Q3 2026 Cogeco Inc Earnings Call
Speaker #1: Good day, and welcome to Cogeco Inc. and Cogeco 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. Patrice Ouimet, Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.
Operator 2: Good day. Welcome to Cogeco Inc. and Cogeco 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. Patrice Ouimet, Chief Financial Officer of Cogeco Inc. and Cogeco Communications Inc. Please go ahead, Mr. Ouimet.
Speaker #2: Thank you. So, good morning and welcome to our third quarter results conference call. 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.
Patrice Ouimet: Thank you. Good morning. Welcome to our Q3 results conference call. 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. With that, I'll pass the line to Frédéric Perron for opening remarks.
Speaker #2: 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.
Speaker #2: And with that, I'll pass the line to Frédéric Perron for opening remarks.
Speaker #3: Merci, Patrice. Good morning, everyone. This quarter at Cogeco Communications, we generated $169 million in free cash flow, for a cumulative total of $450 million in free cash flow after only three quarters.
Frédéric Perron: Merci, Patrice. Good morning, everyone. This quarter at Cogeco Communications, we generated CAD 169 million in free cash flow for a cumulative total of CAD 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 oxio 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.
Speaker #3: Thanks to our transformation initiatives and tight capital allocation discipline. Our Canadian performance remained strong, with positive year-on-year growth in adjusted EBITDA for a third consecutive quarter.
Speaker #3: 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.
Speaker #3: Our Axio 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.
Speaker #3: That churn benefit is not yet visible in our overall results, as our wireless base is still small, but it will become more significant as we scale it up over time.
Speaker #3: In the U.S., the cable sector is going through significant turbulence. We're quite realistic at this point about the financial performance of our U.S. business, and we've taken a non-cash impairment as already announced a few weeks ago.
Frédéric Perron: 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 welo digital brand across our entire Breezeline footprint. With a few more states to follow later this calendar year. welo 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.
Speaker #3: And Patrice will provide more details about that in a moment. We're still working hard to improve our performance in the U.S. We've now deployed a much stronger sales and marketing presence, and have fully rolled out our new Wheeloo digital brand across our entire Ohio footprint, with a few more states to follow later this calendar year.
Speaker #3: Wheeloo 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.
Speaker #3: This really shows the growth potential of Wheeloo as we scale it up. Across our Breezeline 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.
Frédéric Perron: This really shows the growth potential of welo as we scale it up. Across our Breezeline 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 Cogeco 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 efficiencies, in addition to continuing to grow our new wireless and digital businesses in both countries.
Speaker #3: At Cogeco 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.
Speaker #3: 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 efficiencies, in addition to continuing to grow our new wireless and digital businesses in both countries.
Speaker #3: It's also worth noting that we're planning further optimization of our capital investments going into next year, in both countries, to help sustain strong free cash flow performance and continue to generate attractive value for our shareholders.
Frédéric Perron: 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. On that, I'll pass it over to Patrice for more details.
Speaker #3: And on that, I'll pass it over to Patrice for more details.
Speaker #2: 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.
Patrice Ouimet: Thank you, Fred. Since our detailed financial results were published last night, I will 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 US assets in Q3 due to ongoing competitive pressures. We recorded a non-cash and pre-tax impairment charge of CAD 1.8 billion or $1.3 billion, which mainly impacted goodwill. On a pre-tax basis, it amounted to CAD 2.2 billion or $1.6 billion. Our current income tax was favorably impacted this quarter by a retroactive adjustment of CAD 4.5 million, resulting from the acceleration of tax depreciation on certain asset classes in Canada, which is an addition to CAD 14.8 million recorded last quarter.
Speaker #2: So, 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.
Speaker #2: We recorded a non-cash and pre-tax impairment charge of $1.8 billion Canadian, or $1.3 billion U.S., which mainly impacted goodwill. On a pre-tax basis, it amounted to $2.2 billion Canadian, or $1.6 billion U.S.
Speaker #2: 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 the $14.8 million recorded last quarter.
Speaker #2: We are 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%.
Patrice Ouimet: We are now assuming a current income tax expense for fiscal 2026 of CAD 25 million versus our prior assumption of about CAD 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 Cogeco Communications fiscal year 2026, 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 US. Free cash flow, however, is much less impacted by FX rates since US-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.
Speaker #2: Aside from the change to our current tax assumption that I just noted, we are maintaining our annual financial guidelines for Cogeco Communications' fiscal year 2026, which were updated in April.
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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 non-recurring operating cost benefits.
