Cogeco Communications Aktie

Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Q2 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 of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.

Good morning, and welcome to our second quarter results conference call. So 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 the press releases and MD&A issued yesterday as well as in our annual reports regarding the various risks, assumptions and uncertainties that could cause our actual results to differ. With that, I'd like to pass the line to Fred Perron for opening remarks.

Merci, Patrice. Good morning, everyone. We're pleased to report solid performance in Canada with positive year-on-year growth in adjusted EBITDA again this quarter. Our PSU growth was a bit more muted as expected, but we remain very confident about our customer momentum. As a reminder, in 3 of the past 4 quarters, we've had the best Internet customer base percentage growth in all of Canadian telecom. Our sales and marketing capabilities are strong and will continue to be a sustainable growth driver for us moving forward. In the U.S., we had indicated that we had another tough quarter ahead, which is the one we reported last night, but we now see signs of improvement in our financials as we progress into the second half of our fiscal year.

Patrice will share more details about our outlook in a moment. We launched our new welo digital challenger brand in Ohio at the end of February and expect to expand it further across our footprint throughout the fiscal year. Welo is the American equivalent of our oxio Canadian digital brand, which is driving a big part of our success north of the border. As a reminder, in about half of our American footprint, we have around 20% market share. So there's room to grow. Our 3-year transformation remains on track. We're driving substantial OpEx and CapEx synergies and now have 4 new diversified businesses. Oxio , welo and wireless in both the U.S. and Canada, which are giving us additional sources of growth for the years to come.

We've accelerated and broadened our work on AI throughout the quarter, building on the customer service chatbots we've already launched in recent years. Over the coming months, we'll be deploying AI agents to improve our full end-to-end Internet troubleshooting journey from network diagnostics to customer self-serve to call center support to home technician help. Our size, agile operating model and centralized data structure allow us to move very rapidly in this space. At Cogeco Media, our digital advertising solutions continue to steadily grow, backed by our strong market position even as the traditional radio advertising market remains pressured.

In summary, our Canadian performance is strong, and we see signs of improvements in the U.S. We have one of the best balance sheets in the industry. Our free cash flow is growing. We're deleveraging. Our dividend growth -- our dividend is solid and well-funded, and we also have the option of resuming buybacks at some point in the future. For all these reasons, we feel quite positive about our ability to keep growing shareholder value over the coming quarters and years. On that, I'll pass it over to Patrice for more details about our outlook. Patrice?

Thanks, Fred. So since our detailed financial results were published last night, I'll only focus on a few items and then open it up for questions. But first, you'll notice that the current income tax rate is negative this quarter. It is because we've recognized a $14.8 million retroactive benefit from the acceleration of tax depreciation on certain asset classes in Canada. As a result, the current tax rate should be approximately 8.5% for the year compared to our previous assumption of 11.5%. We have updated our financial guidelines for both companies. We now have a range of negative 2% to 4% for revenue versus negative 1% to 3% previously and negative 1.5% to 3.5% for adjusted EBITDA versus 0 to minus 2% previously. The changes reflect higher pressure on our U.S. business coming from competition than initially expected when we introduced guidelines in October.

CapEx guidelines are unchanged, but we have lowered our range of CapEx for the network expansions and free cash flow guidelines remain unchanged as well. As a reminder, the guidelines are provided in constant currency since foreign exchange rates can be volatile and close to half of our revenue and EBITDA is generated in the United States. Note, however, that free cash flow is much less impacted by FX rates since U.S. denominated debt and CapEx served as a natural hedge against FX fluctuations.

Looking at the balance of the year, we expect the Canadian business to continue to generate year-over-year revenue and adjusted EBITDA growth. In the U.S., on a constant currency basis or U.S. dollars, we expect revenue and adjusted EBITDA to be lower than the previous year, but at a smaller percentage decline than what was generated in the first half of the year. Finally, our debt leverage ratio stood at 3.2 turns during the second quarter, and we intend to continue to pay down debt with the goal of achieving 3x by the end of the fiscal year in August. And now Fred and I will be happy to take your questions. Operator, you can go ahead.

[Operator Instructions] Your first question comes from Matthew Griffiths with Bank of America.

Just wanted to ask in the U.S., just some color on the competitive environment. For me, when I look at the pricing across the market, it doesn't really appear that Breezeline is getting -- outcompeted on price. And so maybe you can delve a little bit into where you think the competition is being successful and like what you are trying to -- how you're trying to counter that? And maybe kind of in the same vein, historically, I think fixed wireless access has been a source of some of the competitive pressure. I'd be interested to hear your thoughts on how the increased emphasis on convergence in the U.S., particularly among fiber players might be contributing to like the next leg of competitive pressure or maybe not? I'd like to hear your thoughts.

Matt, it's Fred. Thanks for your question. I'll comment on the U.S. competitive environment and your various questions. First, yes, we have seen a slight uptick even since our last earnings call, and that's the main reason for the adjustment in the guidance. Now let me elaborate on that a bit. It's not all pricing, Matt, but there is some pricing in there. For example, we saw one of our competitors start offering fiber for 6 months -- for the first 6 months for free. So these types of promotions certainly don't help. You've seen some of our large competitor offer -- promote even more aggressively a 5-year price lock as well.

So even though we are equipped to compete price-wise, the accumulation of all of those things doesn't help. Plus there's always ongoing fiber upgrades from DSL to fiber for some of our competitors, and that's a factor as well. FWA, I wouldn't call an uptick for us in the quarter. FWA is something we've been dealing with for quite some time. It's still there, but we're able to deal with it. And you see some of the players also shift some of their FWA focus more towards the B2B segment. And therefore, that's a segment we're not as present in ourselves. I'd say these are the main factors. Convergence, yes, there is one of the large U.S. telcos that launched a new converged offer over the past couple of weeks. But I'd say the entry point for that offer is quite high.

So it's something that we're watching, but that we're not feeling yet. Now on the positive side, a couple of things. One of the things that I know Maher has been very vocal on as well is very aggressive short-term customer attraction offers in the U.S. and something that we've had to match as well at times, things such as aggressive gift cards, for joining us and months for free. I would say we see more constructive behavior on those types of offers in recent weeks, and we've also pulled back ourselves.

So we're less aggressive with gift cards. We've scaled back on months for free. So whereas the market got more aggressive, I would say, short-term unsustainable offers have been less pervasive, certainly for us. And the last thing I would add is that over the past couple of weeks, we've seen early signs of return on more constructive pricing behaviors, but it's too early to call it an improvement. That's why we remain cautious with the guidance.

Okay. That's really helpful color. And maybe just a final thing. The introduction of the kind of oxio type brand, welo in the U.S. what is like the ramp-up period that you expect for that to have an impact? Obviously, it's starting from like a new fresh introduction. So is this like a 12-month or 24-month type of ramp-up period that we should expect before it starts to have an impact?

Sure. So well, first of all, you don't see volume from it in the results that we just reported, just to be clear on that because it launched at the last 2 days of the quarter. In the next couple of quarters, it's still relatively small volumes, but every bit counts. It will be an S-curve for sure. That's what we saw with oxio as well. What is exactly the length of the S-curve, it's a little too soon to say, Matt.

Your next question comes from Aravinda Galappatthige with Canaccord Genuity.

I'll start with a quick clarification, Patrice. Your comments on Q3 expectations. So it sounds like when you say it's going to be better than in Q2, I assume you're referring to the sort of the constant currency number. It suggests sort of mid-single-digit type EBITDA declines. Is that the right way to kind of characterize that?

Yes. So my comment was more on the balance of the year. So basically both Q3 and Q4 together because obviously, if we commented just on Q3, you have Q4 indirectly as well. So my comment was a bit more general. And yes, it is in constant currency. As you know, we provide guidance in constant currency. there has been more volatility in the FX rates recently because of what's going on around the world. So that's a part we don't control.

But as I said, we are more naturally hedged from a free cash flow standpoint. So that's how we can manage the currency. But to your question, yes, my comments were in constant currency. And for what I said is for Canada, obviously, the currency doesn't really have an impact. We're planning for the balance of the year to the 2 quarters to see positive year-on-year growth. That's our current expectation, like we've had in the first 2 quarters. And in the U.S., we do see a decline in constant currency or in U.S. dollars, but the percentage decline should be better than what we've seen in Q1 and Q2.

And then just sticking to Canada for a bit. I mean, as you pointed, I think as pointed out, the wireline performance in Canada is quite strong, better than most, if not all, kind of your peers. Maybe just talk to the sustainability of that. I know that there's been a little bit of promotional activity, but comments coming more recently from the carriers suggest that the level of discounting and aggression has eased on the wireline side of it. I know that you yourselves were a fair bit active several months ago. Maybe just give us a lay of the land there and your ability to kind of sustain price and perhaps maintain sort of the current trend.

Aravinda, it's Fred. Thanks for pointing out our solid Canadian performance. And as Patrice said, we expect solid financials for the rest of the year in Canada as well. With regards to competition in Canada, we generally feel good about the market. There has been a bit of pullback in promotional intensity. We've also increased our prices as appropriate. So I would say cautiously optimistic in general about the Canadian market.

Okay. And my last question, I was wondering if you can talk to sort of where we should be looking for the benefits of the transformation plan going forward for the rest of '26, but also fiscal '27. Maybe just an update there. Is it -- are there still more bottom line-oriented tailwinds from the program that we should be looking for?

Sure. So the first half of our transformation was more focused on cost. As we go into the second half of our transformation, there will be or there is more of a focus on revenue as well. As I mentioned in my introductory comments, we're really starting to make good headways into AI agents across our operations. The example I gave in the introductory comments was more about technical troubleshooting and customer service. But we also are starting to deploy AI for ARPU management. And as you know, there's a lot of money in areas such as retention discounts, for example, in our P&L.

And there's a real breakthrough right now in using AI to predict whether a customer is really likely to churn and optimize the allocation of our retention discounts based on that. That's just one example. So that's certainly an increasing area of focus for us. Of course, some of that is being erased by the headwinds -- the revenue headwinds in the U.S. but that's directionally where we're going, and there's a lot of money there.

The next question comes from Drew McReynolds with RBC.

Maybe first a wireless question, Frederic. In Canada, obviously, the Street has seen some pretty unwelcoming promotional activity through a pretty seasonally low period here in Q1 by the Big 3 and to some extent, Quebecor. Just from a Cogeco perspective, just curious on your observation of that in terms of how you're wanting to grow your wireless business and whether that impacts kind of your plan as we go forward. And then maybe a second bigger picture question. I think, Fred, you talked about the 4 stages of telecom before, and it feels we're increasingly in that maturation and pricing pressure kind of the third stage, I think you referred to. In the U.S., how close or perhaps what's the path to the kind of steady state, the fourth state? Is it really about market share being more balanced in the U.S.? I know it's a pretty big question, but just at the highest level, just what are your working assumptions in terms of kind of getting to that steady state in the U.S.

Sure. Thanks, Drew. Good question. So my answer may be a bit longer. So on wireless, first, when you look at a benchmark for wireless for us in both countries, actually, when you look at the U.S. cables deploying MVNO models, they've typically reached 20% wireless penetration of their wireline base after a few years and 20% may not sound like a lot, but it's clearly enough for it to be a materially positive P&L needle mover for them. So not stating a goal here, but that's not a bad benchmark to use for us. As it relates to our -- for both countries. As it relates to our wireless efforts in Canada, our sales have actually been slightly ahead of plan.

