Carolyn successful track record has spanned over 25 years and as earn or a high degree of credibility in the fields of media and marketing.
I will now turn to <unk> to present, our financial results.
Thank you for that so revenue at Cogeco Communications is up 8.8% EBITDA 5.8% in constant currency.
When we compare to the same quarter last year. This was driven by EBITDA growth of 6.4% at Cogeco Connexion and 5.9% at Atlantic broadband.
Free cash flow increased by 14% in constant currency the.
The increase is mainly due to higher EBITDA the decrease in financial expense and a 1 time adjustment to the current income taxes, and Quebec, which harmonize with the federal legislation on accelerated tax depreciation.
Capital intensity in the quarter was essentially stable at 23% when compared to last year.
We are confirming our fiscal 2021 financial guidelines on a constant currency basis, we continue to expect mid to high single digit percentage growth in revenue and EBITDA.
And low double digit percentage growth in free cash flow.
As mentioned, we purposely deferred some sales and marketing activities for the second half of the year as we gradually return to more normal operation.
And exit the pandemic.
These expenses have impacted the EBITDA growth in the third quarter, and we will and will continue to impact.
The fourth quarter as well.
We expect low single digit growth at Atlantic broadband in the fourth quarter due to these additional expenses and also last year's political advertising, which was the high.
And is not expected this year.
At Cogeco Connexion, we expect the fourth quarter to have similar EBITDA as last year, which means that we expect the decline in EBITDA when excluding the daily Telecom acquisition, as we reported $4 million and last year last year.
Which related to some programming costs and also some pandemic related costs that we were nothing cream last year.
In addition, we will be delaying some rate increases until the fall of this year, so that will make a difference comparing the 2 quarters.
We're maintaining our capex intensity guideline of 20% for the full year and Thats for share buybacks Cogeco Communications purchased 414000 shares in the quarter or $49 million.
Now, let's look at the individual components.
Cogeco connexion.
Revenue increased by 10, 2% in constant currency relative to the same quarter last year, while EBITDA increased by $4.6.4 per cent.
Excluding the impact of the telecom.
And also the impact of a $4.6 million of retroactive charge related to the <unk> decision on wholesale internet rates revenue in constant currency would have grown by 3% and EBITDA by 1.6%.
Organic revenue growth was attributable to the cumulative effect of the sustained demand for our residential high speed Internet since the beginning of the pandemic, resulting in higher customer additions and customers transition to higher value offerings as well as rate increases implemented for certain services.
The organic EBITDA growth was lower than last quarter, but was expected due to the higher marketing and advertising expenses, which I mentioned before.
The broadband customer additions were modestly lower compared to last year, but <unk> were higher due to more sales of higher tier products.
The video product losses were lower than last year, partly due to our IP TV launch and finally, the phone losses were in line with historical trends.
Now turning to Atlantic broadband revenue in constant currency increased by 7.2%.
On the third quarter compared to last year.
While EBITDA increased by 5.9%.
Excluding the disclosed nonrecurring gain.
We had last year of $1.7 million, the EBITDA would have grown by 8% in this quarter, if you exclude that day.
Organic revenue comes mainly from higher residential Internet service customer additions rate increases implemented for certain services and also strong growth in our business sector.
Similar to Cogeco Connexion Atlantic broadband incurred some higher marketing and advertising expenses in the quarter. As these expenses were deferred to the second half of the year in the context of the pandemic.
Broadband customer additions were higher than last year due to continued strong.
Demand for the product and the successful launch of our broadband first new offer strategy.
The video customer decline is mainly related to the new approach. The broadband first approach and the fact that we don't offer video on the services anymore, except for both units.
And the phone product decline was relatively modest.
Now, let's take a look at Cogeco, Inc. In the third quarter consolidated revenue increased by 9.3% and EBITDA by 6.2% in constant currency.
The broadband and media businesses, both contributed to strong results.
Even though the media business continued to be impacted by the pandemic, we are noticing an encouraging recovery.
Revenue related to the radio operations increased by 23, 6% in the third quarter compared to last year.
<unk> has been significantly impacted last year by the pandemic.
I will now discuss the Cogeco communications preliminary financial guidelines for the upcoming fiscal 2022.
Fiscal year.
