- Total revenue growth of 3% and adjusted EBITDA growth of 8%
- Strong financial and operational performance in Wireless
- Service revenue growth of 5% and adjusted EBITDA growth of 8%, margin expansion of 90 basis points
- Postpaid net additions of 124,000
- Postpaid churn of 1.09%, improved 7 basis points — best Q3 postpaid churn in 9 years
- Blended ABPU increased 4% and blended ARPU increased 3%
- Cable revenue growth of 1% and adjusted EBITDA growth of 4%, margin expansion of 160 basis points
- Continued strong Internet revenue growth of 8%
- Internet net additions of 35,000, up 6,000
- Increasing full-year 2018 guidance for adjusted EBITDA growth to 7% to 9% and for free cash flow growth to 5% to 7%
TORONTO, Oct. 19, 2018 /PRNewswire/ - Rogers Communications Inc. today announced its unaudited financial and operating results for the third quarter ended September 30, 2018 in accordance with IFRS 15, Revenue from contracts with customers (IFRS 15). We have separately provided supplementary financial information at investors.rogers.com that also provides our results under the prior accounting basis.
Consolidated Financial Highlights
"We delivered strong results and continued momentum in the third quarter," said Joe Natale, President and Chief Executive Officer. "In Wireless, we delivered excellent financials and the best Q3 postpaid churn in nine years. In residential, we delivered solid Internet growth and launched our market awareness campaign for Ignite TV, our world-class all-IPTV service that is truly unmatched in our market today. We are pleased with our progress and confident in the future of this roadmap. Given our strong year to date performance, we are raising our full-year guidance."
Total revenue increased 3% this quarter, largely driven by Wireless service revenue growth of 5%. Growth in Wireless was a result of our balanced approach to continue monetizing the increasing demand for data along with a disciplined approach around subscriber base management. Wireless equipment revenue grew 11% this quarter driven by increased hardware upgrades.
Cable revenue increased 1% this quarter as Internet revenue growth of 8% continued to drive the Cable segment. This quarter, we had net additions of 35,000 for Internet.
Media revenue decreased 5% this quarter primarily as a result of lower revenue at the Toronto Blue Jays.
Higher adjusted EBITDA and margins
This quarter, adjusted EBITDA increased 8%, a margin expansion of 180 basis points. This increase was driven by Wireless adjusted EBITDA growth of 8%, with a combination of strong growth in Wireless revenue and continued progress on our cost efficiency mandate, which led to a margin of 47.1%, up 90 basis points from last year.
Cable adjusted EBITDA increased 4% this quarter primarily from the ongoing product mix shift to higher-margin Internet services and various cost efficiencies achieved, despite the significant increase in customers we activated. As a result, this gave rise to a margin of 49.8% this quarter, up 160 basis points from last year.
Media adjusted EBITDA increased 20% this quarter primarily as a result of lower operating expenses from improvements we made to our cost structure across the divisions, which led to a margin of 15.0%, up 320 basis points from last year.
Higher net income and adjusted net income
Net income and adjusted net income increased this quarter by 17% and 13%, respectively, as a result of higher adjusted EBITDA, partially offset by the higher associated income tax expense and higher depreciation and amortization.
Substantial cash flow affords financial flexibility and supports network evolution
We continued to generate substantial cash flow from operating activities of $1,304 million this quarter and free cash flow of $550 million. Cash flow from operating activities decreased by 5% as a result of lower net funding provided by working capital items, partially offset by higher net income and lower cash interest. Free cash flow increased by 5% as a result of higher adjusted EBITDA, partially offset by our planned increase in capital expenditures driven by investments in our wireless and cable networks.
Our solid financial results enabled us to continue to make investments in our network, strengthen our balance sheet and liquidity, and still return substantial dividends to shareholders. We paid $247 million in dividends this quarter. We ended the third quarter with a debt leverage ratio of 2.5, down from 2.7 at the end of 2017.
