Earnings call: Cogeco reports solid Q4, stable outlook for fiscal 2025

Cogeco Inc. (CGO) and its subsidiary Cogeco Communications Inc. (CCA) have reported solid financial results for the fourth quarter of Fiscal 2024, achieving strong free cash flow and meeting their annual guidance.

In a recent earnings call, CEO Frederic Perron highlighted the company's progress on strategic initiatives, including a successful merger of U.S. and Canadian teams, the introduction of an AI-powered customer service chatbot, and significant rural network expansion.

Despite a slight decline in overall revenue, the company saw a 4.2% increase in adjusted EBITDA and announced an 8% dividend increase to $0.922 per share.



Key Takeaways



Cogeco Inc. and Cogeco Communications Inc. met annual guidance with strong free cash flow in Q4.The company added 14,000 homes passed in Q4, totaling 253,000 since fiscal 2022.Cogeco Connexion gained nearly 10,000 new internet subscribers; Breezeline's EBITDA grew by 2.4%.Fiscal 2025's three-year transformation program is expected to improve operational performance.Financial guidance for fiscal 2025 predicts stable revenue and adjusted EBITDA.Dividend increased by 8% to $0.922 per share, despite a 1% decrease in revenue and a 10% drop in media operations revenue.



Company Outlook



Fiscal 2025 outlook anticipates stable revenue and adjusted EBITDA on a constant currency basis.Capital expenditures projected between $650 million and $725 million, with a capital intensity of 22% to 24%.Free cash flow expected to decline by 0% to 10% compared to the previous year.



Bearish Highlights



Revenue decreased by 1% overall, with media operations revenue falling by 10% due to a challenging advertising market.Cogeco Connexion forecasts a low single-digit decline in revenue and EBITDA.Q1 consolidated revenue and EBITDA expected to remain stable, with Breezeline projecting a low single-digit revenue decline.



Bullish Highlights



Adjusted EBITDA grew by 4.2%, primarily driven by Cogeco Communications.Diluted earnings per share rose to $1.99 from $1.87, supported by a share repurchase.Oxio's contribution to EBITDA growth in dollars is expected to be positive.



Misses



A strategic shift in mobility servicing led to an impairment charge in Q4.



Q&A Highlights



Mobility initiatives are included in fiscal '25 guidance, with subscriber growth expected to take time.Wireless spectrum flexibility retained following a partnership with a national operator.Operational enhancements in the U.S. are anticipated to improve performance.Potential divestitures are being evaluated for regions not meeting strategic criteria.





In summary, Cogeco Inc. and Cogeco Communications Inc. have concluded fiscal 2024 on a positive note with solid financials and a clear strategy for the upcoming year.

The company's focus on strategic priorities and operational enhancements positions it to navigate the competitive landscape in both Canadian and U.S. markets. Despite some pressures, the company's dividend increase and stable outlook for fiscal 2025 reflect confidence in its long-term growth and performance.



Full transcript - None (CGEAF) Q4 2024:





Operator: Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Fourth Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrice Ouimet, Senior Vice President and Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.

Patrice Ouimet: So thank you. Good morning, everyone, and welcome to our fourth quarter conference call. As usual, before we begin the call, I'd like to remind listeners that today's discussion will include estimates and forward-looking information. We ask that you review the cautionary language in the press releases issued yesterday and in our annual reports regarding various risks, assumptions, and uncertainties that could cause our actual results to differ. And with that, I'll pass the line to our CEO, Frederic Perron for opening remarks.