Which exclude the impact of the recently announced acquisition of the Ohio cable systems from while as the acquisition is expected to close only in the first quarter.
We will be only in a position to update the guidelines for that acquisitions. Once we know the closing day.
On a constant currency and consolidated basis, Cogeco communications expects to grow both revenue and EBITDA in the range of 3.5 to 4.5%.
The daily Telecom acquisition, which was completed in December 2020 should contribute about 1% of us growth as next year will include a full year of operation.
At Cogeco Connexion, we expect mid single digit growth in revenue and EBITDA, resulting from low single digit organic growth and the impact of the debt he took on acquisition.
The organic growth should stem primarily from strong demand for our residential internet.
And the upselling of customers to higher tiers as well as the recent launch of the IP TV product.
At Atlantic broadband, we expect mid single digit organic growth stemming from expected continued demand for the residential internet product.
Broadband first strategy and the post pandemic business growth opportunities.
We expect quarterly comparisons to be somewhat the inverse of this year.
And we will be comparing a more normal year post pandemic.
With.
A year, where we concentrated our sales and marketing expenses in the second half of the year for.
For that reason next year, we expect the first half comparisons to be weaker than usual in the second half to be stronger.
Organic revenue comparisons in the first quarter of fiscal 2022 are expected to be the lowest since cogeco connexion us delaying some of its rate increases and Atlantic broadband expect lower revenue from political advertising.
And as I mentioned, we intend to invest more in normalized.
Sales and marketing expenses next year in both countries.
And let us remember that the first 2 quarters of fiscal 2021 in both countries had exceptionally strong year over year growth.
Now turning to capital expenditures, we are planning for capital expenditures in the $690 million to $720 million range, which includes $230 million to $240 million in network projects.
And these numbers are net of government subsidies, which are.
Primarily related to the expansion in Canada.
This will result in the capital intensity of approximately 27% and excluding these expansion projects.
We'd be about 18%.
The network expansions will result in higher capital intensity in both countries, but are necessary to seize a unique window on the growth opportunity.
This expansion should add approximately 3% of our homes passed in Canada, and 7% in the us during the year.
Now since these projects will take most of the year is the year to build.
Both business segments expect the growth in homes fast to be towards the end of the year.
Our free cash flow on a constant currency basis should decrease between 30% and 35% mainly due to the growth in.
Network expansion next year.
Excluding these expansion projects the free cash flow on a constant currency basis within would increase by about 13 to force.
18%.
The recently announced Ohio acquisition will increase our estimated pro forma leverage.
231 turns of EBITDA at closing, which is a level, we're comfortable with and should allow us to pursue our dividend strategy as well as our share buyback program.
Now at critical Inc. We also expect 3.5 to $4.5 revenue and EBITDA growth next year, and a decline of 30% to 35% on free cash flow.
Excluding the network expansion projects free cash flow on a constant currency basis with otherwise increased by 13% to 18%.
I will let Phillip provided us our concluding remarks.
Thank you Beth.
As you can see our fiscal 'twenty 'twenty 2 looks very promising our businesses are on very solid footing.
We are particularly excited by the network expansion opportunities, which should accelerate growth in fiscal 2023. When we are done with the first wave of construction at the end of fiscal 2022.
Finally, I would like to give an update on <unk> commitments with regards to environmental social and corporate governance.
We recently unveiled on our website and through social media.
Our company's commitment on diversity and inclusion.
While cogeco is action I've long add social inclusion at their core.
We are now making public our stance on the importance of diversity and inclusion and committing to continued actions on this front.
In addition, we were honored to be recognized by corporate Knights as 1 of Canada's top 50 corporate citizens for the fourth consecutive year with a new hi, a 22nd ranking position.
For a second year also cogeco received a caring company certification from imagine Canada, which.
Which recognizes outstanding leadership.
In community investment and social responsibility in Canada.
We are proud of these recognitions and acknowledgements as we continued to strengthen.
And invest in our corporate social responsibility practices and.
And during the company operates responsibly and sustainably.
Now we will be happy to answer your questions.
If you'd like to ask a question at this time. Please press. The Star then the number 1 key on your Touchtone telephone to withdraw your question press the pound key.
Again that is star then 1 if you'd like to ask a question at this time.
Our first question comes from Arlinda.
