Cogeco Communications Inc. — Interim / Quarterly Report 2021

Jan 15, 2021

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MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") Three-month period ended November 30, 2020

1. FORWARD-LOOKING STATEMENTS

Certain statements contained in this Management's Discussion and Analysis ("MD&A") may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to Cogeco Communications Inc.'s ("Cogeco Communications" or the "Corporation") future outlook and anticipated events, business, operations, financial performance, financial condition or results and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. Particularly, statements regarding the Corporation's financial guidelines, future operating results and economic performance, objectives and strategies are forwardlooking statements. These statements are based on certain factors and assumptions including expected growth, results of operations, performance and business prospects and opportunities, which Cogeco Communications believes are reasonable as of the current date. Refer in particular to the "Corporate Objectives and Strategies" and "Fiscal 2021 Financial Guidelines" sections of the Corporation's 2020 annual MD&A and the "Fiscal 2021 Revised Financial Guidelines" of the current MD&A for a discussion of certain key economic, market and operational assumptions we have made in preparing forward-looking statements. While Management considers these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks and uncertainties that could cause actual results to differ materially from what Cogeco Communications currently expects. These factors include risks such as competitive risks, business risks (including potential disruption to our supply chain), regulatory risks, public health crisis and emergencies such as the current COVID-19 pandemic, technology risks (including cybersecurity risk), financial risks (including variations in currency and interest rates), economic conditions, human-caused and natural threats to our network, infrastructure and systems, community acceptance risks, ethical behavior risks, ownership risks and litigation risks, many of which are beyond the Corporation's control. For more exhaustive information on these risks and uncertainties, the reader should refer to the "Uncertainties and Main Risk Factors" sections of the Corporation's 2020 annual MD&A and of the current MD&A. These factors are not intended to represent a complete list of the factors that could affect Cogeco Communications and future events and results may vary significantly from what Management currently foresees. The reader should not place undue importance on forward-looking information contained in this MD&A which represent Cogeco Communications' expectations as of the date of this MD&A (or as of the date they are otherwise stated to be made) and are subject to change after such date. While Management may elect to do so, the Corporation is under no obligation (and expressly disclaims any such obligation) and does not undertake to update or alter this information at any particular time, whether as a result of new information, future events or otherwise, except as required by law.

All amounts are stated in Canadian dollars unless otherwise indicated. This report should be read in conjunction with the Corporation's condensed interim consolidated financial statements and the notes thereto for the three-month period ended November 30, 2020 prepared in accordance with the International Financial Reporting Standards ("IFRS") and the Corporation's 2020 Annual Report.

In preparing this MD&A, the Corporation has taken into account information available up to January 14, 2021, the date of this MD&A, unless otherwise indicated. Additional information relating to the Corporation, including its Annual Report and Annual Information Form, is available on the SEDAR website at www.sedar.com or on the Corporation's website at corpo.cogeco.com.

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2. CORPORATE OBJECTIVES AND STRATEGIES

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COGECO COMMUNICATIONS INC. Q1 2021 MD&A 5

Each Business Unit of the Corporation has in turn elaborated a strategic plan that is aligned to the growth pillars defined above. For further details on the key areas of focus of those strategic plans, please refer to the Corporation's 2020 Annual Report available on www.sedar.com or on the Corporation's website at corpo.cogeco.com.

The Corporation measures its performance, with regards to these objectives by monitoring revenue, adjusted EBITDA[(1)] , free cash flow[(1)] and capital intensity[(1)] on a constant currency basis[(1)] .

2.1 KEY PERFORMANCE INDICATORS

REVENUE

Fiscal 2021 first-quarter revenue increased by 5.5% (5.7% in constant currency) resulting from:

• growth of 9.4% (9.8% in constant currency) in the American broadband services segment; and

• an increase of 2.2% (2.2% in constant currency) in the Canadian broadband services segment.

For further details on the Corporation's revenue, please refer to the "Segmented operating and financial results" section.

ADJUSTED EBITDA[(1)]

• Fiscal 2021 first-quarter adjusted EBITDA increased by 10.3% (10.5% in constant currency) as a result of:

• an increase of 13.9% (14.3% in constant currency) in the American broadband services segment, mainly due to an increase in revenue, the impact of the Thames Valley Communications acquisition and the timing of certain initiatives deferred to the second half of the year; and

• an increase of 8.9% (8.8% in constant currency) in the Canadian broadband services segment, mainly resulting from an increase in revenue combined with a decrease in operating expenses, due to the timing of certain initiatives deferred to the second half of the year; partly offset by

• higher corporate costs.

For further details on the Corporation's adjusted EBITDA, please refer to the "Segmented operating and financial results" section.

FREE CASH FLOW[(1)]

Fiscal 2021 first-quarter free cash flow increased by 36.7% (36.9% in constant currency) mainly due to:

• higher adjusted EBITDA;

• the decrease in acquisition of property, plant and equipment in the Canadian broadband segment mainly due to the timing of certain initiatives, partly offset by the increase in the American broadband services segment; and

• decreases in financial expense and current income taxes.

ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT AND CAPITAL INTENSITY[(1)]

Fiscal 2021 first-quarter acquisition of property, plant and equipment decreased by 4.2% (3.9% in constant currency) mainly due to:

• lower capital expenditures in the Canadian broadband services segment, resulting from the timing of certain initiatives; partly offset by

• higher capital expenditures in the American broadband services segment in order to support the segment's revenue growth driven by increased demand for the high speed Internet product and additional investments to improve and expand the network infrastructure in Florida.

Fiscal 2021 first-quarter capital intensity reached 18.8% compared to 20.7% for the same period of the prior year mainly as a result of overall lower capital expenditures.

For further details on the Corporation's capital expenditures, please refer to the "Cash flows analysis" section.

In light of the financial results for the first quarter of fiscal 2021, and considering the acquisition of DERYtelecom, the Corporation is revising its fiscal 2021 financial guidelines.

(1) The indicated terms do not have standardized definitions prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of the MD&A.

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2.2 FISCAL 2021 REVISED FINANCIAL GUIDELINES

Cogeco Communications revised its fiscal 2021 financial guidelines as issued on October 27, 2020 giving effect to the impact from the acquisition of DERYtelecom which was completed on December 14, 2020, and considering the strong fiscal 2021 first-quarter financial results. The financial guidelines exclude possible acquisitions and do not take into consideration the potential impact of the review and variance process currently pending before the CRTC in connection with the final rates for aggregated wholesale Internet services for resellers. The projections take into consideration the experience gained while operating during the COVID-19 pandemic so far, but exclude potential unexpected significant material impacts from it.

The following table outlines fiscal 2021 revised financial guidelines on a consolidated basis, compared to the fiscal 2021 financial guidelines as issued on October 27, 2020:

	Revised projections		Original projections
	Fiscal 2021 (constant currency)	(1)	Fiscal 2021 (constant currency)
	$		$
Financial guidelines
Revenue	Mid to high single-digit percentage growth(2)		Low single-digit percentage growth
Adjusted EBITDA	Mid to high single-digit percentage growth(2)		Low single-digit percentage growth
Capital intensity	Approximately 20%		Approximately 20%
Free cash flow	Low double-digit percentage growth(3)		Low single-digit percentage growth

(1) Fiscal 2021 financial guidelines are based on a USD/CDN exchange rate of 1.3456 USD/CDN.

(2) The acquisition of DERYtelecom is expected to have a positive impact of approximately 3% on fiscal 2021 revenue and adjusted EBITDA.