And I would say that we're quite insulated from all the noise happening between the Big 3 or now the Big 4 in wireless in Canada. Our model is very different. We cross-sell to our existing customers in a more rurally skewed footprint. We also target lower data users, which we're doing successfully, and we're doing so by also reminding our customers that they can do automatic offload onto their Cogeco wireline network when they're at home. So I would say we're doing our own thing. We're not fighting in the excessively large data bundles that customers don't need, and we're doing just fine. So a long way of saying the recent price war in Canada wireless has not really impacted us.

In terms of the 4 stages of telecom and just to remind everyone of what the 4 stages are, I have seen them in Europe before. So it's always the same story. There's growing penetration of telecom services, which is Chapter 1. Then there's share of wallet increase, which is Chapter 2, where you upsell customers and you do sometimes rate increases. And Chapter 3 is what I call the bursting of the bubble where prices start falling. And Chapter 4 is when things restabilize again at a lower price level that customers are comfortable with. And I'd say when I was in Europe, we've gone through Chapter 3 and many European countries are now in Chapter 4, where telecoms have regained renewed stability.

Where are we in our 2 countries? I'm cautiously optimistic that Canada is approaching Chapter 4. Of course, we don't have a crystal ball. And -- but as I said to Aravinda before, we see more constructive behaviors in Canada and things seem to be settling down. The U.S. is still very much in Chapter 3, which is price wars. In terms of your question on what is the path to stabilization in the U.S., there are a couple of things. So some of the offers that we're seeing right now just simply don't seem sustainable from a net present value perspective from our competitors. So hopefully, somebody is going to wake up somewhere and realize that, that doesn't make sense. But also what we're doing is we're looking at our market share in every single one of our U.S. markets, and we're doing pretty granular predictions of given the number of players in that market, given the overbuild dynamics in that market, what is our fair share market share in that town.

And there are places where our market share is still a little high, but there are places where we also have room to grow to reach our fair share. And as you net all of that out, what we see for us is that we're pretty close to fair share on the Breezeline brand because our market share is lower than most of the larger U.S. cable players. And with welo on top, we have an opportunity to grow share over time. So that's a long way of saying what is the path to more stability in the U.S.? Well, for us, it comes back to being close to fair share. And for each of the different players, I would ask where are they compared to their fair share. And more broadly, hopefully, people will realize over time that some of the offers we're seeing are not quite sustainable.

Your next question comes from Vince Valentini with TD Cowen.

And let me reiterate thank you for not repeating everything from the results and MD&A and start the call. Very efficient. I have a couple of questions. One, in your recap of the competitive drivers to Matthew's question earlier, one thing you didn't mention was Starlink. We're hearing more and more noise about them competing in selective urban markets with very aggressive offers, maybe just a hype thing around their IPO or maybe it's sustainable. Nobody is quite sure. But are you seeing any evidence of Starlink trying to steal any customers in any of your markets yet?

No, we're not, Vince. It's Fred. Starlink, it's important to separate 2 things, right? There's Starlink on the cell phone as a complementary solution to the existing cell phone technologies. Obviously, we're less exposed to that. On the wireline side, we're not feeling it either. Maybe I can pass it to Patrice to share some of the observations and analysis we've done.

Yes. Obviously, this is something that we're keeping in mind and looking at the development. But as Fred said, we're not really seeing it. Obviously, you can -- I'm sure you can look at the technology behind it and the capacity, including the new satellites that are going to come. Typically doesn't work well in regions that -- where you have some level of density of population. And that's usually where you have wired networks, whether it's cable or FTTH. You can always get -- I mean, the TAM is unlimited because basically satellite can reach everyone, but the capacity is quite limited in terms of spectrum usage in a specific area, and that spectrum has to be shared by all operators as well.

And also at the consumer level, when you think about it, a lot of our -- well, I would say, a higher proportion of our customers in rural areas will have bundles, so with TV. So that's not something that's being offered by satellite right now. We typically see much lower speeds as well, something like 100 megabits per second. This can grow over time, but a lot of our customers take much faster speeds than this. It requires an external antenna as well, not something everybody wants to install on the side of the house compared to having an already wired house with traditional cable or FTTH.

And in terms of stability, it's obviously different. It can usually provide a lesser stability of feed than what you'll have with wired network. And lastly, I'll say, as you touched on price, price can change quite a bit. But obviously, you need to take into account all the costs. So whether it's the monthly cost the equipment, which can come in different versions of pricing and again, the installation of antennas. So something we're watching. And obviously, newer versions of higher density satellites are going to come. They're not yet there, but they're going to come over the coming years. But today is not something that we're seeing.

Okay. Second question, probably for you, Patrice. In terms of the outlook commentary for the second half of the year, in the second quarter, the revenue decline in the U.S. is very similar to the EBITDA decline. Is that the expectation in Q3 and Q4 as well? Or is there anything on the cost side that starts to cause a bit of a divergence there, like maybe some of the start-up marketing costs in Ohio and for welo or any of the transformation benefits. Is it possible that the EBITDA decline to be a little bit less than the revenue decline in constant currency at Breezeline in the second half? Or should we expect them to be pretty similar?

Yes. I would say -- so first of all, just to be clear, we do expect for the balance of the year that both numbers will -- if you take the 2 quarters together, we'll have a lower percentage decline than in the first half. But to your point, they were exactly the same number in revenue decline and EBITDA decline in Q2. We anticipate that we'll have a lower decline on EBITDA in the future versus the revenue, which is your question, because of cost improvements over time. So yes, there should be some delta there.

And to be double clear on what you just said, the decline rate in the second half of the year better than the first half of the year, not just better than the second quarter.

Exactly. Yes.

Okay. One last one just on CapEx. If I'm trying to understand your guidance correctly, it sounds like some of the rural expansion project spending in Ontario is not happening in fiscal '26. I assume that means a little bit more is deferred into fiscal '27. But on the flip side, you may have pulled forward some of the other -- the non-expansion CapEx into this year so that you can still keep the numbers across the 2 years stable, but you've just switched it from one pocket to another.

Yes. So that's -- so the year is not finished, but that's something we're looking into exactly. So in construction of new areas, especially the subsidized areas in Canada, it's been taking a bit longer than planned for a portion of the work that we don't control that has to do with the access rights and permitting. So we're managing CapEx between the 2 years. But again, it's something -- there are certain things we can play around with between years and some that we don't. So that would be the plan. And maybe just before I forget, as you were talking in your previous question, I did not provide any commentary on Q3 versus Q4. I was talking about the balance of the year. But keep in mind that in Q4 last year, in the U.S., the comparative figures were lower than in Q3. So when we look at the balance of the year, that will play a role. So it will naturally help Q4 versus Q3.

Your next question comes from Stephanie Price with CIBC.

Just to follow up on one of Vince's questions there, just around first half results, looks like they came in a bit lower than the revised full year guide. Just curious what you're seeing in the second half that leads you to expect an improvement there? And maybe related, just the puts and takes to get to the top versus the bottom end of the new guide. Is it primarily the U.S.?

Yes, sure. So in terms of the balance of the year, I guess you're focusing on the U.S. business. We're looking at more -- I guess I'm going to repeat some of the stuff we said before on the call. So we have more benefits coming from the transformation actions we're taking. And some of them have been in the works for a while, and now we're starting to see the benefits. It's just starting, especially the new AI tools that Fred was talking about, which will have a bigger impact next year, but we're starting to see the benefit this year.

So that's one thing. We have made some price adjustments in the U.S. in January, February. So that fully benefits Q3 and Q4, but not so much the first half of the year. There's also some -- as part of our transformation, some other revenue generation activities that we are doing that will have some benefits on for the balance of the year. And I did mention the Q4, especially easier comps last year. So that will make a difference in the numbers, especially in Q4 this year.

The second part of the question, Stephanie, was around what will be the drivers of reaching the top or bottom end of the guidance? And is it mostly in the U.S.? I guess the answer is yes, it's mostly in the U.S. I don't know if you want to add, Patrice.

Yes. So I would say the U.S. is the key factor. When you look at the Canadian business, the first 2 quarters have been fairly stable. And in terms of growth year-over-year, we assume something in the same ballpark for the balance of the year and stability in growth. So this is where the U.S. has more impact. Now I won't necessarily comment on where we think we'll land in the ranges. So that's why we have ranges, but we still have 6 months to go.

That's helpful. And then maybe digging into the U.S. a bit more. Just curious if some regions are -- what regions are more competitive than others. And you mentioned you've seen some improvement in the last few weeks. Has that been across the board in the U.S.? Or has it been certain regions that you've really been focused on here?

Sure. It's Fred. So well, first of all, I'll remind everyone that we managed to grow our customer base in Ohio for a third consecutive quarter. And that we can consider that the new normal. You can't -- we don't -- again, we don't have a perfect crystal ball. There may be quarters that are tougher than others in the future, but we think in the large majority of quarters, we will be growing our customer base in Ohio. So there's a lot of potential there. As it relates to the other regions, without being too specific in terms of competitive intelligence, there's one region of the Northeast where one player was very price aggressive.

And there are 2 other states where we saw -- in one state, we saw overbuild by one of the cables. It's nothing new, but it's something that we've had to deal with. And in the other state, there was a legacy DSL player upgrading to fiber. But by and large, we see Ohio and Florida, especially Florida residential continue to grow in the future. And the legacy market, it's going to depend on the ups and downs of the competitive dynamics. In recent weeks, I think the other part of your question is in recent weeks, where has the pullback been. We've seen actually some of the large national players actually pull back in some of their pricing. Let's see if that sticks. But overall, that's how it plays out.

Your next question comes from Jerome Dubreuil with Desjardins.

First one is on CapEx. So hopefully, not dissimilar to Vince's question, but you've maintained your CapEx guidance for the year, but you're about 10% behind what you had done so far in the year versus last year. Any reason to be expecting some acceleration? Or we should be thinking more about targeting the lower end of the range there for the year?

It's still a bit early days on this one. So we'll see what falls within which year. But I would say, as you've seen in prior years, the level of CapEx can change quite a bit between quarters. So we really manage the envelope on a yearly basis. I would say, given that we were changing guidance for other reasons, if we thought we'd come up short on this guidance, we would have moved it like we did for the one related to network expansions. But for now, we still feel we'll be within the range. And again, I don't want at this point still with 6 months to go to be too precise on where we would land within the range.

Yes. Makes sense. And maybe tying it back altogether, what needs to happen for you to report that $600 million free cash flow guidance that you are expecting for 2027?

Yes. I would say, obviously, we provide the actual guidance on an annual basis, as you know. So we will come out with guidance for next year in October. But when you look at this year, we did not move the free cash flow guidance, and it's -- we're in the -- like midpoint is in the $530 million, $540 million, if you just use the midpoint of it in constant currency. And as we're eventually finishing all the network expansions, the ones that are subsidized, but we always do a bit of network expansion every year, we'll see an easing there. So if you take what we're planning to do this year, and we are still planning to grow free cash flow next year, you'll normally get in that range. So we'll see exactly where we'll land for next year. But our view is to grow free cash flow again next year and get to around that range.

