Cogeco Communications Q4 2026 Earnings Results & Report

Cogeco Communications EPS Results

• Actual EPS: C$2.05
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A
• EPS Beat Rate: 8 of last 8 quarters

Cogeco Communications Revenue Results

• Actual Revenue: C$695.49 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Cogeco Communications (TSE:CCA) is a leading telecommunications provider committed to bringing people together through powerful communications and entertainment experiences. We provide world-class Internet, wireless, video and wireline phone services to 1.6 million residential and business subscribers in Canada and thirteen states in the United States. Our services are marketed under the Cogeco and oxio brands in Canada, and under the Breezeline brand in the U.S. We take pride in our strong presence in the communities we serve and in our commitment to a sustainable future.

Cogeco Communications Q4 2026 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Fiscal 2027 guidance calls for weaker results, with revenue expected to decline by a low- to mid-single-digit percentage and adjusted EBITDA by a mid- to high-single-digit percentage, primarily due to continued U.S. competition.
• Negative Sentiment: Breezeline faces intensifying U.S. pressure from fiber overbuilders, cable operators, fixed wireless access and aggressive promotional offers; management does not expect a significant improvement in U.S. subscriber trends during fiscal 2027.
• Positive Sentiment: The Canadian business remains comparatively healthy, supported by renewed internet customer growth, strong wireless sales and continued momentum at the oxio digital brand, although management expects Canadian revenue and EBITDA to remain broadly stable rather than grow materially.
• Positive Sentiment: Cogeco Communications generated CAD 554 million in fiscal 2026 free cash flow, increased its dividend for the 23rd consecutive year and expects fiscal 2027 free cash flow of CAD 500 million to CAD 550 million, despite lower EBITDA and higher financing costs.
• Positive Sentiment: Cost and capital efficiencies remain key offsets, with CapEx expected to decline to CAD 425 million–CAD 475 million as network upgrades near completion; debt leverage fell to 3.1 times and management expects modest further deleveraging in fiscal 2027.

Presentation

[Operator]

Good day, and welcome to Cogeco Inc and Cogeco Communications Inc fourth quarter 2026 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, Cogeco Inc and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.

[Patrice Ouimet, CFO at Cogeco Communications]

Thank you [Shaw]. Good morning and welcome to our fourth 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 our press releases and MD&A issued yesterday, as well as in our annual reports regarding the various risks, assumptions, and uncertainties that can cause our actual results to differ. With that, I'll pass the line to Fréd Perron for opening remarks.

[Fréd Perron, President and CEO at Cogeco Communications]

[Non-English content] Patrice. Good morning, everyone. Our Canadian business continued to perform well in the quarter with a re-acceleration of our internet customer growth, continued strong wireless sales, and growing year-on-year adjusted EBITDA again this quarter. We were delighted to see our oxio digital brand be recognized as the most loved telecom brand in Canada. oxio sales are beating new internal records, and we're just starting to scratch the surface of how big that business can become for us. We've continued to upgrade our Canadian high-speed internet network and now offer 1 G and 2 G residential speeds in approximately 95% and 50% of our Canadian footprint respectively.

[Fréd Perron, President and CEO at Cogeco Communications]

In the U.S., we've observed an even further degradation in our competitive environment. This has resulted in elevated internet customer losses in the quarter, as we had indicated last time we spoke. In light of these factors, we're introducing Fiscal 2027 financial guidelines, which reflect lower year-on-year performance than last year. Rest assured that we're quite clear-eyed about the very challenging state of the U.S. market.

[Fréd Perron, President and CEO at Cogeco Communications]

We're nevertheless delivering significant operational improvements at Breezeline. In addition to wireless, we've built new sales channels, launched a new digital second brand, and just a couple of months ago, launched a new over-the-top TV streaming solution. More broadly across the enterprise, we're executing well against what we can control and continue to hit the CapEx and OpEx reduction targets from our transformation program. We now have AI agents deployed across most key operational functions, and that automation is really starting to bear fruit.

[Fréd Perron, President and CEO at Cogeco Communications]

Thanks to our disciplined execution, we delivered CAD 554 million in free cash flow in fiscal 2026 for Cogeco Communications, near the top end of our original guidance for the year and representing a 33% growth over three years. That strong free cash flow generation is enabling us to grow our dividend once again, albeit modestly, for a 23rd consecutive year. At Cogeco Media, we are pleased with our strong radio audience engagement, which reached 4.6 million listeners per week. In summary, as we enter the third year of our three-year transformation program, our priorities are to first keep growing wireless in both countries, which is pure upside for us.

