Cogeco Communications (TSX:CCA) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below.

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Summary

CCA Inc. reported $169 million in free cash flow for Q3 2026, totaling $450 million for the year so far, driven by strong Canadian performance and transformation initiatives.

The company took a non-cash impairment charge of $1.8 billion CAD in the US due to competitive pressures and lower market valuations, impacting goodwill.

US operations face challenges with declining revenues and adjusted EBITDA, but there is optimism about future growth through the Wheelo brand and wireless initiatives.

In Canada, the company sees positive year-over-year growth in adjusted EBITDA and plans to optimize capital investments further in the coming year.

Management remains focused on AI-based tools for revenue generation and efficiency, with a continued emphasis on growing the wireless and digital businesses in both countries.

Full Transcript

OPERATOR

Good day and welcome to CCA Inc. and CCA Communications Inc. Q3 2026 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Patel Suimea, Chief Financial Officer of CCA Inc. and CCA Communications, Inc. Please go ahead, Mr. Suimea.

Patel Suimea, Chief Financial Officer

Thank you. So good morning and 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 the MD&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

Good morning everyone. This quarter at CCA Communications we generated $169 million in free cash flow for a cumulative total of $450 million in free cash flow after only three quarters. Thanks to our transformation initiatives and tight capital allocation discipline, our Canadian performance remains strong with positive year-on-year growth in adjusted EBITDA for a third consecutive quarter. We keep growing our Canadian customer base and have been able to pull back on some of our promotional intensity in light of calmer market conditions.

Our digital business keeps performing well with very high customer satisfaction and referral rates. Our wireless sales remain ahead of plan and we're seeing a clear churn benefit from fixed mobile convergence. 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. In the US, the cable sector is going through significant turbulence. We're quite realistic at this point about the financial performance of our US business and we've taken a non-cash impairment as already announced a few weeks ago and Patrice will provide more details about that in a moment. We're still working hard to improve our performance in the US. We've now deployed a much stronger sales and marketing presence and have fully rolled out our new Wheelo digital brand across our entire Ohio footprint with a few more states to follow later this calendar year. Wheelo is still in the initial stage of its S curve and we expect sales to ramp up over the coming quarters. Customer satisfaction with the brand is very high and nearly half of our new sales already come from referrals from existing customers, despite our existing customer base still being small.

This really shows the growth potential of Wheelo as we scale it up across our markets. We were able to remove some of the more aggressive promotions we were previously using, such as Months for Free, which will improve the lifetime value of the new customers we acquire over time. At CCA Media, we continue to leverage our strong market presence to drive consistent growth in our digital advertising solutions despite ongoing volatility within the traditional radio advertising landscape.

In summary, we're executing well on what we can control while also remaining clear-eyed about what we can't control. As we approach the third year of our three-year transformation, we're now focused on AI-based tools to generate additional revenue and operating efficiency. In addition to continuing to grow our new wireless and digital businesses in both countries, it's also worth noting that we're also planning a further optimization of our capital investments going into next year in both countries to help sustain a strong free cash flow performance and continue to generate attractive value for our shareholders.

And on that, I'll pass it over to Patrice for more details.

Patrice

Thank you, Fred. So, since our detailed financial results were published last night, I'll only focus on a few items and then open it up for questions. As noted in the press release issued last month, we reviewed the carrying value of our U.S. assets in the third quarter due to ongoing competitive pressures, we recorded a non-cash and pre-tax impairment charge of $1.8 billion Canadian or $1.3 billion US which mainly impacted goodwill. On a pre-tax basis, it amounted to $2.2 billion Canadian or $1.6 billion US.

Our current income tax was favorably impacted this quarter by a retroactive adjustment of $4.5 million resulting from the acceleration of tax depreciation on certain asset classes in Canada, which is in addition to $14.8 million recorded last quarter. We're now assuming a current income tax expense for fiscal 26 of $25 million versus our prior assumption of about $40 million, which was based on the current effective income tax rate of 8.5%. Aside from the change to our current tax assumption that I just noted, we are maintaining our annual financial guidelines for CCA Communications fiscal year 26, which were updated in April.

As a reminder, we provide our financial guidelines in constant currency since foreign exchange rates can be volatile and close to half of our revenue and EBITDA is generated in the U.S. Free cash flow, however, is much less impacted by FX rates since U.S. denominated debt and CAPEX serve as a natural hedge against FX fluctuations. Looking at the balance of the year, we expect slightly positive year-over-year revenue and adjusted EBITDA growth in the Canadian business.

Note that the third quarter was stronger in Canada versus the previous quarters, partially due to some nonrecurring operating cost benefits. In the US, on a constant currency basis or US dollars, we expect Q4 revenue and adjusted EBITDA to be lower than the previous year, but at a smaller percentage decline than what was generated in the first three quarters of the year. As for consolidated CAPEX, similar to last year, we expect an increase in the fourth quarter versus the third quarter spending.

