Q2 2025 Cogeco Inc Earnings Call
Matthew Griffiths, Stephanie Price, Jerome Dubreuil,
Speaker Change: Good day and welcome to the Cogeco Inc and Cogeco Communications Inc, Q2 2025 earnings conference call. Today's conference is being recorded. At this time I would like to turn a conference over to Mr Patrice Ouimet, Chief Financial Officer of Cogeco Inc and Cogeco Communications Inc.
Please go ahead, Mr. Wimett.
Speaker Change: Thank you. So good morning, everyone. Welcome to our second quarter results conference call. So as usual, before we begin the call, I'd like to remind listeners that today's discussion will include estimates and other forward looking information. Thank you very much.
Speaker Change: We ask that you review the cautionary language in the press releases and MDNA issued yesterday as well as in their annual reports regarding the various risks, assumptions and uncertainties that could cause actual results to differ.
Speaker Change: With that, I will now pass the line to Fred Beval for opening remarks. Thank you, Patrice. Good morning, everyone. We're pleased to share our Q2 results today and also provide an update on our transformation.
Speaker Change: As a reminder, our plan is to create additional shareholder value by increasing our cash growth, sustaining our dividend growth, and reducing our debt, with the option of also resuming share buybacks at one point in the future.
Speaker Change: Now more specifically, we expect free cash flow to grow materially over the next two years and let me be clear, this is not just an aspiration, it's a plan.
Speaker Change: This increase in cash will be enabled, in particular, by the natural end of a CAPEX investment cycle in rural network built and, to a lesser extent, network modernization efforts having reached our objectives.
Speaker Change: In addition, our relatively low dividend payout ratio, as a percentage of cash flow, provides sustainability and room for continued dividend growth.
Speaker Change: During the second quarter, we continue to pursue our three-year transformation program to further accelerate our performance.
Speaker Change: With the same five priorities we've been communicating since last year.
that is Canada U.S. Synergies, digitization of sales and service interactions.
Advanced Analytics, Network Expansion Completion, and Wireless Rampup.
Speaker Change: The merger of our U.S. and Canadian teams is now well behind us, and we're very pleased to see the high level of engagement and collaboration of our colleagues on both sides of the border.
Speaker Change: While a lot of organizational synergies are already being captured from this change, we're just starting to scratch the surface around technical and operational synergies.
Speaker Change: On the wireless front, US volumes are starting to ramp up following an initial tuning period.
We've now opened pre-registrations for our existing Canadian waterline customers.
and the man that has exceeded our expectations so far.
In terms of operational performance
Speaker Change: 2nd quarter results were ahead of expectations as the teams continued to execute well and as we deferred certain investments to the back half of the year.
Speaker Change: More specifically, our transformation efforts contributed to the expansion of our consolidated
Speaker Change: Our fiber to the home expansion program added close to 7,000 new home spas in the quarter mainly in Canada.
Speaker Change: And in the US, our customer satisfaction metrics and Ohio performance continue to show your over your improvements.
Speaker Change: At Cogeco Connection, our Canadian telecommunications business, we grew our internet customer bays by a total of 8,300 subscribers to squatter.
Speaker Change: We've been adding customers under both the Cogeco and Axial brands over the past year.
Speaker Change: Our Ontario Subsidized Network expansion program will continue throughout fiscal 2025 with an expected completion in fiscal 2026.
Speaker Change: As a reminder, our Quebec Network Expansion Program was largely completed in our previous fiscal year, and we're very satisfied with our customer additions in the completed regions of Quebec and Ontario to date.
with higher customer penetration levels than Target.
Speaker Change: We've now increased the number of Canadian homes passed by nearly 145,000 since the beginning of fiscal 2022, primarily via Fiber to the home and in collaboration with governments.
Speaker Change: At Breeze Line, Ebid Dunn constant currency was stable with last year, as revenue pressures from industry headwinds were offset by transformation-related cost savings.
Speaker Change: We're seeing increasing subscriber tenure resulting from higher customer satisfaction and an improved mix of higher margin services.
Speaker Change: This is helped offset the decline in subscribers for entry-level internet services due to competition.
Speaker Change: At Cogeco Media, the radio advertising market faces ongoing challenges. However, our digital advertising solutions continue to be a growing contributor to revenue, and our listener engagement
Speaker Change: In Montreal, for example, 7 of the 10 most listened to radio programs in the city come from our stations.
Speaker Change: And now, let me turn the call over to Patrice to provide more details on our financial performance for the quarter, Patrice.
