Q1 2025 Cogeco Communications Inc Earnings Call

Operator 3: Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Q1 2025 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patrice Ouimet, Chief Financial Officer of Cogeco and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.

Speaker Change: Good day and welcome to Cochico, Inc. and Cochico Communications, Inc. Q1 2025 earnings conference call.

Today's conference is being recorded.

Speaker Change: At this time, I would like to turn the conference over to Mr. Patrick Ouimet, Chief Financial Officer of COGICO and COGICO Communications, Inc. Please go ahead, Mr. Ouimet.

Patrice Ouimet: Thank you. Good morning and happy New Year, everyone. Welcome to our Q1 Results Conference Call. As usual, before we begin the call, I'd like to remind listeners that today's discussion will include estimates and other forward-looking information. We ask that you review the cautionary language in the press releases issued yesterday and in our annual reports regarding the various risks, assumptions, and uncertainties that can cause our results to differ. With that, I'll now pass the line to Frédéric Perron for opening remarks.

Thank you.

Speaker Change: Thank you. So good morning and happy new year everyone. So welcome to our first quarter results conference call. As usual, before we begin the call, I'd like to remind listeners that today's discussion will include estimates and other forward-looking information.

Speaker Change: We ask that you review the cautionary language in the press releases issued yesterday and in our annual reports regarding the various risks, assumptions, and uncertainties that can cause our results to differ.

Frédéric Perron: Thank you, Patrice. Good morning, everyone, and happy New Year on my behalf as well. We're pleased to report our Q1 results this morning and provide a progress report on several of our initiatives. We take great pride in our rational approach to value creation. Our goal is to drive superior execution, enable sustainable growth, and optimize our capital deployment in order to progressively increase our cash flow delivery over time. Our operational priorities are the same we've been communicating over the past year: drive Canada-U.S. synergies, increase digitization of our sales and service interactions, accelerate advanced analytics, pursue disciplined network expansion, and cross-sell wireless. The delivery of those five priorities is orchestrated through a structured 3-year transformation program with over 150 initiatives and associated financial KPIs. We're delighted to report that we're making strong early progress on these priorities.

Speaker Change: And with that, I'll now pass the line to Frédéric Perron for opening remarks. Thank you, Patrice. Good morning, everyone, and Happy New Year on my behalf as well. We're pleased to report our Q1 results this morning and provide a progress report on several of our initiatives.

Frédéric Perron: We take great pride in our rational approach to value creation. Our goal is to drive superior execution and enable sustainable growth and optimize our capital deployment in order to progressively increase our cash flow delivery over time.

Frédéric Perron: Our operational priorities are the same we've been communicating over the past year.

Frédéric Perron: Drive Canada-U.S. synergies, increase digitization of our sales and service interactions, accelerate advanced analytics, pursue disciplined network expansion, and cross-sell wireless.

Frédéric Perron: The delivery of those five priorities is orchestrated through a structured three-year transformation program with over 150 initiatives and associated financial KPIs.

Frédéric Perron: We're delighted to report that we're making strong early progress on these priorities.

Frédéric Perron: Our transformation efforts contributed to an expansion of our EBITDA margins. We've now rolled out Breezeline Mobile, and our Canadian wireless effort is well on track to go to market over the coming quarters. We're also seeing interesting customer momentum on both sides of the border. In Canada, we achieved strong Internet subscriber growth again this quarter and are not seeing any signs of slowing down. In the U.S., customer satisfaction is improving quite nicely, and we're seeing early signs of improvement in our subscriber metrics. In Ohio, in particular, we just had our best quarter since we acquired that business. We're cautiously optimistic about the potential for continued steady improvement in our U.S. customer metrics over the coming quarters. Now, let's take a look at our Q1 results. Our Q1 consolidated results were well-aligned with our focus on balancing subscriber growth with financial performance.

Frédéric Perron: Our transformation efforts contributed to an expansion of our EBITDA margins.

Frédéric Perron: We've now rolled out BreezeLine Mobile, and our Canadian wireless effort is well on track to go to market over the coming quarters.

Frédéric Perron: We're also seeing interesting customer momentum on both sides of the border. In Canada, we achieved strong internet subscriber growth again this quarter and are not seeing any signs of slowing down.

Frédéric Perron: In the U.S., customer satisfaction is improving quite nicely, and we're seeing early signs of improvement in our subscriber metrics.

Frédéric Perron: In Ohio, in particular, we just had our best quarter since we acquired that business.

Frédéric Perron: We're cautiously optimistic about the potential for continued steady improvement in our U.S. customer metrics over the coming quarters.

Now, let's take a look at our Q1 results.

Frédéric Perron: Our first quarter consolidated results were well aligned with our focus on balancing subscriber growth with financial performance.

Frédéric Perron: At Cogeco Connexion, our Canadian telecommunications business, we continue to experience strong Internet subscriber growth with our base expanding by 10,700 subscribers under both the Cogeco and the oxio brand. We continue to make progress in our Ontario fiber network expansion in rural areas. This subsidized expansion program will continue through fiscal 2025 and end in fiscal 2026. As a reminder, our Quebec network expansion program was completed in the last fiscal year. We've recorded higher-than-expected customer penetration levels in these greenfield expansion areas, and have now increased the number of Canadian homes passed by nearly 139,000 since the beginning of fiscal 2022. At Breezeline, EBITDA remained stable versus last year as planned, due to a combination of efficiency improvements, lengthening customer tenure resulting from increased satisfaction, and a better mix of higher margin services as our Breezeline customers sign up for increasingly fast Internet speeds.

Frédéric Perron: At Cogeco Connection, our Canadian telecommunications business, we continue to experience strong internet subscriber growth, with our base expanding by 10,700 subscribers under both the Cogeco and the Oxio brand.

