Earnings Call: Q2 2019

Apr 10, 2019

Good day, and welcome to the Cogeco Inc. And Cogeco Communications Inc. Second Quarter twenty nineteen Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrice Vimes, Senior Vice President and Chief Financial Officer of Cogeco Inc. And Cogeco Communications Inc. Please go ahead, Mr. Rimet. Good morning, everybody, and welcome to our second quarter conference call. So joining me today are Philippe Jeppe, Marielle Nabry, Andre Pinard, Pierre Mer and Philippe Donet. So before we begin this call, as usual, I would like to remind listeners that the call is subject to forward looking statements, which can be found in our press releases issued yesterday. So I'll turn over the call to Philippe Jeppe. Good morning, ladies and gentlemen, and thank you for joining us to discuss the results of Cogeco Communication Inc. And Cogeco Inc. For our second quarter ending February 2839. Let us begin with Cogeco Communication and the sale of Cogeco Peer one. One of the major developments in the second quarter is the announcement that we reached an agreement to sell Cogeco Peer one for proceeds of EUR €720,000,000 subject to closing adjustments. We expect to close the sale in the current quarter. Cogeco will remain significant will retain significant fiber capacity in Montreal and Toronto for future needs. This transaction will allow us to regroup completely our resources and effort on the Canadian and American broadband segments with greater flexibility to pursue organic investment and acquisition opportunities. Note that the following sales announcement, Cogeco Tier one operating and financial results for the current and comparable periods were reclassified as discontinued operations. To reflect the reclassification, Cogeco Communication revised its fiscal year twenty nineteen guidelines for continuing operations, where revenue is expected to grow by 6% to 8% and EBITDA by 8% to 10%. Capital intensity should remain at similar level to last year, and free cash flow is expected to grow by 38% to 45%, mainly as a result of EBITDA growth and declines in financial expenses, current income taxes and restructuring, integration and acquisition costs. For the quarter, revenue is up 7.6% and EBITDA up 10.5% in constant currency. Reported revenue has reached 5 and $84,100,000 and EBITDA reached $280,600,000 generating a margin of 48%. Logical Connection achieved its best financial performance since the first quarter of last fiscal year with an EBITDA growth of 2.8% in constant currency. Atlantic Broadband has continued to perform strongly with an organic EBITDA growth of 9.7%. On the wireless side, we have we as we have advocated for many years in favor of an MVNO model, we were very pleased to see the CRTC launching a consultation to examine the state of the mobile wireless market and to seek comments on its preliminary view that mobile virtual network operators should have mandated access to the network of the national wireless providers. We all remember that the national providers benefited from favorable conditions to launch and expand their operations many years ago. We were also encouraged by the federal government's policy directive to the CRTC, encouraging all forms of competition and the reduction of barriers to entry for regional telecommunication service providers. Cogeco does favor a facility based MVNO model, which would allow for progressive and disciplined investment in facilities along with some type of partnerships or network sharing arrangement. However, given the consultation time frame and the various discussion at this point that this process will result in, it is too early for me to provide further comments on the specific business model. The quarterly dividend was reconfirmed at $0.05 $25 per share, a 10.5% increase over last year. Let us look at the individual components. At Cochico Connection, our PSC trends in the quarter have significantly improved relative to the last two quarters, as our new CMS migration issues have been fixed and we have ramped up our sales and marketing efforts since last November. The video and telephone customer loss are comparable to last year, while the Internet additions are slightly lower as a result of competition offers. The new CMS will be the foundation piece of Cogeco Connections' evolution to digitize customer experience, enabling quicker response time and greater digital interaction capabilities to enhance the customer experience. Clinical Connections revenue has grown by 0.8% and EBITDA by 3.8% in constant currency as a result of higher revenue mainly generated through the rate increase implemented in November and a decline in operating expense, mainly attributable to better management of programming costs and cost saving from a workforce reduction program. This program, which targeted administrative functions, was carried during the first and second quarters and is expected to generate $10,000,000 in savings in fiscal year twenty nineteen and fourteen million dollars on an annual basis. We expect that Cogeco Connection will achieve low single digit EBITDA growth in the fiscal twenty nineteen, mainly as a result of the rightsizing of our workforce and the further operational efficiencies we expect from the new CMS and the ongoing digital transformation. We are advancing well with our digitization program, which is aimed at improving our already highly reputable customer service