Kinder Morgan Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2024

There are 12 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications Inc. 4th Quarter 2023 Results Conference Call. Are in listen only mode and the conference is being recorded.

Operator

Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead, Mr. Carpino.

Speaker 1

Thank you, Ariel, and good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Tony Staffieri and our Chief Financial Officer, Glen Brandt. Today's discussion will include estimates other forward looking information from which our actual results could differ, please review the cautionary language in today's earnings report and our 2022 annual report regarding the various factors, assumptions and risks that could cause our actual results to differ. With that, let me turn it over to Tony to begin.

Speaker 2

Thank you, Paul, and good morning, everyone. I'm very pleased to report that Rogers delivered another record quarter. This reflects the 8th consecutive quarter of growth and momentum for our company. As I reflect on the year, we delivered industry leading results, completed an industry leading merger and drove industry leading innovation and we returned to number 1 in virtually all key growth metrics. Let me start with our full year results.

Speaker 2

In 2023, we delivered on our commitments. We met our increased financial guidance and grew service revenue by 27% and adjusted EBITDA by 34%. In a very competitive and growing market, more Canadians chose Rogers over any other competitor for the 2nd year in a row. In 2023, we attracted 674,000 postpaid mobile phone net additions, up an impressive 24%. This was driven by disciplined execution, leading distribution and attracting new Canadians.

Speaker 2

Simply put, We've out executed our competition for 2 straight years. Over the past 2 years, we've attracted an impressive 1,400,000 Canadians across our mobile and Internet services. This is the best performance in our industry and in our company's history. We achieved this customer growth while maintaining disciplined execution to deliver healthy financial results and we delivered positive total shareholder returns for the 2nd straight year in a row. In cable, we continue to accelerate market share in the East and West.

Speaker 2

This quarter, we attracted 20,000 new Internet customers, more than double over last year and we achieved industry leading margins of 56%. There's more work to do, but we're heading in the right direction. Overall, the team is firing on all cylinders and executing with discipline. 2nd, we completed our historic merger with Shaw. In April, we closed the largest financial transaction in Canadian Telecom history and we continue to deliver healthy organic growth.

Speaker 2

In 9 short months, we have largely integrated the 2 companies and delivered impressive results. We upgraded 450,000 Shaw Mobile customers from the Freedom network to Canada's largest and best 5 gs network. Teams across the combined organization, operations, service revenue customer service, network and IT are now integrated and our ERP system transition is proceeding as planned. From a customer perspective, We introduced Rogers Internet and TV services and shop footprint and we launched new bundled offers. We rebranded our corporate retail stores started selling wireless and residential services in our retail channels.

Speaker 2

We also grew Rogers brand presence in a meaningful way. Today, Alberta and BC are our fastest growing markets and we're gaining healthy market share. We said we would increase competition in the West and we have. We've doubled the size of our cable business and cable footprint overnight. This is a scale business and the power of scale is starting to show, giving customers more choice and they're responding favorably to the Rogers brand.

Speaker 2

This disciplined execution translated into strong financial performance. In 2023, we realized synergies of $375,000,000 and exited the year with a $750,000,000 annual run rate. This is 6 months ahead of schedule. We also reduced our debt leverage ratio to 4.7 times at year end. This is down over half a turn just 9 months, driven by synergy cost reductions, earnings growth and the payback of acquisition related debt.

Speaker 2

We're well on our way to deleveraging our balance sheet back to pre Shaw acquisition levels and doing it ahead of plan. 3rd, we invested and delivered a number of important innovations. We signed exclusive agreements with SpaceX and Link Global to bring satellite to mobile coverage Canada. We made the country's 1st satellite to mobile phone call and we're on track to introduce our satellite services to Canadians this year. This technology is critical to connect rural and remote parts of the country.

Speaker 2

We invested to bring satellite sensors and AI cameras to better predict and detect wildfires in remote areas and we're leveraging this technology across the nation to assist with other natural disasters that are on the rise. We acquired BAI Canada and introduced 5 gs service to all subway riders on the TTC. We invested in digital innovation to drive efficiencies and margin expansion. For example, in Rogers business, we eliminated 70,000 hours of manual work through automation, which accounted for 78% of wireless volume last year. And we were awarded Canada's best wireless network for the 5th year in a row.

Speaker 2

In 2023, we invested a record $4,000,000,000 in network innovation and we'll continue this record level of investment in 2024. This morning, we also announced the 1st network slicing trial in Canada. We tested this new technology with Ericsson across Toronto, Montreal and Vancouver using our standalone 5 gs core network. This innovation will materially change how our network operates, offering multiple lanes for wireless traffic. We will offer a dedicated lane for first responders, so they will always have priority on the network.

Speaker 2

And we can separate fixed wireless access traffic. So as we expand our FWA offering across the entire nation, We will not have to worry about congestion for our smartphone customers. This is truly a game changer for Canadians and we're proud to bring this to Canada first. Looking ahead, we will launch our 10 gs and DOCSIS 4 Internet roadmap to deliver of Internet and entertainment services to Canadians, more investment and more innovation. This is our commitment to Canada and to Canadians.

Speaker 2

Finally, before I turn it over to Glenn, let me touch on guidance. This morning, we announced industry leading guidance for 2024. This outlook reflects our clear focus, disciplined execution and unrelenting ambition to lead the market and be number 1. It reflects a 3rd year of strong service revenue and EBITDA growth. It reflects record levels of investment and it reflects strong free cash flow growth.

