Q4 2022 Cogeco Communications Inc Earnings Call
Good day, and welcome to Cogeco, Inc, and Cogeco Communications, Inc. Q4, 2023, Sorry, 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 <unk>.
And Cogeco Communications, Inc. Please go ahead Ms Your way back.
Thank you so good morning, everybody and welcome to this quarterly conference call, which are Philip and I will present as usual also before we begin this call I'd like to remind listeners that the call is subject to forward looking statements, which can be found in the press releases issued yesterday I'll turn the call over to Phillip.
Yes. It is.
And good morning, welcome to this discussion of the fourth quarter results for Cogeco communication and Cogeco, Inc.
We're glad you could join us as we present, both our fourth quarter and 2022 fiscal year results.
We're happy to report that we met the targets, we set out in our financial guidelines for fiscal 2022.
In the fourth quarter <unk> overall performance was in line with our expectations.
Performance in our U S operations was as expected except for the Psus and we will talk more about this later.
In Canada, our broadband operations performed as expected.
Even as things got more challenging and our business environment and the economy in general.
The radio market for one remains soft, but our stations continue to rank at the top of the ratings and $98. Five is again, the most listened to station in Canada.
Although the results put us in a good position to start 2023.
A year that promises more geopolitical and economy instability.
So.
What did we do.
In 2022.
On the organic growth, excluding the impact of acquisitions, we increased by 2% our Internet service customers in both the U S and Canada.
Which helped drive organic revenue growth.
We pursued our broadband network expansion projects in both countries, where we added in fiscal 2020 to a total of about 70000 homes passed.
This represents an increase of 4% in the U S and 2% in Canada.
These network expansions are anticipated to begin contributing to growth.
Our internet customer base in fiscal 2023 with benefits to EBITDA and free cash flow flowing through in fiscal 2024 and beyond.
We also continued to make progress on our move into mobile markets in Canada.
The CR Tcs finally, released its terms and conditions for the MVA no regulatory framework.
We are glad that this year D. C is denied many unreasonable terms and conditions that would have otherwise rendered <unk> regulatory regime totally ineffective.
Either.
The <unk> has introduced a new eligibility requirement, which is to be already commercially offering a mobile service.
And cogeco as over the past two years started developing its mobile wireless network capabilities.
However, this new requirement will need to be carefully factored into our planning.
Yeah.
We also have strengthened our logical brad's rebranding Atlantic broadband Eze Breeze line in the U S reflects the fact that we're no longer on just on the Atlantic Seaboard.
The breadth of our product offering and our commitment to convenient customer service.
In Canada, our branding effort positions us as the local brand champion, reflecting the proximity and trust with our customers.
We also further enhanced our products for our customers, we increase internet speeds once more invested in digital tools, enabling more personalized services and improve operational efficiencies and we launch Breeze line stream television.
Modern <unk> service.
In the U S. We completed the acquisition of broadband assets in Cleveland, and Columbus, and we are well advanced with the various integration steps there.
The transition of <unk> customer base onto Breeze, and items customer management and billing platform was more challenging than expected, which unfortunately has led to higher customer disconnections them flat.
For the transition we had our highest a higher than usual call volumes, which have been significantly reduced since then.
And sure short term service related issues are now restored.
All of this secured in a high inflation environment, which at some customers reviewing their discretionary spending and while telecommunications providers are becoming more competitive in general.
The United States.
We are now focusing our marketing efforts too and then service.
And product offering in that market, which has a strong growth potential.
During the fourth quarter of this year.
The first quarter of this year, we should still see some customer reductions in Hawaii, which we expect to stabilize afterwards.
You already know Cogeco takes up ESG also commitment seriously and during the year, we were gratified to have our efforts recognized by leading voice in ESG practices and reporting.
And more recently imagine Canada awarded Cogeco, It's caring company certification for outstanding leadership, and community investment and social responsibility and Canada again this year.
Cogeco will remain committed to its environmental social and governance agenda.
As we work to keep growing our business in the years to come. It is also important to note that this year, we increased dividends and continued share buybacks.
Now, let me share with you our priorities for fiscal 2023.