Frédéric Perron: We continue to make progress in our Ontario fibre network expansion in rural areas. This subsidized expansion program will continue through fiscal 2025 and end in fiscal 2026.

Frédéric Perron: As a reminder, our Quebec network expansion program was completed in the last fiscal year.

Frédéric Perron: We've recorded higher-than-expected customer penetration levels in these greenfield expansion areas, and have now increased the number of Canadian homes passed by nearly 139,000 since the beginning of fiscal 2022.

Frédéric Perron: At Breeze Line, EBITDA remains stable versus last year, as planned.

Due to a combination of efficiency improvements.

Frédéric Perron: lengthening customer tenure resulting from increased satisfaction and a better mix of higher margin services as our breeze line customers sign up for increasingly fast internet speeds.

Frédéric Perron: Our US fiber network expansion program added 3,200 new homes passed in the quarter, bringing our total to more than 124,000 homes passed since the beginning of fiscal 2022. Internet subscriber metrics in both our legacy and oxio regions improved in Q1, both on a year-over-year and a quarter-over-quarter basis. With regards to our radio business, Cogeco Media experienced ongoing challenges in the radio advertising market that contributed to lower than anticipated revenue. Digital advertising solutions revenue showed resilient growth again this quarter and continues to provide an increasingly meaningful contribution to the business's overall revenue. We're pleased to report that Cogeco Media's stations remained at the top of the ratings again in Q1. Now, let me turn the call over to Patrice, who will provide more details on our financial performance for the quarter. Patrice.

Frédéric Perron: Our U.S. Fiber Network Expansion Program added 3,200 new homes passed in the quarter, bringing our total to more than 124,000 homes passed since the beginning of Fiscal 2022.

Frédéric Perron: Meanwhile, internet subscriber metrics in both our legacy and Ohio regions improved in Q1, both on a year-over-year and a quarter-over-quarter basis.

Frédéric Perron: With regards to our radio business, Kōjiko Media experienced ongoing challenges in the radio advertising market that contributed to lower than anticipated revenue.

Frédéric Perron: However, digital advertising solutions revenue showed resilient growth again this quarter and continues to provide an increasingly meaningful contribution to the business's overall revenue.

Frédéric Perron: Furthermore, we're pleased to report that CogecoMedia's stations remained at the top of the ratings again in Q1.

Frédéric Perron: Now, let me turn the call over to Patrice, who will provide more details on our financial performance for the quarter. Patrice.

Patrice Ouimet: Thank you, Fred. In Canada, Cogeco Connexion revenue remained stable, driven mainly from a higher proportion of Internet service subscribers under the Cogeco and oxio brands, and a contribution from the NRBN acquisition. Adjusted EBITDA increased by 1.6% due to stable revenue, lower operating expenses, and a gain on sale of assets, partially offset by costs related to subscriber growth initiatives. In the US, Breezeline's revenue declined by 3.4% in constant currency. Although subscriber trends started to show improvement, the cumulative decline in the subscriber base, especially for entry-level services and video cord cutting, more than offset the improving product mix. Adjusted EBITDA was stable, driven by cost reduction initiatives, operating efficiencies, and shifts to higher margin products. Turning to our consolidated numbers for Cogeco Communications. At the consolidated level, revenue declined by 1.6% in constant currency, and EBITDA increased by 1.4%.

Speaker Change: Thank you Fred. So in Canada, Cogeco Connections revenue remains stable, driven mainly from a higher proportion of internet service subscribers under the Cogeco and OXO brands, and a contribution from the NRBN acquisition.

Speaker Change: Adjusted EBITDA increased by 1.6% due to stable revenue, lower operating expenses, and a gain on sale of assets, partially offset by costs related to subscriber growth initiatives.

Speaker Change: In the U.S., Green Line's revenue declined by 3.4% in constant currency.

Speaker Change: Although subscriber trends started to show improvement, the cumulative decline in the subscriber base, especially for entry-level services and video cord cutting, more than offset the improving product mix.

Speaker Change: Adjusted EBITDA was stable, driven by cost reduction initiatives, operating efficiencies, and shifts to higher margin products.

Patrice Ouimet: The decline in revenue was driven by lower revenue in the US, more than offsetting the stable revenue in Canada, while adjusted EBITDA growth was due to growth in the Canadian segment and lower spending at the corporate level. Diluted earnings per share increased by 18.4% due to lower financial expenses, mainly due to the debt extinguishment loss we incurred last year, again relating to a sale and leaseback transaction of a building in Ontario this year, higher-adjusted EBITDA, and fewer shares outstanding resulting from the share buyback we made last year. Capital intensity was 20.4% compared to 19.6% last year, related to higher spending in the US. Excluding network expansion projects, capital intensity was 17.4%. Free cash flow and constant currency increased by 7.8%, largely due to proceeds received in connection with a sale and leaseback transaction of a building and higher adjusted EBITDA.

Speaker Change: The decline in revenue was driven by lower revenue in the U.S., more than offsetting the stable revenue in Canada, while adjusted EBITDA growth was due to growth in the Canadian segment and lower spending at the corporate level.

Speaker Change: Diluted earnings per share increased by 18.4% due to lower financial expenses, namely due to the debt extinguishment loss we incurred last year.

Speaker Change: Again, relating to a sale and leaseback transaction of a building in Ontario this year, higher adjusted EBITDA and fewer shares outstanding resulting from the share buyback we made last year.

Speaker Change: Capital intensity was 20.4% compared to 19.6% last year, related to higher spending in the U.S.

Excluding network expansion projects, capital intensity was 17.4 percent.