Speaker 2

At the same time, we expect to continue deleveraging at the same rapid pace. It was a record breaking year and I'm very pleased with our progress. I would like to thank our entire team for their relentless commitment to driving growth and innovation. Let me now turn the call over to Glenn. Thanks,

Speaker 3

Tony, and good morning, everyone. Thank you for joining us this morning. Roger's 4th quarter results reflect our 8th consecutive quarter of strong execution. These results highlight our continued success integrating Shaw, which remains 6 months ahead of plan from a synergy and deleveraging standpoint. Our Q4 results also reflect strong momentum and another quarter of industry leading operating and financial metrics to cap off a very strong year.

Speaker 3

We have delivered on our 2023 guidance and we are optimistic with our growth opportunities for 2024 as reflected in our 2024 guidance released this morning. Let me start with the highlights from our Q4 results. In wireless, we once again delivered what we anticipate will be industry leading market share and results. Service revenue increased a strong 9%, reflecting healthy and disciplined growth in our mobile customer base. Consistently, for 8 consecutive quarters now, Rogers has delivered industry leading wireless net adds combined with strong disciplined financial performance.

Speaker 3

Simply put, more Canadians choose Rogers than any other carrier and that trend continued through the Q4. Postpaid mobile phone customer net additions were a very robust 184,000 in the quarter, once again heavily concentrated in our premium Rogers brand. Rogers led in market share in a very active and competitive wireless market. On a full year basis, 2023 postpaid mobile phone net additions reached record levels at 674,000 customers, up 24% year over year, well ahead of our 2 national peers. Consistently for 2 years now, Our strategy has been to drive loading on the Rogers brand with its robust 5 gs premium service offerings and value for customers.

Speaker 3

As a result, Rogers not only led in market share, but also delivered positive underlying ARPU in a highly competitive environment. On a pro form a basis, adjusted to remove the impact of integrating a 500,000 Shaw mobile subscribers, ARPU increased a very healthy 1% year over year. This sustained positive ARPU growth combined with a very strong All service revenue growth, EBITDA growth and market share highlights once more the effectiveness of our premium brand strategy. As reported, wireless ARPU was $57.96 which was down 1% when including the impact of integration of roughly a 500,000 Shaw mobile subscribers on discounted bundled offerings. Postpaid mobile churn in the quarter was 1.67%.

Speaker 3

That's up 43 basis points year over year, reflecting an increase in the seasonally heightened promotional activity occurring in the Black Friday through Boxing Week period. However, once more I emphasize that with our sector leading postpaid net adds, continued emphasis on our premium Rogers brand and growth in service revenue, EBITDA and underlying ARPU, we very effectively balanced our priorities and I'm pleased with the outcome. And so through all of that, wireless adjusted EBITDA was up 10% year over year And our adjusted EBITDA margin grew by 70 basis points to 64%. Moving to our cable business. We continue to execute very well against our efficiency targets and we are delivering on our cost synergies roughly 6 months ahead of plan and what remains a highly competitive market.

Speaker 3

Cable revenue was up 95% year over year as a result of the Shaw acquisition and an increase in our retail Internet base. While we continue to see a high level of promotional competition from our major peers, we had reasonably strong retail Internet net additions of 20,000 in the 4th quarter, up 13,000 year over year and in particular, we continue to see positive momentum and growth in the West. Offsetting the competitive pressure on revenue growth, our cost synergy and efficiency efforts are producing very strong results. Cable adjusted EBITDA was up 113% and we reported an adjusted EBITDA margin of 56%, up 4.90 basis points year over year. For the full year, cable adjusted EBITDA margins improved 3.30 basis points.

Speaker 3

Cost synergies realized in year totaled $375,000,000 and we exited 2023 at an annualized run rate on cost synergies achieved of $750,000,000 on a target of $1,000,000,000 when we first launched Shaw. We recognize there is more work ahead on bringing our cable business back to positive and healthy organic revenue growth, but we believe we have the right priority focusing on premium services and profitable growth and we are targeting further improvements in 2024. Finally, in our sports and media business, media revenue was down 8% and adjusted EBITDA was a positive $4,000,000 versus $57,000,000 in the Q4 of last year. The decrease in both revenue and adjusted EBITDA year over year was primarily the result of lower sports related revenue, most notably reflecting an extraordinary distribution received from MLB in the Q4 of 2022, which did not repeat in 2023. While the advertising market remains challenged, we believe our high quality media assets and our focus on sports will remain a critical contributor for our sports and media business going forward.

Speaker 3

Ad revenue remains a positive contributor to media revenue growth in large measure as a result of our live sports content. At a consolidated level, Q4 service revenue increased 30 percent and adjusted EBITDA was up by 39%. This resulted in strong margin expansion with adjusted EBITDA margin increasing by 340 points to 44%. Q4 adjusted net income increased 14% to $630,000,000 reflecting the flow of higher adjusted EBITDA. Capital expenditures in the quarter were up 19% year over year to approximately $946,000,000 with almost half directed towards our cable operations.

