Q1 2022 Cogeco Inc and Cogeco Communications Inc Earnings Call
Good day and welcome to the Cogeco incorporated and Cogeco Communications incorporated quarter. One 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Patrice Ouimet, Senior Vice President and Chief Financial Officer of Coca Cola incorporated.
And Cogeco Communications incorporated please go ahead Mr Ouimet.
Thank you so good morning, everybody and welcome to this quarterly conference call, which <unk> and I will present, so again as we begin this call I'd like to remind listeners that the call is subject to forward looking statements, which can be found in our press releases issued yesterday I'll turn the call over now to finish with it.
Now see pet his good morning, and thank you all for joining us to discuss the financial results of Cogeco Communications and Cogeco, Inc.
Let me first note that we are satisfied with Cogeco communications overall performance for the first quarter of fiscal 'twenty to 'twenty two.
She is in line with our expectations and our Canadian operations and slightly ahead in our U S operations.
On the radio side could you go media continues to face pressure from a slow advertising market in light of the COVID-19 pandemic.
And current supply chain disruptions impacting many industries.
However, all in all these results.
That's very well to start on our fiscal 2022 on a solid footing.
Let's start with our U S operations recent initiatives.
We closed the Ohio acquisition on September 1st.
Which added nearly 690000 serviceable households, and businesses to our footprint.
The integration of these assets.
Has that been saying well and according to plan.
This acquisition represents a strong strategic fit for Cogeco Communications has it is complementary to our existing U S footprint and capitalize on our existing American platform.
On January 10th our U S subsidiary announced a full rebrand changing its operating name from Atlantic broadband to Breeze line.
With the recent acquisition of Ohio.
And other expansion initiatives the rebrand aims to better represent its geographic reach which is now beyond the eastern seaboard.
The breadth of its product line.
And the pledge to an excellent customer experience.
As part of the rebranding initiative Breeze line launch Breeze line stream television.
A cloud base I P. T V service, allowing customers to access live and recorded programs through a single very easy to use interface.
On every device inside and outside the home.
In addition to several popular streaming applications.
Breeze line will gradually roll out this new offering across its footprint during the year.
We expect the new offering to contribute to free cash flow.
As it is more capital efficient and allows for a customer self installations.
Breeze line is moving along with its plan to invest approximately $82 million U S and network expansions in fiscal 2022.
To reach nearly 70000 additional homes and businesses with fiber to the home services.
Franchise agreements have been obtained and multiple communities in new Hampshire, and West Virginia.
And many other franchise agreements should be concluded in other states in the current fiscal year.
It is an exciting period as we are planning to have our first commercial launch within a few weeks.
And at Cogeco Connexion, we are also progressing well with our network expansion projects.
Where we are planning to increase the number of homes passed by 3% by fiscal year end.
The 13, I speed Internet network expansion projects.
Which were awarded in several regions of Quebec are expected to be completed by September 2022.
In addition, we are active in several projects in Ontario.
With more to come.
A major broadband funding program is being launched in the province to connect additional unserved and underserved regions.
On the customer experience side, our data analytics capabilities.
And the introduction of new marketing automation leveraging artificial intelligence.
Our resulting in lower churn.
And improving video and telephony customer trends.
We are also continuing to gain traction with our cornerstone high speed Internet services.
And with typical our IP TV Entertainment service.
Yeah.
Finally, we continue to prepare for an entry into the wireless market.
And are currently participating in a C or D C preceding that will establish the terms and conditions for access to the incumbent wireless networks.
As for Cogeco media, even though the radio business continues to face pressure.
Of the current economy on the advertising market, we continued to enjoy strong ratings from our listeners.
Based on the fall 2021 numerous survey results.
Which confirm the outstanding performance of all Cogeco media radio stations.
In particular, our 90 898 five station.
Which was the most listened to station in all of Canada.
I will let Pat this now and discuss our financial results.
Thank you Filipe, so revenue Cogeco communications is up 19% and adjusted EBITDA up 14, 9% in constant currency when compared to the same quarter last year.
This was essentially driven by EBITDA growth of 33% that Bruce nine formerly.
Broadband <unk>.
As a result of the Ohio systems acquisition.