(3) The assumed current income tax effective rate is approximatively 11%.

2.3 UPDATE ON THE IMPACT OF THE COVID-19 PANDEMIC ON OPERATIONS AND RESULTS

The COVID-19 pandemic continued to impact our day-to-day operations. Our priority remained on ensuring the well-being of our employees, customers and business partners. During the quarter, we continued to experience some of the trends from past quarters. Those primarily relate to sustained demand for our residential high speed Internet product and a reduction of certain expenses due to a more stable customer base (fewer connections and disconnections). In these unusual circumstances, we have also decided to delay certain sales and marketing expenses to the second half of the year in both countries.

Although we are pleased with the financial results to date under the circumstances, we remain cautious in our management of this situation as uncertainties remain on the potential human, operating and financial impact of the pandemic. The Corporation's results discussed herein may not be indicative of future operational trends and financial performance. Please refer to the "Fiscal 2021 revised financial guidelines" section for more details.

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3. BUSINESS DEVELOPMENTS

Acquisition of DERYtelecom

On December 14, 2020, Cogeco Connexion, completed the acquisition of DERYtelecom, the third largest cable operator in the province of Québec, for a purchase price of $403 million, subject to customary post-closing adjustments. The transaction was executed essentially through an asset purchase. This acquisition enables Cogeco Connexion to expand its activities in more than 200 municipalities in Québec, including in the Estrie, Lanaudière, Montérégie and Laurentians regions, and adds approximately 100,000 customers to its client base. The purchase price was financed through a combination of cash on hand and borrowings under Cogeco Communications' Term Revolving Facility.

CRTC's wholesale Internet services 2019 rate decision

On August 15, 2019, the Canadian Radio-television and Telecommunications Commission ("CRTC") issued a decision setting new rates for aggregated wholesale Internet services for resellers, significantly lowering the interim rates it had previously fixed in 2016 and applying the new rates on a retroactive basis. On September 13, 2019, the Corporation, together with other telecommunications service providers (the "Telecommunications Service Providers"), filed an application for leave to appeal the CRTC order to the Federal Court of Appeal ("FCA") and to suspend its effect pending the Court decision to hear the matter. While leave to appeal and an interlocutory stay of the CRTC order were both granted, the FCA ultimately dismissed the appeal and lifted the stay on September 10, 2020. On November 12, 2020, the Telecommunications Service Providers sought leave to appeal the Federal Court of Appeal decision to the Supreme Court of Canada.

In parallel, on December 13, 2019, the Telecommunications Service Providers submitted to the CRTC an application for review and variance of the CRTC order, based on substantial doubt as to the correctness of the rate setting methodology relied upon by the CRTC in the order. The application also requested a stay of the Order pending a decision from the CRTC. On September 28, 2020, the CRTC approved the request to stay the implementation of Telecom Order 2019-288 regarding final rates for aggregated wholesale high-speed access services until the CRTC completes its review of that order.

In addition, on November 13, 2019, the Telecommunications Service Providers filed a petition with the Governor in Council, asking Cabinet to refer the CRTC order back to the CRTC for reconsideration in conjunction with the CRTC's planned review of its regulatory framework for wireline wholesale services and in accordance with specific policy considerations. The Governor in Council rendered an order on August 15, 2020 confirming that the rates set by the CRTC decision do not in all instances appropriately balance the required policy objectives. However, as a review and variance process is currently pending before the CRTC, the Governor in Council confirmed that any further instructions from Cabinet to the CRTC would be premature.

Due to the stay issued by the CRTC and the significant uncertainty surrounding both the outcome of this decision and its financial implications, the Corporation has not recorded the impact of the reduced rates as at November 30, 2020. Refer to the 2020 Annual Report for more details.

Altice USA, Inc. and Rogers Communications Inc.'s proposal

On September 1, 2020, Cogeco and Cogeco Communications received an unsolicited non-binding proposal from Altice USA, Inc. and Rogers Communications Inc. to acquire all of the issued and outstanding multiple and subordinate voting shares of both companies. On September 2, 2020, following separate deliberations of the independent board members, the Boards of Directors of Cogeco and Cogeco Communications rejected the proposal after Gestion Audem, the Audet family's holding company, had stated that its shares were not for sale. On October 18, 2020, Cogeco and Cogeco Communications received a revised unsolicited non-binding proposal from Altice USA, Inc. and Rogers Communications Inc. That same day, Gestion Audem publicly rejected in a press release this revised proposal, stating again that it was not interested in selling its shares. The revised proposal was submitted for review to the Board of Directors of both companies. On October 20, 2020, following separate deliberations of the independent board members, the Boards of Directors of Cogeco and Cogeco Communications announced that they had unanimously rejected the revised proposal. The revised proposal expired on November 18, 2020.

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4. OPERATING AND FINANCIAL RESULTS

4.1 OPERATING RESULTS

			Three	months ended
					Change in	Foreign
	November 30,		November 30,		constant	exchange
	2020 (1)		2019	Change	currency (2)	impact (2)
(In thousands of Canadian dollars, except percentages)		$	$	%	%	$
Revenue	618,913		586,827	5.5	5.7	(1,171)
Operating expenses	301,968		299,332	0.9	1.1	(661)
Management fees – Cogeco Inc.	5,852		5,390	8.6	8.6	—
Adjusted EBITDA	311,093		282,105	10.3	10.5	(510)
Adjusted EBITDA margin	50.3	%	48.1 %

(1) For the three-month period ended November 30, 2020, the average foreign exchange rate used for translation was 1.3170 USD/CDN.

(2) Fiscal 2021 actuals are translated at the average foreign exchange rate of fiscal 2020, which was 1.3223 USD/CDN.

REVENUE

		Three	months ended
				Change in	Foreign
	November 30,	November 30,		constant	exchange
	2020	2019	Change	currency	impact
(In thousands of Canadian dollars, except percentages)	$	$	%	%	$
Canadian broadband services	328,009	320,807	2.2	2.2	—
American broadband services	290,904	266,020	9.4	9.8	(1,171)
	618,913	586,827	5.5	5.7	(1,171)

Fiscal 2021 first-quarter revenue increased by 5.5% (5.7% in constant currency) resulting from organic growth in both the Canadian broadband services and the American broadband services segments, resulting mainly from growth in the Internet service customers given the increased demand for high speed offerings in the context of the COVID-19 pandemic, rate increases implemented for certain services, combined with the impact of the Thames Valley Communications acquisition completed on March 10, 2020 and increased political advertising revenue related to the United States' presidential election, which contributed to revenue growth in the American broadband services segment.

For further details on the Corporation's revenue, please refer to the "Segmented operating and financial results" section.

OPERATING EXPENSES

		Three	months ended
				Change in	Foreign
	November 30,	November 30,		constant	exchange
	2020	2019	Change	currency	impact
(In thousands of Canadian dollars, except percentages)	$	$	%	%	$
Canadian broadband services	141,895	149,845	(5.3)	(5.3)	(28)
American broadband services	152,378	144,370	5.5	6.0	(633)
Corporate and eliminations	7,695	5,117	50.4	50.4	—
	301,968	299,332	0.9	1.1	(661)

Fiscal 2021 first-quarter operating expenses increased by 0.9% (1.1% in constant currency) resulting from higher operating expenses in the American broadband services segment driven by the revenue growth, including higher operating expenses resulting from the impact of the Thames Valley Communications acquisition, combined with higher corporate costs, partly offset by lower sales and marketing expenses in the Canadian broadband services segment as certain operating activities were deferred to the second half of the fiscal year 2021 in the context of the COVID-19 pandemic.