Speaker 3

The 22% increase in capital expenditures predominantly reflects the acquisition of Shaw. Network and customer investment remains our priority as we deliver on our network expansion efforts, launch new transformative technology products and services and capitalize on growth opportunities in the West. Even with the increase in capital expenditures, we saw our capital intensity decline approximately 100 basis points in the quarter to approximately 18% and after tax free cash flow grew 30% year over year to $823,000,000 These achievements have enabled us to already start paying down our acquisition debt in part with funds from operations. During the Q4, we also committed $475,000,000 for 40 megahertz of 3,800 megahertz spectrum, buying up to our 100 megahertz spectrum cap across 172 regions available under the spectrum auction. The acquired 3,800 Megahertz spectrum complements our industry leading 3,500 Megahertz 5 gs spectrum over Canada's largest 5 gs network covering urban centers, cities and towns and rural and indigenous communities from coast to coast And Rogers continues to hold the largest individual portfolio of wireless spectrum among Canadian telecom operators.

Speaker 3

Payment for this 3,800 megahertz spectrum will be made in 2 installments. Dollars 95,000,000 was paid in January and a final payment of $380,000,000 will be paid in May 2024. Turning to the balance sheet. Our financial position remains very strong. At year end, we had $5,900,000,000 of available liquidity, including $800,000,000 in cash and cash equivalents and a combined $5,100,000,000 available liquidity under our bank credit facilities.

Speaker 3

Our weighted average interest rate on all borrowings is under 4.9% and our weighted average term to maturity is 10 years. We remain very comfortable with the strength of our balance sheet funding and overall liquidity. Our leverage ratio at year end improved to 4.7 times, down from 5.3 times announced at the Shaw close, a pace roughly 6 months ahead of schedule. Delevering remains a critical focus And we anticipate leverage will continue to improve by roughly a half turn through 2024 from a continuation of earnings growth, proceeds from asset sales and from using free cash flow to pay down debt as we work to restore leverage and credit ratings back to pre acquisition levels. Succinctly, prudent capital management, focused execution on cost synergy generation and EBITDA growth, combined with targeted selling of non core assets is working and we are delevering ahead of schedule.

Speaker 3

Once again, I'm very comfortable with our progress on this initiative. In December, we took advantage of an opportune rise in Cogeco's share price and sold our entire holdings in Cogeco for $827,000,000 with the proceeds directly and immediately applied to debt reduction. Additionally, and as previously mentioned, we are in the process of divesting non core assets with targeted proceeds of $1,000,000,000 predominantly real estate assets and targeted to close in 2024. In the Q4, we returned $265,000,000 in dividends to shareholders, of which $190,000,000 was paid in cash and $75,000,000 was paid in Class B non voting shares under our dividend reinvestment program. A participation rate of approximately 28%, generating roughly $300,000,000 in annualized cash preservation.

Speaker 3

On a consolidated basis for the full year, total service revenue grew 27% and adjusted EBITDA grew a healthy 34%. Capital expenditures came in at $3,900,000,000 And free cash flow for the year was over $2,400,000,000 each well in line with our upgraded 2023 guidance. Overall, we are very pleased with our results for 2023. This year was about driving growth and efficiency while executing on our plans to integrate Shaw and delever our balance sheet. From the day we first closed on Shaw, we have prioritized and we have delivered on guidance, on cost synergy generation, on de levering and on market leadership.

Speaker 3

In terms of our outlook for 2024, we are forecasting another year of strong top and bottom line growth and strong underlying free cash flow growth. We anticipate total service revenue growth in the range of 8% to 10% and adjusted EBITDA growth in the range of 12% to 15%, targeting another year of industry leading performance and growth. We anticipate capital expenditures to be in the $3,800,000,000 to $4,000,000,000 range And free cash flow is expected to be in the range of $2,900,000,000 to $3,100,000,000 a very healthy increase from our 2023 cash flow levels and providing substantial and growing heft to our delivery. Our performance over the past 2 years combined with our 2024 outlook reflects a focused company. We will continue to grow to generate strong free cash flow and to delever our balance sheet as we said we would when we announced the Shaw deal almost years ago.

Speaker 3

2023 has been transformative for Rogers, but we are just starting. We delivered strong results and executed very well on the largest telecom acquisition in this country's history. The work effort has been substantial and I want to thank all of the members of our incredible team of professionals who show up each day dedicated to our customers committed to each other. Together, we continue to lead and to strive for more and I'm honored to work alongside each one of them. We accomplished a lot in 2023 and the look ahead for 2024 is bright and full with opportunity.

Speaker 3

Thank you for your time this morning. With that, Ariel, could you please commence the question and answer? Thank you for your attention and time this morning.

Operator

Our first question comes from Drew McReynolds of RBC. Please Our first question comes from Tim Casey of BMO. Pardon me. Our first question comes from Drew McReynolds of RBC. Please go ahead.

Speaker 4

Good morning. Can you hear me okay?

Speaker 2

Yes, we are good, Drew. Good morning.

Speaker 3

Thank you.

Speaker 4

Yes, good morning. So nice to see all the steady progress here. 2 for me, just points of kind of clarification, I guess. On the timing of the remaining synergies, Good to see the higher exit run rates on Q4. The remaining $250,000,000 can you just Speak what's left to go and what you're expecting in terms of timing there?

Speaker 4

And related just to that, the EBITDA growth range of 12% to 15%, what kind of puts and takes kind of get you to the bottom end versus the top end? And then the second question just on the cable side. I think you did kind of 3% down underlying cable revenue growth last quarter. Just wondering what it would have been this quarter and particularly just given kind of the uptick in ARPA that we saw? Thanks.

Speaker 3

Sure. Thank you, Drew. On the remaining synergies, the emphasis continues to be as we've done for 3 quarters now, hold the gains that we've identified and achieved through the last 9 months, carry them throughout the year in 'twenty four and build on them. We are largely through The people part of the integration exercise, we've got our team in place. There will be ongoing tinkering and tweaking here and there in terms of moving people, but that part of the exercise is largely complete.