As I said cogeco intends to stay focused on growing its business.
At Breeze line, we will pursue our fiber to the home edge outs in two areas where growth potential looks attractive.
The plan is to increase homes passed by about 5% over the year.
And as we aim to achieve our targeted penetration rate of 36% over the next few years in our U S network expansions.
We believe this will be an important growth driver for our business.
This expansion excludes potential further edge outs of our network into future years under the broadband equity access and deployment program beat that will provide 43 billion U S. Dollar in grants for ISP Internet access.
We also expect to complete the integration of the <unk> broadband assets by further interconnecting dish network with the Breeze line network and launching our IP TV platform in that market by the end of this calendar year.
Turning to Canada, Cogeco connexion will pursue market expansion opportunities through its FTE th program in underserved and Unserved regions of Quebec and Ontario.
We expect that to increase homes passed by approximately 3% by fiscal year end or 5%, including fiscal 2022.
Within these areas, we are targeting a customer penetration rate of 50% over the next few years.
And similar to the U S. This will also be an important growth driver for our business.
For mobile we are determined to launch a service in Canada, if we can meet our financial return objectives.
At Cogeco media, we continue to build on our strong network of radio stations and extend our multi platform audio content options.
We will also stay focused on the execution of our ESG strategy, including some key initiatives aimed at reducing our emissions to achieve our goals.
Maintaining our push for workforce diversity and inclusion.
And pursuing our digital inclusion efforts.
Now, but this will discuss our financial results.
Thank you for that.
During the fourth quarter revenue at Cogeco communication was up 12, 7% and adjusted EBITDA up 17, 7% in constant currency when compared to the same quarter last year.
Which reflected the impact of the Ohio broadband systems acquisition and organic growth.
Capital intensity reached 38% compared to 27, 7% last year due to increased activity related to network expansions in both countries.
Excluding network expansion projects capital intensity was 22, 3% in the quarter.
Free cash flow decreased by 49, 2% to $36 3 million in constant currency due to higher capital expenditures related to the network expansion investments.
Higher interest us higher restructuring costs and current income taxes as well.
Excluding network expansion as free cash flow during the quarter would have been $96 1 million.
In total we have invested $156 million and network expansion in fiscal 'twenty two.
In fiscal 'twenty, three and we do expect to invest a further $180 million to $230 million in network expansion projects.
We target Unlevered returns in the mid teens for such projects and this can be an important contributor to our EBITDA in the medium term.
We have we therefore have the financial flexibility to drive shareholder value in the combination of ways, including growth in our operations and additional network expansion projects, notably under government subsidized programs.
We have accretive acquisitions and mobility services as Phil had mentioned in a capital efficient manner and returning capital to shareholders.
On that topic Cogeco communications continue to be active in its share buyback program at a faster pace than the first three quarters of the year due to the low stock price value with the repurchase of 391000 shares in the quarter $35 million.
Under the current environment, we do expect to continue to actively buyback our stock in the coming quarters.
We announced an increase of 10% in our quarterly dividend from <unk> 75 to $77 six per share and right in line with the rate of increases over the past theaters and which reflects our confidence in the growth of free cash flow in future years.
On future network expansion, we don't have sufficient clarity right now in the U S on how the government subsidized broadband expansion projects.
And thats under the $43 billion deep program.
It is still early to discuss at this time, we will have to see how the program is extended although we are very interested in participating.
Now, let's look at the performance at the individual segments.
In the United States, <unk> revenue and EBITDA in constant currency increased by 27, six and 37% respectively. In the fourth quarter, mainly as a result of the Ohio by band systems acquisition.
On an organic basis revenue in constant currency increased by four 9%, mainly driven by a 2% increase in our Internet service customer base.
Higher valued product mix.
EBITDA, excluding the Ohio acquisition in constant currency increased organically by 11, 6% in the quarter.
As for Internet service to customers and overall psus, we have an elevated number of disconnections amounting to 14.
<unk> thousand 700 internet customers during the transition of Ohio.
So I've mentioned earlier.
However, excluding those net losses in Ohio, We added 4700 internet customers in the rest of the footprint in the fourth quarter.
