Cogeco Communications Q1 Earnings Call Highlights

Cogeco Communications (TSE:CCA) reported first-quarter fiscal 2026 results that management said were in line with its plan and left the company on track to deliver full-year guidance across key performance indicators. On the earnings call, executives pointed to continued improvement in U.S. subscriber trends as the centerpiece of a turnaround effort, while Canadian operations posted stable revenue and positive EBITDA growth. The company also declared a quarterly dividend of CAD 0.987 per share, up 7% year-over-year.

Management: U.S. turnaround gaining traction

CEO Fred Perron told investors that Cogeco’s U.S. turnaround is “working,” citing a second consecutive quarter of improved subscriber trends and “our best U.S. customer metrics in the past 15 quarters.” He said the company’s ambition has shifted from localized improvement to a broader goal of repeatable customer growth across its U.S. footprint, though he cautioned that this will not be achieved as soon as next quarter.

Perron emphasized several factors he believes support continued improvement:

• In about half of Cogeco’s U.S. footprint, penetration remains below 20%, which management views as a growth runway that can offset losses elsewhere.
• The company is selectively upgrading its network in what it described as a capital-efficient manner, including a launch of 2.5 gigabit speeds during the quarter.
• Cogeco is still ramping new sales channels and marketing capabilities and plans to launch an “oxio-like” fully digital second brand in the U.S. next month.

Perron said Cogeco expects “materially improving financial trends” for its U.S. business beginning in the second half of the fiscal year. Management also noted that Moody’s and S&P recently improved their outlook on the company’s debt, while DBRS reaffirmed a stable outlook.

Canadian operations: stable revenue, modest near-term pressure expected

In Canada, Cogeco said performance remains “solid and resilient,” with positive year-over-year EBITDA trends. CFO Patrice Ouimet reported that Cogeco Connexion’s revenue was stable in the quarter, reflecting a higher internet subscriber base alongside lower revenue per customer from fewer video and wireline phone subscribers. The business added 8,900 internet subscribers during the quarter.

Adjusted EBITDA for Cogeco Connexion rose 2% in constant currency, which management attributed to stable revenue and lower operating expenses tied to cost reduction initiatives and operating efficiencies from its three-year transformation program. The company added 1,100 home passes in the quarter, “mainly with fiber to the home under a network expansion program.”

Looking to the second quarter, Perron said wireline competitive intensity “got a little heated” in some markets during Black Friday and through the holidays. As a result, Cogeco expects more modest wireline customer growth in Q2, though management characterized the impact as manageable from a revenue perspective. Perron said oxio continues to perform strongly, while network expansion programs in Ontario have been delayed by permitting issues.

On competitive dynamics, Perron told analysts fixed wireless access (FWA) is not having a meaningful impact, based on churn tracking, but said the market is seeing experimentation with resale and promotions. He added that a “big chunk” of resale activity shows up as wholesale revenue for Cogeco.

U.S. results: revenue and EBITDA declines, but improved internet subscriber trends

In the U.S., Cogeco’s Breezeline unit posted a 9.9% revenue decline in constant currency, which Ouimet attributed to the cumulative decline in the subscriber base over the past year, a smaller rate increase than the prior year, and a competitive pricing environment. Adjusted EBITDA fell 9.1% in constant currency, mainly due to lower revenue, partially offset by lower operating expenses tied to cost initiatives and efficiencies.

Cogeco reported a 1,100 decline in internet subscribers in the U.S. during the quarter, which management described as a “significant improvement” over the prior quarter and the prior year. In Ohio, Breezeline recorded 2,600 net internet subscriber additions, which Ouimet said marked its best quarter since Cogeco acquired the business four years ago.

Executives said they expect U.S. results in the second quarter to be broadly similar to Q1, but they see improvement in the back half of the year. Ouimet cited customer trend improvements, price increases that take effect in different periods in January (expected to influence Q3 and Q4), and a set of cost and revenue measures planned for the second half. Perron described those initiatives as “quantified” and “on track.” Ouimet added that it is “a good assumption” that the U.S. business could trend toward a more neutral year-over-year EBITDA position later in the year, but said it is still early to forecast individual quarters.

Management also pushed back on the notion that subscriber improvements are being driven primarily by aggressive acquisition pricing. Perron said the year-over-year decline in U.S. revenue per unit is mainly tied to cord cutting, noting that video carries higher revenue but “very little margins.” He said improvements in customer metrics reflect execution, including strengthened sales channels, targeting in lower-penetration areas, and simplified pricing “as opposed to reducing it.”

Consolidated performance, cash flow, leverage, and outlook

At Cogeco Communications, consolidated revenue declined 4.9% in constant currency and adjusted EBITDA declined 3.7%, with Canada partially offsetting U.S. weakness. Diluted earnings per share fell 12.2%, which management attributed mainly to a one-time gain recorded in the prior year tied to a sale-and-leaseback transaction, as well as lower adjusted EBITDA.

Capital intensity rose to 22.2% from 20.4% a year earlier, though Ouimet said the company remains on track to meet its annual capital expenditure guidance. Free cash flow in constant currency declined 15.9% in the quarter, mainly due to proceeds received in the prior year from the sale-and-leaseback transaction. The net debt-to-EBITDA ratio ended the quarter at 3.2 turns, up slightly from 3.1 turns in fiscal Q4, and the company reiterated its target of maintaining leverage in the low three-times range.

Cogeco maintained its fiscal 2026 annual guidelines, first provided in October. For the upcoming second quarter, management expects consolidated revenue and EBITDA in constant currency to decline in the low- to mid-single digits year-over-year, driven by the U.S. business. Ouimet said financing expense and acquisition integration and restructuring costs should be similar to Q1, while depreciation expense is expected to be slightly lower.

At the parent company Cogeco Inc., management said results were largely explained by Cogeco Communications’ performance, while media operations revenue rose 8.1% year-over-year on growth in digital advertising solutions. Executives also highlighted the Commission for Complaints for Telecom and Television Services report ranking Cogeco as the best Canadian telecommunications company for customer complaint reduction across brands, citing a 15% reduction in complaints year-over-year and a 25% reduction in billing complaints, along with no breaches to the Internet Code.

On capital allocation, Ouimet said Cogeco remains focused on reducing debt through fiscal 2026. However, he indicated that once leverage targets are achieved and free cash flow visibility improves, the company expects to revisit how it uses excess cash, including the potential to resume share buybacks, which it has run “for many years in the past.”

About Cogeco Communications (TSE:CCA)

Cogeco Communications Inc is a communication corporation. The company is a cable operator in North America operating in Canada. It provides residential and business customers with internet, video, and telephony services with broadband fibre networks. The reportable segments of the company are Canadian broadband services and American broadband services. In internet services, the company offers internet packages with download speeds of up to 120mbps. In video services, the company provides digital tier services, pay-per-view channels, video on-demand services, and 4k television, and telephony services include using internet protocol to transport digitized voice signals.