Speaker 3

We got that done within the first half year, frankly, of the acquisition. We had anticipated a longer run rate on that. So very, very pleased with getting that done in the 1st year. It settles the organization down. We will now be Just on primarily the vendor negotiation part of the exercise, our Cable business is now twice the size and scale that it was pre acquisition.

Speaker 3

And so now we set to work on negotiating with vendors reflecting that scale. And so that's really The largest part of the lift going into 2024, the remaining. We will Look to fill in the $1,000,000,000 targeted synergies as early as possible in year. I anticipate as we exit 2024, We will have achieved the run rate on the full $1,000,000,000 but I'm not going to provide any additional clarity on timing around that. In terms of what impacts could affect us to come in at the higher or lower end of that 12% to 15% EBITDA growth range.

Speaker 3

I'm not going to provide any additional speculation on the positives or the negatives that could come through the year. I think we've shown through 2023 that we've taken a very balanced approach to our operations and our execution that will continue in 'twenty four. We will remain competitive in going after market share and going after cost improvements and efficiencies, as well as continuing to drive revenue growth. On your question on cable revenue growth, we continue to see the decline through the Q4 in the range of 3% on a pro form a basis when you take out the effect of the acquisition. And so that will be a primary focus for us in 2024, Not only going after larger execution on our net additions and customer growth, But also in terms of trying to just turn that revenue decline around as early in the year as we can.

Speaker 3

But that's going to take some time to balance.

Speaker 4

That's great. Thanks for that.

Speaker 1

Great. Thank you, Drew. Next question, Ariel.

Operator

Our next question comes from Tim Casey of BMO. Please go ahead.

Speaker 5

Thanks. 2 for me. Tony, there's been a lot of discussion in the media about Reducing the number of foreign student visas and things like that. And obviously, that's a category that Rogers has been quite strong in. Could you give us some perspective from your seat as to what do you think the impact will be on the loading environment going forward as these changes flow through?

Speaker 5

And then second, you mentioned very briefly about some network slicing. What's the narrative on 5 gs in full deployment? Know you're not going to be putting the 3,800 in use this year, but how are you are you seeing anything on the enterprise side or anything that's change the narrative on 5 gs and we will start to see some incremental revenues there? Thank you.

Speaker 2

Thanks for the questions, Tim. In terms of the first question on foreign students and the government statements on that, If you look at 2023 in terms of wireless growth, our estimate is that the total market grew over 5%. And so in and that growth was driven roughly half by penetration increases and the other is new to Canada category for the other half. And so both individually are growing at pretty robust rates. With the announcement of the government, we still expect, based on what we continue to see, market growth rates in total that exceed 4% and probably closer to 4.5%.

Speaker 2

So still a very healthy market growth And so we expect to continue to lead in market share. And so we see the impact. I wouldn't describe it as not there. There will certainly be an impact, but we see it as small in the context of the overall market growth. On the second question relating to Our announcement today on slicing, network slicing on our standalone 5 gs core network and the 2 of them sort of go hand in hand.

Speaker 2

And the applications are really going to revolve around a number of different use cases, including enterprise, as you said. The one we're really excited about Certainly is improving the network clarity for first responders and making sure they have priority. But the second is what it does for our fixed wireless access deployment strategy and creating that capacity for that initiative. We do continue to see applications on the enterprise side, But I would say that's secondary. And some of those have what you'll start to see is probably by mid year, Some of those applications come on board and we'll share some of that stuff in future calls.

Speaker 2

Thank you.

Speaker 1

Thanks, Tim. Next question, Ariel.

Operator

Our next question comes from Sebastiano Petti of JPMorgan. Please go ahead.

Speaker 6

Hi, thank you for taking the question. Just perhaps a quick follow-up to both Drew and Tim's kind of question line of questions here. But Just thinking about in terms of the team's view on relative share performance expectations as we move into 2024, I think you sound pretty confident on leading on share once again. But Yes. Against the backdrop of the industry, how are you thinking about the balance between perhaps rate versus volume and therefore service revenue growth Fort Rogers in 'twenty four and beyond.

Speaker 6

And follow-up as well on Cable, I think great to hear about Alberta and BC. Glenn, I think you said still kind of intimating that ARPA or just trying to get back to that revenue growth, what are the drivers to get there? Obviously, headlines about price increase rate increases earlier in the year. Is it more of

Speaker 4

a function of volume?

Speaker 6

What are the other, again, kind of pieces to the growth algorithm as we kind of get back to cable revenue over the course of 'twenty four? Thank you.

Speaker 2

Thanks for the question, Sebastiano. I'll start with the first one in terms of our share performance, and I take it you're referring To wireless, yes, the drivers of success have really been a number of factors that have helped the execution. But again, it's against the backdrop of a very strong growing market that we've really leaned in on our distribution channels, the simplicity of the customer experience, a number of other value offerings we've surrounded the customer with, including we launched in Q4, the ability for customers to amortize their smartphone purchase on our Rogers credit card over 4 years effectively cutting payments in half. And so there's all those things around, as I said, the best in class distribution channel. The second piece of it relates to how we do in various Market segments, and there's 2 comments there that are worth highlighting.

