Cogeco Releases its Financial Results for the First Quarter of Fiscal 2023

• Revenue increased by 6.0% (2.4% in constant currency ⁽¹⁾) compared to the same period of the prior year to $789.7 million;
• Adjusted EBITDA ⁽¹⁾ was $373.9 million, an increase of 5.5% (2.3% in constant currency ⁽¹⁾);
• Profit for the period amounted to $123.8 million, an increase of 3.9%;
• Earnings per share on a diluted basis was $2.67, an increase of 10.8%;
• Net capital expenditures ^{(1) (2)} amounted to $197.3 million, an increase of 39.5% (33.2% in constant currency). Excluding network expansion projects ⁽¹⁾, net capital expenditures amounted to $131.5 million, an increase of 8.2% (3.7% in constant currency);
• Acquisition of property, plant and equipment amounted to $235.0 million, an increase of 60.6%;
• Free cash flow ⁽¹⁾ amounted to $109.5 million, a decrease of 19.4% (19.0% in constant currency ⁽¹⁾), due to intensified network expansion projects. Free cash flow, excluding network expansion projects ⁽¹⁾ was $175.3 million, an increase of 12.5% (10.7% in constant currency);
• Cash flows from operating activities decreased by 34.8% to $193.8 million, mainly resulting from working capital items;
• Purchased and cancelled 27,700 Cogeco subordinate voting shares for a total consideration of $1.6 million;
• Fiscal 2023 financial guidelines were revised; and
• A quarterly eligible dividend of $0.731 per share was declared, compared to $0.625 per share in the comparable quarter of fiscal 2022, an increase of 17%.

MONTRÉAL, Jan. 12, 2023 /CNW Telbec/ - Today, Cogeco Inc. (TSX: CGO) ("Cogeco" or the "Corporation") announced its financial results for the first quarter ended November 30, 2022, in accordance with International Financial Reporting Standards ("IFRS").

OPERATING RESULTS

For the first quarter of fiscal 2023:

• Revenue increased by 6.0% to reach $789.7 million. On a constant currency basis, revenue increased by 2.4%, mainly explained as follows:
• Canadian telecommunications' revenue increased by 4.8% as reported and in constant currency, mainly driven by the cumulative effect of high-speed Internet service additions over the past year, a higher value product mix and rate increases.
• American telecommunications' revenue increased by 7.4%. On a constant currency basis, revenue decreased by 0.1%. In constant currency, stable revenue resulted from a higher value product mix and rate increases, offset by a lower customer base in Ohio.
• Revenue in the media activities increased by 2.5%.
• Adjusted EBITDA increased by 5.5% to reach $373.9 million. On a constant currency basis, adjusted EBITDA increased by 2.3%, mainly explained as follows:
• Canadian telecommunications adjusted EBITDA increased by 5.7%, or 6.4% in constant currency, primarily due to revenue growth, partly offset by increased operating expenses.
• American telecommunications adjusted EBITDA increased by 3.8%. On a constant currency basis, adjusted EBITDA decreased by 3.4%, mainly resulting from unusually low spending in marketing and advertising and less staff last year in Ohio while the assets were still operating under the previous owner's brand.
• Profit for the period amounted to $123.8 million, of which $42.1 million, or $2.67 per diluted share, was attributable to owners of the Corporation compared to $119.1 million, $38.5 million, and $2.41 per diluted share, respectively, in the comparable period of fiscal 2022. The increases resulted mainly from higher adjusted EBITDA and lower acquisition, integration, restructuring and other costs, partly offset by increases in income tax expense, financial expense and depreciation and amortization expense.
• Net capital expenditures, which account for construction subsidies, were $197.3 million, compared to $141.5 million in the same period of the prior year, driven by increased network expansion activities in Canada and the United States. Excluding network expansion projects, net capital expenditures amounted to $131.5 million compared to $121.5 million in the same period of the prior year.
• Fibre-to-the-home network expansion projects continued in both Canada and the United States where about 20,000 and 17,000 homes passed were added during the quarter, respectively.
• Acquisition of property, plant and equipment increased by 60.6% to $235.0 million, mainly due to network expansion projects in both countries.
• Free cash flow decreased by 19.4%, or 19.0% in constant currency, and amounted to $109.5 million, mainly due to higher net capital expenditures driven by increased network expansion activity in both countries and higher financial expense, partly offset by lower acquisition, integration, restructuring and other costs, higher adjusted EBITDA and lower current income taxes. Free cash flow, excluding network expansion projects increased by 12.5%, or 10.7% in constant currency, and amounted to $175.3 million.
• Cash flows from operating activities decreased by 34.8% to reach $193.8 million, driven by a $69.9 million outflow in non-cash operating activities versus a $19.7 million inflow in the comparative period, resulting from the timing of trade and other payables, as well as increased interest and income taxes paid, partly offset by higher adjusted EBITDA and lower acquisition, integration, restructuring and other costs.
• Cogeco purchased and cancelled 27,700 subordinate voting shares for a total consideration of $1.6 million.
• At its January 12, 2023 meeting, the Board of Directors of Cogeco declared a quarterly eligible dividend of $0.731 per share, an increase of 17% compared to $0.625 per share in the comparable quarter of fiscal 2022.
• On January 12, 2023, the Board of Directors of Cogeco also approved the renewal of Cogeco's normal course issuer bid ("NCIB") to repurchase for cancellation up to 325,000 subordinate voting shares, subject to the approval of the Toronto Stock Exchange. The current NCIB expires on January 17, 2023.

