Cogeco Inc. (CGO) Earnings Call Transcript & Summary

My name is [indiscernible]. I am the first Vice President and Secretary with Cogeco [indiscernible] our annual meeting, which is virtual this year. Our meetings will happen in French, but simultaneous interpretation in English is available, as you've determined when you connected to the platform. We are going to be using the Lumi platform today, which is recognized for shareholder meetings. When you connected to Lumi, you -- it was important to enter your unique number that was on the form. This number will allow you to be a shareholder and it will allow you to vote electronically. You can ask meetings -- questions during the meeting. This appointment is good for both meetings if you are shareholders of both companies. You can ask questions and vote for the shareholders, the proxy holders that you are. If you have not yet done this, and you would like to vote or ask questions at the meeting, we invite you to reconnect to the Lumi platform in order to be able to do so. You can, however, access the electronic platform as a guest if you have already voted and if you do not wish to speak at the meeting. We suggest that you view the meeting in full-screen mode for a better quality image. To be able to do so, please click on the full screen icon that you find at the top right-hand corner of your page. In accordance with the company's bylaws, Mr. Louis Audet, Chairman of the Board, will chair the meeting and I will act as the Secretary. We are here today with our President and CEO, Mr. Philippe Jette, who will do a presentation on activities and prospects for our company once all agenda items have been completed. The scrutineers for today's meeting are Ms. Claire [indiscernible] Mr. Steve [indiscernible] of Computershare who confirmed that meetings, documents have been made available to our shareholders and that we have a quorum for both meetings. We'll be holding 2 annual meetings today, the first for, Cogeco Communication Inc. and the second for its parent company, Cogeco Inc. Mr. Audet and Mr. Jette will then take the floor to talk about business belonging to these both companies. At both meetings, we will follow the procedure outlined in the circulars that have been filed on our website on SEDAR+. If you are a shareholder registered with Computershare or a proxy holder, you will be able to vote electronically and ask questions at the meeting. The vast majority of shareholders have already voted by proxy before the meeting. If you have already voted, you do not need to do so again, unless you wish to change your vote. If you've not yet voted or if you want to change your vote, you can do so under the vote tab which will appear on your screen when the vote is declared open. And you'll be able to come back and change your vote at any time until the Chairman ends the ballot. Computershare will tally the votes in real time during the meeting and the final report will then be filed as in the past on SEDAR+. We will provide results for all voting shares as well as for subordinate shares separately. If you're a shareholder or a proxy holder and wish to ask questions at the meeting, you can do so in one of two ways. Either through the messaging function on the electronic platform. Your questions will then be read by myself and answered by management or you can do this by speaking if you ask for the floor, with or without video, depending on your choice. To facilitate the smooth running of the meetings, we ask you to ask your questions during the period reserved for this purpose, after the President and CEO's presentation. However, if you wish to do so beforehand in connection with an item on the agenda, we will give you the opportunity to do so when that item is dealt with. With these words, I would now like to turn the floor over to Mr. Louis Audet, who will open the meeting of Cogeco Communications Inc.

Thank you, [indiscernible]. Dear shareholders, Board members, colleagues, ladies and gentlemen, good morning, and thank you for joining us here today. As [indiscernible] mentioned, we will begin with the items on the agenda for Cogeco Communications. After that, we will take those questions for Cogeco Inc. However, before beginning, we would like to thank very warmly, Ms. Patricia Curadeau-Grou who will be retiring from the Board of Cogeco Inc. after serving on the board for the past 4 years. Previously, Patricia served on the board of Cogeco Communications for 8 years from 2012 to 2019. During her 12 years, on our Boards, she was a member and Chair of the Human Resources Committee and a member of the Audit and Strategic Outlook committees. Her long career in the banking and financial sectors gave her a thorough understanding of financial issues. Patricia, thank you so much again for your precious and valuable contributions. With Patricia's departure, we have made a few changes around the composition of our Board. Robin Bienenstock, who joined Cogeco Communications in 2020 is now a candidate this year as a Director of Cogeco Inc. Arun Bajaj, who had served on the Cogeco Inc. Board since 2019 is now a candidate this year as Director of Cogeco Communications. We are grateful that they have agreed to step down from their respective Boards and have submitted their candidacies as directors of Cogeco and Cogeco Communications respectfully. These changes will enable us to maintain overall a reasonable number of directors while respecting diversity objectives for the company as set out in the Board's diversity policy. The first item on our agenda is to receive consolidated financial statements of Cogeco Communications for the year ended August 31, 2023, together with the auditor's report thereon. These documents can be found in the 2023 annual report, which has been made available to all shareholders by internet or by mail. I hereby declare that I have received these documents. [indiscernible], do we have any questions on this point?