Patrice Ouimet: Thank you, Fred. So, let's start in Canada. So, Cosical Connections Revenue Decline by 0.9% driven by the lower revenue per customer due to fewer video and wireline phone service subscribers. Sorry.
Patrice Ouimet: and a competitive pricing environment, frankly offset by a growing internet subscriber base under both the Cogeco and Axel Brands over the past year, and a contribution from the NRBN acquisition.
Patrice Ouimet: Adjusted EBITDA declined by 2.8% in constant currency due to lower revenue and higher operating expenses to drive subscriber growth.
Patrice Ouimet: I adjusted that but that was stable driven by cost reduction initiatives and operating efficiencies.
Patrice Ouimet: The Declanian Revenue was driven by lower revenue in both the U.S. and Canadian segments, while the stable adjusted EBITDA was due to operating efficiencies and lower corporate costs.
Patrice Ouimet: Diluted earnings per share, declined by 20% and reported currency due to higher DNA expenses.
Patrice Ouimet: Higher acquisition, integration, and restructuring expenses, and higher taxes, partially offset by lower financial expenses and the appreciation of the U.S. dollar.
Patrice Ouimet: Capital Intensity was 21.6% down from 23.4% last year, due to lower spending in Canada, partially offset by higher spending in the US.
Excluding network expansion projects, capital intensity was 19.4%.
Patrice Ouimet: Free cash flow in constant currency increase by 12.8% largely due to lower capital expenditures and financial expenses.
Patrice Ouimet: Our net debt to a adjusted EBITDA ratio was 3.4 turns at the end of the quarter, unchanged from Q1 due to the negative impact of exchange rates on our U.S. denominated debt, as it takes more time for EBITDA to fully reflect the effects and buy.
Patrice Ouimet: And we declared, accordingly, dividend of 92.2 cents per share.
Speaker Change: At Cogeco Inc, revenue and cost and currency decreased by 2.7% and adjusted the debt was stable as a result of Cogeco Communication's performance.
Speaker Change: Media's operations revenue decreased by 2.7% due to challenging competitive dynamics in the radio advertising market, partially offset by positive contributions from digital advertising
Speaker Change: and a dividend of 92.2 cents per share was also declared for the quarter at Cogeco Inc.
Speaker Change: Now turning to financial guidelines for Cogeco Communications, fiscal year 2025.
Speaker Change: We are maintaining our annual guidelines, which we first provided to investors in October .
Speaker Change: As it relates to the upcoming Q3, we both, sorry, we expect both consolidated revenue and adjusted EBITDA and constant currency to decrease in the low single digits compared to last year.
Capital intensity is anticipated to be approximately 350 basis points above Q3 of last year.
Speaker Change: At Cogeco Connection, with the acquisition of NRBN, now Fully Lapt, we expect you to re-revenue to decrease in a low single digits due to customer base being offset by video and world-owned foreign court cutting and competitive pricing pressures.
Speaker Change: Ajusted EBITDA is expected to decrease in the low to mid single digits, reflecting lower revenue and higher operating expenses which include spending related to subscriber growth and transformation initiatives.
Speaker Change: and we expect stable EBITDAE over year as operating cost discipline and lower video content costs are expected to offset the revenue decline.
Speaker Change: Below the other line are the consolidated level with our restructuring program largely complete. We expect acquisition, integration and restructuring costs to be approximately 4 million in Q3, which partially relates to IT cloud implementation costs.
Speaker Change: In regard to our Q3 financial expense, we expected to be about $2 million higher than reported in Q2 using today's FX rates.
Speaker Change: At Cogeco Inc, we are also maintaining financial guidelines and now Fred and I will be happy to take your questions.
Speaker Change: Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please for a star followed by the one on your touchtone phone? You will hear prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star followed by the two. If you are using a speaker phone, please lift the hands up before pressing any keys. One moment, please fear first question.
Speaker Change: Your first question comes from Mayor Yagi with Scotiabank. Your line is now open.
Speaker Change: Great, thank you for taking my question, and thank you for
Speaker Change: The detailed outlook for history and the rest of the year. Patrice, so I wanted to, you know, just focus a little bit on the US side.
to start.
Speaker Change: You're having much better turn metrics in Ohio. What else can you do for the rest of the...
Hi, my heart's red.
Speaker Change: Maybe I can unpack the question first by talking about the market in the US and then I can talk about some of our performance levers.
Speaker Change: I would say that the competition in the market may remain elevated.
Speaker Change: You know, you look at those numbers and we should see a deceleration based on what they're forecasting. We have not seen that deceleration yet, but it should come over time.
