Cogeco Inc
TSX:CGO
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Cogeco Inc
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Good day, and welcome to the Cogeco Inc. and Cogeco Communications Inc. Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to Mr. Patrice Ouimet, Senior Vice President and Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.
Good morning, everybody, and welcome to our fourth quarter conference call. So joining me today are Louis Audet, who will open the conference call for the last time. We have Philippe Jette, Rene Guimond, Andree Pinard and Pierre Maheux.So before we begin the call, 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. And I will now turn the call over to Louis Audet.
Thank you, Patrice, and good morning, ladies and gentlemen, and thank you for joining us to discuss the results of Cogeco Communications Inc. and Cogeco Inc. for the fourth quarter and year-end as of August 31, 2018.As Patrice mentioned, this is going to be the last time I open a quarterly conference call. It's been a pleasure for me to share these moments with you every quarter for the last several years. I've enjoyed having this opportunity to share good news about our public companies, as Cogeco has grown to become an international company. Thank you, for your support, all these years.I will start with the opening statements for the fourth quarter and full fiscal year 2018. I will then turn things over to Philippe Jette, Cogeco Inc and Cogeco Communications new President and Chief Executive Officer, who will speak about our outlook for fiscal 2019, that is now under his watch. In a nutshell, again this quarter, Atlantic Broadband has been the prime engine of growth. So let us begin with Cogeco Communications.For the year, revenue and EBITDA are up 10.2% and 9.2% respectively in constant currency. Reported revenue has reached $2.42 billion and EBITDA has reached $1.09 billion generating an industry-leading margin of 44.8%. The quarterly dividend of Cogeco Communications has been increased from $47.05 to $52.05 cents per share per quarter, a 10.5% increase over last year.Let us now look at its individual components. At Cogeco Connexion, our fourth quarter revenue and EBITDA have experienced declines. Although, the results for the full year have remained essentially flat. This is directly related to the implementation on April 24, of our new customer management system replacing some 22 legacy systems. This new system will allow Cogeco Connexion to provide improved customer service in terms of response time and greater digital interaction capabilities with its customers. Although it is a difficult transformational journey, it is definitely the right thing to do for the company in the long term.During the fourth quarter, the many customer adjustments related to bill presentment and billing dates, as well as a number of system operating challenges have resulted in increased call volumes and congestion in our contact centers. We have therefore taken the decision to reduce our sales and marketing activities during this stabilization period. This planned stabilization period has taken longer than expected, impacting the full fourth quarter and carrying into the first quarter of fiscal 2019.The good news is that the major issues are now behind us and that we are now closing in on our targeted contact center and operational metrics. Given our longer stabilization period and slightly higher return, when the next rate increase is implemented, we expect that PSU losses in Q1 will be at a comparable level to Q4. However, we expect that PSU trends will be back to normal in the second quarter, as there have been signs of stabilization in PSUs in the last few weeks.First quarter financial results will be weaker than last year, mainly due to the cumulative PSU losses, additional stabilization expenses in our contact centers and the timing of the upcoming price increases in November, compared to a mix of price increases in September and November of last year. Note that, based on the last couple of weeks encouraging trends, we still expect that Cogeco Connexion will achieve low single-digit EBITDA growth in fiscal 2019 and we have, therefore, not modified our consolidated financial guidelines.Please keep in mind, that this new customer management system is the foundation piece of Cogeco Connexion evolution to a fully digitized customer experience, which will enhance customers' experience and further improve our operational efficiency. This is good for our customers and good for our shareholders.Turning, now to Atlantic Broadband. In the last quarter, Atlantic Broadband achieved an EBITDA organic growth of 4.9%, reaching our mid-single digit target for the initially acquired systems, originally acquired systems, thanks to the continued growth and upsizing in residential Internet customers, as well as growth in the business segment. The MetroCast operational integration was successfully completed in less than 6 months and contributed to a significant EBITDA margin improvement from 