while reducing our operating cost. Over the last eighteen months, we have made great progress over our digital key performance indicators. We have increased e billing by 65%, reduced annual technical calls by 10%, on-site repair by 15% and have increased self installs by 40%. We expect further improvements in all our digital KPIs as we improve and implement and ramp up operational best practice and digital tools. We have implemented several of the Identify initiatives, but many others will be implemented over the next eighteen months. The number of cells installs will significantly improve when we launch the new IPTV platform later this year, resulting in further reduction of truck rolls. During the quarter, Cogeco Connection has contributed to launch new and enhanced features for its customer. Among them, we rolled out a cloud based managed WiFi solution for business customers in Quebec, thereby completing our coverage in Canada. It offers faster connectivity, scalable WiFi capability, and a management portal allowing to customize settings and offer WiFi access for guests and guest insights on WiFi usage to better control IT spending. One gig Internet speed is now available to 40% of our footprint, and further launch announcement will be made in the coming months, with a goal of reaching 60% of our footprint by fiscal year end. We were pleased to see the renewed and increased funding for regional and rural Internet connectivity in Canada. The recent budget announcement from the federal government and the Quebec government represent over $3,000,000,000 for the next decade and are a great opportunity for Cogeco to further expand its network. We believe we are well positioned to obtain funding given our strong regional position. In The U. S, again this quarter, Atlantic Broadband has been the prime engine of growth as revenue increased by 18.4% in constant currency, and EBITDA grew 21.7%, mainly as a result of the timing impact of the MetroCast acquisition completed on 01/04/2018, and combined with strong organic growth. In the quarter, ABB achieved organic revenue growth of 5.5% and EBITDA growth of 9.7%. The strong financial performance is mainly related to the continued growth and upsizing in residential and Internet and commercial services. Rate increase implemented in October in the MetroCard systems and the ramp up of the Florida expansion plan, which is now positively contributing to EBITDA. Given that marketing expense in the first half of the year were lower due to the timing of certain initiatives and that the January 1 programming cost increase will fully impact the third quarter, we expect EBITDA to grow at the mid single digit rate during the second half of the year. Authentic Broadband adds also an ambitious digitization program, which is advancing well, in line with what I just explained and described in the Canadian operations. The PSU trend in Q2 were weaker than the comparable quarter last year, mainly due to the timing of bulk activation in Florida. Let's remember that the 2018 included a large bulk activation. The 2019 Florida ramp up should mainly materialize in the fourth quarter as we expect to connect and activate many customers. Furthermore, there will be a ramp up in marketing activity in the second half of this year, which should improve PSU trends. Atlantic Broadband continues to upgrade its TiVo platform and has just launched the Alexa voice control functionality. Customers with the voice assistant device can now issue hands free voice commands from anywhere in the room. And among other functionality, can open streaming apps like Netflix on their TV with a simple voice command. This is in addition to being able to do the same with their TiVo voice activated remote. Atlantic Broadband has mostly completed the rollout of its NN suite of services with the launch of NN's WiFi service in the newly acquired MetroCast systems and the launch of hosted Voice for Business in the new Ampere and main service area, which now cover close to 50% of the MetroCast footprint. The enhanced WiFi service utilized multiple wireless mesh access points and intelligent routing algorithms to provide the best possible wall to wall coverage and speeds which dramatically improve video streaming capabilities. Atlantic Broadband currently offer one gig Internet service in 50% of its footprint and targets a 90% coverage by the end of this fiscal. Let us now take a look at Cogeco Inc, where the consolidated revenue has increased 7.3% and EBITDA 10.3% in constant currency. Advertising markets in the radio business continue to be challenging, and competition has increased. As a result, we are managing our costs tightly. The integration of our 10 new radio stations is proceeding well, and we are excited at the prospect of a wide coverage throughout the province of Quebec. The quarterly dividend has been reconfirmed at $0.43 per share and 10.3% increase over last year. In conclusion, I would like to note that since the beginning of this fiscal year, we have achieved a number of key strategic milestones. We have announced the sale of Cogeco Pier one to recenter our resources on growing our broadband segment, both organically and through acquisitions. We have completed the stabilization of the new customer management system in Canada, which is foundational to our future digital projects. We have now fully embarked in a digital transformation, which will enable