Frederic Perron: Thank you, Patrice. Good morning, everyone, and thank you for joining us for our Q4 2024 results. We're pleased to report a solid set of results again this quarter, and to have delivered on our guidance for the year, including a particularly strong free cash flow performance. Since my appointment as CEO in March, we've remained focused on five key strategic priorities: U.S. Canada synergies, digitization, advanced analytics, disciplined network expansion and wireless. I'm pleased to report that we continue to make significant progress in each of those areas. Regarding synergies, we successfully completed the merger of our U.S. and Canadian teams, and as of September 1 are now operating under a unified operating model. This integration is generating cost savings, which will be strategically reinvested in key growth drivers, where we've historically lagged competition, including digital and revenue analytics. Additionally, this new structure enables us to optimize talent deployment across both countries, accelerating our overall performance. Importantly, it also sets the stage for the gradual harmonization of our technology platforms and vendors, an area where significant opportunities for improvement still exist. In terms of digitization, we've successfully deployed our AI powered customer service chatbot in both the U.S. and Canada using a unified platform and vendor, and in September alone, the chatbot managed over 80,000 customer inquiries in Canada and the US combined, demonstrating its capacity to enhance customer experience, and streamline service operations. We grew our Oxio Digital brand customer base over the past year, and remain highly impressed and excited about its future potential, especially as we focus on expanding the brand, on our own network with strong margins. Additionally, we're actively integrating Oxio's best practices into our Cogeco Connexion Breezeline brands, further enhancing operational efficiency, and growth across the board. In the area of advanced analytics, we've now established a centralized team of data scientists, who will collaborate closely with our sales and marketing teams. In terms of rural network expansion, we've successfully completed our Quebec build, with sales penetration results exceeding expectations. Our Ontario initiatives are still in development, and in the U.S. we're reviewing the BEAD subsidized rural network expansion opportunity, and remain prudent about this initiative. Lastly, in the wireless space, we were pleased to announce strategic partnerships with both Eastlink, and a national network operator during the quarter. With these partnerships in place, we now have all the components to launch wireless services in Canada, using a capital-light MVNO approach, and are currently focused on integrating these services. While we have not yet set an official launch date, it's safe to say that the timeline will be measured in quarters, not years. In the U.S., we're fine tuning our recently launched wireless operation, and it will take some time before the customer base reaches a significant scale. With that said, let's get right into our Q4 results. Our fourth quarter and full year consolidated results, were slightly above the guidance we provided in vet investors this time last year. As we diligently focus on balancing subscriber growth, with financial performance. Our fiber-to-the home network expansion programs in Canada and the U.S., added close to 14,000 new homes passed in the quarter, and close to 58,000 for the year. This brings the increase in our total number of homes passed since the beginning of fiscal 2022 to 253,000, representing a nearly 9% growth in our network over that period. At Cogeco Connexion, we grew our Canadian internet base by nearly 10,000 subscribers this quarter, across both our Cogeco and Oxio brands, marking 18 consecutive quarters of subscriber growth in Canada. The growth in our internet subscriber base, higher average revenue per subscriber, and an ever vigilant focus on controlling costs, drove solid year-on-year EBITDA growth of 4% in constant currency. We expanded our network by an additional 8,400 homes passed this quarter, increasing the number of Canadian homes passed to more than 132,000 since the beginning of fiscal 2022, many of which were done in collaboration with governments. At Breezeline, we grew EBITDA by 2.4% in constant currency, compared to last year. As our ongoing efficiency initiatives, and shift towards higher margin products continues to gain traction, Breezeline customers are taking increasingly fast internet, which is driving a higher lifetime value per subscriber. This, along with a strong focus on cost efficiencies has resulted in steadily growing adjusted EBITDA margins, over the past year. We're already seeing that the digitization of our operations and proactive maintenance, are having a positive impact, driving a year-on-year reduction in truck rolls and customer service calls. Our U.S. fiber network expansion program, added 5,400 new homes passed in the quarter, bringing our total to nearly 121,000 homes passed since the beginning of fiscal 2022. As noted last quarter, Breezeline has considerably less exposure to the U.S. Affordable Connectivity Program or ACP than the industry average, and the discontinuation of that program is not having a material impact on our revenue, or EBITDA performance. Overall, Breezeline had 8,700 internet subscriber losses in the quarter. This number includes 4,500 ACP subscriber losses, and we expect the past quarter to be the last one with material ACP related customer losses. In Ohio, specifically, internet subscriber losses were 2,700 in the quarter or 2,000 excluding the impact of ACP losses. Improved network performance coupled with upgraded products and enhanced customer service, continued to drive rising customer satisfaction levels, and are improving subscriber metrics versus last year. Turning to our radio business, competitive dynamics in the radio advertising market during the quarter, contributed to lower than anticipated revenue for Cogeco Media. That said, revenue from our digital advertising solutions, continue to grow and are providing increasingly meaningful contributions, to the business's overall revenue. We're also pleased to report that Cogeco Media stations remained high in the ratings again this quarter. Now turning over to fiscal 2025. This year marks the beginning of a three-year transformation program that, we've now officially launched. As part of this program, we've completed a comprehensive benchmarking exercise, comparing our performance against leading players in both North America and Europe, across a range of operational KPIs. These include metrics such as truck rolls, call center volumes, the percentage of sales and service interactions conducted through digital channels, the use of pricing discounts and many others. And while our operations are strong, the benchmarking exercise revealed that we lagged behind top quarter operators in several areas, indicating significant opportunities for us to further accelerate our performance. Consequently, fiscal 2025 will be a year of reinvestment, as we lay the foundations necessary to reach benchmark performance, and drive sustainable EBITDA growth. We anticipate that early indications of this growth may become evident in fiscal 2026, with more substantial progress expected in fiscal 2027. With that, let me turn the call over to Patrice, who will provide more details on our financial performance for the fourth quarter, and our financial guidance for the coming year. Patrice, over to you.

