Rogers Communications(RCI) - 2023 Q4 - Annual Report

Report Overview and Key Highlights Q4 & Full-Year 2023 Performance Summary The company achieved record 2023 results driven by the Shaw integration and strong wireless and cable performance - The company achieved record 2023 results, attributing the success to strong execution on the Shaw acquisition and industry-leading performance, with more Canadians choosing Rogers for the second consecutive year[1] Full-Year 2023 Key Metrics vs 2022 | Metric | 2023 Value | YoY Change | | :--- | :--- | :--- | | Service Revenue | $16.8 billion | +27% | | Adjusted EBITDA | $8.6 billion | +34% | | Free Cash Flow | $2.4 billion | +36% | | Postpaid Mobile Phone Net Adds | 674,000 | +24% | Q4 2023 Key Metrics vs Q4 2022 | Metric | Q4 2023 Value/Change | | :--- | :--- | | Total Service Revenue | +30% | | Adjusted EBITDA | +39% | | Wireless Service Revenue | +9% | | Cable Service Revenue | +94% | | Postpaid Mobile Phone Net Adds | 184,000 | | Retail Internet Net Additions | 20,000 | - Shaw integration is ahead of schedule, with $375 million in synergies realized since closing and an exit run rate of $750 million, six months ahead of plan[2] Consolidated Financial Highlights Q4 revenue and adjusted EBITDA grew significantly, though net income declined due to Shaw acquisition-related costs Consolidated Financial Highlights (Q4 & FY 2023 vs 2022) | (In millions of Canadian dollars) | Q4 2023 | Q4 2022 | % Chg | FY 2023 | FY 2022 | % Chg | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 5,335 | 4,166 | 28% | 19,308 | 15,396 | 25% | | Total Service Revenue | 4,470 | 3,436 | 30% | 16,845 | 13,305 | 27% | | Adjusted EBITDA | 2,329 | 1,679 | 39% | 8,581 | 6,393 | 34% | | Net Income | 328 | 508 | (35%) | 849 | 1,680 | (49%) | | Adjusted Net Income | 630 | 554 | 14% | 2,406 | 1,915 | 26% | | Adjusted Diluted EPS | $1.19 | $1.09 | 9% | $4.59 | $3.78 | 21% | | Free Cash Flow | 823 | 635 | 30% | 2,414 | 1,773 | 36% | - The decrease in net income was primarily driven by higher depreciation and amortization from assets acquired in the Shaw Transaction, increased restructuring and acquisition costs, and higher finance costs[10] Strategic Highlights The company advanced its strategic objectives through network investment, product innovation, and the Shaw integration - Built the biggest and best networks: Invested a record $3.9 billion in capital, expanded the 5G network to 267 new communities, and launched 5G service in the TTC subway system[16] - Delivered easy to use, reliable products: Introduced Rogers Internet and TV in Western Canada, upgraded Shaw Mobile customers to 5G, and launched the red Rogers Mastercard with a 0% interest device payment plan[16] - Became the first choice for Canadians: Led the industry with 674,000 postpaid mobile phone net additions and helped bring major events like Taylor Swift's tour to Canada[16] - Invested in Canada: Successfully completed the historic Shaw Transaction, repatriated Shaw customer service teams to be 100% Canada-based, and expanded the low-cost Connected for Success internet program to Western Canada[21] 2023 Guidance Achievement & 2024 Outlook The company met its 2023 guidance and projects continued strong revenue and adjusted EBITDA growth for 2024 2023 Guidance Achievement | Metric | 2023 Guidance Range | 2023 Actual | Achievement | | :--- | :--- | :--- | :--- | | Total Service Revenue Growth | 26% to 30% | 27% | Achieved | | Adjusted EBITDA Growth | 33% to 36% | 34% | Achieved | | Capital Expenditures | $3.7B to $3.9B | $3.934B | Exceeded | | Free Cash Flow | $2.2B to $2.5B | $2.414B | Achieved | 2024 Financial Guidance | Metric | 2024 Guidance Range | | :--- | :--- | | Total Service Revenue Growth | 8% to 10% | | Adjusted EBITDA Growth | 12% to 15% | | Capital Expenditures | $3.8B to $4.0B | | Free Cash Flow | $2.9B to $3.1B | Segment Performance Wireless The Wireless segment saw strong revenue and subscriber growth, though ARPU slightly decreased due to Shaw Mobile Wireless Financial Results (Q4 2023 vs Q4 2022) | (In millions of dollars) | Q4 2023 | Q4 2022 | % Chg | | :--- | :--- | :--- | :--- | | Service Revenue | 2,020 | 1,856 | 9% | | Equipment Revenue | 848 | 722 | 17% | | Total Revenue | 2,868 | 2,578 | 11% | | Adjusted EBITDA | 1,291 | 1,173 | 10% | | Adjusted EBITDA Margin | 63.9% | 63.2% | +0.7 pts | Wireless Subscriber Results (Q4 2023 vs Q4 2022) | (In thousands, except where noted) | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Postpaid Mobile Phone Net Additions | 184 | 193 | (9) | | Total Postpaid Mobile Phone Subscribers | 10,498 | 9,392 | 1,106 | | Postpaid Churn (monthly) | 1.67% | 1.24% | +0.43 pts | | Mobile Phone ARPU (monthly) | $57.96 | $58.69 | ($0.73) | - The 9% increase in service revenue was primarily due to growth in the mobile phone subscriber base and the impact of Shaw Mobile subscribers acquired in April 2023[38] Cable The Cable segment's revenue and adjusted EBITDA more than doubled, driven by the transformative Shaw acquisition Cable Financial Results (Q4 2023 vs Q4 2022) | (In millions of dollars) | Q4 2023 | Q4 2022 | % Chg | | :--- | :--- | :--- | :--- | | Service Revenue | 1,965 | 1,011 | 94% | | Total Revenue | 1,982 | 1,019 | 95% | | Adjusted EBITDA | 1,111 | 522 | 113% | | Adjusted EBITDA Margin | 56.1% | 51.2% | +4.9 pts | Cable Subscriber Results (Q4 2023 vs Q4 2022) | (In thousands, except where noted) | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Retail Internet Net Additions | 20 | 7 | 13 | | Total Retail Internet Subscribers | 4,162 | 2,284 | 1,878 | | ARPA (monthly) | $141.96 | $129.92 | $12.04 | - The 94% increase in service revenue was primarily due to the acquisition of Shaw, which contributed approximately $1 billion for the quarter[45] Media The Media segment's revenue and adjusted EBITDA declined significantly due to lower sports-related revenue Media Financial Results (Q4 2023 vs Q4 2022) | (In millions of dollars) | Q4 2023 | Q4 2022 | % Chg | | :--- | :--- | :--- | :--- | | Revenue | 558 | 606 | (8%) | | Operating Expenses | 554 | 549 | 1% | | Adjusted EBITDA | 4 | 57 | (93%) | | Adjusted EBITDA Margin | 0.7% | 9.4% | (8.7 pts) | - The 8% decrease in revenue was mainly due to lower sports-related revenue associated with a distribution from Major League Baseball in 2022 that did not repeat in 2023[49][51] Capital Expenditures Full-year capital expenditures reached a record $3.9 billion, driven by Cable network upgrades and Media projects Capital Expenditures by Segment (Q4 2023 vs Q4 2022) | (In millions of dollars) | Q4 2023 | Q4 2022 | % Chg | | :--- | :--- | :--- | :--- | | Wireless | 334 | 421 | (21%) | | Cable | 448 | 235 | 91% | | Media | 113 | 73 | 55% | | Corporate | 51 | 47 | 9% | | Total Capital Expenditures | 946 | 776 | 22% | - The increase in Cable capex reflects the Shaw acquisition and investments in fibre-to-the-home (FTTH) and DOCSIS 4.0 evolution[55] - The increase in Media capex was primarily due to expenditures related to the second phase of the Rogers Centre modernization project[56] Liquidity and Financial Resources Cash Flow and Financial Condition Free cash flow and liquidity increased, while the debt leverage ratio rose to 4.7x following the Shaw acquisition Cash Flow Summary (Q4 2023 vs Q4 2022) | (In millions of dollars) | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | 1,379 | 1,145 | | Cash used in investing activities | (224) | (1,011) | | Cash (used in) financing activities | (2,882) | (358) | - As of December 31, 2023, the company had $5.9 billion of available liquidity, up from $4.9 billion at the end of 2022[12][97] - The debt leverage ratio was 4.7x as at December 31, 2023, calculated on a pro forma basis including trailing 12-month adjusted EBITDA from Shaw[102][104] Debt Management The company actively managed its debt, making a net repayment of $2.75 billion in Q4 using asset sale proceeds - In December 2023, Rogers sold its investments in Cogeco for $829 million and used the proceeds to repay a portion of its outstanding term loan facility[74] - Net repayment of long-term debt in Q4 2023 was $2.75 billion, including repaying US$850 million and C$500 million of senior notes at