41.7% in the fourth quarter of 2017 to one of the industry leading margins at 44.7% in the fourth quarter of 2018. We have now launched the TiVo experience for voice-activated video service along with the Internet, 1 gigabit per second service to more than half of these acquired systems.The enhanced TiVo platform is also available throughout the initially acquired Atlantic Broadband systems. The closing of the FiberLight acquisition in Southern California took place on October 1, and we are very enthusiastic about the growth prospects it brings, as it opens further access to the commercial market along a prosperous 100-kilometer corridor from Miami all the way up to West Palm Beach.Turning now to Cogeco Peer 1, the situation at Cogeco Peer 1 is now stabilized and we are currently devoting our efforts to servicing our customers well and renewing with growth. The construction of the third part is underway at the Kirkland Data Center to offer colocation services to a large customer under a long-term contract. We are very pleased to expand our relationship with this customer, to whom we have been providing services from our Kirkland Data Center facilities, which opened in September 2015.Let us now take a look at Cogeco Inc. Advertising markets continue to be challenging, but we are compensating with good cost controls and good audience ratings. On October 11, 2018, the CRTC authorized our purchase of 10 regional radio stations from the Radio Nord group, mainly in the Saguenay and B2B regions. The closing should take place in a matter of days.The quarterly dividend at Cogeco Inc. has been increased from $0.39 to $0.43 per share, again a 10.3% increase over last year. And now without further ado, it is my great pleasure to pass the microphone and pass the torch over to our new President and Chief Executive Officer of Cogeco Inc. and Cogeco Communications Inc. Philippe Jette. Philippe.
Thank you, Louis, and good morning everyone. I'm very happy to joining all of you on this call and maintaining this important quarterly conversation with the investment community. I look forward to pursuing the company's development in 2019 and beyond. And there are many opportunities on the horizon. At Cogeco Connexion we are increasing our emphasis on digitization of product and services for an enhanced customer experience. We are equally excited about the upcoming launch of a new IPTV platform towards the end of the fiscal year and the increased coverage of gigabit speed offerings in our footprint. At Atlantic Broadband, we are looking forward to a strong growth in the recently acquired MetroCast areas, as well as accelerating our expansion in the Florida market. In our Business ICT segment, we continue to build on the work we have done in past years, to solidify our foothold in this intensely competitive market.At Cogeco Media, I look forward to the successful integration of the RNC Media stations within our network and with the new President in place, Michel Lorrain, I am confident that the integration will be successful and that we will maintain our leadership position in the Quebec radio market. From a financial perspective, we are maintaining our guidance on expected growth rates at the levels disclosed in July. On a constant currency and consolidated basis, Cogeco Communications Inc. expect fiscal 2019 revenue to grow between 6% and 8%, adjusted EBITDA between 8% and 10% and free cash flow between 18% and 25%, reflecting the full-year impact of the MetroCast acquisition in the American broadband services operations.Now, from an operating perspective, we will focus on 3 priorities, ensuring that we remain as committed as ever to our high level of customer service, which is part of Cogeco's DNA. Employee engagement, ensuring we continue to recruit and retain the most talented and conscientious employees to join our team. And digitization, which will allow us to gain efficiencies through operational cost reductions and increase in tools, services and platforms that will benefit our customers. This is truly an integral part of our strategic plan at Cogeco and for our business evolution.Finally, the key strategic mandate will be to optimize our capital allocation to secure future profitable growth and increase shareholder value. As our leverage declines, one of our top priorities will be to look out for accretive acquisition in the US broadband segment. And now we will be happy to answer your questions.
[Operator Instructions] Your first question comes from the line of Jeff Fan from Scotiabank. Please go ahead.
Thanks, good morning and welcome Philippe through the call. Wanted to just touch on the CRM, the system migration, and thanks Louis for the color on the PSU in terms of how it's going to trend. But, based on what you're seeing today, I guess in the last couple of months, are you guys still giving bill credits? And then also with respect to the $6.9 million OpEx, that has been incurred to deal with the inbound volume, is that still expected to stay and when do you expect that to start to wind down?