No, we do not have any questions.

Thank you. So that's received. The second item on the agenda is the election of Cogeco Communications directors. The Board of Directors has set out the number of directors to be elected as 10, the names of the 10 nominees proposed by the Board of Directors together with the information required about them can be found in the company's information circular, and that was distributed. The 10 people running for the positions of Director of co communications are Colleen Abdulla, Arun Bajaj, Mary-Ann Bell, James Cherry, Pippa Dunn, Joanne Ferstman, Philippe Jette. Normand Legault, [ Bernard Lord ], Louis Audet. No other candidates have been received. We now put forward the list to the vote. I invite you to vote on the proposed nominee candidates. [Voting] We can now announce that the proxies we have received have been given in a proportion of over 97% in favor of each of the 10 candidates who are therefore now elected. The next item on the agenda is the appointment of auditors of Cogeco Communication Inc. Deloitte. [indiscernible], do we have any questions on this item?

No, we don't.

I now invite you to vote on the appointment of the auditors, Deloitte, if this has not yet been done by yourself. [Voting] I'd like to inform you that the proxies we have received are more than 99% in favor of the appointment of Deloitte as auditors. I hereby confirm that the auditors' resolution is carried. The next item on the agenda. It is an advisory vote on the Board's approach to executive compensation. You are now asked to vote either for or against the advisory resolutions described in the information circular as follows: on an advisory basis and without limiting the role and responsibilities of the Board of Directors, shareholders' support, the Board's approach to executive compensation as described in the company's information circular relating to this Annual Meeting of Shareholders. [indiscernible], are there any questions on this item?

No, no questions.

Thank you. I now invite you to vote on the advisory resolution. [Voting] I'd like to inform you that the proxies we have received have been given for [indiscernible], the resolution in a proportion of more than 99%. The resolution is, therefore, carried. I propose that we now consider the adoption of the resolution approving the amendments to the stock option plan. The Board of the company approved a resolution amending the option plan on November 1, 2023, to increase the maximum number of subordinate voting shares reserved for issuance under the option plan and to amend other provisions of the plan in order to harmonize absolutely everything. The proposed amendments and the resolution submitted to the meeting are described in the information circular sent to all shareholders. You are now asked to vote for or against the resolution. [indiscernible] do we have any questions on this item?

Now no questions, Mr. Chairman.

Thank you. I now invite you to vote on the resolution to amend the stock option plan. [Voting] I'd like to inform you that the proxies we have received have been given for the resolution in a proportion of more than 99%. The resolution is, therefore, carried. This concludes our review of the items of the Cogeco Communications annual meeting agenda. The formal portion of the Cogeco communications meeting is now over. Voting for this meeting is now closed. The scrutineers will compile the final voting results, which will be published by the company on SEDAR+. And as [indiscernible] said earlier, we will see the total of votes and all the votes associated with any item. We are now moving on to the meeting for Cogeco Inc. The first item on our agenda is to receive the consolidated financial statements belonging to Cogeco Inc. for the year ended August 31, 2023, together with the auditor's report thereon. These documents can be found in the 2023 annual report which has been made available to all shareholders on the Internet and by mail. I hereby declare that I have received these documents. [indiscernible], any questions on this item?

No.