<unk> with Canaccord Genuity.
Good morning, Thanks for taking my questions I'll start with a couple of clarifications from fall from the trees on the on the guidance.
Well from 2022 between US can you just confirm that given they're obviously fairly different exchange rates. A 134 for 2021 on 127 for 2022 I just wanted to make sure that the 3 and a half day 5.5% revenue growth year on projecting.
Not have any assets.
So it's.
It's important to it given its set of constant currency and also you mentioned Q4 low single digit growth on a P. P. I just wanted to make sure that that's in Canadian dollars.
That's not constant currency.
Yeah.
Yes, Hi, arlinda.
So yes, the way we have to look at FX, because obviously, it's changed a lot since last year.
You have to look at this year.
You always provide guidance in constant currency.
And and then once obviously, we will reported the fourth quarter on the next quarter, but you already have 9 months in the year.
We expect the full year FX in 2021 to be about 127, obviously theres a still a month on a half left.
And we are using the same rate to provide our guidance next year. So if the rate stay.
That's 127.
Then you would end up with the same numbers basically I don't know if that answers your question.
Yes, it does.
And then for us.
Yes. So in terms of the Q4 my comment is actually in constant currency for ABB.
So it's a us dollar comments and again primarily due to.
So due to the fact that we're going to increase significantly the sales and marketing expenses in Q4 versus last year and last year there was a <unk>.
Election, obviously during the quarter.
And when this happens in the US we we do end up with a special advertising. During these this period, which will not happen. This year next year I'm sorry.
Thank you.
That's perfect and then.
Bigger picture question.
Listen from our call then I'll just think of all growth initiatives you have going there's a lot of growth.
Programs, that's operating in parallel you've got the M&A do you us you've got cash out.
I'll start off.
Talked about and I know that Canadian wireless sales is also a prospect.
Net backdrop.
Any comments around how we should think about sort of balance sheet management.
How are you thinking about are you open to.
Other options I mean, you have a structure on the a b P D day.
It's the case.
On the clean equity I don't know if that's something you can sit there can you just give us a sense on how you think of sort of managing all these initiatives.
Yes.
As we disclosed when we announced the wyle transaction.
We announced that pro forma debt transaction, we would be up 3.1 turns of debt to EBITDA.
Our long term target has always been return so it's not too far from that.
And before that wild transaction.
And what Youre seeing in this these reported results were actually quite below our target.
So we do feel that actually that we're able to.
To fund all of these projects within our guidance and as we make acquisitions typically we're able to lever up higher than than what our long term target us and.
And we've done so in the past, we've levered up all the way to close to 4 times.
And our goal generally is to keep our ratings on the on our debentures and.
And as we stay within the within this band.
4 times, we are normally sign managing it. So that's why we don't foresee a need.
At this time to make something different in terms of what you are referring to equity infusion.
Thanks to the Chase and last question on that.
Canadian cable.
Can you just give us a sense of slab and no debt seconds been enjoying it should have been a direct into that upgrade cycle because of the locked out that.
Work from home conditions.
Is that still spilling all while you're still seeing backed us cycle play out even as we sort of come out of these lockdowns.
And on the promotional side at least US a balance suggests that things are still quite.
Not.
Within a band 70, not out of control between garages in Dallas as well is that sort of your observation as well.
Yes. So obviously there was a period of time in the early part of the pandemic.
There are I would say our additions to subscribers was higher than usual.
That had to do with some people connecting their house. Some people did not have a connection in their house and some people moving from slow DSL to our high speed Internet.
I would say obviously that we've been in this and this for a while now.
So I would say we're more back to normal at this point, but the business is doing well. So it's I wouldn't say there is a.
There is a reduction.
Foreseen, but.
They were more back to normal and more normal growth from that standpoint.
In terms of promotions.
I would say, it's always been a competitive.
In this 3 I think your question was on Canada.
<unk> always been a competitive industry, it's been throughout the pandemic as well.
That being said because of the pandemic some of our sales channels and it was true for other players as well could not be used.
<unk> door to door agents.
This is restarting now.
But I would say.
I would not say that there would be a much different pattern than what we've seen in the past few months.
Thank you very much box line.
Thank you.
Our next question comes from Vince Valentini with TD Securities.