We are increasing our guidance ranges for full-year 2018 consolidated adjusted EBITDA and free cash flow from the original ranges provided on January 25, 2018 and, on April 19, 2018, subsequently presented with the impact of transition to IFRS 15 on our 2017 results. The revised guidance ranges are presented below. The upward adjustments primarily reflect the strong growth in our Wireless segment this year. Our guidance ranges for revenue and capital expenditures remain unchanged. Information about our guidance is forward-looking and should be read in conjunction with "About Forward-Looking Information" in this earnings release, including the various assumptions underlying it, and in our 2017 Annual MD&A and the related disclosure and information about various economic, competitive, and regulatory assumptions, factors, and risks that may cause our actual future financial and operating results to differ from what we currently expect.
Our six company priorities guide our work and decision-making as we further improve our operational execution and make well-timed investments to grow our core businesses and deliver increased shareholder value. Below are key highlights for each priority.
Create best-in-class customer experiences by putting our customers first in everything we do
- Delivered postpaid churn of 1.09%, our best third quarter result since 2009.
- Reduced customer calls and increased digital adoption.
- Reduced friction for our customers and improved over 100 of our customer processes.
Invest in our networks and technology to deliver leading performance and reliability
- Signed a three-year, multi-million-dollar deal with the University of British Columbia (UBC) to build a real-world 5G hub on the UBC campus as a testbed and blueprint for made-in-Canada 5G innovation.
- Signed master agreements for small cells with national and regional suppliers.
Deliver innovative solutions and compelling content that our customers will love
- Launched phased advertising and an awareness campaign for Ignite TV across our Ontario cable footprint.
- Launched CityNews in Vancouver, Calgary, and Montreal, expanding the brand to key markets across the country.
- Launched Toronto Blue Jays games in Tagalog on OMNI Television, expanding the unique programming offerings to Canada's ethnic and third-language communities.
Drive profitable growth in all the markets we serve
- Increased total revenue by 3%, largely driven by Wireless service revenue growth of 5%.
- Adjusted EBITDA increased by 8%, with a margin expansion of 180 basis points.
- Generated free cash flow of $550 million and ended the third quarter with a debt leverage ratio of 2.5, down from 2.7 at the end of 2017.
Develop our people and a high performance culture
- Recognized as one of Canada's 50 Most Engaged Workplaces for 2018 by Achievers in August 2018.
Be a strong, socially responsible leader in our communities across Canada
- Announced a $1 million donation to the Jays Care Foundation for programs to support children and youth.
- Engaged with 30 new partners to expand our low-cost high-speed Internet program Connected for Success to 280 non-profit housing providers or cooperatives.
- Donated $25,000 to the Red Cross to support those impacted by tornadoes and severe weather in the National Capital Region during September 2018; our local radio raised an additional $15,000 at a benefit concert.
Rogers is a leading diversified Canadian communications and media company. We are Canada's largest provider of wireless communications services and one of Canada's leading providers of cable television, high-speed Internet, information technology, and telephony services to consumers and businesses. Through Rogers Media, we are engaged in radio and television broadcasting, sports, televised and online shopping, magazines, and digital media. Our shares are publicly traded on the Toronto Stock Exchange (TSX: RCI.A and RCI.B) and on the New York Stock Exchange (NYSE: RCI).
Quarterly Investment Community Teleconference
Our third quarter 2018 results teleconference with the investment community will be held on:
- October 19, 2018
- 8:00 a.m. Eastern Time
- webcast available at investors.rogers.com
- media are welcome to participate on a listen-only basis
A rebroadcast will be available at investors.rogers.com for at least two weeks following the teleconference. Additionally, investors should note that from time to time, Rogers' management presents at brokerage-sponsored investor conferences. Most often, but not always, these conferences are webcast by the hosting brokerage firm, and when they are webcast, links are made available on Rogers' website at investors.rogers.com .
For More Information
You can find more information relating to us on our website (investors.rogers.com ), on SEDAR (sedar.com ), and on EDGAR (sec.gov ), or you can e-mail us at email@example.com . Information on or connected to these and any other websites referenced in this earnings release is not part of, or incorporated into, this earnings release.