Free cash flow declined by five 2% in constant currency, mainly as a result of increased capital expenditures.
Acquisition and integration costs related to the Ohio acquisition.
Financial expenses, partly offset by higher EBITDA and lower current income taxes.
Capital intensity reached 19, 6% compared to 18, 8% last year, mainly due to the higher capital expenditures of our U S operations related to the Ohio systems and network infrastructure.
And to support footprint expansion combined with accelerated equipment purchases.
In the first quarter Cogeco communications continue to be active in its share buyback program with the purchase of 274000 shares for a total consideration of $29 $5 million.
As our first quarter was slightly above expectations.
We are confirming our critical communications fiscal 2022 financial guidelines, which were updated in November to include the Ohio acquisition on.
On a constant currency basis, we still expect that cogeco communication will grow its revenue in the range of 15% to 17% and EBITDA in the range of 14% to 16%. We believe that the Ohio acquisition should still contribute at Brooks approximately 11, 5% of revenue growth and 11% of EBITDA.
<unk> group.
As for organic revenue and EBITDA growth we expected.
We expect the U S operations to generate mid single digit growth.
And the Canadian operations to generate low single low single digit growth.
Excluding the network expansion projects, we expect free cash flow and constant currency to grow between five and 15%.
As for our quarterly results, we expect that organic year over year EBITDA growth will gradually improve throughout the fiscal year for both Breeze line and critical connection as.
We had an unusually strong first two quarters last year, given that certain expenses, such as marketing and advertising had been deferred to the second half of the year.
We expect that capital expenditures will gradually increase throughout the year as network expansions and the Ohio integration capital expenditures will wrap up now.
Now, let's look at the individual components.
In the U S <unk> revenue and EBITDA in constant currency increased by 31% and 33% respectively for the first quarter.
Mainly as a result of the Ohio broadband acquisition.
If we exclude the Ohio impact revenue in constant currency increased by four 6%.
As a result of annual rate increases implemented for certain services and the higher Internet service customer base.
The higher value product mix.
Partially offset by lower advertising revenue as last year was an election year in the United States.
EBITDA, excluding the Ohio impact in constant currency increased by four 3%, mainly as a result of organic revenue growth, partly offset by rebranding costs to breeze line and higher marketing and advertising activity.
We expect a similar organic EBITA growth trend in the second quarter as we continued to invest in the rebranding which will then be followed by stronger growth in the second half of this fiscal year.
As we had highlighted when we announced the Ohio acquisition, we expect that revenue generated from the <unk> transaction will gradually decline in fiscal 'twenty two mostly as a result of a declining video customer base, while we integrate the operations and transition to an IP TV platform.
But we do expect the EBITDA remained stable.
During the first quarter of fiscal 'twenty to the Internet subscriber base remained essentially stable generally due to low customer movements in the industry. Following significant customer additions last year as some customers have accelerated switching to our high speed Internet services.
Other factors include more seasonal disconnects this year, which were unusually low last year in the context of the pandemic.
More non pay disconnect due to the lapsing of some COVID-19 relief programs in the U S.
Less bulk of unit connections this quarter and competitive offers in a portion of the footprint.
We do expect that internet customer growth will resume throughout the remainder of the fiscal year.
The larger loss in video customers is mainly due to a stable internet customer base that broadband first strategy that we have been using for a year, which is focused on a higher.
Product mix and losses in the Ohio system, which work plan.
We expect that quarterly video customer losses will reduce in the future quarters.
Turning to their Canadian operations critical connections revenue increased by eight 2% in constant currency relative to the same quarter last year.
Excluding the impact of the dairy telecom acquisition revenue in constant currency declined by 6%, mainly due mainly due to annual rate increases which were delayed to November fiscal 2021 in some geographies and.
And the decline in video and telephony customers, partly offset by the positive impact of our higher internet customer base.
Physical connections EBITDA increased by 7% in constant currency relative to last year.
<unk> the impact of daily Telecom acquisition EBITDA in constant currency declined by six 9%, which was as expected as part of our annual guidance that.
The decline is mainly due to higher marketing and advertising expenses to support overall customer base growth.
Compared to unusually low cost in the same quarter last year in the context of the pandemic.