Patrice Ouimet: Thank you, Frederic. So I'll start by noting that I'll generally provide financial information in constant currency, so in Canada at Cogeco Connexion the revenue increased by 0.8% driven mainly by a higher internet service subscriber base for Cogeco and Oxio brands, and a contribution from our NRBN acquisition earlier in the fiscal year, as well as a higher revenue per subscriber. Adjusted EBITDA increased by 0.4%, due to revenue growth and cost optimization initiatives, relating to the company's strategic transformation and year-end adjustments, partially offset by higher sales and other operating expenses, to drive subscriber growth. In the U.S. Breezeline's revenue declined by 2.3%, as a higher revenue per subscriber was more than offset by a lower subscriber base, especially for entry level services, and a growing proportion of customers subscribing to internet only services. Adjusted EBITDA increased by 2.4%, driven by the benefits of an improving product mix, and shifts to higher margin products as well as cost reduction initiatives, and operating efficiencies. Turning to our consolidated numbers for Cogeco Communication at the consolidated level, revenue declined by 0.7% as growth in the Canadian segment, was offset by a decline in the U.S. Adjusted EBITDA increased by 4.2%, driven by a margin expansion in both segments, along with a reduction in corporate expenses. Diluted earnings per share were stable year-over-year, as fewer shares outstanding resulting from the buyback made in December, was offset by a decline in reported profit. Capital intensity improved to 20% from 24% last year, due to lower CapEx spend in the U.S. Excluding network expansion projects, capital intensity was 13%, compared to 19% last year. The lower CapEx, is partially due to an optimization of equipment inventory, some completed expansion projects and the timing of ongoing projects. Free cash flow increased by 66% year-over-year driven by lower CapEx, decrease in adjusted EBITDA and lower financial expenses, current taxes and acquisition integration, restructuring and other costs. Our net debt-to-EBITDA ratio was 3.3 turns at the end of the quarter, a 0.2 turn improvement from the prior quarter. As our free cash flow, which was strong, helped reduce our long-term debt balances. We continue to target a net debt-to-EBITDA ratio in the low returns over time. We have increased our dividend by 8%, having declared a quarterly dividend of $0.922 per share. Now at Cogeco Inc., our revenue decreased by 1% and adjusted EBITDA, grew by 4.2% as a result of Cogeco Communications performance. Media operations revenue declined by 10%, due to the challenging advertising markets during the quarter. Despite ongoing strong listenership, across many of our stations. The decline more than offset positive contributions, from our digital advertising revenue. Cogeco Inc. diluted earnings per share increased to $1.99 versus $1.87 a year ago, benefiting from the December share repurchase. We have also increased the dividend at Cogeco Inc., by 8% in lockstep with that of Cogeco Communication. Now let's discuss Cogeco Communications' financial guidelines, for the upcoming fiscal 2025. On a constant currency and consolidated basis, Cogeco Communications expects revenue and adjusted EBITDA, to remain stable versus last year. At Cogeco Connexion, we expect a low single-digit decline in revenue and EBITDA for the year, reflecting ongoing growth at Oxio, and in newly built expansion areas in Quebec and Ontario being offset by competitive pricing pressure, and the lower video and wireline phone subscriber base. This in addition to reinvestments in our transformation, are anticipated to create modest EBITDA margin compression. At Breezeline in constant currency, we expect stable revenue and low single-digit growth in adjusted EBITDA, driven by higher revenue per subscriber, and an improving product mix, combined with cost optimization and other benefits related to our transformation program. Certain portions of, which have started in the second half of last fiscal year. As relates to corporate costs, we expect them to be modestly lower in fiscal 2025, also benefiting from reductions achieved through the transformation program. Turning to CapEx, we are expecting to spend between $650 million and $725 million, including $140 million to $190 million in growth oriented network expansions, resulting in a capital intensity of between 22% and 24% or 17% to 19% excluding those network expansions. Free cash flow and free cash flow excluding network expansions, are expected to decline between 0% and 10%, compared to last year, since fiscal 2024 ended up stronger than, we initially planned. As relates to Q1, we currently expect consolidated revenue and EBITDA, to remain stable in constant currency. At Cogeco Connexion in Q1, we expect stable revenue and EBITDA growth, though competitive pressures, investments in the business and the lapping of our NRBN acquisition, will create more difficult year-over-year comps in subsequent quarters of the year. At Breezeline, Q1 revenue is anticipated to decline in the low single-digits, reflecting a competitive environment and video cord cutting. Cost reduction initiatives are anticipated to allow EBITDA in Q1, to remain stable despite modest revenue decline in the quarter. And then subsequently grow in the subsequent quarters of fiscal '25. At Cogeco Inc., we have issued the same financial guidelines as Cogeco Communications, with the exception of net capital expenditures. And now Fred and I will be happy to take your questions.