For further details on the Corporation's operating expenses, please refer to the "Segmented operating and financial results" section.

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MANAGEMENT FEES

Fiscal 2021 first-quarter management fees paid to Cogeco Inc. ("Cogeco") reached $5.9 million compared to $5.4 million for the same period of fiscal 2020. For further details on the Corporation's management fees, please refer to the "Related party transactions" section.

ADJUSTED EBITDA

		Three	months ended
				Change in	Foreign
	November 30,	November 30,		constant	exchange
	2020	2019	Change	currency	impact
(In thousands of Canadian dollars, except percentages)	$	$	%	%	$
Canadian broadband services	186,114	170,962	8.9	8.8	28
American broadband services	138,526	121,650	13.9	14.3	(538)
Corporate and eliminations	(13,547)	(10,507)	28.9	28.9	—
	311,093	282,105	10.3	10.5	(510)

Fiscal 2021 first-quarter adjusted EBITDA increased by 10.3% (10.5% in constant currency) as a result of:

• an increase in the Canadian broadband services segment mainly due to an increase in revenue combined with a decrease in operating expenses; and

• an increase in the American broadband services segment mainly as a result of an increase in revenue, partly offset by a lower increase in operating expenses due to the timing of certain initiatives deferred to the second half of the year; partly offset by

• • higher corporate costs.

For further details on the Corporation's adjusted EBITDA, please refer to the "Segmented operating and financial results" section.

4.2 INTEGRATION, RESTRUCTURING AND ACQUISITION COSTS

Fiscal 2021 first-quarter integration, restructuring and acquisition costs amounted to $1.2 million, resulting mostly from due diligence costs and legal fees related to the acquisition of DERYtelecom, which was completed on December 14, 2020. Fiscal 2020 first-quarter integration, restructuring and acquisition costs amounted to $0.1 million.

4.3 DEPRECIATION AND AMORTIZATION

	Three months ended	Three months ended
	November 30,	November 30,
Years ended August 31,	2020	2019	Change
(In thousands of Canadian dollars, except percentages)	$	$	%
Depreciation of property, plant and equipment(1)	109,415	108,827	0.5
Amortization of intangible assets	14,835	14,308	3.7
	124,250	123,135	0.9

(1) Includes depreciation of right-of-use assets amounting to $1.5 million ($1.6 million in fiscal 2020) for the three-month period of fiscal 2021.

Fiscal 2021 first-quarter depreciation and amortization expense remained comparable to the same period of the prior year.

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4.4 FINANCIAL EXPENSE

	Three months ended	Three months ended
	November 30,	November 30,
Years ended August 31,	2020	2019	Change
(In thousands of Canadian dollars, except percentages)	$	$	%
Interest on long-term debt, excluding interest on lease liabilities	33,325	40,079	(16.9)
Interest on lease liabilities	338	381	(11.3)
Net foreign exchange loss	806	20	—
Amortization of deferred transaction costs	211	464	(54.5)
Capitalized borrowing costs	(50)	(151)	(66.9)
Other	580	(1,523)	—
	35,210	39,270	(10.3)

Fiscal 2021 first-quarter financial expense decreased by 10.3% mainly due to:

• lower interest rates and lower outstanding debt on the First Lien Credit Facilities;

• the early redemption of the Senior Secured Debentures Series 2 in July 2020; and

• the depreciation of the US dollar against the Canadian dollar compared to the same period of the prior year; partly offset by

• lower interest revenue resulting from investments given lower excess cash.

4.5 INCOME TAXES

	Three months ended	Three months ended
	November 30,	November 30,
Years ended August 31,	2020	2019	Change
(In thousands of Canadian dollars, except percentages)	$	$	%
Current	19,862	23,597	(15.8)
Deferred	15,660	6,334	—
	35,522	29,931	18.7

		Three months ended	Three months ended
	November 30,		November 30,
Years ended August 31,	2020		2019	Change
(In thousands of Canadian dollars, except percentages)		$	$	%
Profit before income taxes	150,418		119,639	25.7
Combined Canadian income tax rate	26.5	%	26.5 %	—
Income taxes at combined Canadian income tax rate	39,861		31,704	25.7
Difference in operations' statutory income tax rates	631		707	(10.7)
Impact on income taxes arising from non-deductible expenses and non-taxable profit	114		(229)	—
Tax impacts related to foreign operations	(5,143)		(6,510)	(21.0)
Other	59		4,259	(98.6)
Income taxes at effective income tax rate	35,522		29,931	18.7
Effective income tax rate	23.6	%	25.0 %	(5.6)

Fiscal 2021 first-quarter income taxes expense increased by 18.7% mainly due to the increase in profit before income taxes.

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4.6 PROFIT FOR THE PERIOD

	Three months ended	Three months ended
	November 30,	November 30,
Years ended August 31,	2020	2019	Change
(In thousands of Canadian dollars, except percentages and earnings per share)	$	$	%
Profit for the period	114,896	89,708	28.1
Profit for the period attributable to owners of the Corporation	106,679	84,178	26.7
Profit for the period attributable to non-controlling interest(1)	8,217	5,530	48.6
Basic earnings per share	2.24	1.71	31.0

(1) The non-controlling interest relates to the 21% ownership of Caisse de dépôt et placement du Québec ("CDPQ") in Atlantic Broadband.

Fiscal 2021 first-quarter profit for the period and profit for the period attributable to owners of the Corporation increased by 28.1% and 26.7%, respectively, as a result of:

• higher adjusted EBITDA; and

• lower financial expense; partly offset by

• the increase in income taxes.

5. RELATED PARTY TRANSACTIONS

The Corporation is a subsidiary of Cogeco, which as of November 30, 2020 held 32.8% of the Corporation's equity shares, representing 83% of the votes attached to the Corporation's voting shares.

Cogeco provides executive, administrative, financial, strategic planning and additional services to the Corporation under a Management Services Agreement (the "Agreement"). The methodology used to establish the management fees is based on the costs incurred by Cogeco plus a reasonable mark-up. Provision is made for future adjustments upon the request of either Cogeco or the Corporation from time to time during the term of the Agreement. For the three-month period ended November 30, 2020, management fees paid to Cogeco amounted to $5.9 million compared to $5.4 million for the same period of fiscal 2020.

No direct remuneration is payable to Cogeco's executive officers by the Corporation. However, during the first quarters of fiscal 2021 and 2020, the Corporation granted stock options and performance share units ("PSUs") to these executive officers, as executive officers of Cogeco Communications, as shown in the following table:

	Three months	ended
	November 30,	November 30,
(In number of units)	2020	2019
Stock options	69,200	110,875
PSUs	10,375	14,375

The following table shows the amounts that the Corporation charged Cogeco with regards to the Corporation's stock options, incentive share units ("ISUs") and PSUs granted to these executive officers, as well as DSUs issued to Board directors of Cogeco:

	Three months	ended
	November 30,	November 30,
Years ended August 31,	2020	2019
(In thousands of Canadian dollars)	$	$
Stock options	345	309
ISUs	6	13
PSUs	(150)	312
DSUs	(25)	132
	176	766

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6. CASH FLOWS ANALYSIS

6. CASH FLOWS ANALYSIS
	Three months ended
	November 30,	November 30,
Years ended August 31,	2020	2019	Change
(In thousands of Canadian dollars, except percentages)	$	$	%
Cash flows from operating activities	241,725	149,192	62.0
Cash flows used in investing activities	(125,234)	(121,117)	3.4
Cash flows used in financing activities	(51,700)	(44,259)	16.8
Effect of exchange rate changes on cash and cash equivalents denominated in a foreign currency	(2,306)	99	—
Net change in cash and cash equivalents	62,485	(16,085)	—
Cash and cash equivalents, beginningof theperiod	366,497	556,504	(34.1)
Cash and cash equivalents, end of the period	428,982	540,419	(20.6)

6.1 OPERATING ACTIVITIES

Fiscal 2021 first-quarter cash flows from operating activities increased by 62.0% mainly from:

• changes in non-cash operating activities primarily due to higher cash flow from changes in working capital;

• higher adjusted EBITDA; and

• the decrease in financial expense paid; partly offset by

• the increase in income taxes paid, mainly due to the timing of year-end income tax installments.