Speaker Change: Free cash flow and constant currency increased by 7.8% largely due to proceeds received in connection with a sale and leaseback transaction of a building and higher adjusted EBITDA.

Patrice Ouimet: Our net debt to EBITDA ratio was 3.4 turns at the end of the quarter, up 0.1 turn from last quarter, mainly due to the exchange rate, which impacts our US-denominated debt. We continue to target a net debt to EBITDA ratio in the low 3 turns range over time. We have declared a quarterly dividend of CAD 0.922 per share. At Cogeco Inc., revenue in constant currency decreased by 1.8%. Adjusted EBITDA grew by 1% as a result of Cogeco Communications' performance. Media operations revenue decreased by 7.8% due to a challenging competitive market in the radio advertising market, partially offset by positive contributions from digital advertising revenue. Diluted earnings per share increased to CAD 3.09 from CAD 2.21 a year ago, mainly as a result of the large share buyback conducted in Q2 of last year.

Speaker Change: Our net debt to EBITDA ratio was 3.4 turns at the end of the quarter, up 0.1 turn from last quarter, mainly due to the exchange rate which impacts our U.S. denominated debt.

Speaker Change: We continue to target a net debt to EBITDA ratio in the low 3 turns range over time.

Speaker Change: And we have declared a quarterly dividend of 92.2 cents per share.

Speaker Change: At Kojico Inc, revenue and constant currency decreased by 1.8% and adjusted EBITDA grew by 1% as a result of Kojico Communications' performance.

Speaker Change: Media operations revenue decreased by 7.8% due to a challenging competitive market in the radio advertising market, partially offset by positive contributions from digital advertising revenue.

Speaker Change: Diluted earnings per share increased to $3.09 from $2.21 a year ago, mainly as a result of the large share buyback conducted in Q2 of last year.

Patrice Ouimet: A dividend of CAD 0.922 per share was also declared for the quarter. Now let's discuss Cogeco Communications' financial guidelines for fiscal year 2025, which we first provided to investors in October. With Q1 results generally in line with our expectations, we are maintaining our annual guidelines. As relates to Q2, we expect both consolidated revenue and adjusted EBITDA in constant currency to decrease in the low single digits compared to last year, as competitive pressures and investments in the business create more difficult year-over-year comps. Capital intensity is anticipated to be approximately 200 basis points above Q2 of last year. At Cogeco Connexion, as we lap the acquisition of NRBN and expect Q2 revenue to decrease in the low single digits due to ongoing customer growth being offset by competitive pricing pressures and lower video and wireline phone subscriber base.

Speaker Change: And a dividend of 92.2 cents per share was also declared for the quarter.

Speaker Change: Now, let's discuss Kojico Communications financial guidelines for fiscal year 2025, which we first provided to investors in October. With Q1 results generally in line with our expectations, we are maintaining our annual guidelines.

Speaker Change: As it relates to Q2, we expect both consolidated revenue and adjusted EBITDA in constant currency to decrease in the low single digits compared to last year, as competitive pressures and investments in the business create more difficult year-over-year outcomes.

Speaker Change: Capital intensity is anticipated to be approximately 200 basis points above Q2 of last year.

Speaker Change: At Cogeco Connection, as we lap the acquisition of an RBN,

Speaker Change: expect Q2 revenue to decrease in the low single digits due to ongoing customer growth being offset by competitive pricing pressures and lower video and wireline phone subscriber base.

Patrice Ouimet: Adjusted EBITDA is expected to decrease in the mid-single digits, reflecting the lower revenue, higher content costs, and reinvestments in our transformation. At Breezeline, we expect a mid-single digit decrease in revenue, reflecting the competitive environment and video cord cutting, and also a low single-digit decrease in adjusted EBITDA as lower video cutting costs and OpEx discipline only partially offset the decline in revenue. Cost reduction initiatives are anticipated to contribute to EBITDA growth at Breezeline in subsequent quarters. Below the EBITDA line at a consolidated level, we expect our D&A expense to be slightly above last quarter due to a higher level of capital assets. With our restructuring program now behind us, we expect acquisition integration and restructuring costs to be approximately CAD 4 or 5 million in Q2, and we expect our Q2 financial expense to be in line with Q1.

Speaker Change: Adjusted EBITDA is expected to decrease at the mid-single digits reflecting the lower revenue, higher content costs, and reinvestments in our transformation.

Speaker Change: At BreezeLine, we expect in Q2 a mid-single-digit decrease in revenue, reflecting the competitive environment and video cord cutting.

Speaker Change: and also a low single-digit decrease in adjusted EBITDA as lower video content costs and OPEX discipline only partially offset the decline in revenue.

Speaker Change: Cost reduction initiatives are anticipated to contribute to EBITDA growth at Breeze Line in subsequent quarters.

Speaker Change: Below the EBITDA line, at a consolidated level, we expect our DNA expense to be slightly above last quarter due to a higher level of capital assets.

Speaker Change: With our restructuring program now behind us, we expect acquisition, integration and restructuring costs to be approximately $4-5 million in Q2, and we expect our Q2 financial expense to be in line with Q1.

Patrice Ouimet: At Cogeco Inc., we have issued the same financial guidelines as Cogeco Communications, with the exception of capital expenditures, and we are maintaining such guidelines. Now Fred and I will be happy to take your questions.

Speaker Change: At Cogeco, Inc., we have issued the same financial guidelines as Cogeco Communication, with the exception of capital expenditures, and we are maintaining such guidelines. And now Fred and I will be happy to take your questions.

Operator 3: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If using a speakerphone, please lift the handset first before pressing any keys. Your first question will be from Stephanie Price at CIBC. Please go ahead.

Speaker Change: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by 2.

Speaker Change: And if using a speakerphone, please lift the handset first before pressing any keys.