Thank you, Jeff, and good morning. Well, this is a situation where we are not happy with and we are sorry for the customers who did not receive the quality of service we are known for and they should have expected from Cogeco. Well that said, Louis described this, it was a very complex system integration and our service metrics have declined sales and technical issue as well as retention, we acknowledge that. But, as in October, we are very pleased with the fact that we're getting close to our target metrics on all call centers. So that's a positive, and even if the stabilization took longer, we have a plan in place to reduce the financial impact, I think it's important for you to know that we have restarted in marketing in August and we have also included in our financial guidelines, we don't feel the need to review them as sales should resume and the waiting time for billing customer inquiries are declining. We have put a dedicated team in place on that front too. It is the waiting time online that could still be a little bit longer and we're working very hard on this. I would also like to remind everyone that this type of transformation takes place only every few decades. So it's not -- it's a one-time and we are going to gain a lot of benefits from it. So the benefits on the customer experience all the -- it's the foundation to our digitization program as well as improve efficiencies on the operational side. So we worked very hard and we did not hesitate to hire additional call center agents to reduce the waiting time and, as I said, the metrics are already looking much better. So we think, as Louis described, Q1 is going to be as Q4 and things will improve starting immediately in Q2.
And the comment about Q1 and Q4 being similar, is that -- are you referring to both the financials and the PSUs?
It's on the PSU front, Jeff. Yes, obviously, as you know, we have cyclicality in our numbers, while we, as you know we provide guidance at the consolidated level and not by quarter, by year. So I am not sure I would want to guide for a quarter for a specific business unit, but in terms of PSUs, basically, that's how we look at it and then we'd be sort of back to normal.
Okay. Maybe we'll move onto to wireless, something that we've talked about a lot last call, but wasn't really mentioned in your opening remarks, perhaps, Philippe, I can direct the question to you and your thoughts about the wireless spectrum that you acquired and how you plan to leverage it and what are your thoughts looking ahead in terms of what would you may or could do with that spectrum?
Okay, well. Let me start with the spectrum that was acquired in the 2.3 and 2.5 bands. So we planned this very carefully and it's absolutely in line with the precedent transaction, so we feel we were very successful in winning the areas we wanted to obtain for a price of $24.3 million. So now when I -- before we look forward, I'd like to remind you that we still believe -- fundamentally believe that we don't need to invest in wireless to preserve our competitive position on the broadband side of our business and we gave Rogers in the past as example. They are operating wireless and their cable side. Well, I will let you draw your -- your conclusions, but we spoke about that in the past. Now we have a very strong competitive advantage with wired and broadband networks and it's important in an environment where more and more OTT type of application and video application that requires significant bandwidth, they need these networks. So we have them and we will continue to enjoy and benefit from this strong competitive position.Now looking forward, we see wireless as an opportunity and we've described this in the past as well. If we pursue such an opportunity, it will have to be within a reasonable capital cost and it will have to return above our cost of capital. So that's one. It has also to be within our financial means and leverage target, that's also very important and we are still looking from a strategic priority to invest in US cable expansion. So whatever we do in the wireless, we'll be -- we'll make sure that we have all the room we need to execute on our US cable expansion and further develop our Canadian networks as well. So wireless is not the first priority, it is an opportunity we're looking to develop.
Your next question comes from the line of Vince Valentini from TD Securities.
Yes, thanks. Phil, I will give different question. We just hit that one from a slightly different angle. Would you be able to just say if you've had any discussions with anybody about any sort of wholesale or MVNO deal in the past couple of months?
Thank you, Vince, for this question. I'll take a different angle on your question as well. As wireless technology evolves from 2G, 3G, 4G and now 5G, the size of the coverage of every cell is smaller and smaller, the deep fiber that these network requires suggest that one has to make a lot of investment. We are fortunate in the sense that we have networks with really deep fibers and as the new generations of wireless technology takes place, network partnerships will naturally have to be developed further. So you will see in the future more and more network partnerships, as we need very, very dense network. So that's how I'd like you to look at this question.
