Thank you, Frédéric, for coming here.
Sure.
Just, you know, if you were to give us the top three big objectives maybe that you'd like to achieve in 2026 financially or operationally, you know, what would you say are your top three objectives?
Well, thanks for having me, and good morning, everyone. I'll frame the answer in the context of our multi-year transformation. What we're doing as a transformation is we're taking a company that used to be traditional, regional cable only, and we're turning it into an asset that's a digital challenger with thriving brands across both wireless and wireline. That's quite an opening of possibilities for us, and it's quite an opening of addressable market for us. Not many people realize, but we've actually added four businesses to our company over the past three years. We added oxio, a digital brand, three years ago. Last week-
Mm-hmm
we added the oxio version in the U.S., which is called welo, and we have big hopes for what welo can do in our U.S. market. We launched wireless in the U.S. two years ago, and we launched wireless in Canada last year. As it relates to your question on the priorities, the first priority is to grow those four businesses. In parallel, we're doing a three-year transformation. We're halfway through it. That transformation has dozens of initiatives to reduce costs and improve revenue management, and that's well underway. I would say these are the operational priorities. As it relates to financials, I think it was actually at your conference that I said the first time that we're targeting CAD 600 million in cash flow by next year. Next year for us starts 1 September 2026.
CAD 600 million of cash flow may not look that big to people in the room, but for a company our size, it's quite material. Even after we pay a generous dividend, we have one of the highest yields in the industry, and frankly, across industries in Canada. Even after we pay that dividend, what it means is we have CAD 400 million left to redistribute to either directly or indirectly to shareholders in the form of further deleveraging and/or buybacks. CAD 400 million available capital to distribute, as a percentage of our CAD 3 billion market cap is quite significant, and that's not just next year, it's for years to come as well.
I forgot to say that you're in a, kind of a blackout period with your results, finished already for the quarter, I will keep the discussion a little bit...
Thank you.
bigger picture. You know, maybe we'll focus on the U.S. market first and then move on to the Canadian market. You have shown a better improvement in load, you know, less losses in the U.S. over time, over the last couple of quarters, and you indicated that we should expect things to continue to improve over the course of 2026. You mentioned you launched the new service. Can you give us your medium-term expectation as to where you think this business should eventually land at in terms of subscriber loading, and pricing in general? How's the P and the Q look like in the U.S.?
Sure. Things have been challenging in the U.S. not only for us, but for the whole industry. We did say publicly that we expect our financial trends to show clear improvements in the second half of our fiscal year, so that's starting with Q3, our Q3 and our Q4. As it relates to the P x Q, which is your question, a simple way of thinking about our U.S. business is we've been losing customers, ARPU has been declining a bit as well, but we've been cutting costs. The medium-term aspiration would be if we can stabilize the customer trends, and there's good reasons to believe that we can. In about half of our footprint in the U.S., our market share is below 20%, so we can really grow there. We stabilize the customer trends.
There's still gonna be a bit of ARPU erosion, but then the cost-cutting offsets that, and you're in a point where you got much better balance as it relates to your EBITDA, trajectory for the U.S.. We produce a lot of cash because capital expenditures are coming down.
It's kind of not harvesting mode, but, you know, cash generation is the focus for the U.S. business where you can bring it or first deleverage that. Can you remind us maybe your expectation on deleveraging of the U.S. entity first, when can you start getting cash back into the Canadian side?
Sure. I'm not gonna get yet into the specifics of deleveraging in either country. What I can say to your point, stabilize medium term, stabilizing our EBITDA trajectory in the U.S. In Canada, our EBITDA is growing slightly, cash flow across the two entities is growing quite significantly as capital expenditures are coming down as we reduce the debt. Therefore, financing costs are coming down as well. We're creating quite a nice cash flow flywheel here, going back to the CAD 400 million I was talking about before. That gives us plenty of cash to deleverage further if we choose to do so. Our leverage is about 3.2 x of EBITDA today. We said publicly that our target-- I'm talking again at the consolidated level.
We said publicly that our target is 3x by the end of this fiscal year. We're on track to deliver that. Then we'll have, with the CAD 400 million I'm talking about next year, a good problem to have, which is where do we allocate that capital? Further deleveraging is certainly an option. So is buyback. The dividend keeps going as well.
Okay. You mentioned welo, and, you know, how can you manage the risk of cannibalization? You're launching it in the same footprint that you operate Breezeline in. How can you offset that risk?