Operator: Thank you. [Operator Instructions] Your first question is from Maher Yaghi from Scotiabank. Your line is now open.

Maher Yaghi: Great [Foreign Language] Good morning. And I had two housekeeping questions quickly, Patrice, before I ask you my main question. So I remember last quarter you guys indicated that you had about 1% growth in your top line in Cogeco Connexions in Canada coming from the NRBN acquisition. Is it about the same in Q4? Was the contribution the same approximately?

Patrice Ouimet: Yes, that's right.

Maher Yaghi: Okay. And on the EBITDA line. So again, for Canada, we saw in the last two quarters a significant increase in margins, and growth in the EBITDA line. How much of that growth, is coming from the NRBN acquisition versus your regular cable operation?

Patrice Ouimet: NRBN is a small business, compared to the rest of the business that we have in Canada. It's mainly a B2B business. So the margin is slightly higher, but I would say it doesn't necessarily make a big difference in the overall margin as a percentage. So it mainly has to do with the rest of what we're doing in the business. We do expect that. Obviously, the margins change by quarter. We do expect next year, given what I just said, to be slightly lower in Canada versus what we achieved this year, which was 52.9%. So hopefully that provides you the answer.

Maher Yaghi: Perfect. So of the 3.8% growth in EBITDA in Q4, about 1%, maybe 1.5% at most coming from that acquisition?

Patrice Ouimet: Yes, it's probably around 1%. I don't have the information with me, but I have it more at the revenue level. But that could be a fair assumption.

Maher Yaghi: That's good enough for me. Thank you. So maybe just now I'm trying, to just triangulate a little bit your comments about the US business. You indicated that you don't expect any more ACP disconnections, of sizable ACP disconnections in the U.S. And we're starting to see some improvement in the underlying fundamentals in Ohio. So in Q1 back-to-school and recovery. Usually seasonality is positive in Q1 - is the business at a point where we could potentially see a positive print on loading in the U.S., now that ACP is behind you, as you indicate?

Frederic Perron: Hi Maher, it's Fred. I'll give you a general commentary on the U.S. market, and our outlook. In general in the U.S., you may have seen some of the big players announcing a few more years of FWA that, will be at a slightly lower intensity than what we've seen in recent years. But we do expect sustained competition from FWA. As it relates to our own plans and your question? We are still targeting and we still do see an opportunity, to get back to growth in Ohio. We're not putting a timeline around this, but that is our target to return to net customer growth in Ohio. As it relates to the rest of the footprint, as the competitive environment remains competitive, what we're doing there is really balancing volume and ARPU. So really we're optimizing the P times Q, so we don't necessarily have a target to be positive in the rest of the footprint.

Maher Yaghi: Okay. That's fair. And maybe one last question I have is on pricing in Canada. It's been difficult to see cable companies raise prices in the midst of very intense political and consumer, oversight. I would say. What's your view and are you able to pass price increases and if so, how much of the top line contribution you expect on pricing to come from the Canadian operation in '25?

Frederic Perron: Generally Maher. I'd say that we are still able to do rate increases, and this is a tool that remains at our disposal. We do adjust that over time though, and that is what we will continue to do. We're very aware of the consumer political and just economic pressures in general, and we will adapt as we need to. In terms of the specific guidance, I don't know if you want to add anything, Patrice.

Patrice Ouimet: No, I think it's included. Basically, when you look at our guidance for revenue, which is also consolidated not just for Canada, obviously includes what we think we do in terms of customer loadings and also ARPU. And as Fred said, we do adjust over time based on this. We also provide increasingly faster speeds. Typically, what we see is we see our customers taking faster speeds, as they do appreciate those products. So I think it's part of, all these play into the guidance numbers.

Maher Yaghi: Okay. Great. Thank you very much.

Operator: Thank you. Your next question is from Matthew Griffiths from Bank of America. Your line is now open.