Thank you. The second item on the agenda was the election of Cogeco Inc. Directors. The Board of Directors has set the number of directors to be elected at 8. All names of the 8 nominees proposed by the Board of Directors, together with the required information about them can be found in the company's information circular. The 8 persons standing for election to the Board of Directors are Mary-Ann Bell, Robin Bienenstock, James Cherry, [indiscernible], Philippe Jette, Normand Legault, Caroline [indiscernible], and myself Louis Audet. As no other nominations were received within the prescribed time frame, it is now appropriate to put to the vote the 8 candidates proposed by the Board of Directors along to the company. I now invite you to vote on the proposed candidates. [Voting] I can now announce that the proxies we have received have been given in a proportion of over 98% in favor of each of the 8 candidates who are therefore elected. Our next item on the agenda is the appointment of Deloitte as auditors of Cogeco Inc. [indiscernible], are there any questions on this item?

No, no questions.

Therefore, thank you. I invite you now to vote on the appointment of the auditors. [Voting] I'd like to inform you that proxies we have received are more than 98% in favor of the appointment of auditors. I hereby confirm that the auditor's resolution is adopted given that more than 98% were in favor of the appointment of Deloitte as auditors. The next item on the agenda is the advisory vote on the Board's approach to executive compensation. You are now asked to vote for or against the advisory resolution described in the information circular as follows. On an advisory basis and without limiting the role and responsibilities of the Board of Directors, the shareholders support the Board's approach to executive compensation as described in the company's information circular relating to this annual meeting of shareholders. [indiscernible], are there any questions on this point?

No questions.

Thank you. I would like to inform you that you now have time to vote on the advisory resolution. [Voting] I'd like to inform you that the proxies that we have received have been given for the resolution in a proportion of more than 99%. The resolution is therefore adopted. This concludes our consideration of the items on the agenda of the Annual Meeting of Cogeco Inc. The formal portion of the Cogeco Inc. meeting is now over. The ballot is now closed. The scrutineers will compile the final voting results, which will then be published by the company on SEDAR+. And we will clearly identify votes as put forth. [indiscernible], would you have any comments to make before we move on to the presentations?

Mr. Audet, and Mr. Jette, we'll now take some time to talk about business of both companies. I remind you that, as is customary, presentations they make will constitute forward-looking information under securities laws and will, therefore, be qualified in their entirety by the customary cautionary statements contained in both companies' disclosure documents on the screen. Over to you, Mr. Audet.

Thank you, [indiscernible]. I'd like to take several minutes here to talk to you about some key developments in recent months. As you may have noticed over the year, Cogeco faced a lot of competition in a context characterized by widespread economic uncertainty in a difficult and changing market that nonetheless offers a multitude of opportunities. We do have an opportunity in our hands and our teams have been able to seize these opportunities. Let me talk about one of the opportunities, which illustrates some of what I'm saying here. Last December we announced the purchase by the [indiscernible]. The purchase of all shares of Cogeco and Cogeco Communications held by Rogers Communications. And the subsequent repurchase by Cogeco by the cast of 6 million CDPQ shares for cancellation and by Cogeco Communications of 2.3 million of its own shares for cancellation. These transactions have significant benefits for all our shareholders. Given that there is an accretive on free cash flow per share and an increase in the public float of Cogeco Communications. This unique opportunity to repurchase our shares at an attractive price enables us to build shareholder value while ensuring that we maintain our ability to deliver on our strategic plan and allow us to welcome the CDPQ in the future. This transaction also allows us to welcome CDPQ as a partner in the public Cogeco Communications shareholding. The past year has also been challenging in many ways, and I'm pleased to report that the senior management team has responded by continuing to execute successfully delivering a sound business performance, providing a distinctive customer experience and driving forward with our vision of delivering the best and most sustainable value for our customers, our communities, our employees our suppliers and our shareholders. Progress has been made in all our business units and on each of our strategic priorities. This bodes well for the future growth of our company, and Philippe will talk to you about this in a few minutes. Over fiscal 2023, we pursued our dividend growth strategy. For Cogeco Inc., the dividend paid to shareholders was increased by 17%. Well, for Cogeco Communications, it resulted in a 10% annual increase for a tenth year in a row. In addition to our financial performance, we've adopted and are maintaining robust sustainability practices. I'm pleased to inform you that our next sustainability report, which details our strategies, how we support our stakeholders as well as our successes in this area will be published in March. I would like to take this opportunity to thank the members of our Board of Directors for their commitment to Cogeco and Cogeco Communications success. Their business acumen, experience, strategic thinking, cohesion and unique insights are an inspiration to senior management. Finally, I would like to commend the senior management team under Philippe Jette's leadership for their progress in implementing our strategy. A very special thank you to our staff and employees for their dedication and engagement. They are -- you are at the heart of our success. And together, we can look to the future with confidence. I now turn the floor over to Philippe Jette, who will share with you our achievements and our forward-looking projects for 2024. Philippe?