Speaker Change: We've actually seen over the past few weeks a slight further uptick in competition as some of the fiber players, for example, in the Northeast. There was one in particular that increased their promotional intensity in recent weeks.
Speaker Change: and we're feeling it in our Q3 PSUs right now. Now that being said, that may be a tactical and short lift, so I wouldn't read too much into it.
Speaker Change: does become a contributor to cable co-performance, you've seen it from the big two out there.
So that's one.
Speaker Change: The other one is we're exploring how we could possibly use a dual brand strategy to compete in the US market, leveraging, for example, an oxylite strategy. We're not ready to announce anything today, but this is something that we're looking at.
Thirdly, as the OTT players,
Speaker Change: We're seeing green shoots of possible deceleration in US TV court cutting and last but not least there's a lot we can do in terms of continuing to improve.
Speaker Change: are ongoing sales and marketing blocking and tackling which we are in the process of doing right now. I would also add in conclusion that we are seeing material improvements in our US customer satisfaction due to a number of operational improvements.
Speaker Change: You know, your view on what it takes to reduce churn in as far to explore this continues to be a headwind.
hugely positive, gross contribution margin on those new wireless ads.
and the benefit will come...
Speaker Change: Certainly, giving wireless for free on a promotional, time-limited basis is always an option. And just generally, if we need to be aggressive, we can be, as I said earlier.
Speaker Change: Thank you, and your next question comes from the line of Arab indigo la Patrice, from
Speaker Change: You know, any tailwinds from wireless and, you know, the, the, the, the streamline structure that you have.
Speaker Change: and then, secondly, in Canada, just wanted to get a sense of what any changes to turn. I know there was a, you know, one of your price increases occurred in March. Any kind of reaction or impact to that and maybe an update on the competitive conditions there. Thank you.
Speaker Change: Sure, I can talk generally about US commercial trends and then I'll answer your second question about the Canadian Raid increase as well.
The End of the U.S.
Speaker Change: There are a few things that are giving us good tailwinds from a profitability perspective
We lose very little profitability from that.
We're also seeing that on the internet side.
Speaker Change: Some of the customers that were losing tend to be lower RQ because they go towards FWA and we do see that on the legacy base given that we still have a technology advantage in many of the markets where we operate that we're still able to realize healthy annual rating increases.
I would also add on the cross side.
Speaker Change: that we keep overperforming in terms of our cost reduction and we don't see an end in sight on this one because the cost reduction is happening not just from squeezing but from actually reducing customer demand. So we're seeing material declines.
Speaker Change: and even when they do call us, we're seeing a very large increase in the number of chat box interactions and the increase in chat as well.
Speaker Change: So you put all these things together and I would say we do feel good about U.S. profitability. Patrice, I don't know if you wanted to add anything on that topic. On the second part of your question about Canadian rate increases.
Patrice Ouimet: The rate increase that we implemented in Canada on March 1st was actually slightly smaller than last year, and what we're seeing is it's pretty calm.
Speaker Change: So, we're not seeing much churn from it, but we rarely see much churn from it, but we would see more is calls for retention and new discounts, but so far it's been pretty combed our agenda.
Great, thank you very much, I'll pass the lights.
Speaker Change: Thank you, and your next question comes on the line of Vince Valentini from Frederic
Vince Valentini: Are you highly confident this is just timing and you have detailed schedules for construction in the second half of the year to catch back up or is it possible that you know we will end up you at least in the better end of both of those ranges.
Speaker Change: and I'll throw the second question out at the same time, just so you can see who won it. There seems like there's been a fair amount of chatter on...
Speaker Change: on a process to look at divesting your Florida fiber assets. Is there anything you can tell us there? Is there the truth that that's an ongoing process? And if so, any thoughts on how it's going and what the time frame timeline might be? Thank you.
Speaker Change: Sure. Hi, Vince. So on the first question, it's still early. So obviously for CapEx, the free cash flow is directly linked to it.
Speaker Change: and can be volatile during the year, especially when we look at the seasons to build.
Speaker Change: So there will be higher capex in Q3 as I mentioned earlier and there will be some in Q4 as well so I would not assume necessarily that will come in at the low end of capex but we feel comfortable that will be within the range that we mentioned.
Speaker Change: and I would say probably a similar story on free cash flow. Obviously next time we do report there's going to be just one quarter left, we'll see if we're if we're trending a little better, but for now we felt comfortable with the ranges we gave.
Speaker Change: Yeah, sure. On the second question on acid pruning, I'll enter it more generally.
Speaker Change: from Journalists, but just generally is something we've said before. We're still interested in pruning some assets in the US if we think it makes sense operationally, strategically and financially, and it's still something we're looking at right now. That's all we can comment on at this point.