This is due to our intranet first strategy and ongoing interest for wireline high speed offerings, Despite generally slow environment.
The product mix has also improved with a greater proportion of new connections taking faster speed Internet.
Internet speed sorry.
Results in the higher average revenue per unit.
The larger loss in video and phone customers in the fourth quarter relative to last year is mainly due to losses in the Ohio system and our Internet led strategy.
Turning to our Canadian operations physical connections revenue increased by one 1% in constant currency relative to the same quarter last year, mainly due to higher revenue per customer and growth in the commercial sector.
EBITDA increased by six 7% in constant currency, mainly from lower marketing expenses and some year end adjustments.
The internet.
Customer statistics are now presented excluding wholesale customers in line with the presentation adopted by industry peers.
Internet customer additions, which stood at approximately 3200 additions in the fourth quarter were lower compared to a very strong quarter last year in the context of the pandemic.
However, similar to the U S. The Canadian business is also improving its HIFU.
For the Internet product by having an improved customer product mix.
The video and phone customer losses reflect higher cord cutting for some customers who are more impacted by the current high inflation environment.
Now, let's discuss Cogeco, Inc. In the fourth quarter consolidated revenue increased by 12, 1% and EBITDA increased by 16, 9% in constant currency.
Revenue related to the radio operation slightly decrease as the advertising market remained soft as.
As for shareholder distributions.
Wire during the fourth quarter 32000 shares for $2 2 million and we announced an increase of 17% in the quarterly dividend from $62.05 per share to $73 one sets.
Moving on to the fiscal 'twenty three financial guidelines, both corporations I've maintained their guidelines.
<unk> in July .
Although the general economic prospects for fiscal 'twenty three have deteriorated. Since then we have initiated measures to offset potential impacts on revenue and EBITDA.
And as the year unfolds, we will continue to assess market conditions and the impact they have on operations.
A breeze line, we expect low single digit revenue growth and low to mid single digit EBITDA growth, reflecting our higher value product mix growth in the commercial sector and to a lesser extent new customers coming from the network expansions we have undertook.
We expect quarterly results at Breeze line to improve sequentially. During the year. This is different from what happened in fiscal 'twenty, two when we add lower marketing costs and less staff in our Ohio assets last year.
The assets were still operated under the previous owners Bryan for a portion of the year.
But that's the reason we expect the first quarter EBITDA results this year to be lower than last year, which is normal because last year was an exceptionally high EBITDA number.
Excluding Ohio Internet net Internet net additions are expected to be soft in the first quarter and then grow stronger throughout the year from our traditional operations as well as from the network expansion projects in <unk>.
Ohio, even though the customer and billing systems transition is behind US we still expect a certain number of disconnections in the first quarter, but not to the same extent as in the fourth quarter fiscal 'twenty two.
As far as Canadian operations, Cogeco, Connexion still expects low single digit growth in both revenue and EBITDA, reflecting stability in our traditional operations and growth in newly built expansions in Quebec and Ontario.
Physical connections that EBITDA growth in the first half of the year should be higher than the second half, mostly driven by a rate increase implemented in September this year versus several increases on different services throughout the year of last year.
So I'll turn the call over to <unk> for concluding remarks, Thank you Pat.
So all in all as you heard 2023 looks promising.
Even if the business climate will be challenging.
In 2020 to Cogeco celebrated the 65th anniversary of its funding.
And over the years, it's been an impressive growth story that we can be proud of.
I would say that at 65 years young.
<unk> is still in the dynamic prime time of its life.
And there is still more to come for our communities our customers our colleagues and our shareholders.
At this point, but Lisa and I will be happy to answer your questions.
Thank you ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on your Touchtone phone.
A tweet on prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two.
Using a speakerphone you will need to lift the handset before pressing entities. Please go ahead and press Star one now if you have a question and.
And your first question will be from drew Mcreynolds RBC. Please go ahead.
Yes, thanks very much good morning, a couple for me here.
Just on the wireless side, thanks for the update and obviously with the new eligibility.
Requirement, presumably requires you to launch before.
I guess benefiting or getting into the framework. So.
