Earnings call transcript: Cogeco Communications misses Q3 2025 expectations

Cogeco Communications Inc. reported its third-quarter 2025 earnings with results falling short of analyst expectations. The company posted an earnings per share (EPS) of $1.82, missing the forecasted $1.92, representing a negative surprise of 5.21%. Revenue also came in below expectations at $730.68 million, compared to the anticipated $738.61 million. The stock reacted negatively, with a decline of 1.4% in pre-market trading, closing the previous session at $70.90. According to InvestingPro data, two analysts have recently revised their earnings expectations downward for the upcoming period, suggesting continued near-term pressure.

Key Takeaways

• Cogeco’s Q3 revenue declined by 4.1% in constant currency.
• Free cash flow increased significantly by 61.5%.
• The company launched a new Canadian wireless service for wireline customers.
• Cogeco continues to face competitive pressures in the US market.

Company Performance

Cogeco Communications experienced a challenging third quarter, with consolidated revenue and adjusted EBITDA declining by 4.1% and 2.4% respectively in constant currency. Despite these declines, the company noted a significant increase in free cash flow by 61.5%, attributed to reduced capital intensity and improved operational efficiencies. InvestingPro analysis highlights the company’s strong free cash flow yield and consistent dividend payments, maintained for 22 consecutive years. The Canadian market showed resilience with internet subscriber growth, although the US operations faced stiff competition.

Financial Highlights

• Revenue: $730.68 million, down from the forecasted $738.61 million.
• Earnings per share: $1.82, below the expected $1.92.
• Free cash flow: Increased by 61.5% in constant currency.
• Capital intensity: Reduced from 22.4% to 17.2%.

Earnings vs. Forecast

Cogeco’s EPS fell short of the $1.92 forecast, resulting in a negative surprise of 5.21%. Revenue was also below expectations, with an actual figure of $730.68 million versus the forecasted $738.61 million, marking a negative surprise of 1.07%. This performance contrasts with previous quarters where the company had generally aligned with or exceeded market forecasts.

Market Reaction

Following the earnings announcement, Cogeco’s stock saw a 1.4% decline in pre-market trading, reflecting investor disappointment with the earnings miss. The stock is trading closer to its 52-week low of $56.28, compared to the high of $75.09, indicating cautious market sentiment. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, with a beta of 0.45 indicating lower volatility compared to the broader market. For deeper insights into valuation opportunities, investors can explore InvestingPro’s comprehensive analysis of over 1,400 stocks through detailed Pro Research Reports.

Outlook & Guidance

Looking ahead, Cogeco expects a low single-digit revenue decline for fiscal 2025 while maintaining stable adjusted EBITDA guidance. The company plans to reduce capital expenditures to between $600 million and $650 million and aims to improve its net debt to EBITDA ratio to the low three times range.

Executive Commentary

Fred Perron, a key executive, emphasized the company’s commitment to providing more choices to Canadians despite regulatory challenges. He highlighted the potential for cost reduction and market expansion, particularly in the Canadian telecommunications sector. Perron also expressed confidence in the company’s wireless launch strategy, describing Cogeco as a "rational player."

Risks and Challenges

• Competitive pressures in the US market could impact growth.
• Regulatory challenges in Canada, particularly with the CRTC’s TPIA regime.
• Market saturation in core segments may limit expansion opportunities.
• Economic uncertainties could affect consumer spending and advertising revenues.

Q&A

During the earnings call, analysts focused on Cogeco’s wireless strategy and its potential impact on the wireline business. Questions also addressed the company’s transformation program and cost efficiencies, with executives indicating no immediate plans to divest US assets. The management expressed confidence in improving US market performance without significant reductions in average revenue per user (ARPU).

Full transcript - Cogeco Communications Inc (CCA) Q3 2025:

Conference Operator: Good day, and welcome to Cogeco Inc. And Cogeco Communications Inc. Q3 twenty twenty five Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr.

Patrice Wiemette, Chief Financial Officer of Cogeco Inc. And Cogeco Communications Inc. Please go ahead, Mr. Wiemette.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: So good morning, everyone. Welcome to our third quarter results conference call. So as usual, before we begin the call, I’d like to remind listeners that today’s discussion will include estimates and other forward looking information. We ask that you review the cautionary language in the press releases and MD and A issued yesterday, as well as in our annual reports regarding the various risks, assumptions and uncertainties that could cause our actual results to differ. And with that, I’ll pass the line to Fred Perron for opening remarks.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Thank you, Patrice and good morning, everyone. We’re pleased to share our Q3 results today. We’ll be giving you more color on our solid Canadian internet subscriber growth, our strong free cash flow performance and our Canadian wireless launch. We’ll also be sharing insights into our US challenges and we’ll explain why we’re optimistic about improvements in the coming quarters. Let’s start with our Canadian internet customer growth, which was strong again this quarter.

