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Cogeco Releases its Financial Results for the Third Quarter of Fiscal 2022

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·19 min read
In this article:
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  • Revenue increased by 16.3% (14.9% in constant currency (1)) compared to the same period of the prior year to reach $754.8 million;

  • Adjusted EBITDA (1) reached $353.5 million, an increase of 16.9% (15.7% in constant currency (1));

  • Profit for the period amounted to $108.5 million, an increase of 3.3%;

  • Free cash flow (1) amounted to $109.0 million, a decrease of 20.2% (19.9% in constant currency (1)), following increased network expansion activities;

  • Cash flows from operating activities increased by 32.2% to reach $355.7 million;

  • Cogeco is releasing its fiscal 2023 financial guidelines; and

  • A quarterly eligible dividend of $0.625 per share was declared compared to $0.545 per share in the comparable quarter of fiscal 2021.

MONTRÉAL, July 13, 2022 /CNW Telbec/ - Today, Cogeco Inc. (TSX: CGO) ("Cogeco" or the "Corporation") announced its financial results for the third quarter ended May 31, 2022, in accordance with International Financial Reporting Standards ("IFRS").

OPERATING RESULTS

For the third quarter of fiscal 2022:

  • Revenue increased by 16.3% to reach $754.8 million compared to the previous year. On a constant currency basis, revenue increased by 14.9%, mainly explained as follows:

 


(1)

The indicated terms do not have standardized definitions prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of this press release, including reconciliation to the most directly comparable IFRS financial measures.

  • Adjusted EBITDA increased by 16.9% to reach $353.5 million compared to the previous year. On a constant currency basis, adjusted EBITDA increased by 15.7%, mainly explained as follows:

  • Profit for the period amounted to $108.5 million, of which $37.5 million, or $2.38 per share, was attributable to owners of the Corporation compared to $105.0 million, $34.5 million, and $2.17 per share, respectively, in the comparable period of fiscal 2021. The increases resulted mainly from higher adjusted EBITDA and lower income tax expense, partly offset by the increases in depreciation and amortization expense and financial expense.

  • Free cash flow decreased by 20.2% (19.9% in constant currency) to reach $109.0 million compared to the previous year, mainly due to higher capital expenditures, as Cogeco Connexion accelerated its construction efforts in connection with its high-speed Internet network expansion, and the increases in financial expense and current income taxes, partly offset by higher adjusted EBITDA.

  • Cash flows from operating activities increased by 32.2% to reach $355.7 million compared to the previous year, mainly resulting from higher adjusted EBITDA, improved working capital elements and lower income taxes paid, partly offset by higher interest paid.

  • Cogeco maintains its fiscal 2022 financial guidelines as issued on April 13, 2022.

  • Cogeco purchased and cancelled 37,014 subordinate voting shares for a total consideration of $2.8 million.

  • At its July 13, 2022 meeting, the Board of Directors of Cogeco declared a quarterly eligible dividend of $0.625 per share compared to $0.545 per share in the comparable quarter of fiscal 2021.

"Our performance for the third quarter of fiscal 2022 was in line with our expectations, despite the increasingly challenging economic context," stated Philippe Jetté, President and Chief Executive Officer of Cogeco Inc.

"Our Canadian broadband services business unit, Cogeco Connexion, performed well during the quarter. The financial and operational performance was in line with expectations, while the number of customer additions reflected slower activity in the industry. We are also actively building new networks in collaboration with governments and a growing number of homes are being connected and offered Cogeco's services," said Mr. Jetté.

"In the United States, we had good revenue and adjusted EBITDA growth at Breezeline, despite the challenging economic environment and market softness which are impacting customer acquisitions," added Mr. Jetté. "The Breezeline team successfully rebranded its operations in Cleveland and Columbus, Ohio, as it transitioned the customer management system."

"Cogeco Media, our radio business, has continued to shine in the ratings, while the team finds innovative ways to overcome the challenges of the traditional advertising market, including progressively redefining our radio stations as multiplatform audio content providers," continued Mr. Jetté. "In addition to the Numeris results, which listed several of our radio stations at the top of the rankings, including 98,5 which is once again the top radio station in Canada, Cogeco Media was well represented in Triton's inaugural listing of top 30 French language podcasts in Canada, with six on this prestigious list."

"We were also pleased to have been ranked among Corporate Knights' 2022 Best 50 Corporate Citizens in Canada for a fifth consecutive year. This highly regarded ranking recognizes Canadian companies that are setting the standard for sustainable growth leadership," concluded Mr. Jetté.