You can also go to investors.rogers.com for information about our governance practices, corporate social responsibility reporting, a glossary of communications and media industry terms, and additional information about our business.
About this Earnings Release
This earnings release contains important information about our business and our performance for the three and nine months ended September 30, 2018, as well as forward-looking information about future periods. This earnings release should be read in conjunction with our Third Quarter 2018 MD&A; our Third Quarter 2018 Interim Condensed Consolidated Financial Statements and notes thereto, which have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB); our 2017 Annual MD&A; our 2017 Annual Audited Consolidated Financial Statements and notes thereto, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB; and our other recent filings with Canadian and US securities regulatory authorities, including our Annual Information Form, which are available on SEDAR at sedar.com or EDGAR at sec.gov , respectively.
Effective January 1, 2018, we adopted new accounting standards, as discussed in our Third Quarter 2018 MD&A.
For more information about Rogers, including product and service offerings, competitive market and industry trends, our overarching strategy, key performance drivers, and objectives, see "Understanding Our Business", "Our Strategy, Key Performance Drivers, and Strategic Highlights", and "Capability to Deliver Results" in our 2017 Annual MD&A.
We, us, our, Rogers, Rogers Communications, and the Company refer to Rogers Communications Inc. and its subsidiaries. RCI refers to the legal entity Rogers Communications Inc., not including its subsidiaries. Rogers also holds interests in various investments and ventures.
All dollar amounts are in Canadian dollars unless otherwise stated and are unaudited. All percentage changes are calculated using the rounded numbers as they appear in the tables. Information is current as at October 18, 2018 and was approved by the Audit and Risk Committee of RCI's Board of Directors (the Board) on that date. This earnings release includes forward-looking statements and assumptions. See "About Forward-Looking Information" for more information.
In this earnings release, this quarter, the quarter, or third quarter refer to the three months ended September 30, 2018, first quarter refers to the three months ended March 31, 2018, second quarter refers to the three months ended June 30, 2018, and year to date refers to the nine months ended September 30, 2018 unless the context indicates otherwise. All results commentary is compared to the equivalent periods in 2017 or as at December 31, 2017, as applicable, unless otherwise indicated.
We report our results of operations in three reportable segments. Each segment and the nature of its business is as follows:
Wireless and Cable are operated by our wholly-owned subsidiary, Rogers Communications Canada Inc. (RCCI), and certain of our other wholly-owned subsidiaries. Media is operated by our wholly-owned subsidiary, Rogers Media Inc., and its subsidiaries.
Effective January 1, 2018, we redefined our reportable segments as a result of technological evolution and the increased overlap between the various product offerings within our legacy Cable and legacy Business Solutions reportable segments, as well as how we allocate resources amongst, and the general management of, our reportable segments. The results of our legacy Cable segment, legacy Business Solutions segment, and our Smart Home Monitoring products are presented within a redefined Cable segment. Financial results related to our Smart Home Monitoring products were previously reported within Corporate items and intercompany eliminations. We have retrospectively amended our 2017 comparative segment results to account for this redefinition.
Additionally, effective January 1, 2018, we commenced using adjusted EBITDA as the key measure of profit for the purpose of assessing performance for each segment and to make decisions about the allocation of resources. This measure replaced our previous adjusted operating profit non-GAAP measure. We believe adjusted EBITDA more fully reflects segment and consolidated profitability. The difference between adjusted operating profit and adjusted EBITDA is that adjusted EBITDA includes stock-based compensation expense. Use of this measure changed our definition of free cash flow. Adjusted EBITDA and free cash flow are non-GAAP measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under IFRS and do not have standard meanings, so may not be a reliable way to compare us to other companies. See "Non-GAAP Measures" for information about these measures, including how we calculate them.