Are you able just to give us a sense of what that looks like at the moment and if youre still working through it but when do you think we'll get an update in terms of.
What that kind of capital requirement.
Looks like and what that that kind of startup roadmap looks like.
Yes. Thank you drew and we say that we've said it many times over and over we are looking for a capital light model.
Now the definition, it's unfortunate that this <unk> do you insert a new eligibility factor in the mix we are.
Going too.
Understand exactly what they mean by.
Being operating somewhere in Canada, It is kind of.
A loose definition, but I am expecting pretty soon we will have.
More clarity on what they meant there obviously other players are already in operations.
And for our case, we've been working on this plan for the last two years, but we need a visibility understanding.
And a clear understanding of every parent meter of this business case before launching and we're going to be working with the CRT <unk> and <unk>.
As well as the governments with Dai said to clarify that very soon.
Okay. Okay, great. Thank you for that and.
Just two others for me I think first from the.
I'll make headwinds that you point to obviously, others are pointing to it as well but.
You got a very interesting.
Lens into any differences in economic headwinds between Canada, and the U S. If there are any so.
Give us a sense of any differentiation between the two markets on that front from.
From your perspective at least.
Yes, and I would also add to your question that as a regional operator, we have a different perspective, because most of our operations.
Are not influenced by what's happening in dense urban center, which is another.
Dynamic so where we operate.
Competition I would say is reasonable is more predictable.
The Oh all of a set of.
Of Edwards that are coming to the consumer market in terms of.
Our wage pressure.
Interest rising and inflation.
There is simply having consumers to revisit their discretionary spending at this time.
But in the end I think we have we're well positioned with the best customer service and the best products.
And you need to.
To connect to the Internet for for entertainment, but also for work.
For most of our consumers in our region. So I feel that where we're going to weather. The storm, we're going to go through and customer will still enjoy the good products that we have maybe David they will temporarily reduce our drop at PSU, but it will come back after the storm.
Okay. Thanks, and just a follow up there are you seeing any major differences between the U S and Canada within your respective footprints in terms of those economic headwinds or is it just thematically all generally the same.
Generally speaking it's aligned its the same.
Okay. One last one for me so good to see the positive Internet net adds outside of Ohio, and I think you've been.
Certainly flagging, the dynamic in Ohio, and integration for a quarter or two.
Just a big picture question relative to your initial assumptions when you made the acquisition in this market where there is theres obviously.
Three players.
And the competitive dynamics in that market, so not not including everything you're dealing with with the <unk>.
The migration and integration, but just the underlying dynamic.
How is it comparing to your initial expectations when you looked at this asset.
I think it's pretty much in line to how we model this acquisition of course.
Competitors.
Had some time to prepare themselves and to welcome us into two cities of clean Cleveland and.
And Columbus, So there was a little bit of a more intensity.
Or.
Some areas, where for example, AT&T converted some DSL.
Neighborhoods due to fiber, but the the general intensity did not increase that much if we were if.
We would have been a little bit luckier with some outages and more careful with some of the steps in our transition.
We would have lost less psus for sure. Okay got it okay. Thank you very much.
Thank you next question will be from my Heart Yaghi at Scotia Bank. Please go ahead.
Yes. Thank you for taking my questions guys.
Maybe I just wanted to follow up on the discussion.
Broadband connections in the U S.
Definitely it's top of mind for investors.
Looking at the cable companies in the U S having to deal with more competition I wanted to ask you about.
Your reference that in Q1, you expect.
Internet net adds in the U S.
The Ohio area to see.
Weakness.
Can you explain what is driving that.
Comments and how long you think it will take before we can reestablish growth.
Your broadband connections outside of Ohio.
And then in terms of Ohio, you mentioned that you do expect an improvement sequential improvement in the losses.
Right.
Any comment as to when we will turn into growth in Ohio.
Great Good morning, and my hair, so yes outside the Ohio as you pointed out during Q4, we did have growth actually.
We are expecting Q1 to be softer.
Partially due to seasonal disconnections they will.
Varied by state and by quarter, Obviously, we're now operating in a in 12 states soon in 13.
Through our expansion so it's a it's mainly due to this.