Yes. And Jerome, I'll simply add that even when we get a 1% EBITDA pressure, for example, due to U.S. dynamics, 1% at the consolidated level is $15 million or so of EBITDA, which is still a relatively small number relative to the size of our cash flow. So bottom line is the cash flow is growing faster than the EBITDA headwinds that we're seeing.

Your next question comes from Maher Yaghi with Scotiabank.

I just wanted to go back on the guidance change. As you mentioned, it was driven by the U.S. business. Can you maybe provide, maybe dissect that? Is it -- in the MD&A, you mentioned it's a pricing issue. But any of the change in the guidance was the result of different outlook on subscribers or it's all pricing?

It's both. It's U.S. revenue, Maher, and it's a combination of subscribers and ARPU. Simply put, a couple of things. As I mentioned on a couple of questions already, there has been more competitive intensity even since our last earnings call. And therefore, what you see is Q2 came in slightly below what we were expecting as a result of that. And things are turning around. It's just taking a little bit more time on both subs on subs and ARPU. The -- yes, because pricing dynamics impact both.

As I mentioned on an earlier question, I know you've noted some unhealthy pricing dynamics in the market such as gift cards and months for free. The good news there is that we're starting to successfully pull back from some of that. So that's encouraging. And again, I want to remind everyone that even though we have a medium-term aspiration of growing our customer base in the U.S., that is not how we steer the business. We steer the business for value. And maybe one day growing the subscriber base will be an outcome, but really NPV and customer lifetime value is what we're steering for here.

Okay. Okay. So maybe on the subscriber trends, could you update us on your outlook for the U.S. broadband subscriber trends? Last quarter, if I rephrase maybe what you had mentioned is that you did expect Q2 to be worse than Q1 a little bit. but expected that the rest of the year, we should start to see improvements year-on-year. Are you still expecting Q3, for example, to be better than Q2 in terms of less losses?

Yes. It's hard to be overly precise because we're still not even halfway through -- well, we're just roughly halfway through the quarter. So a lot can still happen. What I can say to you, Maher, is that the days where we were losing 8,000 and 10,000 subscribers a quarter are likely behind us. And in the medium term, we see -- over the quarters, we see a path to progressively improving subscriber performance in the U.S. To call a specific quarter that's not even finished is -- would be overly precise right now.

Okay. If you were to -- if you had to think about what's driving -- what drove the decline in subscribers in Q2 versus Q1, was it a churn issue? Or was it a gross addition issue?

Yes. The easiest thing would be to give you the year-on-year, if I may, so because there's always seasonality. So -- and I'll do it by region instead of churn versus acquisition because churn and acquisition can be correlated sometimes. If acquisition is lower -- if churn is higher, acquisition is usually higher as well. So if you could compare Q2 that we just reported -- Internet subscribers in the U.S. compared to Q2 of the prior year, they were actually similar. But when you look under the hood, we're starting to look to do much better in Ohio.

So we were ballpark 3,000 better year-on-year in Ohio, and that's something we see as sustainable. But we were 3,000 worse year-on-year in the other regions. Half of that is because we were connecting new bulk buildings in Florida in the prior year. So take 1,500 as being the real year-on-year pressure, and that's just ups and downs of certain competitive dynamics in our legacy market.

Okay. That's helpful. And maybe one last question on the pricing side. So can you -- I mean the pricing is dictated by how you react to your competitors or how you price your own product or price increases that you put in place, which obviously are built into the assumptions that you did when you first provided the guidance for 2026. So what has changed on the pricing side that is causing you to affect your new guidance? Is it that you're reacting more to the competition by reducing your own prices? Or there are prices that you wanted to implement price increases that you wanted to implement that you might not do going forward?

Yes. I'd say price increases on our legacy customer base are still quite sticky. So that is not the main driver. I would say we're well -- in terms of new acquisition, customer acquisition in the market, as I was telling Matt earlier, I think we're quite equipped to be price competitive in the market. It's just when you see more players running more promotions, it just makes it harder.

So that impacts both your volume, which you're seeing our sub trends are slightly behind what our ambitions were as well as your acquisition ARPU stays under pressure. However, as I said to you earlier, we're at least trying to do that in a more healthier fashion by pulling back from gift cards and things like months for free as well. So the short answer would be it's not the rate increases on the legacy base. We feel still quite confident about that. It's a combination of subs as well as acquisition ARPU.

There are no further questions at this time. I will now turn the call over to Patrice Ouimet for closing remarks.

All right. So thanks for participating today. We'll be happy to take other questions in the meantime, if you want, before we meet for Q3 in a few months. Thank you.

Have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Q1 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 of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.

So good morning, and welcome to our first quarter results conference call. So 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 the press release and MD&A issued yesterday as well as in our annual reports regarding the various risks, assumptions and uncertainties that could cause our actual results to differ.

With that, I will pass the line to Fred Perron for opening remarks.

Mercy, Patrice. Good morning, everyone, and a warm Happy New Year. Our consolidated results for the quarter were in line with our plan as well as what we had mentioned to you last quarter, and we're on track to deliver our guidance for the full year for all KPIs.

In the U.S., our turnaround is working. We've materially improved our subscriber trends for a second consecutive quarter, just as we said we would, translating into our best U.S. customer metrics in the past 15 quarters and we're just getting started. Our goal is now to grow our customer base across our entire U.S. operation on a repeatable basis. We had told you that this was the goal for Ohio in the past, and we're now delivering on that. So we're now further raising our ambition in light of our latest plans and progress. We won't be hitting that new ambition next quarter quite yet, but it is within realistic reach in the medium term.

It's important to remind everyone of a few key points about our American business. First, in half of our U.S. footprint, our penetration is still below 20%, which gives us ample room to keep growing our customer base in those areas and offset any losses in other regions.

Second, we're making great progress at selectively upgrading our network in a capital-efficient manner including the launch of 2.5 gigabit speeds during the quarter, which is helping us protect and grow our business in key areas.

Third, we're still in the process of ramping up new sales channels and beefing up important marketing capabilities. We're also launching an oxio-like fully digital second brand next month.

Thanks to the above points and more, we're confident about materially improving financial trends for our U.S. business starting in the second half of this year. This was already recognized by Moody's and S&P, who both improved their outlook on our debt in recent weeks, while DBRS reaffirmed its stable outlook.

In Canada, our performance remains solid and resilient with positive year-on-year EBITDA trends. We continue to consistently grow our customer base and our wireless subscriber growth is also going well. Wireline competitive intensity got a little heated in some of our markets during Black Friday and through the holidays. So we expect a more modest wireline customer growth in the upcoming Q2, but this remains manageable overall from a revenue perspective.

Before turning to our radio operations, I'd like to reflect on yesterday's report released by the commission for complaints for telecom and television services, which ranked Cogeco as the best telecommunications company in Canada in terms of customer complaint reduction when aggregating brands.

In a year where complaints within the telecom industry rose by 17%, Cogeco made significant progress in improving its customer service, which has resulted in a leading 15% reduction in customer complaints versus the prior year, a 25% reduction in billing complaints and no reaches to the Internet code.

At Cogeco Media, Q1 revenue increased again this quarter on a year-over-year basis, lifted by strength in our digital advertising solutions and continued listener engagement.

So in closing, I'd summarize our overall situation by saying that our 3-year transformation is on track, that our Canadian performance is resilient and solid, our U.S. turnaround is working. And last but not least, we continue to have one of the best balance sheets and cash flow profiles in the industry, which positions well -- positions us well to keep increasing shareholder value over time just as we have been.

On that, I'll turn it over to Patrice for more details about our results.

So thank you, Fred. So in Canada, Cogeco Connexion's revenue was stable in the first quarter as we had a mix of a higher Internet subscriber base, which added 8,900 Internet subscribers during the quarter, and lower revenue per customer from fewer video and wireline phone subscribers. Adjusted EBITDA grew by 2% in constant currency due to stable revenue and lower operating expenses resulting mainly from cost reduction initiatives and operating efficiencies coming from our 3-year transformation program. We added 1,100 homes passed during the quarter, mainly with fiber-to-the-home under a network expansion program.

In the U.S., Breezeline's revenue declined by 9.9% in constant currency due to the cumulative decline in the subscriber base over the past year, a smaller rate increase than in the prior year, along with a competitive pricing environment. The 1,100 Internet subscriber decline represents a significant improvement over the last quarter and last year, while Internet subscriber additions in Ohio recorded its best quarter since we acquired that business 4 years ago with positive growth of 2,600 subscriber additions.

Adjusted EBITDA declined by 9.1% in constant currency, mainly due to lower revenue, offset in part by lower operating expenses, driven by cost reduction initiatives and operating efficiencies. Note that last year's comparative Q1 period had the highest adjusted EBITDA level of all quarters in fiscal '25.

Turning to our consolidated numbers for Cogeco Communications. At the consolidated level, revenue in constant currency declined by 4.9%, and adjusted EBITDA declined by 3.7%. The adjusted EBITDA decline was driven by a decline in U.S., partially offset by growth in Canada. Diluted earnings per share declined by 12.2%, mainly due to a onetime gain recorded in the prior year that was associated with a sale and leaseback transaction as well as lower adjusted EBITDA.

Capital intensity was 22.2%, up from 20.4% last year, although we are on track to hit our CapEx guidance for the year. Free cash flow in constant currency declined by 15.9% in the quarter, mainly due to proceeds from last year's sale and leaseback transaction. Our net debt to EBITDA ratio was 3.2 turns at the end of the quarter, up slightly from the 3.1 turn reported in Q4. We continue to target a net debt to EBITDA ratio in the low 3 turns range. And we've declared a quarterly dividend of $0.987 per share, which is up 7% year-on-year.

At Cogeco Inc., revenue in constant currency decreased by 4.5% and adjusted EBITDA declined by 3.1%, largely explained by Cogeco Communications results. Media operations revenue increased by 8.1% year-on-year, driven by solid market positioning and growth in digital advertising solutions. And we've also declared a quarterly dividend of $0.987 per share at Cogeco Inc., which is also up 7% year-on-year.

Now turning to financial guidelines. We are maintaining our annual guidelines for Cogeco Communications fiscal 2026 year, which we first provided to investors in October. As it relates to the upcoming Q2, we are expecting consolidated revenue and EBITDA in constant currency to decline in the low to mid-single digits compared to last year. The declines are explained by the U.S. business. We are, however, expecting much stronger financial performance in the U.S. in the second half of the year, as we'll benefit from improving customer trends and a new wave of in-flight cost and revenue initiatives.

We expect both financial expense and acquisition integration and restructuring costs to be similar to Q1, while our depreciation expense should be slightly lower than in Q1. At Cogeco Inc., we are maintaining the financial guidelines as well.

And now, Fred and I will be happy to take your questions.

[Operator Instructions] And your first question comes from the line of Aravinda Galappatthige from Canaccord Genuity.

Maybe just to clarify on the Q2 guide, Patrice, is it fair to suggest that the U.S. numbers you don't expect like any sort of variance to what we saw in Q1 and Q4, sort of high single-digit declines? And then maybe just to build on that, can you also talk to the sort of the degree of improvement that you expect in the second half? I mean is it within the realm of possibility that you sort of get even towards breakeven as you exit fiscal '26? Maybe I'll just stop there.