us to better serve our customers through innovative and interactive digital platforms and better position our service offering. This initiative speaks to our commitment to provide our customers the highest level of service, which has always been part of our DNA. Going forward, we will focus on pursuing profitable organic growth through providing enhanced services to our customers, growing our Internet and commercial services market share and expanding in select areas such as Florida. We continue to look for attractive acquisition opportunities and will continue to be proactively very engaged in the wireless consultations. And now we will be happy to answer your questions. Thank you. Your first question comes from the line of Jeff Van from Scotiabank. Please go ahead. Thanks. Good morning. A couple of follow ups and then perhaps a bigger picture question. In terms of just following up on The U. S. Cable, you mentioned, Philippe, mid single digit growth on EBITDA for U. S. Cable for the second half of the year. Is that on constant currency? And also on the you also mentioned a big PSU or bulk transaction in 2018. Can you just remind us the magnitude of that just for us looking at the second half of this year, how it compares? And then the last question is just on overall capital allocation. Now that the sale looks like it's going close soon on Cogeco Pier one, can you just remind us the use of proceeds and priorities in order of what you think are attractive areas to go after? That would be great. Okay. Well, first, the first part of your question, yes, the mid single digit organic growth is in constant currency, Jeff. The Florida market, where bulk, so condo towers or gated communities, as you can imagine, these are contracts by contracts, and they vary. They fluctuate over year. So that's why the year over year comparison sometimes is it could be difficult as it's not linear. And I simply wanted to remind you that since we had a larger activation last year, just compare the year over year given that fact. And for the sorry, for the capital allocation, so the selling price is $720,000,000 We have some expenses to pay related to this, as we've discussed previously. So we're going to be repaying a revolver of about $400,000,000 So that leaves a little more than $300,000,000 in cash. And we're planning to launch an NCIB as well. NCIBs get done basically over many months, over a year. And as we execute this NCIB, we should normally generate additional cash flows from the business as well. So hopefully, that answers your question. In terms of your leverage, can you just remind us where you think you want to stabilize that leverage? And then also, just in terms of new business opportunities, I think in the past, maybe you've given us some priorities, U. S. Versus wireless versus other. Can you now that you've got a wireless proceeding going on, I'm just wondering how that has affected that thinking. So let me just start with the big picture then. We have not changed our strategy forward, Jeff. So investing in our existing networks, I could describe many initiatives to better the customer experience as well as reduce our operating costs. The look for acquisition in our existing territories is also something on the radar. There are many opportunities, but as you know, acquisition takes a little bit of time to negotiate and eventually to announce, so stay tuned on that front. Now on the wireless, that is the third pillar of our strategy. We are extremely proactive in conversation. We'll continue to be in conversation with the players, and we'll see. As I said, it's too early to announce exactly the business modeling we're looking at and contemplating, but we certainly want to be part of this mobile ecosystem. And on the leverage, so our leverage from what we've disclosed yesterday is 3.3x of debt to EBITDA. And if you were to pro form a the sale of CP1, you'd be at 2.9x. And obviously, over time, generally, we're able to decrease this unless we make an acquisition, obviously. Our long term target is still about 3x. So pro form a, the sale of CP1 would be slightly under that, but very close to it. Okay, great. Thank you very much. Thank you. Your next question comes from the line of Aravinda Galafastheg from Canaccord Genuity. Please go ahead. Good morning. Thanks for taking my questions. I'll start with a question on The U. S. PSU movement, the net adds. I know that in the past in the prior quarter, talked about some of the seasonal movements due to the footprint in New Hampshire and Maine. With that in mind, and I know you cited that in Q2 as well. With that in mind, when we look at the second half, should we it follows that we should be looking at year over year stronger numbers based on your prior reporting. Are there other sort of dynamics that come into play when we look at the second half for U. PSU net adds? Sure. So I would say this quarter was a bit weaker than usual. So generally, we have a new advertising campaign that's starting right now. So just that's a general comment for the overall footprint. So we should expect benefits from this. And as we stated before or Philippe mentioned in his presentation, we should expect more advertising costs as well in the second half, which partially benefited the EBITDA this quarter. So we're going to we basically are going to invest more in the back half. And it just happened to be like this, this year. In