Cogeco (TSE:CGO) executives said the company continued to generate strong free cash flow in its fiscal third quarter, supported by transformation initiatives and disciplined capital spending, while acknowledging continued pressure in its U.S. cable operations.
On the company’s Q3 2026 earnings call, Fred Perron, president and chief executive officer of Cogeco, said Cogeco Communications generated CAD 169 million in free cash flow during the quarter, bringing the total to CAD 450 million after three quarters of the fiscal year.
The company maintained its fiscal 2026 financial guidelines for Cogeco Communications, apart from a lower current income tax expense assumption, and also maintained the guidance issued in April for Cogeco Inc.
Canadian business shows continued EBITDA growth
Perron said the company’s Canadian operations remained strong, with year-over-year adjusted EBITDA growth for a third consecutive quarter. He said Cogeco continued to grow its Canadian customer base and had been able to reduce some promotional intensity as market conditions became calmer.
The company also highlighted performance at Oxio, its digital business, which Perron said continued to generate high customer satisfaction and referral rates. Wireless sales in Canada were ahead of plan, he said, and the company is seeing lower churn among customers who take wireless service alongside fixed-line products.
“That churn benefit is not yet visible in our overall results, as our wireless base is still small, but will become more significant as we scale it up over time,” Perron said.
Asked by RBC Capital Markets analyst Drew McReynolds about Canada’s Q3 performance, Perron said that excluding certain non-recurring operating cost benefits, Canadian adjusted EBITDA growth would have been closer to the 2% to 2.5% range recorded in the first and second quarters.
U.S. operations remain under pressure
Executives were more cautious on the company’s U.S. cable business, where Perron said the sector is experiencing “significant turbulence.” The company recorded a non-cash impairment related to its U.S. assets during the quarter, which had been announced several weeks earlier.
Patrice Ouimet, chief financial officer of Cogeco and Cogeco Communications, said the company reviewed the carrying value of its U.S. assets in the third quarter because of ongoing competitive pressures. Cogeco recorded a non-cash impairment charge that mainly affected goodwill.
Ouimet said the charge was CAD 1.8 billion, or $1.3 billion, and added that on a pretax basis it amounted to CAD 2.2 billion, or $1.6 billion. Later in the call, he said Cogeco Inc. also recorded a pretax CAD 26 million impairment of intangible assets related to its radio assets.
Responding to Scotiabank analyst Maher Yaghi, Ouimet said the impairment reflected changes in assumptions tied mainly to ARPU, including higher promotional activity for customer acquisition and retention. He also pointed to subscriber losses in some regions, gains in others, and lower peer valuations in the market.
Perron said the impairment did not lead management to outline a change in strategic posture for the U.S. business. “We’re not dogmatic. We always look for the best way to optimize shareholder value,” he said. “For now, I’d just focus the conversation on the different levers we’re implementing operationally to improve the business.”
Management expects difficult U.S. subscriber trends in Q4
Perron said the company had previously expressed some optimism about a possible U.S. turnaround, but conditions have become more challenging. He cited a more elevated competitive environment, U.S. inflation above 4%, higher fuel prices and customers looking to optimize household spending.
That pressure is showing up in retention discussions, he said, with customers negotiating harder when they have competitive offers in hand. Cogeco is using advanced analytics and AI to optimize retention investments, but Perron said those tools have limits when competing offers are aggressive.
The company expects U.S. fourth-quarter revenue and adjusted EBITDA, measured in constant currency or U.S. dollars, to be lower than the prior year, although Ouimet said the percentage decline should be smaller than in the first three quarters of the year.
Perron also warned that U.S. primary service units, or PSUs, would be weaker in the fourth quarter, with a “material increase in customer losses.” He described that as a point-in-time issue tied to external factors, seasonality and decisions to optimize retention discounts.
Asked by Bank of America analyst Matthew Griffiths whether the Q4 weakness should be viewed as temporary, Perron said it reflected both internal and external factors, including students leaving at the end of the school year, temporary competitor blitzes, a shift of some marketing investment toward the Welo brand and testing of retention discount optimization.
“It’s very unlikely that all those factors will be permanent going into the following quarters,” Perron said.
Welo, wireless and AI cited as improvement levers
Cogeco has fully rolled out its Welo digital brand across its Ohio footprint, with more states expected later this calendar year. Perron said Welo remains in the early stage of its growth curve, but the company expects sales to ramp up over coming quarters.
He said customer satisfaction with Welo is high and nearly half of new sales already come from referrals from existing customers, even though the brand’s customer base remains small.
In Ohio, Perron said the company had been net positive in PSUs for four consecutive quarters, though he said Welo was still only a small part of that improvement. He attributed Ohio’s performance mainly to the region starting from a lower market share position and to scaling sales and marketing channels under the traditional brand.
Across the U.S. business, Perron said Cogeco had removed some aggressive promotions, including offers with free months of service, which should improve the lifetime value of newly acquired customers over time.
Management identified three key levers for improving U.S. performance: wireless, Welo and transformation initiatives, including AI. Perron said these initiatives are expected to pay off over several quarters rather than months.
Capital spending, leverage and taxes
Ouimet said consolidated leverage stood at 3.2 times at the end of the third quarter. During the quarter, Cogeco repurchased $21 million U.S. of Term Loan B debt securities and expects to continue using excess cash in the U.S. to repurchase TLBs regularly.
Asked about leverage targets, Ouimet said the company has historically targeted around 3 times, or the low threes, but may consider running below that level over the long term. He said no specific new target was available.
The company also discussed capital spending discipline. Ouimet said Q4 capital expenditures are expected to increase from Q3, similar to last year, partly because construction is easier in certain areas during that period. Management said the company aims to be below 20% capital intensity going forward, after recent years were elevated by subsidized expansion programs in both Canada and the U.S.
Cogeco’s current income tax expense outlook for fiscal 2026 was reduced to CAD 25 million from a prior assumption of about CAD 40 million. Ouimet said the quarter benefited from a retroactive CAD 4.5 million adjustment related to accelerated tax depreciation on certain Canadian asset classes, in addition to CAD 14.8 million recorded in the prior quarter.
At Cogeco Media, Perron said the company continued to grow digital advertising solutions despite volatility in traditional radio advertising. He said Cogeco is entering the third year of its three-year transformation with a focus on AI-based tools, additional operating efficiencies and continued growth in wireless and digital businesses in Canada and the U.S.
About Cogeco (TSE:CGO)
Cogeco Inc is a telecommunications company. The company has two reportable operating segments, namely Canadian broadband services and American broadband services. The Canadian and American broadband services segments provide a wide range of Internet, video, and telephony services primarily to residential customers, as well as business services across their coverage areas. The Canadian broadband services activities are carried out by Cogeco Connexion in the provinces of Quebec and Ontario and the American broadband services activities are carried out by Atlantic Broadband in 12 states.