Fair enough. Thank you.
Thank you.
Speaker Change: Thank you and your next question comes from the line of Drew McReynolds from RBC. Please go ahead.
You know, your objective of turn reduction.
Can you give us a sense?
Patrice Ouimet: and then, you know, secondly, maybe for you Patrice on the level of reinvestment through the transformation that you're making. I don't know if you can quantify this, but ultimately, when that transformation begins to wind down.
Patrice Ouimet: Um, you know, in terms of basis points of margin, what kind of reinvestment comes out of the, you know, out of the numbers that we're seeing right now on a runway basis.
Patrice Ouimet: you know, in the context of the question is clearly you're seeing...
Patrice Ouimet: Very good efficiency gains, which is great to see and just wondering if we get you know a step down an off-ex or a gradual decline is that re-investment comes out of the equation. Thank you.
Hi, Drew, it's Fred. Thanks for the first question on the wireless.
Fred Perron: First, let me start by saying, Drew, that in both countries our wireless kind of op-ex investments and there's very little caps, you know, you already see most of it in our current financials. So I wouldn't expect a big increase there, and then it's mostly upside from here, therefore.
Fred Perron: and in terms of how fast the upside comes, I think a good proxy to use Drew would be the U.S. cable and VNOs.
Fred Perron: Both in terms of the end penetration that they reach, as well as the time that it takes.
Fred Perron: for the payback to really show. So as you look at those, you'll see that it's a lower penetration level.
Fred Perron: then truly fully converge players who have both infrastructures, but it does become a creative over time, and when you listen to Charter and Comcast they do talk about how it's in that positive contributor to their event.
It is an S-curve [inaudible]
Fred Perron: The turn benefit kicks in from the very beginning, it's just you don't have the full scale yet to absorb your fixed costs.
Fred Perron: But after a little while, you start reaching a critical mass and then over time, your fixed costs, which as I said before are already in our financials, your fixed costs eventually end up being compensated for and the whole thing turns out to be that positive.
So...
Short answer would be its upside from here.
Fred Perron: Patience on the time that it takes to get that upside in cable MV and observed with proxy.
Fred Perron: So on the second question, we have a number of elements to cover as part of the transformation.
Fred Perron: Some payoff quicker, and some payoff later in the three-year program, so we're in year one right now.
Fred Perron: So we've already seen this, like you saw the margins improved view over the year especially in the US.
Fred Perron: I know I've been asked before, where do we see this going forward? The current level of margins in the US is probably something we can do for the balance of the year, and also a reason why in future years it would be a lower number.
as to your...
Fred Perron: I guess the second part of your question is, would we reduce investments we're making now, given that they're financed by the benefits we're getting, I wouldn't see a major impact from this going forward. It's just...
Fred Perron: Bigger benefits as we're able to activate the different elements of the plan.
Okay, thank you both.
Speaker Change: Thank you, and your next question comes in the line of Stephanie Price from C.A.B.C., please go ahead.
Speaker Change: Hi, good morning. Maybe following up on Drew's question there, a little bit. It's halfway through the year and evagise up a little over two percent, a consolidated basis, versus the full-your-guide of stable, evada. And it sounds like you're seeing benefits in the transformation initiative. Just wondering how we should think about the second half of the year and the person takes around, around evadone expenses in the back house.
Speaker Change: Yeah, so you're high Stephanie, so you're talking at the consolidated level, right? Yeah, exactly. Yeah.
Yes.
Speaker Change: Yeah, so there's different elements in the back half of the year. I've provided a glimpse at Q3.
Speaker Change: I'm still a bit early for Q4, but obviously we do have some price increases that we've put through in February and March.
Speaker Change: There is some seasonality to some expenses, especially when we look at marketing budgets and back to school.
Speaker Change: that hit more in Q4, so the phenomenon is there, and we've actually done better than what we saw initially for Q2, but some of the reason is that we do have expenses that we'll lecture later on. So as I said, basically, in the opening remarks.
Speaker Change: We do expect that in Q3 for the EBITDA should be a negative year over year in Canada and more stable in the U.S. and constant dollars.
Speaker Change: and so that gives you a small pressure increase free. But again, I'll plan as part of our annual guidance we did provide as a stable. Hopefully that answers your question.
Speaker Change: Thanks. Yeah, and then maybe one more for me. We've seen a few M&A deals in the US telecom space recently. Just curious how you, if you anticipate any changes to the competitive landscape on the further consolidation.