First, it's a playbook that we know very well from Canada. What we've seen in Canada, our market share on our main brand, Cogeco, is above 40%. Yet, when we launched our second brand, oxio, despite relatively high existing market share on the first brand, oxio did not cannibalize the first brand very much. If we get 100 new oxio sales, very few of them come from the main brand. The reason for that is, it's such a different brand. You can just compare the two websites and you'll see it. They talk to a very different audience. What the new brand does is, instead of cannibalizing the first one, is it actually expands the number of customer segments that we're talking to in the market. We expect it will be the same in the U.S..
In fact, the cannibalization risk is even lower in the U.S. because our starting market share position on the first brand is lower in the U.S.. We're really hopeful about what our second brand can do in the U.S., especially in those half of our footprint, where our market share is below 20% today. Lots of room to grow.
Who are you expecting this market share to mostly coming from?
It's gonna depend on a market per market basis because the U.S. is not as homogenous as Canada as a market. Every state has different competitive dynamics. We'll see. Some of it may come from FWA. It's, you know, it's a similar target segment with a much better product.
Value. Not the highest speeds.
Yeah, good value...
Similar
good value for money, but
Good enough.
With a much better product that's more stable than FWA. Who knows? Some of it may also come from some of our cable peers, and some of our wireline peers. We'll be tracking that over time. It's only three business days in for the product, and I'm curious to see what it's gonna do.
Okay. On the Canadian side, how would you characterize the current competitive environment in your footprint in Ontario and Quebec? Is there any difference in the competitive intensity in those two provinces right now?
Yeah. I would say at present time that I'm cautiously optimistic about our competitive environment in Canada. Throughout Black Friday, the holidays, it got a little bit more heated in Quebec in particular. We saw an uptick in resell activity in Quebec, but that's now coming down again. It does, knock on wood, it does feel like more of a point in time thing. But if you look at it over a longer time period, we've seen some more constructive behaviors by some of our competitors starting last summer. This resell activity is coming back down now. I net all of that out and I say, yeah, cautiously optimistic would be the sentiment for Canada.
Okay. You know, maybe you can tell us about the pricing environment. I felt, you know, talking with you guys a couple of months ago, is that it's hard to implement price increases in the Canadian market as is, as it stands right now. Are we getting close to, you know, opportunities to begin to return to that, you know, long history of maybe 2% - 3% price increases, or it's still too early to be comfortable doing that?
We expect to be able to continue monetizing rate increases actually in both countries where we operate. We did some in both countries in recent months, and it generally went fine. It's not a, it's not the best part of our business model, but it's a real part of our business model for both us and our competitors. I don't see massive signs of slowing down. There may be a bit of optimization in some regions and some products, but by and large, it's something that we can keep doing quite comfortably.
Okay. oxio, as you mentioned, had, you know, great success for you in the Canadian market. Looking back, it looks like it was a great acquisition that you guys did there.
It was.
is it still, the momentum is still... again, not speaking about a specific quarter-
I understand.
the potential for you to keep gaining market share in that segment of the market, there's still more room to grow?
Yeah. In Canada, we've been growing market share, our market share, for the past 12 quarters in a row. In fact, the past two quarters that we reported customer growth, we were the best in Canadian telecoms in terms of customer growth, of course, as a percentage of our size. oxio has been a big part of that. It's not the only driver. Sometimes we also grow on our main brand. We'll do some network expansions as well, although that was a lower contributor in recent quarters. Yes, oxio is a driver of that. More and more, we sell oxio on our own network, therefore at good margins. Customer satisfaction is extremely high on the product. In fact, it's the highest telecom customer satisfaction that I've seen in the five countries where I've worked on oxio.
It's, the pricing is clear. The, you know, installation is self-
Is easy.
self-sufficient.
It's people think the price is very low on oxio. It's not that low. On a like for like speed basis, it's very similar to our main brand. Customers on oxio do buy slightly lower speeds, you'll see a slightly lower blended ARPU, the cost structure is also lower because it's all digital. We make good margin that's pretty comparable to what we make on our main brand. Customers are happy, it's price lock for life, we don't get a lot of callbacks, which also helps the cost structure as well.
In terms of CapEx, we've seen, as you mentioned, CapEx roll off in the U.S. as you have less network, new network to expand. We're starting to see Canada also CapEx profile come down. This is a struggle for us on the, you know, as on the analyst side is trying to figure out what is recurring CapEx versus growth CapEx for a telco operator like yourself. Can you help us understand how much of your current CapEx is growth CapEx versus recurring CapEx?
Yeah. In fact, if I may, I may add a third category to your two categories, which I'll add, upgrade CapEx-
Okay. Yeah.
which is somewhere between growth and maintenance.