Summary of Consolidated Financial Results
Results of our Reportable Segments
Wireless Financial Results
Wireless Subscriber Results 1
The 5% increases in service revenue this quarter and year to date were a result of:
- 3% increases in blended ARPU this quarter and year to date, primarily due to the increased mix of subscribers on higher-rate plans from our various brands; and
- a larger postpaid subscriber base.
The 4% increases in blended ABPU this quarter and year to date were a result of the increased service revenue as described above.
Gross and net postpaid subscriber additions this quarter were 418,000 and 124,000, respectively. We believe these figures have decreased marginally from the same period last year as a result of a highly competitive market this quarter along with our disciplined approach around subscriber base management. We believe the lower postpaid churn this quarter and year to date were a result of our strategic focus on enhancing the customer experience by improving our customer service and continually increasing the quality of our network.
The 11% increase in equipment revenue this quarter was a result of:
- an increase in sales of higher-value devices; and
- an increase in device upgrades by existing subscribers.
In addition, year to date equipment revenue increased 17% due to higher postpaid gross additions.
Cost of equipment
The 8% increase in the cost of equipment this quarter was a result of:
- a shift in the product mix of device sales towards higher-cost smartphones; and
- the increase in device upgrades by existing subscribers.
In addition, year to date cost of equipment increased 14% due to higher postpaid gross additions.
Other operating expenses
The 1% increase in other operating expenses this quarter was a result of investments in frontline employees. The 2% decrease year to date was a result of various cost efficiencies and productivity initiatives.
The 8% increase in adjusted EBITDA this quarter and 11% increase year to date were a result of the strong flow-through of service revenue growth discussed above.
Cable Financial Results
Cable Subscriber Results 1
The 1% increases in revenue this quarter and year to date were a result of:
- the movement of Internet customers to higher speed and usage tiers;
- the impact of service pricing changes; and
- a larger Internet subscriber base; partially offset by
- promotional pricing provided to subscribers; and
- a lower subscriber base for our Television products.
The 8% increases in Internet revenue this quarter and year to date were a result of:
- general movement of customers to higher speed and usage tiers of our Internet offerings;
- the impact of Internet service pricing changes; and
- a larger Internet subscriber base; partially offset by
- promotional pricing provided to subscribers.
The 5% decrease in Television revenue this quarter and 4% decrease year to date were a result of:
- the decline in Television subscribers over the past year; partially offset by
- the impact of Television service pricing changes, net of promotional pricing provided to subscribers.
The 13% decrease in Phone revenue this quarter and 12% decrease year to date were a result of promotional pricing provided to subscribers.
The 3% decrease in operating expenses this quarter and 1% decrease year to date were a result of various cost efficiencies and productivity initiatives.
The 4% increase in adjusted EBITDA this quarter and 3% increase year to date were a result of the revenue and expense changes discussed above.
Media Financial Results
The 5% decrease in revenue this quarter was a result of:
- lower Toronto Blue Jays revenue; and
- lower advertising revenue.
In addition, the stable year to date revenue was impacted by a higher distribution to the Toronto Blue Jays from Major League Baseball in the first quarter and higher Sportsnet and other network subscription revenue.
The 9% decrease in operating expenses this quarter and 4% decrease year to date were a result of various cost efficiencies and productivity initiatives across all divisions.
The 20% increase in adjusted EBITDA this quarter and the 73% increase year to date were a result of the revenue and expense changes discussed above.
The increases in capital expenditures in Wireless this quarter and year to date were a result of investments made to upgrade our wireless network to continue delivering reliable performance for our customers. We have continued augmenting our existing LTE network with 4.5G technology investments that are also 5G-ready.
The increases in capital expenditures in Cable this quarter and year to date were a result of higher investments in customer premise equipment. In addition, the year to date increase in capital expenditures pertained to the development of our Ignite TV product. We also continued upgrading our hybrid fibre-coaxial infrastructure with additional fibre deployments and further DOCSIS technology enhancements. These deployments and enhancements will lower the number of homes passed per node and incorporate the latest technologies to help deliver more bandwidth and an even more reliable customer experience.