Our consolidated debt leverage stood at 3.2 times at the end of the third quarter and during the quarter we repurchased $21 million US of Terminal B debt securities and we expect to continue to use excess cash in the US to repurchase TLVs on a regular basis. Finally, at CCA Inc., we performed the valuation of our radial assets and recorded the pre-tax $26 million impairment of intangible assets and we also maintain the financial guidelines which were issued in April.

Now Fred and I will be happy to take your questions.

OPERATOR

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press Star followed by the 1 on your Touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Mariagi with Scotiabank.

Your line is now open.

Mariagi, Scotiabank

Great. Good morning. Thank you for taking my question. I wanted to ask you about the impairment charge that you took. Can you maybe detail a little bit what changed in terms of assumptions that led to the review? Specifically, was it related to ARPU, subscriber trends, or general profitability of the business? And what does the impairment tell us in terms of your strategic posture for the US Market? Does it change how you approach partnerships, potential asset dispositions, or any footprint optimization you plan to do there?

Thank you.

Patrice

Sure. So I'll start and Fred can complete on the second question. So when you look at the reasons, first of all, we need to conduct valuation work annually. So we did it in Q3. We've seen changes over the last few years, including in the past year in the US, mainly relating to ARPU. When you look at the level of promotions in the market for either acquiring new customers and retention costs as well. So those have been, I would say, impacted, especially in the past year.

And in terms of subscribers, we've been losing some subscribers, gaining in some regions, losing in some others. But that plays into the valuation work we did as well. And finally, I would say valuation of peers in the market has come down quite a bit in the past year as well. So that played also into the decision to perform the valuation.

Fred Perron

On the strategic posture, we're not dogmatic. We always look for the best way to optimize shareholder value. But for now, I just focus the conversation on the different levers we're implementing operationally to improve the business.

Mariagi, Scotiabank

Okay. And so when you think about, you know, the outlook for the US business in general, it seems like pricing, you expect it to continue to be on the intensive side. Do you expect the business to return to growth on the top line and the bottom line? And is there a timeline that you think we should be expecting that to happen? Is it a medium-term outlook or it's still a little bit hard to call a turnaround and bring it into positive growth again?

Fred Perron

Hi, it's Fred again. You'll remember at the beginning of the year of our fiscal year we'd expressed some optimism initially about a possible turnaround and you and many others had cautioned us about the market. I would say since then a couple of things have changed. The first one is the competitive environment has gotten further and elevated versus the beginning of our fiscal year. And second, inflation has risen in the US as well. It's down north of 4%.

Gas fuel prices are higher and as customers see a higher cost of living on fuel, on groceries, on living in general, we see that they're trying to optimize their wallet. And therefore we've seen harder negotiation behaviors from customers calling our retention line, which is also putting pressures on ARPU. Of course, we're implementing advanced analytics and AI to optimize our retention investments. In some cases though, there's just so much you can do when the customer has a competitive offer in hand.

So that puts pressure on ARPU as it relates to PSUs. You'll notice we've been moderately improving PSUs over the past three, four quarters in a zigzag but slightly improving trend. Do expect a difficult Q4 on US PSUs with a material increase in customer losses. I would see that one more as a point in time thing. There are some external factors, some seasonalities as well. We've been trying to optimize the previously mentioned retention discounts and sometimes we've let go of some customers to do that.

So see the more difficult Q4 on PSUs as a point in time. It's not unreasonable to think of a resuming improvement trend in PSUs as we work through next year in the US. Now, the net of all this is we have to be prepared for continued difficult financial performance in the US more generally. That being said, a few things first, I would say we're more confident than ever on our three key improvement levers, wireless, Wheelo, and transformation AI. We're really seeing that these things will pay off.

It's just that they'll pay off over the course of several quarters, not months. So these are not overnight fixes. I would also say things could always change. So we'll give an update when we give guidance in October. And last but not least, you know, many analysts have commented on the fact that our U.S. and Canadian debt structures are ring-fenced from one another and when you value the company as a sum of the parts in a sum of the parts method, that the net equity, net of debt of our US business is relatively small in the grand scheme of the company valuation.

So I'd encourage listeners on the line to put more value on our Canadian performance, which is really what drives the value and the equity of the company. And I'll be happy to talk about our Canadian performance in a later question.

Mariagi, Scotiabank

Thank you very much.

OPERATOR

Your next question comes from Drew McReynolds with RBC Capital Markets. Your line is now open.