[Fréd Perron, President and CEO at Cogeco Communications]

Second, keep growing our oxio and welo digital brands, leveraging the very high customer satisfaction these brands are getting in both Canada and the U.S. Third, continue to reduce our OpEx and CapEx, including but not limited to leveraging our rapid progress on AI in order to keep delivering superior free cash flow generation. On that, I will pass it over to Patrice for more details about our results. Patrice?

[Patrice Ouimet, CFO at Cogeco Communications]

Thanks, Fréd. I will highlight a few items from the quarter and then move on to our fiscal 2027 guidelines and Q&A. Our Canadian business performed well in the fourth quarter with strong internet customer additions and growing revenue year-on-year. We also had stronger than expected adjusted EBITDA, which benefited from growing revenue, cost reductions, and some year-end adjustments. In the U.S., the quarter was more challenging than expected due to higher internet customer losses and elevated competitive pressures impacting revenue and adjusted EBITDA.

[Patrice Ouimet, CFO at Cogeco Communications]

During the quarter, we announced the launch of a partnership with DIRECTV, an over-the-top streaming solution for the U.S. business. We expect this product to have positive impact on future adjusted EBITDA and free cash flow. It is however important to note that we will gradually see a negative impact on our video subscriber metrics since we will not be counting DIRECTV in our disclosed subscribers. Our practice is to only account for company-owned brands in reported subscribers. It will also reduce revenue over time since we will only account for the earned commissions in revenue rather than the full video subscription.

[Patrice Ouimet, CFO at Cogeco Communications]

As I mentioned, it will be positive for adjusted EBITDA and free cash flow going forward. The consolidated debt leverage ratio stood at 3.1x at the end of the fourth quarter versus 3.2x reported last quarter. During Q4, we refinanced maturing debt with a new CAD 200 million Canadian tranche, and we repurchased $46 million of Term Loan B debt securities. We expect to continue to use excess cash to repay debt in the Canadian and U.S. borrowing structures over the coming quarters. As for free cash flow, we continue to deliver capital efficiencies throughout the year, which allowed us to grow free cash flow at Cogeco Communications by 7.3% for the full year on a constant currency basis.

[Patrice Ouimet, CFO at Cogeco Communications]

We also increased the dividend for both Cogeco Communications and Cogeco Inc by 2%. In determining this percentage, our goal was to strike a balance between shareholder distributions and debt repayments. Now, let's discuss the financial 2027 guidelines, which we are introducing today. As a reminder, we provide our financial guidelines in constant currency since foreign exchange rates can be volatile and close to half of our revenue and adjusted EBITDA is generated in U.S. dollars. Free cash flow is, however, much less impacted by FX rate movements.

[Patrice Ouimet, CFO at Cogeco Communications]

Cogeco Communications expects revenue to decrease by a low to mid-single digit percentage compared to the prior year, due to a combination of growth in the Canadian customer base, offset by both pricing pressures and subscriber losses in the U.S., due to a highly competitive and promotional market. Adjusted EBITDA is anticipated to decrease by a mid to high single-digit percentage compared to the prior year, due to lower revenue from the elevated competition in the U.S. that is expected to persist throughout fiscal 2027. This is partly offset by cost efficiencies as we progress through our three-year transformation program.

[Patrice Ouimet, CFO at Cogeco Communications]

As for capital expenditures, we are expecting to spend between $425 million and $475 million, driven by operational efficiencies and the near completion of many network expansion and upgrade projects. Free cash flow is expected to be between $500 million and $550 million, since U.S. EBITDA pressures, higher financial expenses, and higher income taxes are partially offset by capital efficiencies. For Fiscal 2027, we assume financial expenses to be in the range of $250 million and $300 million, and the current income tax to be in the range of $30 million-$60 million. Finally, at Cogeco Inc., we have issued the same financial guidelines as Cogeco Communications, with the exception of net capital expenditures and free cash flows, which are slightly higher. Now Fréd and I will be happy to take your questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press the star followed by the one on a touch-tone phone. If you wish to cancel your request, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one if you wish to ask a question. Your first question is from Vince Valentini from TD Cowen. Your line is now open.