"We have met our financial targets during the first quarter of fiscal 2023," stated Philippe Jetté, President and Chief Executive Officer of Cogeco Inc.

"Cogeco Connexion, our Canadian telecommunications business unit, performed as expected," Mr. Jetté continued. "We continued to connect new homes to our network as part of the fibre-to-the-home network expansions in Québec and we are starting to see the positive effects."

"In the United States, Breezeline's first-quarter financial results were consistent with our expectations, with a high value product mix offsetting an expected decline in subscribers in Ohio, driven primarily by the remaining impact from our customer management and billing systems' migration," Mr. Jetté added. "While inflation and increased nationwide competition present challenges, notably for entry-level products, we are working on several initiatives aimed at continuously improving our customers' experience. In Ohio, our IPTV product was successfully introduced to our new video customers and we will be phasing in this service to existing Breezeline video customers in the state starting in early 2023."

"With respect to our broadcasting operations, while the market remains challenging, Cogeco Media has performed in accordance with our expectations and we continued to expand our multi-platform audio content options with an emphasis on digital ad-tech solutions. In addition, the fall Numeris survey results once again confirm our market leadership," Mr. Jetté concluded.

FISCAL 2023 REVISED FINANCIAL GUIDELINES

Cogeco has revised its fiscal 2023 financial guidelines as issued on July 13, 2022 for revenue, adjusted EBITDA and net capital expenditures. Free cash flow projections remain the same as previously disclosed. The Corporation expects a reduction in revenue growth rates, driven by a lower customer base than expected in Ohio, and to a lesser extent, by the current economic conditions which are impacting customers' discretionary spending, especially for the Corporation's entry-level services, and by increasing competition. The Corporation has initiated several cost optimization initiatives in order to minimize the revenue impact on adjusted EBITDA, and with a prudent cash management strategy, net capital expenditures are expected to be lower than under the previous financial guidelines.

Compared to fiscal 2022, on a constant currency and consolidated basis, revenue and adjusted EBITDA are now expected to increase between 0.5% and 2.0%. The expected growth in revenue and adjusted EBITDA results mainly from expected growth in Internet service customers and a high value product mix. The expected increase in net capital expenditures compared to fiscal 2022 is primarily due to the continued net investments in network expansions which will increase the Corporation's footprint in Canada and the United States.

These financial guidelines, including the various assumptions underlying them, contain forward-looking statements concerning the business outlook for Cogeco, and should be read in conjunction with the "Forward-looking statements" section of this press release.