Drew McReynolds, RBC Capital Markets

Yeah, thanks very much. And Fred, that's a good rundown on the US Business maybe shifting to Canada. I guess, Patrice, you flagged a little bit of some one-time in the adjusted EBITDA margins. Just if you exclude those, presumably still did adjusted EBITDA growth in Canada. So number one, can you just kind of maybe quantify what that impact or trajectory looks like? And then second, bigger picture shifting back to I guess the U.S. it looked like in Ohio we saw a sequential uptick in Internet net adds.

Just wondering if that was related to the Wheelo launch and you know, whether that is expected to continue obviously is that brands available across the whole state. And then third question, final one for me, the 17 to 19% CapEx intensity range that you know, more or less I think has been the placeholder here for fiscal 2027 and beyond. Obviously you're not going to give me Capex guidance for fiscal 2027, but just in terms of getting more Capex efficient, we've seen your peers do the same.

Just wondering, Patrice, if you can kind of help us I guess directionally where that could land just more broadly over the medium term thank you.

Patrice

Okay, great. So, good morning. So in terms of the Canadian performance in Q3 without those elements we always have one-timers in every quarter in the two businesses but without those in Canada we would have been closer to the kind of growth we did in Q1 and Q2 which was about 2% to 2.5%. So it'd be in that ballpark. I mentioned it so that you would not use the Q3 results to apply it to your expectations of Q4. So that would be that one. In terms of capital, I'll cover the third one in terms of capital.

So first of all, this quarter like we did last year was a low Capex quarter generally and as I mentioned Q4 will be a larger capital and there's different reasons for this. One is just the weather and construction and so some areas is easier to do during the fourth quarter. So we'll see exactly where we land for the year. But so far so good in terms of what we've been able to manage for CapEx. I would say historically we've been running to your point in the.

I would say 18 to. Let's call it about 18%, 19%. And as we continue to work on efficiencies in our procurement activities, also as we group the two countries together, we found some efficiencies there. We also are pushing self-installs with customers which basically reduces the need for truck rolls which get capitalized when it's new customers. There's a lot of things we're doing on that front so we'll see exactly where we land. But the idea is to be definitely below 20% as we move forward.

We'll see exactly where we land. The reason we were. I'll just close on this. The reason we were higher than this in recent years was mainly due to the expansion programs in both countries, mainly in Canada, but we had some going on in the US we're close to being done now with those subsidized expansion programs except for the one in Ontario that Fred mentioned earlier.

Fred Perron

Hi Drew, it's Fred on the second question. Ohio Wheelo indeed. We were net PSU positive or growing in Ohio for a fourth consecutive quarter, I believe. I'd say Wheelo was only a small part of that still. It really comes down to what we've been saying on this call for a while which is Ohio starting from a lower market share position presents more growth opportunities. So it really comes down to the scaling of our sales and marketing channels in the traditional brand as I mentioned to Mariagi before the fourth quarter will be difficult in terms of US PSU losses, but that's outside of Ohio mostly and it's mostly point in time factors.

Going into next year, we do see Wheelo start to scale up. It will take a few quarters the same way Oxfield took a few quarters in Canada. But I would say we're more confident than ever that Wheelo has the right success conditions for us. As I mentioned earlier, customer satisfaction is very high, referral rates are very high. So it's looking good for Wheelo. We just have to be a bit patient.

Drew McReynolds, RBC Capital Markets

Thank you very much. Thanks.

OPERATOR

Your next question comes from Stephanie Price with CIBC. Your line is now open.

Stephanie Price, CIBC

Hi, good morning. Just in regards to that last question you mentioned, scaling up of sales and marketing should help in some of these legacy US regions. Can you talk a little bit about that, where you are in that scaling process and how to think about any other retros from Ohio in the rest of that legacy footprint?

Fred Perron

Hi, Stephanie, it's Fred. The comment about the scaling up of sales and marketing channels was mostly actually in the context of Ohio. You know, to simplify the strategy. Ohio is more in PSU growth mode. The rest of the footprint is more in protection and harvesting mode. To answer your question specifically, I would say we're well underway on the scaling of sales and marketing channels on the traditional brand, but not completely done. So it's still ramping up.

But then there's Wheelo is really the next big lever. And as I was telling Drew earlier, it's going to take a few quarters. It will be an S curve, but we're. I'd say we're even more confident than we were a few months ago about Wheelo because we now have data.

Stephanie Price, CIBC

Okay. And then you mentioned a churn benefit from fixed mobile convergence. Can you talk a little bit more about what you're seeing in regions where you have rolled out mobility and if you're able to give any early metrics around churn improvement for customers that do have that bundled solution.