Thanks, very much and wanted to try to clarify some of these edge out in rural expansion numbers, because there was on a lot of them. So I think.
If I take a 3% increase in Canadian homes.
That would be about 59000.
On a 7% increase in U S homes would be about 65000, and so can we add those 2 together and it would be about 124000, new homes passed by the end of fiscal 2022.
Is that correct.
Yes, that's right on a combined basis that would be right.
And the 80000 figure that is basically just a different metric.
How many homes in Canada.
I've been 1 jaafar, but you won't build out those entire 80000 by the end of fiscal 'twenty 2 is that correct.
That's also right.
What's a good portion of it will be done in 2022, but some will spillover in the next year and the following year.
Okay.
And then in terms of the Capex the $230 million to $240 million that is just your portion of the Capex for those 124000 homes. It doesn't include any of the.
The government subsidy money is that correct.
That's also correct. It's on a net basis and Thats, how were going to reported as well for accounting purposes. The subsidies go against the Capex. So it's always presented net so that's why we showed it this way.
Sure.
It seems a bit high compared to some of the other.
I've seen from other carriers I mean, if youre spending 18 to $19.800 per home passed.
And then the government's kicking in or a big chunk on top of that.
Some of the figures from other carriers seem to be more well below $1000 per home is what they have to spend so just want to make sure. It right Youre spending 18 to 1900 per home passed to get these new homes.
Yes, so we obviously.
That project is different there is some in Canada. Some in the us as well in the US there's less government subsidies.
Whereas in Canada most of them are with the government subsidies. We do include though some additional costs. So there is some cost to connect houses from the street.
We have some <unk> in there as well because this is what we're planning to spend next year in these new areas.
So it's not always very comparable.
On.
Distributor will use only the network costs without the connection and the success based Capex. So we did include some success based capex.
In these numbers, which explains a part of the difference okay.
Okay. That's helpful. Thank you and last 1 is just to be clear.
Your 3.5 to 5.5% revenue and EBITDA growth guidance Youre assuming zero.
Contribution from these new homes like none of them will be connected by May June of next year. So you may get us a quarter of the year with with some subscribers hooked up youre, assuming zero within the guidance.
That's right.
We've assumed zero.
Most of it will come at the end of the year and then you need to start connecting people.
And when we look into the following year in F 'twenty 3.
Then obviously, we're going to start seeing some revenues because we have plans to it takes a couple of years to attain your run rate.
The first year typically you will have some ramp up during the year, obviously on the on the EBITDA front you have some cross sell so you do some marketing as well so I would say the major impact of these builds will be in the next 24.
But we will see some of it in F. 'twenty 3 to a limited extent and none in that 'twenty 2.
Excellent.
Thanks, so much.
Thank you.
Our next question comes from Jeff fan with Scotiabank.
Thanks, Good morning, maybe just to follow up on a couple of.
Questions on Capex.
Theoretically that the capital equipment here or any capital investment does it include any wireless investment.
At this point for F 'twenty 2.
And then also regarding the subscriber take up in penetration.
I mean, I think most of you understand that these are areas that you're expanding into within the us and Canada.
Pretty underserved or Unserved.
You're going in with fiber so what should we assume full penetration going forward I know, it's going to take a year or 2 before you get to that pulls on rate but.
I mean, we.
We assume something very high like well above 50% penetration once you're into these footprints and then lastly, just from a pricing perspective, how did the rural broadband rates.
Compared to urban.
Our understanding is growth tends to be a bit higher just because of the higher cost that you've got some subsidies. So how does that all balance in terms of the weighted at the end.
Hey, Jeff Yeah, it's on the.
Capex.
No. These are the expansion of wireline capex, though the $202.40.
I referred to so its more traditional.
Expansion with fiber to the home as you pointed out.
In terms of take rates, we are planning and we've added.
Some information in the IR presentation to that effect as well so we're planning in Canada to get to a 50% penetration rates.
Target is 3 years to get there hopefully we can do better than this but that's that's what we assume for now.
With Unlevered returns in the mid teens. So it's again on Levered as an important word here so a mid teens.
In the US there will be a mix of projects. Some are in areas that have very little competition, so underserved and some come with government subsidies, but I would say the majority is not that case, where it will be more competitive areas like we're doing in Florida, and we've been doing for many years as well.
