Patrice Ouimet – SVP and CFO Louis Audet - President and CEO Andrée Pinard - VP and Treasurer

Ali Pervez - Barclays Maher Yaghi - Desjardins Capital Markets Drew McReynolds - RBC Capital Markets Vince Valentini - TD Securities Sanford Lee - Canaccord Genuity Rob Goff - Euro Pacific Canada Tim Casey - BMO Glen Campbell - Bank of America/Merrill Lynch

Good day. And welcome to the COGECO Inc. and Cogeco Cable Inc. Q3 2015 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. Please go ahead, Mr. Ouimet.

Thank you. Good morning everybody and welcome to our third quarter conference call. Joining me today are Louis Audet, President and CEO; Andrée Pinard, our Vice President and Treasurer; René Guimond, Vice President, Public Affairs and Communications; Pierre Maheux, Vice President and Corporate Controller; and Alex Tessier, Vice President, Corporate Development. Before we begin this call, I would like to remind listeners that the call is subject to forward-looking statements, which can be found in the press releases issued yesterday by COGECO Inc. and Cogeco Cable. I will now like to turn the call to Louis Audet before we proceed with the questions-and-answers period. Thank you.

Thank you, Patrice, and good morning, everyone. It’s pleasure to be with you this morning to discuss the results of the Cogeco Cable Inc. and COGECO Inc. for the third quarter ended May 15 (sic) [31], 2015. Generally speaking, we’re satisfied with the results that were generated by both companies. Let us begin with Cogeco Cable Inc. Revenue is up 4%, reaching $516.4 million. EBITDA is up 4.5%, reaching $239.8 million. At Cogeco Cable Canada, the launch of TiVo in Ontario in November 2014 and in Quebec in March of 2015 is having the desired impact of reducing video customer losses. Our Canadian cable operations showed similar results compared to last year. This is essentially due to timing differences; and our overall guidance remains on target for Cogeco Cable Canada as well as for the consolidated company. In U.S. cable at Atlantic Broadband, our trajectory into positive PSU growth in the U.S. market continues to improve slowly, thanks to our TiVo service. Financial results are very strong with 17% EBITDA growth coming from operating performance and foreign exchange. Subject to regulatory approvals, we expect the close of the Connecticut cable acquisition to occur around September 1st. In the enterprise data sector, EBITDA growth for the third quarter has been 11.4%, despite revenues comparable to last year. This is partly attributable to the organization that is underway and nearing completion. We expect a $50 million reorganization charge for fiscal 2015 and anticipate that that will result a $10 million yearly savings in sustainable cost reductions. On the data center front, pods 3 and 4 at Barrie are currently available and pod 1 in Montréal will be very shortly as a matter of weeks now. Turning now to Cogeco Inc where revenue is up 4.1%, reaching $557.8 million and EBITDA is up 6%, reaching $247 million. We continue to hold enviable radio ratings positions in Montréal and Québec City in particular. The advertising market has improved modestly for radio and out of home in the third quarter. This combined with good cost controls which were implemented very early in the fiscal year has enabled us to generate results actually superior than last year. In conclusion, we have revisited our fiscal 2015 guidance to reflect the impact of the reorganization cost in the enterprise data services segment. We are publishing our fiscal 2015 guidance for the first time today and anticipate very attractive after tax profit and free cash flow growth. Further to a request presented by Cogeco Inc. the audit committee of Cogeco Cable has agreed to an increase in management fees to be paid to Cogeco Inc. effective September 1, 2015 of 0.85% of sales calculated every quarter. This is intended to better align the management fee paid by Cogeco Cable to the cost incurred by Cogeco Inc. and this has been included in our guidance. We would now be happy to answer your questions.

Thank you. [Operator Instructions]. We will now take our first question from the line of Phillip Huang with Barclays. Please go ahead.

Hi, thank you. This is Ali Pervez for Phil. For my first question, could you talk about the competitive footprint growth and overlap for fiber and how that’s driving your promotional and retention activity?