maturity[86][90] - The term loan facility used for the Shaw Transaction was reduced by $1.1 billion during the quarter, leaving an outstanding balance of $4.4 billion[87] Shareholder Returns and Information The company maintained its quarterly dividend and utilized its dividend reinvestment plan to issue new shares - The Board declared a quarterly dividend of $0.50 per Class A and Class B share on January 31, 2024[93] - In Q3 and Q4, dividends of $74 million and $75 million, respectively, were settled through the issuance of Class B Non-Voting Shares under the dividend reinvestment plan (DRIP)[94] - Total common shares outstanding increased to 530.0 million, primarily due to issuing 23.6 million Class B shares for the Shaw Transaction and 2.7 million shares via the DRIP[107] Financial Risk Management Derivative Instruments and Hedging Strategy The company uses derivatives to hedge interest rate and foreign exchange risk, with 85.6% of debt at fixed rates - The company uses derivative instruments solely to manage risk related to foreign exchange rates and interest rates, not for speculative purposes[109] - As of Dec 31, 2023, 85.6% of outstanding debt was at a fixed interest rate, and all US$14.75 billion of US dollar-denominated debt was hedged for foreign exchange risk[109][115] - The company uses equity derivatives (total return swaps) to hedge market price risk for its stock-based compensation programs, covering 6.0 million Class B shares as of year-end[122][123] Net Mark-to-Market Value of Derivatives | (In millions of Cdn$) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Net Debt Derivative Liability/(Asset) | (571) | 988 | | Net Expenditure Derivative Liability/(Asset) | (15) | 94 | | Net Equity Derivative Asset | 48 | 54 | | Net Mark-to-Market Liability/(Asset) | (538) | 1,136 | Supplementary Information and Forward-Looking Statements Non-GAAP Measures and Reconciliations The report uses non-GAAP measures like Adjusted EBITDA and Free Cash Flow to provide a clearer view of performance - The company uses non-GAAP measures like Adjusted EBITDA, Adjusted Net Income, and Free Cash Flow to assess performance, as they are believed to provide a better analysis of business trends[133] Reconciliation of Net Income to Adjusted EBITDA (Q4 2023) | (In millions of dollars) | Amount | | :--- | :--- | | Net income | 328 | | Add: Income tax expense | 194 | | Add: Finance costs | 568 | | Add: Depreciation and amortization | 1,172 | | Add (deduct): Other items & Restructuring | 67 | | Adjusted EBITDA | 2,329 | Reconciliation of Net Income to Adjusted Net Income (Q4 2023) | (In millions of dollars) | Amount | | :--- | :--- | | Net income | 328 | | Add: Restructuring, acquisition and other | 86 | | Add: D&A on fair value increment of Shaw assets | 249 | | Deduct: Income tax impact of adjustments | (85) | | Add: Income tax adjustment, tax rate change | 52 | | Adjusted net income | 630 | Condensed Consolidated Financial Statements Financial statements show total assets grew to $69.3 billion and liabilities to $58.8 billion due to the Shaw deal - Total assets grew to $69.3 billion at year-end 2023 from $55.7 billion at year-end 2022, primarily due to assets acquired from the Shaw Transaction[144] - Total liabilities increased to $58.8 billion from $45.6 billion over the same period, driven by long-term debt and other liabilities assumed or incurred for the Shaw acquisition[144] Forward-Looking Information, Risks, and Assumptions The 2024 guidance is subject to risks including economic conditions, competition, and Shaw integration challenges - The 2024 guidance is based on key assumptions such as continued competitive intensity, stable economic conditions, and no major adverse regulatory or economic shifts[156] - A substantial portion of 2024 US dollar-denominated expenditures is assumed to be hedged at an average exchange rate of $1.33/US$[158] - Identified risks include regulatory changes, economic conditions, competitive pressures, and specific risks from the Shaw Transaction, such as difficulties in integration and achieving expected synergies[153]