So for that reason the target in the US is 36% over 3 years as opposed to 50%.
In terms of the on it would be a similar return as well in terms of the pricing.
I would say we don't have.
Major differences in pricing.
In Canada, and the us it would be true as well, except in Florida, when we get into bulk units that unusually theres more discounts because you're it's a quite different market and in Nevada of efficiencies and on the capital front.
But otherwise I would say you should not assume a major change in our articles.
Okay. Thank you and then just finally on capital allocation.
Yeah.
Now committed to the expansion in the us with Wawa all assets.
You're committing to network footprint expansion, both in Canada, and the U S.
So that's a lot of capital deployed.
Deployed in terms on what's next on opportunity can you talk about the net.
Set of priorities regarding capital allocation.
Yeah.
Yeah, I would say our capital allocation as a <unk>.
<unk> 2 to usual.
And it's basically to invest in our business so grow grow our business introduced new products.
Capacity as well so we can so higher tiers of services. There is the IP TV products. So that's 1 area.
Acquisitions has always been the case I would say, obviously with the Ohio acquisition.
We should expect.
Smaller transactions, if they present themselves in the short term.
Because this 1 is obviously a larger 1.
The network expansion is something we find is unique right now as these government subsidies are available to grow in areas, where we could not economically do it in Canada before we have to seize that opportunity. So that will probably be lost it will last more than 1 year, we think F. 'twenty 2 will be.
Probably the larger amount and then declining a little bit in terms of investments afterwards, but it depends on how many additional homes passed we win.
In the next few quarters as we're applying to a number of these additional projects.
And in the yet in the US, we'll see but we see unfortunately to you right now to grow in areas where.
We are confident we can get good share and good returns.
As for our other our other projects, we'll have to see how they are how they are.
What what comes in but I would say that's what we're focused on right now.
And maybe just to clarify are you not mentioning wireless because it's pretty low in terms of priority because it's pretty low in terms of return is there a reason why wireless not mentioned.
Yes.
Our list actually sorry, I forgot to mention that that's 1 of our capital allocation priorities, if we decided to get into it.
I will not comment on spectrum auctions as you know I can't comment on this.
But in terms of.
On capital and fixed asset capital deployment, if we do get into it.
We've always said and it's still true today that.
We would like to invest as we grow and benefit initially from the <unk> regime and then.
Invest in networks as we grow as opposed to day, 1 for fixed assets.
Great. Thanks.
As a reminder, if you'd like to ask a question at this time. Please press. The Star then the number 1 key on your Touchtone telephone.
Our next question comes from the line of Jerome debris with day shutdowns.
Thank you models are among the first question on your guidance again.
He says that you expect benefits from a work from home will continue after the pandemic.
Does that mean, you expect customers will stay on the plans day chose or our day, rather mean that the pace of increase adoption and ARPA growth could be higher for longer.
So while it's difficult to tell we don't expect major changes I think the debt.
The bigger change will be that we initially were able to add more subscribers than.
Than normal for the reasons I explained.
Earlier to another question.
But in terms of.
Peering and <unk>, we do expect that people who have upgraded their speeds.
For doing video calls or whatever it is we don't necessarily see a scaled back afterwards.
And it will probably be more of the.
Back to normal pre pandemic in terms of future growth.
Okay. Thank you and then on the bite an executive order from from last week regarding a potential restrictions to us maybe bulk units and contracts with landlord what percentage of your US business is based on that type of contract and how do you anticipate this decision could impact us.
Yeah.
He is at home it's silly.
Well.
We do not anticipate material impact from.
From the direction the buyer Didnt administration us is actually guiding the FCC and another.
On a regulatory and policy bodies, we we on the Canadian side, we've experienced many of these in deposits highly.
On a competitive and the regulatory structure in Canada US is already more complex. So we're used to operate under these conditions shall they come but from what we have.
I have seen so far we do not expect material impact.
Great.
Sure.
Again, if you'd like to ask a question that is star then 1.
Our next question comes from the line of Matthew Griffiths with Bank of America.
Hi, Thanks for taking the question.
I'm, sorry to stick on Capex, but I wanted to ask if you could give us some indication on both the split between US the expansion capex between the 2 countries.