Okay, fair enough. Second question on the cable subscriber numbers. You mentioned a few times in the release and on the call that you delayed sort of normal marketing activities to let the organization focus on getting the call centers back to normal and new systems up and running. If that's the case, can you confirm to us that there have been no degradation in your churn rates for either video or Internet in either Q3 or Q4 when we saw these weaker subscriber numbers?
I'd say it's primarily related to the lack of marketing while we were transitioning, but when you do so you have a normal -- you have a normal churn going on at the same time. We did we did experience an overflow in our call centers, which explains the additional costs we incurred as well to staff up, but there was still an overflow of this. So it does impact churn a little bit during the period, but I would say the main story is an acquisition story during that period.
And last one, can you just update us on the new commercial contracts that you won in the Miami market. If we start to see any revenue from those in Q4 and how does that ramp up as we go through the first half of 2019?
Well, the market in Florida,we have -- the size of these contracts and the size of opportunities are a much bigger, they are different type of contracts. They take a little bit of more time to secure and to build and to commission. So some numbers that sometimes we expect in the quarter are moving to the next quarter and that's what happened last quarter, moving from one quarter to the next. But we see a -- the pipeline that we see pleases us and it's just the variability of quarter-to-quarter to activate the customers.
And if I can add on this. We, we just closed on the FiberLight transaction in Florida. As you know we had bought the dark fibers of that company initially and we needed clearance basically to buy the company per se, which had customers already, so that closed in October. So we'll be able to have a wider reach basically in Florida through that -- through that acquisition.
Okay. Sorry, just to clarify what I heard that you had expected some of the revenue in Q4, but that didn't happen, it's got pushed into Q1, did I hear that correctly?
For some properties, it is correct.
Your next question comes from the line of Matthew Griffiths from Bank of America Merrill Lynch.
Thanks a lot. I was just wondering if you could delve into the digitization opportunity that the new system being installed kind of can give you? I am wondering if any kind of benefit might be included in guidance or the pace at which, going forward, you might be able to realize some of these benefits that will show up in the financials and maybe just some of the work streams that you might be pursuing, any detail would be helpful?
Thank you, Matthew. Well, it's not only forward looking. Let me start by saying that this is already in motion, for example, we've already introduced new self-help videos and we continue to promote digital marketing automation, more so on the business sector for now and it's going to just amplify over time. The new CMS platform is the foundation of this digital transformation. We needed the platform to create all the enablers for many things. For higher online conversion, that one is obvious, the enhanced customer service, we will be able to drive to self-serve and self-care, so everyone is kind of expecting that, but the customization of service as well will be important. So customers will be able to tailor the services to better meet their needs and let's not forget about the e-billing adoption rate. We will be able to do even better there and all these expected benefits are already included in the F-19 financial guidelines.
Your next question comes from the line of Sanford Lee from Macquarie.
Hi, there, thanks for taking my question. Between cable ops with benefit obviously from lower competitive fiber overlap. What's your view on 5G fixed wireless Internet services as, you know a potential disruptor to the cable Internet growth story for Canada and the US, [indiscernible] just that it only works economically in the wireline footprint, which is good, but what about the US, are you seeing more aggressive moves from players like Horizon and AT&T.
Well, the wireless technologies, remember that wireless is the last link to the customer, but there -- there is a need for very capable fiber network beyond that. So first, you've got to build deep fiber networks. In the territory we serve, which are not dense urban, but mostly suburban and rural areas, the economics are proving challenging, so we are not expecting in our US territories a major overlap from fixed wireless or mobile wireless technologies immediately. Other cable operators in urban markets will phase them first. So we expect the impact on our side to come over time, but it's going to take a long time. The economics are challenging.
Great. Appreciate that. And I guess somewhat on a [indiscernible] issue, US cable valuations have compressed. And a large part of it is due to society threat. Has that impacted your prospects for M&A or has it, as far as M&A keep valuations go?