We’re quite upbeat about our Canada customer trends going into Q4 and next year, especially as wireless and new Ontario network expansion projects being lit up become new additional contributors to our customer growth. Turning over to free cash flow, when we began our three year transformation last year, we mentioned that we expected significant OpEx and CapEx synergies from initiatives such as combining our Canadian and US operations, reducing truck rolls, consolidating vendors and platforms and digitizing our sales and service interactions. Less than one year into our transformation, we’re pleased to report that our OpEx and CapEx synergies are tracking well above plan with significant runway still to go. For this fiscal year in particular, we now expect this to translate into a net CapEx reduction versus our prior estimates. We’re maintaining our investments in key revenue generating projects, such as network upgrades and extensions in line with our original plans and with historical trends.

Only a small part of this year’s CapEx savings are deferrals to next year. So what you’re seeing in terms of CapEx understanding comes mainly from real operational efficiencies and synergies. These synergies will increasingly add to our already strong balance sheet and are putting us well on track to generate approximately $600,000,000 in free cash flow by fiscal twenty twenty seven. We’re poised to continue to raise our dividend and lower our debt, which stood at 3.1 times debt to adjusted EBITDA by the end of the third quarter. Turning over to Canadian wireless, we’re ready to go.

We already have an initial cohort of users on the service and will broaden sales in 12 markets over the coming weeks ahead of a full commercial launch later this fall. We won’t be sharing offer details today as we want to announce it to our customers first. However, we can share the following. The product will be exclusive to customers also buying wireline with us. We’ll target low to mid data users and will provide a time limited launch bonus for the first wave of customers joining us.

In The US, our Q3 subscriber metrics were impacted by an uptick in competition in three of our states, as mentioned in our last earnings call, and by internal execution gaps, which have now already been addressed. The ongoing transformation of our sales and marketing capabilities combined with the fact that some of our competitive headwinds were temporary in nature, make us confident that Q3 was a low point and that we should see gradual improvements in US customer metrics over the coming quarters. In this coming Q4 more specifically, we expect US customer metrics for residential internet segment by far our largest to be better versus Q3. We will be doing a large one time disconnect in the bulk segment during the fourth quarter. But our predictable bulk sales pipeline shows that the segment will return to growth in the following quarters.

We’re lowering our revenue outlook for the year as a result of The US pressures, but this decline is offset by operating efficiencies as a result of our transformation program. Therefore, we’re maintaining our original adjusted EBITDA guidance for the year. We’re also raising our free cash flow guidance tends to the transformation related CapEx synergies I mentioned earlier. Patrice will share more information on our outlook later in this call. At Kushiko Media, the radio advertising market continued to face challenges.

But revenue increased during the quarter, helped in part by ongoing growth in our digital advertising solutions, and strong listener engagement. Our leading radio stations have continued to achieve strong market share in their target markets from recent audience surveys. Before I pass it over to Patrice for more details about our results, please allow me to comment on the current Canadian regulatory environment. The CRTC is stubbornly maintaining a broken TPIA or resale regime that has completely failed to meet its original objective to help new entrants get into the market. Today, the regime is mainly used by the big three Canadian telecom companies to get even bigger.

On June 20, the CRTC rejected our appeal to fix the regime by disqualifying the big three Canadian telecom companies from leveraging it. By doing so, the CRTC is misusing its power and is favoring telecom giants at the expense of regional players such as Cogeco. It’s like forcing regional airlines to let national airlines use their planes. It just doesn’t make any sense. As you can see from the announcements that we’re making today, including the launch of a completely new wireless service for Canadians, the first major wireless launch in this country in over ten years, Cogeco intends to remain a growing competitive force in this country.

We won’t let the CRTC stop us from providing more choice to Canadians and are prepared to fight for the competition and investments that Canada needs. We urge the federal cabinet to be as passionate about competitive investments and economic growth as we are. Canadian telecom has been held back by this bad policy and the government needs to act now. Patrice, over to you.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Thank you, Fred. In Canada, Cogeco connections revenue declined by 1.8% in the third quarter, driven by a lower revenue per customer due to fewer video and wireline phone subscribers and a competitive pricing environment, partly offset by a growing internet subscriber base, which added 9,400 new internet subscribers during the quarter. Adjusted EBITDA declined by 1.3% in constant currency due to the lower revenue being partially offset by lower operating expenses, driven by cost reduction initiatives and operating efficiencies. We added 8,200 homes passed during the quarter under our network expansion program, including those through the Ontario subsidized program. In The US, BREEZE lines revenue declined by 6.6% in constant currency due to the cumulative decline in the subscriber base over the past year, especially for entry level services and non internet services.

