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Cogeco Communications Inc
Symbol C : CCA
Shares Issued 33,872,094
Close 2018-07-11 C$ 65.11
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Cogeco Communications earns $64.53-million in Q3

2018-07-11 18:01 ET - News Release

Mr. Louis Audet reports

COGECO COMMUNICATIONS RELEASES ITS RESULTS FOR THE THIRD QUARTER OF FISCAL 2018

Cogeco Communications Inc. has released its financial results for the third quarter ended May 31, 2018, in accordance with international financial reporting standards (IFRS).

For the third quarter of fiscal 2018

Revenue increased by $72.0-million, or 12.7 per cent, to reach $637.1-million, mainly driven by growth of 44.1 per cent in the American broadband services segment and stable revenue in the Canadian broadband services segment, partly offset by a decrease of 1.3 per cent in the business information and communications technology (ICT) services segment. On a constant-currency basis, revenue increased by 15.0 per cent, mainly explained as follows:

  • American broadband services revenue increased by 51.2 per cent in constant currency, mainly as a result of the acquisition of substantially all the assets of the Harron Communications LP cable systems, operating under the MetroCast brand name, on Jan. 4, 2018. The increase was also attributable to organic growth from rate increases implemented in September, 2017, and the continued growth in Internet service and telephony services customers, partly offset by a slight decrease in video service customers.
  • Canadian broadband services revenue remained stable, resulting from rate increases implemented in the first quarter of fiscal 2018, combined with the movement of customers to higher-value offerings, offset by promotional pricing provided to customers, a decline in primary services units and last year's $2.1-million non-recurring revenue related to settlements with suppliers recognized in the third quarter of fiscal 2017. Excluding last year's non-recurring revenue of $2.1-million, revenue would have increased by 0.7 per cent.
  • Business ICT services revenue remained stable in constant currency, primarily due to higher churn and competitive pricing pressures on the hosting and network connectivity services, offset by an improvement in both co-location and cloud services revenue.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased by $33.1-million, or 13.0 per cent, to reach $287.3-million. On a constant-currency basis, adjusted EBITDA increased by 15.2 per cent, mainly as a result of the following:

  • The adjusted EBITDA for American broadband services increased by 65.0 per cent in constant currency, mainly as a result of the MetroCast acquisition.
  • The increase was partly offset by the adjusted EBITDA for Canadian broadband services, which decreased by 1.9 per cent in constant currency, as a result of stable revenue and higher operating expenses. Excluding last year's non-recurring revenue of $2.1-million, adjusted EBITDA would have remained stable.
  • The increase was also partly offset by the adjusted EBITDA for business ICT services, which decreased by 2.6 per cent in constant currency, resulting mainly from stable revenue and higher operating expenses.

Profit for the period amounted to $64.5-million, of which $61.3-million, or $1.24 per share, was attributable to the owners of the corporation, compared with $76.2-million, or $1.55 per share, in the comparable period of fiscal 2017, resulting mainly from increases in depreciation and amortization and financial expense, partly offset by the improvement of adjusted EBITDA and a decrease of income taxes.

Free cash flow amounted to $108.5-million, an increase of $3.7-million, or 3.6 per cent. On a constant-currency basis, free cash flow increased by 3.4 per cent as a result of the improvement in adjusted EBITDA and a decrease in current income taxes expense, partly offset by increases in financial expense, and acquisitions of property, plant and equipment, and intangible and other assets, mostly resulting from the MetroCast acquisition.

Cash flow from operating activities decreased by $54.5-million, or 22.5 per cent, to reach $187.2-million, mainly due to a decrease of $54.8-million in changes in non-cash operating activities, primarily due to changes in working capital and increases in income taxes paid and financial expense paid, partly offset by the improvement of adjusted EBITDA.

The corporation released its fiscal 2019 preliminary guidelines. On a constant-currency and consolidated basis, the corporation expects fiscal 2019 revenue to grow between 6 per cent and 8 per cent, adjusted EBITDA between 8 per cent and 10 per cent, and free cash flow between 18 per cent and 25 per cent.