6.2 INVESTING ACTIVITIES

Fiscal 2021 first-quarter cash flows used in investing activities remained comparable to the same period of the prior year.

ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT AND CAPITAL INTENSITY

The acquisition of property, plant and equipment, as well as the capital intensity per operating segment are as follows:

			Three months ended	Three months ended	Three months ended
						Change in
	November 30,		November 30,			constant
Years ended August 31,	2020		2019		Change	currency (1)
(In thousands of Canadian dollars, except percentages)		$		$	%	%
Canadian broadband services	65,610		75,130		(12.7)	(12.5)
Capital intensity	20.0	%	23.4	%
American broadband services	49,347		45,833		7.7	8.2
Capital intensity	17.0	%	17.2	%
Corporate and eliminations	1,265		339		—	—
Consolidated	116,222		121,302		(4.2)	(3.9)
Capital intensity	18.8	%	20.7	%

(1) Fiscal 2021 actuals are translated at the average foreign exchange rate of fiscal 2020, which was 1.3223 USD/CDN.

Fiscal 2021 first-quarter acquisition of property, plant and equipment decreased by 4.2% (3.9% in constant currency) mainly due to:

• lower capital expenditures in the Canadian broadband services segment, resulting from the timing of certain initiatives; partly offset by

• higher capital expenditures in the American broadband services segment in order to support the segment's revenue growth driven by increased demand for the high speed Internet product and additional investments to improve and expand the network infrastructure in Florida.

Fiscal 2021 first-quarter capital intensity reached 18.8% compared to 20.7% for the same period of the prior year mainly as a result of overall lower capital expenditures.

For further details on the Corporation's acquisition of property, plant and equipment, please refer to the "Segmented operating and financial results" section.

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6.3 FINANCING ACTIVITIES

ISSUANCE AND REPAYMENT OF DEBT

Fiscal 2021 first-quarter changes in cash flows from the issuance and repayment of debt are mainly explained as follows:

	Three months ended	Three months ended
	November 30,	November 30,
Years ended August 31,	2020	2019 Explanations
(In thousands of Canadian dollars)	$	$
(Decrease) increase in bank	(7,610)	11,172 Timing of payments made to suppliers.
indebtedness
Repayment of notes, debentures and	(5,554)	(5,648) Comparable.
credit facilities
Repayment of lease liabilities	(1,088)	(1,196) Comparable.
Repayment of balance due on	(1,258)	(3,228) Repayment of the balance related to the FiberLight acquisition.
business combinations
	(15,510)	1,100

DIVIDENDS

During the first quarter of fiscal 2021, a quarterly eligible dividend of $0.64 per share was paid to the holders of multiple and subordinate voting shares, totalling $30.5 million, compared to a quarterly eligible dividend of $0.58 per share, or $28.5 million, in the first quarter of fiscal 2020.

NORMAL COURSE ISSUER BID ("NCIB")

During the first quarter of fiscal 2021, Cogeco Communications purchased and cancelled 14,900 subordinate voting shares with a weighted average price per share repurchased of $99.24 for a total consideration of $1.5 million. During the first quarter of fiscal 2020, Cogeco Communications had purchased and cancelled 143,100 subordinate voting shares with a weighted average price per share repurchased of $109.64 for a total consideration of $15.7 million.

The Corporation has also entered into an automatic share purchase plan (the "ASPP") with a designated broker to allow for the purchase of subordinate voting shares under the NCIB at times when the Corporation would ordinarily not be permitted to purchase shares due to regulatory restrictions or self-imposed blackout periods. Such purchases are executed by the broker on parameters established by the Corporation prior to the pre-established ASPP period.

On September 2, 2020, Cogeco Communications ceased repurchasing shares under the ASPP as a result of the Altice-Rogers proposal.

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6.4 FREE CASH FLOW

		Three	months ended
				Change in	Foreign
	November 30,	November 30,		constant	exchange
	2020 (1)	2019	Change	currency (2)	impact (2)
(In thousands of Canadian dollars, except percentages)	$	$	%	%	$
Adjusted EBITDA(3)	311,093	282,105	10.3	10.5	(510)
Amortization of deferred transaction costs and discounts on long-term
debt	2,278	2,537	(10.2)	(10.5)	(8)
Share-based payment	883	2,142	(58.8)	(58.8)	—
(Gain) loss on disposals and write-offs of property, plant and equipment	(481)	994	—	—	—
Defined benefit plans expense, net of contributions	440	492	(10.6)	(10.6)	—
Integration, restructuring and acquisition costs	(1,215)	(61)	—	—	—
Financial expense	(35,210)	(39,270)	(10.3)	(10.6)	110
Current income taxes	(19,862)	(23,597)	(15.8)	(15.2)	(137)
Acquisition of property, plant and equipment	(116,222)	(121,302)	(4.2)	(3.9)	391
Repayment of lease liabilities	(1,088)	(1,196)	(9.0)	(9.3)	3
Free cash flow(3)	140,616	102,844	36.7	36.9	(151)

(1) For the three-month period ended November 30, 2020, the average foreign exchange rate used for translation was 1.3170 USD/CDN.

(2) Fiscal 2021 actuals are translated at the average foreign exchange rate of fiscal 2020, which was 1.3223 USD/CDN.

• (3) The indicated terms do not have standardized definitions prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section, including reconciliation to the most comparable IFRS financial measures.

Fiscal 2021 first-quarter free cash flow increased by 36.7% (36.9% in constant currency) mainly due to the following:

• higher adjusted EBITDA;

• the decrease in acquisition of property, plant and equipment in the Canadian broadband segment mainly due to the timing of certain initiatives, partly offset by the increase in the American broadband services segment; and

• decreases in financial expense and current income taxes.

6.5 DIVIDEND DECLARATION

At its January 14, 2021 meeting, the Board of Directors of Cogeco Communications declared a quarterly eligible dividend of $0.64 per share for multiple voting and subordinate voting shares, payable on February 11, 2021 to shareholders of record on January 28, 2021. The declaration, amount and date of any future dividend will continue to be considered and approved by the Board of Directors of the Corporation based upon the Corporation's financial condition, results of operations, capital requirements and such other factors as the Board of Directors, at its sole discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, the amount and frequency may vary.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 15

7. SEGMENTED OPERATING AND FINANCIAL RESULTS

The Corporation reports its operating results in two operating segments: Canadian broadband services and American broadband services. The reporting structure reflects how the Corporation manages its business activities, makes decisions about resources to be allocated to the segments and assesses their performance.