FISCAL 2023 FINANCIAL GUIDELINES

Cogeco released its fiscal 2023 financial guidelines. On a constant currency basis, the Corporation expects fiscal 2023 revenue to grow between 2% and 4% and adjusted EBITDA between 1.5% and 3.5%. Net capital expenditures (1) should reach between $750 and $800 million, including net investments of approximately $180 to $230 million in network expansions which will increase the Corporation's footprint in Canada and the United States. As a result of these growth initiatives, free cash flow is expected to decrease between 2% and 12%. Excluding the fiscal 2023 network expansion projects, free cash flow on a constant currency and consolidated basis would otherwise be within a range encompassing a decrease of 5% to an increase of 5%.

OPERATING ENVIRONMENT

While the impact of the COVID-19 pandemic on the Corporation is generally stabilizing, our priority remains on ensuring the well-being of our employees, customers and business partners. We have conducted our operations normally during the recent quarters and will remain vigilant should the situation change in the future.

In our radio operations, the advertising market was strongly affected by the pandemic due to restrictions imposed on portions of the customer base, such as the travel industry, as well as supply chain disruptions limiting other customers' businesses, such as the automobile industry. Furthermore, listeners have spent less time commuting in their cars since the pandemic started, which negatively impacted listening hours. However, signs have been positive for the economy as the majority of public health measures have been lifted. In order to mitigate the impact on its operations, Cogeco Media continues to manage its operating expenses tightly, as it did since the beginning of the pandemic, while maintaining quality programming.

In our telecommunications operations, the more recent global economic and political instability has resulted in rising inflation and, for certain purchased products, more scarcity and longer delivery lead times. While we are proactively working at minimizing the impact on the Corporation, we expect the combination of those elements to put pressure on revenue, as some customers seek ways to reduce their monthly spending, and on the costs to deliver our services.

The Corporation's results discussed herein may not be indicative of future operational trends and financial performance. Please refer to the "Forward-looking statements" section.

 


(1)

During the third quarter of fiscal 2022, the Corporation changed the label of its "Acquisition of property, plant and equipment" key performance indicator measure to "Net capital expenditures". Net capital expenditures do not have a standardized definition prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of this press release.

FINANCIAL HIGHLIGHTS



















Three months ended May 31,


Nine months ended May 31,








2022

2021

(1)

Change

Change in

constant currency

(2)

(3)

Foreign exchange impact

(2)

2022

2021

(1)

Change

Change in

constant currency

(2)

(3)

Foreign exchange impact

(2)

(In thousands of Canadian dollars, except percentages and per share data)

$

$


%

%


$


$

$


%

%


$


Operations

















Revenue

754,777

649,260


16.3

14.9


9,056


2,248,101

1,948,771


15.4

15.9


(9,637)


Adjusted EBITDA (3)

353,473

302,340


16.9

15.7


3,691


1,057,078

931,844


13.4

13.9


(4,751)


Integration, restructuring      and acquisition costs (4)

2,286

1,272


79.7





22,372

4,783






Profit for the period

108,456

104,994


3.3





346,376

335,597


3.2





Profit for the period      attributable to owners of      the Corporation

37,493

34,548


8.5





112,675

108,774


3.6





Cash flow

















Cash flows from operating      activities

355,681

269,078


32.2





931,791

746,229


24.9





Free cash flow (3)

108,954

136,567


(20.2)

(19.9)


(458)


398,477

425,358


(6.3)

(5.9)


(1,699)


Acquisition of property,      plant and equipment

198,271

126,745


56.4





502,753

358,984


40.0





Net capital

     expenditures (1) (3) (5)

183,107

126,745


44.5

42.0


3,159


467,091

358,984


30.1

30.5


(1,558)


Financial condition (6)

















Cash and cash equivalents









379,232

551,968


(31.3)





Total assets









9,167,638

7,536,313


21.6





Net indebtedness (3) (7)









4,444,729

3,008,681


47.7





Equity attributable to      owners of the      Corporation









887,811

816,658


8.7





Per share data (8)

















Earnings per share

















     Basic

2.38

2.17


9.7





7.11

6.84


3.9





     Diluted

2.37

2.16


9.7





7.07

6.80


4.0





Dividends

0.625

0.545


14.7





1.875

1.635


14.7























(1)

Comparative figures have been restated following the application of the IFRS Interpretations Committee issued agenda decision Demand Deposits with Restrictions on Use arising from a Contract with a Third Party (IAS 7 Statement of Cash Flows) during the third quarter of fiscal 2022. Furthermore, the Corporation also changed the label of its "Acquisition of property, plant and equipment" key performance indicator measure to "Net capital expenditures" following this application. For further details, refer to the "Accounting policies" section of the Management's Discussion and Analysis ("MD&A").