Well, as you know where we're focused right now on deleveraging. So we should be close to our target by the end of the fiscal year. We're always on the lookout. I must say there hasn't been much action in terms of transactions -- announced transactions in the past probably 6 months or so. So it's-- it would be a bit difficult to answer. I think there's many things to consider in these transactions, including tax rates have changed as well but certainly, we've seen some compression if you go back a year in terms of multiples in the US. So when it comes we have to look at each one, which have their own, their own characteristics.
Right. You want -- on the MD&A mentioned that your 2019 guideline for net debting does 3.0x and I see this kind of excludes any potential spend on wireless. Can you say what you're up or I guess target range is if you were to include everything?
Well. So you're right, it's a guideline generally which should include everything but when we lever up and it's typically I am not necessarily answering for a wireless, I'm answering mainly for acquisitions. Usually when we lever up or you can get close to 4x and looking at our debt structure and maintaining our investment grade rating on good chunk of our debt and typically what we do that's the consolidated number. The reality is we typically lever up in the US first through our separate structure. And then if we need to then we do something in Canada as well, but the consolidated number, I would say, target is 3, higher -- higher bound would be around 4 acquisitions.
Right. And very lastly, will there be a new CRM system implementation in the US.
No, we're satisfied with what we have there, it's a different system and it's been in use for a long time. It's actually -- it's actually I would say similar to what we just did in Canada, so it's been -- it's been implemented before in the US, whereas in Canada we had a lot of in-house systems, which eventually have to be changed.
And it has the enablers we're looking forward to digitize the US platform as well and bring the benefits I just described earlier. Right.
[Operator Instructions] Your next question comes from the line of Drew McReynolds from RBC.
Yes, thanks very much and good morning. Welcome, Philip. Just a clarification or drilling down a little bit more into the Southern Florida expansion, can you just speak to, the kind of run rate business that is included in fiscal 2019 guidance and just how that could change based on your pipeline in terms of the contribution looking over the medium term. Just trying to size up this opportunity frankly. And in addition, on Atlantic Broadband, talk to the sustainability of the EBITDA margin, which clearly is industry leading, but you will be putting some investment into growing parts of that business.
Sure. So in terms of run rate, I don't think I will breakout Florida separately. Actually, we've been in Florida, which is our second largest state in the US for a while. So -- but what we've decided to do recently, in the past year is add more CapEx to that and then buy FiberLight, which is more of a CapEx avoidance story in addition to obviously serving the business customers we just acquired through that transaction. That being said, I would say through the extra effort which required some additional staff as well to develop the market faster, I would say initially it's deficit, we moved to breakeven, we are a bit past that now. And then you get into EBITDA contribution and then it ramps up. As you know, in terms of CapEx, we were in the last year in 2018, we were in for ABB in the high 20s, which included the dark fiber is we bought from FiberLight initially for about -- about CAD 20 million and we are aiming this year actually to be in the low 20s and over time as we ramp up, I think we do have the backbone to do it, so we would expect to get back the low 20.And in terms of margins for ABB in general, you're right. We are -- we are industry-leading and we've been for a long time actually despite their size, what happens normally is because of the content costs are increasing faster than inflation, we pass along those to customers in some form of fashion without necessarily adding a margin on top of it, which preserves our margin in dollars, but has a small impact on the percentage downwards over time. So there's a lot of work we're doing on the cost front, again in both countries actually, so the idea would be to remain where we are and grow it. But I would say there is always this -- this content cost headwind we have to fight, so we've --, we have to sip it out, but I would not expect something dramatic in terms of changes in the future.
Okay, thanks, Patrice. And then one last one on the free cash flow priorities. Certainly doesn't sound like much has changed. You do certainly continue to increase the dividend quite nicely each year. Just wondering what drives the quantum of the annual dividend growth. Is it roughly to measure it with free cash flow growth or is this something where your payout ratio can actually rise over time.