Capital expenditures in Media were stable this quarter and year to date.
The decreases in capital expenditures in Corporate this quarter and year to date were a result of higher investments in information technology in 2017.
Proceeds on disposition
This quarter and year to date, we sold certain real estate assets for proceeds of $5 million and $20 million, respectively (2017 - nil and $74 million).
Capital intensity increased this quarter and year to date as a result of higher capital expenditures as discussed above, partially offset by higher total revenue.
Key Performance Indicators
We measure the success of our strategy using a number of key performance indicators that are defined and discussed in our 2017 Annual MD&A and our Third Quarter 2018 MD&A. We believe these key performance indicators allow us to appropriately measure our performance against our operating strategy and against the results of our peers and competitors. The following key performance indicators are not measurements in accordance with IFRS and should not be considered alternatives to net income or any other measure of performance under IFRS. They include:
- subscriber counts;
- Cable; and
- homes passed (Cable);
- subscriber churn (churn);
- blended average billings per user (ABPU);
- blended average revenue per user (ARPU);
- capital intensity; and
- total service revenue.
We use the following non-GAAP measures. These are reviewed regularly by management and the Board in assessing our performance and making decisions regarding the ongoing operations of our business and its ability to generate cash flows. Some or all of these measures may also be used by investors, lending institutions, and credit rating agencies as indicators of our operating performance, of our ability to incur and service debt, and as measurements to value companies in the telecommunications sector. These are not recognized measures under GAAP and do not have standard meanings under IFRS, so may not be reliable ways to compare us to other companies.
Reconciliation of adjusted EBITDA
Reconciliation of adjusted EBITDA margin
Reconciliation of adjusted net income
Reconciliation of adjusted earnings per share
Reconciliation of free cash flow
Reconciliation of adjusted net debt and debt leverage ratio
Rogers Communications Inc.
Interim Condensed Consolidated Statements of Income
(In millions of dollars, except per share amounts, unaudited)
Rogers Communications Inc.
Interim Condensed Consolidated Statements of Financial Position
(In millions of dollars, unaudited)
Rogers Communications Inc.
Interim Condensed Consolidated Statements of Cash Flows
(In millions of dollars, unaudited)
About Forward-Looking Information
This earnings release includes "forward-looking information" and "forward-looking statements" within the meaning of applicable securities laws (collectively, "forward-looking information"), and assumptions about, among other things, our business, operations, and financial performance and condition approved by our management on the date of this earnings release. This forward-looking information and these assumptions include, but are not limited to, statements about our objectives and strategies to achieve those objectives, and about our beliefs, plans, expectations, anticipations, estimates, or intentions.
- typically includes words like could, expect, may, anticipate, assume, believe, intend, estimate, plan, project, guidance, outlook, target, and similar expressions, although not all forward-looking information includes them;
- includes conclusions, forecasts, and projections that are based on our current objectives and strategies and on estimates, expectations, assumptions, and other factors, most of which are confidential and proprietary and that we believe to have been reasonable at the time they were applied but may prove to be incorrect; and
- was approved by our management on the date of this earnings release.
Our forward-looking information includes forecasts and projections related to the following items, some of which are non-GAAP measures (see "Non-GAAP Measures"), among others:
- total service revenue;
- adjusted EBITDA;
- capital expenditures;
- cash income tax payments;
- free cash flow;
- dividend payments;
- the growth of new products and services;
- expected growth in subscribers and the services to which they subscribe;
- the cost of acquiring and retaining subscribers and deployment of new services;
- continued cost reductions and efficiency improvements;
- traction against our debt leverage ratio; and
- all other statements that are not historical facts.
Specific forward-looking information included or incorporated in this document includes, but is not limited to, our information and statements under "Financial Guidance" relating to our 2018 consolidated guidance on revenue, adjusted EBITDA, capital expenditures, and free cash flow, which were provided on January 25, 2018 and, on April 19, 2018, subsequently presented with the impact of transition to IFRS 15 on our 2017 results.