Well, it’s a bit difficult for us to assess the coverage. I think it’s pretty stable right now compared to what we discussed last quarter. So, it would be around I guess 33%. The competitive intensity is pretty much what it used to be. And of course, the way we’re battling in that environment is that we are often the best in class video service which is TiVo and of course the best speed internet services available in the marketplace, a 120 megabits per second in the overwhelming majority of our territories and a 250 megabit per second service in Burlington, Oakville. So, there is competition, there always has been. It is very intensive but we’re managing to generate good results despite that.

Then on the Enterprise segment, and I know in your remarks you mentioned the reorganization but was there anything else specific that drove the top-line weakness in enterprise on the higher churn?

This is not related to market condition. This is more related to the attention we have devoted to bringing Cogeco Data Services and Peer 1 Hosting together. We have had to let a bit in excess of 100 people go cumulatively this year. There are reorganization costs associated with that. And that has been somewhat of a distraction in pursuing better sales. But I expect this to be fully completed by the end of the summer. And we will begin -- we intend to begin the new fiscal year September 1st with all that reorganization work behind us and having a clean slate to resume growing our revenues in the high single-digits and our EBITDA in the low single-digits. We also now have ample capacity in our data centers, in particular further to the upcoming launch of pod 1 in Montréal and the pod 3 and pod 4 in Barrie. So, we will be investing less in data centers next year, which means that we’ll be generating free cash flow in the enterprise data services segment.

And then just one last one for me. On fiscal 2016 guidance, it’s definitely stronger than I think we and consensus was forecasting. Just wondering if you could provide any color on the split between the segment and how you expect the segments to trend individually?

I think what you are seeing is say the U.S. continued strength on the basis of TiVo gaining traction. We expect TiVo to gain a little more traction in Canada, although the market dynamics there are different because in the U.S. the DVR penetration is extremely low whereas in Canada it’s extremely high. So the market dynamics are slightly different. And on the enterprise data segment, as I explained, we’re now -- by the end of summer, we will be firing on all engines. So, there is no magic bullet here, it’s just accumulation of initiatives and efforts at every level.

Your next question comes from Maher Yaghi with Desjardins Capital Markets. Please go ahead.

Louis, I have a question on again on the enterprise business; this quarter’s revenues were flat year-on-year but in your MD&A you say that growth would have been higher without the non-recurring adjustments you recorded last year. Could you quantify what those adjustments were?

Yes, it’s about 2% in terms of difference of the revenues would have been higher instead of being flat would have been positive by 2% because of that.

Okay. Now, I am trying to reconcile this with the fact that in your third quarter of 2014, you also said that results were negatively impacted by non-recurring adjustments at Peer 1. So, if it hurt you last year, shouldn’t this have helped you on the reported basis this year?

We’re basically -- basically you’re comparing three years, but if you compare only two years basically this year with last year, that’s the 2% I am talking about.

In Q3 2014, in MD&A, you say that growth in Q3 2014 was lower as on reported basis because of the adjustment you made in 2014, but then in 2015 you say that the results were lower than what they should have been because of the adjustments you’ve made in 2014. So, if it hurts you in 2014, it should have helped you in 2015 on a year-on-year basis?

I think, Maher, the way to look at this, we can pull out our magnifying glass and look at that, but I think the way to look at this is the following. We acquired a company, not long after that we discovered that we had C-198 conformity issues. We worked on that. That put us behind about a year. And then we were ready to begin the integration which is almost completed now. So, I think the main thing is that we’ve regrouped; we’ve reorganized ourselves, we have centralized all the corporate functions, we have put renewed emphasis on sales; we have eliminated redundant positions and we are now ready to resume growth. I think that’s really the way you should look at it.

So, in terms of reporting, it seems like there might have been readjustments that have been made since year-end 2014 to the operational results because of the continued review that you are doing, like are we done with the financial control review at Peer 1 or it’s still an ongoing thing?

Just to your first question, basically the Q3 of last year has not been readjusted, this is basically the same number as of last year that was your question. And did you want to answer the -- or can you repeat your second question?