Speaker Change: And your first question will be from Stephanie Price at CIBC, please go ahead.

Stephanie Price: Morning. Happy New Year.

Patrice Ouimet: Good morning.

Stephanie Price: Interesting in the US, you mentioned a decline in the subscriber base, especially for entry-level services. Can you talk a little bit more about that? Are you still seeing a headwind from ACP or is it a more sustained change in customer buying behavior you're seeing in the US?

Good morning. Happy New Year.

Speaker Change: In the U.S., you mentioned a decline in the subscriber base, especially for entry level services. Can you talk a little bit more about that? Are you still seeing a headwind from ACP, or is it a more sustained change in customer buying behavior you're seeing in the U.S.?

Frédéric Perron: Hi, Stephanie. It's Fred. The ACP impact is over. The phenomenon that we're seeing is the same essentially as the previous quarter, which is the impact of FWA and entry-level customers going to FWA. Those customers who do go to FWA tend to have a lower ARPU than the average. As it relates to the competitive environment in the US more generally, I would say it's relatively stable, Stephanie. The good news that we're seeing is some of the players building fibers are actually taking steps recently to differentiate on service and other features other than price. That we saw as good news, but overall, US competitive environment still elevated but stable.

Hi Stephanie, it's Fred. The ACP, in fact, is over.

Speaker Change: The phenomenon that we're seeing is the same, essentially, as the previous quarter, which is the impact of FWA.

Speaker Change: and entry-level customers going to FWA. So those customers who do go to FWA tend to have a lower ARPU.

than the average.

Speaker Change: as it relates to the competitive environment in the U.S. more generally.

I would say it's relatively stable, Stephanie.

Speaker Change: And the good news that we're seeing is some of the players building fibers are actually taking steps recently to differentiate on service and other features other than price.

Speaker Change: So, that we saw as good news, but overall U.S. competitive environment still elevated but stable.

Stephanie Price: Okay. Thank you. Just one more on the US. It does seem like some cable providers have focused on switching customers to 1 gig plus plans. Is that a strategy that Cogeco is thinking about in the US, and how should we think about 1 gig speeds in your footprint in the US?

Speaker Change: Okay, thank you. And just one more on the U.S. It does seem like some cable providers have focused on switching customers to 1GIG plus plans. Is that a strategy that Cogeco is thinking about it in the U.S.? And how should we think about 1GIG seeds in your footprints in the U.S.?

Frédéric Perron: Yeah. 1 Gb speed is available pretty much everywhere in our US footprint. It's a significant share of the new sales that we generate. More than that, of course, we won't disclose for competitive reasons.

Speaker Change: Yeah, so 1Gbps is available pretty much everywhere in our U.S. footprint, and it's a significant share of the new cells that we generate. More than that, of course, we won't disclose for competitive reasons.

Stephanie Price: Okay. Thank you very much.

Patrice Ouimet: Thank you.

Thank you very much.

Operator 3: Next question will be from Drew McReynolds at RBC. Please go ahead.

Okay, thank you very much.

Thank you.

Next question will be from Drew

Drew McReynolds: Thanks very much. Good morning. Excuse me. Two for me. Just shifting gears to competitive environment in Canada. Fred, wondering if you can just update whether you've seen or what you've seen out there with respect to competition, and if you can give us any color on fiber versus non-fiber footprints and maybe any differences between Quebec and Ontario. Then second one, just drilling down a little bit into the residential and commercial breakdown that you provide on revenue. In Canada, if you can give us an update on your ability to sustain that high single-digit year-over-year growth on the commercial side. Obviously, seems to be a continued important growth driver in Canada.

Thanks very much. Good morning.

Excuse me, two for me.

Speaker Change: Just shifting gears to the competitive environment in Canada, I'm wondering if you can just update whether you've seen or what you've seen out there with respect to competition, you know, and if you can kind of give us any color on

Speaker Change: kind of fiber versus non-fiber footprints and maybe any differences between Quebec and Ontario. And then second one, just drilling down a little bit into the residential and commercial breakdown that you provide on revenue.

In Canada,

Speaker Change: Just if you can give us kind of an update on your ability to kind of sustain that high single-digit year-over-year growth on the commercial side

obviously seems to be...

Drew McReynolds: Related to that, on the US side, on the commercial side, just noticed somewhat of a flat revenue trajectory, obviously not incorporating FX changes, but just what's the outlook on the commercial segment in the US from your perspective? Thank you.

Speaker Change: continued important kind of growth driver in Canada and then related to that on the US side on the commercial side just noticed somewhat of a flat

Speaker Change: revenue trajectory, obviously not incorporating FX changes, but just what's the outlook on the commercial segment in the U.S. from your perspective? Thank you.

Frédéric Perron: Hi, Drew. It's Fred. I'll take the first bit of your question, and I'll let Patrice take the commercial one. As it relates to the competitive environment in Canada, it's similar to what I was saying to Stephanie about the US, in a sense that it's elevated but also stable, versus previous quarters, on the wireline side, of course. We've seen a little bit of a shift in promotional activity from Quebec to Ontario. That's more at the tactical level. Not enough to call it a trend. Again, it's been relatively stable overall. On your question about fiber, we haven't felt or seen much of an increase in fiber upgrades by our competitors. They've already reached quite a high level a while ago. We're competing more with fiber in Quebec than we do in Ontario. There's a fair amount of fiber in Ontario as well.

Frédéric Perron: Hi, Drew. It's Fred. I'll take the first part of your question and I'll let Patrice take the commercial one. As it relates to the competitive environment in Canada, it's similar to what I was saying to Stephanie about the U.S.

Frédéric Perron: In a sense that it's elevated but also stable versus previous quarters on the wireline side, of course.