Yes, Aravinda. So as part of Q2 with the information we provided at a consolidated level, I think it's a fair assumption to assume that the U.S. business will be in a similar position than in Q1, obviously, plus or minus some changes there. But definitely, where we expect the change is in the second half. And when we think about the second half of the year, we've been losing some customers historically in the U.S. But when you look at the past 2 reported quarters, the situation has improved quite a bit. So that will play into it.

We do have some price increases that kick in, in a different periods in January. So that will play a role into -- especially in Q3 and Q4. And we have a number of other elements in terms of cost improvements and some other revenue measures that are going to kick in during the second half of the year. So that's what explains basically the change.

Yes. And Aravinda, it's Fred. Those initiatives that Patrice is alluding to that will kick in, in the second half. They're all quantified. They're all on track. They're all in delivery right now. So we feel pretty solid. I know the other part of your question was, can we expect a positive year-on-year EBITDA exit rate in the U.S. by the end of the year? Patrice, I don't know if you want to...

Yes. I think it's still a bit early days to think about individual quarters, but definitely trending towards a neutral position is -- for those quarters is a good assumption, what I said the last quarter, but again, it's still a bit early days to talk about just one particular quarter.

And then for Canada, Fred, I think you alluded to the prospect of maybe just a slightly muted broadband trends in Q2. We obviously did see some activity even from your end. Maybe just sort of characterize for us what -- where you're seeing that pressure? Is it more on the legacy side? Or is it -- are you perhaps not seeing as much tailwind from the other sources, oxio and your broadband -- your rural expansions? Maybe a little bit more context there. .

Sure. Oxio is still going very strong, mostly in our current footprint at good margins. And that gives us a lot of optimism about launching an oxio-like brand in the U.S. as well, and we can talk about that later. So that's still strong. Network expansion is still early days. Our Ontario programs are being dragged a little bit over time due to permitting things. So that will take some time before it kicks in.

As it relates to the legacy business, the way I would characterize it is the end of our Q1 and the Q2 that we're in right now appears to be a period of experimentation by the different players, whether it's dabbling into resale or some promotional activity during Black Friday. So it's been a little up and down. The past couple of weeks have been better but -- and therefore, we're calling for a more muted growth in Q2, but I wouldn't see it as the new normal.

And just lastly, maybe just on the take-up on the wireless side of the business in Canada, again, very early days, but you ran a fairly attractive promotion for a while. Any kind of feedback that you care to share would be useful.

Yes. Wireless Canada is going really well. Our baseline pricing is in line with the rest of the market, where we have promotions, it was an introductory promotion because we were launching the product in the fall. But it was a promotion for one year on the first line only. And the sales are going so well right now that we've already done 2 pullbacks on that introductory offer. So we don't offer a free line for a year anymore. So we're already in the process of pulling back on those introductory promotions because the sales are going so well.

And your next question comes from the line of Vince Valentini from TD Securities.

First, let's stick with that wireless. Can you give us any color of what strong means to you? Like are you over 20,000 subscribers in wireless in Canada? I mean I think we're all grasping with what your definition of strong is?

Vince, the -- we don't disclose our wireless numbers. It's relative to our internal targets. It will take a couple of years before our wireless customer base to be material and really benefit our bottom line. But when you look at what some of the U.S. cables are doing after a few years of being into wireless, it's really a needle mover to their EBITDA positively. But I would not expect much of an impact in the short term, but we're not yet at a place of disclosing the customer base.

Okay. And on the competition in Canada, you were just talking about, can you unpack it all? Is it a fixed wireless aggression problem or you mentioned TPIA? Is it more the TPIA or just traditional Bell competition? And a sub-question on that. If it -- to the extent you're seeing TPIA experimentation, are you seeing that of somebody reselling your networks or you're at least getting the wholesale fee? Or are you seeing that on the telco fiber network?

Sure. Happy to answer the question. If you unpack FWA resell and just normal promotional activity, FWA is not having an impact on us. We track churn reasons. And I know some of the advertised prices can be eye-popping on FWA, but we're really not feeling it. On resale, yes, it does seem to be a phase of experimentation. As I said, the past couple of weeks have been a bit better. Hopefully, people will realize that it's not good for anybody.

But to your other question, yes, a big chunk of that resale activity shows back up in wholesale revenue for us. So while the subscriber metrics may be more muted, that's why I was saying that in my introductory comments that it's manageable from a revenue perspective. And then in terms of normal promotional activity, yes, it popped up during Black Friday and the holidays. But let's see how it evolves. It may just be a point in time thing.

Switching to the improving trend in the U.S. Internet subs. You say you won't get back to positive sub adds in the second quarter, but you're still trending well. Can you frame this at all? Like should we be thinking about another quarter with only losing 1,000 or 2,000 Internet subs? Or was there something unusually strong in the first quarter that can't be replicated and maybe you slip back to 4,000 or 5,000 sub losses?

Without going too precise because we're still in the quarter, right? But the second quarter, I do expect some losses maybe a little bit more than the current quarter, but it's yet to be seen. But no, it was not an unusual phenomenon in the first quarter. The trends are sustainable. And in fact, after the second quarter, we see a clear line of sight to the improvement trend resuming. We have enough quantified measures in place to believe that, that will be the case and turning positive in totality in the U.S. on HSI subs on a repeatable basis is now something we believe is realistic and is our goal in the medium term.

Excellent. And last one, if I could. Very nice to see the rating warnings, whatever you call them, removed from Moody's and S&P. Does that now free you up to consider using your free cash flow and balance sheet strength for share buybacks? I mean, as I'm sure you appreciate, if you're still on track for $600 million or more in free cash flow in fiscal 2027, that's an incredible free cash flow yield and a lot of excess cash after paying your dividend. Do you think about starting to use that as opportunistically to buy back shares?

Yes. So as we go through fiscal '26, we're still going to concentrate on reducing debt. We're still slightly higher than the 3x target. When you look also at the ratings on the debt, there is an expectation as well of continued decrease in leverage. That being said, as we get to next fiscal year, to your point, which starts in September, then we do expect to have hit that target and also have visibility on strong free cash flow next year. And that's a discussion we'll have definitely at that point internally on what do we do with the excess cash? Do we resume a buyback program that we've run for many years in the past. So that's a possibility for sure. Do we repay more debt. We do a mix of both. But I would say it's not something in the shorter term, but it's going to come -- that discussion will come soon enough.

Okay. I appreciate that, Patrice. Just to state the obvious, hopefully, it's obvious. I mean your dividend yield is higher than your cost of debt. So buying back shares still has a cash-on-cash benefit, which hopefully, the rating agencies would appreciate. And certainly, I know the equity market would appreciate, but I leave it to you guys and I will pass the line.

And your next question comes from the line of Maher Yaghi from Scotiabank.

[Foreign Language] I just wanted to ask you first on your oxio strategy. I know there's probably a lot more to say when you actually launch it in the U.S., but it's been quite successful for you as a brand in Canada. And the idea to replicate that in the U.S., obviously makes sense. I just wanted to ask you, is the goal for the oxio-like brand in the U.S. is to sell a service in territory only or also out of territory like you are doing in Canada?

[Foreign Language] Maher, it's Fred. Thank you for the question. We are indeed super excited about the launch of an oxio-like brand in the U.S. The short answer to your question is it's in territory only in the U.S. But when you look at the upside potential, oxio in territory is already doing so well for us in Canada. We've reported our best subscriber performance in Canada in the past 13 years. Last quarter and this quarter was solid as well and oxio is a big part of that.

Now if you contrast Canada and the U.S., the opportunity is even bigger in the U.S. because in Canada, our penetration on Cogeco is already in the low 40s percent. But in the U.S. in totality, we're in the low 30s. And in half of our footprint, we're below 20% penetration. So you just start thinking about the possible upside from such a second brand, and it gets pretty exciting.

Okay. Okay. My second question is on the improving trends in the U.S. on the subscriber side. Obviously, it was quite noticeable in Q1 compared to a year ago. But I just wanted to understand what you are giving up to improve those subs because you're kind of doing pretty much the same strategy that Charter and Comcast are doing in the U.S., which is repricing your base or repricing the offers in the marketplace for your Internet service.

For example, I can see you're selling 1 gig for $45 a month in Ohio right now and the first month is free. That service used to be $75 a couple of months ago. So in -- when I think about the objective here, how should we think about ARPU progression or the ARPU negative impact in the U.S. as you reprice your product to improve subs. And when we come out of this transition, where do you expect revenue growth to land at?

Okay. Maher, it's Fred again. I'll start answering and maybe Patrice will want to add a little bit on this one. First of all, when you look at our year-on-year decline in ARPU, it's not because of a massive drop in acquisition prices for new customers. It's because mainly of cord cutting. So we're cutting -- some customers are cutting the cord on TV, and TV itself has a higher ARPU than our Internet product, but it comes with very little margins. So I would say that's the main driver. There is a bit of promotional activity for sure. And it is a fact, to your point, that new customers come in at a lower ARPU than existing customer, that's true in Canada as well.

But our improvement in our PSU trends that we're reporting this quarter is not because of any massive change on that front. We just stay along with the market, and there has not been a massive change in pricing. Our improvement comes from execution. It comes from beefing up some sales channels that were previously underexploited, especially in those areas where our penetration is below 20%. And it comes from simplifying our pricing as opposed to reducing it. So that's how I'd characterize it. Patrice?

No, I think you summed it well. Happy to take other questions, but I think these were the main points.

Yes. So I did look into the mix of PSUs that you have in the U.S. And when I look at Q1 '25, about 25% of your PSUs were on video. And in Q1 this year, it's 24%. So -- and then on home phone, it was 12% last year and 12% this year. So obviously, there's slightly less video as a percent of the overall PSU base in this quarter versus last year's Q1, but it hasn't moved that much. So I'm trying to figure out what's driving the 4% price decline per PSU in the U.S.? And when should we expect that to improve?

Yes. So the -- what this analysis doesn't show, Maher, is which segments of TV customers are losing versus those that we're adding. So in many cases, we're losing the higher ARPU TV customers, and we're adding lower ARPU ones. So it would get into a pretty detailed analysis, and I'm sure you can talk about it with Patrice on the follow-up calls, but we've analyzed this in and out and cord cutting is the main driver of the ARPU decline.

Of course, to your point, new customers also do come in on promotional rates, at a lower rate, and that's also a factor. But our point is simply that the improvement in Q1 is not due to any material change in that trend.

Okay. One last question. In terms of the growth that we're seeing in Canada, obviously, quite noticeable as well. How should we think about these net adds on broadband in Canada as -- from a sustainability point of view? And can you maybe tell us what's giving you the advantage to load as many customers as you are? Is it oxio or the Cogeco brand is also successful in the marketplace these days?

In prior quarters, including this one, it was a combination of both. It depends quarter-by-quarter. Sometimes network expansion helped, less so in more recent quarters. The Cogeco brand has held its own over time. And then it's really oxio that's helped generated, I would say, differentiated growth in Canada versus some of our peers. And that's why we're so excited about an oxio brand in the U.S.