[Vince Valentini, Analyst at TD Cowen]

Hey, thank you. Couple things from me. One, the outlook for the Canadian segment in 2027. You finished the year strong on financials and internet subscribers. You seem pretty confident in recent conference commentary that the pricing environment is as disciplined as it has been in a few years, and you are still obviously quite bullish on the wireless traction and the oxio traction. That all sounds to me like you expect slightly positive revenue and EBITDA growth in Canada in 2027, but I do not see that in your official guidance or commentary. So if you can clarify that for us, and if it is not positive, is there something one-off you can point to?

[Vince Valentini, Analyst at TD Cowen]

Are there still wireless startup costs, for example, or anything else that are an unusual drag on EBITDA that we maybe should know about? So that is question one. I will just throw out my other two quickly for you so you can think about them. Working capital seems unusually strong in both the fourth quarter and the full year of, what, CAD 88 million inflow in fourth quarter and CAD 138 million inflow in the full year 2026. Is that just timing issues or maybe some of the rural subsidy stuff you have been doing and you finally are getting the subsidy payments on a lag basis from the government or something else going on there?

[Vince Valentini, Analyst at TD Cowen]

And would you expect that to be even remotely sustainable in 2027, Patrice? And last, just a technical question if you know it. On spectrum transfers, obviously, ISED has to approve anything. Do you know how finicky they are or how complicated it is to get approval for a subordination of your spectrum if you are just basically leasing it to somebody? For example, if you wanted to lease it to a foreign satellite giant, would you have to go through ISED approval, or could you just do that at your leisure? Thanks for those three.

[Patrice Ouimet, CFO at Cogeco Communications]

Great. Good morning, Vince. So, I will start with the order you asked them. So, first of all, for the guidance, as you see, we have a range. Obviously, it is provided at a consolidated level, and the range allows for over and under performance at the consolidated level. So if we look at only by country, the commentary I could provide is that for Canada, we are expecting to be relatively stable or during the year for revenue and EBITDA. Obviously then there is a range around that. We did perform well last year. As part of that, there is different elements. There is pricing, there is the customer additions, which we are planning to continue to grow.

[Patrice Ouimet, CFO at Cogeco Communications]

We have our transformation program in there. There is a mix shift as well, where we have, over the years, a bit more focus on internet product. Then mobility is picking up as well. You take all this together, stability would be the way I would look at it for Canada. Your next question is on working capital. This one can be more volatile by quarter. What we expect for the coming year would be to be positive, actually, on working capital.

[Patrice Ouimet, CFO at Cogeco Communications]

Probably not by a huge extent, but some extent. We do have some receivables that are related to subsidized bills, as you pointed out. Some of these contracts pay completely at the end once you are really done fully with a region. So we will collect some of that in the coming year and in Fiscal 2028 as well. So, probably some slight positive movement or generation on working capital in the coming year.

[Fréd Perron, President and CEO at Cogeco Communications]

Hi, Vince, it is Fréd. On the third question, as you pointed out, ISED has a lot of discretion on approving both spectrum transfers and subordination. So your understanding is correct. As it relates to the unnamed U.S. satellite giant, I think they have said publicly that their wireless strategy for Canada is very different from the U.S. Our understanding is that they are not intending on building a full terrestrial wireless service in Canada, and for that reason, it would make that type of spectrum monetization for us less likely. However, there are other ways of monetizing our spectrum as we have discussed in the past.

[Vince Valentini, Analyst at TD Cowen]

Very helpful. Thank you.

[Operator]

Thank you. Your next question is from Aravinda Galappatthige from Canaccord. Your line is now open.

[Aravinda Galappatthige, Analyst at Canaccord]

Good morning. Thanks for taking my questions. First one's on Canada. As was mentioned earlier, pretty good operating leverage. 3.5% EBITDA growth on much lower revenue growth. Maybe Patrice, are there any other items that we need to be aware of that drove that operating leverage? Was there more significant movement on the wireless side that perhaps exaggerated that? Wanted to understand that dynamic a little bit better.

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. So, I would say if you look at only Q4, we had, that's right, a higher margin there, and that's why in the opening remarks I mentioned higher than planned growth year-over-year. So I would not necessarily expect that it would be at that level in the future. That's why I was talking more about stability. We did have some one-timers that were positive in Canada in the Q4, but it doesn't explain necessarily the full amount of it. So these are non-recurring, and it's normal, like year-end, we typically have a bit more of those, and we had some negative ones in the U.S.