Fred Perron

Yeah, we're now able to measure it, Stephanie. Actually, in both countries the churn benefit is similar. In both countries where we see materially lower churn when a customer takes wireless in addition to wireline, we don't quote the numbers. Part of it will be self-selection, but part of it seems to be causality as well. So it's quite encouraging. The only point here is that now it's still applied to a relatively small base of wireless customers, but as it grows there's really room to believe that it will help in both countries.

Even when you look at the US, the two large cables in the US that launched wireless a few years ago and have a larger wireless base are able to protect their results better. And this is giving us optimism about when we scale it up ourselves in the US as well. It's just, it's not a quick fix, but over time it provides room for optimism.

Stephanie Price, CIBC

Thank you. And maybe just finally for me, can you talk a little bit about satellite competition in the U.S. and if you're seeing any increase in competition in your US?

Fred Perron

Yeah, we see it in very limited pockets of very rural footprint. And then as you look at the new Generations V3, for example, that Starlink is just starting to deploy. A number of reports have been written on this already, but it looks more like an at-the-margin phenomenon in the very rural footprint more than something more pervasive.

Stephanie Price, CIBC

Thank you so much.

OPERATOR

Your next question comes from Jerome de Bruy with Descharter. Your line is now open.

Jerome de Bruy, Descharter

Gentlemen, thanks for taking my question. Number one is on your spectrum holdings. Can you theoretically sell or subordinate your spectrum to SpaceX in Canada? A few considerations to address if you can. First, not sure if it's suitable for direct-to-device. Second, otherwise maybe they could have terrestrial use cases. And third, if you see foreign ownership issues, I know this is not all issues related to you specifically, but I'm just asking because maybe having more potential buyers for the asset could have an impact on the value of your holdings.

Patrice

Morning, Jerome. So for the first question, that's the easiest one, the direct-to-device, the spectrum is not meant for that, it's only for terrestrial use. So typically mobility, the traditional mobile products and fixed wireless access. Now can it be used for terrestrial relays? My understanding is no at this point. If it were just to feed satellite link. That being said, if it were to be used in conjunction with something wider, like a wider deal that somebody would do that could play a component, but it is meant for terrestrial use.

And on foreign ownership, could they own that? That I don't think. Yeah, I don't think we'll have an answer to you on that at this point. Anything has to that's a little different, has to be approved in any event and sometimes there are gray zones. But let us think about this question. We don't have a specific answer right now.

Jerome de Bruy, Descharter

That's all for me, thank you.

OPERATOR

Ladies and gentlemen, as a reminder, should you have a question, please press Star one. Your next question comes from Matthew Griffiths with Bank of America. Your line is now open.

Matthew Griffiths, Bank of America

Hi, good morning. Thanks for taking the question. I just wanted to kind of circle back to the comment about a difficult Q4, I guess, on the US side for subscribers. And you seem very confident when presenting that, that it's going to be very temporary and limited to Q4. So is this just because it's related to decisions that you are making on retention and acquisition, rather than something you're seeing in the market from competitors or how else should we read into that?

And then the second question is on leverage. With your kind of evolving view of the US, kind of really kind of illustrated by the impairment, are you thinking differently about what your group leverage target should be? Should it be lower? Are you working towards any comment on that would be helpful. Thanks.

Fred Perron

Great. I'll take the first one. I'll let Patrice take the second one. Hi, Matt. On the PSUs, it's a combination of internal and external factors in Q4, many of which are temporary in nature. I won't say all of them, but many of which are. I'll give you some examples. Externally, there's seasonality. Sometimes you have students at a particular university reaching the end of the school year and going home, which creates a disconnect for a period of time.

You sometimes have competitors doing temporary, or what looks to be temporary blitzes. They seem very kind of focused point in time blitzes. And then internally, indeed, we've been optimizing our marketing investment. We've shifted some marketing money to Wheelo, which helps build brand awareness, but it doesn't generate sometimes immediate PSU gains on Breezeline. And we've been, as alluded to before, playing with an optimization of our retention discounts, which sometimes results in some customer losses.

So all that to say it's very unlikely that all those factors will be permanent going into the following quarters. Plus there's Wheelo kicking in over time in a positive way, plus there's ongoing scaling of our channels. So nobody has a perfect crystal ball here, but that's. That was a bit the context behind the comment.

Patrice

And on leverage. So we were at 3.2 turns at the consolidated level in Q3. Normally we're able to decrease that number over time. It has not decreased as fast as in the past, mainly because of our US business. And you know, we have two structures which have different levels of debt that between the two countries. But the US one has not been decreasing as fast as we were initially thinking, whereas in Canada it continues to decrease at the same pace as before.

So we'll have to see. But to your point, and I've mentioned this before when people ask me, we'll have more discussions internally with our board as well into the next year and it's possible that we'll target something that's below. We've always targeted about 3x in the past or low 3s. It's possible we'll want to run below that number.

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