The market is also.
Say slower at the moment.
And at the same time, we're we always have to decide if we're going to go after all the psus. So for entry level packages. If sometimes competition is more aggressive on pricing and discounts. We always have a choice to go for it or not.
So these are the choices, we make on a quarterly basis. So we tried to balance the financials.
And deliver on our guidance first before delivering.
Necessarily just the psus.
We do expect that the past Q1, though that we'll have strength.
Obviously this will evolve throughout the year, but we do expect more strength and a portion of that will come also from the network expansion as we've done in the U S.
But you will remember that these are we're expecting to ramp up over time, a bit slower than what we were.
We're expecting it in Canada, because they're they're not subsidize networks in the areas, where there is no high speed Internet for Ohio.
What happened is during the transition.
We were more flexible with.
Some customers in the payment terms.
And partially because there is a technical aspect to it where sometimes when you change the name of the company the platform, sometimes the actually the invoices will not yet paid.
Through their credit card or the banking information. So we still have some customers to go through in the quarter.
Afterwards, we do expect stability, that's our plan and from their part integral and last thing I could add on this is from the initial thesis on Ohio.
Obviously, we did lose some customers that we were not planning to lose but we were mainly banking on growing our crew overtime as we densify the network, we're going to introduce and IP TV product and this is coming the IP TV actually is coming before the end of the year, we're going to start to introduce it at this point to new customers.
Okay, Okay, great. Thanks for that and in terms of the transition in Ohio what percent of your subscriber.
Subscriber base is now under the new billing.
And how much of your network has switched to the new.
Broadcasting.
Telecommunications signal I E are there any other additional.
Our re connections that you need to do that could cause some issues with outages et cetera.
Yes, so the whole base is now on so it's 100% is now transferred.
To the new platform.
What we have left to do is more in the background. We do have some we're investing in infrastructure as we had planned to do.
So we don't expect at this point more issues coming from it.
When we.
When you make a change a system as you change the invoice you changed the right codes and the brand name as well.
It's a lot of change for our customers and that gives them an opportunity to rethink their telecom spending in and their providers, but this is clearly behind us now because 100% of the base has translated to our to our systems.
Okay, Great and I have a question on margins and Canada, If you may.
Help us understand how much more upside can.
Can we see in your Canadian cable service margins given the strength we've seen in this quarter.
What's driving that margin increase.
And are there any one time.
One time.
Lower cost debt.
Accounting for that 6% EBITDA growth in the quarter year on year.
So a portion is due to the organic growth year on year, which we weren't expecting.
And we did have some year end adjustments, they're not very large, but when you focus on one business unit in one quarter, if that just a little bit.
So if you look at the margins for <unk> for the full year, we did 53, 8%.
You could assume that next year will be in a similar place so a bit lower than what we did in Q4, but very similar to what we did.
During fiscal 'twenty, two and from there as we typically.
Where the various activities that we have and also the network expansions, we're doing now and we're gonna load customers I could see that in fiscal 'twenty four and on that this will expand as well, but well wait a little bit to talk more about this as the year unfolds.
Okay. Thank you guys.
Thank you.
Next question will be from Vince Valentini with TD Securities. Please go ahead.
Thanks very much.
First.
The hurricane in Florida can you just confirm is there any impact on your Miami systems are where they are far enough away to not really have any damage or disrupted customers.
No we were I would say with the path of the European It actually did not hit our network. So we had very little impact for her.
Thank you.
Second clarify it.
Correct me, if I'm wrong, I think you said breweries wine EBIT growth in the first quarter will be negative on a year over year basis. I assume you are talking on a constant currency basis. When you say that if we factor in FX now versus FX rates in Q1 last year I assume.
The reported number would still be higher are you actually saying reported is down even with the FX change.
Well, you're right that's in constant currency.
So last year, we had the $140 million of EBITDA in Q1, which was there.
Much higher than the other quarters so.
So we do expect in current currency to be lower.
I must say I have not converted and FX.
So.
But it's going to be a lot closer.
If not the same number but I am sorry, I haven't done the number but it's in constant currency.
Thank you.