Frédéric Perron: On your question about fiber, we haven't felt or seen much of an increase in fiber upgrades by our competitors. They've already reached quite a high level a while ago. We're competing more with fiber in Quebec than we do in Ontario, but there's a fair amount of fiber in Ontario as well.

Patrice Ouimet: As it relates to our own performance, it's similar as what we've seen in previous quarters where we hold our own. We tend to hold our market share in areas where we do compete with fiber, and we tend to grow market share in areas where we're competing with other technologies. On the revenue, obviously it can change from a quarter to another. I would say there's different products that we offer, the key one being the internet product. We have a lot of small and medium-sized businesses. If you look at Canada, the expansions we've been doing in Quebec, we're doing in Ontario, opens up new markets on the commercial front. Just on our legacy footprint, we keep pushing faster products as normally small businesses will want to use faster products.

Frédéric Perron: So on the revenue, obviously it can change from a quarter to another, I would say there's different products that we offer, the key one being the internet product. We have a lot of small and medium sized businesses, so if you look at Canada, the expansions we've been doing in Quebec, we're doing in Ontario, opens up new markets on the commercial front.

Frédéric Perron: And just on our legacy footprint, we keep pushing faster products, as normally small businesses will want to use faster products.

Patrice Ouimet: I would say the idea is to keep growing this business and hopefully in the high single digits, which we've been able to do over time generally. In the US, I would say similar story. That being said, we have a bit more video in there and places like in Florida and different places on the coast. Selling video only is not something that we focus on anymore. We are losing some of these contracts which are not very attractive financially for us, and that's a choice we're making. I would say that plays against the growth in the internet sales. Going forward in the US, it's difficult to say where the revenue will be on the commercial front, but the profitability of that product is improving over time.

Frédéric Perron: I would say, so the idea is to keep growing this business and hopefully in the high single digit, which we've been able to do over time generally.

Frédéric Perron: In the U.S., I would say similar story, but that being said, we have a bit more video in there and places like in Florida and different places on the coast.

Frédéric Perron: And selling video only is not something that we focus on anymore.

Frédéric Perron: So, we are losing some of these contracts which are not very attractive financially for us, and that's a choice we're making, so I would say that.

That plays against the growth in the internet sales.

Frédéric Perron: So, going forward in the U.S., it's difficult to say, but where the revenue will be on the commercial front, but the profitability of that product is improving over time.

Drew McReynolds: That's great, Colin. Thank you very much.

Operator 3: Thank you. Next question will be from Vince Valentini at TD Cowen. Please go ahead.

That's a great color. Thank you very much.

Thank you. Next question will be from

Vince Valentini: Yeah, thanks very much. First, your free cash flow guidance for the year, did that include the CAD 16.5 million proceeds from the sale leaseback transaction?

Speaker Change: First, your free cash flow guidance for the year, did that include the $16.5 million proceeds from the sale-leaseback transaction?

Patrice Ouimet: Yes, it did, because by the time we issued our guidance, we knew that we were very close to actually selling this building, so we did include it.

Speaker Change: Yes, it did, because by the time we issued our guidance, we knew that we were very close to actually selling this building, so we did include it.

Vince Valentini: Okay. Even with this pretty big number in Q1 versus where street estimates were at, you don't think you're trending to the high end or above your free cash flow guidance for the year?

Speaker Change: Okay, so even with this pretty big number in the first quarter versus where street estimates were at, you don't think you're trending?

Patrice Ouimet: We're still comfortable with the range. We're fairly busy right now in Ontario building this region. As you know, these are mainly subsidized areas. That's where we have more capital than usual this year.

Speaker Change: to the high-end or above your free cash flow guidance for the year.

Speaker Change: We're still comfortable with the range. We're fairly busy right now in Ontario building this region, as you know. These are mainly subsidized areas, so that's where we have more capital than usual this year.

Vince Valentini: Okay. Just can you give us any detail on that sale leaseback? What kind of building was it, and what kind of ongoing lease costs will you have to incur now?

Speaker Change: Okay, and just can you give us any detail on that sale lease back? Like what kind of building was it and what kind of ongoing lease costs will you have to incur now?

Patrice Ouimet: Yeah. It's not a traditional sale leaseback where we keep the asset long term. It is a leaseback because we need it in the short term for 2 years. It's really the way you have to think about it is we're actually selling the building. It's a technical building basically, and we will be moving equipment to a new area. The lease cost is not meaningful. The sale proceeds were a bit more than CAD 16 million. That was a building in Ontario, and the lease cost is not a material amount for 2 years. Eventually, this equipment will move to another location.

Speaker Change: It's not a traditional leaseback where we keep the asset long term. It is a leaseback because we need it in the short term for two years.

Speaker Change: It's a technical building, basically, and we will be moving equipment to a new area. So the lease cost is not meaningful. The sale proceeds

Speaker Change: were a bit more than $16 million. That was a building in Ontario. And so the lease cost is not a material amount for two years. Eventually, this equipment will move to another location.

Vince Valentini: Okay. Sorry, just a couple more. The EBIT outlook for Q2 in Canada. In Q1, you're up 1.6% year over year, you're saying it's going to be down low single digit. Low? Make sure I get that right. Sorry, you're saying it's going to be down mid-single digits in Q2. That's a heck of an inflection. We see the sub numbers. There's nothing that seems to indicate from the subscriber numbers flowing through that there'd be that much of a change. Can we assume this is all just timing of spending on transformation initiatives?

Okay, and so I just took up more of what the...

EBIT Outlook for Q2 in Canada.