(2)

Key performance indicators presented on a constant currency basis are obtained by translating financial results from the current periods denominated in US dollars at the foreign exchange rates of the comparable periods of the prior year. For the three and nine-month periods ended May 31, 2021, the average foreign exchange rates used for translation were 1.2399 USD/CDN and 1.2771 USD/CDN, respectively.


(3)

The indicated terms do not have standardized definitions prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of this press release, including reconciliation to the most directly comparable IFRS financial measures.


(4)

For the three and nine-month periods ended May 31, 2022, integration, restructuring and acquisition costs resulted mostly from costs incurred in connection with the acquisition, completed on September 1, 2021, and ongoing integration of the Ohio broadband systems, as well as integration costs related to the DERYtelecom acquisition. For the three and nine-month periods ended May 31, 2021, integration, restructuring and acquisition costs resulted mostly from due diligence costs related to the acquisition of the Ohio broadband systems and costs related to the acquisition, which was completed on December 14, 2020, and integration of DERYtelecom.


(5)

For the three and nine-month periods ended May 31, 2022, net capital expenditures in constant currency amounted to $179.9 million and $468.6 million, respectively.


(6)

At May 31, 2022 and August 31, 2021.


(7)

Net indebtedness is defined as the total of bank indebtedness and principal on long-term debt, less cash and cash equivalents, excluding cash with restrictions on use.


(8)

Per multiple and subordinate voting share.

 

FORWARD-LOOKING STATEMENTS

Certain statements contained in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to Cogeco Inc.'s ("Cogeco" or the "Corporation") future outlook and anticipated events, business, operations, financial performance, financial condition or results and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. Particularly, statements regarding the Corporation's financial guidelines, future operating results and economic performance, objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions including expected growth, results of operations, purchase price allocation, tax rates, weighted average cost of capital, performance and business prospects and opportunities, which Cogeco believes are reasonable as of the current date. Refer in particular to the "Corporate objectives and strategies" and "Fiscal 2022 financial guidelines" sections of the Corporation's 2021 annual MD&A and of the current MD&A, and the "Fiscal 2023 financial guidelines" section of the current MD&A for a discussion of certain key economic, market and operational assumptions we have made in preparing forward-looking statements. While management considers these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what Cogeco currently expects. These factors include risks such as competitive risks, business risks (including potential disruption to our supply chain worsened by the increasing geopolitical instability resulting from the war in Ukraine and other contributing factors, increasing transportation lead times, scarcity of input materials and shortages of chipsets, semiconductors and key telecommunication equipment and competition for resources), regulatory risks, technology risks (including cybersecurity), financial risks (including variations in currency and interest rates), economic conditions (including elevated inflation reaching historical highs pressuring revenue, due to reduced consumer spending, and increasing costs), human-caused and natural threats to our network, infrastructure and systems, community acceptance risks, ethical behavior risks, ownership risks, litigation risks and public health crisis and emergencies such as the COVID-19 pandemic, many of which are beyond the Corporation's control. Moreover, the Corporation's radio operations are significantly exposed to advertising budgets from the retail industry, which can fluctuate due to changing economic conditions. For more exhaustive information on these risks and uncertainties, the reader should refer to the "Uncertainties and main risk factors" sections of the Corporation's 2021 annual MD&A and of the current MD&A. These factors are not intended to represent a complete list of the factors that could affect Cogeco and future events and results may vary significantly from what management currently foresees. The reader should not place undue importance on forward-looking information contained in this press release which represent Cogeco's expectations as of the date of this press release (or as of the date they are otherwise stated to be made) and are subject to change after such date. While management may elect to do so, the Corporation is under no obligation (and expressly disclaims any such obligation) and does not undertake to update or alter this information at any particular time, whether as a result of new information, future events or otherwise, except as required by law.

All amounts are stated in Canadian dollars unless otherwise indicated. This press release should be read in conjunction with the Corporation's MD&A for the three and nine-month periods ended May 31, 2022, the Corporation's condensed interim consolidated financial statements and the notes thereto for the same periods prepared in accordance with International Financial Reporting Standards ("IFRS") and the Corporation's 2021 Annual Report.