You need to...
Yeah. If you look at CapEx to expand our network to new places, CapEx to upgrade our network to faster speeds, and just maintenance CapEx. Expanding our network, we've done a lot of that in recent years because we had a once in a lifetime opportunity to benefit from Canadian government subsidies in both Quebec and Ontario to build new networks in rural areas. That's approaching the end of it. All Quebecers pretty much are connected to high speed internet now, even if they're very rural, and this will be the same in Ontario by and large by next year. There will be a natural end to that. The programs have not been as attractive in the U.S. on that front, so we're not doing as much in the U.S.
Network expansion approaching a natural end as we enter our next fiscal year. Network upgrades, these continue. We now have over 95% of our network on 1 gig speeds. 1 gig speed is watching 100 different Netflix shows on 100 different TVs in your house. We continue to upgrade. Sometimes we do focused migration from cable to fiber as well, not a lot, but on a selective basis. These network upgrades continue, and we have plenty enough to keep meeting the needs of our customers. Maintenance CapEx is an interesting one, where it just keeps going, but we're seeing a lot of synergies from having merged our Canadian and U.S. operations, where we used to have two different teams, two different sets of engineers, sometimes using different vendors and systems.
As we merge that, as we consolidate our procurement, we see natural synergies in our maintenance CapEx. The summary would be network upgrades continue, but that's already included in our envelope and it's manageable. Maintenance CapEx keeps going down due to synergies, and network expansions are approaching a natural end.
The reason I'm asking this is if you. We did a study, you know, looking at the last 10 years of capital intensity. Nobody can say that Cogeco is not investing. You know, you guys had the highest capital intensity ratio of all the companies that I cover.
Yep
both in the U.S. and in Canada. I'm trying to figure out where do you land or are you gonna stay at the higher end of the capital intensity bracket of the companies under coverage?
The reason the capital intensity was higher was because of these rural network expansion projects that we were doing, that once in a lifetime opportunity I was talking about. As I mentioned, this is coming to an end. Before we were doing those programs, our capital intensity was in the 17%-19% range as a percentage of revenue. That's probably a good ballpark to keep in mind as those programs end as well. Over time, medium term and long term, we keep getting better, we keep optimizing, so we're not we're not giving up on continuing to make our capital intensity even better.
Okay. 17%- 18% as a first goal and then-
17%- 19% is what we were running at.
and bring it. Keep working on it.
Yeah.
Okay. I have to talk about satellite because I do get questions a lot from investors about broadband satellite. Your coverage and your market presence is mostly in suburban, some rural. You have also in big cities, but I would say there is potential overlap between where satellite could begin to start to add subscribers over time as these constellations keep growing and that investments need to be monetized. Are you starting to see any friction, both either in the U.S. or in Canada, from Starlink?
Right. I'll separate Canada. The U.S., in Canada Starlink is not growing as fast as in the U.S. There are a number of reasons for that: market structure, regulatory and whatnot. In the U.S., also not a huge impact. Of course, Starlink is growing, where we see them grow... First of all, what they're doing so far in terms of their growth, they've got very impressive headline figures. Most of that growth is coming from the other satellites, which is what the story doesn't say. The other satellite-
They're taking market share.
They're taking market share for existing older satellite providers. That's what's happening so far. They're not really taking market share from cable or fiber, and I know you wrote a report on that. Then longer term, Starlink has been active in the BEAD program in the U.S. That's a government program to connect rural areas. They won a fair number of doors as part of that program, which does not overlap with us, so we think they're gonna be quite busy with that for quite some time.
Okay, so far not.
No
a force that you need to compete against on price or subscribers.
That's correct.
In the U.S., it's mostly still cable and FWA that are the main competitors for your subscribers and setting the price in the marketplace.
That's right.
Okay. In Canada, it's like, you know, fiber, it seems hard here for fiber to gain market share for some reason in Canada versus the U.S. Why do you think that is?
Yeah. It's a funny one because I'd come to events like this three years ago, and the question I would get the most often is, "How will you guys compete with fiber? Bell and TELUS are building fiber. How are you gonna compete?" Now I never get that question anymore. As I said, we've been growing market share for 12 quarters in a row. I think we've. The market has reached an equilibrium here in Canada. We've shown that cable can compete quite well, that cable offers plenty, enough speed, and we feel very good about our competitive position in Canada. We're also improving our competitive position in the U.S., Fiber upgrades are slowing down in the U.S. It's already 60% or so of our footprint which is upgraded to fiber.
