Cogeco Inc. SV ((TSE:CGO)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Cogeco Inc. SV revealed a mixed sentiment, highlighting both areas of growth and significant challenges. While the company showcased strong performances in the Canadian market, particularly with Internet subscriber growth and the launch of a new wireless service, it continues to face hurdles in the U.S. market with declining revenue and heightened competition. The transformation program has been successful in achieving positive cost synergies, yet market pressures, especially in the U.S., are impacting the overall performance.
Strong Canadian Internet Subscriber Growth
Cogeco reported a robust increase in Canadian Internet subscribers, adding 9,400 new customers during the quarter. This growth is anticipated to persist, bolstered by the launch of wireless services and expansion projects in Ontario. These developments are expected to further solidify Cogeco’s presence in the Canadian market.
Significant Free Cash Flow Improvement
The company experienced a remarkable 61.5% increase in free cash flow in constant currency, attributed to reduced capital expenditures and restructuring costs. Cogeco projects to generate approximately $600 million in free cash flow by fiscal 2027, indicating a strong financial trajectory.
OpEx and CapEx Synergies Ahead of Plan
Cogeco’s transformation program is yielding results ahead of expectations, with operating and capital expenditure synergies leading to a net reduction in capital expenditures compared to prior estimates. This efficiency is a positive sign for the company’s financial health.
Initial Launch of Canadian Wireless Service
The company is set to introduce a new Canadian wireless service, initially targeting low to mid data users. This service will be exclusive to customers who also purchase wireline services, offering a strategic advantage in the competitive telecom market.
Decline in U.S. Revenue
Breezeline, Cogeco’s U.S. subsidiary, reported a 6.6% decline in revenue in constant currency, driven by a loss of 10,400 Internet subscribers during the quarter. This trend underscores the challenges Cogeco faces in the U.S. market.
Canadian Revenue Decline
Despite the growth in Internet subscribers, Cogeco Connection experienced a 1.8% decline in revenue in the third quarter. This was primarily due to a decrease in revenue per customer, as fewer video and wireline phone subscribers were reported.
Challenges in the U.S. Market
Cogeco is encountering increased competition in three U.S. states, coupled with internal execution gaps, leading to lower subscriber metrics. Consequently, the revenue outlook for the year has been adjusted downward due to these U.S. market pressures.
Radio Advertising Market Challenges
Cogeco Media faced difficulties in the radio advertising sector. However, revenue saw an uptick due to growth in digital advertising solutions, highlighting a shift in advertising strategies.
Forward-Looking Guidance
Cogeco provided updated guidance during the earnings call, reporting a net debt to adjusted EBITDA ratio of 3.1x, improved from 3.4x in the previous quarter. The company maintains its adjusted EBITDA guidance despite revising its fiscal 2025 revenue expectations to reflect a low single-digit decline due to U.S. competitive pressures. Net capital expenditures are now forecasted to be between $600 million and $650 million, lower than previous estimates. The Canadian wireless service is set to expand into 12 markets before a full commercial release in the fall.
In summary, Cogeco Inc. SV’s earnings call painted a picture of a company navigating both growth and challenges. While Canadian operations show promise with subscriber growth and new service launches, the U.S. market remains a tough landscape with declining revenues and increased competition. The company’s strategic initiatives and cost synergies are promising, yet the market pressures, particularly in the U.S., require careful management moving forward.