Cogeco Q1 Earnings Call Highlights

Cogeco (TSE:CGO) executives said first-quarter fiscal 2026 results were “in line with our plan” and reiterated full-year guidance, while pointing to improving customer metrics in the company’s U.S. operations and steady performance in Canada.

Management highlights: U.S. turnaround and Canadian resiliency

President and CEO Frédéric Perron said Cogeco’s U.S. turnaround is “working,” noting that subscriber trends improved for a second consecutive quarter and produced the company’s “best U.S. customer metrics in the past 15 quarters.” Perron said the company’s goal is now to grow the customer base across its entire U.S. footprint on a “repeatable basis,” building on progress in Ohio.

He also emphasized what he described as structural opportunity in the U.S. market, including low penetration in parts of the footprint. “In half of our U.S. footprint, our penetration is still below 20%,” Perron said, adding that the company is selectively upgrading its network and launched 2.5 gigabit speeds during the quarter. He said Breezeline is also ramping sales channels, strengthening marketing capabilities, and plans to launch an “oxio-like fully digital second brand” in the U.S. next month.

In Canada, Perron described performance as “solid and resilient” with positive year-over-year EBITDA trends and continued customer growth. He cautioned, however, that wireline competition “got a little heated” during Black Friday and the holidays, leading management to expect more modest wireline customer growth in the second quarter, though the impact was described as manageable from a revenue perspective.

Canada: stable revenue, higher EBITDA, and internet adds

Chief Financial Officer Patrice Ouimet said Cogeco Connexion’s Canadian revenue was stable in the first quarter. The company added 8,900 internet subscribers, though that was offset by lower revenue per customer due to fewer video and wireline phone subscribers.

Adjusted EBITDA in Canada increased 2% in constant currency, driven by stable revenue and lower operating expenses. Ouimet attributed the expense performance mainly to cost reduction initiatives and operating efficiencies tied to the company’s three-year transformation program. Cogeco added 1,100 homes passed in the quarter, “mainly with fiber to the home,” under a network expansion program.

On wireless in Canada, Perron said subscriber growth is “going really well,” but the company does not disclose wireless subscriber totals. He added that promotional pullbacks have already occurred as sales have exceeded internal expectations, and reiterated that management does not expect wireless to have a material short-term impact on the bottom line.

U.S.: revenue and EBITDA declines, but subscriber trends improve

In the U.S., Ouimet said Breezeline’s revenue declined 9.9% in constant currency, citing the cumulative subscriber base decline over the past year, smaller rate increases versus the prior year, and a competitive pricing environment.

Internet subscribers declined by 1,100 in the quarter, which management characterized as a “significant improvement” versus both the prior quarter and the prior year. Ouimet highlighted Ohio as a bright spot, where internet subscriber additions totaled 2,600, described as the region’s best quarter since Cogeco acquired the business four years ago.

Adjusted EBITDA in the U.S. declined 9.1% in constant currency, mainly due to lower revenue, partially offset by lower operating expenses from cost reductions and operating efficiencies. Ouimet noted that the year-ago first quarter represented the highest adjusted EBITDA level of all quarters in fiscal 2025, creating a tougher comparison.

During the Q&A, management said it expects the U.S. business in the second quarter to be in a “similar position” to the first quarter, with more meaningful improvement expected in the second half of fiscal 2026. Ouimet pointed to price increases starting in January that would have greater impact in Q3 and Q4, as well as cost improvements and revenue initiatives coming online in the second half. Perron said those initiatives are “quantified” and “on track.”

Asked whether U.S. EBITDA could approach a neutral year-over-year position by year-end, Ouimet said it was “still a bit early days” to speak to individual quarters, but described “trending towards a neutral position” in later quarters as “a good assumption.”

Consolidated results, dividends, leverage, and outlook

For Cogeco Communications on a consolidated basis, Ouimet reported revenue declined 4.9% in constant currency and adjusted EBITDA declined 3.7%, with U.S. declines partially offset by growth in Canada. Diluted earnings per share declined 12.2%, which Ouimet said was mainly due to a one-time gain in the prior year from a sale-and-leaseback transaction as well as lower adjusted EBITDA.

Capital intensity was 22.2% versus 20.4% a year earlier, though management said it remains on track to meet full-year capital spending guidance. Free cash flow in constant currency declined 15.9%, driven mainly by proceeds received in the prior year from the sale-and-leaseback transaction.

Net debt to EBITDA ended the quarter at 3.2 turns, up slightly from 3.1 in Q4. Ouimet said the company continues to target leverage in the “low three turns” range. Cogeco declared a quarterly dividend of CAD 0.987 per share, up 7% year over year.

At Cogeco Inc., revenue decreased 4.5% in constant currency and adjusted EBITDA declined 3.1%, reflecting Cogeco Communications’ results. Media operations revenue increased 8.1% year over year, driven by growth in digital advertising solutions, and Cogeco Inc. also declared a quarterly dividend of CAD 0.987 per share, up 7% year over year.

Management maintained its annual fiscal 2026 financial guidelines for both Cogeco Communications and Cogeco Inc. For Q2, Ouimet said consolidated revenue and EBITDA in constant currency are expected to decline in the “low to mid-single digits” year over year, driven by the U.S. business, while reiterating expectations for “much stronger” U.S. financial performance in the second half.

About Cogeco (TSE:CGO)

Cogeco Inc is a telecommunications company. The company has two reportable operating segments, namely Canadian broadband services and American broadband services. The Canadian and American broadband services segments provide a wide range of Internet, video, and telephony services primarily to residential customers, as well as business services across their coverage areas. The Canadian broadband services activities are carried out by Cogeco Connexion in the provinces of Quebec and Ontario and the American broadband services activities are carried out by Atlantic Broadband in 12 states.