terms of seasonal, so it's true. There were some seasonal disconnects in this quarter. And I would say if you look going forward in terms of reconnects, the seasonal reconnects, we would expect that this current quarter, the third quarter, and a bit in the fourth quarter would be the time where it's reconnecting. It's mainly in the Metrocast area because in Florida, actually, we signed a lot of bulk agreements. So in the Metrocast area last year, we had just bought the company. So I would say we're better equipped to basically make sure that we get our fair share of the reconnects this year. And lastly, in Florida last year, we had to Jeff's question, we had larger bulk activations in the second quarter. We expect this year that we're going to have larger bulk activations in the fourth quarter. And those are from signed transactions that's basically in construction right now. So it will fluctuate from quarter to quarter. But obviously, in Florida, we have a bit of visibility as we're able to we typically find these deals a number of months before we install. Thanks for that. And just staying on The U. S, I know you alluded to this a little bit in the prior answers, but can you just give us an update as to what the landscape looks like when you think about U. S. Cable targets? I know in the past, you've kind of given us a sense of sort of a family owned and privately the P owned cable networks that are out there. Any change in that landscape over the last year or so that you can perhaps update on? No, it would be the same. Actually, there's been very little transactions over the past year. So it basically means that the owners are the same as a year ago. So we are ready to make acquisitions. And when companies are looking to sell, we're typically there when we can be at the table looking at it. But we I would say we're fairly active looking potential transactions, but they obviously have to be available. Okay. And last question on Canada. Obviously, you're coming you're emerging from sort of the CRM related difficulties. As you look to kind of rebound and sort of get back to subscriber growth, particularly on the Internet side, any sort of spillover from that period of customer issues? I mean is there any feedback to suggest that there was some sort of goodwill loss and so on? I mean, I'm trying to get a sense of how much you can kind of recover from that period as you kind of build get back to sort of a sub growth phase. Well, I guess the important factor here is that we serve our customer with very good, exceptionally good customer service. And customers, they in the areas where we serve, they know that, they knew that, they know that, and we are we have returned to that high level of customer service. I personally believe that this is the key component that customers are looking for to be served. So yes, my expectation is that some of these customers that went and try other solutions for short term will return as well as we are much better equipped not to lose any on our own doing. And I admit, we went through a difficult period, but that period is completely over. We are fully operational with new processes and a new system that much very well. Your next question comes from the line of Stanford Lee from Macquarie. Just you mentioned in your opening comments about the Internet net adds in Canada being lower year over year because of competitive factors. Is that competitive factors aggressive pricing moves? Or are you talking more about increasing FTTH footprint overlap? Well, the I would say the competitive intensity is similar to what we have normally. So we it comes from different areas. So obviously, our competitors, like we do, will run different campaigns and advertising, promotional activities. So this moves all the time. But I would say it's usually intense, and it still is. In terms of fiber construction, there is some fiber construction every year. And so it's still the case today. But I would say there was there has not been a significant pickup in the past year. So no, it's not as if there was a number of large cities that were done. And some of the fiber that's being constructed now is in fiber to the node areas, which means that the competition already offers their key products, including the video product. So it's just a faster Internet speed. That's a bit different than going from a DSL territory to fiber to the home. But I would say both are going on, but there's some areas that are going from fiber to the home to fiber to the home. Our existing product on the if we talk about speed, is very, very well positioned. We offer 120 megabit per second everywhere, and you've seen us make announcements on up to a gigabit. Let's remind ourselves that the offer taken in the market are far less than the 120 megabit per second. So we feel we have an excellent product that is already deployed across our footprint and a better customer experience. So combined with great product, with a great customer experience. So don't look on the product side. Promotional and advertising is more where sometimes we see some difference in the marketplace. So but we're working really hard segmenting on our marketing efforts to address promotional campaigns launched by our competitors and win our fair share of the marketplace. Great. And, Teres, I guess, sort of on a related issue, competition from fixed wireless and Internet services. I know it is fairly