Patrice Ouimet: Note that Q3 was stronger in Canada versus the previous quarters, partially due to some non-recurring 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 3 Qs of the year. As for consolidated CapEx, similar to last year, we expect an increase in Q4 versus Q3 spending. Our consolidated debt leverage stood at 3.2 times at the end of Q3. During the quarter, we repurchased $21 million of term loan B debt securities, and we expect to continue to use excess cash in the US to repurchase TLBs on a regular basis.
Speaker #2: In the U.S., on a constant currency basis, or U.S. 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.
Speaker #2: 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.
Speaker #2: And during the quarter, we repurchased $21 million U.S. of Terminal B debt securities, and we expect to continue to use excess cash in the U.S.
Speaker #2: to repurchase TLBs on a regular basis. Finally, at Cogeco Inc., we performed a valuation of our radio assets and recorded a pre-tax $26 million impairment of intangible assets.
Patrice Ouimet: Finally, at Cogeco Inc, we performed evaluation of our radio assets and recorded a pre-tax CAD 26 million impairment of intangible assets. We also maintain the financial guidelines which were issued in April. Now Fred and I will be happy to take your questions.
Speaker #2: And we also maintained the financial guidelines, which were issued in April. And now, Fred and I will be happy to take your questions.
Speaker #1: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star, followed by one, on your touch-tone phone.
Operator 2: 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 one on your touch-tone 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 Maher with Scotiabank. Your line is now open.
Speaker #1: You will hear a prompt that your hand has been raised. Did you wish to decline from the polling process? Please press star, followed by 2.
Speaker #1: If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Mario Gi at Wisconsin Bank. Your line is now open.
Speaker #4: Great, good morning. Thank you for taking my question. I wanted to ask you about the impairment charge that you took. Could you maybe detail a little bit about 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?
[Analyst] (Scotiabank): Great. Good morning. Thank you for taking my question. I wanted to ask you on 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? 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.
Speaker #4: And what does the impairment tell us in terms of your strategic posture for the U.S. market? Does it change how you approach partnerships, potential asset dispositions, or any footprint optimization you plan to do there?
Speaker #4: Thank you.
Speaker #2: 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.
Patrice Ouimet: Sure. I'll start. Fred can complete on the second question. When you look at the reasons, first of all, we need to conduct valuation work annually. We did it in Q3. We've seen changes over the last few years when, 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 in retention costs as well. Those have been, I would say, impacted, especially in the past year. In terms of subscribers, we've been losing some subscribers, gaining in some regions, losing in some others. That plays into the valuation work we did as well. Finally, I would say valuation of peers in the market has come down quite a bit in the past year as well.
Speaker #2: So, we did it in Q3. We've seen changes over the last few years, including in the past year in the U.S., mainly relating to ARPU.
Speaker #2: When you look at the level of promotions in the market, for either acquiring new customers or retention costs as well, those have been, I would say, impacted, especially in the past year.
Speaker #2: 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.
Speaker #2: And finally, I would say, valuations of peers in the market have come down quite a bit in the past year as well, so that also played into the decision to perform the—
Patrice Ouimet: That played also into the decision to perform the valuation.
Speaker #3: Hi, my name is Fred. On the strategic posture, we're not dogmatic; we always look for the best way to optimize shareholder value. But for now, I'll just focus the conversation on the different levers we're implementing operationally to improve the business.
Frédéric Perron: Hi, Maher. It's Fred. On the strategic posture, we're not dogmatic. We always look for the best way to optimize shareholder value. For now, I'd just focus the conversation on the different levers we're implementing operationally to improve the business.
Speaker #4: Okay. And so, when you think about the outlook for the U.S. business in general, it seems like pricing—you expect it to continue to be on the intensive side.
[Analyst] (Scotiabank): Okay. When you think about 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? 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?
Speaker #4: 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?
Speaker #4: Is there a medium-term outlook, or is it still a little bit hard to call a turnaround and bring it into positive growth again?
Speaker #3: Sure. 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.
Frédéric Perron: Sure. 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, 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 elevated versus the beginning of our fiscal year. Second, inflation has risen in the US as well. It's gone north of 4%. Gas or fuel prices are higher. 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 wallets. 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.
Speaker #3: I would say since then, a couple of things have changed. The first one is that the competitive environment has become even more elevated compared to the beginning of our fiscal year.
Speaker #3: And second, inflation has risen in the U.S. as well. It's now north of 4%. Gas or 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 wallets. Therefore, we've seen harder negotiation behaviors from customers calling our retention line, which is also putting pressure on ARPU.