We expect slightly higher positive EBITDA growth in the second quarter compared to the first quarter.
As our Canadian operation, So it should resume their organic growth and the dairy Telecom results were included for most of last year's second quarter.
We then expect that physical connection will generate mid single digit EBITDA growth in the second half of the year.
The broadband customer additions in the first quarter were slightly lower compared to last year, which benefited from the positive impact of the pandemic.
The video and phone customer losses were better than last year, resulting from a more targeted marketing and advertising approach by region and by market.
Now, let us look at Cogeco, Inc. In the first quarter consolidated revenue increased by 18% and EBITDA increased by 12, 9% in constant currency.
Revenue related to the radio operations decreased by two 6%, mainly due to a soft advertising market in the context of the pandemic and the slow economic recoveries for media companies.
We are confirming Cogeco, Inc. Fiscal 'twenty, two financial guidelines, which were updated in November and reflect the same expectations as for Cogeco Communications.
Critical Inc. Also announced yesterday that allows to have a normal course issuer bid to acquire up to 325000 and subordinate voting shares over the next year.
Political believes that the purchase of its subordinate voting shares as an attractive use of its liquidity.
I'll turn the call over now to select for concluding remarks.
Thank you Pat.
As you can see we have started fiscal 2022 on a solid ground and we expect that organic year over year EBITDA of euro.
We'll gradually improve throughout the year the fiscal year.
As we add an unusually strong first half in fiscal 2021.
The ongoing trend of customers spending more time at home for work education or entertainment.
Should continue to have a positive impact on our growth outlook.
Finally, I would like to give an update on <unk> commitments relating to environmental social and corporate governance.
On December seven Cogeco publish its first climate action plan and task force on climate related financial disclosures.
Outlining the key steps it is taking in support of an urgent climate action.
As well as its processes and strategies to assessed and manage climate related risks and opportunities.
Our plan includes actions to reduce our own operational emissions.
Covering 100% of our scope, one and scope two emissions.
As well as the most material emissions from our value chain, representing over 67% of our scope three emissions.
It also includes actions to ensure long term resilience by it and defying and mitigating our key climate related risk, while maximizing climate related opportunities.
A few weeks after receiving his royal Highness, the Prince of Wales, Tara Cartel seal in recognition of our commitment to creating a sustainable future.
<unk> received on December 7th.
Prestigious AA rating.
CDP.
This rating demonstrates <unk> leadership.
And commitment to best practices in governance disclosure and emissions reduction.
We are proud of this achievement only three Canadian companies achieved a score and none of our peers in Canada and the U S made the alias.
Lastly, Cogeco and Cogeco Communications announced on December 17.
That they both transition.
There are term revolving bank facilities into the first syndicated sustainability linked loans in Canada within the telecommunications and media sector.
The facilities incorporate ESG linked incentive pricing terms, which reduce or increase the cost of funding.
Depending on the annual performance against specific targets.
Targets are related to <unk> greenhouse greenhouse gas annual emissions reduction and our digital inclusion initiative to provide.
75000 homes in under served and Unserved areas of Canada with access to ice speed Internet service over a three year period.
Additionally, cogeco and Cogeco communications will dedicate any savings achieved from the sustainability linked loan stewards internal sustainability initiatives.
And now we will be happy to answer your questions.
At this time, we would like to inform everyone. If you would like to ask a question Press Star then one on your telephone keypad once again star one to come into the question queue.
Our first question is going to come from the line of Arlinda.
Coppedge with Canaccord Genuity.
Good morning, Thanks for taking my questions and happy new year.
Just a couple of questions from me.
First of all I was wondering if you can set of.
Sort of flesh out the internet movements in the U S. I know that historically the seasonality has hasn't always been successful.
You may have just that as well I was wondering if you can talk to that variance and perhaps connected to that I mean, we know that.
A bit of a sell off in the U S cable codes and Dave So a little bit more awareness around.
The U S telcos, starting to step up and backlog expansion.
In particular some upgrades.
Wanted to get your thoughts on that and whether you're seeing any of that.
In your footprint.
Well, let me just start with.
One or even to a step back before.
Before the pandemic.
The industry at a run rate dependent make certainly change.
Many customer behaviors and there was different needs that the industry.