[Patrice Ouimet, CFO at Cogeco Communications]

But that being said, we've been performing well with the growth in the sub-base, which has been helping in the results over the year for sure. And that transformation has continued to pay off. And the transformation program helps with costs. It helps with capital expenditures as well. It helps with revenue, although the revenue piece, as we've always said, is a bit more in the third year. And once we're done with the third year, we'll want to pursue that program. So it's not necessarily going to end there, but it's going to be the end of our first phase of the transformation.

[Fréd Perron, President and CEO at Cogeco Communications]

Yeah. Aravinda, it's Fréd. I would simply add, as Patrice said, there were some one-offs in Q4, so I wouldn't necessarily extrapolate Q4, but as a longer term trend going into next year, we had a bit of more end of promo. We got a bit of a bump from end of promo expiries in the previous year, which will not repeat to the same extent next year. And in an earlier answer, Patrice also alluded to the product mix shift and the customer mix shift. As we do more and more oxio, the internet margin on oxio is comparable to the internet margin on Cogeco, but we sell less TV, for example. So there's an impact from that as well.

[Aravinda Galappatthige, Analyst at Canaccord]

Thank you, Fréd, and maybe second one for you. On the U.S. business, we know a couple of years ago you did consider part of the footprint or explore the prospect of a divestiture there. Is there any sort of thought on maybe revisiting that idea? I realize sentiment is weaker and perhaps bids could even be harder to come by, but not all regions are the same. Was wondering if that's something that's still on your desk or still a consideration given the outlook at this point.

[Fréd Perron, President and CEO at Cogeco Communications]

Sure. A couple of things. First, as I said in the introductory remarks, we're very clear-eyed about the challenging state of the U.S. market. So there's no magic thinking here about that. Secondly, we understand that many of you and many investors put very little value on our U.S. business when looking at the sum of the parts approach. So we understand that as well. We're working hard, doing the best we can to improve the performance of the business operationally. We launched a second brand similar to oxio in Canada. Earlier this week, we've announced that we're expanding that brand to two more states, and in two weeks, we'll announce two more states.

[Fréd Perron, President and CEO at Cogeco Communications]

So by then, we will offer that brand in 70% of our U.S. footprint. We launched a DIRECTV product, and we're building new sales channels as well. We're doing everything we can on that front. As it relates to your question, we always seek the best possible way to create shareholder value. We don't need necessarily to think about it in black and white all the time. There's a variety of colors in between, but we always seek the best way to create shareholder value.

[Aravinda Galappatthige, Analyst at Canaccord]

Thanks, Fréd. Last question, on the dividend increase, maybe just your thoughts around. It's a considerable step down from the high single-digit increases that you were implementing. Considering the free cash flow is still very strong, your CapEx is stepping down. It's a very, very low dividend payout ratio. Maybe your thought process about dropping that to 2%, and I'll pass the line. Thanks.

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. It's a difficult decision to make on where to land with this. Whether last year we had done 7%. We always knew we wouldn't necessarily stay at a very high level compared to what peers are doing, let's say, annually, because ultimately, you need to grow the free cash flow at the same level to get to a similar ratio. What we wanted to do is to grow the dividend because we do believe in growing the dividend as we've done for many years now. At this point, obviously, the business has seen some more volatility as well.

[Patrice Ouimet, CFO at Cogeco Communications]

We're focusing more of the dollars on debt repayment, and I'm talking more of the U.S. business as we integrate it into the consolidated numbers, and we thought that was a reasonable place. Obviously, our dividend yield is quite high right now when you look at the stock price. It's not necessarily the factor we're using mainly to make that decision, but it's something we looked at as well. We will have to see in the future. We're not necessarily married to 1% going forward, but we thought it was the appropriate thing to do given where we are and the guidance we're giving for next year.

[Aravinda Galappatthige, Analyst at Canaccord]

Thank you.

[Operator]

Thank you. Your next question is from Drew McReynolds from RBC. Your line is now open.

[Drew McReynolds, Analyst at RBC]

Yeah. Thanks very much. Maybe for you starting out, Patrice, on the increase in financing expenses in the guidance for fiscal 2027. Is that just a rate, interest rates are higher, or is there anything else just in that guidance?

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. So there's a mix of things. One of them is rates. So we have a portion of our borrowings which is floating. The majority is fixed, but we have a portion that's floating, especially related to the U.S. business, and the rates have been going up in the U.S., so that's one element. There's another element, is the refinancing we did in Canada.