Speaker 2

Certainly, in the new to Canada category, we continue to dominate market share and it's something we've been paying attention to over several years. And you're seeing what I would describe as that selling infrastructure Continuing to outperform, certainly we expect continued competition in that base, but we feel fairly confident about our performance there. And then the last piece I'd make is underlying all that is Our execution of a move to the Rogers Premium brand, we stated we were moving towards that several years ago. And so what you see happening is, this is our strongest quarter of performance on the Rogers brand when you look at relative share. And so our strategy of focusing on the premium brand in both wireless as well as in cable is paying out well for us.

Speaker 3

And then Sebastiano, on your second question around our focus and emphasis On reversing the revenue trend within our wireline business, cable is a scale business And similar to wireless, if you look at wireless, that scale is tremendously powerful when you execute correctly and focus on real growth. You've mentioned, is it going to turn on price increases? Really, the emphasis here is on better execution around growing the subscriber net in the subscriber base, leaning in on better execution around customer service, growing our network footprint, continuing to make gains, particularly in the West around growing our competitive offerings within the West and growing the net adds. And so the emphasis here really is in particular on growing the underlying business volume rather than anything else. It comes down to execution and taking advantage the scale that really was the original promise in the acquisition initiative.

Speaker 3

And so that's what we're

Speaker 6

If I can quickly follow-up Tony, just on the wireless side, but as Rogers obviously done a great job migrating to the premium brands, you talked about the underlying growth ex the migration of Shaw mobile subs. But As we think just thinking again just on the service revenue, is it

Speaker 4

going to be similar kind of P times Q equation as we think about 24, do

Speaker 6

you think that we could perhaps see an ARPU improvement, ARPU acceleration as you get the business take advantage of the goodness of the premium brand migration in 'twenty three. So that's just how I'm trying to think about it.

Speaker 2

Yes. The way we think about it, Sebastiano, is, to use your term, the p times q, We continue to see very healthy growth on the queue or number of subscribers. In terms of ARPU, What we see is opportunity for ARPU growth, but it's marginal. It will be in a solid 1% this year and we'll need to continue to see the market dynamics, but I don't want to over lead on the ARPU side of it.

Speaker 6

Thanks again.

Speaker 1

Thanks, Sebastiano. Next question, Ariel.

Operator

Our next question comes from Vince Valentini of TD Cowen. Please go ahead.

Speaker 7

Thanks very much. Hoping I can get 2 clarifications in and then a question. Glenn, are you were you deliberate in your commentary on the $1,000,000,000 of asset sales It'll happen sometime in 2024 as opposed to you had been signaling by the middle of the year before?

Speaker 3

Some we will close in the first half of the year, some might fall into the second half. We will execute at the earliest possible opportunity. Remains on pace with what we had tried to signal, Vince. So I'm not looking to try change any of the messaging. I'll be happy if we continue at pace with where we are today And we will continue to work that file ongoing through this year and beyond.

Speaker 7

No, Fair enough. The clarification for Tony, you mentioned the over 5% of greater Wireless Industry Growth in 2023, Rogers obviously did better than that in the range of 6%. So When you say market 4% to 4.5% going forward, I assume you're still talking about the industry and your hope would be Rogers does better than industry?

Speaker 2

That's right, Vince. The 4% to 4.5%, I would say is conservative in terms of our estimate. And So that's one to note. And 2, we expect to continue to lead with strong market share. And so that underlies, how we think about top line growth for wireless for this year, which ladders up to our consolidated guidance.

Speaker 7

Wonderful. The bigger question I have, I'm surprised it hasn't come up yet is, I mean, churn, this is the highest churn we've seen in a long time. You seem to have managed around it with gross adds and ARPU and EBITDA all in good shape. But does this level of 1.67% concern you? Is there something going on with competition in the industry that will keep churn this high?

Speaker 7

Or is there a way you can work to try to get it back down. And I'm wondering if you can help us link the cost of churn. It doesn't show up and EBITDA seemingly, but your equipment receivables were up quite significantly, $433,000,000 versus $300,000,000 something in the Q4 of last year. Is that where you see the pain of having to subsidize more Gross adds a bit with the receivables? Thanks.

Speaker 2

Thanks for that. Excuse me, follow-up, Vince. It's important to unpack the churn. I'll jump to the punch line, which is we're not concerned about what we're seeing on churn and it's for a few different reasons. It's helpful to sort of unpack what you're seeing.

Speaker 2

What we saw in the Q4 was a heightened level of what I would call promotional activity in the bottom end of the market, largely around flanker. We chose to focus And not that we neglected that segment, but our focus was on the premium. So when you look at gross adds for us, they're up significantly year on year. The vast, vast majority of those came in on the Rogers brand. And if we were to look at churn, there's really 2 things there.

Speaker 2

1 is, Most of it for us came on the Fido brand. But equally, the other part you're seeing, because we do extremely well in New to Canada, and in particular, foreign students and temporary workers, what you're seeing is a phenomenon as They come in and out of the country, that's driving, excuse me, a healthier gross add, But you're seeing those churn numbers come through as well. And so that's equally an impact. And so net net, We sort of look at it and say, as long as we continue to lead on net, we've got the right balance across our various brands to ensure we've got robust ARPU as well. The second piece of it, Vince, that you've highlighted, the cost of switching has come way down for us.

Speaker 2

Cost of acquisition has become much more efficient. If you were to look at margin on equipment, for example, In the Q4, it was slightly positive in terms of margin compared to $12,000,000 cost to us in Q4 of 2022. So handset subsidy and cost ends up being neutral to slightly more positive. And as I said, the cost of transaction on acquisitions continue to come down continues to come down, and you see that Notwithstanding the substantially higher volumes year on year, a nice margin improvement in our wireless business of 70 basis points.