I am just trying to know if all the procedures and controls of the Peer 1 have been reviewed and finalized and that’s not ongoing still.

No, that’s right, they have been addressed and what we said earlier in the year, basically the material deficiency that was there at the end of last year, has been removed now. That’s not new from this quarter that was disclosed previously.

Maybe we can take it offline for just trying to figure out the year-on-year thing. But in terms of your guidance, when I look at the growth that you guys are forecasting, you’re looking for growth in 2016 to be between the 4% and 7% on a year-on-year basis. If I adjust for the currency, I think probably you’re going to finish the year at $1.20 on a U.S. basis; you’re forecasting a $1.25. So, it’s about 1% or 1.5% difference in terms of currency, so really organically you’re looking at let’s say 3% to 6% growth. Now when I look at the growth that we’re seeing right now in the Canadian cable operation in terms of revenue, you have, and sorry for my long winded question, but you have passed two price increases in your Q3 results, one in February 2015 and one in April 2014 for about $5 each. Are you assuming also two price increases in 2016 because usually you pass one price increase on because at this point in time, your Canadian operation’s revenue growth is flat? So I am trying to understand how you can turn the businesses so fast to get to get to those growth rates that you’re forecasting?

It’s an interesting question. As you know, we have a tendency to be -- usually we’re more on the conservative side than on the stratospheric side. That hasn’t changed. So considering all the market factors and the initiatives that we have in our plans right now, we are comfortable with that guidance. Now, I recognize that your assessment of our current third quarter is appropriate. It reflects reality, but to me that is not an indication of things to come. It’s an indication of how companies are. There’re periods that are better than others and some disappointments, others are enthralling. So I wouldn’t read too much into this quarter.

And so Louis, could you tell us where do you think the revenue growth is -- well, like I say your optimism about the improving trends in the Canadian cable business, the revenue growth, where is it going to accelerate from; is it on price increases, fiber growth, both?

We are growing our business services, as you know. That continues to be an area of focus where we sell increasingly sophisticated service packages to businesses, whereas in the past selling a fiber connection was an exceptional occurrence. Nowadays with the competition amongst firms, it’s becoming more and more of the requirement. So that and hosted PBX and metro Ethernet and in the not too distant future, hosted software services are products that can be sold to a larger base of users. And so that’s a huge area of growth for us. And of course the traction of TiVo is also an important contributing element in terms of better retention, in terms of higher ARPU. And of course your next question will be, give me statistics, and my answer will be well that’s competitively sensitive information so we’re not going to share it. But I think that should give you a sense of where it’s coming from.

And if I may add, Maher, basically obviously we have our U.S. business which is growing faster than Canadian one and obviously there’s the enterprise segment we discussed earlier on the call, which we expect to resume growth in the future.

And could you give us maybe -- you used to give us PSU growth forecast; you have not done so for 2016. Could you maybe quantify what you’re expecting in PSU growth in 2016?

Well, we’ve made a conscious decision to no longer publish that number and the reason we’ve made this decision is that our job in life as we perceive it is to generate good returns for our shareholders. So, we will make whatever adjustments we have to make during the year to arrive at proper value generation and the focus for us is there. And I think that’s how you should evaluate it.

Your next question comes from Drew McReynolds with RBC Capital Markets. Please go ahead.

Just a couple of clarifications, Louis; you alluded to timing differences just in your opening remarks with respect to the Canadian performance. Can you just kind of drill down into that a little bit more? And then when you’re talking about enterprise, the outlook on EBITDA, I think I heard low single digits but did you mean low double digits, if you in fact said that?

Yes. For EBITDA, it’s low double digits; for sales, it’s high single digits.

And just on the timing differences in Canada that being a function of…

Well, it depends on what projects you’re working on. If work on special projects and you incur costs, so that’s -- and these things vary from one quarter to the next. So, I think you shouldn’t put too much weight on that.

And just on the enterprise side, good to see the savings cycling through, just wondering in terms of the timing of realizing those savings; will we see a full run rate in Q4 or will the bulk of the run rate come sometime in 2016?