Matthew Griffiths: All right, good morning. Thanks for taking the question. I guess the first one is on the cost initiatives. I think you mentioned in your prepared remarks that for the coming year those savings that you're going to generate will be reinvested in the business. But maybe you could share how much is being reinvested. So we can get an idea of, what the kind of underlying performance is. And on free cash flow this quarter, obviously higher than guided. I heard your comments about the inventory optimization that obviously wasn't planned in guidance. And so, I was just curious if you could add some color to what changed. If there was other things that contributed as well that were kind of unforeseen when guidance was reiterated at Q3 that would be helpful? Thanks.

Patrice Ouimet: Sure. So in terms of the quantification of the savings from the reorganization we've done, we have not provided the information. And I think, we're going to stay with this right now, because we were reinvesting the amounts. And some of it also is, as the environment is more competitive in both countries, but especially what we've seen in the U.S. There's a portion also that helps alleviate that. I don't think, I will get to two more details on this right now. There will be reinvestments this year. We'll have some in the next, because it's a three-year program. We'll have some in the next few years as well. Perhaps as we get into next fiscal year, we'll be able to provide more clarity, on where we are with all this in terms of benefits and costs as well. So stay tuned on this. Now on the free cash flow, we basically ended up doing I would say a good job in optimizing our inventory levels, as the idea is to have obviously enough inventories to service our business. But we ended up with more inventories past the COVID period. I know it's a while back, but we had to provide orders of equipment way in advance during that period of time. And now we're working through this inventory. So a bit more of a one-time, but we don't expect it to reverse. So that was something we have not necessarily planned in our initial forecast. We ended up lower on interest rates as well. These are always tough to call these days, because a portion of our debt is not fixed, about 30% is not fixed. We were a bit lower on income taxes as well. Again, these are especially in the fourth quarter. We do end up adjusting to actual results for the year, and there's always a bit of noise in the tax rate in the in the fourth quarter. So that would explain, why we ended up with large amount. And I would say the other thing is maybe the last element would be, is last year we had certain projects we were building and that are finished now. We obviously have others right now, but some of those are not repeating this year.

Matthew Griffiths: Thank you very much.

Operator: Thank you. Your next question is from Stephanie Price from CIBC. Your line is now open.

Stephanie Price: Hi, good morning. Just curious, in terms of fiscal '25 guide, if you could talk a little bit about how you're thinking about mobility within the guidance, what sort of penetration are, you expecting in the U.S. Is the launch of the Canadian MVNO included in it?

Patrice Ouimet: Sure. So. Hi, Stephanie. So we do include obviously an amount for mobility. Obviously we're still. We have not launched yet in Canada. Launched in the U.S. I would set a high level, because these costs, because right now it's a cost, are included within the corporate costs, which includes other elements. You should assume that next year will be a similar amount that, we spent in fiscal '24. And we have not yet commented on when we'll launch mobility in Canada. This will do it as we get close to it. So yes, so it's a similar amount year-over-year. Now in terms of penetration for the U.S., it's still early days, so we're starting obviously from a very, very small base. And we'll be able to provide more information as we gain some critical mass, which I think will take a bit of time. So that's why you should not expect to the number of subscribers we have until we get to that point there.

Stephanie Price: Okay. That makes sense. And then you mentioned that growth in the Canadian segment, was driven by both subscriber and ARPU. Can you dig into this a little bit more, which was the bigger driver, and how should we think about the ability to drive price in Canada in the current competitive environment?

Patrice Ouimet: Yes, I would say if you look at the past few years in Canada, we've been adding quite a bit of customers, which come from a mix of legacy areas where we operate. We have the new expansion areas, and also we have our Oxio brand, which we use both in footprint as a flanker brand, and we use it out of footprint as well. And these four elements have been contributing to the growth. We do expect that next year we'll continue in that fashion to be able to grow. The ARPU is a mix again, as I was saying before, for customers that increase their package to faster speeds. And then obviously, we have the video component. Quite a bit of customers take video in Canada. These things create pricing power, because we do provide added benefits and the video cost, as you know, is something that increases year-over-year. And on the other end, we make sure that we are competitive in our acquisition of customers as well. So it's an equilibrium. And Fred, you want to add to that?

Frederic Perron: Sure. Hi, Stephanie. I will just add in Canada that we feel quite confident in our continued ability, to drive subscriber growth over the coming quarters. We have a pretty diversified go-to-market machine, across legacy new network development, as well as the Oxio brand both in and out of footprint. So, we do expect subscriber growth to remain quite solid. ARPU is one where we know that there are pressures, but that's something that we've accounted for in our forecast.

Stephanie Price: And you mentioned Oxio there. Maybe I'll sneak one more, tiny one in. You noted in the press release that it was a model for key transformation initiatives within the company. Can you dig a little bit more into that? Like how are you using Oxio outside of kind of potentially moving it into the U.S. as a digital brand, and into your existing territories?