[Patrice Ouimet, CFO at Cogeco Communications]

It's not large, but we did issue a new tranche at a higher rate than the previous tranche. We had also some non-recurring gains last year in the financial expense that came through purchases we did of debt on the market. So we typically don't project a number for that this year. And then we've assumed some costs related to an upcoming refinancing we'll have to do on a tranche in the U.S. So I would say it's a mix of these four elements.

[Drew McReynolds, Analyst at RBC]

Okay. Yeah, that's very helpful. Maybe secondly, on the margin outlook for American telecommunications. Given the underlying pressure, you've done wonderful things on margins over the last couple of years, but just implied in your fiscal 2027 guidance, it seems to imply a step down here. Is that all related to maybe a deteriorating TV margin, just given what you're trying to do with some of the initiatives, or are there other dynamics here on the margin front?

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. So when you look at the U.S. business, obviously, given the competition, you've seen some reduction in the cost base. Sorry, not the cost base, the subscriber base. So at the gross margin, which is not the number you see, it doesn't change anything. But at the net margins or the EBITDA margin, we do have some fixed costs. So that plays into it. When we have a mix shift with less TV, actually, this helps. That goes the other way. This helps with the margin. But there is some pricing pressure.

[Patrice Ouimet, CFO at Cogeco Communications]

So when we acquire new customers or for customers that we have, generally, there's been some pressure, not just for us, for other players as well, and we have to absorb this. Either we take it in the EBITDA, which impacts the margin negatively, or we offset it with some cost reductions, which we are also doing through the transformation. Given the intensity of competition today in the U.S., we are doing all these things, but the level of cost reductions is not enough to offset the pressure on revenue, which basically pressurizes the EBITDA margin.

[Drew McReynolds, Analyst at RBC]

Okay. Yes, makes sense. Last one from me. In your deck, you talk about welo being in a pre-inflection stage. Just wondering, in fiscal 2027, does that go post-inflection or is that something for fiscal 2028? Thank you.

[Fréd Perron, President and CEO at Cogeco Communications]

Hi Drew, it is Fréd. A couple of things on welo and then I will answer your question. A couple of things, reasons to feel good about that initiative. First, customer satisfaction is extremely high from the subscribers we have connected so far. We get 4.9 stars out of 5 on Google. NPS is as high as what we see on oxio in Canada, and one of the highest I have ever seen in telecom around the world. We feel good about that. The margin on those subscribers is also as high, if not slightly higher than the margin that we get on the Breezeline brand.

[Fréd Perron, President and CEO at Cogeco Communications]

Now, on volume and penetration, which is your question, we are still very much pre-inflection. It is hard to know for sure when the inflection in the S-curve will happen, but it will happen. These things usually do follow an S-curve. As it relates to the outlook for the year, I would say we are not yet expecting a massive inflection in our forecast. That is hard to call, and if the massive inflection does happen in the year, then we will be positively surprised.

[Drew McReynolds, Analyst at RBC]

Okay. All very helpful. Thank you.

[Operator]

Thank you. Your next question is from Jérôme Dubreuil from Desjardins Securities. Your line is now open.

[Jérôme Dubreuil, Analyst at Desjardins Securities]

Thanks for taking my question. Just one for me. On leverage, obviously, your level of distribution in terms of the dividend is still very manageable. I have it about 1/3 of your free cash flow for the next year. So enables quite a bit of debt repayment. However, with what's going on with the EBITDA growth next year, do you think you can still deleverage on the net debt to EBITDA basis in 2027?

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. We finished the year with 3.1x of debt to EBITDA, the consolidated level. Using the guidance we provided, let's say the midpoint, you get to a small reduction, so you would be at around 3x by year-end.

[Jérôme Dubreuil, Analyst at Desjardins Securities]

Okay.

[Operator]

Thank you. Your next question is from Matthew Griffiths from Bank of America. Your line is now open.

[Matthew Griffiths, Analyst at Bank of America]

Yeah. Hi, good morning. Thanks for taking the question. Maybe just on the subscriber performance. It seems like the headwinds in the U.S. are spread more evenly across the entire footprint but less so in Ohio. So, a two-part question here, maybe. What should we expect as you launch welo across a greater portion of the footprint? If it's successful, and I know the timeframe is difficult to pin down, but is this a big tool for you guys, do you think, to reverse that trend and address the competitive pressures?