It took care of by connecting even more customer very fast and now it seems like we're.
We're coming back to trends that were.
That are in line with pre pandemic levels.
I'll turn to our two partners to answer the second component of your question.
Yes, so in terms of the build outs of our phone companies with the fiber to the home.
We have seen some announcements as well, but I would say we have seen little impact so far.
So we'll have to see in the future, but I would say at this point, we're not really.
Being a much action in terms of converting DSL and fiber to the home and just coming back to the question on Internet. Yes. So we were we did the run.
With a fairly high internet subs over the last two fiscal years.
There is less activity right now and we believe that a portion of that customers have made the switch as people were spending more time at home.
Which from.
Competitors to our high speed Internet products in the other products we offer we.
We do expect that the attractiveness is there and we'll continue to add subscribers and we do expect future quarters to be more active than what we saw in Q1.
But there is a bit of a pause from there other items that relate to.
You were mentioning seasonality.
Last year, we had less.
Disconnections.
Two seasonality than usual and we believe it's also due to the pandemic.
People were moving less than before spending more time at home as well.
Whereas this year, we're a bit more back to normal. We also had this quarter and less bulk conditions in the Florida market.
This varies by quarter, but it was a softer quarter.
We expect the next at least the next two quarters to be more active in Florida.
<unk>.
And the last.
Piece would be the non pay disconnect. So.
Given the programs that because of the Covid relief programs that were in place in many states and the federal level.
Many of these programs had lapsed now and we've seen a higher non pay churn, which is more as usual and last year was unusually low.
Okay. Thank you.
Thank you for that color.
And then maybe switching.
Switching over to Capex, obviously, you provided very specific guidance on 'twenty two.
How should we think about that network expansion options going into 'twenty three and beyond.
Sure.
Likely to see perhaps more.
More.
Initiatives in the U S front as you sort of exploit.
The new legislation there or.
Is that sort of uncertain at this point.
Yes. So this year, we're planning to spend between 200 to 40, sorry, $230 $240 million and Thats Canadian.
<unk> totaled in network expansion and at a high level, it's approximately half and half between Canada and the U S.
Canada right now is very focused on the build in Quebec, which has to be done by September 22.
So there will be little in the in Quebec in the next fiscal year.
We do have an.
Smaller projects in Ontario that are ongoing and that will carryover.
In the next year, but there is also a new.
New program coming up in a few months it is going to be an auction actually in Ontario.
We're going to be participating, but it's difficult to say exactly.
How big it will be until we go through the process.
So thats, Canada and in the U S.
We are planning to add about 70000 homes passed this year the timing can.
Sometimes change by quarter.
That's the plan for now.
We like this business, it's something that we've been doing in Florida for a long time, and we're targeting mid teen Unlevered returns on this expansion.
So as Philip said were.
Going to have our first network.
Small one that's going to be live very soon from these expansions and then throughout the year, especially in the last few quarters of the year, we will have the bulk of it.
So I do expect that we will be doing more in fiscal 'twenty three.
The pace of it will depend on how attractive we see the different opportunities for growth.
And I would not say, it's a permanent situation, but I would I would expect the U S will remain active in fiscal 'twenty, three and maybe one last point on this is that.
This year is more of a build.
In fiscal 'twenty, three we do expect to see the benefit of additions of Psus.
Obviously, some revenues and EBITDA, but I would say the bulk of the EBITDA contribution will come in the next year, but you should start seeing meaningful additions.
Hubs in fiscal 'twenty three.
Okay. Thank you very much.
Thank you.
Our next question will come from the line of Jerome <unk> with Dave sorry.
Our gains.
Domestic deposits alone.
Thanks, everyone.
On the wireless in the U S in the.
Past he appears to be more focused on M&A and add no intention to partner.
And BMO MVA no model I Wonder if you can comment on if you're thinking has evolved in terms of stepping into wireless in the U S. Recently.
Well.
It's bushels, it's all prioritize with the size of opportunities.
Our capacity to execute on.
The short in the midterm.
Time frame as well as the return.
We're expecting to get so right now at this point still in the U S. We see we see very strong opportunities to hedge out to expand our networks.
With very high quality fiber to the home networks.
Increase our shares in a Jason.