We have seen a decline of 10,400 internet subscribers during the quarter. Adjusted EBITDA declined by 3.7% in constant currency due to lower revenue, offset in part by cost reduction initiatives and operating efficiencies. Turning to our consolidated numbers for Cogeco Communications, at the consolidated level, revenue declined by 4.1% and adjusted EBITDA declined by 2.4% both in constant currency. It is mainly due to the revenue pressure in The U. S.

And strong execution on operating efficiencies. Diluted earnings per share declined by 1.8% in reported currency due to lower EBITDA and other elements partially offset by lower restructuring costs. Capital intensity was 17.2% down from 22.4 last year due to lower spending in both Canada and The US resulting from reorganizational efficiencies related to the combination of our Canadian and US operations, also from improved inventory management and the timing of network expansion projects. Excluding network expansion projects, capital intensity was 15.4 compared to 19.2% last year. Free cash flow in constant currency increased by 61.5% largely due to lower CapEx and lower restructuring costs in the quarter.

Our net debt to adjusted EBITDA ratio was 3.1 turns at the end of the quarter, an improvement from 3.4 in Q2. This reduction in the leverage ratio was the result of lower net debt and the positive impact of exchange rates on our US denominated debt. We continue to target a net debt to EBITDA ratio in the low three turns range. And finally, have declared a dividend of 92.2¢ per share. At Cogeco Inc, revenue in constant currency decreased by 3.9% and adjusted EBITDA declined by 2% with growth in radio, partially offsetting declines at Cogeco Communications.

The media operations revenue increased by 4.4% due to growth in our digital advertising revenue and a dividend of 92.2¢ per share was also declared in the quarter. Now turning to financial guidelines for Cogeco Communications fiscal twenty twenty five. We are revising our annual guidelines, which we first provided to investors in October to better to basically reflect competitive pressures impacting our top line on one hand and the transformation OpEx and CapEx synergies, which are ahead of plan on the other hand. On a constant currency basis, we expect a low single digit decline in fiscal twenty twenty five revenue resulting mainly from an uptick in competition in The US. Fiscal twenty twenty five adjusted EBITDA is anticipated to remain stable year over year as per our original guidance, since transformation related over delivery and cost reductions is offsetting most of our revenue headwinds.

Net capital expenditures are now anticipated to be between 600,000,000 and $650,000,000 compared to $650,000,000 to $725,000,000 in our prior guidance. Net capital expenditures, excluding network expansions are now sorry, related to network expansions are now expected to be between 110,000,000 and 150,000,000 compared to 140 and 190 in our prior guidance. We are increasing our free cash flow guidance with and without network expansion CapEx to stable levels versus the prior year, which is an improvement from our prior guidance, which anticipated a decline between 010%. As it relates to the upcoming Q4, we expect consolidated revenue to be lower than the third quarter results that we are reporting today due to pressure in The US. We expect adjusted EBITDA to be similar to slightly better to what we generated in Q3 with our Canadian operations being higher and our US operations being lower than in Q3.

Also, when we compare Q4 results to last year, one should note that we had an uptick in our US EBITDA last year due to the realization of cost reduction measures as well as year end adjustments, which will make it for a difficult comparison. Below the EBITDA line, at a consolidated level, we expect acquisition, integration and restructuring costs to be similar to Q4 of last year at around 10,000,000, which incorporates operational cost efficiency measures aligned to our three year transformation program. And our Q4 financial expense is expected to be about $15,000,000 less than in Q3. Finally, at Cogeco Inc, we have made the same revisions to our fiscal twenty twenty five financial guidelines as those for Cogeco Communications. And now Fred and I will be happy to take your questions.

Conference Operator: Thank you. And ladies and gentlemen, we will now begin the question and answer session. Ask a question, you may press star followed by the number one on your telephone keypad. If you’re using a speakerphone, please pick up your handset before pressing any keys. With that, our first question comes from the line of Drew McReynolds with RBC.

Please go ahead.

Drew McReynolds, Analyst, RBC: Yeah. Thanks very much, and good morning. Patrice, just quick clarification on Q4. I missed your revenue commentary. If you can just repeat that, that’d be great.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yes, absolutely. So let me just get my documents again. So basically, when we I’m sorry. Hold on one second. Okay.

So when we look at q four, basically, we expect that the revenue will be lower than the Q3 results we just issued. Actually, the exchange rate is not changing much as well between the two quarters. And you did get the information on the EBITDA, I presume?

Drew McReynolds, Analyst, RBC: Yes, I did. No, that’s great. I just missed the revenue piece. Thanks for that. On the wireless side, just a couple for me here.

