Cogeco Inc.

Cogeco Communications reported CAD 169 million of free cash flow in Q3, bringing year-to-date free cash flow to CAD 450 million after three quarters. It also said Canadian adjusted EBITDA grew year over year for a third consecutive quarter. On the downside, the company recorded a non-cash, pretax impairment charge of CAD 1.8 billion on U.S. assets (CAD 2.2 billion pretax on an alternate basis stated in the call), and Cogeco Inc. recorded a pre-tax CAD 26 million impairment of intangible assets tied to radio assets. Patrice Ouimet said current income tax expense for fiscal 2026 is now expected to be CAD 25 million versus the prior assumption of about CAD 40 million, and consolidated debt leverage stood at 3.2x at quarter-end. For the balance of the year, management expects slightly positive year-over-year revenue and adjusted EBITDA growth in the Canadian business, while U.S. Q4 revenue and adjusted EBITDA are expected to be lower year over year on a constant-currency basis, though at a smaller rate of decline than in the first three quarters. Consolidated CapEx is expected to rise in Q4 versus Q3, and the company continues to expect to use excess U.S. cash to repurchase Term Loan B debt securities.

Fred Perron sounded constructive on the parts of the business management can control, especially Canada, wireless, and digital initiatives. He highlighted strong Canadian customer growth, lower promotional intensity, OXIO’s high satisfaction and referrals, and early traction from fixed-mobile convergence, while framing Welo and AI-driven transformation as multi-quarter growth levers rather than quick fixes. At the same time, he was notably cautious on the U.S., saying the market is more challenging than earlier in the year and that the company is focused on operational levers rather than a near-term turnaround.

Patrice Ouimet focused on the financial impact of the U.S. impairment and on capital discipline. He said the company recorded a non-cash, pretax impairment of CAD 1.8 billion, largely in goodwill, after reviewing the carrying value of U.S. assets amid competitive pressure, weaker ARPU, higher promotion and retention costs, subscriber losses in some regions, and lower peer valuations. He also noted a favorable tax adjustment of CAD 4.5 million this quarter, plus CAD 14.8 million last quarter, and lowered expected current income tax expense for fiscal 2026 to CAD 25 million from about CAD 40 million. He said leverage was 3.2x, the company bought back $21 million U.S. of Term Loan B debt securities in the quarter, and management expects to keep repurchasing TLBs with excess U.S. cash.

Analysts pressed management on what changed to trigger the U.S. impairment, whether the business can return to growth, and how long the weakness might last. Patrice said the write-down reflected annual valuation work plus lower ARPU, more aggressive market promotions, mixed subscriber trends, and lower peer values; Fred added that the competitive environment and inflation have worsened, pushing harder retention behavior and pressure on ARPU. On the outlook, Fred said Q4 U.S. PSU losses will be difficult but described it as a point-in-time issue tied partly to seasonality, competitive blitzes, and optimization of retention discounts, while saying Welo, wireless, and AI/transformation should help over several quarters. On leverage, Patrice said the company has historically targeted about 3x or low threes, but management may discuss a target below that level internally and with the board next year.