Cogeco Releases its Financial Results for the Third Quarter of Fiscal 2021

• Revenue increased by 3.7% (9.3% in constant currency(1)) compared to the same period of the prior year to reach $649.3 million;
  
  
• Adjusted EBITDA(1) reached $302.3 million, an increase of 1.3% (6.2% in constant currency);
  
  
• Free cash flow(1) reached $136.6 million, an increase of 14.6% (14.9% in constant currency);
  
  
• Cogeco Communications announced the acquisition of WideOpenWest's Ohio broadband systems; and
  
  
• A quarterly eligible dividend of $0.545 was declared.

MONTRÉAL, July 14, 2021 /CNW Telbec/ - Today, Cogeco Inc. (TSX: CGO) ("Cogeco" or the "Corporation") announced its financial results for the third quarter ended May 31, 2021, in accordance with International Financial Reporting Standards ("IFRS").

OPERATING RESULTS

For the third quarter of fiscal 2021:

• Revenue increased by 3.7% to reach $649.3 million. On a constant currency basis, revenue increased by 9.3%, mainly explained as follows:
  
  
• Canadian broadband services revenue increased by 10.2% as a result of the DERYtelecom acquisition completed on December 14, 2020, the cumulative effect of sustained demand for residential high-speed Internet since the beginning of the pandemic and rate increases implemented for certain services, partly offset by a retroactive adjustment of $4.6 million recognized following the CRTC's decision on aggregated wholesale Internet rates during the third quarter of fiscal 2021 and a decline in video and telephony service customers as some customers have migrated to Internet-only services. Excluding the acquisition of DERYtelecom and the impact of the $4.6 million adjustment mentioned above, revenue in constant currency increased by 3.0%.
  
  
• American broadband services revenue increased by 7.2% in constant currency resulting mainly from a higher Internet service customer base, rate increases implemented for certain services and last year's temporary waiving of late fees charged to customers as a relief measure in the context of the COVID-19 pandemic, which were reinstated in all states by September 2020.
  
  
• Revenue in the media activities increased by 23.6%, mainly following the easing of public health restrictions, whereby last year's third quarter radio advertising revenue was directly impacted by COVID-19 related lockdown measures.

• Adjusted EBITDA increased by 1.3% to reach $302.3 million. On a constant currency basis, adjusted EBITDA increased by 6.2%, mainly explained as follows:
  
  
• Canadian broadband services adjusted EBITDA increased by 6.4% in constant currency mainly resulting from revenue growth and the impact of the DERYtelecom acquisition, partly offset by the $4.6 million retroactive adjustment following the CRTC's decision on aggregated wholesale Internet rates, combined with higher sales and marketing initiatives deferred to the second half of the year in the context of the COVID-19 pandemic. Excluding the acquisition of DERYtelecom and the impact of the $4.6 million adjustment mentioned above, adjusted EBITDA in constant currency increased by 1.6%.
  
  
• American broadband services adjusted EBITDA increased by 5.9% in constant currency mainly resulting from revenue growth driven by a continued increase in customer demand for high-speed offerings Internet service and by rate increases implemented for certain services, partly offset by a non-recurring gain on disposal of property, plant and equipment amounting to US$1.7 million recorded during the third quarter of fiscal 2020, combined with higher sales and marketing initiatives deferred to the second half of the year in the context of the COVID-19 pandemic. Excluding the non-recurring gain on disposal of property, plant and equipment, adjusted EBITDA in constant currency increased by 8.0%.
  
  
• Profit for the period amounted to $105.0 million, of which $34.5 million, or $2.17 per share, was attributable to owners of the Corporation compared to $97.5 million, $31.1 million, and $1.96 per share, respectively, in the comparable period of fiscal 2020. The increases resulted mainly from a lower financial expense and a higher adjusted EBITDA, partly offset by the depreciation of the US dollar and a higher total income taxes expense.
  
  
• Free cash flow increased by 14.6% (14.9% in constant currency) to reach $136.6 million as a result of higher adjusted EBITDA, the decrease in current income taxes, mainly following the harmonization of the Québec tax legislation with the federal's accelerated tax depreciation measure, and the decrease in financial expense, partly offset by higher capital expenditures.
  