One more clarification.
And then.
Bigger picture question.
<unk>.
The rural expansions I believe youre getting new stuff and you actually getting new stuff in Ontario, but I believe you've already built out.
A fair number of new homes in Quebec, I think you said, 2% expansion in your total homes should we start to see some internet sub adds from those new territories as early as the first quarter of 2023.
Yes, So we added in Canada 37000 homes passed a lot of them are delivered in the past quarter and two quarters.
So yes, we should start seeing because there were expanding in areas, where there's no high speed Internet typically the subscriber loading is faster we do expect our penetration rate over three years of 50%, but normally we do expect the first year to be in a more important one than the other two.
So yes, it's going to be gradual now we do have a number of homes passed that we're gonna add throughout the year. So are these low cap as well so as we go throughout the year, we should see this number grow.
Great.
And last show.
Hi.
I am not sure drew tried to ask this before but I just wanted to ask more specifically.
Is it even possible to buy.
Wireless core network from a vendor that's just like a mini core they are only covers one town as opposed to most people have core networks should cover entire countries can can you guess pared down version that you can buy from somebody in and if so any idea.
<unk> are scrambling to figure out if there's some sort of massive capex to try to get.
Radio access network and a core network up in at least some small area to qualify for the <unk> can you give us any sense of if it's possible on how much capex, we're talking about.
Yeah, well we are.
I will repeat again that we're working on a capital light model.
In terms of the Iran. Yes, you can scale it from very small to very large.
But do you have other components than the rent you have the billing system you have the customer relationship management and the new systems.
Bose do the ones that were rolled out 20 years ago or 10 years ago.
Can scale them because their cloud base you can paper capacity along the scale up so.
I hope that Directionally answer your question.
Felipe you can basically haven't outsourced.
Basically you just buy it on a cloud based basis from somebody already has one as opposed to actually having your own after investing in your own large physical floor is that a fair way to interpret what you're saying.
Well. These these options exist right now and that's why we've been working on or planning to do you see.
Is the new technology ready enough to two to launch an operation or do we want the Niobrara.
So all these things.
We will disclose them later with our commercial when we're closer to a commercial launch but at this point in time.
We have many options.
So I just just on this though we're not necessarily planning to change our guidance based on this in the future.
So it's not as if it will come back next quarter at least that's not.
One with a big change based on this so so we did factor this into account when we reconfirmed our guidance for next year.
Okay. Thank you I'll pass it along.
Thank you next question will be from Stephanie price of CIBC. Please go ahead.
Hi, good morning.
Jason listen the few times in your prepared remarks, hoping you can talk a bit about the impact of inflation in the quarter and how quick could you close offsetting the impact.
Yes so.
Often when we talk about inflation.
People think about their cost so they are impacted but I would say overall that we're able to manage every year through our the various procurement activities that we do we're able to decrease costs. So I would say, we're able to manage this on the cost side, it's a bit more impactful on the consumer side because inflation.
Especially when you look at grocery prices gas prices and now interest rates are impacting the personal budgets of customers and that's why we have seen actually more cutting in the quarter I think it's happening with other operators in the space as well as looking at the recent releases.
So this is something that's happening so a bit more cord cutting on video and phone.
Not necessarily on the on HSI.
But I would say this is where we see it.
Okay. Thank you.
And then in terms.
Wireless just curious if you had any updated thoughts on wireless rollout in the U S.
Yes awareness in the U S is different.
<unk> framework that were.
<unk>.
Talking about in Canada a year.
There is no such need in the in the U S. The MVA or no.
Commercial environment exists already.
It wasn't at the top of our priority we add many other.
Profitable initiatives do we felt we could we should be executing before going into wireless. It's on our list. It's possible, we don't need to purchase spectrum to enter the N V I know.
Arena and the United States. So we will do it when and if it makes sense to help our business, but in the very short term, it's not in our immediate plans.
Okay. Thanks, and then just finally for me just curious if there's any major differences that youre seeing in the competitive environment.
Oh versus versus the rest of the U S.
<unk> being an over builder, we have a very similar.
Our footprint in Florida, where there is actually more competitive.