As it relates to moving forward, as we've said, Q2 PSU growth in Canada will be more muted, but we're recovering a lot of that in wholesale revenue. Is that the new normal? Not necessarily. It's still a stage where people are experimenting. And as I said, the past couple of weeks have been a bit better.

And your next question comes from the line of Matthew Griffiths from Bank of America.

So just going back to the U.S. broadband sub picture that you're providing. Is there a way to kind of share with us whether the improvements that you're expecting are going to be coming from reduced churn? Or you've mentioned sales channels as something that you've been working on improving. So is it a gross add difference going forward that we should be expecting as the driver?

And then secondly, I think you mentioned medium term as the time period for U.S. broadband subs turning positive. Should we -- should I read medium term as like 2027? Or is it slightly further out than that? Is the next year too soon? Is that still near term?

And maybe just finally on the transformation efforts, as you're progressing through this working through the second year kind of checklist for lack of a better word, like what have you -- what kind of details can you give us on what you've completed and what you're moving on to in that program?

Sure. Matt, it's Fred. On your first question, the improvement in the U.S. coming from churn versus gross new sales. We have initiatives in flight to keep improving our churn management and our retention blocking and tackling. But most of the improvement will come from gross new sales. And that's the simple math of what I was saying before, which is in half of our footprint, our penetration is below 20%. So there is a real opportunity to deploy new sales channels in that footprint plus our soon to be launched second brand to materially grow our penetration in that footprint.

On the definition of medium term, a handful of quarters is what we're shooting for right now. But -- so it's not past calendar 2027, but -- or even fiscal 2027, it's not beyond that. Our goal is shorter term than that. But please just give us a bit of grace on that one, and we'll get there. But it has to be -- we have to see how the competitive environment evolves and give or take a couple of quarters, but we'll get there. That's our goal.

And on the transformation -- yes, sorry, go ahead.

No, no, I was just -- the transformation.

Yes. Yes. So on the transformation, I would say, to your point, we're in year 2 of the 3-year program. The first year was more focused on cost optimization, which included the reorganization of Canadian and U.S. businesses initially and a number of other elements after. We had more to do on the cost front as well, optimizing the way we operate our chatbots, IVR systems and there's a lot going on as well in the number of basically proactive maintenance and making sure we tackle issues in the systems before they become a customer-facing issue, which reduces truck rolls. So there's a lot of these things still on the map for year 2 and year 3.

But I would say what's a bit newer in year 2 and 3 is more focused on revenue generation. We've talked about this before, but this was not the focus of year 1. And that has to do with the way we sell our products, the way we segment the market, the way we have contacts with the market as well, churn reduction is an element as well. As part of that as well, launching the second brand is -- the idea is to be able to tackle basically different segments of the market. It's more difficult to do with only one brand. So I would say this is -- there's a lot going on.

And the last piece I would say is, as we started this a while ago, the opportunity to use AI to do some of this work was not there at that point, but it is today. So we have a heavy emphasis on actually using AI and the latest and greatest to make this happen rather than do it the traditional way. So hopefully, that gives you some hints on what we're doing today.

That's super helpful. And maybe -- sorry, if I could ask one other thing. On the 20% share in some markets, has there been any -- I'm sure you've looked into why that is? And maybe can you share with us like why is it so low in some markets? And what in your plan addresses that why and fixes it?

Okay. It comes from 3 places: first, Ohio, is the main part of that. You may remember that we bought the Ohio business 4 years ago or so. And it was already an overbuilder. So by definition, the share there was already lower and there was a loss of share, unfortunately, through the integration at the time.

The second is in newly built footprint, I think it's a newly built footprint over the past few years where we see an opportunity to execute better from a sales perspective there. We're not building those new network expansions anymore. We've stopped them shortly after I was named CEO a couple of years ago, but they do under-index in terms of sales, and we're now ramping that up.

And the last area is Florida, where Florida was typically focused on bulk sales, but we have a residential footprint there where we think we can deploy more sales force. So you add all those 3 things together, and that's how we get there. But Ohio is the main one.

Your next question comes from the line of Drew McReynolds from RBC.

Yes. Fred, thanks for clarifying that last question. That's super helpful. Two others for me. Number one, on the Canadian broadband margins and, I guess, more importantly, the trajectory. I know revenue mix is certainly -- will drive cable margins for the industry going forward. But just would love to get your sense, really good margin performance. We see Rogers at kind of stable revenues to almost 58%. And obviously, that's a little bit of a bigger scale. But what do you see as upside kind of medium term here on Canadian margin?

And then just secondly, with respect to commercial revenues, I guess, business revenues, both in Canada and the U.S., it generally looks kind of flattish. And just wondering if there's anything to flag in that segment from the perspective of cablecos in general being underpenetrated in the business market, particularly SMB. Just would like to get an update just what your growth expectations are for that segment?

It's great. So in terms of margins, well, we've been increasing margins over the years in Canada, as you know. It comes from different elements. There's a portion that's mix, but a portion of that comes through the cost reductions that we've been able to do. So it depends on the years. But typically, like 0.5 point to 1 point has been something we've been able to do. When you throw in acquisitions, obviously, it can change the mix, but we haven't done meaningful ones recently.

So when you look at this full year, I would say versus where we are in Q1, it's -- we're probably going to be in a similar place. So we've had a good increase versus last year. But I would say, yes, that's probably it.

And if your question is longer term, we do think as we continue to invest in automation and improvement in our operations. I gave a few examples on the call earlier. These typically produce increasing margins as we're a lot more efficient in the way we operate. So we'll keep on working on this in the future.

Business segments?

Yes. And for the business segment, yes, it's been more flattish. This is actually an area -- I would say business for us is about 10%-ish of our business and residential is the balance. So obviously, our focus has been more on residential. We do have some focus -- I would say, a bit newer focus on commercial. So we're going to be putting some efforts there.

That being said, we also don't want to go into too many products on the commercial side. Given the size of the business, it's often not worthwhile doing. So for now, I would say, yes, it's more neutral-ish, but we do feel that there is some upside in that business in both countries going forward. It will be less material than what we do in residential, though.

And your next question comes from the line of Stephanie Price from CIBC.

I just wanted to circle back on Ohio. So net adds in the high region improved sequentially again this quarter. Just curious about what you've done in that region to move it back to growth and your ability to use the same playbook to move to growth in the rest of the U.S.?

Sure. Stephanie, without giving the entire playbook to our competitors, what I would say is we've deployed new sales channels in that footprint and we're not done doing that. That's number one. Number two, we've simplified our pricing. Customers were telling us that our pricing was too complicated before. So we've made it more transparent, more simple. And then there's other blocking and tackling around analytics, customer base management, more refined targeting both of new customers and existing customers for upsell and retention.

And then, of course, last but not least, that's the obvious place to start with our second brand. That's not in the results yet, but that's going to be in the future results.

And then you mentioned in the U.S. penetration below 20%. One of the reasons was newly built out footprint. It looks like you added about 3,000 homes passed in the quarter in the U.S. Maybe you can talk a little bit about the opportunity there.

Yes. I wouldn't say -- we're not building much any more new footprint, Stephanie, in the U.S. That's something that we've stopped just because of the nature of the market. Any numbers that you see such as that 3,000 is more the residual impact of either prior long-standing projects being completed or residual commitments to some local government but we're not starting many new projects on that front. The opportunity is on filling the pipe, so to speak, and deploying some of the same tactics that I was talking about in your Ohio question in that footprint as well.

[Operator Instructions] And your next question comes from the line of Jerome Dubreuil from Desjardins.

First one, another one on the subscriber trends in the U.S. going forward. You seem quite confident on that front. I'm wondering if on top of the operational efficiencies that you're planning to roll out, is there any change on the pace of fiber building in your footprint that you have noticed maybe that leads you to this forecast?

The forecast goes mostly from the execution things, Jerome, that we've been talking about on this call. I would describe the competitive environment as steady with some puts and takes. But it's true that fiber penetration used to be nowhere in the U.S., and we're getting closer over time to what would be a stability point, the same way we've experienced that in Canada in the past and navigated it quite well. But I would say, by and large, it's the different measures that we've been explaining on this call.

Okay. Great. Second one for me. Consolidated CapEx in the quarter was pretty much where we expected it to be. But there was quite a shift out of the U.S. and into Canada. I'm wondering if there's something to unpack there or if it's more of a timing thing?

Yes, it's more of a timing thing. The CapEx by quarter can be more volatile, but there was more CPE spend in Canada this quarter, which we won't have in the next few quarters. So I would say, overall, we're on track for the full year, but I would not take the trend of the Q1 and apply it to the full year. It's going to revert back to more normal numbers over the full year.

And there are no further questions at this time. I will now hand the call back to Mr. Ouimet for any closing remarks.

Okay. Great. So thanks for being on the call today and happy to take any other questions you have in the future. So have a good day.

And this concludes today's call. Thank you for participating. You may all disconnect.

Good day, and welcome to Cogeco Inc. and Cogeco Communications Inc. Q4 2025 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 of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.

Thank you, operator. So good morning, everyone. Welcome to our fourth quarter conference call. So 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 the press releases and annual report issued yesterday regarding the various risks, assumptions and uncertainties that could cause our actual results to differ.

So with that, I'll pass the line to Fred Perron for opening remarks.

Thank you, Patrice. Good morning, everyone. For Cogeco Communications, the fourth quarter marked the end of year 1 of our 3-year transformation program focused on synergies, digital, analytics, network expansion and wireless, and we're pleased to report that we're on track.

Year 1 was part of mainly focused on OpEx and CapEx synergies, and we delivered on those targets, as you can see by our 110 basis points year-on-year improvement in adjusted EBITDA margin and our $38 million year-on-year increase in free cash flow in constant currency.

It's worth mentioning that the CapEx efficiency enabling our growth in free cash flow comes mainly from maintenance synergies as we're continuing to make important investments in growing and enhancing our networks. A recent report by Ookla, for example, noted a significant increase in our Canadian upload speeds as a result of our ongoing network upgrade initiative. And in the U.S., we've upgraded over 35,000 of our cable doors to fiber during the fiscal year, in addition to adding nearly 50,000 new homes passed across our North American footprint.

Years 2 and 3 of our transformation will now add more emphasis on our top line performance as per our original plan. This will include additional investments in growing previously underdeveloped sales and marketing channels in the U.S. in the context of the evolving competitive environment as well as scaling wireless in Canada.

When we met last quarter, we said that we were expecting strong continued Canadian customer growth, combined with some improvements in our U.S. subscriber metrics, and we're pleased to be delivering on that expectation.

We just had our best Canadian Internet customer growth in 13 years. This growth was driven mostly by market share gains in our legacy footprint on our own network. The completion of new rural expansion programs in Ontario has yet to accelerate through fiscal '26 and '27, providing a new additional lever for us in the future.

We've seen a reduction in competitor promotional activity in the quarter, which has more than offset some minor noise around FWA and wholesale, including our own deployment as a reseller under the Cogeco brand across Quebec. So it's fair to say that on balance, our Canadian competitive environment is evolving in a constructive manner at present time.

Our launch of the Canadian wireless service is going ahead of plan, and October marked the deployment of this new service across most of our wireline operating footprint. Our positive early sales results on wireless have already enabled us to start pulling back on some of our initial introductory offers. On the U.S. side, our year-on-year financials were impacted by ARPU pressures, the cumulative impact of customer losses in the prior quarters, a difficult comparative period last year and a smaller rate increase this year than in the previous year.