Particularly you mentioned that the 7% homes past growth in the U S knee continue the following year into 2023.
So.
Just curious if the level of.
Elevated capex on the investment would continue at the same rate in that following year.
And what that level could be.
Yes, so the splits for fiscal 'twenty 2.
As close to half on half, it's a little more in Canada, a little less in the us let us close to half on us.
And Thats why Youre seeing obviously, we have a smaller base of homes passed in the us. So that's why you're seeing a bigger increase.
As to future years, we'll have to see it will depend on how the year goes on what we wanted to do so we will have to have that discussion a bit later on.
As we see success in <unk>.
Building and attracting customers.
We will adjust our.
Level and interest in adding capital to it but we do expect and we do expect to invest.
Some capital in F. 'twenty 3 as well is it going to be at the same level.
As Phil that question Mark.
Okay.
Matt you have maybe just to add a little bit to do this.
When we look at the demographic in some high growth potential areas that.
Are not very far from our existing footprint.
We see a lot of options, but as Pat just mentioned, we will go on a success space.
We will certainly leverage a lot our financial discipline, but are very strong field operations.
We are we we are a very optimist and our ability to to operate at the field level and actually win market share and then go from there.
Okay, Okay, Thanks, and maybe just 1 more.
The U S seems to be ahead of Canada on the progress on reopening the economy.
I think you alluded to.
In both markets net sales and marketing expense picking up as you're progressing through the year on into the beginning of next and should we see what's reported.
EBITDA margins for the U S is indicative of.
How does the opening additional costs from sales and marketing will impact, Canada as well or is it can you share distinctions that you would like to draw.
Well, there's not a major customer behavior between the 2 countries, it's more in relation to the market demographic and the competition level.
At the market level so.
We have excellent products really good customer service and this is what really is making a difference of us customer.
During the pandemic as adopted higher speed and in our services.
We're expecting debt first day will retain high speed access and second the application space continued to deliver more and more.
Application hungry and the sweet spot now of.
On the speed for us in terms of tearing us between 105 hundred megabit. So we can <unk>.
To support the high demand.
And keep people connected.
Yeah.
Okay.
Okay.
I can now also on the on the <unk>.
If I got your question correctly as well.
In terms of margins in Canada, we are seeing next year to be on a similar place as of this year.
That's the EBITDA margins and in the US So we'll probably see an increase as we have introduced broadband first and it emphasizes internet a bit less video.
Although we're going to introduce a 90 TV product. So we're still believing in the video product, but still we do expect.
More skewing towards Internet.
That should benefit the margin when you compare the 2 countries.
Then it's a little different because the consumption of video is different in the us versus Canada.
The packages are typically bigger more expensive and that's why the EBITDA margins naturally are lower in the us doesn't.
The dollars can be there, but the percentage is naturally lower in the us that in Canada.
Alright, good to know.
Sure.
We have a question from the line of drew Mcreynolds with RBC.
Yeah, Thanks, very much and thanks for all the detail probably think batteries are very very helpful. Just 1 real quick 1 from me just on the margin question I know you related to some higher programming cost in the U S debt.
Cycled in this quarter.
We don't talk about programming costs too often up here in Canada, but like.
Can you just update us on the dynamic of those costs and obviously your ability to absorb any any inflation there.
Yeah, I would just to be clear my comment was more year over year or country to country, but.
This quarter did not have anything special in terms of programming.
Being said that programming costs.
Our usually increasing every year, obviously, we signed multi year deals. So some years can be can have more renewals than others.
We've seen in years.
In the past, where the cost on a subscriber basis was.
Double digit, but I would say single digit now so that's something we can manage.
We do pass through those cost increases to customers as well, but at the same time, we try to offer flexibility to customers.
And again through our broadband first approach and ITV product if customers want us allocate dollars.
Between video and Internet.
The idea is to provide debt capacity to the extent, we can control it within the guidelines of the.
Content contracts we have.
Sure. Thanks, Chris.
Sure.
I'm not showing any further questions at this time.
Okay, great well, thanks, everyone for being in today's call. So we look forward to this closing our fourth quarter results in November and feel free to call us. If you have any questions in the meantime, thank you.
Bye now.
This concludes today's conference call. Thank you for participating you may now disconnect.
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