In The U. S, I think you launched wireless back in 2024. I know you’re not yet kind of disclosing much granularity around it, but in terms of the intended impacts that wireless is having on the core cable business, obviously, there’s some bigger operational and competitive challenges in The U. S. But what are you seeing specifically in terms of how wireless is benefiting the cable business underneath the hood?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Hi Drew, it’s Fred. We’re not at a stage where it’s yet material on the P and L, neither on cost nor on the upside. That was planned when you look at the other cable codes in The US and how long it took them for wireless to benefit their P and L. It takes a few years. However, they’re now at a stage where it’s a material needle mover to their overall P and L and we expect it will be the same for us over time.

Drew McReynolds, Analyst, RBC: Okay. That’s great. And just on the transformation, clearly doing a great job of mitigating the revenue pressure with some pretty good margins both sides of the border this quarter. I’m going to assume you’re going to reserve any fiscal twenty twenty six commentary to next quarter when you give guidance. But can you kind of directionally help us on how margins look as we head into fiscal twenty twenty six and 2027?

Maybe asked a different way, are there further cost efficiencies under the transformation that you expect to realize? And I understand the margin is not disconnected to the revenue pressure, but just would love to hear your thoughts on margin trending here.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Hi, it’s Fred again. I’ll start answering a bit more conceptually and I’ll pass it over to Patrice on margins more specifically. When you look at our three year transformation program, it was always planned at the beginning of the three years would be more front loaded on cost reduction, especially OpEx and CapEx. What we see is that not only is that happening, but it’s happening ahead of expectations for us versus our original plan and with more runway to go, especially as more initiatives come in and also as AI kicks in over time. What hasn’t fully kicked in yet in our transformation is a transformation of our sales and marketing capabilities, especially in The US.

The plan was always that that would kick in in year two of the transformation, which is about to begin. And we can elaborate on that further. But bottom line is, we do see a runway in more aggressive go to market in The US and we expect this will come over the coming quarters. I don’t know if you want to add to margins that this.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yeah, I think it’s a bit early to talk about the next two years. But definitely there’s more in store in terms of cost optimization and also revenue generation using the same cost base. So we do see opportunities to improve this again. We’ve had a significant increase, especially in The US versus last year doesn’t mean we’re going to have the same level of increase every year because that would be a large one. But we do expect further increases.

Another question you could be asking is also for Q4 that’s coming. We’re not seeing the Q3 we just did in Canada and The US as a high point, we do expect Q4 to continue to deliver good margins.

Drew McReynolds, Analyst, RBC: Okay, one last one for me. Thank you for that. Patrick or Fredrik, maybe I missed this in your opening remarks, the transitional language or commentary in your prepared remarks in terms of the Q3 impact in The U. S. With competitive intensity and obviously the downtick in net losses.

Just can you repeat what’s transitional about that and what changes here in Q4 versus Q3?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Yes, I can start. As we mentioned on the last earnings call, Drew, we were seeing an uptick in competition in three of our states in which we operate in particular. Some of it is likely temporary in nature. So sometimes it was short term promotional blitzes, or a competitor did network upgrades and wanted to do some initial promotional activity around that. So some of the competitive uptick is more temporary in nature.

There were also some fix the basic things internally during the quarter, which we’ve already addressed. More broadly, we see a lot of upside in our sales and marketing execution in The US. There are some sales channels which are still scaling up, which were under indexed in the past. There’s lots of room to improve our pricing and our pricing strategy. Retention activities are being optimized.

So a lot of the things that we’ve been doing in Canada that results in the good PSU trends you’ve seen in Canada are being replicated in The US as well now and more. So you’ll see more things coming from us over the coming months on US go to market. Net net where that leads us is in Q4, we already expect a visible improvement in our residential internet trends versus Q3. There is a one time bulk disconnect that will cloud things a little bit, but we already see the sales pipelines are predictable. So we see bulk returning to growth in Q4 and Q1 and beyond.

And we see residential continuing to improve as well.

Drew McReynolds, Analyst, RBC: Okay, understood. I’ll pass the line. Thank you very much.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Thank you.

Conference Operator: And your next question comes from the line of Aravinda Galafatige with Canaccord Genuity. Please go ahead.

Aravinda Galafatige, Analyst, Canaccord Genuity: Good morning. Thanks for taking my questions. Just sticking with The US for a second. Last quarter, you were able to actually sort of get back to, call it, stable EBITDA in The U. S.

Even with a 4.5% constant currency decline in top line. Obviously, this time, the decline was a little bit steeper. How should we think of that equation? I mean, even with some revenue pressure, the ability to stabilize EBITDA as we in The U. S.

As we look forward in terms of basically trying to understand that dynamic of operating leverage, recognizing that there may be some cost items moving around because of the wireless launch in The US as well. Just a little bit more color on that, please.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Sure. Sorry, Aravinda. So obviously, we talked about stabilizing the PSUs and all the work we’re doing basically on the revenue front. That’s important. It obviously takes a bit of time to make it work, but we’re already seeing some benefits in the Q4 that we’re already fairly advanced in.