7.1 CANADIAN BROADBAND SERVICES

OPERATING AND FINANCIAL RESULTS

			Three	Three	months ended
						Change in	Foreign
	November 30,		November 30,			constant	exchange
Three months ended August 31,	2020 (1)		2019		Change	currency (2)	impact (2)
(In thousands of Canadian dollars, except percentages)		$		$	%	%	$
Revenue	328,009		320,807		2.2	2.2	—
Operatingexpenses	141,895		149,845		(5.3)	(5.3)	(28)
Adjusted EBITDA	186,114		170,962		8.9	8.8	28
Adjusted EBITDA margin	56.7	%	53.3	%
Acquisition of property, plant and equipment	65,610		75,130		(12.7)	(12.5)	(139)
Capital intensity	20.0	%	23.4	%

(1) For the three-month period ended November 30, 2020, the average foreign exchange rate used for translation was 1.3170 USD/CDN.

(2) Fiscal 2021 actuals are translated at the average foreign exchange rate of fiscal 2020, which was 1.3223 USD/CDN.

REVENUE

Fiscal 2021 first-quarter revenue increased by 2.2% as reported and in constant currency mainly as a result of:

• the cumulative effect of sustained demand for residential high speed Internet since the beginning of the pandemic due to customers spending more time at home for work, online education and entertainment purposes, resulting in customer additions and a higher product mix for the overall base; and

• rate increases implemented for certain services; partly offset by

• a decline in video service customers.

OPERATING EXPENSES

Fiscal 2021 first-quarter operating expenses decreased by 5.3% (5.3% in constant currency) mainly due to:

• sales and marketing activity deferred to the second half of the year in the context of the COVID-19 pandemic; and

• lower compensation expenses resulting from an operational optimization program implemented during the fourth quarter of fiscal 2020.

ADJUSTED EBITDA

Fiscal 2021 first-quarter adjusted EBITDA increased by 8.9% (8.8% in constant currency) due to an increase in revenue combined with a decrease in operating expenses, as discussed above.

ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT AND CAPITAL INTENSITY

• Fiscal 2021 first-quarter acquisition of property, plant and equipment decreased by 12.7% (12.5% in constant currency) resulting mainly from:

• lower purchases of customer premise equipment due to the timing of certain initiatives; and

• lower capitalized installations costs due to increased self installations in the context of the COVID-19 pandemic; partly offset by

• higher costs related to the maintenance, growth and expansion of our network infrastructure due to the timing of certain initiatives.

Fiscal 2021 first-quarter capital intensity reached 20.0% compared to 23.4% for the same period of fiscal 2020 mainly resulting from the decrease of capital expenditures spending in addition to the revenue growth.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 16

PRIMARY SERVICE UNIT AND CUSTOMER STATISTICS

PRIMARY SERVICE UNIT AND CUSTOMER STATISTICS
November 30, 2020	Net additions (losses) Three months ended November 30, 2020 November 30, 2019	% of penetration(1) November 30, 2020 November 30, 2019
Primary service units 1,790,783 Internet service customers 815,248 Video service customers 612,297 Telephony service customers 363,238	(8,923) 8,366 3,232 6,652 (6,952) (3,257) (5,203) 4,971	45.8 45.0 34.4 36.6 20.4 21.4

(1) As a percentage of homes passed.

INTERNET

Fiscal 2021 first-quarter Internet service customers net additions amounted to 3,232 compared to 6,652 for the same period of the prior year. The additions in fiscal 2021 first-quarter were due to:

• the ongoing interest in high speed offerings due to customers spending more time at home for work, online education and entertainment purposes in the context of the COVID-19 pandemic; partly offset by

• competitive offers in the industry.

VIDEO

Fiscal 2021 first-quarter video service customers net losses amounted to 6,952 compared to 3,257 for the same period of the prior year. The losses in fiscal 2021 first-quarter were due to:

• highly competitive offers in the industry; and

• the continuous change in the video consumption environment; partly offset by

• customers' ongoing interest in digital advanced video services.

TELEPHONY

Fiscal 2021 first-quarter telephony service customers net losses amounted to 5,203 compared to net additions of 4,971 for the same period of the prior year. The losses in fiscal 2021 first-quarter were due to:

• increasing mobile wireless penetration in Canada and various unlimited offers launched by mobile wireless operators causing some customers to cancel their landline telephony services for mobile wireless telephony services only.

In addition, the growth in the prior year included unusual telephony additions as a result of more telephony bundles being actively marketed during the first quarter of fiscal 2020.

DISTRIBUTION OF CUSTOMERS

At November 30, 2020, 68% of the Canadian broadband services segment's customers subscribed to "double play" or "triple play" bundled services.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 17

7.2 AMERICAN BROADBAND SERVICES

OPERATING AND FINANCIAL RESULTS

				Three	months ended
						Change in	Foreign
	November 30,		November 30,			constant	exchange
Three months ended August 31,	2020 (1)		2019		Change	currency (2)	impact (2)
(In thousands of Canadian dollars, except percentages)		$		$	%	%	$
Revenue	290,904		266,020		9.4	9.8	(1,171)
Operatingexpenses	152,378		144,370		5.5	6.0	(633)
Adjusted EBITDA	138,526		121,650		13.9	14.3	(538)
Adjusted EBITDA margin	47.6	%	45.7	%
Acquisition of property, plant and equipment	49,347		45,833		7.7	8.2	(252)
Capital intensity	17.0	%	17.2	%

(1) For the three-month period ended November 30, 2020, the average foreign exchange rate used for translation was 1.3170 USD/CDN.

(2) Fiscal 2021 actuals are translated at the average foreign exchange rate of fiscal 2020, which was 1.3223 USD/CDN.

REVENUE

Fiscal 2021 first-quarter revenue increased by 9.4% (9.8% in constant currency). In local currency, revenue amounted to US$220.9 million compared to US$201.2 million for the same period of fiscal 2020. The increase resulted mainly from:

• strong residential Internet service additions;

• rate increases implemented for certain services;

• the impact of the Thames Valley Communications acquisition completed on March 10, 2020; and

• increased political advertising revenue related to the United States' presidential election.

Excluding revenue from Thames Valley Communications, revenue in constant currency increased by 8.2% for the first quarter of fiscal 2021.

OPERATING EXPENSES

Fiscal 2021 first-quarter operating expenses increased by 5.5% (6.0% in constant currency) mainly as a result of:

• higher compensation expenses and costs related to additional headcount to support growth;

• higher operating expenses resulting from the impact of the Thames Valley Communications acquisition; and

• higher customer levels combined with annual video programming rate increases.

ADJUSTED EBITDA

Fiscal 2021 first-quarter adjusted EBITDA increased by 13.9% (14.3% in constant currency). In local currency, adjusted EBITDA amounted to US$105.2 million compared to US$92.0 million for the same period of fiscal 2020.

Excluding adjusted EBITDA from Thames Valley Communications, adjusted EBITDA in constant currency increased by 12.8% for the first quarter of fiscal 2021.

ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT AND CAPITAL INTENSITY

Fiscal 2021 first-quarter acquisition of property, plant and equipment increased by 7.7% (8.2% in constant currency) resulting mainly from:

• higher purchases of customer premise equipments and other related costs in order to support increased demand for the high speed Internet product, combined with equipment upgrades and the timing of certain initiatives;

• additional investments to improve and expand the network infrastructure in Florida; and

• accelerated purchases of certain equipment to prevent potential supply chain shortages given the impact of the COVID-19 pandemic.