Key assumptions underlying our full-year 2018 guidance ranges
Our 2018 guidance ranges presented in "Financial Guidance" are based on many assumptions including, but not limited to, the following material assumptions for the full-year 2018:
- continued intense competition in all segments in which we operate, consistent with our experience during the full-year 2017;
- a substantial portion of our US dollar-denominated expenditures for 2018 is hedged at an average exchange rate of $1.30/US$;
- key interest rates remain relatively stable throughout 2018;
- no significant additional legal or regulatory developments, shifts in economic conditions, or macro changes in the competitive environment affecting our business activities;
- Wireless customers continue to adopt, and upgrade to, higher-value smartphones at similar rates in 2018 compared to 2017;
- overall wireless market penetration in Canada grows in 2018 at a similar rate as in 2017;
- our relative market share in Wireless and Cable is not negatively impacted by changing competitive dynamics;
- continued subscriber growth in Wireless and Cable Internet; a decline in Cable Television subscribers; and a relatively stable Phone subscriber base;
- Ignite TV launches in 2018;
- in Media, continued growth in sports and declines in certain traditional media businesses; and
- with respect to the increase in capital expenditures:
- we continue to invest appropriately to ensure we have competitive wireless and cable networks; and
- we continue to make expenditures related to the launch of Ignite TV in 2018.
Our conclusions, forecasts, and projections are based on the following factors, among others:
- general economic and industry growth rates;
- currency exchange rates and interest rates;
- product pricing levels and competitive intensity;
- subscriber growth;
- pricing, usage, and churn rates;
- changes in government regulation;
- technology deployment;
- availability of devices;
- timing of new product launches;
- content and equipment costs;
- the integration of acquisitions; and
- industry structure and stability.
Except as otherwise indicated, this earnings release and our forward-looking information do not reflect the potential impact of any non-recurring or other special items or of any dispositions, monetizations, mergers, acquisitions, other business combinations, or other transactions that may be considered or announced or may occur after the date on which the statement containing the forward-looking information is made.
Risks and uncertainties
Actual events and results can be substantially different from what is expressed or implied by forward-looking information as a result of risks, uncertainties, and other factors, many of which are beyond our control, including, but not limited to:
- regulatory changes;
- technological changes;
- economic conditions;
- unanticipated changes in content or equipment costs;
- changing conditions in the entertainment, information, and communications industries;
- the integration of acquisitions;
- litigation and tax matters;
- the level of competitive intensity;
- the emergence of new opportunities; and
- new interpretations and new accounting standards from accounting standards bodies.
These factors can also affect our objectives, strategies, and intentions. Many of these factors are beyond our control or our current expectations or knowledge. Should one or more of these risks, uncertainties, or other factors materialize, our objectives, strategies, or intentions change, or any other factors or assumptions underlying the forward-looking information prove incorrect, our actual results and our plans could vary significantly from what we currently foresee.
Accordingly, we warn investors to exercise caution when considering statements containing forward-looking information and caution them that it would be unreasonable to rely on such statements as creating legal rights regarding our future results or plans. We are under no obligation (and we expressly disclaim any such obligation) to update or alter any statements containing forward-looking information or the factors or assumptions underlying them, whether as a result of new information, future events, or otherwise, except as required by law. All of the forward-looking information in this earnings release is qualified by the cautionary statements herein.
Before making an investment decision
Before making any investment decisions and for a detailed discussion of the risks, uncertainties, and environment associated with our business, fully review the sections of our Third Quarter 2018 MD&A entitled "Updates to Risks and Uncertainties" and "Regulatory Developments" and fully review the sections in our 2017 Annual MD&A entitled "Regulation in Our Industry" and "Governance and Risk Management", as well as our various other filings with Canadian and US securities regulators, which can be found at sedar.com and sec.gov , respectively. Information on or connected to our website is not part of or incorporated into this earnings release.
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SOURCE Rogers Communications Inc.