Speaker Change: So I wouldn't say that we saw major changes and it's a very dynamic every week. There are new types of offers being put out by the different players in the different states that we operate in so it's still a bit derby days.
Now, guys, thank you.
Speaker Change: Thank you and your next question comes in the line of Jerome Dubreuil from Desjardins,
Jerome Debrill: Thanks for taking my question. Fred, you started the call, talking about your potential for growing free cash flow over the next two years.
Jerome Debrill: We're talking about growth of free cash flow of 150 million over the next two years, wondering if you can confirm or maybe discuss that you still have this view here.
Hi, Jerome. Thanks for the question.
Jerome Debrill: Yes, so for everyone's benefit, what we were talking about is the growth in cash flow from this fiscal year to fiscal 2027. And I would say at this point, Jerome, that indeed 150 million would be a decent assumption to use.
Jerome Debrill: The reason for the increase is quite straightforward, which is we've got our Ontario Network Expansion programs that will complete by then.
Jerome Debrill: We're also quite pleased by how we were able to quietly modernize the rest of our network over time and by the time we reached fiscal 27, we will have reached our objectives so you put those things together and you know as you know capex [inaudible]
Jerome Debrill: is relatively under our control and therefore $150 million increased by then is not a bad assumption.
Speaker Change: over the longer term, what I understand is that most of this is coming from CapEx reduction and now you have planned deploying with new houses. Now I totally commend you for only investing on plans that make sense from an ROIC perspective, but...
Jerome Debrill: Do you think there's going to be a noticeable impact on the profitability side?
Beaming on the Growth
Jerome Debrill: for these expansion programs to get fully penetrated. We reach very high penetration rates and they don't happen immediately. So we have quite a few years of room there in terms of growth. It's also not our only growth driver. We've talked about many others, such as we were talking with Drew earlier that wireless.
Jerome Debrill: will become more and more material over time, especially in the time horizon that you and I are discussing.
Jerome Debrill: General, maybe I can add also, every year we will add some parts to our network, so in areas where we operate there's always new neighborhoods that are being built.
Jerome Debrill: So we're always doing those, obviously those are high return investments.
Jerome Debrill: Participate in the programs, it's just that there's no big ones coming up.
Jerome Debrill: from what we're seeing, but we're doing some smaller ones, like we have one in Virginia right now, so it can be at a provincial in Canada or state level. The bigger one that we've been talking about in the past, the bead program is something we'll probably not do too much of, but at the smaller level there are some possibilities.
They are super cool.
Speaker Change: Thank you, and your next question comes from the line of Matthew Griffith from Bank of America. Please go ahead.
Matthew Griffith: There was no mention of kind of a doxxas for upgrade, is that contemplated in that normal course upgrade cycle to the end of 2027 or are you seeing
Matthew Griffith: and increased number of subscribers within your base, kind of repracing themselves lower, and that's driving the competitive pricing pressure that you called out. Thanks.
Sure, hi Matthew, Fred.
Speaker Change: We've been building fiber to the home for many years, especially all the new areas.
Matthew Griffith: and more recently there are certain areas in the US where we saw with new technologies and an opportunity.
Matthew Griffith: Rather than go through the split and the axis four way, we can go directly to fiber. We don't do this if it doesn't make sense financially, but the costs have come down. And there's new technologies that allow us to do that, so we started doing this.
Matthew Griffith: and Asward Oxus 4. It's still something we're planning to do over time, but we're not planning to do a big blitz.
Matthew Griffith: and also, when you look at the equipment costs, usually those come down over time, so it makes sense to wait a bit. I don't know if this was a behind-the-question math, but...
Matthew Griffith: You know, in the 150 million cash for an increase, we're talking about we don't anticipate big surprises coming from doctors for erasing some of that.
Speaker Change: Okay, no good to hear and maybe if I can just sneak one more in just on the subscriber trends in the US and you know you've already spoken about improvements in Ohio and then there's some degradation outside of Ohio.
Speaker Change: was that accounts for the losses outside of Ohio in this last period.
Speaker Change: No, our Florida business has been quite stable. So when I talked earlier about a slight uptick in competition even going into Q3, it's mostly in mid-Atlantic and North East.
Okay. Okay. Very helpful. Thank you so much. Thank you.
Operator: Thank you, and there are no further questions that is some, I would now hand a call back to Mr. Patrice Ouimet for any closing remarks.
Patrice Ouimet: Okay, well thanks everyone for participating today and as usual feel free to call us if you have additional questions. Have a good day.
Speaker Change: Thank you and this concludes today's call. Thank you for participating. You may all disconnect.