Fiscal 2021 first-quarter capital intensity reached 17.0% compared to 17.2% for the same period of fiscal 2020, mainly resulting from revenue growth, partly offset by higher capital expenditures.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 18

PRIMARY SERVICE UNIT AND CUSTOMER STATISTICS

PRIMARY SERVICE UNIT AND CUSTOMER STATISTICS
November 30, 2020	Net additions (losses) Three months ended November 30, 2020 November 30, 2019	% of penetration(1) November 30, 2020 November 30, 2019
Primary service units 972,683 Internet service customers 504,621 Video service customers 318,387 Telephony service customers 149,675	14,758 2,124 12,409 5,326 1,000 (3,917) 1,349 715	54.4 51.3 34.3 35.1 16.1 16.3

(1) As a percentage of homes passed.

INTERNET

Fiscal 2021 first-quarter Internet service customers net additions amounted to 12,409 compared to 5,326 for the same period of the prior year. The additions in fiscal 2021 first-quarter were mainly due to:

• growth in the residential sector primarily resulting from the increased demand for high speed offerings due to customers spending more time at home for work, online education and entertainment purposes in the context of the COVID-19 pandemic;

• increased bulk residential customers' activations related to the Florida expansion initiatives; and

• growth in the commercial sector.

VIDEO

Fiscal 2021 first-quarter video service customers net additions amounted to 1,000 compared to net losses of 3,917 for the same period of the prior year. The additions in fiscal 2021 first-quarter were mainly due to:

• increased bulk residential customers' activations related to the Florida expansion initiatives; partly offset by

• a changing video consumption environment; and

• competitive offers in the industry.

TELEPHONY

Fiscal 2021 first-quarter telephony service customers net additions amounted to 1,349 compared to 715 for the same period of the prior year. The additions in fiscal 2021 first-quarter were due to:

• growth in the residential and business sectors; partly offset by

• increasing mobile wireless penetration in the United States and various unlimited offers launched by mobile wireless operators causing some customers to cancel their landline telephony services for mobile wireless telephony services only.

DISTRIBUTION OF CUSTOMERS

At November 30, 2020, 49% of the American broadband services segment's customers subscribed to "double play" or "triple play" bundled services.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 19

8. FINANCIAL POSITION

8.1 WORKING CAPITAL

As part of the usual conduct of its business, Cogeco Communications generally maintains a working capital deficiency, when excluding cash and cash equivalents and bank indebtedness, due to a low level of trade and other receivables since a large proportion of the Corporation's customers pay before their services are rendered, while trade and other payables are usually paid after products are delivered or services are rendered. The Corporation has however recently maintained working capital surpluses due to cash and cash equivalents significantly exceeding bank indebtedness.

The variations are as follows:

	November 30,	August 31,
	2020	2020	Change	Explanations
(In thousands of Canadian
dollars)	$	$	$
Current assets
Cash and cash equivalents	428,982	366,497	62,485	Please refer to the "Cash flows analysis" section.
Trade and other receivables	82,029	83,013	(984)	Not significant.
Income taxes receivable	5,442	3,283	2,159	Not significant.
Prepaid expenses and other	50,507	29,266	21,241	Mainly related to the increase in prepayments for annual maintenance
				agreements.
	566,960	482,059	84,901
Current liabilities
Bank indebtedness	—	7,610	(7,610)	Timing of payments made to suppliers.
Trade and other payables	230,564	211,052	19,512	Timing of payments made to suppliers.
Provisions	34,100	33,864	236	Not significant.
Income tax liabilities	20,022	39,897	(19,875)	Related to the payment of income tax installments, partly offset by the current
				income taxes expense for the period.
Contract liabilities and other	42,514	47,162	(4,648)	Not significant.
liabilities
Derivative financial	1,820	3,834	(2,014)	Not significant.
instruments
Current portion of long-term	27,738	29,569	(1,831)	Not significant.
debt
	356,758	372,988	(16,230)
Working capital surplus	210,202	109,071	101,131

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 20

8.2 OTHER SIGNIFICANT CHANGES

	November 30, 2020	August 31, 2020	Change	Explanations
(In thousands of Canadian
dollars)	$	$	$
Non-current assets
Intangible assets	2,775,173	2,800,401	(25,228)	Depreciation of the US dollar against the Canadian dollar and amortization for the
				period.
Goodwill	1,372,923	1,381,024	(8,101)	Depreciation of the US dollar against the Canadian dollar.
Non-current liabilities
Long-term debt	3,067,051	3,087,033	(19,982)	Depreciation of the US dollar against the Canadian dollar combined with the
				quarterly repayment on the Senior Secured Term Loan B Facility.
Deferred tax liabilities	625,413	610,596	14,817	Timing of reversals of temporary differences.

8.3 OUTSTANDING SHARE DATA

A description of Cogeco Communications' share data at December 31, 2020 is presented in the table below. Additional details are provided in note 11 B) of the condensed interim consolidated financial statements.

	Number of	Amount
(In thousands of Canadian dollars, except number of shares/options)	shares/options	$
Common shares
Multiple voting shares	15,691,100	98,346
Subordinate voting shares	32,220,398	902,793
Options to purchase subordinate voting shares
Outstanding options	915,984
Exercisable options	431,754

8.4 FINANCING

In the normal course of business, Cogeco Communications has incurred financial obligations, primarily in the form of long-term debt, lease contracts and guarantees. Cogeco Communications' obligations, as reported in the 2020 Annual Report, have not materially changed since August 31, 2020.

At November 30, 2020, the Corporation had used $0.02 million of its $750 million Term Revolving Facility for a remaining availability of $749.98 million. In addition, two subsidiaries related to Atlantic Broadband benefit from a Senior Secured Revolving Facility of $194.5 million (US$150 million), of which $3.1 million (US$2.4 million) was used at November 30, 2020 for a remaining availability of $191.3 million (US$147.6 million).

8.5 CREDIT RATINGS

The table below shows Cogeco Communications' and Atlantic Broadband's credit ratings:

At November 30, 2020	S&P	DBRS	Moody's
Cogeco Communications
Senior Secured Notes and Debentures	BBB-	BBB (low)	NR
Atlantic Broadband
First Lien Credit Facilities	BB	NR	B1

NR : Not rated

Our ability to access debt capital markets and bank credit markets and the cost and amount of funding available partly depends on the quality of our credit ratings. Obligations rated in the "BBB" category are considered investment grade and their cost of funding is typically lower relative to the "BB/B" rating category. In addition, obligations with "BBB" ratings generally have greater access to funding than those with "BB/B" ratings.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 21

8.6 FINANCIAL RISK MANAGEMENT

Management's objectives are to protect the Corporation and its subsidiaries against material economic exposures and variability of results, and against certain financial risks including credit, liquidity, interest rate, foreign exchange and market risks which are described in the Corporation's annual consolidated financial statements.

Credit risk

The Corporation is exposed to credit risk arising from the derivative financial instruments, cash and cash equivalents, and trade accounts receivable, the maximum exposure of which is represented by the carrying amounts reported on the condensed interim consolidated statements of financial position.

The Corporation reduces the credit risk with regards to the derivative financial instruments by completing transactions with financial institutions that carry a credit rating equal to or superior to its own credit rating. At November 30, 2020, management believes this credit risk to be minimal, since the lowest credit rating of the counterparties to the agreements is "A" by Standard & Poor's rating services ("S&P").

Cash equivalents consist mainly of highly liquid money market short-term investments. The Corporation has deposited the cash and cash equivalents with reputable financial institutions, for which management believes the risk of loss to be remote.