Speaker Change: So in the first quarter you're up 1.6 percent year over year and you're saying it's going to be down

Speaker Change: Low single digit low major. I get that right. Sorry. You're saying it's gonna be down

Speaker Change: mid-single digits in the second quarter that's that's a heck of an inflection is there I mean we see the sub numbers there's nothing that seems to indicate from the sub subscriber numbers flowing through that there'd be that much of a change that can we assume this is all just timing of spending on transformation initiatives

Patrice Ouimet: Yeah, it's a mix of things. There is some of that for sure. We are also seeing some pressure on revenue. First of all, we bought NRBN last year in the middle of the quarter. There will be no benefit at the end of the quarter coming from NRBN. There is still some ARPU pressure in the market, so it's a competitive market. We have an increase in content costs versus last year. Last year, I had some adjustments in the content costs. It regularly happens when the situation evolves, so we're not planning to see some of them this year. I would say it's a mix of these things.

Speaker Change: It's a mix of things. There is some of that for sure. We are also seeing some pressure on revenue. First of all, we bought an RBM last year in the middle of the quarter.

Speaker Change: So, there will be no benefit at the end of the quarter coming from an RBN.

Speaker Change: There is still some ARPU pressure in the market, so it's a competitive market.

Speaker Change: We have an increase in content costs versus last year. Last year we had some adjustments in the content costs. It regularly happens as the situation evolves, so we're not planning to see some of them this year. I would say it's a mix of these things.

Vince Valentini: Content costs is these new channels that Rogers is launching and Corus is rebranded, or is it just regular renewals with all your suppliers?

content causes.

Speaker Change: these new channels that Rogers is launching and of course is rebranded or is it just regular renewals with.

Patrice Ouimet: It's regular renewals. We make adjustments on a regular basis to the accruals we take as well. There was a bit of a distant signal last year as well where we had to make an accrual. This is always a difficult one to estimate. There was a bit of an upside on this last year, which we're not getting this year. It's a mix of things.

with all your suppliers.

Speaker Change: It's regular renewals. We make adjustments on a regular basis to the accruals we take as well. There was a bit of a distant signal last year as well, where we had to make an accrual. This is always a difficult one to estimate. There was a bit of an upside on this last year, which we're not getting this year, so it's a mix of things.

Vince Valentini: Okay. Good color. Thanks, Patrice. Last one, sorry for the long list. In terms of pricing and rate increases in Canada only, we've seen some indications Rogers putting through a pretty significant price increase for internet on 1 April.

Speaker Change: Okay, good color. Thanks, Patricia. Last one, sorry, for the long list. In terms of pricing and rate increases in Canada only, we've seen some indications, Roger's putting through a

Pretty significant price increase for internet on April 1st

Vince Valentini: Directionally similar magnitude coming from Bell in May for internet. They already raised some video and home phone prices in Ontario, Quebec in January and February. Just with that as a backdrop, everything seems to be moving up on price. Can you remind us, you're thinking about rates in Canada and the timing of when we could see some rate increases cycle through for Cogeco Connexion?

I think there's...

directionally similar magnitude.

coming from Bell in May.

For internet they already raised some video and

Speaker Change: home phone prices in Ontario in February, in Ontario and Quebec in January and February.

Speaker Change: So just with that as a backdrop everybody seems to be moving up on price. Can you remind us?

Speaker Change: you're sort of thinking about rapes in Canada and the timing of when we could see some.

Patrice Ouimet: Sure. In Canada, the last price increase we did was in September on video. We do have one coming up in March on internet. This will affect Q3. In the US, as you are asking, we have a price increase that is coming up in February, which will impact both internet and video. Again, that is a bit of Q2, but mostly a Q3 impact.

Speaker Change: Sure, so in Canada, the last price increase we did was in September on video, but we do have one coming up in March on internet, so this will affect Q3. And in the US, as you're asking.

Speaker Change: We have a price increase that's coming up in February which will impact both internet and video.

Speaker Change: Again, that's almost a Q3, a bit of Q2, but mostly a Q3 impact.

Vince Valentini: The March internet increase in Canada, can you quantify that one?

Speaker Change: The March internet increase in Canada, can you quantify that one?

Patrice Ouimet: It depends on the packages. I don't have a simple answer to give you, but it's only for internet. Yeah. It will be similar-ish, Vince, to what we've done in the past.

Speaker Change: It depends on the packages, so I don't have a simple answer to give you, but it's only for Internet.

Vince: It will be similar-ish Vince to what we've done in the past.

Vince Valentini: Okay. Thank you both.

Patrice Ouimet: Thank you.

Vince Valentini: Thank you.

Operator 3: Next question will be from Jérôme Dubreuil at Desjardins. Please go ahead.

Okay, thank you both.

Thank you. Thank you.

Speaker Change: Next question will be from Jérôme Dubreuil at Desjardins. Please go ahead.

Jérôme Dubreuil: Jérôme, thanks for taking my questions. Just as a follow-up to one of Vince's question, with regards to the mid-single, the decline in Canada on EBITDA next Q, is there also a part of the launch of wireless that's in this Q and the items you've been mentioning having an impact on Q2 so far seems to be items that will be true going forward? Also wondering if there's some items that might be more near-term impact.

Jerome Dubreuil: Thanks for taking my questions. Just as a follow-up to one of Vince's questions with regards to the mid-single, the decline in Canada on EBITDA next quarter.

Jerome Dubreuil: Is there also a part of the launch of wireless that's in this quarter and the items you've been mentioning having an impact on Q2 so far?

Jerome Dubreuil: seems to be items that will be true going forward. So wondering if there's some items that might be more near-term impact.

Patrice Ouimet: I wouldn't say in Q2, the wireless investments are going to make that much of a difference. It's more related to the items I mentioned before.

Jerome Dubreuil: I wouldn't say in Q2 the wireless investments are going to make that much of a difference, so it's more related to the items I mentioned before.