So if we take a longer term view, obviously, we do want to stabilize The US. I did mention that in Q4 of this year, there will be some pressure, especially when we look at the uptick in EBITDA of last year. So it will be a more difficult comp for The US in Q4. But past that, obviously, what we’re doing on revenue and also a lot more potential on the cost side as well. Definitely the idea is to to stabilize now it can be a bit erratic by quarter for different reasons.

And we’ll talk more about the upcoming year when we meet in October. But the goal is to be to have definitely a better year over year comparison on EBITDA versus what we are providing today in The US.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Yeah, and if I can add from an operational transformation perspective, we still see lots of runway, both in cost reduction, as well, which is performing ahead of plan so far and we expect this will continue as well as go to market. As I was mentioning to Drew earlier, our go to market was quite under optimized in The US and we’re starting to transform that. As Patrice said, Q4 will tough given year on year comps. But beyond that, you’ll see more in our guidance, but we still see lots of runway both in cost and revenue.

Aravinda Galafatige, Analyst, Canaccord Genuity: Okay, thanks for that. And then just on Canada, obviously, we continue to see good Internet loading numbers, especially in the backdrop of what we see in the industry. Has that mix of the net adds changed much? Even if you look at it year over year, I know that it’s a mix of perhaps some improvement in legacy, OXIO, your fiber expansion into the other footprint areas. Has that kind of like the trio of the drivers, the mix, has that altered much through the course of

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: the year or maybe year over year?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Yeah, it varies from quarter to quarter, Aravinda. But over time we’re still in a situation where both the Koshiko and the OXIO brands are contributors to our PSU growth. The only visible mix change that’s material is a shift from OXIO out of footprint to OXIO on our own network. So most of our OXIO sales are on our own network now, which comes at a good margin. And moving forward, as I mentioned in the intro remarks, we’re quite upbeat, because in addition to the good trends we’re seeing right now, there are two more upsides coming in, some new network expansion projects being lit up, as well as wireless, which will kick in over time that will take longer.

But net net, we’re quite upbeat about Q4 next year for Canada.

Aravinda Galafatige, Analyst, Canaccord Genuity: Okay, thanks for that. And last question on the guidance, the when I kind of sort of try to reconcile the free cash flow guidance change, the CapEx guidance change, mean, CapEx decline is a lot more than the free cash flow improvement. If I just work on midpoint, Is there anything more there that we should be aware of maybe Patrice?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yeah, so when you look at CapEx for Q3, it was quite low. Obviously, we don’t manage CapEx on a quarterly basis, we manage it on an annual basis. We do expect Q4 to be much heavier in CapEx than what we saw in Q3 and also versus last year. That being said, there is a benefit for the full year and that is mainly related to the benefits of the reorganization we did, we’re a lot more efficient with CapEx. So that’s why it’s a net reduction for the full year, but not as much as what we saw in Q3.

And yeah, so we that’s why we did increase free cash flow as well. One question you could have on this is whether some CapEx is being deferred to next year and there’s very little of that in the network expansions we’re doing. There are certain parts of it that we don’t fully control in terms of getting the permits. But it’s quite small. Hopefully, answered your question.

Aravinda Galafatige, Analyst, Canaccord Genuity: Yes, yes. Thank you. I’ll pass the line.

Conference Operator: Alright. Thank you. And your next question comes from the line of Stephanie Price with CIBC. Please go ahead.

Stephanie Price, Analyst, CIBC: Hi. Good morning. Congratulations on the announcement of Canadian wireless launch. Just curious if you could give us any more details around how aggressive you expect to be in terms of pricing as you enter the market and how you kind of think about the environment here for Canadian wireless?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Sure. We take note, Stephanie, of a recent stabilization in wireless pricing in the industry, our wireless product will be exclusively offered to our wireline customers. So it’s not a strategy to go national or anything like that. We’re a rational player. Of course, when you launch a new service, they can always be a time limited launch offer, but that’s just what it is a time limited launch offer.

Stephanie Price, Analyst, CIBC: Great, thank you. And then maybe just in terms of capital allocation, Patrice, you mentioned you’re continuing to target a low three times net debt number. Looks like you’re about there now. Just curious how you think about leveraging capital allocation going forward.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Sure. So we were helped a little bit by FX this quarter because the debt moves faster because it’s mark to market than the EBITDA, which takes a year to run through. If you were to use the same exchange rate for the full year, you’d be at 3.2 instead of 3.1 in the quarter. We do expect to be around there next quarter and at 3.2 in Q4. So it’s going to go up a little bit, but that should be FX, assuming we know what the FX will be in a couple of weeks.

And then fast forward into next year, we should normally be at around three times at the end of next year. So in terms of capital allocation, we normally increase our dividends in Q4. So that’s something we’ll come back to the market in October. As you know, our payout ratio is quite low at around 30%. So we have capacity to continue to increase the dividend.