So, basically when you look at the full year this year because basically these adjustments were done in phases throughout the year and a portion is done in Q4. But of the 10 million of run rate savings, about a quarter of this affects this year or will be realized this year if you take the fourth quarters; and going into next year, we expect to be at this full run rate or close to it.

That’s helpful, Patrice; one last one for me. Just back to the enterprise side, obviously looking forward to a better 2016 with the shift sailing a little smoother, just wondering if you can comment on just the level of revenue visibility that you have within that segment. Obviously demand continues to be high; you’ve got some capacity coming on line that presumably adds some visibility into demand there. I am just wondering if you could talk at the visibility side of things relative to maybe the revenue visibility it had over the last couple of years.

I would categorize it as being essentially the same. There have been no meaningful changes in the marketplace that would cause this to be different. I think what we’re striving to is a more sophisticated approach to sale, particularly in developing larger accounts. And there it’s a little difficult, more difficult to have visibility because it’s very lumpy and the accounts can be very big. But fundamentally, I wouldn’t categorize the market as having changed in so far as we are talking about the markets that we’re interested in. And as you know, we’re not interested in the high volume low cost segment of the market; that is one that we’re not catering to and do not intend to cater to. So, I am really talking about the mid-end and high-end of the market.

Your next question comes from Vince Valentini with TD Securities. Please go ahead.

First, can you just clarify the exchange rate within your next year; Maher said 1.25; is that actually your official number?

That’s right.

Second, maybe it’s been Drew’s question on enterprise slightly differently. In terms of the order backlog that you are seeing in the enterprise segment, correct me if I’m wrong, but I think the sales cycle and installation cycle is reasonably long with those types of accounts, especially if you are getting in the larger businesses. So, if you start to ramp your sales moment after the reorganization in September, would it not take a few quarters for that to actually translate into reported revenue?

That’s a good question. Although we do have a number of significant accounts in the pipeline now but your question is the fair question, and it may take a few quarters but on the other hand, as I said, we do have very significant pieces of business underway right now.

So you do have order backlog in hand that gives you some confidence; is that fair?

That we’re working on, yes.

And last one, the new management fees payable to COGECO Inc. reasonably material chunk of changes at the CGL level. I’m wondering if that gives you any opportunity to perhaps harmonize the dividends between CCA and CGO shares.

That’s a very good question, and one quite frankly we haven’t paid much attention to that. We were -- we really spent our time trying to arrive at what was -- since we’re dealing here with two separate groups of shareholders that -- the focus was really on arriving at something that was fair for both companies and allowed Cogeco to cover its cost. So, we didn’t spend much time thinking about that, but it’s a fair question. It’s something we no doubt will be thinking about this summer.

Your next question comes from Sanford Lee with Canaccord Genuity. Please go ahead.

Just wondering if you can help reconcile something for me. In sort of mixed results from the subscriber side from Canadian cable and in the MD&A you referenced improved piece of cable defense due to TiVo. Your high speed internet sales grew somewhat late, just wondering if you can reconcile why we didn’t see a pull through on the HIS subs?

I am of the opinion that this is sort of a fluke variation; there are no fundamental reasons why it should be the way it is. And in my opinion, it’s just an odyssey in the sequence of events. It’s the best I can tell you for now.

And you referenced that your assessment of IPTV overlap is still about 33%, you are not really changed. Bell, [ph] has said that with their increased push to the fiber, they could overlap about 70%. Can you say anything about what you are seeing in the fact like how they did move last year I guess and towards that but how quickly do you think they are going to get that?

I don’t know. That is totally dependent on them. What I do know however is that we’ve competed with that company and with TELUS for 50 years and we’re going to continue to do so. And we have currently offering customers the most innovative video product in the marketplace, one that combines both cable content and over the top content. So, it’s a service that is very pleasing to customers. And we continue to offer the best speed of 120 megabits per second. So, they are doing their thing; we’re doing ours. So, it looks like we’re not doing too badly. So, we’re pleased.