Thank you for these kind words. Dear shareholders, member of the Board of Directors, Cogeco and Cogeco Communications, dear guests, dear colleagues. Good day, and thank you for joining today for these annual meetings of shareholders. Cogeco is a strength in telecommunications and media in North America. We serve 1.6 million customers. We have been building our business strategically by looking at what allows us to stand out. Agility and efficiency that stem from our midsized scale, our unique North American broadband platform, the quality of our customer service. Our strong audio programming and our people-centric culture. All those points are key elements that set us apart. Not to mention our commitment to delivering an extraordinary customer experience that is defined by the strong ties we forged with the communities that we serve. I'm delighted to note how much we have achieved in fiscal 2023. We continue to prioritize customer experience and operational efficiencies. At both Cogeco Connexion and Breezeline. We improved our products and services through several initiatives. We have continued to improve our fiber-powered network, which is at the art of the customer experience. We have invested in digital tools to enhance the personalization of our services and introduce convenient new self-serve options, including on our websites and mobile apps. We have given more customers access to TV content at home and on mobile devices through our IPTV services. We have maintained our local approach with customer service teams assigned to every community we serve. On the end of Cogeco Media, our audio programming was adjusted to make sure that we're better aligned with our regional audiences, preferences and demographics. Numerous surveys have shown once again that content by Cogeco media produces every -- produced every day is relevant and appreciated. We are proud that 98.5% remains Canada's most listened to stations with close to 5 million listeners a week. In radio, we have new advertisers from various industries, and this has allowed us to expand our customer base in our radio business. We also focused our actions on 6 strategic growth back, and I will present our achievements for each of them. Our fiber-to-the-home Internet expansion projects in Canada and the United States added 124,000 homes passed to our network in fiscal 2023, helping to increase the number of Internet subscribers in both markets. Since the end of fiscal 2021, these projects have driven a 7% expansion of our network. We also continued our investment and invested in technology in our network to improve performance, capacity, resilience and reliability, thereby enhancing the customer experience. We acquired the telecommunications business service provider, OXIO in Canada. This allowed us to expand our service offering to include a digital-only experience or among others, the younger generation of residential customers. Cogeco Connexion now has a second brand to meet Canadians telecommunications needs. And it's a question of meeting needs for all Canadians. We continue to implement our plans to enter the mobile market. We secured additional spectrum that is optimized for 5G wireless services. Our licenses now cover 100% of our Canadian broadband footprint. Negotiations are still underway with national incumbents to lease access to their networks as permitted under the CRTC's regulatory framework. We have also initiated plans to enter the wireless market in the United States through mobile virtual network operator arrangements currently in use in the states we serve. As you know, in media, we are at a crossroads. During 2023, we made progress in transforming our radio segment to make Cogeco Media a multi-platform provider of audio content. New digital content was created, and we strengthened our digital presence while adapting our systems and operations. A major achievement was the construction of our first multi-format broadcast studio. At the core of our strategy, it's our desire to see our colleagues achieve their full potential. Our strong engagement scores are an assets. To fully leverage this strength, we have owned our people strategy by focusing our efforts on empowering our teams to make an even greater impact. This means greater investment in leadership development as well as in designing new tools to contribute to the development and advancement of our frontline customer teams. 