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 Inc. and Cogeco Communications Inc. Please go ahead, Monsieur Ouimet.

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. 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. And with that, I'll now pass the line to Frederic 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. 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. 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. 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 first quarter consolidated results were well aligned with our focus on balancing subscriber growth with financial performance. 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. 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. 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. With regards to our radio business, Cogeco Media experienced ongoing challenges in the radio advertising market that contributed to lower-than-anticipated revenue. However, digital advertising solutions revenue showed resilient growth again this quarter, and continues to provide an increasingly meaningful contribution to the business' overall revenue. Furthermore, 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?

Thank you, Fred. So, in Canada, Cogeco Connexion's 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 U.S., 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. Now 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%. 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. 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 U.S. Excluding network expansion projects, capital intensity was 17.4%. Free cash flow in 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. 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. We continue to target a net debt-to-EBITDA ratio in the low three turns range over time, and we have declared a quarterly dividend of $0.922 per share. At Cogeco Inc., revenue in constant currency decreased by 1.8% and 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 $3.09 from $2.21 a year ago, mainly as a result of the large share buyback conducted in Q2 of last year. And a dividend of $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 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 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. 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 in Q2, mid-single-digit-- sorry, 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 content 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 the 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 $4 million or $5 million in Q2, and we expect our Q2 financial expense to be in line with Q1. 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. And now Fred and I will be happy to take your questions.

Thank you, sir. [Operator Instructions] And your first question will be from Stephanie Price at CIBC. Please go ahead.

Good morning. Happy New Year. 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?

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. So 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 U.S. more generally, I would say it's relatively stable, Stephanie. 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. So that we saw as good news. But overall, U.S. competitive environment still elevated, but stable.

Okay. Thank you. And just one more on the U.S., it does seem like some cable peers have focused on switching customers to one gig plus plans. Is that a strategy that Cogeco is thinking about it in the U.S., and how should we think about one gig speeds, in your footprints in the U.S.?

Yes, so one gig speed is available pretty much, everywhere in our U.S. footprint and it's a significant share, of the new sales that we generate. More than that, of course, we won't disclose for competitive reasons.

Okay. Thank you very much.

Thank you.

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

Thanks very much. Good morning. Excuse me, two from me. Just shifting gears to the 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 kind of give us any color on, 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, 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 a 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 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.

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 the competitive environment in Canada, it's similar to what I was saying to Stephanie, about the U.S. 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. But that's more at the tactical level, not enough to call it a trend. So 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, but there's a fair amount of fiber in Ontario as well. And 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.

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. And just on our legacy footprint. We keep pushing faster products as normally small businesses will want, to use faster products. 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. 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. And selling video only is not something that we focus on anymore. 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. 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.

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

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

Yes, thanks very much. First, your free cash flow guidance for the year. Did that include the $16.5 million proceeds, from the sale-leaseback transaction?

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

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 to the high end, or above your free cash flow guidance for the year?

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.

Okay. And just can you give us any detail on that sale leaseback, like what kind of building was it, and what kind of ongoing lease costs will you have to incur now?

Yes, so it's not a traditional sale leaseback, or where we keep the asset long-term. It is a leaseback, because we need it in the short-term for two years. But it's really the way you have to think about it is we're actually selling the building. There's a - it's a building. 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 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.

Okay. And sorry, just a couple more. The EBITDA outlook for Q2 in Canada. So in the first quarter you're up 1.6% year-over-year, and 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 the second quarter. 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. Can we assume this is all just timing of spending on transformation initiatives?

It's a mix of things. There is some of that for sure. There is - we are also seeing some pressure on revenue. So first of all, we bought NRBN last year in the middle of the quarter. So there will be some so, no benefit at the end of the quarter coming from NRBN. There's 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 had some adjustments in the content costs. It regularly happens when the - as the situation evolves. So, we're not planning to see some of them this year. So I would say, it's a mix of these things.

Content cost is these new channels that Rogers is launching, and of course is rebranded, or is it just regular renewals with all your suppliers?

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 have to make an accrual. This is always a difficult one to estimate. So 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.

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 April 1. I think there's directionally similar magnitude, coming from Bell in May for Internet. They already raised some video and home phone prices in Ontario in February. In Ontario and Quebec in January and February. So just, with that as a backdrop, everybody seems to be moving up on price. Can you remind us, you're sort of thinking about rates in Canada and the timing of when we could see, some rate increases cycle through for Cogeco connections?

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 U.S., as you're asking, we have a price increase that's coming up in February, which will impact both Internet and video. Again that's almost a Q3, a bit of Q2, but mostly Q3 impact.

The March Internet increase in Canada. Can you quantify that one?

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

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

Thank you both.

Thank you.

Thank you.

Next question will be from Jerome Dubreuil at Desjardins. Please go ahead.

Thanks for taking my questions. Just as a follow-up to one of Vince's question with regards, to the mid-single-digit decline in Canada on EBITDA next quarter, 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, seems to be items that will be true going forward. So also wondering if there's some items that might be more near-term impact?

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.

Okay. Thank you. Also another one I was wondering, 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. 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, or is there other source of growth maybe offsetting this? Thank you.

Hi Jerome, it's Fred. I would say less 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, in our Quebec rural build, or on our Ontario rural build so far. And all signs point to the fact that Ontario, will be as successful as Quebec was. And as penetration rates have exceeded our expectations in Quebec. Turning over to the U.S. 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. 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, 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.

The last one from me, you've been talking about potentially pruning some assets in the U.S. 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?

Yes. 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, we are reviewing our portfolio of assets. And 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, 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. And I think that's pretty much what we could say at this point.

Yes, fair enough. Best of luck.

Thank you. [Operator Instructions] Next is Matthew Griffiths at Bank of America. Please go ahead.

Hi, good morning. Thanks for taking the question the first, just on cost related to the transformation initiatives. I guess as a starting point, I would have anticipated this type of program to be a little on balance, frontend loaded with costs and backend loaded with benefits. But given that you have, like I think you said 150 initiatives, like I mean should we think about the costs that, you're going to incur being spread out more kind of ratably over the three years, rather than being front end loaded on the cost, and back end loaded on the benefits, or perhaps it is that way. Some color would be helpful if you could, if you're able to provide it.

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. 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. So we limited this year more in fiscal '26. But especially in F '27 and '28, is where we're going to see the, 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 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.

Okay. Great, that's helpful. And then just on in the U.S. on pricing, 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, 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 could have any color on that?

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

Okay. So if we were able to see kind of an Internet ARPU that would, still be trending positively?

Yes, yes, exactly. And that's what we've been doing over the years. And yes, so we've been able. The base normally will overtime get more speeds as well. And there are, it's normal, I guess there are some price increases that we put through. So 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, yes.

And 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 like sales of CPE that are contemplated in the guidance, or was that Q1 sale that you had visibility into when you issued guidance, the only one in 2020 - fiscal 2025?

Yes, it's the only material one, every quarter. Every quarter we have small. We have sometimes, small write-offs and small asset sales, which we don't call out separately. So that's normal practice. But yes, 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.

Okay. Great. Thank you so much.

Thank you. And at this time, we have no further questions registered. Please proceed.

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

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.