early, but can you give us any commentary on what you're seeing in terms of market that you can face competition from fixed wireless? Yes. Well, that will be very short because we haven't seen in our footprint any fixed wireless major activities going on. So that remains mostly theoretical for now. Okay. Great. Also, the Firefly business that you acquired, I believe it had customers. Is that in your Internet subs and your base as well as in the net adds now? It was. So those were business customers. So I would say it's large dollars per customer. So they are in, but it's a very small number of customers. So it's really if you were to see the list, it's very common names in The U. S. Of consumers of bandwidth. Okay. Guess in that balance, the partially driving the large increases in the ARPU, the U. S. Dollar ARPU, possibly some of that? It has an impact because we did and we acquired that network basically. It's a dual reason. So there's obviously these customers, which and will grow with new customers as well, and there's also an ability to grow our bulk activity with this network. But you're right, in terms of ARPU, the customers we acquired came with higher ARPUs that we versus what we typically do. On the commercial side, most of our customers are SMEs, and we have larger customers as well. But I would say the bulk are SMEs, whereas this network, the bulk was larger enterprises. Great. And then the last one on The U. S. Cable MA. It looks like The U. S. Cable has performed quite well year to date. Can you tell us what you're hearing and what you're experiencing now as far as cable valuation in my share count? Yes. It's difficult to say because as I was saying earlier, there's been little transactions in, let's call it, the last year. So it's obviously, when we look at the transaction, we look at the benefits of that particular transaction, which includes many elements, including, obviously, where it is, the population it serves, penetration rates, synergies, so all these things. And that impacts the ultimately, the multiple we're paying. And it's also some transactions done by others. It will depend basically what their strategy is and what they're willing to pay to integrate it in their business. Fair enough. And maybe one just quick last one. I just wondered if you wanted to comment or refute the CTS findings. So it showed a large increase in the customer complaints over the last six months and again in January, acknowledging that it does, I guess, with the CMS transition period? Well, it's actually that. The period covered by the the report is exactly when we had some issues with the CMS migration. Now that we have fixed these issues, we expect our numbers to come back where they were, very distant from the number one position in that report. Okay. Thanks for that. Your next question comes from the line of Bentley Cross from TD Securities. Just a quick question on the guidance. I noticed the EBITDA guide has stayed at 8% to 10%, even though business ICT or Tier one is now gone. Just I know it's small, but mathematically, why would it have expected that to boost the EBITDA growth rate? Can you maybe talk about some of the puts and takes in there? Yes. So there's a couple of things. So obviously, we removed CP1 from the prior numbers and the future numbers. There's also and there's an inorganic portion in there as well from MetroCast. But I would say we that's why we have a range. We it could have been that the by redoing the guidance with one less division, the numbers could have changed. But as you pointed out, CP1 was not a large part of our business. So the when we came out with the original guidance, we did not expect as much issues with the transition in the CMS system in Canada. So we're as you know, we're back on track now, but that had an impact, obviously, on the Q4 of last year and Q1 of this year. So that played a little bit into the expected growth rate for this year, which does include, obviously, the performance you saw in the last quarter in Q1. Your next question comes from the line of Maher Yaghi from Desjardins. Please go ahead. Thanks for taking my question. Congratulations again on sale of Pier one. It was nicely priced. I wanted to ask you a question on the penetration of Internet in your Canadian territory. Canadian footprint, you're putting a lot of focus on Internet and cable companies in general are doing so, less relying on TV to grow. But when I look at your Internet penetration rate in Canada, it seems to have peaked in the second quarter of fiscal year twenty eighteen. And since then, it has been declining. I wanted to get your view on the trend that we're seeing over the last three quarters. Is that something that you are focused on turning around? And what is your objective in general? Because in The States, when I look at your Internet penetration rates, they're they have been around forty six, forty seven percent just until you you did the MetroCast acquisition, and that boosted the percentages. So is 45%, 46%, is that where things should settle in Canada? Or you could hope for more than that? Okay. Well, thanks for that question, Nayar. The peak you have alluded to in that time frame, we we had this CMS issue. And if you remember, we had said that, customer service was very important. And at the time, we redirected our sales and marketing efforts to the customer experience. So that explained why our sales and