Speaker 7

That's excellent, Tony. So just to make sure I'm clear, you the 1.67 is not a level that you think was behavior by Freedom or any other flanker brand, something you need to retaliate against, you're comfortable that this is A manageable figure that

Speaker 6

you can work around?

Speaker 2

We're not concerned about it. I'll add as the final point, as we look to Q1 and we're a month into it. I would say we do see continue to see Heightened churn on a year on year basis, but much less in terms of year on year, as you would expect. And so, Again, not concerning for us.

Speaker 4

Thank you.

Speaker 1

Great. Thanks Vince. Next question, Ariel.

Operator

Our next question comes from Maher Yaghi of Scotiabank. Please go ahead.

Speaker 8

Great. Thank you for taking my question. And if you can permit me with 2 clarifications like Vince had And a real question. So just on the clarification question on, can you provide, Glenn, if you can, the pro form a growth Rates on EBITDA for Cable and Wireless excluding the acquisition of Shaw. I know it's going to start to become less and less relevant going forward, but we're still transfixed on that, I guess, The Street.

Speaker 8

Also, if you can maybe clarify The reporting dynamics over the 182,000 Internet subscribers that you took out from your reporting Related to the FIDO Internet subscribers, how do these changes affect ARPA and the net adds? Are they showing up somewhere else now or they're just not being reported? And I'll wait and ask my real question after. Thank you.

Speaker 2

Okay. Meryl, I'll start with the second question relating to Fido, because it aligns with the strategy we've talked about of consolidating to the Rogers brand. So in Internet in our base, roughly 4% of our total base, so we're talking a real small number of Fido customers. What we've done because we discontinued that brand, the accounting is to take it out of the base. It doesn't mean We are writing off those customers or ignoring those customers.

Speaker 2

We will actively look to migrate those customers to the Rogers premium brand and we'll account for those as base adjustments. So it has an immaterial impact on ARPA and it has an it had an immaterial impact on our Internet net adds. What you saw in the Internet net adds was not impacted by what I would call that disclosure change.

Speaker 3

And then Maher, on your question around what our adjusted or pro form a or organic growth rates have been across wireless and cable. Within wireless, the Shaw Mobile customers really had limited impact On the year over year growth rates, when you roll it through the entire business and just the scale of customers, That was really limited. And so you've seen consistently through the year similar in the Q4. The Q4, we had 9% revenue growth, 10% EBITDA growth, that was I would peg around those numbers. That was largely unaffected by the Shaw Mobile ads that happened throughout the 9 months from closing on shop, most notably in the second half of the year.

Speaker 3

On cable, what you see on an adjusted basis for the transaction is 3% revenue decline and Roughly a 12% pro form a growth in EBITDA, largely driven by the cost synergy achievements that we've realized to date. Does that help?

Speaker 8

Yes. Thank you very much. And Just my question, the more broad question, I wanted to ask you, Tony. I mean, Rogers has been, I think, Definitely betting getting more than fair market share on Immigration, new Canadians coming into Canada. But I need to ask you, I mean, those stores that you in the West, the Shaw stores, I'm sure you're using them a lot more to sell wireless now combining cable and wireless selling into those stores, how much that retail position that you grabbed by the acquisition is helping you increase your market share loading in Western Canada in wireless specifically.

Speaker 8

And around Also that strategy, you're deemphasizing Fido, moving a lot of your customer base to Rogers. Can you explain the cost savings that you or give us some views on the cost savings that you're going to get through that change in how you sell your product? Thank you.

Speaker 2

Thanks, Meyer. Let me clarify at the outset you made the comment we're getting more than our fair share. I would characterize it as we're getting the share we deserve we earn every day. Canadians have choice and they're making their choice. And so that's one.

Speaker 2

In terms of how that's playing out in our stores in the West, I would say more broadly and we've talked about this on previous calls. We are expanding our retail locations to more and more cross sell on the bundle and make it easier for the customer to purchase their home Internet and entertainment services at our retail locations. And so certainly with the closing of Shaw, that was a big advantage to us to rebrand the Shaw stores to Rogers and increase the penetration of the bundled sale. I would say, it continues to be early days on that and we're underpenetrated in terms of bundle. And so we look that to be a good growth opportunity for us in promoting strong sales certainly in wireless, but importantly on the Internet side, which is, I would say is just at the beginning of acceleration.

Speaker 2

And then the final point in our brand consolidation strategy and what it means for our cost structure, it's a bit too premature to start sharing that type of stuff. You're certainly seeing some of it come through in our wireless margin expansion and leading industry margins already, but I'm not prepared to start quantifying the different pieces of

Speaker 3

Thank you.

Speaker 8

Thank

Speaker 1

you. Yes, thanks, Meyer. Next question, Ariel.

Operator

Our next question comes from Stephanie Price of CIBC. Please go

Speaker 9

ahead. Good morning. I wanted to focus in on the CapEx guidance and I was hoping you could talk a little bit of the buckets of CapEx investment here, whether it's 5 gs, DOCSIS, and whether we can see any CapEx synergies with in the guide and maybe more broadly how you think about network investments internally and what percentage of the CapEx envelopes you think about growth versus just baseline?

Speaker 3

Thank you, Stephanie. Good morning. I think if I could Maybe not give you quite the specifics that you are looking for, but just in general, we remain committed on investing more and more of our annual capital spend in network infrastructure and hard infrastructure as opposed to other projects and so that continues. The impact of the Shaw acquisition allows better efficiencies certainly in terms of how far those dollars go. I'm not going to give any particular clarity to that.