Market share in the <unk> footprint.
That is still at the very top of organic or edging out growth right now.
We are interested in Canada on the wireless side, we all know that we are aware of what to do in the U S. But it's all a question of priorities prior with doctors.
Prioritization.
And right now the network.
Expansion the wireline network expansion in the U S. Our top of our list and we need to know as well in the short future what the Biden infrastructure program will look like there is another 40 some billion dollar and subsidies that will cascade down.
To the states.
That program is not very well known at the moment in detail, but we will continue to monitor that.
Okay. Thanks, that's helpful and also with the with Deontic runway for we're seeing right now.
Obviously this has not impacted the quarter you just reported.
But wondering if so far you are seeing maybe similar impacts to last year on the January one or maybe more muted impact.
Well on the telecommunications side of our operations are 724 operations are very robust against the pandemic right now we have very good process.
We are we can cope with the different are the difference.
The regulations that are coming from the different states are very well on the media side.
It's actually more of the markets that is being impacted right now we have several segments of the market does not.
Resume on economy recovery. So they are they don't really advertise at the moment and others of our supply chain disruption or labor disruption. Some some segments I've I've actually quite strong demand, but since they can.
Our supply to that demand with a shortage in products or labor.
They are they are slow on advertising.
That's helpful.
Our next question will come from the line of Vince Valentini with TD Securities.
Thanks very much.
Patrice can I try to clarify a couple of out of the U S broadband.
Things you talked about in your prepared remarks, I think you said for the rest of the year you expect positive Internet adds but you said it pretty fast I just want to make sure. That's what you said.
That's perfect.
The.
Churn in the non pay churn you talked about.
If you just look at overall churn of your broadband subs in the U S. Can you tell us if that was stable year over year or did it increased.
I would say we're closer to our usual trends were.
Whereas last year was unusually low.
Obviously as a as there were a lot of restrictions on people moving and people were highly working from home and also getting education at home.
We had less interest from customers too.
May cast switches, especially leaving us.
People interested in moving to high speed Internet on our network.
People.
Leaving us or actually moving houses as well so that was a bit slower last year. So I would say, we're more back to normal at this point.
If I look back to two years ago in the first quarter of 2020 year churn would be pretty similar this quarter.
Yes at a high level, yes, okay.
Acquisition.
Slower than usual for the reasons I mentioned.
A slight probably a slight pause or a bit less than that and that's a lot of people have already moved to our networks in the past two years, but it's to this this will pick up as well.
And last on this topic.
The seasonal disconnect can you just fill me in on that I assume this is in Florida, because in Florida people would be going there and in the winter much not leaving there is there some region, where you have a lot of seasonal household.
We do have households, along the coast. So it's not just in Florida actually Florida.
We have a sizable bulk.
Business. So whatever is in the bulk contract does not move it's a yearly contract, but we do have.
Add ons. So some of the contracts will provide just video for example, and people will take retail internet. So these can be disconnected potentially.
But no. We also have people in other states.
Higher up that.
That will have vacation homes in the summer.
So it's a bit the inverse of Florida.
Yes.
And.
Two other quick other topics. If you don't mind Breeze line rebranding can you give us any sense of how big that is.
For the full year end.
I'm surprised that you say it impacted Q1, Mike could you just announced this week in Q1 ended in November So you actually already spending money that got expansion in Q1.
We did yes. So there were obviously this requires a lot of preparation.
And to be able to make.
The effective allowance you need to have everything ready. So we did we did invest.
Some amounts in Q1, and there will be some in Q2 and Q3 as well.
I wouldn't say it's.
It's the only thing Theres, obviously, more general sales and marketing, but that's part of the reason for being a bit lower than usual, but we do expect the second half of the year to be higher than usual in terms of EBITA growth.
Higher end of the single digits.
The full amount, but just over the three quarters is it like is it $5 million or more or is it more immaterial amount.
It's probably in that range, it's yes, definitely you need to change logos and need to rebrand.
The equipment, we use as well like the trucks and so there are some costs to do that and some marketing as well, but it's yes, it's a few million, but its not I wouldnt say its just a half a million dollars.
And the last question.
Maybe more sleep, but whoever wants to answer it you talked about priorities for investment in relation to that.