This resulted in a year-on-year decline in adjusted EBITDA, which was in line with what we had indicated to you last quarter. That being said, our additional sales and marketing activities are working. Our subscriber trends are now improving, and we're delivering on our long-stated goal of growing the Ohio customer base during the quarter. In fact, it's the first time since we acquired the Ohio business 4 years ago that we achieved customer growth in that state. We expect continued improvements in our U.S. subscriber metrics over the coming quarters.

On October 8, we launched a completely revamped pricing strategy for the U.S. This new approach gives more value, predictability and transparency to our customers, including full price protection for the first 2 years. This is just one of many tactics that we're deploying to be more aggressive and more innovative in our U.S. go-to-market.

Today, we're also publishing our consolidated guidance for the new fiscal year for CCA and CGO more broadly, which offers a continued growth in free cash flow in constant currency despite competition-driven top line pressures. Our adjusted EBITDA guidance of 0% to minus 2% year-on-year reflects additional investments in scaling previously underdeveloped sales and marketing channels in the U.S. and growing our Canadian wireless business, as previously explained.

We believe these investments present attractive upside for us and are confident that investors will get disproportionate returns from them over time. We're still planning to grow our free cash flow to $600 million next year in fiscal 2027, which is a good base for further dividend growth as we're announcing today as well as further deleveraging.

Finally, turning over to Cogeco Media. While competitive dynamics in the radio advertising market remain, Q4 revenue increased year-on-year, lifted by strength in our digital advertising solutions and continued listener engagement.

On that, I'll turn it over to Patrice for more details on our results and guidance. Patrice?

Thank you, Fred. So in Canada, Cogeco Connections revenue declined by 1.5% in the fourth quarter, mainly due to lower revenue per customer from fewer video and wireline phone service subscribers, partly offset by growth in our Internet subscriber base, which added 17,000 new customers during the quarter. Adjusted EBITDA declined by 1.4% in constant currency due to the lower revenue being partially offset by lower operating expenses resulting from our cost reduction initiatives and operating efficiencies.

We added 10,800 homes passed during the quarter, mainly through fiber-to-the-home under our network expansion program, including those related to the Ontario subsidized program.

In the U.S., Breezeline's revenue declined by 9.2% in constant currency due to the cumulative decline in the subscriber base over the prior year, a smaller rate increase in -- versus the prior year, along with a competitive pricing environment. The 6,300 decline in Internet subscribers was an improvement over the previous quarter, while Internet subscriber additions in Ohio recorded their first ever positive growth of 1,300 new subscribers.

Adjusted EBITDA declined by 7.9% in constant currency due to lower revenue, offset in part by lower operating expenses driven by cost reduction initiatives and operating efficiencies. Note that last year's comparative Q4 period was the highest EBITDA level of all quarters for that year, largely due to the reorganization of our operating entities.

Now turning to our consolidated numbers for Cogeco Communications. At the consolidated level, revenue in constant currency declined by 5.3% and adjusted EBITDA declined by 3.3%. This result is mainly due to the revenue pressure in the U.S., partially offset by strong execution on operating efficiencies as well as customer growth in Canada.

Diluted earnings per share declined by 6.2% in reported currency, mainly due to lower EBITDA and higher financial and restructuring costs. Capital intensity was up at 21.8% versus 20.4% last year. Free cash flow in constant currency decreased by 27.4% in the quarter, but was up by 7.9% for the full year.

Our net debt to adjusted EBITDA ratio was 3.1 turn at the end of the quarter, unchanged from the level reported in Q3. We have increased our dividend by 7%, having declared a quarterly dividend of $0.987 per share. And as Frank mentioned, with anticipated strong free cash flow in fiscal '26 and '27, we expect to continue to increase dividends meaningfully in the future.

At Cogeco Inc., our revenue in constant currency decreased by 5% and adjusted EBITDA declined by 3.9%, with growth in radio, partially offsetting revenue declines at Cogeco Communications.

Media operations revenue increased by 8.5%, driven by growth in digital advertising revenue. We have also increased the dividend at Cogeco Inc. by 7% in lockstep with that at Cogeco Communications.

Let's now discuss our fiscal '26 guidance, which we are introducing today. On a constant currency and consolidated basis, Cogeco Communications expects revenue to decrease between 1% and 3% compared to the prior year. As growth in Canada is offset by competitive pressures in the U.S.

Adjusted EBITDA is anticipated to decrease between 0% and 2% versus last year as we continue to face revenue pressures in the U.S. and are investing in new sales and marketing capabilities, especially in the U.S. as part of our 3-year transformation program, all while generating additional operational efficiencies. We will also incur some costs related to our Canadian wireless operations, including some IT costs recognized in adjusted EBITDA starting in fiscal '26, and I'll get back to this in a second.

Turning to our capital expenditures. We are expecting to spend between $560 million and $600 million, including $100 million to $140 million in growth-oriented network expansion, resulting in a capital intensity of between 19% and 21% or 15% and 17%, excluding those network expansion projects. Free cash flow and free cash flow, excluding network expansions are expected to increase between 0% and 10% compared to fiscal '25. Our full year current tax rate is forecast to be 11.5%.

In terms of segments, an important item to note is that beginning in Q1 of fiscal '26, Canadian Mobility, which had been included in our corporate segment during the start-up phase will not be recorded in our Canadian segment given the recent full-scale launch of the product. This reclassification will have no impact on the consolidated level and comparative segments for the prior year, and we will also adjust basically the results for the prior year for that.

In addition, our IT costs related to Canadian Mobility, which were recognized below the EBITDA line as cloud computing costs in fiscal '25 during the implementation period will be recognized as OpEx within the Canadian segment starting in Q1 as those systems are now in operation.

So overall, we expect the fiscal '26 Canadian segment's adjusted EBITDA to be impacted by about $20 million versus what we reported in fiscal '25. Of that, $11 million is simply the reclassification from corporate OpEx to the Canadian business and the balance is moving from below the EBITDA line to OpEx. That's basically the IT systems I was relating to.

We nevertheless expect the Canadian operations growth to largely absorb those additional costs in fiscal '26 through customer growth and operational efficiencies. As it relates to Q1, we expect consolidated revenue and adjusted EBITDA to decline in the mid-single-digit range in constant currency. We then expect a material sequential improvement in our year-over-year adjusted EBITDA trends starting in the second quarter as we benefit from already quantified cost savings, rate increases and improving U.S. customer trends.

More specifically in the U.S., we expect the Q1 year-on-year adjusted EBITDA variation to be slightly better than the Q4 variation that we just reported, followed by solid gradual improvements as we benefit from easier year-on-year comps in addition to the aforementioned factors.

At the consolidated level in Q1, with our restructuring program largely completed, we do not expect material acquisition, integration and restructuring costs in the quarter. And we expect our financial expense to be about $10 million less than in the prior quarter in Q4. while our depreciation and amortization expense should be about $4 million lower than in Q4.

Finally, at Cogeco Inc., we have issued the same financial guidelines as Cogeco Communications with the exception of net capital expenditures. And now Fred and I will be happy to take your questions.

[Operator Instructions] Your first question comes from Aravinda Galappatthige with Canaccord Genuity.

I just wanted to pick up on the sort of the comments around the IT spend in wireless. A bit more broadly, given that you've launched now and it's deployed across the footprint, are you able to sort of update us on sort of the total impact on Canadian EBITDA or the expectation that's built into fiscal 2026? I know about that you talked about the $9 million incremental piece from IT. But more broadly, given sort of the pricing changes you've done, I just wanted to see how much of a drag it could create in the first half or even for the full year. Maybe stop there.

Sure. So yes, so just the reclassification of some OpEx from corporate to our Canadian business, and moving some IT costs from below the line to above the EBITDA line will create pressure of about $20 million on our Canadian numbers. Obviously, it doesn't change anything at the -- especially for free cash flow, if you look at the full company, it's 2 reclassifications.

One will basically show the comparative values that will be adjusted in the prior year. That's basically what's moving from corporate to our Canadian business. The other one will not be reclassified in the past basically as this is moving forward. That's the IT cost. That being said, as I was saying earlier, we are expecting growth in our Canadian business otherwise at the EBITDA line. So we should normally be able to absorb this.

To your wider question on -- if I got your question right, on what mobility does for us. Obviously, we're starting from basically a very small number. So I wouldn't say that the numbers will be meaningful in terms of the benefits in year because obviously, we're starting from a small base. But we do see benefits, and we've been very successful with the launch so far, and we see a lot of interest from our customers. And again, to remind you, the goal with mobility, it's primarily to bundle services for our customers or noncustomers that are neighbors of our customers in the regions that we serve. It can be used in acquisition. It can be used in retention as well.

And then just sort of maybe just turning to the U.S., the wireless sort of experience so far. Is there anything -- any feedback you can provide or share in terms of how the churn profiles have been impacted by your wireless launch? I realize it's early, so perhaps it's not much, but anything you can share would be interesting.

Aravinda, it's Fred. Yes, we've analyzed it, and we see a materially lower churn in the U.S. from customers also taking wireless from us. Now we have to be cautious because some of that is simply self-selection. So customers who like us better, less likely to churn are more likely to buy wireless anyways. But the churn difference is so pronounced that we believe at present time that there's a benefit above and beyond self-selection as it relates to churn benefit from wireless.

Okay. And then lastly, just a bigger picture question on the fiscal '26 guide. I know, Patrice, you’ve talked about what Q1 would be like. Is it fair to suggest that the guide still assumes a close to mid-single-digit decline in the U.S. as far as EBITDA is concerned and then a little bit of catch-up in Canada? Or is it low single digits, both geographies?

Yes. So we've -- yes, I haven't commented really on what we expect for the full year, but I could say for what we're assuming in the U.S. for the full year at the EBITDA level, obviously, in constant currency, we should do better than your assumption of mid-single digit, given that we see a better -- a good improvement in the customer situation because we did lose a lot of customers in the prior year, and we're expecting to do a lot better there. We've implemented a lot of tactics as well to achieve this and also to manage how we price our products, how we handle it in retention. And our program, our 3-year transformation program is continuing, and we have further cost improvements that we are planning to bank on. We talked about the chatbots before. We've changed our phone systems as well, automated phone systems that now have AI components. These are just examples, but there's other elements as well in our programs that will kick in, in the year.

The other thing I would say about the U.S., Aravinda, is we've done a lower rate increase over the past year than we had in prior year in an effort to derisk the ARPU. That obviously, you can see in our Q4 results in the U.S., and you'll see in our Q1 results a little bit as well. But as we go into the next year, we have an opportunity to do rate increases in some segments that were not captured before. So it doesn't mean we'll do very large rate increases, but there are some segments that were previously not fully exploited. And therefore, we do see a bit of revenue upside from that starting in the second and third quarter.

Your next question comes from Vince Valentini with TD Bank.

Thanks for the extra detail on the wireless Canadian impact. But can I ask one other item on that is you've seen like you had a very strong start out of the gates. As you even say, you slowed down your marketing and pricing efforts as a result of that. Given all the customers you had out of the gates taking a free line for a year, you still have to pay the wholesale fees on that. Is that not a potential incremental drag on your EBITDA in the Canadian segment in 2026 as well?