Speaker #3: 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.
Frédéric Perron: In some cases, though, there's just so much you can do when the customer has a competitive offer in hand. That puts pressure on ARPU. As it relates to PSUs, you'll notice we've been moderately improving PSUs. I'm still talking about the US here. 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 as we've been trying to optimize the previously mentioned retention discounts, sometimes we've let go of some customers to do that. See the more difficult Q4 on PSUs as a point in time.
Speaker #3: So, that puts pressure on ARPU. As it relates to PSUs, you'll notice we've been moderately improving PSUs over the— and I'm still talking about the U.S.
Speaker #3: Here. We've been moderately improving PSUs over the past three or four quarters in a zigzag, but slightly improving trend. Do you expect a difficult Q4 on U.S.?
Speaker #3: 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 as we've been trying to optimize the previously mentioned retention discounts, and sometimes we've let go of some customers to do that.
Speaker #3: 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 U.S.
Frédéric Perron: It's not unreasonable to think of a resuming improvement trend in PSUs as we work through next year in the US. 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. 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. Last but not least, many analysts have commented on the fact that our US and Canadian debt structures are ring-fenced from one another.
Speaker #3: Now, the net of all this is that we have to be prepared for continued difficult financial performance in the U.S. more generally. That being said, a few things.
Speaker #3: First, I would say we're more confident than ever in our three key improvement levers: Wireless, WELO, and transformation/AI. We're really seeing that these things will pay off.
Speaker #3: 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 provide guidance in October.
Speaker #3: And last but not least, many analysts have commented on the fact that our U.S. and Canadian debt structures are ring-fenced from one another, that and when you value the company as a some of the parts in a some of the parts method, that the net equity net of debt of our U.S.
Frédéric Perron: When you value the company 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. 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. I'll be happy to talk about our Canadian performance in a later question.
Speaker #3: The 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. I'll be happy to talk about our Canadian performance in a later question.
Speaker #4: Thank you very much.
[Analyst] (Scotiabank): Thank you very much.
Speaker #1: Your next question comes from Drew McReynolds with RBC Capital Markets. Your line is now open.
Operator 2: Your next question comes from Drew McReynolds with RBC Capital Markets. Your line is now open.
Speaker #2: Yeah. Thanks very much. And Fred, that's good rundown on the U.S. business. Maybe shifting the Canada I guess Patrice, you flagged a little bit of some one-time in the adjusted EBITDA margins.
Drew McReynolds: Thanks very much. 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. If you exclude those presumably, still did adjusted EBITDA growth in Canada. Number one, can you just maybe quantify what that impact or trajectory looks like? Second, bigger picture, shifting back to, I guess, the US, it looked like in Ohio, we saw a sequential uptick in internet net adds. Just wondering if that was related to the welo launch and whether that is expected to continue. Obviously, as that brand's available across the whole state. Third question, final one for me, the 17% to 19% CapEx intensity range that more or less, I think, has been the placeholder here for fiscal 2027 and beyond.
Speaker #2: 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?
Speaker #2: 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 WELO launch, and whether that is expected to continue?
Speaker #2: Obviously, is that a brand that's available across the whole state? And then, third question—final one for me—the 17% to 19% CapEx intensity range, that more or less, I think, has been the placeholder here for fiscal 2027 and beyond.
Speaker #2: 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.
Drew McReynolds: Obviously, you're not going to give me CapEx guidance for fiscal 2027, but just in terms of getting more CapEx efficient, with senior peers do the same, just wondering, Patrice, if you can help us, I guess, directionally, where that could land, just more broadly over the medium term. Thank you.
Speaker #2: Just wondering, Patrice, if you can help us directionally with where that could land, just more broadly over the medium term. Thank you.
Speaker #3: Okay, great. So, good morning. In terms of Canadian performance in Q3, without those elements, we always have one-timers in every quarter in the two businesses.
Patrice Ouimet: Okay, great. Good morning. In terms of the Canadian performance in Q3, without those elements, we always have one-timers in every quarter in the two businesses. Without those in Canada, we would've been closer to the kind of growth we did in the Q1 and Q2, which was about 2% to 2.5%. 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. That would be that one. In terms of capital, I'll cover the third one. In terms of capital, first of all, this quarter, like we did last year, was a low CapEx quarter generally. As I mentioned, Q4 will be a larger capital and there's different reasons for this.
Speaker #3: But without those in Canada, we would have been closer to the kind of growth we had in Q1 and Q2, which was about 2% to 2.5%.