  
• Cash flows from operating activities decreased by 7.9% to reach $269.1 million, mainly due to the increase in income taxes paid and the depreciation of the US dollar, partly offset by the decrease in interest paid.
  
  
• On May 6, 2021, Cogeco Media announced that it had entered into an agreement with Arsenal Média to acquire and sell radio stations located in the Saguenay-Lac-Saint-Jean and Abitibi-Témiscamingue regions. Cogeco Media will acquire a radio station owned by Arsenal Média in the Saguenay-Lac-Saint-Jean region, known as the CILM radio station, and will simultaneously sell to Arsenal Média two radio stations owned by Cogeco Media in the Abitibi-Témiscamingue region, known as the Capitale Rock and Wow radio stations. The transaction is subject to customary closing conditions.
  
  
• Cogeco maintains its fiscal 2021 revised financial guidelines as issued on January 14, 2021.
  
  
• Cogeco released its fiscal 2022 preliminary financial guidelines. On a constant currency basis, the Corporation expects fiscal 2022 revenue and adjusted EBITDA to grow between 3.5% and 5.5%. Acquisition of property, plant and equipment should reach between $695 and $725 million, including net investments of approximately $230 to $240 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 30% and 35%. Excluding the fiscal year 2022 network expansion projects, free cash flow on a constant currency and consolidated basis would otherwise increase between 13% and 18%.
  
  
• At its July 14, 2021 meeting, the Board of Directors of Cogeco declared a quarterly eligible dividend of $0.545 per share compared to $0.475 per share in the comparable quarter of fiscal 2020.

"Overall, we are satisfied with Cogeco's performance for the third quarter of fiscal 2021, which is in line with expected results in constant currency," declared Philippe Jetté, President and Chief Executive Officer of Cogeco Inc.

"In Canada, we continue to see positive trends with our Internet services and growth in our residential business, with the changes over the past year in how Canadians work and live," said Mr. Jetté. "Over the course of the quarter, Cogeco Connexion announced several network expansion projects in collaboration with the governments of Québec and Ontario to expand its high-speed Internet services to underserved and unserved areas. The CRTC's decision to maintain the 2016 wholesale rates for broadband services, rather than adopting the even lower rates of 2019, provides a more stable regulatory framework pending the CRTC's review of the methodology to establish these rates. This helps ensure continuity in our current investments to increase access to high-speed Internet in communities outside large urban centres. In addition, Cogeco welcomed the CRTC's decision on mobile wireless to allow regional players investing in telecommunications infrastructure and spectrum to access the wireless networks of Canada's dominant providers. This regulatory framework provides more clarity as we develop our plans to offer mobile wireless services in a financially disciplined way."

"At Atlantic Broadband, we are seeing a continued increase in revenue and adjusted EBITDA results and an overall trend to more high-speed Internet subscribers propelled by our Broadband First offer strategy launched in the second quarter," added Mr. Jetté. "We also recently announced Atlantic Broadband's acquisition of the WOW Ohio systems, representing a strong strategic fit that allows us to continue adding scale to our growing and profitable U.S. broadband business."

"At Cogeco Media, we continue to maintain our financial discipline and while results are as expected, we are seeing signs of an economic recovery in Québec," continued Mr. Jetté. "We were gratified to see the continued commitment of our listeners as many of our stations are once again at the top of the spring Numeris rankings, including 98.5, which had the highest listenership in the country. We are also pleased to welcome our new President of Cogeco Media, Caroline Paquet, who joined the team on July 5."

"We recently unveiled Cogeco's commitment on diversity and inclusion, which can be consulted on our corporate website. While Cogeco has long had social inclusion at its core, we are now making public our stance on the importance of diversity and inclusion and committing to continued action on this front. In addition, we were honoured to be recognized by Corporate Knights as one of Canada's top 50 Corporate Citizens for the fourth consecutive year, with a new high ranking of 22 on the list. For a second year, Cogeco also recently received the Caring Company Certification from Imagine Canada, which recognizes outstanding leadership in community investment and social responsibility in Canada. We are proud of these recognitions as we continue to strengthen and invest in our corporate social responsibility practices, ensuring the company operates responsibly and sustainably, while being a good corporate citizen," concluded Mr. Jetté.