Yes. It's -- well, by the way, we have different types of products. So we do have paying customers as well. But -- and again, this is linked also with them being customers with Internet and maybe other products as well. But the numbers are still small, right? We're starting -- when you compare it to the size of our business in Canada, it's factored in our guidance, but I wouldn't say it's a lot. We have a bit more marketing costs we're doing, obviously, as we launch, but not that material.

Yes, Vince, the launch promotion was something that was budgeted and is in our forecast. We thought it was an efficient way of getting started. So we consider it almost a marketing investment. But as you've said, we've already pulled back. And at this time, the free line for a year is only available on our talk and text plan without data, which very few customers take.

Okay. Sticking with Canada and the more disciplined pricing environment you're seeing, does that not open up some opportunities for rate increases on your platform? And I know you don't like to talk about them before they're announced to your customers, but is there any broad sense you can give us as to what you've baked into your guidance for ARPU growth in Canada?

Yes. So I think we'll stick with our policy of not talking about it in advance. But I would say, generally, we do have some price increases that we -- that are reasonable in our different products, especially for video and Internet. So normally, we put out guidance like this. We do have an expectation when they -- obviously, they don't cover the full year, and they're put through during the year. We did have some in recently that will impact the full year, but it varies by product.

And I'll just add beyond the rate increases that we do, obviously, a reality of our business for the past many years is that new customers come in at a lower ARPU than existing customers, but with a more rational pricing environment is we're seeing the ARPU of new customers ticking up a bit in recent months. There's also the stickiness at the end of promotions, which has the possibility to increase as customers are not presented with as aggressive offers from competition.

Okay. I'm going to switch to the U.S. You added -- correct me if I heard this right, you added 35,000 new fiber-to-the-home passings in just in fiscal 2025.

The comment that I made in my section of the introduction is that we have upgraded 35,000 doors from cable to fiber.

Right. So -- but that was -- that's not a total. That's the incremental in the fiscal year.

Correct.

So 2 questions on that. Can you give us any sense as to what the total fiber passings are now? And secondly, to get that extra 35,000, was that using the new technology that you sort of talked to us about last November?

The second part of the question, the answer is yes, and that's why you still see a good CapEx from us.

Yes. And we'll continue this in fiscal '26. So our program to selectively upgrade certain areas in the U.S. with fiber-to-the-home as it is a good cost benefit to us with this new technology. It doesn't apply everywhere, but there are some areas where it does a lot of sense. This will continue this year and probably a little bit in fiscal '27. Again, we can absorb this in our CapEx envelope.

Overall, to your question, we don't disclose specifically our fiber component. As you know, most of our network is fiber, but the last mile, obviously, is -- we're still predominantly on coax. And it's generally more efficient to upgrade the coax than do an overbuild as we're doing selectively in the U.S. So I would say, overall, between the network expansions that we're doing, those are generally in fiber-to-the-home. We've been doing this for more than 10 years and the selective upgrades. It's still a small portion of our network that is fully fiber-to-the-home. But again, as we upgrade coax, we're able to deliver in many regions, actually 2 gigs even on coax by doing minor -- we're not even on DOCSIS 4 yet. And so we offer 2 gigs in several regions in Canada. So this -- I would say the future will be a mix of fiber-to-the-home, upgrades of coax and there's different ways of upgrading that. Eventually, we'll have DOCSIS 4 as well, but we did not rush it as we're able to generally have much faster speeds than what customers want. So the cost benefit is better for us to do it this way.

Sorry, I'm going to ask one more on this because I don't think it's well understood by people. The cost per home passed when you did those $35,000, because of that new more efficient technology, can you give us an update on what the average cost was per home in terms of the CapEx?

Yes. It varies by region, but I would say it's generally -- it's probably around $400 or so. But really, there's some that are less expensive than this and some more. So there's -- it's not just a one number. And the more dense it is and depending on how the structure of the network is, it is -- yes, so it is fairly effective when you look at this versus doing the traditional fiber-to-the-home with the traditional method. You know the numbers for competitors. So generally, this is a lot higher. This is what we do in network expansion as well. And when you look also at going through the coax route all the way to DOCSIS 4 with high splits, you can get to these numbers easily as well over time with the CPE changes. So yes, so that, I would say, is probably a good average to use.

Sorry, Patrice, when we're talking about the U.S. segment. So when you say $400, are you talking $400?

Yes, it is U.S. dollars?

Okay. And last, just free cash flow, I'm sure others are asked about this, too, but just in general sense, I want to make sure I'm clear. Excluding rural projects, you're guiding to like $625 million to $690 million of free cash flow this fiscal year, and you're saying you can only do $600 million in fiscal 2027. Is that because you found new expansion projects so that, that bucket of CapEx doesn't go to 0? Or are you deliberately telegraphing that other items within free cash flow are going to go negative, like whether it's EBITDA or cash taxes or interest or something else?

No. Or the other question you could have asked is whether the $600 million is actually too low a number. But I would say $600 million, we think is a good number to use. Obviously, we'll see where we are a year from now when we provide guidance for fiscal '27, but that's still our plan right now. Within our expansion numbers, we have these bigger projects that are generally subsidized. So there's still a lot going on in Ontario this year, which will finish in '27. There shouldn't be that much CapEx in fiscal '27 related to that.

That being said, we are generally building in territory as well. So there's always new construction, new neighborhoods, new streets. So this will continue. Eventually, we will not break it down as we're going to be done with the bigger projects. So you'll just see one number. It will not be meaningful to split it out. But I would say these will continue. And also the other component is as we've built in many areas and we're loading customers, we are adding CPEs for these customers. So we have to obviously invest there. And sometimes depending on how we built the network, sometimes we had to install service lines as well, basically the drops we put from the street to the house.

For some of the projects, it's pre-installed. And for some of them, it's not, it's really when customers want to connect, we pass this drop. So I would say these CapEx will continue in the future.

So it's not telegraphing an EBITDA pressure or any other pressure?

No

Your next question comes from Jerome Dubreuil with Desjardins Bank.

First one for me. I'd like you, if possible, to give a little bit more detail on the turnaround you expect on the top line. We're at mid-single-digit declines in the quarter, but you're expecting an improvement if I look at the guidance. So maybe more granularity on this? Is it from wireless? Was there a tough comp or maybe an assumption of improvement in competition?

Yes. Jerome. So you're talking at a consolidated level, right?

Yes.

Okay. Great. Yes. So I would say, if we look at our Canadian business, we've been adding a lot of customers. As you know, we are still planning to continue to grow the Canadian business. So this translates into additional revenue. We have visibility on -- basically on our current client base -- customer base. We also know when we have new customers often on promotions, some that roll off promotions as well. So this is all factored in. And based on this, we'll eventually have some price increases as well. But I would say the key driver in Canada is really the additional subscribers we're able to load down that we were not doing as much of, let's say, 2 years ago. And that should produce better numbers on the top line in Canada than what we've seen in the past year.

And in the U.S., I would say, similar story on the subscribers. It's just that we're starting from a negative number. We do see some improvements from what we reported on in Q4, but we're already well into Q1 right now. So we are seeing benefits. And we've put a lot of new tactics to play in go-to-market, and many of them are working well. So I would say this is the key element we're seeing for next year. We're still planning to see a negative number in the U.S. in terms of year-on-year. We still have video cord cutting and home phone cord cutting like the whole industry, but still an improvement overall.

Yes. I'll only add, Jerome, First, on the Canadian side, we've been adding subs at a good pace for many quarters now, but the pressure in the past was ARPU. And what we're seeing now with a slightly better pricing environment is we're seeing a bit of upside on ARPU as we were talking about before with Vince, the ARPU of new customers, the ARPU at promo expiry and the possibility for rate increases. And it doesn't take much of an ARPU improvement given the strong sub loadings to benefit the revenue overall. And then in the U.S., we've touched on it earlier, but we've done -- we had done a materially lower rate increase over the past year. And now the elephant is going through the stake, and we expect better progression in the U.S., especially going to the second quarter.

Okay. Great. Second one for me. just continuing on Vincent's line of question on the DOCSIS to fiber-to-the-home upgrade, the coax, I should say, to fiber-to-the-home. Is this something you plan to do across your whole footprint? You kind of alluded to the fact that it could be more efficient to do that than taking the DOCSIS road map? Or is this something you really use as a tactic to maybe counter the fiber deployments?

Thanks for the question, Jerome. And maybe starting at a higher level. When you look at our total CapEx envelope, so much of it is maintenance. The majority is -- business as usual maintenance. So when you see us reducing our CapEx, that is where the reduction in the efficiency is coming from. Our growth-related CapEx, which is everything you're talking about now continues, whether it's expanding our network to new rural areas or upgrading our network in the various ways that you're mentioning.

So as it relates to network upgrades, we're doing a lot of mid-splits in Canada, in particular. We're really improving. It's now over 90% of our doors have a download speed of 1 gig and sometimes 2 gig. And we're also really improving the upload speeds as noted by Ookla, for example. And then in the U.S., we have this capital-efficient way of upgrading our coax network to fiber. For example, the 35,000 doors that we've done last year and our forecast for the coming year also implies that we will continue with both sets of programs that I was talking about for the U.S. and Canada.

So it's a mix depending on the region, mid-splits, even sometimes some high splits in some regions, plus this capital-efficient upgrade of coax to fiber.

Yes. And yes, definitely, that's the plan. And as you know, us, we've always, over the years, trying to be very capital efficient and always provide a lot more than what customers are requiring from us in terms of speeds and capacity and doing it in a capital-efficient way rather than overinvesting in the network that would not necessarily be used. So it is -- in the U.S., more specifically to your question on competition, for sure, in some regions, it does help to upgrade to fiber. But obviously, we only do it if it makes sense financially when you take a multiyear view of the otherwise upgrades we would need to do in these particular regions.

Yes. Our U.S. competitive dynamics are getting predictable, much more predictable by state, by market in terms of who's likely to do some upgrades and our competitors who may be tempted to overbuild. So we have pretty granular projections at a market-by-market level, and we're using that to inform where we will upgrade that market to fiber, for example, as a protective measure, for instance.

Your next question comes from Matthew Griffiths with Bank of America.

So in the second year of your transformation program, I think you mentioned that you're going to see some more investments to sustain or to move you towards a path to sustainable growth. And not to be too nitpicky or anything, but is that growth like at the revenue level? Or are you talking growth on the free cash flow level? And maybe you can elaborate on like the investments, like what are you spending money on that you think is going to generate the sustainable growth going forward? And when will that -- kind of when do you expect that to materialize if it's top line, if it's obviously free cash flow, it's somewhat baked in already?

Yes. Matt, it's Fred. I'll start with the last part of the question. Whatever investments we're making are fully baked into our guidance. There are many things we do that are not so material at the EBITDA or CapEx level. Well, we've already talked a lot about our CapEx investments anyways in upgrading our networks. So I'm not going to repeat that. But at the EBITDA level, a lot of what we're doing is not material investments in AI, analytics, pricing are not that expensive.