Speaker 3

The $1,000,000,000 of targeted synergy savings. Those are just on the cost side, but we do see benefits that also accrue on Capital spend as a result of the scale. We've now got twice the route kilometers of network roughly from the acquisition on the wireline side. And so our service contracts, our gear purchases, Those all we lean in on negotiating the rates. Those all reflect now a roughly 2x volume and we drive the savings that you would anticipate in those negotiations.

Speaker 3

That will continue in 2024. And so I anticipate gains that come from that. You can see from our guidance, we still intend invest significantly this year in the range similar to what we had in 2023 and that is predominantly on expanding our coverage and our footprint.

Speaker 9

Thanks. And then just for my second question. Tony, your prepared remarks mentioned expanding fixed wireless nationally. Just curious how you're thinking about fixed wireless Is it just for remote regions or could we see Rogers rolling it out more broadly as we've seen in the U. S?

Speaker 2

You're going to see us do, we launched it, I would say, on a soft launch a little while ago in the Q4, And now we're expanding that to a more robust offering. It is national and It may include urban, but it is focused on rural for the most part, but also where we don't have a wireline footprint. So we cover 2 thirds of the country with our wireline cable footprint. And there's 1 third that we don't cover with wireline. And so what you'll see us focus on is fixed wireless access in those markets as well as TPIA.

Speaker 2

We purchased CommWave in the 4th quarter and that allowed us platform to be able to sell home Internet and products that we could bundle with what is already our national coverage on wireless. So that's how you bridge on wireless. So that's how you should think about that strategy. And that's why this network slice is an important component of that.

Speaker 10

Thank you.

Speaker 1

Thanks, Stephanie. Next question, Ariel.

Operator

Our next question comes from Jerome De Bruel of Desjardins. Please go ahead.

Speaker 6

Hey, good morning. Thanks for taking my questions. The first one is a follow-up to Stephanie's questions on network slicing and what it allows you to do in terms of Thanks, wireless. A clarification on your comment on Yurbin. I would imagine that's more when you don't have Cable, right?

Speaker 6

And then the second one on this, is what does that mean in terms of your potential investments in wireless capacity?

Speaker 2

Thanks for the question, Jerome. So in terms of slicing, think about it as The offer is out there for customers and they'll always get Better network performance with our cable network depending on where they're located. But for they're looking for ease of, and it might be, for example, the use cases that we're seeing more and more of where there are foreign students that are here temporarily. And so the off and on of the Internet, Wi Fi experience within their dorm or apartment, etcetera, is a lot easier with FWA. And so it's a much easier process and a much more inexpensive process to come on and off.

Speaker 2

And so that's we're thinking very smartly about how we deploy it in urban. But as I said, rural is 1, but the areas like Southwest Ontario and Quebec that we don't serve are key markets for us as we look to that. In terms of what it means for wireless CapEx, It's within our envelope. And but frankly, the biggest enabler of fixed wireless access performance is going to be more spectrum. And so we look forward to the government's plans on making more spectrum available.

Speaker 2

That's one of the biggest differences between the Canadian and U. S. Markets. The U. S.

Speaker 2

Telecom industry just has more capacity of spectrum available to it. And as we catch up, I think that will be a terrific growth product for us.

Speaker 6

That's good color. Second question I have is whether investments in DOCSIS 4.0 are included in this CapEx guidance, what possibly what will be done in terms of DOCSIS 4.0 within that guided CapEx envelope this year?

Speaker 2

I'll start with the first part from a technology strategy standpoint. We've said and continue to be on the path to work hand in hand with our U. S. Cable partners in the evolution of 10 gs and DOCSIS 4. And so we've, in anticipation of that, have been working aggressively on mid to high split into our network.

Speaker 2

The West is largely done and we're now focused on the East, which will make significant headway this year on that. And that's a precursor to DOCSIS 4, which of the U. S. Players are already in trial mode. You will have seen that.

Speaker 2

And you expect us to move to trial mode by mid year roughly Pending on CPE availability, that's the biggest capacity constraint for us. And So that's on the strategic side and I'll let Glen talk to where it fits in the capital envelope for Cable.

Speaker 3

Yes. I think just succinctly it is part of our priorities and initiatives in that $3,800,000,000 to $4,000,000,000 CapEx guidance we've given. And so that's one of the key initiatives in the modernization of our network plant that's just always

Speaker 6

ongoing. Great.

Speaker 1

Thank you, Jerome.

Speaker 8

Thank

Speaker 1

you. Next question, Ariel.

Operator

Our next question comes from Aravinda Galappatthige of Canaccord. Please go ahead.

Speaker 11

Good morning. Thanks for taking my questions. A quick clarification. I think it was Glenn you mentioned close to 1% ARPU growth adjusted for the Shaw wireless subs. Can you just talk to the impact that international roaming had on it, was it positive, negative, was it material?

Speaker 11

And then secondly, just going back to the cable topic, In terms of sort of sequential improvement, I know that you said that stabilization maybe right at this point, you really can't talk about time lines. But In terms of sequential improvement, any markers you can give? And I'm trying to understand the extent to which the competitive intensity, even in Ontario, is affecting that negative 3% number? And are you seeing any sort of easing there that can kind of help the cause? Thanks.