Yes, so we're typically keeping our payout ratio between 25% and 35%. We don't necessarily have a hard number that we need to meet every year. In the coming year, we will be in the low end of that range. So I think we still have some room to grow. We obviously want to keep some cash flows in the end to reduce debt to be able to make acquisitions. So I would not expect necessarily to be -- to pay out most of our cash flows and dividends over time, but I think for some time we have some -- we have some leeway. I want to predict what we'll do a year from now obviously, but that's the idea. And we felt this year with the significant rise in the expected free cash flows of a bit above 20% if you take the midpoint, that we have an ability to maintain the 10% growth rate and dividends like we did in prior years.
[Operator Instructions] Your next question comes from the line of Maher Yaghi from Desjardins Bank.
Thanks for taking my question. I wanted to ask you on MD&A discussing that you received the higher volume of billing inquiries because of improved bill layout, I'm kind of puzzled. Just wanted to understand what is -- how would you interpret this generally clients are asking questions when they see the bill more clearly. And the second question, how -- so I'm trying to figure out your guidance for 2019, you kept it the same, but you had some slippage as you -- as you talked about in your transition for your new IT system. So what levers that you pull on to be able to continue to stay within the guidelines for 2019, even though you had some slippage compared to what your initial expectations were in terms of revenue generation cost and PSU loading.
Okay, thanks, Maher. Let me take the first part of your question on the system and the transition, with the new system on billing. Well, there are 2 things to explain this. First, yes there is a bill layout and sometimes customers have questions just to orient themselves in the new layout, but there is also another item, the bill cycles have changed for big number of customers. So new build cycles usually triggers other type of questions as the price is changing, the number of days on the bill is changing. So the bill presentation as well as the timing of cycles.
So -- and on the second question on the guidance, it's a good question. I would say, our fourth quarter was lower than what we had initially expected because of the implementation of the CRM, so we're starting the year with a slightly lower numbers, that's one of the reasons. The other one is obviously we do have some flexibility on how we invest and control our costs from year-to-year. So in times like these, where we want to maintain our guidance basically with a slightly lower PSU situation, then we take measures to do it. It's spread across different measures and that's why also we generate the highest margin in Canada in the wireline business. So it's not a thing we do on an everyday basis, but definitely we'll be focused on this in the coming year.
Is it fair to say, Patrice, that it's mainly on the cost side that you're going to try to deliver the financial results to strive push past a bit lower than before?
Well, we will definitely try on both, delivering the revenues as well through our different initiatives we talked about digitization. That being said, these take a bit longer time to implement and be successful with, the cost is something you can act upon a bit quicker. So I would say yes, you're right. That being said, we will definitely try to maximize what we now have in tool -- in terms of tools to maximize our revenues as well.
So from and we've said this before the -- in the period between April and August we almost had to stop marketing activities and we were idling on the sales side. After this -- this period in August, where we resume our marketing and sales, PSUs have come up, but we went through a long period of reduced activity on the sales side, now that that side has resumed and the engine is on -- is producing more PSUs. So on the top line, you'll see an improvement and we're managing the cost to make sure the EBITDA comes where we expect it to be as soon as possible.
Understood, and one last question on the billing cycle change and can you remind us when you'll usually implement price increases across your area in Canada and is there going to be a change in the timing of the price increase because of some of the movements of this change in advanced integrated system.
Yes, so it varies from year-to-year. It's not always the same period. So last year, what we did is we implemented a price increase in September in Ontario and in November in Quebec. So it's a mix of the 2 and Ontario was the bigger region for us than Quebec. This year because of the change of the CRM system, we did not want to introduce the price increase at the same time. So both provinces will be done in mid-November. So when you look at Q1 and this is what Louis was referring to in his opening remark, there will be a slight delay in implementation because last year was a mix of September and November and this year is November.
[Operator Instructions] Your next question comes from the line of Sanford Lee from Macquarie.
Hi, thanks for the follow-up. Based on the reported organic growth rates for US cable broadband implied ARPU at MetroCast seems to be significantly higher than the non-MetroCast regions. Can you give any idea, I guess your view on further growth potential there at MetroCast. Again, is there an issue that it's slower growth going forward to the -- lower business ARPU versus retail.