That’s fair enough. But obviously you didn’t have a very good competitor I think as far as broadband speed goes. So hopefully this doesn’t change too much. Last one on Canadian cable then is on the Canadian cable margin. What we’ve seen in the U.S. is about 100 to 200 bps margin decline post TiVo launch; is that a somewhat realistic expectation for Canadian cable as well or should we expect less, margin perhaps?

I would say it’s probably too early to tell. We haven’t presumed in our budget any extraordinary change at that level. Now, if it comes, then it will be a bonus.

There is other elements that are more significant in term of impact on margins and it’s basically the growth in revenues; there is the where programming costs are heading year-over-year and rest of the cost structure. So that when you say a TiVo margin per se would have the biggest impact on the overall margin.

Another one and switching to U.S. cable, obviously your debt leverage is going to be up a little bit with MetroCast kind of on a pro forma basis looks to bear on your target at 3.0 times. Can you give an updated view on your thoughts with respect to future M&A timing wise or any changes on your balance sheet targets?

We haven’t really changed since our last conference call. We are going to hopefully receive our regulatory approvals soon, very soon. We’ll proceed to closing and integrating. And when opportunities become available, of course, we look at them. That’s why we’re there. We have established a beachhead in the United States to identify, acquire on reasonable terms and consolidate cable companies to build something that is interesting and profitable for our shareholders. So that’s what we’re going to continue doing.

And the valuations that you’re seeing now that the U.S. seems to be heating up again with the potentially European guys come over?

Well, whether it’s heated up or not, exposure remains to be seen. We’ve won European originated deal on the table and nothing else since, so I guess that remains to be seen.

Very last question, I am sorry. On the cash taxes, there you’ve I guess for the last few years been experiencing a little bit of cash tax bump due to the unwinding of the partnership deferrals. Can you just remind me then that amount how much the amount would be for the final year which I believe in fiscal 2016? And then should we expect a step-down in cash taxes then starting or in 2017? Andrée Pinard: It’s about the -- the bump up is about 15 million.

15, that’s it? Andrée Pinard: Yes, which is your annual deferral of the partnership tax, partnership that you’re unwinding.

Your next question comes from Rob Goff with Euro Pacific Canada. Please go ahead.

Thanks very much for taking my questions, actually two questions if I could. First, could you talk to your efforts and the attraction you’re seeing in the SME marketplace? And secondly, as a follow-up on the enterprise side, could you talk to whether the new pods that are just recently opened and to be opened, whether you’ve been able to make advanced sales into that capacity as another way of looking at you’re -- the widow on or your visibility on revenue structure?

Yes. So small and medium business, we -- as I tried to explain earlier, we’re selling more sophisticated products to increasingly sophisticated business clients. It is going well. It is a market that we still in our opinion have not sufficiently developed and we’re actively working on it, introducing new products, becoming more sophisticated in our sales. So, this is a very promising segment as far as we’re concerned, both in Canada and in the United States cable. With regards to the enterprise data segment itself, yes, there are currently new plans in pod 3 I believe and we’re working on a number of significant accounts for pod 1 in Montreal and pods 3 and 4 in Barrie.

Your next question comes from Tim Casey with BMO. Please go ahead.

Thanks. Louis, just wanted to go back to the enterprise segment and your optimism that you’re going to recapture growth. Are you still of the view that the increasing integrity in the marketplace is stable or are you starting to see any weaknesses as presumably there is more volume coming on in that marketplace from other vendors as well?

There is more volume but the utilization rate of current facilities is still on balance, above 80%, so it’s not an unhealthy situation that we’re seeing. I think we’re seeing a healthy situation. Of course, there are deals; there are customers that will come to us with obscenely low figures. And probably these are not the right customers for us. We cherish customers for whom security and quality of service are greater than say the absolute lowest price. And there are ample people according to our studies, ample customers for whom these two components are way more important than price and these are the people that are the kind of customers that are better suited to the services we have to offer.