Jérôme Dubreuil: Okay. Thank you. Also another one. I was wondering, rural deployment of networks that are subsidized has been one of the items of the new strategy of the company, has been a source of growth for the company for a while now. We're seeing government being maybe a bit more interested in satellite delivery with the recent Ontario contract with the new FCC appointee. Is this something that we should be thinking about in terms of future rural deployment, being maybe more difficult to achieve? Is there other source of growth maybe offsetting this? Thank you.

Okay, thank you.

Speaker Change: Also, another one I was wondering, you know, rural deployment of network that are subsidized has been one of the items of the new strategy of the company, has been a source of growth.

for the company for a while.

Speaker Change: Now, we're seeing government being maybe a bit more interested in satellite delivery with the recent Ontario contract with the new FCC appointee.

Speaker Change: Is this something that we should be thinking about in terms of future rural deployment being maybe more difficult to achieve, or is there other source of growth maybe offsetting this?

Frédéric Perron: Hi, Jérôme, it's Fred. I would say less so for Canada. One to keep in mind for the US. In Canada, we haven't seen any negative impact from satellite technologies in our Quebec rural build or in Ontario rural build so far. All signs point to the fact that Ontario will be as successful as Quebec was. As you know, penetration rates have exceeded our expectations in Quebec. Turning over to the US and the BEAD program, what we're seeing is the topography of homes in the BEAD program is even more rural and even more remote, at least in our areas, than the Canadian programs were. With everything that you know in the political environment in the US and the evolution of the BEAD program, I would say generally we're going to be very careful about that one.

Hi, Jerome, it's Fred. The, I would say, less...

Speaker Change: So for Canada, one to keep in mind for the U.S., so in Canada, we haven't seen

any negative impact from satellite technologies.

Speaker Change: in our Quebec rural build or in Ontario rural build so far.

Speaker Change: and all signs point to the fact that Ontario will be as successful as Quebec was.

Speaker Change: As you know, penetration rates have exceeded our expectations in Quebec.

Turning over to the U.S. and the BEAT program.

Speaker Change: What we're seeing is the topography of homes in the BEAD program is even more rural and even more remote, at least in our areas, than the Canadian programs were.

Speaker Change: And with everything that you know in the political environment in the U.S. and the evolution of the BEAD program, I would say generally we're going to be very careful about that one, and the more time goes by, the less

Patrice Ouimet: The more time goes by, the more cautious and the less interested, frankly, we are about different aspects of that program. We'll keep an eye on it anyways.

Speaker Change: The more cautious and the less interested, frankly, we are about different aspects of that program, but we'll keep an eye on it anyways.

Jérôme Dubreuil: I see. The last one for me. You've been talking about potentially pruning some assets in the US. We haven't been seeing many cable deals there over the last little while. Do you need to be seeing at least one significant cable deal south of the border before you make up your mind on your potential asset pruning there, or you're comfortable with the current market?

I'm seeing the last one for me.

Speaker Change: You've been talking about potentially pruning some assets in the U.S.

Speaker Change: We haven't been seeing many cable deals there over the last little while. Do you need to be seeing at least one significant cable deal south of the border before you make up your mind on your potential asset pruning there, or are you comfortable with the current market?

Frédéric Perron: Yeah. This is one where we don't provide too much comments. You'll understand why. Just to basically mention what I probably have said before, we are reviewing our portfolio of assets, to the extent some assets would make sense, operationally, strategically, and financially. The financial portion is what you're referring to. This is something we could do. It's something we're taking a look at. It doesn't necessarily mean we would need to point to a particular recent transaction to do something. I think that's pretty much what we could say at this point.

Speaker Change: Yeah, so this is one where we don't provide too much comments, you'll understand why, but just to basically mention what I probably have said before.

Speaker Change: We are reviewing our portfolio of assets and to the extent some assets would make sense.

Speaker Change: operationally, strategically, and financially. The financial portion is what you're referring to.

Speaker Change: This is something we could do, and it's something we're taking a look at. It doesn't necessarily mean we would need to point to a particular recent transaction to do something. I think that's pretty much what we could say at this point.

Jérôme Dubreuil: Yeah, fair enough. Merci beaucoup.

Operator 3: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. Next is Matthew Griffiths at Bank of America. Please go ahead.

Yep, fair enough. Merci beaucoup.

Speaker Change: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone.

Griffith: Next is matching Griffith at Bank of America. Please go ahead.

Matthew Griffiths: Hi. Good morning. Thanks for taking the question. First, just on costs related to the transformation initiative.

Hi, good morning. Thanks for taking the question.

Griffith: The first, just on the, on cost related to the transformation initiatives, I guess, you know, at the starting point I would have anticipated this type of, you know, program to be a [inaudible]

Matthew Griffiths: I guess, as a starting point, I would've anticipated this type of program to be a little unbalanced, front-end loaded with costs and back-end loaded with benefits. Given that you have, I think you said 150 initiatives, should we think about the costs that you're going to incur being spread out more ratably over the 3 years rather than being front-end loaded on the costs and back-end loaded on the benefits? Perhaps, it is that way. Some color would be helpful if you're able to provide it.

Speaker Change: on balance, front-end loaded with costs and back-end loaded with benefits.

Speaker Change: But given that you have, like you said, 150 initiatives, should we think about the cost that you're going to incur?

Speaker Change: being spread out more kind of radically over the three years rather than being front and loaded on the cost and back and loaded on the benefits or

Speaker Change: perhaps, you know, it is that way. Some color would be helpful if you could, if you're able to provide it.