In June, 2018, the corporation announced that its subsidiary, Cogeco Connexion, acquired 10 Spectrum licences of 2,500 megahertz in non-metropolitan areas of Ontario, from Kian Telecom, for $8-million. The transfer was approved by Innovation, Science & Economic Development Canada (ISED Canada) on June 21, 2018. In May, 2018, Cogeco Connexion was also the successful bidder on 23 Spectrum licences of 2,500 megahertz and 2,300 megahertz, primarily in its Ontario and Quebec wireline footprints, in the auction for residual Spectrum licences organized by ISED Canada for a total price of $24.3-million. Both transactions were completed in June, 2018, and the cost of these Spectrum licences will be recorded in the fourth quarter of fiscal 2018 and will not be included in the non-IFRS (international financial reporting standards) definition of free cash flow and capital intensity.

At its July 11, 2018, meeting, the board of directors of Cogeco Communications declared a quarterly eligible dividend of 47.5 cents, compared with 43 cents per share paid in the comparable period of fiscal 2017.

For the nine-month period ended May 31, 2018

Revenue increased by $114.6-million, or 6.8 per cent, to reach $1.79-billion, mainly driven by growths of 24.0 per cent in the American broadband and of 0.8 per cent in the Canadian broadband services segments, partly offset by the decrease of 4.6 per cent in the business ICT services segment. On a constant-currency basis, revenue increased by 8.9 per cent, mainly explained as follows:

  • Revenue for American broadband services increased by 30.4 per cent in constant currency, mainly as a result of the MetroCast acquisition. The increase was also attributable to organic growth from rate increases, and the continued growth in Internet and telephony services customers, partly offset by a slight decrease in video service customers.
  • Revenue for Canadian broadband services increased by 0.8 per cent due to rate increases, the movement of customers to higher-value offerings and the continued growth in Internet service customers, partly offset by promotional pricing provided to customers, a decline in video and telephony services customers, and last year's $2.1-million non-recurring revenue related to settlements with suppliers recognized in the third quarter of fiscal 2017. Excluding last year's non-recurring revenue of $2.1-million, revenue would have increased by 1.1 per cent.
  • Revenue for business ICT services decreased by 2.9 per cent in constant currency, primarily as a result of higher churn, competitive pricing pressures on the hosting and network connectivity services, combined with last year's $2-million in non-recurring revenue related to an indefeasible rights of use (IRU) agreement concluded in the second quarter of fiscal 2017. Excluding last year's non-recurring revenue of $2-million, revenue would have decreased by 2.0 per cent.

Adjusted EBITDA increased by $45.1-million, or 6.0 per cent, to reach $802.9-million. On a constant-currency basis, adjusted EBITDA increased by 7.7 per cent, mainly as a result of the following:

  • Adjusted EBITDA for American broadband services increased by 33.3 per cent in constant currency, mainly as a result of the MetroCast acquisition.
  • Adjusted EBITDA for Canadian broadband services remained stable in constant currency, mainly due to operating expenses growth exceeding revenue growth.
  • This was partly offset by the adjusted EBITDA for business ICT services decreasing by 7.5 per cent in constant currency, resulting mainly from a decline in revenue and non-recurring items. Excluding last year's non-recurring revenue of $2-million related to an IRU agreement and a non-recurring gain of $1.8-million recognized as a reduction of operating expenses in the first quarter of fiscal 2017, revenue would have decreased by 2.1 per cent.

Profit for the period amounted to $282.8-million, of which $276.6-million, or $5.61 per share, was attributable to the owners of the corporation, compared with $227.9-million, or $4.63 per share, in the comparable period of fiscal 2017, mainly as a result of the $89-million ($70-million (U.S.)) reduction in deferred income taxes related to the recent U.S. tax reform and the improvement of adjusted EBITDA, partly offset by increases in depreciation and amortization, integration, restructuring and acquisition costs, and financial expense.

Free cash flow amounted to $274.8-million, a decrease of $48.1-million, or 14.9 per cent, compared with the same period of the prior year. On a constant-currency basis, free cash flow decreased by 15.9 per cent as a result of the increase in acquisitions of property, plant and equipment, and intangible and other assets, combined with acquisition costs as well as additional financial expense mostly related to the MetroCast acquisition. The decrease was partly offset by the improvement of adjusted EBITDA and a decrease in current income taxes expense.

Cash flow from operating activities decreased by $202.7-million, or 33.2 per cent, to reach $408.0-million, mainly due to increases in income taxes paid, changes in non-cash operating activities primarily due to changes in working capital, financial expense paid, and integration, restructuring and acquisition costs, partly offset by the improvement of adjusted EBITDA.