We’ve done share buybacks in the past. We’re not in the market right now, we don’t have a live program, but at one point, that’s something I’m sure we’ll want to revisit as we attain our target leverage. And we will also see at that point if that target leverage is still the right one at three times, but it has been like that for many years in the past.

Stephanie Price, Analyst, CIBC: Great. Thank you.

Conference Operator: And comes from the line of Matthew Grupitz with Bank of America. Please go ahead.

Matthew Grupitz, Analyst, Bank of America: Hi, good morning. Thanks for taking the question. So my first one is just on the transformation savings. Obviously, you’re running ahead of your plan, but have you identified kind of greater opportunities than you initially expected? Or is this entirely the case that it’s just the same amount of savings are just coming earlier and the total bucket of savings both from costs and your planned kind of, you know, initiatives is the same as it was initially?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Hi, Matthew, it’s Fred. We’ve identified greater savings on both OpEx and CapEx. The CapEx being particularly material this quarter, as you can see, but also on OpEx.

Matthew Grupitz, Analyst, Bank of America: And is this something maybe when you give your guidance next quarter that you’re gonna size for the market? What do you expect? Because I know initially as you’re launching the initiative, maybe there was a little reluctance to kind of, you know, stick a marker in the sand. But are we getting to the point maybe in the next quarter where there’ll be some sort of milestones that we can, you know, for lack of a better word, judge your progress against?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yeah, let us think through this. Obviously, we have very defined targets. As you know, a portion of that offsets some market pressure. And we wouldn’t want investors to think that there are no market pressure by just giving a transformation number. But let us see how we can communicate progress more than what we’re just saying today.

So we’ll take it under advisement and see if we can sell more than today.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Yeah, you’ll get a good sense from our next year guidance already. As you can see on this call, we’re also reaffirming the 600,000,000 in cash flow by fiscal twenty seven. So that’s not the perfect answer, but hopefully it gives you a bit of a direction.

Matthew Grupitz, Analyst, Bank of America: No, no, it definitely does help. And then maybe on, I know on wireless, it’s early to really make too many detailed comments, but just in a broad sense, should we expect the approach that you have in The US to just be replicated in Canada? The only reason I ask is obviously, this is wireless is in support of your broadband business by and large, and then the trajectory of the broadband business in Canada is is very different than the trajectory in The US. And so I’m wondering if this leads you to have a different strategy between the two markets or if it’s the same strategy across the board.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: The commercial objective is the same, but the markets and the dynamics of each market are different and we adapt to those.

Matthew Grupitz, Analyst, Bank of America: Okay, so we should expect some variation in the approach. And just maybe lastly, this may be hard to answer, but, you know, the broadband penetration in The US has kind of been on a, you know, a three year decline. Do you have a a sense as to where maybe a sustainable level of broadband penetration is given the market dynamics and the states that you’re operating in? Like, do you have a sense that we’re getting close at around 35% that this is getting to a sustainable level or any any kind of take on that would be helpful.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Okay. So you’re talking about our own broadband penetration and share of the markets where we operate if I hear you correctly.

Matthew Grupitz, Analyst, Bank of America: Yeah, exactly.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Yeah, our US business is different from the Canadian one, whereas in Canada, our market share tends to be more even across the different regions, whereas in The US, there are bigger variations. And that also brings opportunities. So for example, Ohio, where our penetration is quite low. So I would say we got some opportunity to grow in some states like Ohio. However, if you look, if you net it out to PSUs, we’re not yet at a stage where we say we’ll return to positive PSUs in The US.

But certainly over the next quarter, you’ll see us do better obviously than we did in Q3.

Matthew Grupitz, Analyst, Bank of America: Alright, thanks so much guys.

Conference Operator: Your next question comes from the line of Vince Valentini with TD. Please go ahead.

Vince Valentini, Analyst, TD: Hey. Thanks very much. Try to clarify a couple of things that have been talked about. $1,600,000,000 for 02/1927. Is that Should we think of that conceptually as EBITDA just stays flat here at $14.40 and virtually all of the delta is CapEx or are there other meaningful moving pieces in the interest line or restructuring line or anything else Patrice?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yeah, so hi, Vince. So let’s assume that the EBITDA doesn’t move too much at a high level and I’m not guiding on EBITDA for the future in that comment, but just let’s make that assumption, which is in your question. For sure, the CapEx is going to come down as we’ve talked about. We do expect interest costs to come down as we’re repaying debt. We are seeing decreases.

As a note, just to make sure you saw it in Q3, we had about $11,000,000 of mark to market loss on the swap that we had related to the venture we repaid. So that’s a one timer, you’re not going to see this in the future quarters. But just in general, as we repay debt, we’re seeing decreases in interest costs. We and besides that, in terms of the cash tax rate, we don’t necessarily see a big difference going forward versus where we are this year at around 12%. These rules change all the time, but I would say these would be the between interest and the other one you mentioned is restructuring.