marketing activities were less than efficient during that period, and the Internet sales, certainly, were lower because of that. Now that the CMS is behind and the sales and marketing are back in growth mode, I'm expecting that the Internet market will continue to grow as there is still a huge potential out there. And if I can add to this, there's still a large portion of our footprint that's covered by competition in the DSL, so that's very low speed Internet. So there's a great opportunity there, and we're working on this. And what works against it, obviously, is when competitors rebuild their networks, then we have to adjust in these territories. So but overall, some capacity to grow, though. Okay. And the potential long term is what do you believe is a good target to achieve over the next two years in terms of penetration? Well, we won't put a number on this. But let's say that, as I described earlier, we have a superior product in the market. It's very fast and reliable. Combined with a great customer service, this is what customers are expecting from their service provider, we should do very well. Okay. And in terms of margins in the Canadian Broadband Services business, you mentioned that you are going to invest a bit more in marketing in the next couple of quarters. Now that the system is up and running, what is a good target in terms of margins in that business? Because as the switch from video to Internet continues, normally, you should expect margins to keep growing. What is the upside here in terms of margins in the next couple of years in the Canadian business? So we're, I would say, in the 53% -ish area right now. We've been able to grow it every year even before the, I would say, a bit more focus on Internet, as you're pointing out. So more Internet, obviously, will direct us to higher margins normally, but we do a lot as well on our OpEx front. That's part also of the digitization project. That's a program that was referred to before. So we see upside there. It's difficult to know exactly where we will be in the future, but we've been able typically to grow probably one point a year. And we see a lot of upside in being able to, again, better serve our customers with more tools and at the same time, on our cost side. The other thing I can add is on the video front, With the new IPTV product, we should expect some savings there. We still believe that video is a good product, and we our approach is always to offer the best solution possible. That's why we introduced TiVo early on. We're going to introduce the new IPTV platform as well. So the idea is to provide everything the consumer needs. And again, our areas of operations are more suburban and rural, which means that you have more single dwellings, and TV is still an important product for many people. Okay. And my last question on capital intensity. Now that you have sold Pier one, when we look at the Canadian and U. S. Business combined, what is a more sustainable capital allocation intensity ratio that we should be looking at in terms of the business over the next couple of years? I know you gave a guidance for the year. Is that what we should use in terms of an average capital intensity ratio going forward? We've been running Canada between 1819% for a few years, and that includes all digitization, which requires some capital, rolling out gigabit, which will be at 60% in a couple of months. So we're able to do a lot within this. So 18% to 19% is probably not a bad number to use going forward, But we might have some upside there as well as we roll out smaller CPEs for video going forward with the IPTV introduction. So once we're there and we've introduced it, then we'll be able to talk more about it. But I would say it's probably the right range to use. At ABB, we typically run below 20% as well, except more recently when, obviously, we bought Dark Fibers initially from FiberLite before we completed the acquisition, and we're investing more in Florida. As Florida now is the additional expansion is generating revenues and EBITDA, it puts less pressure on the intensity. So we're expecting low 20% at ABB this year. And going forward, we'll probably get back down below 20%. We'll you have to stay tuned on this when we're done with our budgeting exercise, which is in a couple of months for next year. But if you think a couple of years should be below 20%. Okay. And sorry, one last question. I forgot. The closing requirements for the Tier one sale, are there any closing conditions that the buyer still has not fulfilled? There's still there's a number of things we have agreed with the buyer to do before the transaction closes. We're very well advanced in this, but not fully done yet. So we should expect to close it this quarter. How about the financing of the transaction? No, that was already arranged before we announced the transaction. Okay. Thank you. Your next question comes from the line of Matthew Griffith from Bank of America Merrill Lynch. Please go ahead. Yes. Hi. Thanks for taking the question. I just had two quick kind of follow ups, if I could. One is on the bulk transactions kind of in Florida. I was just curious if this kind of once a year type of pace is what we should expect going forward? Or if maybe the opportunity is potentially larger and we might see these pop into the results more frequently going forward? And then the second thing I wanted to follow-up on was just