Release Date: January 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cogeco Inc (CGECF, Financial) reported strong early progress on its transformation initiatives, contributing to an expansion of EBITDA margins.
- The company achieved strong Internet subscriber growth in Canada, with an increase of 10,700 subscribers under the Cogeco and oxio brands.
- Cogeco Inc (CGECF) successfully rolled out Breezeline Mobile and is on track with its Canadian wireless market entry.
- The US operations showed improvement in customer satisfaction and subscriber metrics, particularly in Ohio, which had its best quarter since acquisition.
- Digital advertising solutions revenue for Cogeco Media showed resilient growth, contributing positively to overall revenue despite challenges in the radio advertising market.
Negative Points
- Cogeco Inc (CGECF) experienced a decline in US revenue by 3.4% in constant currency, primarily due to subscriber base decline and video cord cutting.
- The radio advertising market faced ongoing challenges, leading to lower-than-anticipated revenue for Cogeco Media.
- The company anticipates a mid-single digit decrease in adjusted EBITDA for Q2 in Canada due to competitive pricing pressures and higher content costs.
- In the US, competitive pressures at the low end of the market continue to impact subscriber trends, particularly for entry-level services.
- Cogeco Inc (CGECF) faces increased capital intensity, rising to 20.4% from 19.6% last year, due to higher spending in the US.
Q & A Highlights
Q: In the US, you mentioned a decline in the subscriber base, especially for entry-level services. Can you talk a little bit more about that? Are you still seeing a headwind from ACP? Or is it a more sustained change in customer buying behavior you're seeing in the US?
A: The ACP impact is over. The decline is primarily due to entry-level customers moving to Fixed Wireless Access (FWA), which tends to have a lower ARPU. The competitive environment in the US is stable, with some players differentiating on service rather than price.
Q: It seems like some cable peers have focused on switching customers to 1 gig plus plans. Is that a strategy that Cogeco is considering in the US?
A: Yes, 1 gig speed is available across our US footprint and constitutes a significant share of new sales. However, specific details are not disclosed for competitive reasons.
Q: Can you update us on the competitive environment in Canada, particularly regarding fiber versus non-fiber footprints and differences between Quebec and Ontario?
A: The competitive environment in Canada is stable. We see more fiber competition in Quebec than in Ontario. We maintain market share in fiber areas and grow in non-fiber areas.
Q: Your free cash flow guidance for the year, did that include the $16.5 million proceeds from the sale leaseback transaction?
A: Yes, the free cash flow guidance included the proceeds from the sale leaseback transaction, as we were close to finalizing the sale when the guidance was issued.
Q: Regarding the mid-single digit decline in Canada on EBITDA next quarter, is there also a part of the launch of wireless that's in this quarter?
A: The wireless investments are not expected to significantly impact Q2. The decline is more related to competitive pressures, ARPU pressure, and increased content costs.
Q: With the rural deployment of network being a growth strategy, should we be concerned about future rural deployments being more difficult due to government interest in satellite delivery?
A: In Canada, we haven't seen negative impacts from satellite technologies on our rural builds. However, in the US, particularly with the BEAD program, we are cautious and less interested due to the remote nature of the areas involved.
Q: On costs related to the transformation initiatives, should we expect costs to be spread out over the three years rather than front-end loaded?
A: Costs are more steady over time, with benefits expected towards the later portion of the program, particularly in fiscal '27 and '28.
Q: In the US, are competitive pressures limited to entry-level plans, and are you able to price mid-range and higher plans effectively?
A: Yes, competitive pressures are mostly at the low end. We are still able to execute rate increases for mid-range and higher plans with minimal negative customer reaction.
Q: Are there additional one-offs like sales of PP&E contemplated in the free cash flow guidance, or was the Q1 sale the only one for fiscal 2025?
A: The Q1 sale was the only material one included in the guidance. While we regularly have small asset sales, there are no other significant sales currently anticipated.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