Yes, we should see a decline there. As we’re reducing costs at one point, we should expect to see less of those. And there are certain IT costs that are cloud implementation costs that are reported within that line item right now that eventually will go away as well. So we should see some improvement there.

Vince Valentini, Analyst, TD: That’s helpful. And just the cash taxes, nothing meaningful changes in terms of how much US cash tax you have to pay like some of the initial shelters you had are not winding down by ’27?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: No, that’s right. We still have some tax losses that came from previous acquisitions we made. So that will run for a few years still. So yeah, so for now we it might ramp up over the next two, three years by one or 2% from what we see right now. And sorry, I said twelve, twelve is this year, but next year there were some one timers that helped this year actually, but next year will probably be up around 14, something like that.

And so when you fast forward to fiscal twenty seven, that could be a good number as well. We’ll have to see these things change all the time, but that could be a ballpark figure to assume there.

Vince Valentini, Analyst, TD: Great. Second one, you mentioned in the release, on May 8, Federal Court decision has caused some retroactive treatment of video distant signal costs. Did you take a charge in Q3 or was this reflected in your EBITDA or restructuring costs or something?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: It was very immaterial because you know we have to take accruals for these things. Always difficult to judge, given that it happened several years after the fact. But we’ve we haven’t done anything material in the numbers to reflect this. So we have to have to grow.

Vince Valentini, Analyst, TD: You called it out in the release, but whatever cost it was, it is in the numbers already. We don’t have to worry about it for Q4.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yes, that’s right.

Vince Valentini, Analyst, TD: Okay. The bulk contract in The US, you say you have really good visibility on it. So let me ask then. How big is it? Like, can you give us some sense of how many bulk customers are gonna lose in q four and then perhaps get back in early fiscal twenty six?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Hi, Vince. It’s Fred. Yeah. You can ballpark. You can think of about 2,000 in this q four, and then you can expect q one to be slightly positive and then more positive after that.

Vince Valentini, Analyst, TD: That’s very helpful, Fred. Remind me, is bulk only in your Florida markets or do you have bulk contracts elsewhere too?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: It’s mainly in Florida.

Vince Valentini, Analyst, TD: Which you may gather will segue to perhaps my last question. Anything further on? Are you still thinking about pruning assets or swapping assets or trying to optimize the portfolio of assets in The US? Is there any update on expectations or timing?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yes, a bit of an update there. As you know, we’ve been saying for close to a year now that we’ve been we were open to looking at opportunities in The US to potentially prune some assets there. If it made sense strategically, operationally and from a financial standpoint, we did a big review of the operations. Obviously, these are carve outs when we do these things and obviously comes it’s more complicated than just regular disposals. We did look at a few more practical opportunities and where we are now is that we did not actually meet these criteria internally.

So at this point, I would say we are not planning in the short to medium term to proceed with the disposal having done the work over the past year. We will remain open to opportunities in the future. But given that these take time and can be a distraction, where we are right now is probably more status quo in the short to medium term.

Vince Valentini, Analyst, TD: Thank you.

Conference Operator: Thank you. And your next question comes from the line of Mahir Yaghi with Scotiabank. Please go ahead.

Mahir Yaghi, Analyst, Scotiabank: Great. Thank you very much. I just wanted to start with your comment about or your guidance on EBITDA for the year. So you’re calling for EBITDA to be stable on a constant currency basis. When I look at your nine months performance so far, it’s down half a percent and you’re calling for The US business to perform slightly, you know, have a tougher comp in Q4 than in Q3.

In Q3, you had it down by 3.7% on a constant currency basis. So, I’m trying to, just understand the puts and takes because if Q4’s EBITDA is going to be down more than 1.5%, 2% year on year, how are we going to finish the year stable on EBITDA?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yes, so it’s a good question. So you know when we put out stable originally in the year and I was asked this on the previous call as well by one of the analysts. What does it mean in terms of more exact numbers? And obviously, we see it as a plus or minus a certain number to call it stable. We’re still within that range.

But you’re right, looking at the numbers, there’s only one quarter left. We do expect that number to be negative, but still within the range of stable. So that’s why we did not change the guidance. We did change it on revenue, as you know, because that would be out of the range of this table that we had before there.

Mahir Yaghi, Analyst, Scotiabank: Okay. And maybe just to be clear, like more specific on Q4, you know, the 2.4% decline in constant currency in Q3, is that where we’re going to be around in Q4 or the percent decline can be a little bit higher than that?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yeah, I’d rather say maybe at a higher level with what we said. So I did compare it to Q3. That’s probably the better benchmark to use. And in terms of consolidated EBITDA, basically, we said for Q4 is that we would be similar to slightly better than the Q3 results, again, at the consolidated level.