So well, basically, as you know, we present the information together in terms of terms of PSUs. When we bought MetroCast, we had a plant basically to have in financial numbers, not necessarily just PSUs, to have basically a period of increased growth. So that was the plan and it's actually what we're delivering on and that came from the fact that the penetration rates of MetroCast were lower than what we thought we could do with the business, especially by introducing a new video platform. So we just introduced TiVo, increasing speeds on Internet. So this is now put into place. TiVo is close to being done, the speed upgrades are close to being done as well. All the back office has been done for a long time. So I would say we're now seeing the benefits of doing this and it's according to plan, whereas the rest of the business is doing nicely. It's growing nicely and I'm excluding obviously the new areas in Florida, which are growing faster, but I would say otherwise I wouldn't see there is necessarily a change in the way operating in the former ABB systems.
Your next question comes from the line of Vince Valentini from TD Securities.
Yes, sorry for coming back again. But just wanted to clarify a couple of things. The Miami progression has been dealt with going through 2019 impacting your growth rate, but what I haven't heard anything about Kirkland and the new PODs going in it. Is that something where you would start to see some of these revenues ramp-up, maybe not in the first couple of quarters, but in the back half of the year as the construction gets done and a new customer comes online.
Well, that's exactly what's happening and Louis pointed to that. So this investment was made for a very large company that has been with us since the beginning in early 2016. They have needs for quite sophisticated technology expansion that we are helping them with. So in the back half of the year, you'll see some benefit, but most of the revenues are actually going to hit in 2020.
Okay, and Philippe, what we're talking about that is, how do I -- how do I phrase this, but is that a potential catalyst for you and the board and Louis to say, we've fully stabilized the Peer 1 business and it's back to sort of better revenue growth with those Kirkland revenues coming on and maybe that's a time where you could explore sale and get a better valuation and selling at a time when it's somewhat distressed.
Well, I'm very happy that you've noticed the business as stabilized and EBITDA in constant dollar is stable. We have generated a meaningful unlevered free cash flow in the last 2 fiscal, $34 million in '17 and $29 million in '18. This year we are expecting a low single-digit growth and free cash flow a little bit less because of the Kirkland expansion and all the focus is on -- right now on sales, marketing and serving our customers in the best way and we are growing the top 20 customers in this business. So we're pleased with that.
Okay. And last, this is probably more for Patrice, just I want make sure I understand your guidance again and how you show it. So in the Q3 MD&A you said you're using a 1.26 exchange rates, now you're saying 1.28, but your guidance is only growth rates and it's on a constant currency basis. So what is the difference through 1.26 and 1.28 or is it basically saying you -- you've now rebased all of your prior 12 months to 1.28 and off of that exchange rate you expect the guidance for revenue and EBITDA growth for next year's, so when in fact the dollar amounts are higher, but the percentage growth hasn't changed, is that the right way to think about it?
Yes, well, okay, so sorry for the confusion. So just for everybody on the line. As you know, we changed the way we report because the FX rates have big impacts on the dollars ultimately, because of our growth in the US. So our growth rates are actually in constant dollars. And the reason why we changed the footnote in terms of foreign exchange is we used last year's number. The only line that's really impacted by this is the CapEx line rather than give a growth rate for CapEx because it's more spotty right there from 1 year to another, especially when we make an acquisition, we put it in dollars and those dollars are converted at that rate. But otherwise, you can think of organic, non-impacted by FX rates.So if you want to make -- if you want to model this going forward and you can choose the exchange rates you want obviously, it's today higher than 1.28. You can take last year's numbers, multiply by the growth rate and make the delta for exchange rate. And we can talk more about this if you want separately, but all the information is there, but it's in different places in our annual report. Is that clear?
Yes, I think so. Thank you.
There are no further questions. At this time, Mr. Ouimet, I turn the call back over to you.
Okay. Well, thanks everybody for being here today, we're going to be reporting on our first quarter results in January and in the interim, feel free to call us if you have any questions.
Thank you, have a good day.
This concludes today's conference call. You may now disconnect.