The two that are material are growing certain sales channels in the U.S., which were underdeveloped. You do need to make an investment in staff and commissions on things like that as well as wireless in Canada. But again, that's baked into the guidance for the coming year. As it relates to which growth we want, certainly, we've already been delivering a growth in subs in Canada. We think ARPU has better upside than in the past. So therefore, I think revenue growth in Canada, and I'm not going to give a super precise time period here, but revenue growth in Canada is certainly within reach.

In the U.S., it's about continuing our stabilization of our sub losses. We think that continued sub growth in Ohio is realistic. As it relates to the rest of the footprint, we're on track to diminishing those losses, and we expect lower losses in the next quarter as well. Overall, in terms of top line for the U.S., we'll have to see. It remains a challenging market, but we certainly don't expect the same challenging top line performance as what we've seen in the past year.

Okay. That's helpful. And then on margins, obviously, the business is benefiting from the natural mix shift away from video and so on and towards Internet. But can you help us understand like how much your cost reduction program is contributing to the margin improvement in addition to the natural mix shift that you're seeing?

Yes, it's a good question. I'm not sure I have the exact answer for you right now on this call, but I would say it's a mix of two. You're right. There is a mix shift towards more Internet, which does increase the percentage. As we look at the competitive nature of the industry, there's also the ARPU that plays into it. And so I would say the best way to look at it is to look at our OpEx. That does include some video costs in what we report publicly. But you can see that it's been shrinking. We can perhaps take it offline and try to give you a little more information on this. But I would say it's really a mix of the two because our cost reductions are quite material actually in what we've been doing in the past year.

Okay. That would be helpful. And then maybe just one quick one, if I could sneak it in. In the past, you've talked about evaluating whether or not it makes sense to kind of divest some small systems throughout your U.S. footprint. Has that filed and closed at this stage? Or is that still something that is potentially out there?

Yes, Matt, at present time, it's closed. We've looked at a few options. There were interesting possibilities, but not interesting enough, we judged at the time to strip out an asset because carve-outs are always challenging and could be a distraction for the organization in the midst of a big transformation. But who knows, we always keep options open in the future.

Your next question comes from Maher Yaghi with Scotia Bank.

So I just wanted to maybe just dial on the homes passed increase in Canada. I mean, in the last 2 years, you've added approximately 70,000, 75,000 new homes passed. So -- and a lot of it is fiber, as I understand it. So can you just give us a perspective on the strength that you're seeing in your Internet subscriber gains in Canada? How much they're coming from these fiber edge-outs and new homes passed versus Oxio versus Cogeco out of territory? Just to understand maybe the return characteristics of these fiber rollouts that you're doing?

Maher, it's Fred. A few things here. First off, yes, all -- most expansions that we do in both Canada and the U.S. are on fiber. As it relates to the return on those investments, they're quite good, in line with what Patrice has quoted in the past, and we do exceed 50% penetration of those new builds because they're rural areas with high demand.

As it relates to contribution to our net growth, it varies quarter-by-quarter between network expansion, Oxio and the legacy business. All I can say is that for this past Q4, it was mostly -- first of all, it was mostly on our own network and less as a reseller that the growth came from. And it was actually mostly from legacy areas. So in the fourth quarter, network expansion was not the largest contributor to the growth.

Now as we continue to build in Ontario in fiscal '26 and going into fiscal '27 as well, we do expect that network expansion will be a more material contributor to our sub growth.

Okay. And just a follow-up. The launch of Cogeco service under the Cogeco brand outside of your home territory, Oxio was -- as you've indicated in the past, has been a good success to capture out-of-market Internet subscribers. So maybe can you talk a little bit about the objective of launching Cogeco-branded service outside of your home territory in addition to Oxio that was already there?

Sure. First, at a higher level, Internet resale in Canada between the different players is a fact of life, and it's been a fact of life for quite some time. The 2 of the big 3 that we don't already compete with on an infrastructure basis are already reselling our network in Quebec and Ontario and have been doing so for quite some time. I would say it doesn't appear to be material neither for our growth as a reseller nor for our churn at present time. So there seems to be more noise than anything else around all this.

On your question more specifically, our strategic intent by opening up Cogeco as a reseller across Quebec is purely optionality. In a world where the resale dynamics continue to evolve. As I said, they're not material at present time, but we have nothing to lose from opening up another few million doors on the Cogeco brand. We -- as a smaller company, we benefit from asymmetry in this whole game, whereby we just covered 2 million homes in Canada and there are 15 million homes. So we get an asymmetric advantage. But so far, it's not much more than optionality. However, if for whatever reason we decide to push harder on this, now the systems are activated and it's pretty quick for us to push harder.

Okay. Can you disclose, how many -- you mentioned that you saw some good success with the wireless launch in Canada. Can you share some KPIs on that?

Yes. So Meyer, we are not disclosing it at this point. As you know, we're starting from nothing. So it's still a small base. Very happy with so far, but I mean, it takes time to have critical mass. So over time, we do expect at one point to disclose the mobile subs, but it's not something we're planning to do for sure this year, and we'll see in the future. It's obviously important to make sure we don't release nonmaterial information that can have -- can be used by competition. So that's where we are at this point.

Yes. I'll only say that the strong demand that we're getting, even though it's still going to take time to scale to Patrice's point, at least it's indicating to us that there's a way for us to run that business without it being a drag at an individual customer level. For example, we could always already pull back on some of our intro promotions. So I think at a unitary customer level, it's a good news.

Okay. And maybe just to double down on this, the pullback on the promotion. It kind of came at the same time as Rogers launched fixed wireless in your territory. Were the 2 related why you pulled back on wireless promotion?

No. Absolutely not. We achieved the sub objectives that we wanted to achieve, and that's how we run the business.

So I'm trying to square the decision to pull back from offering 1-year service on wireless as a promotion to existing customers in Canada with the U.S. strategy where it's still going on, and it's been a year or so, less than maybe a year that you launched it, you're still offering free lines. So can you maybe just compare for us why it's still going on in the U.S. and not in Canada?

It's purely a function of competitive dynamics and pricing dynamics in the market, Maher. The other players are doing it too in the U.S., the other cable players in particular. So that's what we have to do to be in the game at of time south of the border.

Your next question comes from Stephanie Price with CIBC.

It's Sam Schmidt on for Stephanie Price. I wanted to ask a question around Ohio. The net additions turned positive in the quarter and U.S. subscriber losses also improved sequentially. Can you help unpack what changed there in terms of your strategy as well as in the competitive environment, both for Ohio and the U.S. more broadly?

Sure. Good to meet you. I'll start with Ohio, and then I'll talk about the U.S. competitive dynamics more broadly. In Ohio, Ohio is -- and I think we've disclosed this percentage of our doors coming from Ohio. It's roughly 40% of our total U.S. doors that are in Ohio, and our penetration is quite low. So it's been some time where we see a lot of upside for us in that market, and we're starting to execute against that upside. So there were some sales channels, which were not as developed in the state. So we're starting to develop the channels. We keep optimizing our pricing as well. And over time, we think there are several quarters of growth in Ohio for us as we get closer over the years to what we believe is our fair share.

U.S. competitive dynamics in general. Last quarter, we said that we saw an uptick in competitive dynamics or competitive intensity in the U.S. in 3 of our states. I would say at present time, it's more 2 of those states. One of them -- 1 of the 3 has eased back down. Of the 2 that remain, we have room to believe that will ease back down of those 2 as well over the coming months. We also see interestingly that FWA is not impacting us as a company as much as it was 2, 3 years ago. We rigorously track churn destination of our customers leaving us by state. And FWA is actually relatively low down the list at this time. You can only speculate why that is. We do know that some of the FWA players are now focusing more on the B2B segment where we're not as present.

So even though 2 of the 3 FWA players are reaccelerating their sales, sometimes it's in the B2B segment. Otherwise, maybe they've tapped out in their relevant customer segments in our markets. Not exactly sure, but the bottom line is FWA is not impacting us as much as before. We still see intense promotions more generally from some of the national wireline players. So you net all of that out, you would -- I'd say the U.S. competitive environment remains intense, but has not worsened from the previous quarter, and there may be some slight improvement coming over the next couple of quarters, yet to be seen.

That's helpful. And then maybe just one on the Canadian competitive market outside of your network expansion. Are you seeing increased competition from competitors as they look to build out a footprint through TPIA or fixed wireless? And then I'll pass the line.

It's really not very material for us, neither TPIA nor FWA in Canada. As I mentioned in an earlier question, TPIA competition has been happening for a long time, and it's not really impacting us. FWA is more recent, but it tends to be focused in Quebec, which is 1/3 of our Canadian footprint, and we're not really feeling it, as you can see in our strong sub results in Canada. And then on the positive side, there's been a real material pullback in promotional activity in the core wireline business that more than offsets in a positive way, the minor noise that we see in TPI and FWA.

[Operator Instructions] Your next question comes from Drew McReynolds with RBC.

Two for me. Maybe for you, Patrice. In terms of the reinvestment levels that you make in the business as part of the transformation program, embedded into fiscal 2026 guidance, do your reinvestments in the business stay stable? Are you absorbing a sequential increase? Or likewise, does the reinvestment level begin to ease as part of the transformation program going forward? And then secondly, I think there's some language about $100 million in CapEx spent on longer-term growth opportunities over 5 years. Just wondering at a high level, what kind of growth opportunities you'd be looking to take advantage of with that level of investment.

So on the transformation program, I would say when we look at better utilizing different go-to-market tactics and optimizing our sales channels, we are increasing and that's embedded in our guidance. We are increasing the use of those channels. Obviously, there's costs related to that. And obviously, that translates into new customers and new revenue. We'll see going forward as we're successful with it, obviously, the payback on these investments is very good. You have to look at the lifetime of the customer. But so far from what we're seeing, they're good. But I would say we've allocated some dollars in our guidance for this.

Yes. Andrew, an example would be what we were talking about earlier in the previous question in Ohio, where we can really grow share to get closer to our fair share. So we're making the investment in achieving that, and it's starting to yield some benefit. So there's -- so that investment is increasing, but will pay back. The other example is wireless, as Patrice explained earlier.

Yes. And on the second question on the $100 million, actually, it's something we've had -- we put it in the annual report, but we've had it for a few years. Basically, we have mentioned a few years ago that we might invest, and it's not CapEx actually, those would be investments in smaller companies to produce growth later on, so more in start-up mode. It's not something we've done so far, but it's not new disclosure actually if you go back to last year. So we'll see. If we do some, I do not expect it to be CapEx and no impact on free cash flow or anything. It would be more an investment on the balance sheet.

Okay. And then maybe one last one, and I may have missed this. In terms of the rate of network or footprint expansion you expect in fiscal 2026 relative to the 50,000 in fiscal 2025, do you have that for us?

Yes. It would probably be similar. So I would say Canada because we're going to be -- it's a mix of what we're doing in Ontario and also, as I said earlier, what we're doing in footprint, so new neighborhoods and new streets. We will probably be around 40,000 addition in Canada. U.S. will be lower. We have less of these bigger programs, so probably closer to 10,000 new homes in the U.S.

There are no further questions at this time. I will now turn the call over to Patrice Ouimet for closing remarks.

All right. So we're right on time. So thank you, everyone, for these questions. I'm happy to take additional questions if you want to talk to us in -- before our next scheduled call for the Q1 results. Thank you. Have a good day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.