"Over all, we are satisfied with our performance for the third quarter of fiscal 2018," declared Louis Audet, president and chief executive officer of Cogeco Communications. "Results at Cogeco Connexion have remained stable compared to the third quarter of fiscal 2017, despite the fact that our Canadian broadband services subsidiary implemented a new advanced customer management system and had consequently temporarily reduced its marketing and sales activities during the system integration period.

"The positive results at our American broadband services subsidiary are in line with expectations following the acquisition of the MetroCast cable systems earlier this year," stated Mr. Audet. "Major integration steps are now concluded, along with the rebranding to Atlantic Broadband. We are now ready to launch TiVo and Internet speed upgrades to these customers.

"Results at our business ICT services subsidiary, Cogeco Peer 1, are stabilizing, as evidenced by the trend we have been seeing over these last quarters," added Mr. Audet. "The team continues to focus on building and offering a relevant suite of solutions, and providing expert advice in a constantly evolving and intensely competitive market.

"The guidance we are providing for fiscal 2019 points to an exciting year ahead, including a significant increase in free cash flow. This is expected to be achieved while continuing to invest in our operations and upgrading our network to one-gigabit Internet speeds in approximately 60 per cent of the Canadian footprint and 85 per cent of the American footprint by year-end," concluded Mr. Audet.

About Cogeco Communications Inc.

Cogeco Communications is a communications corporation. It is the eight-largest cable operator in North America, operating in Canada under the Cogeco Connexion name in Quebec and Ontario, and in the United States under the Atlantic Broadband name in 11 states along the East Coast, from Maine to Florida. Cogeco Communications provides its residential and business customers with Internet, video and telephony services through its two-way broadband fibre networks. Through its subsidiary, Cogeco Peer 1, Cogeco Communications provides its business customers with a suite of information technology services (co-location, network connectivity, hosting, cloud and managed services) through its 16 data centres, extensive FastFiber Network, and more than 50 points of presence in North America and Europe.

                                 FINANCIAL HIGHLIGHTS 
    (in thousands of Canadian dollars, except percentages and per-share data)

                                Three months ended             Nine months ended
                       May 31, 2018   May 31, 2017   May 31, 2018   May 31, 2017
Operations         
Revenue                 $   637,129    $   565,158    $ 1,789,692    $ 1,675,123
Adjusted EBITDA (1)         287,305        254,233        802,870        757,775
Adjusted EBITDA 
margin (1)                    45.1%          45.0%          44.9%          45.2%
Integration, 
restructuring and 
acquisition costs (2)         2,260              -         18,651              -
Profit for the period        64,538         76,203        282,770        227,890
Profit for the period 
attributable to the 
owners of the 
corporation                  61,260         76,203        276,616        227,890
Cash flow  
Cash flow from 
operating activities        187,200        241,689        407,981        610,700
Acquisitions of 
property, plant 
and equipment, and
intangible and other  
assets (3)                  111,960        100,202        335,382        282,895
Free cash flow (1)          108,463        104,728        274,780        322,894
Financial condition (4)
Cash and cash 
equivalents                                                62,818        211,185
Short-term investments                                          -         54,000
Total assets                                            7,042,259      5,348,380
Indebtedness (5)                                        3,917,964      2,598,058
Equity attributable to 
owners of the corporation                               1,915,781      1,599,267
Capital intensity (1)         17.6%          17.7%          18.7%          16.9%
Per-share data (6) 
Earnings per share 
Basic                   $      1.24    $      1.55    $      5.61    $      4.63
Diluted                 $      1.23    $      1.54    $      5.56    $      4.60
Dividends               $     0.475    $      0.43    $     1.425    $      1.29

(1) The indicated terms do not have standardized definitions prescribed by the 
international financial reporting standards (IFRS) and, therefore, may not be 
comparable with similar measures presented by other companies. For more details, 
please consult the non-IFRS financial measures section of the management's 
discussion and analysis.

(2) For the three-month and nine-month periods ended May 31, 2018, integration, 
restructuring and acquisition costs were related to the MetroCast acquisition 
completed on Jan. 4, 2018.  

(3) For the three-month and nine-month periods ended May 31, 2018, acquisitions 
of property, plant and equipment, and intangible and other assets, in constant 
currency, amounted to $115.4-million and $346.7-million, respectively.

(4) At May 31, 2018, and Aug. 31, 2017. 

(5) Indebtedness is defined as the aggregate of bank indebtedness, balance due 
on a business combination and principal on long-term debt.

(6) Per multiple and subordinate voting share.

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