Frederic Perron: Sure. What we're realizing is that there is quite an appetite from customers, and a growing appetite to have a fully digital purchasing experience, and in many cases a fully digital customer service experience. So that these are some of the capabilities that we're translating onto the Cogeco and Breezeline brands.

Stephanie Price: Perfect. Thank you.

Operator: Thank you. Your next question is from Drew McReynolds from RBC. Your line is now open.

Drew McReynolds: Thanks very much. Good morning. Two from me. First, with respect to the impairment charge in Q4, maybe for you, Patrice. And it came alongside obviously the dip in corporate costs, presumably, wireless related, and you've transitioned kind of from an old plan to a new plan with the agreements. But could you just kind of give us a high level of, what that impairment applies to. And then bigger picture maybe for you, Frederic, on the three-year plan, thank you for just kind of the reinvestment roadmap into fiscal '26 and '27. I think we covered this off in prior quarters, but just would love to get an update on your definition of sustainable growth. When I look across, at least in Canada, but very little difference I think in the U.S., we're barely growing consolidated revenue, at least for the moment, looking into 2025, everyone's lowering the cost to serve. So is that sustainable growth? More about EBITDA growth and margin expansion, or is it still both top line and EBITDA? Thank you.

Patrice Ouimet: Okay. Great. So on the impairment, yes, it was primarily related to our change of strategy in terms of servicing the - or launching basically in Canada for mobility, as we've signed an agreement on how we're going to use the core. And so, we had built some assets related to this previously, which is part of this write-off. The reason is we do believe with the new approach to it will provide basically a lot more flexibility. It's lower cost when you take a multiyear view, than doing it completely on our own. So it was related to that.

Frederic Perron: And hi, Drew, on the transformation program, maybe I'll give you a slightly longer answer, because I know many people on the call are interested in this, but I will answer your question. So what we've done on the transformation program, is step one was benchmarking all of our operations across other companies in North America and Europe, on multiple KPIs, both cost and revenue related. We then assess, how much closer to best-in-class do we think we can get. This got translated into a three-year target that we're now shooting towards, as an organization. It's not a target that we're setting publicly, but it's certainly one that we have internally. And now we're putting the initiatives in place. We have new systems that we've implemented to track the transformation. We have dozens of initiatives that are being tracked in those systems, both the investment and the return. So to address an earlier question about the investments, this is being managed in quite a disciplined fashion. And now more directly to your question, Drew, there is a combination of cost and revenue initiatives in the program. I'm not going to give an exact split, but I would say they're both important. Of course cost is more straightforward. Revenue will depend on how the market evolves, which we're very sober about. But there's still some opportunity on the revenues front, for example, how we optimize discounts and how we manage price elasticity. So in summary, a little bit of top line and some bottom line as well.

Drew McReynolds: Okay. That's great. Thank you.

Operator: Thank you. Your next question is from Jerome Dubreuil from Desjardins. Please ask your question.

Jerome Dubreuil: Thanks for taking my questions. Two from me, the first one is on spectrum. Recently you made comments at an investor event, suggesting that you may not need your wireless spectrum going forward with your wireless model. I fully appreciate that at the time when you bought the spectrum, it was not clear at all if you were going to need it. But now just looking for precisions, on whether you actually need the spectrum for your wireless venture in Canada. Let's start with this one?

Frederic Perron: Thank you for the question. Our situation on spectrum is the following. So we have accumulated spectrum over the years, it's mostly mid-band spectrum, which is quite valuable, including for 5G. With the partnership that we've now signed with a national wireless operator, does not have spectrum in it, meaning that we've retained full control and flexibility over the spectrum that we have. And therefore this gives us more degrees of freedom in the future on how we might want to use this spectrum. We could use some of it for our own offload purposes. We could subordinate some of it. We could do network sharing with someone. And yes, in some cases the answer might be to monetize some of it. But still very early days, on how we optimize that portfolio. I know there's a number of $2 billion that was floated around. That was the value of what we paid, if it had been paid at the incumbent price.

Jerome Dubreuil: Thank you. Second question. I was listening to the charter call this morning, and they were having pretty tough words on the return on investment of overbuilding. Two questions on this. Are you still doing overbuilding in the U.S.? And second, with the seemingly acceleration in fiber deployments in the U.S., what does that mean for the return on investment of the incumbent wireline provider there? Thanks.

