Cogeco Inc. SV Earnings Call: Mixed Sentiment Amid Growth

Cogeco Inc. SV ((TSE:CGO)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call of Cogeco Inc. SV painted a mixed picture for investors. While the company highlighted significant operational achievements and strategic advancements, particularly in the wireless segment and cost management, there were notable challenges such as revenue decline and issues in segments like radio advertising and subscriber base contractions. The overall sentiment was balanced, reflecting optimism for future growth amidst current operational hurdles.

Expansion of EBITDA Margins

Cogeco Inc. SV reported an expansion in consolidated EBITDA margins, attributed to successful transformation efforts. The company’s operational performance exceeded expectations, thanks to well-executed plans and deferred investments, which contributed positively to the financial results.

Increase in Internet Subscriber Base

In Canada, Cogeco experienced a growth in its internet customer base, adding 8,300 new subscribers during the quarter. This growth was supported by the fiber-to-the-home expansion program, which added nearly 7,000 new homes passed, showcasing the company’s commitment to enhancing its infrastructure.

Stable EBITDA in Breezeline

Despite facing revenue pressures, Breezeline managed to maintain stable EBITDA in constant currency. This stability was achieved through cost reduction initiatives and improved operating efficiencies, highlighting the company’s ability to manage financial challenges effectively.

Free Cash Flow Increase

Cogeco reported a 12.8% increase in free cash flow in constant currency, driven by reductions in capital expenditures and financial expenses. This increase is a positive indicator of the company’s financial health and its ability to generate cash flow amidst challenging market conditions.

Wireless Ramp Up

The company’s wireless strategy is gaining momentum, with U.S. wireless volumes ramping up and Canadian pre-registrations exceeding expectations. This development supports Cogeco’s strategic focus on expanding its wireless offerings and capturing market share.

Revenue Decline

Cogeco Communications faced a 2.7% decline in consolidated revenue, with decreases in both U.S. and Canadian segments. The decline was attributed to competitive pressures and a shrinking subscriber base, posing challenges for the company’s revenue growth.

Gaming Revenue Decline

Breezeline’s revenue decline was partly due to a 4.5% decrease in gaming revenue in constant currency. This was driven by a cumulative decline in the subscriber base, particularly for entry-level services, highlighting the need for strategic adjustments in this segment.

Decline in EPS

The company reported a 20% decline in diluted earnings per share in reported currency. This decline was due to higher depreciation and amortization expenses, acquisition integration and restructuring costs, and increased taxes, impacting the overall profitability.

Challenges in Radio Advertising

Cogeco Media continued to face challenges in the radio advertising market. However, digital advertising solutions provided a positive contribution, indicating a potential area for growth and adaptation in the evolving media landscape.

Forward-Looking Guidance

Looking ahead, Cogeco Inc. and Cogeco Communications Inc. are focusing on increasing free cash flow over the next two years, driven by the completion of CapEx investment cycles and network modernization efforts. The company plans to sustain dividend growth with a low payout ratio. Despite a 2.7% decline in consolidated revenue, the company expects EBITDA to remain stable in constant currency. For fiscal year 2025, Cogeco maintains its guidance, anticipating a decrease in consolidated revenue and adjusted EBITDA in the low single digits for Q3, with capital intensity expected to be higher than the previous year.

In conclusion, Cogeco Inc. SV’s earnings call highlighted a balanced sentiment of optimism and caution. While the company has made significant strides in operational efficiency and strategic growth, challenges in revenue and certain market segments remain. Investors will be keenly watching how Cogeco navigates these challenges while capitalizing on growth opportunities in the wireless and digital advertising sectors.