U S wireless question.
I'm wondering about radio.
CRT, she is probably coming out or where the review of regulation soon and I think most people expect and think there should be more allowance for consolidation.
Canada, and allowing people to own more stations in the market. If that happens can radio will be on your list of priorities for investment.
To bulk up and take advantage of scale and synergies.
Well thanks Vince.
It's too soon to to answer that question, we will obviously participate we've been in constant dialogue with our government's boat.
The federal level as well as the provincial level. There is a lot of attention as you know on media, whether it's papers or radio or TV.
<unk> suffered a lot through the pandemic. So we will continue to participate.
The different forums that are active at this moment.
And we'll see where the future will look like for <unk> for the media sector.
Thank you.
Our next question will come from the line of Jeff fan with Scotiabank.
Alright, Thank you and good morning.
<unk>.
Just a quick follow up on the U S broadband net additions.
You said, it's going to be positive for the rest of the year can you elaborate on what.
What drives that for the rest of the year what initiatives you have in place maybe you talked about it but I'm sorry, if I missed it.
The other question related to the broadband is in your release you talked about where you made mention of competitive offers in portions of your footprint.
Resulted in the net additions results for U S. Broadband can you elaborate a little bit on that.
Because in your earlier answer you talked about no evidence of any impact from fiber are you seeing impact from fixed wireless because I.
I guess a couple of bigger players are making a lot of noise in the U S on that one.
Okay.
Maybe John or Jeff.
If I could start with the.
The latter part of your question to address the fixed wireless we've noticed do theirs.
A number of things that are being said.
Now with this capacity is coming from capacity that was being.
Being built and assigned to our mobile initiative. So as you very well know Dr. Pooper gig on the Mohan mobile network is much much much higher than fixed wireless where fixed wireless consumers consume 40 times the amount of data.
Mobile side, so we will remain skeptical to see major.
Shift from network capacity from mobile to fixed wireless fixed wireless we will monitor like you will with what's really being done there but.
But the high cost of spectrum and the high cost of mobile.
Network builds suggest that fixed wireless is very local opportunistic and then small areas.
Yeah, so on the on the.
Broadband additions in the future. Obviously this is something that.
As always difficult to predict with accuracy and that's why we don't provide specific guidance on it.
And also these are these additions are losses in a specific quarter or a small portion of the overall base that being said, we do have a number of programs, including the launch of the redesigned programs. So there's a number of marketing activities going on there.
I talked about the lapsing of certain government aid that was provided that created some churn.
This should normally not be there for the for a good portion of the balance of the year.
The bulk of it was.
During the quarter.
There is some seasonal seasonality patterns as well.
As I said, we had this quarter was a bit.
Sure.
More normal but last year was abnormal.
Do expect that the.
<unk>.
So the pause we were seeing given that there we had an accelerated level of addition in the last two years, we will not last forever as well. So we do expect that the activity on the.
On the new customer side.
We'll start as well and lastly, as I said the bulk additions in Florida were low in this quarter.
They were lower than last year.
And we're going to have some quarters, because we have good visibility on this we're going to have quarters.
In the balance of the year, you will see that reverse where we're going to be higher than last year.
Thank you.
If I may just follow up on.
So the comment.
I totally agree about the cost per gig I mean, they're the math.
<unk> says itself.
But I guess these these operators.
Using excess cash.
<unk> capacity in their network for fixed wireless.
And also.
I guess the.
The cost per gig might have an impact longer term as to how big that business may turn out.
Becoming for them, but.
In the in the shorter term.
Doesn't stop them from trying to grow their broadband business because that seems to be a big big focus in printing does fixed wireless subscriber numbers for the street.
Are you concerned a bit about even the attempt.
No we're not concerned as I said, it's going to be localized it's going to be a portion of mystic, but D I cost of mobile spectrum.
Is sunk.
And it won't go away. So eventually they'll have to bring back that capacity in line with the business model that brings the ARPA with the right level. So.
Hi.
I actually feel for those customers that would be it will be sell sold something in the interim period and after some time they will have to be taken back to to move that capacity to mobile so it won't be a great customer experience eventually.
Fair enough.