[Matthew Griffiths, Analyst at Bank of America]

Or is there more to come on how you're going to be addressing that in the future and we'll stay tuned for future initiatives? Then just one separate one on the margins. In the U.S., I hear you that there's some one times at year-end, but there seem to be a big year-over-year deterioration. Curious if there's additional spending that's accompanying the transformation initiatives to try to implement these AI initiatives and to generate revenue and so on that you could call out, or if it's really just all on the competitive side. Thanks.

[Fréd Perron, President and CEO at Cogeco Communications]

Hi, Matt. It's Fréd. I'll take the first one, and I'm sure Patrice will take the second one. I'll give you a somewhat long answer on the U.S. competitive environment and what it means for our sub-trends, because I'm sure many listeners are curious about that topic. As we mentioned, the competitive environment got worse. We've been mentioning that at several conferences in recent months. It's a variety of factors hitting us at the same time, so I'll mention them in growing order of importance. Satellite is there, but we only feel it in our most rural footprint. So it's not a major factor at this point.

[Fréd Perron, President and CEO at Cogeco Communications]

FWA is still present, but I would say it has slightly less velocity than a year or two ago, but it's still present. But really what's impacting us the most is various forms of overbuilding and rebuilding. This can come in three different factors. It can be a DSL player upgrading to fiber. It can be a PE-backed type fiber overbuilder coming as an additional player in our footprint. Or it could be a large existing cable operator coming in as an overbuilder, often with fiber, in our existing footprint. Those things have been happening for a while. It's not like they spike up all of a sudden in a quarter, but they've been progressively growing.

[Fréd Perron, President and CEO at Cogeco Communications]

On top of that, when those players build or overbuild, they're then very focused on filling the pipe. What you see is sometimes some pretty aggressive door-to-door blitzes, like we've seen this summer, trying to fill their pipes with very aggressive offers. There are offers like fiber for CAD 50 for a 10-year price lock we've heard of. Whereas you hear from some analyst reports of green shoots of large telecom players in the U.S. bringing their prices up, that is not yet what we see in the door-to-door and under-the-counter type channels.

[Fréd Perron, President and CEO at Cogeco Communications]

All of that makes the situation quite intense. You see it in our PSU results from Q4. I would not expect Q1 to be any better. As you look at longer-term trends, it's yet to be seen. It's a bit hard to call how this will unfold. There's a case to be made that people can't keep deploying this amount of capital with the cost of capital rising and ARPUs dropping. It's hard to think how that makes so much sense to do so much overbuilding. But even if it was to slow down, people will keep wanting to fill their pipe that they've just built for some time.

[Fréd Perron, President and CEO at Cogeco Communications]

On your question on welo, as I was mentioning to Drew earlier, we are only forecasting a modest inflection in welo for this year. It's always hard to call exactly when the inflection will be in a product like this. Yes, we're rolling out four more states, but it takes some time for people to get reviews on the product and get familiar with a completely different brand. If the inflection happens faster, sooner, we'll be pleased. Overall, I would say in summary, I would not necessarily expect a significant improvement in sub-trends this year in the U.S., but let's see how it goes.

[Patrice Ouimet, CFO at Cogeco Communications]

On the margins in the U.S., I would say there's not that many costs related to our transformation other than our regular costs. We have staffing, some technology costs, but it's not something that is necessarily going up. I would say it's mainly the pressure we have in the business on the average revenue per user and the fact also that we have less users or less subscribers. It basically impacts the margin we have because we do have some fixed costs in there.

[Matthew Griffiths, Analyst at Bank of America]

Okay, great. That's excellent color. Thank you so much, both of you.

[Patrice Ouimet, CFO at Cogeco Communications]

Thank you.

[Operator]

Thank you. Your next question is from Stephanie Price from CIBC. Your line is now open.

[Sam Schmidt, Analyst at CIBC]

Hi there. It's Sam Schmidt on for Stephanie Price. Thanks for taking my question. You've talked about the optimization of capital investments to facilitate free cash flow generation in the past. Can you talk broadly about how you're thinking about capital investments here? Can you talk through puts and takes to the top versus bottom end of the free cash flow guide for 2027?

[Fréd Perron, President and CEO at Cogeco Communications]

Sure. Hi, it's Fréd. Good to meet you. I will comment on our capital investments and how we are able to reduce CapEx in the way we are, and maybe Patrice can comment on the cash flow. Essentially, we are quite comfortable with the reduction in CapEx that we are projecting for this year, and we are not concerned about any revenue impact of that reduction. The reason is the reduction is coming from a few different areas, but there are a lot of synergies. I would even say we have talked about our transformation.