2023 was marked by our ongoing efforts to ensure a high-quality product offering and distinctive customer service. These efforts were reflected in the company's solid performance, which enabled us to overcome the challenges as posed by inflationary environment, intensifying competition and global economic uncertainty. The results announced yesterday after the markets closed, put us on the right track to continue achieving our financial targets. Here are some financial highlights for the 2023 fiscal year in the first quarter of 2024. For the year ended August 31, 2023, an increase in revenue of 2.9%, an increase in adjusted EBITDA of 1.9% and a decline in earnings of 23.5%. For the first quarter ended November 30, 2023, a decrease in revenue of 1.7%, a decrease in adjusted EBITDA of 2.1%, a decrease in adjusted earnings of 6.4% compared to the same period last year. This is mainly due to a lower adjusted EBITDA and a higher depreciation and amortization expense and dividends paid to our shareholders increased by 17% to $2.92 per share in fiscal 2023. When it comes to Cogeco Communications, we're talking about the year ended August 31, 2023, an increase in revenue of 2.9%, an increase in adjusted EBITDA of 2% and decreased earnings of 7.9%. And for the first quarter ended November 30, 2023, a decrease in revenue of 1.9%, a decrease in adjusted EBITDA of [ 2.3% ] and a decrease in earnings of 8.6% compared to the corresponding period of the previous year. It should be noted that these reductions were planned and -- is at Cogeco Inc. mainly due to the lower adjusted EBITDA and higher depreciation and amortization charge. Finally dividends paid to our shareholders increased by 10.1% to reach $3.10 per share for fiscal 2023. When it comes to the results for the first quarter of 2024, we are in line with our expectations as we balanced growth in Internet subscribers with financial performance. Our Canadian operations posted stable growth while the current economic and competitive challenges in the U.S. continued to exert pressure on Breezeline. We are confident about our strategy and outlook for 2024 as our focus is on executing our growth initiatives. The digitization of society is creating exciting growth opportunities for Cogeco. High-speed Internet access and digital inclusion continue to be a societal priority, generating prospects for network expansion in collaboration with governments, while audio content on digital platforms is proliferating and opening up new opportunities for Cogeco Media. We are continuing to take a balanced approach to capital allocation by maintaining prudent financial leverage while investing in the growth of our business, all while returning significant capital to shareholders. [Foreign Language] During 2024, we continue to solidify our foundation. We will continue to solidify our foundations in 2024 and focus on operational excellence, cost optimization and synergies between our business units. Expanding our network is a strategic priority to be able to expand our coverage and to work with governments to bridge the digital divide. Now that the major expansion program in Quebec has been completed, Cogeco Connexion is now focusing its efforts primarily in Ontario. As for Breezeline targeted expansion efforts are continuing, along with planning for our participation in the broadband equity access and deployment grant program, under which each state is responsible for allocating funds to expand high-speed Internet access in rural areas. We will, therefore, continue to prioritize investments in our network and prepare the gradual evolution to a very high-speed network to meet our customers' growing and future needs. We are also planning to accelerate OXIO's growth in customer segments that are looking for a digital experience or for customers -- customer segments that are more price sensitive. When it comes to mobile services under MVNO, through negotiations or arbitration, there are regimes and satisfactory tariffs for access to the networks to major players are in play. As previously stated, in the event of successful negotiations with incumbents of the national networks in Canada, we do not anticipate a material rollout of our wireless activity in Canada in the short term because we still have some preparatory work to do. In the case of -- we expect to be in a position to announce our mobile services offering in the near future. By enhancing our offering with mobile services in both Canada and the United States, we aim to expand our addressable market and provide our customers with a bundled mobile fixed package offering. [Foreign Language] On the end of Cogeco Media, priorities for 2024 are to continue the transformation by launching the digital platform and adapting organizational processes and structures as well as revamping the programming of our flagship radio station, 98.5. In February, the CRTC will hold a hearing on the regulatory framework for the wholesale Internet services market. Cogeco will participate in this hearing and will ask for significant changes to the current rules, which require us to share our wireline Internet networks with resellers at price regulated by the CRTC. Over the past 2 years, a number of Internet service resellers have been acquired by Canada's largest telecommunications players, including Bell, Telus and Rogers. These large companies are now amongst the