NON-IFRS FINANCIAL MEASURES 

This section describes non-IFRS financial measures used by Cogeco throughout this press release. These financial measures are reviewed in assessing the performance of the Corporation and used in the decision-making process with regard to its business units. Reconciliations between "adjusted EBITDA", "free cash flow", "net capital expenditures" and "net indebtedness" and the most directly comparable IFRS financial measures are also provided. These financial measures do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies.

This press release also makes reference to key performance indicators on a constant currency basis, including revenue, "adjusted EBITDA", "net capital expenditures" and "free cash flow". Measures on a constant currency basis are considered non-IFRS financial measures and do not have any standardized meaning prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. In addition, this press release refers to the adjusted EBITDA margin and capital intensity of the Canadian broadband services and the American broadband services segments, key performance indicators used by Cogeco Communications' management and investors, respectively, to value its performance and to assess its investment in net capital expenditures in order to support a certain level of revenue. These financial measures do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies.





Non-IFRS
financial
measures

Application

Calculation

Most directly
comparable
IFRS financial
measures

Adjusted EBITDA

and

adjusted EBITDA margin 

Adjusted EBITDA is a key measure commonly
reported and used in the telecommunications industry,
as it allows comparisons between companies that have
different capital structures and is a more current
measure since it excludes the impact of historical
investments in assets. Adjusted EBITDA is one of the
key metrics employed by the financial community to
value a business and its financial strength.

Adjusted EBITDA for Cogeco's business units is equal
to the segment profit (loss) reported in Note 4 of the
condensed interim consolidated financial statements.

Adjusted EBITDA:

- Profit for the period

add:

- Income taxes;

- Financial expense;

- Depreciation and amortization; and

- Integration, restructuring and acquisition costs.

Profit for the period



Adjusted EBITDA margin:

- Adjusted EBITDA

divided by:

- Revenue.

No directly
comparable IFRS
financial measure

Free cash flow

Management and investors use free cash flow to
measure Cogeco's ability to repay debt, distribute
capital to its shareholders and finance its growth.

Free cash flow:

- Adjusted EBITDA

add:

- Amortization of deferred transaction costs and
     discounts on long-term debt;

- Share-based payment;

- Loss (gain) on disposals and write-offs of property,
     plant and equipment; and

- Defined benefit plans expense, net of contributions deduct:

- Integration, restructuring and acquisition costs;

- Financial expense;

- Current income taxes;

- Net capital expenditures; and

- Repayment of lease liabilities.

Cash flows from operating activities

Net capital expenditures

Net capital expenditures is a measure used by Cogeco's
management to assess the Corporation's total capital
investments, net of subsidies recognized as a reduction
of the cost of property, plant and equipment during the
period, regardless of whether they were received in
advance or not. Subsidies received in advance are
recognized as a reduction of property, plant and
equipment based on the costs incurred in connection
with the high-speed Internet network expansion
construction projects over the total expected costs.

Net capital expenditures for Cogeco's business units is equal to the measure reported in Note 4 of the condensed interim consolidated financial statements.

Net capital expenditures:

- Acquisition of property, plant and equipment (1)

deduct:

- Subsidies received in advance recognized as a reduction of the cost of property, plant and equipment during the period.

Acquisition of
property, plant
and equipment






(1)

Excludes the non-cash acquisition of right-of-use assets and the purchases of spectrum licences.





Non-IFRS
financial
measures

Application

Calculation

Most directly
comparable
IFRS financial
measures

Constant currency basis

Revenue, operating expenses, adjusted EBITDA, net
capital expenditures and free cash flow are measures
presented on a constant currency basis to enable an
improved understanding of the Corporation's
underlying financial performance, undistorted by the
effects of changes in foreign exchange rates.

Constant currency basis is obtained by translating
financial results from the current periods denominated in
US dollars at the foreign exchange rates of the comparable periods of the prior year.

No directly
comparable IFRS
financial measure

Capital intensity

Capital intensity is used by Cogeco Communications'
management and investors to assess the Cogeco
Communications' investment in capital expenditures
in order to support a certain level of revenue.

Capital intensity:

- Net capital expenditures

divided by:

- Revenue.

No directly
comparable IFRS
financial measure

Net indebtedness

Net indebtedness is a measure used by management
and investors to assess Cogeco's financial leverage, as
it represents the debt net of the available unrestricted cash and cash equivalents.

Net indebtedness:

add:

- Principal on long-term debt; and

- Bank indebtedness

deduct:

- Cash and cash equivalents, excluding cash with
     restrictions on use.