OPERATING ENVIRONMENT

The current global economic and political instability has resulted in rising inflation and interest rates. While we are proactively working at minimizing their impact on the Corporation, we expect the combination of those elements to continue to put pressure on revenue, as some customers seek ways to reduce their monthly spending, and on the costs to deliver our services. At the same time, and partially as a reaction to a more challenging market, some telecommunications providers have adopted more aggressive strategies and price points in order to generate sales activity.

While the Corporation experienced sustained demand for its residential high-speed Internet product in the context of the COVID-19 pandemic restrictions, a softening of the market is being observed with the re-opening of the economy in the recent quarters and a return to the workplace. While we remain cautious in our management of the situation, our priority remains on ensuring the well-being of our employees, customers and business partners. Although we have conducted our operations normally during recent quarters, we will remain vigilant should the situation change in the future.

Furthermore, our radio operations have been impacted by a portion of their customer base, such as the travel and automobile industries, reducing their advertising budgets in the context of a challenging economic environment and supply chain disruptions. 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.

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.

 FINANCIAL HIGHLIGHTS

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" section of the Corporation's 2022 annual MD&A and of the fiscal 2023 first-quarter MD&A, the "Fiscal 2023 financial guidelines" section of the Corporation's 2022 annual MD&A and the "Fiscal 2023 revised financial guidelines 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 (changing competitive ecosystem, disruptive competitive strategies adopted by our competitors), business risks (including potential disruption to our supply chain caused by economic and geopolitical instability and other contributing factors, increasing transportation lead times, scarcity and shortage of input materials and key telecommunication equipment and competition for limited 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 (including increased frequency of extreme weather events with the potential to disrupt operations), infrastructure and systems, community acceptance risks, ethical behavior risks, ownership risks, litigation risks and public health and safety, 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 2022 annual MD&A and of the fiscal 2023 first-quarter 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-month period ended November 30, 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 2022 Annual Report.

NON-IFRS AND OTHER FINANCIAL MEASURES

This press release includes references to non-IFRS and other financial measures used by Cogeco. These financial measures are reviewed in assessing the performance of Cogeco and used in the decision-making process with regard to its business units.

Reconciliations between non-IFRS and other financial measures to the most directly comparable IFRS financial measures are provided below. Certain additional disclosures for non-IFRS and other financial measures used in this press release have been incorporated by reference and can be found in the "Non-IFRS and other financial measures" section of the Corporation's MD&A for the three-month period ended November 30, 2022, available on SEDAR at www.sedar.com.

CONSTANT CURRENCY BASIS AND FOREIGN EXCHANGE IMPACT RECONCILIATION

Consolidated

Canadian telecommunications segment

American telecommunications segment

FREE CASH FLOW RECONCILIATION

NET CAPITAL EXPENDITURES RECONCILIATION

ADJUSTED EBITDA RECONCILIATION 

NET CAPITAL EXPENDITURES AND FREE CASH FLOW EXCLUDING NETWORK EXPANSION PROJECTS RECONCILIATIONS

Net capital expenditures

Free cash flow

ADDITIONAL INFORMATION 

Additional information relating to the Corporation is available on the SEDAR website at www.sedar.com and on the Corporation's website at corpo.cogeco.com.

ABOUT COGECO INC.

Rooted in the communities it serves, Cogeco Inc. is a growing competitive force in the North American telecommunications and media sectors with a legacy of more than 65 years. Through its business units Cogeco Connexion and Breezeline, Cogeco provides Internet, video and phone services to 1.6 million residential and business customers in Québec and Ontario in Canada as well as in thirteen states in the United States. Through Cogeco Media, it owns and operates 21 radio stations primarily in the province of Québec as well as a news agency. Cogeco's subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CGO). The subordinate voting shares of Cogeco Communications Inc. are also listed on the Toronto Stock Exchange (TSX: CCA).

SOURCE Cogeco Inc.