And just a couple for Patrice. In the very near-term, the guidance for 2015, given where we are suggests a modest acceleration in profitability. What’s driving that in the fourth quarter? Is that just price increases going through or…?

Well, it’s always difficult to look at each quarter and come out basically with perfect explanations basically. So, because there are things that are booked basically on a quarterly basis, that will not be the case in the next one. So when we’re talking about marketing campaigns, when we’re talking about special projects being implemented in various divisions, the cost allocation from quarter to quarter can change. It’s the same concept with CapEx obviously but more extreme with CapEx where it’s not necessarily comparable quarter to quarter. But we did put price increases in our largest units, the Canadian cable business this year which will be fully integrated in the coming quarter and the rest has to basically with the cost structure of the company.

And just one last housekeeping point, just confirming that the new management fee formula is incorporated in your 2016 guidance.

Yes, it is.

[Operator Instructions]. We’ll now take the next question from Glen Campbell with Bank of America/Merrill Lynch. Please go ahead.

On the management fee, just to clarify; has that management fee been charged to date against American cable, an enterprise or has it just been against Canadian cable; and then going forward should we assume that it’s charged equally to all the divisions?

So, when you’re looking at the individual segments, basically the management fees are not there because at the consolidated level, everything gets cancelled out between the divisions of Cogeco Cable and basically the holding company. So that’s why you don’t see them at the subsidiary level.

Within Cogeco Cable though, am I right they’re charged against the individual -- against any cable segment that comes out of EBITDA?

Well, what happens is because the cost in Cogeco Cable which is paid to COGECO Inc, the cost of Cogeco Cable internally can be recharged through the units but when you look at financial statements, there is no charge at the segment level because everything is consolidated and cancelled basically at the consolidation level, so you don’t see it. So the answer is no, there is no management fee that you see at the segment level within Cogeco Cable. Is that clear?

Well, maybe I’ll just follow-up offline on that one. With respect to the enterprise segment, can you give us a sense of what the revenue growth was like for the Canadian portion of the business? I’m assuming it’s stronger, I mean should we think of that as being in line with your targets of high single digits there…

We are now approaching this business as basically it’s a worldwide business. It has facilities in North America and Northern Europe but it is in fact selling to customers from all over the world, whether they are cloud services meaning that the customer doesn’t care exactly where they are stored and there we do it according to what we think is most convenient and according to the level of service that is being purchased by the customer or even whether they are our larger facilities in Toronto and Montreal where we will have customers come from Europe or from Asia for co-location purposes. So, this is now a planetary business. And so you can’t look at that in the traditional way.

And one last one if I might on the guidance. So the 15 top 25% free cash flow growth off the base of 275, gets us to a pretty nice number. I’m wondering given the step up in tax because of the partnership unwind, if there are other things that are helping beyond the growth in EBITDA? For example is capital intensity coming down in any of the segments? Are there any other factors or adjustments that are going to help to get to that contractual number?

So in terms of capital intensity, the intensity is slightly lower as half point to 1% lower than the guidance of 2015 when you run the math and that has to do largely with the fact that we were building pods in the enterprise segment in 2015 which we’re not planning to do in 2016 unless we sell more than what we’re currently planning. The other thing is when you look at the guidance for elements below the EBITDA line; many of them are at the same level than this year. So, when you look at interest costs when you look depreciation, so basically the increase in EBITDA doesn’t get reduced by those elements because most of them are in line with this year. So that’s why you have a larger pick up in free cash flows.

So on the capital intensity, then the step down in intensity is at enterprise, should we think of the cable capital intensity is being broadly similar in the U.S. and Canadian segments?

That’s right.

And Mr. Ouimet, there are no further questions at this time. I will turn the call over to you for any additional comments or closing remarks.

Thank you to everyone for participating in today’s call .We look forward to disclosing our fourth quarter results in October and we’ll be back with the press release specifying the exact date of it later on, and until then we remain available for any further questions. Thank you.

Thank you. Have a great summer. Bye.

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation. You may now disconnect your line.