To mitigate the credit risk in relation to its trade accounts receivable, the Corporation continuously monitors the financial condition of its customers and reviews the credit history or worthiness of each new large customer. The Corporation has credit policies in place and has established various credit controls, including credit checks, deposits on accounts and advance billing, and has also established procedures to suspend the availability of services when customers have fully utilized approved credit limits or have violated existing payment terms. Furthermore, a large portion of the Corporation's customers are billed and pay before the services are rendered. The Corporation believes that its allowance for doubtful accounts is sufficient to cover the related credit risk. Since the Corporation has a large and diversified clientele dispersed throughout its market areas in Canada and the United States, there is no significant concentration of credit risk.

Interest rate risk

The Corporation is exposed to interest rate risk on its floating interest rate instruments. Interest rate fluctuations will have an effect on the repayment of these instruments. At November 30, 2020, all of the Corporation's long-term debt was at fixed rate, except for the amounts drawn under the First Lien Credit Facilities which are subject to floating interest rates.

To reduce the risk on the floating interest rate instruments and mitigate the impact of interest rate variations, the Corporation's US subsidiary entered into fixed interest rate swap agreements. The following table shows the interest rate swaps outstanding at November 30, 2020:

Type	of hedge	Notional amount	Receive interest rate	Payinterest rate	Maturity	Hedged item
Cash	flow	US$1.1 billion	US LIBOR base rate	2.017% - 2.262%	January 2021 - November 2024	Senior Secured Term Loan B

The sensitivity of the Corporation's annual financial expense to an increase of 1% in the interest rate applicable to the unhedged portion of these facilities would represent an increase of approximately $6.8 million based on the outstanding debt and swap agreements at November 30, 2020.

Foreign exchange risk

The Corporation is exposed to foreign exchange risk with respect to the interest associated with its notes, debentures and credit facilities denominated in US dollars. The impact of a 10% increase in the exchange rate of the US dollar into Canadian dollars would increase the annual financial expense by approximately $9.5 million based on the outstanding debt and swap agreements at November 30, 2020.

Furthermore, a foreign currency exposure arises from the Corporation's net investment in its US subsidiary, as a result of the translation of the net investment into the Corporation's functional currency. A portion of the Corporation's net investment in its US subsidiary is hedged by the Corporation's US dollar denominated Senior Secured Notes, which the Corporation has designated as hedges of the net investment, while a portion is economically hedged by its subsidiary's US dollar denominated First Lien Credit Facilities.

The exchange rate used to translate the US dollar currency into Canadian dollars for the consolidated statement of financial position accounts at November 30, 2020 was $1.2965 ($1.3042 at August 31, 2020) per US dollar. A 10% decrease in the exchange rate of the US dollar into Canadian dollar would decrease other comprehensive income by approximately $92 million.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 22

8.7 FOREIGN CURRENCY

For the three-month period ended November 30, 2020, the average rates prevailing used to convert the operating results of the American broadband services segment were as follows:

		Three months	ended
	November 30,	November 30,
Years ended August 31,	2020	2019	Change	Change
	$	$	$	%
US dollar vs Canadian dollar	1.3170	1.3223	(0.01)	(0.4)

The following table highlights in Canadian dollars, the impact of a $0.01 variation of the Canadian dollar against the US dollar on Cogeco Communications' segmented and consolidated operating results for the three-month period ended November 30, 2020:

	Canadian broadband services	American broadband services	Consolidated	(1)
	Exchange	Exchange	Exchange
Three months ended November 30, 2020	rate impact	rate impact	rate impact
(In thousands of Canadian dollars)	$	$	$
Revenue	—	(1,171)	(1,171)
Operating expenses	(28)	(633)	(661)
Management fees - Cogeco Inc.			—
Adjusted EBITDA	28	(538)	(510)
Acquisition of property, plant and equipment	(139)	(252)	(391)
Free cash flow			(151)

(1) The consolidated results do not correspond to the addition of the operating segment's results as the "Corporate and eliminations" information is not presented.

9. CONTROLS AND PROCEDURES

Internal control over financial reporting ("ICFR") is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The President and Chief Executive Officer ("CEO") and the Senior Vice President and Chief Financial Officer ("CFO"), together with Management, are responsible for establishing and maintaining adequate disclosure controls and procedures ("DC&P") and ICFR, as defined in National Instrument 52-109. Cogeco Communications' internal control framework is based on the criteria published in the updated version released in May 2013 of the report Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission .

On September 1, 2020, the Corporation's subsidiary, Atlantic Broadband, implemented a new financial system, which resulted in changes to internal controls related to financial reporting for the three-month period ended November 30, 2020. In addition, a new human capital management system was implemented on January 1, 2021 by the Corporation and its subsidiaries.

The CEO and CFO, supported by Management, evaluated the design of the Corporation's DC&P and ICFR at November 30, 2020, and concluded that they are adequate.

10. UNCERTAINTIES AND MAIN RISK FACTORS

A detailed description of the uncertainties and main risk factors faced by Cogeco Communications can be found in the 2020 Annual Report, available at www.sedar.com and corpo.cogeco.com. The following update should be read together with the uncertainties and main risk factors described in the 2020 Annual Report, which are hereby incorporated by reference.

Potential impact of a new US administration on our business

It is understood that the newly elected US administration intends to increase the corporate tax rate and potentially add a minimum corporate tax on book income. If these changes were to be implemented, the Corporation would incur a one-time non-cash deferred tax expense on the reevaluation of the deferred tax liabilities and its future tax expenses and cash tax outflows would increase.

As for regulatory changes in our industry, not enough information is available at this point to assess their potential impact on our business.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 23

11. ACCOUNTING POLICIES

ADOPTION OF NEW ACCOUNTING STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS

Amendments to IFRS 3

In October 2018, the IASB amended IFRS 3, Business combinations , to clarify the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. Effective September 1, 2020, the Corporation adopted these amendments, which had no impact on the consolidated financial statements. The effects, if any, of these amendments, will be dependent on the facts and circumstances of any future acquisitions and they may affect whether those future acquisitions are accounted for as business combinations or as asset acquisitions, along with the allocation of the purchase price between the net identifiable assets acquired and goodwill.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 24

12. NON-IFRS FINANCIAL MEASURES

This section describes non-IFRS financial measures used by Cogeco Communications throughout this MD&A. These financial measures are reviewed in assessing the performance of the Corporation and used in the decision-making process with regards to our business units. Reconciliations between "free cash flow", "adjusted EBITDA", "adjusted EBITDA margin" and "capital intensity" and the most comparable IFRS financial measures are also provided. These financial measures do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies.

This MD&A also makes reference to key performance indicators on a constant currency basis, including revenue, "adjusted EBITDA", acquisition of property, plant and equipment and "free cash flow". Measures on a constant currency basis are considered non-IFRS financial measures and do not have any standardized meaning prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies.

