Cogeco Communications (TSE:CCA) reported strong free cash flow in its fiscal third quarter, even as management described ongoing pressure in its U.S. cable business and outlined steps aimed at improving performance over the coming quarters.
President and CEO Fréd Perron said the company generated CAD 169 million in free cash flow during the quarter, bringing cumulative free cash flow after three quarters to CAD 450 million. He attributed the performance to transformation initiatives and “tight capital allocation discipline.”
Wireless sales were ahead of plan, Perron said, and the company is seeing a churn benefit when customers take both fixed and mobile services. He said that benefit is not yet visible in overall results because the wireless base remains small, but should become more meaningful as the business scales.
U.S. business remains under pressure
Management struck a more cautious tone on the U.S. business, where Cogeco operates under the Breezeline brand. Perron said the U.S. cable sector is facing “significant turbulence,” and the company is being realistic about the financial performance of that business.
Chief Financial Officer Patrice Ouimet said Cogeco reviewed the carrying value of its U.S. assets during the third quarter because of ongoing competitive pressures. The company recorded a non-cash impairment charge of CAD 1.8 billion, or US$1.3 billion, mainly affecting goodwill. Ouimet also said the impairment amounted to CAD 2.2 billion, or US$1.6 billion, on a pre-tax basis.
Ouimet said the impairment reflected several factors, including pressure on average revenue per user from promotions and retention activity, subscriber losses in some regions, and lower peer valuations in the market.
Asked about the company’s strategic posture in the U.S., Perron said Cogeco is “not dogmatic” and always looks for ways to optimize shareholder value, but said the current focus is on operational levers to improve the business.
welo rollout and U.S. customer trends
Perron said the company has deployed a stronger sales and marketing presence in the U.S. and has fully rolled out its new welo digital brand across its Ohio footprint, with additional states expected later this calendar year. He said welo remains in the early stages of its growth curve, but customer satisfaction is high and nearly half of new sales are already coming from referrals from existing customers.
Cogeco has also removed some of the more aggressive Breezeline promotions, including offers of free months, which Perron said should improve the lifetime value of newly acquired customers over time.
Management said Ohio remains a growth market for the company. Perron said the business was net positive in primary service units in Ohio for a fourth consecutive quarter, though welo was only a small part of that improvement so far. He said Ohio starts from a lower market share position, creating more opportunity for growth.
Outside Ohio, Perron described the rest of the U.S. footprint as being more in “protection and harvesting mode.” He warned that the fourth quarter is expected to be difficult for U.S. subscriber trends, with a material increase in customer losses. He said the expected pressure reflects a mix of seasonal factors, temporary competitor activity and Cogeco’s own efforts to optimize marketing and retention discounts.
Perron said the company still sees potential for U.S. primary service unit trends to resume improvement next year, though he cautioned that financial performance in the U.S. could remain difficult.
Guidance maintained; tax outlook improves
Ouimet said Cogeco Communications is maintaining its annual financial guidelines for fiscal 2026, which were updated in April, aside from a change in its current tax assumption. The company now expects current income tax expense of CAD 25 million for fiscal 2026, down from a prior assumption of about CAD 40 million. The change reflects a retroactive adjustment tied to accelerated tax depreciation on certain asset classes in Canada.
Looking ahead, Ouimet said the company expects slightly positive year-over-year revenue and adjusted EBITDA growth in the Canadian business in the fourth quarter. He noted that Canada’s third-quarter performance benefited partly from non-recurring operating cost items, and said growth excluding those items would have been closer to the 2% to 2.5% range seen in the first two quarters.
In the U.S., on a constant-currency basis, Ouimet said fourth-quarter revenue and adjusted EBITDA are expected to be lower than the prior year, but with a smaller percentage decline than in the first three quarters of fiscal 2026.
Consolidated capital expenditures are expected to increase in the fourth quarter compared with the third quarter, similar to last year. Ouimet said the company is working to keep capital intensity below 20% over time through procurement efficiencies, coordination between the Canadian and U.S. businesses and more customer self-installations. He said recent elevated capital intensity was largely tied to subsidized expansion programs, which are now close to completion, apart from one program in Ontario.
Leverage, debt repurchases and other items
Cogeco Communications ended the quarter with consolidated debt leverage of 3.2 times. Ouimet said the Canadian debt structure continues to deleverage at the expected pace, while the U.S. structure has not declined as quickly as initially expected. He said the company may consider targeting leverage below its historical range of about three times or the low threes over the long term, though no specific target was provided.
During the quarter, the company repurchased US$21 million of Term Loan B debt securities. Ouimet said Cogeco expects to continue using excess U.S. cash to repurchase those securities regularly.
At Cogeco Inc., Ouimet said the company performed a valuation of its radio assets and recorded a pre-tax CAD 26 million impairment of intangible assets. Cogeco Inc. also maintained the financial guidelines it issued in April.
Perron said Cogeco is entering the third year of its three-year transformation with a focus on AI-based tools intended to drive additional revenue and operating efficiencies, while continuing to grow wireless and digital businesses in both Canada and the U.S.
About Cogeco Communications (TSE:CCA)
Cogeco Communications Inc is a leading telecommunications provider committed to bringing people together through powerful communications and entertainment experiences. We provide world-class Internet, wireless, video and wireline phone services to 1.6 million residential and business subscribers in Canada and thirteen states in the United States. Our services are marketed under the Cogeco and oxio brands in Canada, and under the Breezeline brand in the U.S. We take pride in our strong presence in the communities we serve and in our commitment to a sustainable future.