on this digitization push that you're doing. I was wondering where you are, if you're still kind of in the investment phase of this or if that is largely complete perhaps and now you're in the process of kind of harvesting some of those benefits more and kind of related to that, whether or not kind of Canada or The U. S. Is maybe more advanced in that process, if there's a difference? Thanks. Okay. Well, let me start with the bulk question for Florida. So we are still ramping up our operations, sales, sales operation, marketing. And right now, you're right, they come in more in spike. It's totally our intent to level that and have an ongoing sales and marketing, more regular activities, and the pipeline won't spike as much. So you should expect for the years to come more regular deployments. So that's for the first part of your question. The digitization, as I said many times, the foundation was this new CMS system. So there was already a large investment made there. It's up and running the first phases, and I just reported some KPIs for the first eighteen months of our program. So we're doing already very well on billing and truck rolls and on-site repairs and self installs. Over the next eighteen months, there will be more benefits coming. They don't require as much investment because platforms and the foundation is there. It does require some incremental investment here and there, and you should expect more benefits to show up, and I will be glad to report as to where we are in future meetings. Your next question comes from the line of Drew McReynolds from RBC. Two quick ones for me. Patrice, on the fiber to the home overlap with your footprint, can you remind us where that stands right now? And with respect to your free cash flow guidance for fiscal twenty nineteen, perhaps provide us with an update on cash taxes assumed in that guidance and maybe the medium term outlook for the cash tax rate into the next couple of years, if you have that kind of visibility right now, that would be great. Okay. So on the fiber to the home, and as I said earlier, this moves every year a little bit. So it's around 30% right now of our footprint with the footprint to where we have Bell as a competitor. And the balance is made up of fiber to the node and primarily DSL as well. So that's where we are right now. On the free cash flow guidance for this year, the cash tax is estimated on a consolidated basis at 12%. That's a lower number than what we had before, and it's pursuant to the reduction we got or accelerated depreciation at the federal level. And Quebec will also follow-up follow with a similar program. So it's about 12%. And going forward, while it's difficult to know exactly where we will end up, but these programs are not just for one year. So we should expect that over time, it will go up, but it takes a few years basically to go up significantly from that percentage. That's great. Thank you for that. Your next question comes from the line of Jeff Van from Scotiabank. Please go ahead. Thanks. I just have a follow-up on wireless. Philip, you mentioned, that it's too early to discuss any business model. Is it fair to say that, you're adopting maybe a more wait and see approach given what the CRTC has decided to do with respect to the MVNO proceeding, and that it might be difficult at this point to kind of paint which path you're gonna take until you know what the rules look like. I'm just wondering what you're thinking is there and why it's too early and how this regulatory proceeding may or may not play a role into that. Yes. Well, of course, we are anticipating more good news from industry, I said, as well as on the CRTC. I mentioned that the public hearings have been scheduled. So the work has started, and we are in active conversation, as you can imagine, not only with the governments but also with industry players. My position at the moment is just to be to work on these things and when we will have meaningful announcement, we will make them. But at this stage, it's private commercial conversations and government conversations that are taking place. And the your expectation for what's coming out of ICED, can you elaborate on that a little bit more? Well, ICESat has been very public and very clear that they want Canadians to benefit more from a market that will bring more competition, more innovation and greater choice for Canadians. So I said, as also issued policies to the TRTC to look at future regulatory at the future regulatory environment that would benefit Canadian. We certainly think, given our existing networks, our existing footprint, the relationship we already have with significant base in Quebec and Ontario as well as if you consider the number of home pass and business where our network is already installed, we have a large and significant presence. So we know we can contribute to this ecosystem. Now it's a matter of the regulatory framework to land and commercial negotiations to take place and continue. Okay. Thanks for the color. There are no further questions at this time. I turn the call back over to management for closing remarks. Okay. Well, thanks, everyone, for being on the call today. We're going to be discussing our third quarter results in July. So we'll see you then, and feel free to call us in the meantime if you have additional questions. Thank you. Thank you. This concludes today's conference call. You may now disconnect.