[Fréd Perron, President and CEO at Cogeco Communications]

We are entering the third year now of our transformation, and the third year is disproportionately focused on CapEx benefits. As we see real synergies across the two countries and how we manage our network and how we manage our technology. We have been consolidating vendors, we have been consolidating teams, and that is why we feel quite comfortable about the guide. We have also, as I said in the introductory comments, we have been investing in recent year in upgrading our network speeds in both Canada and the U.S., and we are now reaching a point where we got more speed than we need. So we can pause these investments and be completely fine. So we are very comfortable about the reduction and the lack of impact on revenue.

[Patrice Ouimet, CFO at Cogeco Communications]

For the free cash flow range, it is difficult to comment further. We just provided a range today as we introduced the guidance for next year. Perhaps as we go on throughout the year, I will be able to answer that, but it is still early days in the year.

[Sam Schmidt, Analyst at CIBC]

That is helpful. Maybe one more on the AI initiatives that you mentioned in the prepared remarks. How are those progressing, and how should we think about impact in 2027 and beyond? Thanks.

[Fréd Perron, President and CEO at Cogeco Communications]

Sure. We are doing a lot on AI across both customer operations and customer service, as well as revenue management. We have talked about pre-inflection in other contexts on this call. I would say we are also pre-inflection in terms of the impact of those initiatives. But we do expect some level of inflection to happen throughout the year. It is already in our guidance, and it helps offset other factors on the cost front.

[Sam Schmidt, Analyst at CIBC]

Thank you. I will pass the line.

[Operator]

Thank you. Your next question is from Maher Yaghi from Scotiabank. Your line is now open.

[Maher Yaghi, Analyst at Scotiabank]

I just wanted to ask you first, I know you stopped doing the hard promotional offers that you had late last year and well into early this year. But are the losses that you are seeing, the higher losses in internet in the U.S., are some of these guys that you onboarded during those offers that you did where you were giving two months free and CAD 250 Visa cards discounts. Is this the reason why we are seeing this elevation recently in losses in some of your markets in the U.S.?

[Fréd Perron, President and CEO at Cogeco Communications]

Hi, Maher. It's Fréd. Yeah, thanks for pointing out that we've been rationalizing our promotional offers in the U.S. To your specific question, it was a small factor in the quarter. I would say it's one of the reasons, especially in Ohio, why Ohio was not as good in the quarter, but it's not the biggest factor. The biggest factor is the other headwinds that I was mentioning before. And of course, the factor you're alluding to would be very temporary in nature, given that we've stopped doing those things anyways. More broadly, we are now getting a better NPV per customer we acquire in the U.S. thanks to those rationalized offers. Even though the sub trends are not looking as good, the NPV is a little bit better.

[Maher Yaghi, Analyst at Scotiabank]

Okay. Makes sense. I just wanted to ask you also just on this, how do you account for the prepaid gift cards that you were giving away during this period? Are these costs amortized over multiple months in your P&L, or they're charged directly in the month where these customers were loaded back in January and February and December of last year?

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. They get amortized over the expected life of the customer. And obviously when we have specific promotions, we'll have cohorts, and these cohorts will always have a portion of the customers that churn faster than others, and some will stay for a long time. So we use an average of this, and we amortize it over that period.

[Maher Yaghi, Analyst at Scotiabank]

Okay. And when a customer leaves, if they receive that prepaid gift card and that person leaves, will you charge the rest of the unamortized portion in the same month that they leave? Or I guess, is this maybe why we're seeing the EBITDA getting hit so much in the U.S. right now?

[Patrice Ouimet, CFO at Cogeco Communications]

Yeah. We do not do it at the individual customer level. That would be very complex accounting. We do it at a higher level, but based on the real data. I would say it is not the main reason. The main reason is just the pricing in general. We do have, as part of the activities as well, there is some repricing of the base as well from time to time as people get to the end of promos, and we have the new customers that come in at lower pricing than before. There has also been some cord-cutting on TV that has been going on, so that is why we signed this alternative provider as well, that we did not have in our lineup of services before. That also plays a little bit into it.