Frederic Perron: Yes. So, Jerome, so unfortunately we did not listen to the call this morning, but I guess hopefully I'm answering your question. So, yes, we have expanded our network as an over-builder on the edge of our network over the past few years. This is something we have slowed down in the past six to nine months. The main reason being that, the industry has changed as it's become more competitive. It just makes it a bit longer to load these systems. Obviously the target penetration in these systems, is a lot lower than when we go in virgin territory. And then the ARPUs, especially on the acquisition side, are lower than they used to be a few years ago. So I presume we're in line with what you heard this morning. And we are definitely on the - I would say on ensuring that we have good networks. And where we currently operate and face competition in a solid fashion, like we're doing in Canada. We keep upgrading our networks, which goes through many stages. Whether it's not splits or frequency splits like mid and high splits. We have eventually DOCSIS 4 that's going to come. We're not rolling it out right now. We have selective fiber overbuilds as well that we're doing to our own network. Sometimes it is cheaper, or very cost effective to do. So this is how we focus on it. But as an over-builder ourselves, we slowed it down.

Jerome Dubreuil: Thank you.

Operator: Thank you. Your next question is from Aravinda Galappatthige from Canaccord Genuity. Your line is now open.

Aravinda Galappatthige: Thanks for taking my questions. Just a few quick ones from me. First of all, Patrice, maybe just a housekeeping question. Can you just remind us the investment the, spend related to the wireless initiatives in fiscal '24. I know you kind of gave a breakdown a while ago, but just to kind of refresh, if you don't mind providing those numbers?

Patrice Ouimet: Yes. So we did not disclose them separately, so I want to be careful on this. But what we had provided in the guidance at the time, when we initiated it was to explain how it was playing in our free cash flow. I would say in the end, we were probably within that assumption behind our guidance. So no major change there. And that allowed us. That is not the reason why we did beat on our free cash flow, and was more related to the other CapEx and the inventory, as I was talking about before.

Aravinda Galappatthige: Okay. Okay. And then just coming back to Canada and sort of your subscriber performance obviously continues to show some incremental improvement. Can you just maybe just talk a little bit more about what the trends you're seeing in the legacy footprint? Any changes to churn levels, any changes to gross ads levels? Obviously your expansion assisting your internet net adds. But I wanted to get a sense of the conditions at the legacy level as well?

Frederic Perron: Hello, Aravinda, it's Fred here. What I would say is, as we mentioned in the past, we got four growth drivers in Canada. We got the legacy footprint, we got Oxio in footprint, Oxio out of footprint, and new fiber expansions in rural areas. And on any given year, these four tend to be all positive contributors to our PSU growth. We don't kind of break it down at such a level of precision on a quarterly basis, because it can vary a little bit from quarter-to-quarter. But as you think about full year, whether it's fiscal '24 or fiscal '25, everything else being equal, they would all be positive contributors. And we do expect that to continue. We're also anticipating pressure on ARPU as we mentioned before. That's really where the main pressure is. But that's included in our forecast.

Aravinda Galappatthige: Understood. Thank you. And last question, maybe nitpicking small numbers here, but your dividend increase of 8%, and I understand this is optics, I mean historically you've sort of been able to raise double-digits and, still important to investors. Is there any signal in the fact that you've lowered the dividend growth rate to 8%? Are you sort of looking at the yield and the share price, I mean, are there any other considerations here? We just wanted to kind of get some clarity there?

Patrice Ouimet: Yes. So we've been increasing the dividend by about 10% for many years, I think over 10 years. That being said, that's at the top of the market in terms of percentage increase. And over time it starts to add up in terms of payout ratio, and millions of dollars as well. And that's why, given where we are with the payout, which is still, I would say around 30% free cash flow, sorry, 30% of free cash flows, whether your account for or without the network expansions. So, we feel comfortable in that area. And at 80% it still remains a fairly sizable increase, compared to what other players are doing. So in terms of signaling, we'll see what we do next year. But when I was being asked generally are we going to keep 10% forever? It's such a large number that would normally say that, we should expect at one point to have a single-digit percentage. And that's what's been decided for this coming year. Hopefully, that answers your question.

Aravinda Galappatthige: Yes. Thank you.

Operator: Thank you. Your next question is from Vince Valentini from TD Cowen. Please ask your question.

Vince Valentini: Hi, thanks very much. First question is on Oxio. You said it's still a drag on EBITDA percentage margins in 2025, but am I right to say that it should start to become a positive contributor to EBITDA growth on a dollar basis? Because it's been a drag ever since you bought it, and you already ramped up marketing and you should have better scale of customers. Now is it inflecting to positive in dollars for EBITDA, but still a drag on percentage margin or is it actually still a drag on EBITDA as it grows so fast?