Speaker 3

Thank you, Aravinda. On the 1% ARPU growth, the Roaming, it's seasonal and we still see ongoing impact from roaming, but really that's in terms of year over year changes, that's largely washed through at this point. The 1% growth really is largely focused on base management, emphasis on Our premium brand, that type of execution rather than any exogenous shock from international roaming either ads or otherwise. And then on the competitive intensity, I'll leave that for Tony to jump in on cable.

Speaker 2

Aravinda, on the cable, if I understand your question, you're really asking what's going to be catalyst for top line growth. And the decline you see is really market share declines in previous years that are flowing through. And so the primary catalyst you should look to us is penetration and market share gains. And as I said, as we continue to work on a number of things, certainly, the distribution channels we've talked about but continuing to have leading product, best Internet. Those are going to be the catalysts that are going to be the big drivers of return to revenue growth.

Speaker 2

And you'll see a number of things coming from us in terms of product, Certainly, the 10 gs DOCSIS 4, but in term but also the entertainment experience. And as we continue to work closely with Comcast and the Xfinity platform, There are next generation launches that you'll start to see and we're Quite confident about the prospects of that.

Speaker 11

Okay. Thank you.

Speaker 1

Yes. Thanks, Aravinda. Aero, we'll do 3 more quick questions, please.

Operator

Our next question comes from Batya Levi of UBS. Please go ahead.

Speaker 10

Great. Thank you. Just a couple of quick follow ups. One on the wireless churn side. It'd be helpful to just get a sense on how churn looks for the Rogers brand only and how that compares to the year ago period.

Speaker 10

And on the competitive intensity, you mentioned it was pretty heightened. Did we see a return to more normal levels in January? And how do you expect the recent price increases to impact churn? Thank you.

Speaker 2

I'll start with the second part of your question. In terms of what I would describe as competitive intensity in the 4th quarter, certainly saw that's the traditional period, as we all know, for promotional activity. And what you typically see just because the market quiets down in January, that you see some of that Promotional activity dissipate and that's what you've seen happening this January as is typically the case. Your second part of the question or first part of the question related to churn, And I would say we're really pleased with the churn dynamics we see on the Rogers brand. And Rogers' churn would be substantially lower than Fido Churn for a number of different reasons, but it really speaks to our focus on the lifetime value of that customer segment and but one of which you see in the ARPU growth.

Speaker 10

Got it. Thank you.

Speaker 1

Thank you, Batya. Next question, Ariel?

Operator

Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

Speaker 6

Great. Thank you very much. Good morning. You had mentioned having 2 thirds of the country covered by wireline. I think in the past you've talked about an opportunity in enterprise With that added scale, if you've got any updates on that side?

Speaker 6

And then interested in your satellite direct to device How do you see the business model for that? Is that going to be a sort of a charge per text or some monthly subscription, any thoughts there about the financial opportunity that presents?

Speaker 2

Coming on the satellite to mobile phone second part of your question, we're not prepared to talk about the pricing strategy yet on that. And so I would just park that. The first part of it is on the enterprise synergy. So Two things you should separate in your mind. From a consumer standpoint, we cover twothree of homes passed in Canada with our cable footprint.

Speaker 2

But on the enterprise side, we have been over a long period of time investing in a national fiber network that connects where it needs to with our existing cable network. And so we are national on enterprise even more so with concluding the Shaw transaction. And we're starting to see good healthy growth rates in the double digits on our enterprise side, that we're quite pleased with. So we're seeing those, what I would call revenue synergies already starting to happen.

Speaker 3

I think maybe if I just add to that, the opportunity there is maybe on the cost synergy side. As Tony said, with the acquisition, we now have more fiber assets to bring in house rather than through a third party where we've needed supplement and so that's part of the cost synergy opportunity that we can then lean in on.

Speaker 6

Makes sense. Thanks.

Speaker 1

Thank you, Simon. Ariel, one more time for one more question, please.

Operator

Certainly. Our final question comes from David McFadgen of Cormark. Please go ahead.

Speaker 4

Okay, great. Thanks for squeezing me in. Just two quick questions. Tony, when you talked about your growth, you said Alberta and BC are your fastest growing markets. Are you Speaking primarily about the wireless business, so did that also extend to cable?

Speaker 4

And then secondly, just a quick question for Glenn. When I look at the working capital in 23 had an outflow of $627,000,000 It's obviously a big number. I was wondering, can you recover some of that In 'twenty four or do you think that that was just needed now to sustain the business as it is? Thanks.

Speaker 2

David, real quick. On Alberta and BC growth, we're seeing it in both, Certainly in wireless, but we're also seeing a very healthy return to growth on the home product side that we're quite pleased with.

Speaker 3

And then David on your question on working capital, working capital is always a target for capital efficiency for us. I would point out that year over year, we do have the impact of the Shaw acquisition rolling through in 2023 that you would not have seen in the prior year end of 2022. And so that's part of the increase, but we focus on that with particular enthusiasm around managing our inventory levels, managing our delivery schedules and the like that's ongoing. I'm happy with progress that we've made through the year. The scale side of this, that will be up year over year just because of the Shaw acquisition, But I'm never satisfied with that level.

Speaker 3

That's always an ongoing priority file.

Speaker 8

Okay. All right. Thanks.

Speaker 3

Thank you, David.

Speaker 1

Thank you, David. And thank you for joining us on our call. And if there's any follow ups, Please feel free to reach out

Speaker 3

to the IR team. Thank you. Thank you.

Operator

This concludes today's conference call. You may disconnect your lines.

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Kinder Morgan Q4 2023
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