biggest users of our networks, thanks to the CRTC's resale regime. This situation is totally unacceptable. Over the years, Cogeco has invested billions of dollars to bring high-quality, reliable and affordable high-speed Internet services to the regional communities we serve across Canada. We want to continue doing so. But it is difficult to keep investing in improving networks. If we have to share them at loss, with dominant operators that have market capitalization 10 to 15x greater than our own. This solution -- this situation is particularly problematic in rural areas where we are playing an essential role in strengthening connectivity, but where the return on our investments is very long term. That's why we're asking the CRTC as part of its regulatory review to deny the 3 largest Canadian operators access to the resale regime, which was never designed for them in the first place. If these 3 major operators are allowed to continue reselling access to our networks, our ability to continue investing in high-quality networks and new technologies will be put into question. Last November, Cogeco Media took part in the CRTC's consultation on modernizing the regulatory framework for contributions in support of Canadian and aboriginal content. We asked authorities to take action by, first of all, requiring online businesses to contribute financially. Secondly, by giving commercial radio stations regulatory relief; and thirdly, by providing commercial radio with access to funding for local news and content. The survival of Canadian media is in jeopardy as over 70% of annual advertising spend representing more than $10 billion has shifted to foreign digital platforms over the years. As a result, local players share an ever decreasing percentage of the advertising base generating [indiscernible]. This situation is equally unacceptable. This is why we've already spoken to federal and provincial governments about the need to repatriate this advertising investment to Canadian media through tax incentives. Our national provincial and local identities depend on it. Our objective will always remain the same, to enable listeners to stay connected to the world, to be entertained by local music, to debate public affairs and deepen their roots in their communities. At Cogeco, we are striving to build a more sustainable and inclusive future and remain committed to delivering on our sustainability strategy. To achieve this, we are building on our long-standing tradition of social engagement and community involvement, driving digital inclusion and climate action while implementing leading-edge operating practices and managing ethically and responsibly. To rise to challenges and opportunities that our new financial year brings, I'm honored to be able to count on the support of a talented and motivated team of more than 5,200 employees who embrace our values of innovation, customer commitment, teamwork, respect, and social engagement. At Cogeco, we value the human connections that bind us all. We believe that the success of our daily interactions as colleagues and with their customers and communities is at the heart of everything that we do. Our culture is based on a highly collaborative environment. I will conclude [indiscernible] all our teams for their commitment to doing their very best to serve our customers and ensure our continued success. I also want to thank my senior management team, colleagues for the progress they have made in executing on our strategy. I also wish to acknowledge the contribution of our talented Board of Directors to our success, and I'm grateful for the support of our customers, our communities and our shareholders. Every day, all of us at Cogeco are taking actions to fulfill our mission of bringing people together through powerful communications and entertainment experience. [Foreign Language]. Thank you for your attention.

Thank you for the great opportunity and for those presentations. On behalf of the Board and personally, myself, I'd like to thank you and your team for the excellent work that you have done. It is now time to move to our question period. I'd like to remind you that shareholders and proxy holders of both companies can ask their questions using the messaging function electronically or by using the button, take the floor that you find on your screen. [indiscernible] Do we have any questions?

We do not, for the moment, have any questions, Mr. Chair.

Let's just wait a couple of seconds so that we can allow anybody who may be hesitant to ask any questions. If you hesitate, please ask a question. So no questions. This is now the end of our shareholders' meeting. Thank you for attending the meetings of Cogeco Communications and Cogeco Inc., both of these meetings here today. The Cogeco team hopes, that for all of you 2024 will be a successful year. Thank you, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call]