Long-term debt,
including the
current portion





ADJUSTED EBITDA RECONCILIATION

The reconciliation of adjusted EBITDA to the most directly comparable IFRS financial measure is as follows:







Three months ended May 31,

Nine months ended May 31,





2022

2021

2022

2021

(In thousands of Canadian dollars)

$

$

$

$

Profit for the period

108,456

104,994

346,376

335,597

Income taxes

29,369

32,182

79,934

104,786

Financial expense

45,810

34,523

136,904

103,677

Depreciation and amortization

167,552

129,369

471,492

383,001

Integration, restructuring and acquisition costs

2,286

1,272

22,372

4,783

Adjusted EBITDA

353,473

302,340

1,057,078

931,844






FREE CASH FLOW RECONCILIATION

The reconciliation of free cash flow to the most directly comparable IFRS financial measure is as follows:







Three months ended May 31,

Nine months ended May 31,





2022

2021

2022

2021

(In thousands of Canadian dollars)

$

$

$

$

Cash flows from operating activities

355,681

269,078

931,791

746,229

Amortization of deferred transaction costs and discounts on long-term debt

2,944

2,354

8,896

6,994

Changes in other non-cash operating activities

(51,178)

(14,795)

(45,472)

12,817

Income taxes paid

291

18,681

31,764

77,398

Current income taxes

(17,651)

(7,052)

(43,349)

(46,668)

Interest paid

49,379

31,092

123,060

95,594

Financial expense

(45,810)

(34,523)

(136,904)

(103,677)

Net capital expenditures

(183,107)

(126,745)

(467,091)

(358,984)

Repayment of lease liabilities

(1,595)

(1,523)

(4,218)

(4,345)

Free cash flow

108,954

136,567

398,477

425,358






NET CAPITAL EXPENDITURES RECONCILIATION

The reconciliation of net capital expenditures to the most directly comparable IFRS financial measure is as follows:







Three months ended May 31,

Nine months ended May 31,





2022

2021

2022

2021

(In thousands of Canadian dollars)

$

$

$

$

Acquisition of property, plant and equipment

198,271

126,745

502,753

358,984

Subsidies received in advance recognized as a reduction of the cost of property, plant and
     equipment during the period

(15,164)

(35,662)

Net capital expenditures

183,107

126,745

467,091

358,984






NET INDEBTEDNESS RECONCILIATION

The reconciliation of net indebtedness to the most directly comparable IFRS financial measure is as follows:





At May 31, 2022

At August 31, 2021




(In thousands of Canadian dollars)

$

$

Long-term debt, including the current portion

4,607,365

3,329,910

Discounts, transaction costs and other

53,894

42,745

Bank indebtedness

14,830

4,460

Cash and cash equivalents, excluding cash with restrictions on use

(231,360)

(368,434)

Net indebtedness

4,444,729

3,008,681




ABOUT COGECO INC.

Rooted in the communities it serves, Cogeco Inc. (TSX: CGO) is a growing competitive force in the North American telecommunications and media sectors with a legacy of 65 years. Through its business units Cogeco Connexion and Breezeline (formerly Atlantic Broadband), Cogeco provides Internet, video and phone services to 1.6 million residential and business customers in Quebec and Ontario in Canada as well as in twelve states in the United States. Through Cogeco Media, it owns and operates 21 radio stations primarily in the province of Quebec as well as a news agency. To learn more about Cogeco's growth strategy and its commitment to support its communities, promote inclusive growth and fight climate change, please visit us online at corpo.cogeco.com.

For information:

Investors
Patrice Ouimet
Senior Vice President and Chief Financial Officer
Cogeco Inc.
Tel.: 514-764-4700
patrice.ouimet@cogeco.com

Media
Marie-Hélène Labrie
Senior Vice President and Chief Public Affairs, Communications and Strategy Officer
Cogeco Inc.
Tel.: 514-764-4700
marie-helene.labrie@cogeco.com

Conference Call:

Thursday, July 14, 2022 at 11:00 a.m. (Eastern Time)

A live audio webcast will be available on Cogeco's website at https://corpo.cogeco.com/cgo/en/investors/investor-relations/. Members of the financial community will be able to access the conference call and ask questions. Media representatives may attend as listeners only. The webcast will be available on Cogeco's website for a three-month period.

Please use the following dial-in number to have access to the conference call 5 to 10 minutes before the start of the conference:

Canada/United States Access Number: 1-888-396-8049
International Access Number: 1-416-764-8646

In order to join this conference, participants are required to provide the operator with the name of the company hosting the call, that is, Cogeco Inc. or Cogeco Communications Inc.

 

SOURCE Cogeco Inc.

Cision
Cision

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