Cogeco Communications: Mixed Signals in Earnings Call

Cogeco Communications ((TSE:CCA)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call of Cogeco Communications presented a mixed outlook, reflecting both strengths and challenges. While the company demonstrated robust growth in its Internet subscriber base in Canada and achieved improvements in EBITDA margins, it also faced obstacles such as a decline in U.S. revenue, a difficult advertising market, and expected revenue and EBITDA decreases in the upcoming quarter.

Strong Internet Subscriber Growth in Canada

Cogeco Connexion in Canada reported impressive growth in its Internet subscriber base, increasing by 10,700 subscribers across its Cogeco and oxio brands. This surge underscores the company’s successful strategies in attracting and retaining customers in the competitive Canadian market.

Successful U.S. Market Expansion

In the U.S. market, particularly in Ohio, Cogeco experienced its best quarter since acquiring the business. This success was marked by improvements in subscriber metrics and heightened customer satisfaction, indicating positive momentum in this regional market.

EBITDA Margin Expansion

Cogeco’s transformation efforts have led to an expansion in EBITDA margins, attributed to enhancements in operational efficiency and the introduction of higher-margin service offerings. These efforts have played a crucial role in bolstering the company’s financial health.

Increased Free Cash Flow

The company saw a 7.8% increase in free cash flow, driven by a successful sale and leaseback transaction and higher adjusted EBITDA. This increase provides Cogeco with greater financial flexibility to invest in future growth opportunities.

Improved Diluted Earnings Per Share

Cogeco’s diluted earnings per share saw an 18.4% increase, fueled by lower financial expenses, increased adjusted EBITDA, and a reduction in the number of shares outstanding. This improvement highlights the company’s effective financial management.

Revenue Decline in the U.S.

Breezeline, Cogeco’s U.S. subsidiary, experienced a 3.4% revenue decline in constant currency, mainly due to a decrease in the subscriber base and the ongoing trend of video cord-cutting, presenting a challenge for the company’s U.S. operations.

Challenging Radio Advertising Market

Cogeco Media faced persistent challenges in the radio advertising market, resulting in lower-than-expected revenue. This sector’s struggles reflect broader industry trends and market conditions.

Expected Decrease in Q2 Revenue and EBITDA

Looking ahead to Q2, Cogeco anticipates a low single-digit decrease in consolidated revenue and adjusted EBITDA, driven by competitive pressures and strategic investments. This expected decline highlights the company’s ongoing challenges and the need for strategic adjustments.

Forward-Looking Guidance

Despite a 1.6% decline in consolidated revenue and a 1.4% rise in EBITDA, Cogeco maintained its annual financial outlook during the Q1 2025 earnings call. The company forecasts a decrease in Q2 consolidated revenue and adjusted EBITDA in constant currency due to competitive pressures and business investments. In Canada, revenue is expected to fall in the low-single-digits, with adjusted EBITDA decreasing in the mid-single digits. In the U.S., Breezeline anticipates a mid-single-digit revenue decrease and a low-single-digit dip in adjusted EBITDA. Nonetheless, Cogeco remains focused on its transformation program, aiming for a net debt-to-EBITDA ratio in the low three turns range over time.

In conclusion, Cogeco Communications’ earnings call depicted a landscape of both opportunities and challenges. The company is making commendable progress in expanding its Internet subscriber base and improving financial metrics, yet it faces significant hurdles in the U.S. market and advertising sector. As Cogeco navigates these complexities, its forward-looking guidance underscores a cautious but determined approach to sustaining growth and profitability.