Last question just for wireless in Canada, I know theres still quite a bit of a form.
Uncertainty in terms of how that model might play out just on your H M. N O model can you just remind us.
On the call is the plan for Coca Cola that if you do pursue this to own your own core.
Have you started to make investments in that area.
And if you do on your own core does that have an impact on cost and free cash flow going forward. If you do decide to move forward.
Yeah. So that's all good.
Good question no we have not made a major investment in core we've always.
<unk> said that we need to control the core part of the network now it doesn't mean that we have to buy it we could lease it there are different models out there, but it all starts with the terms and conditions that the CRT D C will.
We'll put in the wholesale framework. So we are investigating of course.
The latest development in technology.
And Capex is a different order of magnitude, but we are we are also looking at models.
Pretty much Capex light model, where control doesn't mean doesn't mean ownership of every pieces.
Great. That's helpful. Thank you.
Thank you. Our next question comes from Matthew Griffiths with Bank of America Merrill Lynch.
Hi, Thanks for taking the question.
I just wanted to follow up on the Canadian wireless.
[laughter] aspirations.
I know that the terms and condition and are proceeding if that's the right term.
Ongoing, but can you point to any kind of timelines or expectations about.
When you think it might conclude.
Yes, it's a long process this year D C just launched another.
Our request for comments are with a long list of questions to the industry.
So all I can really say is that this.
Investigation will need to close.
For the next step to be set by this year do you see the best timeframe.
Time frame, we have right now.
Is likely very late spring early summer.
Okay, great. Thanks, and then since the CRT D C do not publish.
Roadmaps or time calendar.
Where we're all waiting on them too.
Do declare something on timing.
Of course, and then another 70000 homes that you are aiming to add in the U S.
This column this fiscal year.
What is the expectation well first of all can you can you maybe characterize the area that you're expanding into will you be the sole cable operator is there are there existing cable operators in those footprints and what are the expectations for the pace of adding panic or achieving target penetration.
Level.
Sure. So the U S expansion is different in Canada, Canada is in areas that are underserved or unserved and we typically partner with the government to provide us generally.
Well to be illegible basically in these areas.
Competition will be DSL or fixed wireless or nothing in the U S is different we're actually going into areas like we've been doing in Florida for many years now we're going it's more in new Hampshire, So it's more a northeast.
And we are going into.
Average size.
Cities average for us at least.
And.
Typically there is one cable operator and there is also a DSL operator from a phone company and we bring in fiber to the home. So it's a different dynamic our penetration rates.
We're expecting in the U S are different as well, we're targeting 36% over three years, whereas in Canada, it's higher at 50%.
And but.
But we are the only one with a fiber product, but there is also a cable operator there yes.
Okay.
And maybe just to I don't want to beat the fixed wireless thing too much but I kind of agree with that.
Kind of characterization of local local opportunistic and in small areas, but I think one of the things that.
We're focused on is.
If these areas that these local at opportunistic small areas are the areas where you're operating.
I think the conversation if we look at it nationally.
<unk> has one flavor, but if we look locally and if youre seeing a.
Growing.
Challenge from fixed wireless operators in your local areas.
That would be.
A different conversation so.
You mentioned you're monitoring it but are you seeing like what are you seeing when you're monitoring in in your kind of market intelligence.
Youre looking at in your in your local.
Small areas.
No that's a good question.
Of course, if you want to sell excess capacity you need to start having excess capacity. So wherever they built a lot of capacity it's in dense urban centers.
As we are more of the rural and regional operator, we operate in areas where towers are far from one another so there's far less capacity to be resold there.
Good.
I would point to.
Areas that are dense urban and where excess capacity has already been built.
We wouldn't Sherwood, which doesn't my very well with our operations.
Okay. Okay fair enough. So you don't see I mean, because you described basically the T mobile model for your area, but you're not seeing it I guess.
That's fair enough. Okay. Thank you for the for the answer.
Our next question will come from Tim Casey with BMO.
Thanks, just a couple for me with respect to the Canadian wireless opportunities and.
The potential remedies coming out of <unk>.
The Rogers and Shaw transaction.
Given it's.
There is possibility certainly that.
Remedies will be negotiated.
Prior to the final terms and conditions on the M. B N O side.