Intensity, we've been operating in Florida for some times, where we're not afraid of competition.
And it's working rather well for us down there. So we see certainly AT&T upgrading.
Some DSL neighborhoods due to fiber charterers already there are quite competitive, but I don't see any any.
Fundamental things changing going forward, we are going to continue to invest in our.
Customer promise our customer.
Customer care as well as network product and maybe in addition to it was said earlier there is more network investing in investment coming so we can keep on improving the speeds of Internet for example, and make our product.
Our products, better and Ohio, including the Breeze nine stream T V.
The PCB product that is coming.
Great. Thank you.
Next question will be from Joel.
Please go ahead.
Hey, good morning. Thanks for taking my question. My first question is on the U S. Broadband. Thanks, Fred Thanks for the color you provided already there but.
It is possible to share what percentage of your U S footprint currently actively seeing overbuilding by sorry, Tom.
I know you're already asked some of your footprint Overbill. Dan you also have the condo towers and get it.
Possibly not.
Affected by this trend, but just.
Overall, the proportion of your U S footprint that is spacing active overbuilding right now.
Yeah.
Yes, there is a I would say there is not necessarily active overbuilding at the moment, we're not seeing.
Any new activities or any any material new activities.
We have although you see Ohio, which is competitive Florida and some other states, where there's been some overbuilding done.
Two years ago.
Overall, when you look at our competition in the U S. A.
We're facing.
Fiber and about 15% one five of the network and about 55%, there's still DSO and the balance is a mix of our <unk>.
<unk> products, including.
Coax overbuilt.
So I would say those statistics I have not changed recently.
Recently, except for the pro forma mounting for Ohio.
Okay, Great and then second a bit similar to Vince's question, but in terms of the FX impact.
It's easy to calculate the impact on the top line.
I Wonder if you can help.
Help us in terms of the margin how does this.
How does it behave when youre seeing maybe an FX tailwind of seven 8% in the coming quarters.
Should we be expecting.
Some sort of margin lift on that front.
So what.
What magnitude approximately.
Well, if you're talking about the U S. Only because it's the top line and the costs are in US Dollars, then it will not really impact the margin and percentage.
If you look at it on a consolidated basis with a higher FX rate means that the U S business will be more significant.
And because the margins are a bit lower in the U S. It would reduce the consolidated margin.
To a certain extent probably not any meaningful number.
And the reason why our margins are lower in the U S is primarily due to the video content costs.
The video packages that consumers have in the U S are much larger than what we sell in Canada and costs more as well. So that's the main reason why the margins are different.
I hope that answered your question.
Yeah. That's helpful. Thank you.
Yeah.
Once again as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on you touched on the phone.
And your next question will be from Matthew Griffiths with Bank of America. Please go ahead.
Thank you for taking the question.
Just wanted to touch on wireless again, sorry, but in the prepared remarks that Philip I think you mentioned.
<unk> already started developing a mobile network and so I mean, obviously you've been purchasing some spectrum.
Was that all you're referring to there or.
What have what besides that what have you done and then maybe you know if there is anything gone spectrum like how much have you spent on that.
So preparing such a.
And operation requires of course a skill.
And talent inside our our business. So we do have a team that is dedicated to wireless with the strong wireless expertise and by the way the whole senior leadership team at Cogeco is versus an in mobile as we all have mobility somewhere on.
<unk>.
So we we we are looking for an operation over our existing wireline footprint, that's about a coverage of 4 million Canadians.
It's a small scale operations compared to.
The major Msos that are covering coast to coast countries.
And it requires a lot of skill due to balance the.
The quality with a light expenditure using of the usage of new technology and also planning how we will work in this <unk> framework with.
And then those that are really looking for every opportunities to delay things and make interconnections.
Difficult if I could simplify it.
It's just such a statement so we've been working on this for two years.
But there was more of a regulatory hurdle now with the Ts and CS the terms and conditions, we have more clarity. The next step will be to get going on negotiating the rates with <unk> and then we will have all of the variables due to decide if we can launch a.
Profitable.
Business or not.
Okay. So it's mostly on you're referring to like the kind of intellectual.
Investment.