ACQUISITION OF WIDEOPENWEST'S OHIO BROADBAND SYSTEMS

On June 30, 2021, Cogeco Communications announced that Atlantic Broadband had entered into a definitive agreement with WideOpenWest, Inc. ("WOW") to purchase all of its broadband systems located in Ohio ("Ohio broadband systems"). The Ohio broadband systems are valued at US$1.125 billion, plus transaction and financing costs. The Ohio broadband systems pass approximately 688,000 homes and businesses in Cleveland and Columbus and served approximately 196,000 Internet, 61,000 video and 35,000 telephony customers, as of March 31, 2021. The acquisition represents a strong strategic fit for Cogeco Communications as it is complementary to Atlantic Broadband's existing footprint and capitalizes on its existing platform. The purchase price and transaction costs will be financed through US$900 million of committed secured debt financing provided to Atlantic Broadband, and excess cash on hand. The acquisition is subject to regulatory approvals along with other customary closing conditions and is expected to close in the first quarter of fiscal 2022.

COVID-19 PANDEMIC

The COVID-19 pandemic continues to impact our day-to-day operations although public health restrictions are starting to be lifted in part as vaccines are continuing to be rolled out, in both Canada and the United States. Our priority remains on ensuring the well-being of our employees, customers and business partners. During the first nine months of fiscal 2021, we continued to experience some of the trends from past quarters. Those primarily relate to sustained demand for our residential high-speed Internet product, due to customers spending more time at home for work, online education and entertainment purposes, and a reduction of certain expenses due to a more stable customer base (fewer connections and disconnections) and not being able to use all usual sales channels. In these unusual circumstances, we have also decided to delay during the first half of fiscal 2021, certain sales and marketing expenses to the second half of the year in both countries. We expect that the current "work-from-home" trend will continue after the COVID-19 pandemic, where more workers will work from home than pre-pandemic on a partial or full-time basis. This trend should benefit our various network expansion projects, especially in underserved and unserved areas.

As for our radio operations, they were negatively impacted by the pandemic due to certain segments of the retail industry reducing or cutting their advertising activities, which resulted in radio advertising revenue being directly impacted by COVID-19 related lockdown measures. As public health restrictions are starting to be lifted, certain segments of the retail industry are gradually resuming their advertising activities. In order to mitigate the impact on its operations, Cogeco Media managed its operating expenses tightly, as it did since the beginning of the pandemic, while maintaining quality programming.

Although we are pleased with the financial results to date under the circumstances, we remain cautious in our management of this situation as uncertainties remain on the potential human, operating and financial impact of the pandemic. The Corporation's results discussed herein may not be indicative of future operational trends and financial performance.

ABOUT COGECO

Cogeco Inc. is a holding corporation which operates in the communications and media sectors. Its Cogeco Communications Inc. subsidiary provides residential and business customers with Internet, video and telephony services through its two-way broadband fibre networks, operating in Québec and Ontario, Canada, under the Cogeco Connexion name, and in the United States under the Atlantic Broadband brand (in 11 states along the East Coast, from Maine to Florida). Its Cogeco Media subsidiary owns and operates 23 radio stations with complementary radio formats and extensive coverage serving a wide range of audiences mainly across the province of Québec, as well as Cogeco News, 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).

FINANCIAL HIGHLIGHTS

12.NON-IFRS FINANCIAL MEASURES

This section describes non-IFRS financial measures used by Cogeco throughout this MD&A. These financial measures are reviewed in assessing the performance of the Corporation and used in the decision-making process with regards to our business units. Reconciliations between "free cash flow" and "adjusted EBITDA" and the most 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 MD&A also makes reference to key performance indicators on a constant currency basis, including revenue, "adjusted EBITDA", acquisition of property, plant and equipment 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 MD&A refers to the capital intensity of the Canadian broadband services and the American broadband services segments, a key performance indicator used by Cogeco Communications' management and investors to assess the Cogeco Communication's investment in capital expenditures in order to support a certain level of revenue. This financial measure does not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies.

12.1ADJUSTED EBITDA RECONCILIATION

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

12.2FREE CASH FLOW RECONCILIATION

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

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

SOURCE Cogeco Inc.

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