[Maher Yaghi, Analyst at Scotiabank]

Okay. All right. In terms of the pressure that you are seeing in the U.S., obviously you are not in it alone. We are seeing a lot of your cable peers also in the U.S. feel the same pressure. They are taking aggressive actions to reduce cost and without talking about each independent company. They are able to offset, in a way, the revenue decline enough to not see the EBITDA reduction being a lot more than double the top line decline. What actions are possible for you to take in order to prevent this from continuing, I guess the question is, into the future for too long?

[Fréd Perron, President and CEO at Cogeco Communications]

Yeah. Hi, Maher. Without discussing too much other people's strategies, I know exactly what you are alluding to, and there are rumors about some of the big cable players cutting large percentages of their staff.

[Maher Yaghi, Analyst at Scotiabank]

Right.

[Fréd Perron, President and CEO at Cogeco Communications]

In understanding what they do, the types of things that they are doing are things that we started doing two years ago. I would confidently claim that we were a bit ahead on those types of measures. You have heard us talk about merging the Canadian and U.S. operations. We have taken significant percentages of the management layers, in particular, out of the business.

[Fréd Perron, President and CEO at Cogeco Communications]

Because we were ahead there's less to catch up on for us at this point. However, what is still an opportunity is all the AI initiatives that we've talked about. There's lots of efficiency from AI and customer service operations and revenue management. That's where the next wave will come from. But the short answer is that some of the quick hits that they're looking at, we've already done in the past.

[Maher Yaghi, Analyst at Scotiabank]

Okay, perfect. Just one last question on your Canadian operation. Obviously, a very different looking picture versus the U.S. Can you maybe tell us a little bit what's driving the subscriber loading? Is oxio still performing well above your Cogeco brand, and for how long you think that can continue to happen?

[Fréd Perron, President and CEO at Cogeco Communications]

Yeah. We see no sign of slowing down in oxio. In fact, we keep beating our internal records pretty much every quarter. That's coming mostly on our own footprint. So it comes with good margin on internet. As I said before, it doesn't come with TV, but at least the internet margin is good. So we see no sign of slowing down on that brand. What's very helpful is a lot of our sales come from referrals because customer satisfaction is so high. So the marketing cost is pretty low as well.

[Maher Yaghi, Analyst at Scotiabank]

Okay. Thank you very much.

[Fréd Perron, President and CEO at Cogeco Communications]

Thank you.

[Operator]

Thank you. Your next question is from Tim Casey from BMO Capital Markets. Your line is now open.

[Tim Casey, Analyst at BMO Capital Markets]

Thanks. Just a quick one for me. Patrice, can you remind us how you are accounting for the wireless initiatives now? Is that reflected directly in the segmented EBITDA, or is there still some carriage in corporate? Maybe just tie that into the guidance. Is that having any meaningful impact on the guide for 2027 in terms of your outlook of EBITDA contributions or losses in 2027? Thanks.

[Patrice Ouimet, CFO at Cogeco Communications]

Sure. It is all in the business units now when you look at the segmented results. In the U.S., it has always been the case, and we have always had a very small team there. As you know, we are relying on an MVNO as well, and we have an external party as well that does the technology piece of billing and tracking of the minutes consumed or the gigs consumed.

[Patrice Ouimet, CFO at Cogeco Communications]

In Canada, because that was not available, we did it a different way, especially on the technology piece with a third party. Initially, it was housed in the corporate bucket for a while as we were pre-commercial or full commercial launch. Last year, since we did it, so for fiscal 2026, we did move it. On a year-over-year, I am getting to the second part now. Year-over-year for Fiscal 2027, it is apples to apples for the Canadian piece because everything has already been moved to the Cogeco Connexion side or the Canadian side.

[Tim Casey, Analyst at BMO Capital Markets]

Thank you.

[Operator]

Thank you. There are no further questions at this time. Please proceed with the closing remarks.

[Patrice Ouimet, CFO at Cogeco Communications]

Okay. Well, good talking to you this morning. Thank you for your questions, and we remain available if you have other questions for us. Have a good day.

[Operator]

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Participants

Executives

• Patrice Ouimet, CFO
• Fréd Perron, President and CEO

Analysts

• Vince Valentini, Analyst at TD Cowen
• Aravinda Galappatthige, Analyst at Canaccord
• Drew McReynolds, Analyst at RBC
• Jérôme Dubreuil, Analyst at Desjardins Securities
• Matthew Griffiths, Analyst at Bank of America
• Sam Schmidt, Analyst at CIBC
• Maher Yaghi, Analyst at Scotiabank
• Tim Casey, Analyst at BMO Capital Markets