Other than already being underway on some sort of physical investments exactly and is that a good way to sum it up.
Well of course, we have labs, and we're playing with real stuff as well. So it's not just conceptual we are testing many many things.
Okay. Okay. Thanks for that and just another clarification.
In the 2023 priorities that you laid out and you mentioned in the U S homes past growth of 5% and in Canada, That's 3% I just wanted to.
Double check that you were basically referring to like an incremental 1% in the U S and an incremental 1% in homes past year over year do I have that right or is it actually in 2023, and new 5% increase from 2022 and the number of homes passed.
Yes, so its the ladder. So actually you know we're planning to add another 5% in the U S and then 3% and Canada.
Okay, great. Thank you for that and then just in the in the <unk> in the U S and Canada also but I think particularly in the U S where I think everyone.
Has it been noting the increase in competition just generally.
And in fact, some markets more than others, obviously, you pointed that out.
Can you talk a little bit about you know your.
Intentions around marketing spend and what you think that that I think you mentioned already in Q4 it was elevated.
Going into that next year is this something we should assume there's going to have to stay elevated given that.
Net adds are generally in the U S seem to be quite low and so the competition for each each one of them has to be.
Much more intense.
And then just kind of related to that you know if you could also talk about your confidence in your since you know kiss your growth outside of the new territories might be a little limited in what kind of confidence do you have in your ability to pass on.
Pass through.
Nice increases.
In each of the markets. Thanks.
Okay. So on the on.
On the marketing because they do vary by quarter.
Obviously.
And by year as well, especially when we just came out of the Covid period.
The pattern of expenses was different than what we would normally do I would say we're closer to what we normally do now.
So difficult to get more granular.
Necessarily on this.
On your second question, we are really broken tumors, all the time we.
We pass on which we must pass on.
Have you noticed in the.
Last several years.
Our price increase are not set at a given date every year, we try to stretch it the longest possible we were under the very big numbers, you've seen for inflation rates. So we tried to control a lot of cost on our side and really passed through the consumer markets.
We need to so India than it actually is a its working well we are maintaining good customer relationships. So the experience is something that is really important to us. So good products good customer service, but also a good price.
Okay, and maybe if I could just squeeze maybe one glass.
One in just to get your thoughts on you mentioned the since the initial guidance was given conditions have deteriorated.
I was just wondering and this is a hard thing to speak to you because you don't lay out exactly all of the assumptions that go into the guidance, but is there a way to frame kind of the magnitude.
How things have shifted since.
The initial guidance was given.
<unk> you.
You also mentioned Youre working to counter those and so if he's there.
There anything you could highlight initiatives that you're working on too.
Counteract some of that deterioration that would be helpful. Thanks.
Sure. So in our guidance, we do provide a range, but when you look at the range as a percentage of the overall business. It's not very large so I would not say that things have changed dramatically since then.
But the more.
More impact from the current environment and also the losses of some customers that we've had in Ohio have an impact on revenue. So I would say that's the line that.
There is more of the impact of these changes.
On the cost side, we have a number of things that are that we are doing for example, we did have some restructuring during the quarter that will provide some.
Financial benefits in fiscal 'twenty, three so that was just recently.
And we have a number of our other elements were working on to alleviate.
Potential weakness in some.
Some level of revenue, but again, we are we did maintain the guidance with a range that is not a very large in the first place.
Alright. Thanks, a lot that's very helpful. It's a whole set of pluses and minuses. For example, yes. The inflation is not even every month, we've seen we've seen it going up.
And then coming down for some products.
We can think of.
People coming back with the daily working because.
The the commute is really along in an expensive. So it's been exiting internet connection services. So there are pluses and minus and done so.
So that's why we continue to see.
Some challenges, but we will be able to weather the storms.
Alright, thanks, very much for taking the questions.
Thank you and at this time gentlemen, we have no further questions. Please proceed with your closing remarks.
Okay, well. Thank you everybody, we're going to be meeting back in January and mid January for the first quarter. Our results in any trend, we're very happy to take questions. So have a good day. Thank you.
No.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we ask that you. Please disconnect your lines have a good weekend.
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