Patrice Ouimet: Sure. There are a few elements. One is the reorganization we did to operate the business as one operation. We did achieve these benefits already. I would say most of the other benefits, whether it's costs or related to additional revenue in the way we're operating, will come over time and will be more towards the end. We limited this year, more in fiscal 2026, but especially in the 2027 and 2028 is where we're going to see normally the full benefit of it. On the cost side, there are some costs that we're incurring on a regular basis, because we started working on it, so with limited benefits right now. That being said, over time, I would say, as we talk about certain investments we're making in the digital technologies and they're not major, but these will ramp up a little bit over time.

Speaker Change: Sure. So there are a few elements. So one is the reorganization we did to operate the business as one operation. So we did achieve these benefits already.

Speaker Change: But I would say most of the other benefits, whether it's costs or related to additional revenue in the way we're operating, will come over time and will be more towards the end.

Speaker Change: limited this year, more in fiscal 26 but especially in the 27 and 28 is where we're going to see the normally the full benefit of it. On the cost side

Speaker Change: There are some costs that we're incurring on a regular basis.

Speaker Change: because we started working on it so with limited benefits right now.

Speaker Change: That being said, over time, I would say, as we talk about

Speaker Change: certain investments we're making in the digital technologies and they're not major but these will ramp up a little bit over time but I would say a bit more steady on the costs and the benefits definitely more skewing towards the later portion of the program.

Patrice Ouimet: I would say a bit more steady on the costs and the benefits definitely more skewing towards the later portion of the program.

Matthew Griffiths: Okay, great. That's helpful. Just in the US on pricing. It sounds from your previous answers, and tell me if this is the correct interpretation, that you're experiencing competitive pressures at the low end. You're planning to do a price increase, I'm assuming that the kind of pricing pressure that you're experiencing, it sounds like it's limited to the entry level plans, and it's not having a larger impact on your ability to price those mid-range and higher plans, or is it? I'd be curious to have your color on that.

Speaker Change: Okay, great. That's helpful. And then just in the US, on pricing.

Speaker Change: You know, it sounds from your previous answers, and tell me if this is the correct interpretation, that you're experiencing kind of competitive pressures at the low end.

Speaker Change: You're planning to do a price increase, so I'm assuming that the kind of pricing pressure that you're experiencing, it sounds like it's limited to the entry-level plans, and it's not having kind of a larger impact on your ability to price those mid-range and higher plans? Or is it? I'd be curious if you can have any color on that.

Frédéric Perron: You are correct, Matt. Hi, it's Fred. You are correct. We're still able to execute rate increases in the US, and the pressure is mostly at the low end. In fact, we're starting to announce our future rate increase now to customers as we speak, and we're getting very little negative reaction. Our ability to monetize that is still in place.

Speaker Change: You're correct Matt. Hi, it's Fred. You are correct. We're still able to execute rate increases

Speaker Change: in the U.S. and the pressure is mostly at the low end. In fact, we've announced, we're starting to announce our future rate increase now to customers as we speak and we're getting very little negative reaction. So our ability to monetize that is still in place.

Matthew Griffiths: Okay. If we were able to see an internet ARPU, that would still be trending positively?

Speaker Change: Okay, so if we were able to see kind of an internet ARPU, that would still be trending positively.

Patrice Ouimet: Yes, exactly. That's what we've been doing over the years. The base normally will, over time, get more speeds as well, and it's normal, I guess there are some price increases that we put through. That's normally what we see. Obviously, what you see, you see the blended number, that includes video as well. As you know, there's cord cutting. We do increase prices on video as well, but there is cord cutting as well going on.

Speaker Change: Yes, yes, exactly. And that's what we've been doing over the years.

Speaker Change: The base normally will, over time, get more speeds as well and it's normal, I guess, there are some price increases that we put through.

Speaker Change: That's normally what we see. Obviously, what you see, you see the blended number. That includes video as well. As you know, there's cord cutting. We do increase prices on video as well, but there is cord cutting as well going on.

Matthew Griffiths: Just one more, if I may, and I may have missed it when others were asking about the free cash flow guidance. Are there additional one-off sales of PP&E that are contemplated in the guidance, or was that Q1 sale that you had visibility into when you issued guidance the only one in fiscal 2025?

Speaker Change: There's just one more if I may, and I may have missed it when others were asking about the free cash flow guidance, but are there additional kind of one-off sales of CPNE that

Speaker Change: contemplated in the guidance or was that Q1 sale that you had visibility into when you issued guidance the only one in fiscal 2025?

Patrice Ouimet: It's the only material one. Every quarter we have sometimes small write-offs and small asset sales, which we don't call out separately. That's normal practice, but, yeah, that would be the only one. I would say overall, if we look in the future, when there's opportunities to shrink our base or do these kinds of things, we are looking at it, but I would say there's not another one currently on the horizon.

Speaker Change: Yeah, it's the only material one. Every quarter we have sometimes small write-offs and small asset sales which we don't call out separately.

Speaker Change: So, that's normal practice, but yeah, that would be the only one. I would say overall, if we look in the future, when there's opportunities to shrink our base or do these kinds of things, we are looking at it, but I would say there's not another one currently.

Matthew Griffiths: Okay, great. Thank you so much.

Operator 3: Thank you. At this time, we have no further questions registered. Please proceed.

on the horizon.

Okay, great. Thank you so much.

Thank you.

Speaker Change: And at this time, we have no further questions registered, please proceed.

Patrice Ouimet: Okay, great. Well, thanks everyone for joining us today, and feel free to reach out if you want to have a discussion. Thank you.

Speaker Change: OK, great. Well, thanks, everyone, for joining us today. And feel free to reach out if you want to have a discussion. Thank you.

Operator 3: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.

Speaker Change: Thank you sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time we ask that you please disconnect your lines.

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