How should we think about how youre approaching that opportunity.
Well Tim this is a good question and again, we're depending on.
Did the three bodies that are very closely monitoring. This transaction. We've expressed concerns as you know to the CRT C for different reasons to the competition Bureau, and two I said.
Now.
They are running their analysis and evaluation right now.
It's not known exactly the conclusion that they will draw each of them. So we still need to give it a little bit more time to see where the.
The three analysis will will point too so.
So.
We could speculate a lot, but right now, let's give them the time to achieve.
Some some analysis and results and we'll see.
Okay related to that you know there is.
Some speculation in the market certainly from your investors.
With respect to the block of shares owned by Rogers I know this is a topic that's been on have been around for.
A few years, but just given the.
The accelerated capex.
The initiatives you have which are clearly all on strategy.
At a high level.
What would your appetite be your where wood.
The potential to repurchase shares b within your capital priorities.
Yes so.
It's definitely part of the capital deployment and we've been active in our with our normal course issuer bid. So if this situation presented itself we could play a role and that's what we've said all along it's.
Although it will be a role because it's it's.
The sizable investment, but we do believe that its a buying back our shares is a good investment of capital as long as we can pursue.
The other things, we're doing and Fortunately, we're in a good financial situation.
And generate a lot of free cash flow now given the various acquisitions, we've made in the past year, our leverage is a bit higher than.
Then our targets our target long term is three times three turns of EBITDA.
But we do have some capacity to play a role if I've heard this came along.
Thank you.
Yep.
And our last question for today will come from the line of drew Mcreynolds with RBC.
Yeah, Thanks, very much and happy new year, everyone and thanks for squeezing me in two clarifications.
First filip on the wireless framework timing.
The late spring early summer that you just provided.
Simply to get the terms and conditions finalized by the CRT C and presumably subsequent to that you then go into commercial negotiations have I.
Got that right you got it you got it it's exactly that so we need to first.
See reasonable terms and.
Conditions, and then we will get into negotiation with more or more than one.
Incumbents.
Okay perfect Alright.
Okay. Thank you for that and Patrice just a clarification.
On the Canadian broadband side, when you were talking about Q2, EBITDA being slightly better underlying than Q1.
I believe Q1 was down five or 6%.
Are you turning that into growth in Q2 or just a sequential.
Improvement in that decline.
I don't know it would be a positive number so we are in.
In the next quarter when you compare it to last year did he telecom will be there for most of the quarter. We bought it two weeks into the last year's quarter second quarter.
So yes, we do expect the organic.
EBITDA.
To be.
I would say definitely not.
The size of negative number we've had in Q1 for the various reasons I have explained.
And including that theory Telecom acquisition, which again there is only two weeks impact then that's definitely a positive number in Q2.
Okay, Okay Super Thank you.
Last one for me.
Obviously, a lot of competitive.
Dynamic discussion in the U S. Just in Canada.
Can you just give us an update on any.
Any incremental fiber to the home impact, obviously bells accelerating its fiber the home extent expansion through 'twenty.
2021, and and all through this year as well just are you seeing anything out there in the market. Thank you.
So the expansion or conversion of.
The phone company from either a DSL or SDN into fiber has been going on for many years. So I wouldn't say that the past year has.
The big difference so there has been.
A bit more but we're competing are about 50% in our footprint with fiber to the all the rest is a mix of fiber to the node and DSL.
We are fairly well equipped we offer a gig.
In terms of top speeds and a large portion of our network and especially in the areas, where we want to do it.
Something we could accelerate if we wanted to as well.
We have a good IP TV video product as well ethical that we've asked a year ago.
Which is a fairly.
Fairly interesting voice activated so basically all the bells and whistles in it.
So and then on top of that we have these network expansions, we're doing now so it's.
I would say nothing special this year versus what we've been seeing in the past years.
Great. Thank you very much.
Yep.
At this time I see no further questions in the queue.
I would like to turn the call over to Mr and Mr. Ouimet for their closing comments.
Okay, well, thanks for being there today and we look forward to talking about our Q2 results in April but feel free to call us. If you have any questions in the meantime.
Good day.
Once again, we'd like to thank you for participating in today's conference call you may now disconnect.
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