Mahir Yaghi, Analyst, Scotiabank: Okay, that’s on a year on year growth rate or the dollar terms?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: I mean, between Q3 this year and Q4 this year.

Mahir Yaghi, Analyst, Scotiabank: Okay. I get okay. Merci. Thank you. So, again, I’ll just follow-up with a clarification on the guidance.

So you you cut your CapEx guidance by 62,000,000 at the midpoint. And you increased your cash flow, free cash flow guidance about 24,000,000 at the midpoint. So we’re missing around 39,000,000. Can you just explain where those went?

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Yeah, so it is not necessarily perfect between all these lines because we’re using ranges, right? That being said, there’s a couple of things. I did refer to the loss on the swap we took in Q3. So that basically appears in free cash flow but is not part of CapEx and that was a new element that happened during the quarter. We are expecting, as I said in the opening remarks, some additional restructuring costs in Q4, which again reduces free cash flow, but not obviously doesn’t touch CapEx.

And that’s highly tied basically to the continuing work we’re doing on transformation and cost reduction. There might be other elements as well, but I would say these would probably be the main ones.

Mahir Yaghi, Analyst, Scotiabank: Okay, fair enough. Thank you. And my last question is more operational in nature for The US market. You know, we look at Comcast and Charter and we’ve seen how they tried to stabilize their operation over time. Initially they, you know, they try to work up internally on improving churn, cost reduction, plant price adjustments and things like that.

We’ve seen them try to do that and come up with the conclusion that on its own, it’s hard to turn around the losses materially. And both of them separately came to the conclusion that they have to take more drastic approaches, more aggressive approaches to stem the decline caused by fixed wireless. Charter started and Comcast, you know, this year with, you know, planned price adjustments, you know, bringing down prices on cable customers to lock them in into longer term contracts, offering them free wireless services. Are you still thinking that you can turn around the business doing what you, you know, the internal part without you know, material adjustment to plan prices and offering free wireless services because, you know, when we look at the bigger players, they ended up having to be more drastic in approach, you know, take a more aggressive approach to bring down churn? I’m asking because, you know, as we sit here, it doesn’t look like 2026 guidance is implying that kind of an approach, But what will make you take that approach?

That’s what I’m trying to understand, if you do.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Hi, Maher, it’s Fred. Is there room to be more aggressive in our US go to market activities? The answer is absolutely. And that’s a big part of our three year transformation program. I wouldn’t say drastic in the sense that the activities that we have underway are not particularly ARPU damaging in our case.

I’ll give you some examples and it’s not only about pricing. We had some sales channels that were quite underutilized and under scaled in The US versus competition and versus our own operation in Canada. So we’re scaling up some of those operations now. And that doesn’t cost you ARPU. We saw that some of our retention efforts were sub suboptimal and not always competitive.

We’re getting back on the front foot there. On pricing specifically, which was your question, the opportunity sometimes is around having simplified pricing and more predictable pricing for our customers. But it doesn’t mean that it always comes at a huge ARPU trade off. And of course, we’re deploying more advanced analytics across all of our activities. The last thing I would add is, as you know, we’ve had good success with the OXIO digital only model in Canada and some form of that will get deployed in The US as well.

So a lot of those activities are already underway. Some of them are starting to launch, you’ll see more announcements from us over the coming months in The US. And that’s why we see room to improve our performance without doing anything particularly drastic to ARPU. And that’s why we see our customer losses in The US reduce quite materially over the coming quarters.

Mahir Yaghi, Analyst, Scotiabank: Okay. And can you give us your view on perception of of the utility of offering free wireless service to lock customers or offering price lock guarantees over four or five years like some of your larger cable peers are doing in The US. Are those in your view, positive movements that can reduce churn and still grow EBITDA or they’re a bit too aggressive?

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: On wireless, we tend to match the market. The market is indeed relatively aggressive. As I answered, I think it was to Drew earlier, It will take some time before wireless becomes material to in a positive way to our bottom line. As it relates to price lock and things like that, look, we’re not going to get too much into competitive strategies. But again, we see lots of upside in our US execution without compromising ARPU in a material way.

Mahir Yaghi, Analyst, Scotiabank: Okay, great. Thank you very much.

Fred Perron, Executive (likely CEO), Cogeco Inc. and Cogeco Communications Inc.: Thank you.

Conference Operator: And we have no further questions at this time. I would like to turn it back to Mr. Patrice Wiemet for closing remarks.

Patrice Wiemette, Chief Financial Officer, Cogeco Inc. and Cogeco Communications Inc.: Okay. Well, thanks for joining us today, and feel free to reach out if you want to if you have additional questions. Have a good day.

Conference Operator: Thank you, presenters. And ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.