						Most comparable
Non-IFRS financial						IFRS financial
measures	Application	Calculation				measures
Adjusted EBITDA	Adjusted EBITDA and adjusted EBITDA margin are	Adjusted EBITDA:				Profit for the
and adjusted EBITDA margin	key measures commonly reported and used in the telecommunications industry, as they allow comparisons between companies that have	- Profit for the period add:				period
	different capital structures and are more current measures since they exclude the impact of historical investments in assets. Adjusted EBITDA is one of the key metrics employed by the financial	- Income taxes; - Financial expense; - Depreciation and amortization;		and
	community to value a business and its financial strength.	- Integration, restructuring and acquisition			costs.
	Adjusted EBITDA for Cogeco Communications'
	business units is equal to the segment profit (loss)
	reported in Note 4 of the condensed interim
	consolidated financial statements.
		Adjusted EBITDA margin:				No comparable
		- Adjusted EBITDA				IFRS financial measure
		divided by:
		- Revenue
Free cash flow(1)	Management and investors use free cash flow to	Free cash flow(1):				Cash flows from
	measure Cogeco Communications' ability to repay debt, distribute capital to its shareholders and finance its growth.	- Adjusted EBITDA add:				operating activities
		- Amortization of deferred	transaction costs and
		discounts on long-term	debt;
		- Share-based payment;
		- Loss (gain) on disposals	and write-offs of property,
		plant and equipment;
		- Defined benefit plans expense,		net of
		contributions;
		deduct:
		- Integration, restructuring and acquisition			costs;
		- Financial expense(2);
		- Current income taxes;
		- Acquisition of property, plant and equipment(3);
		and
		- Repayment of lease liabilities.
Constant	Revenue, operating expenses, adjusted EBITDA,	Constant currency basis	is obtained by translating			No comparable
currency basis	acquisition of property, plant and equipment and	financial results from the		current	periods	IFRS financial
	free cash flow are measures presented on a	denominated in US dollars at the foreign			exchange	measure
	constant currency basis to enable an improved	rates of the comparable periods of the prior year.
	understanding of the Corporation's underlying
	financial performance, undistorted by the effects
	of changes in foreign exchange rates.
Capital intensity	Capital intensity is used by Cogeco	Capital intensity:				No comparable
	Communications' management and investors to assess the Corporation's investment in capital expenditures in order to support a certain level of	- Acquisition of property, plant and equipment(3) divided by:				IFRS financial measure
	revenue.	- Revenue

(1) During the second quarter of fiscal 2020, the Corporation modified the calculation method of its free cash flow in order to reflect how the Corporation analyzes and makes projections of its free cash flow. This modification has no impact on the result under the current and former calculation, and therefore free cash flow for the comparable periods were not affected by this change.

(2) Excludes the non-cash gain on debt modification.

(3) Excludes the acquisition of right-of-use assets and the purchases of spectrum licenses.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 25

12.1 ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN RECONCILIATION

The reconciliation of adjusted EBITDA to the most comparable IFRS financial measure and the calculation of adjusted EBITDA margin are as follows:

	Three months ended	Three months ended	Three months ended
	November 30,		November 30,
	2020		2019
(In thousands of Canadian dollars, except percentages)		$		$
Profit for the period	114,896		89,708
Income taxes	35,522		29,931
Financial expense	35,210		39,270
Depreciation and amortization	124,250		123,135
Integration, restructuringand acquisition costs	1,215		61
Adjusted EBITDA	311,093		282,105
Revenue	618,913		586,827
Adjusted EBITDA margin	50.3	%	48.1	%

12.2 FREE CASH FLOW RECONCILIATION

The reconciliation of free cash flow to the most comparable IFRS financial measure is as follows:

	Three months ended	Three months ended
	November 30,	November 30,
	2020	2019
(In thousands of Canadian dollars)	$	$
Cash flows from operating activities	241,725	149,192
Amortization of deferred transaction costs and discounts on long-term debt	2,278	2,537
Changes in non-cash operating activities	5,362	81,213
Income taxes paid	41,781	16,152
Current income taxes	(19,862)	(23,597)
Financial expense paid	21,852	39,115
Financial expense	(35,210)	(39,270)
Acquisition of property, plant and equipment	(116,222)	(121,302)
Repayment of lease liabilities	(1,088)	(1,196)
Free cash flow	140,616	102,844

12.3 CAPITAL INTENSITY RECONCILIATION

The calculation of capital intensity is as follows:

	Three months ended	Three months ended
	November 30,	November 30,
	2020	2019
(In thousands of Canadian dollars, except percentages)	$		$
Acquisition ofproperty,plant and equipment	116,222	121,302
Revenue	618,913	586,827
Capital intensity	18.8 %	20.7	%

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 26

13. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

Three months ended	November	November	30,		August	August	31,		May	May	31,		February 29,	February 29,	February 28,
(In thousands of Canadian dollars,	2020		2019		2020		2019		2020		2019		2020		2019
except percentages and per
share data)		$		$		$		$		$		$		$	$
Operations
Revenue	618,913		586,827		605,168		583,673		605,821		587,345		586,467		584,129
Adjusted EBITDA	311,093		282,105		294,535		275,610		294,717		283,927		277,372		280,552
Adjusted EBITDA margin	50.3	%	48.1	%	48.7	%	47.2	%	48.6	%	48.3	%	47.3	%	48.0 %
Integration, restructuring and
acquisition costs	1,215		61		3,955		712		12		1,003		5,458		3,722
Profit for the period from
continuing operations	114,896		89,708		96,148		92,403		96,724		99,571		114,011		86,128
Profit (loss) for the period from
discontinued operations	—		—		—		1,920		—		82,451		—		(5,369)
Profit for the period	114,896		89,708		96,148		94,323		96,724		182,022		114,011		80,759
Profit for the period from
continuing operations
attributable to owners of the
Corporation	106,679		84,178		90,834		87,850		90,771		96,613		109,391		81,718
Profit for the period attributable to
owners of the Corporation	106,679		84,178		90,834		89,770		90,771		179,064		109,391		76,349
Cash flow
Cash flows from operating
activities	241,725		149,192		254,745		304,702		282,229		265,551		231,653		199,462
Acquisition of property, plant and
equipment	116,222		121,302		128,195		145,099		123,653		96,116		110,840		92,773
Free cash flow(1)	140,616		102,844		111,372		84,250		116,158		136,999		125,062		125,307
Capital intensity	18.8	%	20.7	%	21.2	%	24.9	%	20.4	%	16.4	%	18.9	%	15.9 %
Per share data(2)
Earnings (loss) per share
Basic
From continuing operations	2.24		1.71		1.90		1.78		1.89		1.96		2.24		1.65
From discontinued operations	—		—		—		0.04		—		1.67		—		(0.11)
From continuing and
discontinued operations	2.24		1.71		1.90		1.82		1.89		3.62		2.24		1.55
Diluted
From continuing operations	2.22		1.70		1.88		1.77		1.87		1.94		2.22		1.64
From discontinued operations	—		—		—		0.04		—		1.65		—		(0.11)
From continuing and
discontinued operations	2.22		1.70		1.88		1.80		1.87		3.59		2.22		1.53
Dividends per share	0.64		0.58		0.58		0.525		0.58		0.525		0.58		0.525

(1) Excludes the non-cash gain on debt modification recognized in the second quarter of fiscal 2020.

(2) Per multiple and subordinate voting share.

13.1 SEASONAL VARIATIONS

Cogeco Communications' operating results are not generally subject to material seasonal fluctuations except as follows. In the Canadian and American broadband services segments, the number of Internet and video services customers are generally lower in the second half of a fiscal year as a result of a decrease in economic activity due to the beginning of the vacation period, the end of the television season, and students leaving their campuses at the end of the school year. Cogeco Communications offers its services in several towns with educational institutions. In the American broadband services segment, certain areas are also subject to seasonal fluctuations during the winter and summer seasons.

COGECO COMMUNICATIONS INC. Q1 2021 MD&A 27