Cogeco Q2 Earnings Call Highlights

Key Points

• Cogeco reported solid Canada performance with year‑over‑year revenue and adjusted EBITDA growth and strong internet net adds, and management is "cautiously optimistic" as promotional intensity eases and pricing actions take effect.
• The U.S. business remains under significant competitive pressure (aggressive promotions, fiber upgrades), though executives noted early signs of stabilization and launched the new digital brand WELO in Ohio; the company updated its constant‑currency guidance to revenue -2% to +4% and adjusted EBITDA -1.5% to +3.5%, and a CAD 14.8m tax depreciation benefit cuts the expected current tax rate to ~8.5%.
• Cogeco's three‑year transformation is shifting from cost savings to revenue initiatives—expanding oxio/WELO and wireless and accelerating AI deployments for end‑to‑end troubleshooting and churn/discount optimization—while leverage was 3.2x and management aims to reach 3.0x by year‑end with the dividend described as well‑funded.

Cogeco TSE: CGO executives struck an upbeat tone on the company’s second-quarter fiscal 2026 earnings call, highlighting continued growth in Canada, early signs of stabilization in the U.S., and progress on a multi-year transformation plan that is increasingly expanding from cost actions into revenue-focused initiatives such as artificial intelligence tools.

Canada growth continues; management points to improving market conditions

President and CEO Frédéric Perron said the company delivered “solid performance in Canada with positive year-on-year growth” in both revenue and adjusted EBITDA, while noting that PSU growth was “a bit more muted as expected.” Perron said Cogeco remains confident in its customer momentum, pointing to its performance in internet net adds: “In three of the past four quarters, we’ve had the best internet customer base percentage growth in all of Canadian telecom.”

On competitive conditions in Canada, Perron said the company generally feels good about the market, citing reduced promotional intensity and pricing actions taken by the company. “There has been a bit of pullback in promotional intensity,” he said, adding that Cogeco has “also increased our prices as appropriate.” Perron characterized management as “cautiously optimistic” about the Canadian market for the balance of the year.

U.S. business faces higher competitive pressure; WELO launches in Ohio

In the U.S., Perron acknowledged conditions remained difficult in the reported quarter, consistent with prior warnings. However, he said management now sees “signs of improvement” as the company moves into the second half of the fiscal year.

Responding to questions on competitive dynamics, Perron said the increased pressure is not solely price-driven, but pricing promotions have played a role. He cited examples including a competitor “offering fiber for the first six months for free” and another promoting a “five-year price lock.” He also pointed to ongoing upgrades by competitors “from DSL to fiber” as a continuing factor.

On fixed wireless access, Perron said it was not an area where pressure increased in the quarter, calling it “something we’ve been dealing with for quite some time,” while noting some providers have shifted focus toward B2B segments where Cogeco is less present.

Perron also addressed the emerging theme of convergence in the U.S., noting that a large U.S. telco recently introduced a converged offering. He said Cogeco is watching it, but “we’re not feeling yet” the impact, and added the “entry point for that offer is quite high.”

As for customer-acquisition tactics, Perron said the market has seen “very aggressive short-term customer attraction offers,” including gift cards and free months. He said Cogeco and parts of the market have begun to pull back: “We’re less aggressive with gift cards. We’ve scaled back on months for free.” He also said there have been “early signs of return on more constructive pricing behaviors,” though management remains cautious.

The company launched its new WELO digital challenger brand in Ohio at the end of February. Perron described WELO as the U.S. equivalent of oxio, Cogeco’s Canadian digital brand, and said it will be expanded across the footprint during the fiscal year. He cautioned that the newly launched brand did not contribute meaningfully to the reported quarter because it began “at the last two days of the quarter,” and said its growth profile will likely follow an “S-curve,” similar to oxio, though it is “a little too soon” to estimate timing.

Regionally, Perron said Cogeco has now grown its customer base in Ohio for a third consecutive quarter and suggested that is expected to become “the new normal.” He added that Ohio and Florida—“especially Florida residential”—are expected to continue to grow, while “legacy” markets will depend on competitive shifts, including cable overbuilds and DSL-to-fiber upgrades.

Guidance updated; tax benefit lowers expected effective current tax rate

Chief Financial Officer Patrice Ouimet said the quarter included a negative current income tax rate due to a “CAD 14.8 million retroactive benefit from the acceleration of tax depreciation on certain asset classes in Canada.” As a result, Ouimet said the current tax rate is expected to be approximately 8.5% for the year, compared with a prior assumption of 11.5%.

Ouimet said the company updated financial guidelines for both Cogeco entities, with changes reflecting “higher pressure on our U.S. business coming from competition than initially expected” when guidance was introduced in October. The company’s updated constant-currency ranges are:

• Revenue: -2% to 4% (previously -1% to 3%)
• Adjusted EBITDA: -1.5% to 3.5% (previously 0% to -2%)

Ouimet said capex guidance is unchanged, while the company lowered its range for network-expansion capex. He also said free cash flow guidance remains unchanged. Ouimet emphasized that guidance is provided in constant currency given volatility in foreign exchange rates, noting that nearly half of revenue and EBITDA is generated in the U.S. He added that free cash flow is “much less impacted” by FX because U.S.-denominated debt and capex serve as a “natural hedge.”

For the remainder of the year, Ouimet said the Canadian business is expected to continue delivering year-over-year revenue and adjusted EBITDA growth. In the U.S., the company expects both revenue and adjusted EBITDA to be down year over year on a constant-currency basis, but with a smaller percentage decline than in the first half.

Transformation plan shifts toward revenue opportunities; AI deployments broaden

Perron said the company’s three-year transformation remains on track and is generating operating expense and capital expenditure synergies. He said Cogeco now has “four new diversified businesses”—oxio, WELO, and wireless in both the U.S. and Canada—intended to broaden growth sources.

He also said Cogeco “accelerated and broadened” AI work during the quarter, building on customer service chatbots launched in recent years. Over the coming months, the company plans to deploy AI agents across the “full end-to-end internet troubleshooting journey,” from network diagnostics and customer self-serve to call centers and technician support.

Discussing the transformation plan’s next phase, Perron said the first half was “more focused on cost,” while the second half has “more of a focus on revenue as well.” He cited AI use cases including ARPU management and retention discount optimization, describing “a real breakthrough” in using AI to predict churn likelihood and allocate retention discounts more effectively. Perron added that some benefits are being offset by U.S. revenue headwinds, but said the opportunity is meaningful.

Leverage trends and capital allocation

Ouimet said the company’s debt leverage ratio stood at 3.2 turns in the second quarter, and management intends to continue paying down debt with a goal of reaching 3x by fiscal year-end in August.

Perron said Cogeco has “one of the best balance sheets in the industry,” with growing free cash flow and ongoing deleveraging. He described the dividend as “solid and well-funded” and said Cogeco retains the option of resuming buybacks “at some point in the future.”

In Q&A, executives also addressed longer-term free cash flow expectations. Ouimet said the company will provide formal annual guidance in October, but reiterated an intention to grow free cash flow again next year and said that as subsidized network expansions are completed, capital intensity should ease. Perron added that even modest consolidated EBITDA pressure from U.S. dynamics is relatively small compared to the company’s cash flow generation.

On potential competition from Starlink, Perron said Cogeco is not seeing it as a factor in its wireline business. Ouimet added that, based on the company’s analysis, satellite capacity constraints in denser areas and other practical considerations limit near-term competitiveness versus wired networks, though Cogeco continues to monitor developments.

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.

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