Patrice Ouimet: Yes. So in terms of dollars, when we bought it, it was primarily an out of footprint business for us. And it's true for the reasons you mentioned, that it was not meaningful, I wouldn't say necessarily a drag for the millions of dollars, but was not really a contributor. As we move forward and we're growing the base, we do expect it to contribute to some of the EBITDA in dollars. That being said, we are also using it in footprint, using our infrastructure. In that case, obviously it's more meaningful. So it's a mix of both. I would say, when we look at only the in footprint portion, Oxio being more used as a flanker brand, sells at a smaller ARPU, but being a digital brand, only the cost structure is lower as well. So we do fine from a margin standpoint. And on the outer footprint, obviously by nature, because there is a rental element in it, the margin is lower. But I agree with your or I'm answering your first question on the millions of dollars, as we move forward, Oxio will contribute to growth in EBITDA.

Vince Valentini: Thanks, Patrice. Second one then is on the rural expansion in Canada. Ontario is in the process of being built, so there should be minimal revenue and EBITDA impact just yet. The Quebec bill being done and the subscribers are ramping up. Same question as Oxio on that one. I assume in dollar terms the EBITDA from that business, will be higher in 2025 than it was in 2024. Is that fair?

Patrice Ouimet: Yes, that's right. And because typically when we build in rural areas, the ramp up is quicker than, let's say, other areas. So the first year is quicker. We're still ramping up the number of customers on our Quebec network, which got recently built. But some regions, because it's mainly many small areas that compose this larger project, some of them were built, let's say a year ago. So the rate of increase of customers is slowing down. That being said, we're still ramping up there. And in Ontario there's also several programs there. So I would say the bulk of the homes pass will come in the future as opposed to the past. But we had already built a bit in the past two years in Ontario as well.

Vince Valentini: Okay. Thank you. So that brings my last question then your Oxio EBITDA is up. Your rural EBITDA in Quebec is up. You've already said the drag is going to be no higher. You've already done the integration of the Canadian U.S. operations, to get any cost efficiencies out of that. All of this would signal to me that EBITDA should be higher in 2025, than it was in 2024. But your guidance is for stable. Is the entire difference here just these new investments in the three-year transformation program? And if so, can you give us any sense of magnitude of how much you're willing to invest, to drive the longer term growth? Either the one-year amount, or the total amount over three years?

Patrice Ouimet: Yes. So actually the guidance is at the consolidated level, right. And I think I got a similar question earlier on this call. We did not break it out, because we didn't want to start to slice those amounts. A portion is a reinvestment. A portion is also, as the industry is more competitive, especially if we account for both our Canadian and U.S. platforms. As you know, the subscriber base is not increasing in the U.S., like we're doing in Canada. And we do have ARPU pressure in the two of them. So I would say taking all this together, we do feel we will be stable next year. And in Canada, as I said in the opening remarks, I know there was a lot of numbers that I quoted, but we do expect to be slightly down year-over-year in Canada. And that partially comes from the ARPU pressure, and the investments we're making and slightly up in the U.S. Partially due to the other types of operational improvements, we've done over the past six months, which actually started in the second half of fiscal '24.

Vince Valentini: Okay. Fair enough. I apologize. That was my last financial question. I was going to throw in one more strategic. Can you tell us, are you with the internal analysis in Breezeline of where you would prefer to increase your clustering of homes, or where you might prefer to divest and downsize in a certain region, are you still internally, or would you characterize that as you have an idea of what you want to do. Now, it's a question of going out and executing on that plan?

Patrice Ouimet: Yes. So I would say especially with this new operating market, for the past two years in the U.S. things have changed a lot. Obviously, when we look at, let's say at acquisitions, we are not planning to make any big transactions in the medium term, as we have a lot of work to do to, and a lot of good value we can generate from what we already own, from the prior discussion we just had. But if we were to buy something, increasingly makes more sense to do it, closer to where we operate, especially when we look at marketing and everything. That being said, the reverse of we've talked about potentially pruning assets in the future. That remains an ongoing file. If we do find that there are certain regions that could be good candidates, either operationally, strategically or financially, actually we need the three of them. That's still something we're considering doing in the future. Doesn't mean that we will though.

Frederic Perron: And Vince, if I understood your question correctly, we are indeed pretty clear on what these criteria would be on operational, strategic and financial lines.

Vince Valentini: Fair enough. Thank you.

Operator: Thank you. There are no further questions at this time. Please proceed.

Frederic Perron: Great. Well, thanks everyone for being there today, and feel free to call Troy or I, if you have any further questions. Thank you.

Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

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Source: Investing.com