You know, in Canada our largest competitor stopped at 70%. Let's see where that goes. We've shown clearly that we can compete with fiber very well.
In terms of, you know, we had Ian Scott, the vice chair of Telecom, talking about the new regulatory endeavor that they had, was to encourage out of footprint large competitors to compete, and TELUS has shown interest in becoming that entity that can compete out of footprint. You guys were quite aggressively pushing back on that regulation. Since that regulation came into force, have you felt that TELUS or any other company has made inroads in taking market share from you specifically using that regulatory regime?
I think I mentioned it earlier. Over the past few weeks we had seen a slight increase in some of our competitors reselling our network here out east. It seems to be coming back down a bit now. We'll have to see where it goes. It's important for people to also understand that when somebody resells our network, we make some wholesale revenue from it. In fact, they may take a retail customer from us, but they may take one or two retail customers from our competitor. Sometimes we end up with two or three wholesale customers on our network. From a revenue perspective, you know, it offsets the loss on the retail side. We're not overly concerned. We have to see where it goes. That's what I would say at the moment.
Okay.
Yeah.
Maybe a question on wireless. You haven't disclosed any KPIs for your wireless business. It's still pretty small, I'm sure. That's why it's not, it hasn't reached the disclosure level. Are you gaining customers?
I think, we are. We are, and we're meeting our sales targets. It just takes a few years for a wireless business to build. Somebody asked me this morning, should we put even more marketing behind it? We don't need to put that much marketing behind it, because we're selling it to our existing customers on cable that we're already talking to. There's just a natural cycle that sometimes you need to wait for the customer to end his or her wireless contract with the competitor before you can add them onto your network. Patience is key on this one, but patience is rewarded. A good comparison to use would be our cable peers in the U.S. who did launch a wireless business as an MVNO.
Today, they have about 20% of their cable base also taking wireless from them. They say that it's a clear, positive, material needle-mover to their EBITDA performance as a company overall. It took them a few years to get there. It's really paying off now. That's. We expect the same for us as well.
Okay. You mentioned with the cashflow improvement that you expect to see from the lower CapEx and the stabilization in the U.S. of the cable business, you could have more cash to deploy. You mentioned deleveraging and potential stock buyback. Any other projects or objectives you'd like to achieve with or deploy how you deploy that capital?
Right. We talked about the $600 million in cashflow next year. Even after a generous dividend with a quite a high yield, we still have about $400 million left to redeploy on a $3 billion company. That's not only next year, it's for the years after as well. How we use that cash, we're gonna be discussing it every year with our board. You know, we will be looking at our target leverage, and deciding whether there's a bit of room to bring it lower. We also have room to restart buybacks, if we choose to do so. We'll keep paying that rich dividend that we've been paying as well. Balancing those three would be the immediate priority.
As it relates to other forms of investments, that would be for way further down the road. Right now we're really focused on our capital, on our disciplined capital allocation, which served us well over the past couple of years and will continue to serve us well for the next couple of years as well.
Okay. maybe one last question on the reorganization of labor that you have and how you do.
Yeah
inside Cogeco. Since you came in, it's been a key project, a key, a key objective of yours to improve how you the day-to-day operation. Can you update us on where you are in that process? Along the way, have you found new projects to work on that you can bring down even more the cost structure over time?
Yeah.
Maybe AI, you know, how are you deploying AI internally and using it?
Sure. As a reminder, I mentioned it earlier, but we, once upon a time, we used to have different divisions, one for Canada, one for the U.S., different president, different management team, different systems, different vendors. 18 months ago, we've merged that. We're starting to reap the benefits from it. On OpEx, you see our margins keep improving. Our EBITDA margin keeps improving and will continue to improve. We're not done with that. As well as CapEx, I mentioned earlier how that's driving CapEx synergy in our maintenance CapEx in particular. Beyond the financials, it's making us faster in how we operate and how we go to market. We're quite pleased with that. That started 18 months ago, so I would say the dust is settling down on that one.
As it relates to AI, we launched six AI streams to both reduce our costs, our cost to serve in particular, as well as improve our marketing efficiency and our pricing optimization. Early days on that one, we got dedicated teams going pretty hard at it. We operate in Agile mode as a company, so both technical development as well as the managing of the business and product marketing, digital and other places, works in Agile methodology, so bi-weekly sprints, daily stand-ups, business and technology sitting side by side to be more efficient, and that positions us very well to drive our AI agenda.
Great. Thank you, Frédéric. It's been a pleasure to have you with us.
Oh-
Good luck and hope to see you next year as well.
I hope to be back. Always a pleasure. Thanks, everybody.