Speaker #3: Ballpark. I mentioned it so that you would not use the Q3 results to apply to your expectations of Q4. So, that would be that one.
Speaker #3: 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.
Speaker #3: And as I mentioned, Q4 will be a larger capital. And there are different reasons for this. One is just the weather, and construction in some areas is easier to do during Q4, the fourth quarter.
Patrice Ouimet: One is just the weather and construction in some areas is easier to do during the Q4. 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% to 19%. 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. 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.
Speaker #3: 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.
Speaker #3: 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've grouped the two countries together, we've found some efficiencies there.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Patrice Ouimet: 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.
Speaker #3: Mainly in Canada, but we had some going on in the U.S. We're close to being done now with those subsidized expansion programs, except for the one in Ontario that Fred mentioned earlier.
Speaker #5: Hi, Drew. It's Fred. On the second question—Ohio, WELO, indeed—we were net PSU positive, or growing, in Ohio for a fourth consecutive quarter, I believe.
Frédéric Perron: Hi, Drew, it's Fred. On the second question, Ohio, Welo. Indeed, we were net PSU positive or growing in Ohio for a fourth consecutive quarter, I believe. I'd say Welo 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. It really comes down to the scaling of our sales and marketing channels in the traditional brand. As I mentioned to Maher before, Q4 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 Welo start to scale up. It will take a few quarters, the same way oxio took a few quarters in Canada.
Speaker #5: I'd say WELO was only a smart a small part of that still. It's really 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.
Speaker #5: So, it really comes down to the scaling of our sales and marketing channels in the traditional brand. As I mentioned to Maher before, the fourth quarter will be difficult in terms of U.S.
Speaker #5: PSU losses, but that's mostly outside of Ohio. And it's primarily due to point-in-time factors. Going into next year, we do see WELO start to scale up.
Speaker #5: It will take a few quarters, the same way Auxio took a few quarters. In Canada, but I would say we're more confident than ever that WELO has the right success conditions for us.
Frédéric Perron: I would say we're more confident than ever that Welo has the right success conditions for us. As I mentioned earlier, customer satisfaction's very high, referral rates are very high. It's looking good for Welo, we just have to be a bit patient.
Speaker #5: As I mentioned earlier, customer satisfaction is very high, and referral rates are also very high. So, it's looking good for WELO. We just have to be a bit patient.
Speaker #2: Thank you very much.
Drew McReynolds: Thank you very much.
Speaker #5: Thanks.
Frédéric Perron: Thanks.
Speaker #1: Your next question comes from Stephanie Price with CIBC. Your line is now open.
Operator 2: Your next question comes from Stephanie Price with CIBC. Your line is now open.
Speaker #6: 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 U.S.
Stephanie Price [Executive Director, Equity Markets: 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 of the return from oxio in the rest of that legacy footprint?
Speaker #6: regions. Can you talk a little bit about that, where you are in that scaling process, and how to think about any other retreats from Ohio or the rest of that legacy footprint?
Speaker #5: Yeah. The comment—hi, Stephanie, it's Fred. The comment about the scaling up of sales and marketing channels was mostly, actually, in the context of Ohio.
Frédéric Perron: Yeah, hi, Stephanie, it's Fred. The comment about the scaling up of sales and marketing channels was mostly actually in the context of oxio. To simplify the strategy, oxio 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. It's still ramping up. welo is really the next big lever. As I was telling Drew earlier, it's going to take a few quarters. It will be an S-curve, but I'd say we're even more confident than we were a few months ago about welo because we now have data.
Speaker #5: 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 on the way with scaling sales and marketing channels on the traditional brand.
Speaker #5: But it's not completely done, so it's still ramping up. But then there's WELO, which is really the next big lever. And as I was telling Drew earlier, it's going to take a few quarters.
Speaker #5: It will be an S-curve, but I'd say we're even more confident than we were a few months ago about WELO because we now have data.
Speaker #6: 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?
Stephanie Price [Executive Director, Equity Markets: Okay. 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 improvements for customers that do have that bundled solution?
Speaker #6: And if you're able to give any early metrics around churn improvement for customers that do have that bundled solution?
Speaker #5: 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 our line.
Frédéric Perron: 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. It's quite encouraging. The only point here is that now it's still applied to a relatively small base of wireless customers. 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. This is giving us optimism about when we scale it up ourselves in the US as well.
Speaker #5: We think some 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 it's still applied to a relatively small base of wireless customers.
Speaker #5: But as it grows, there's really room to believe that it will help in both countries. Even when you look at the U.S., the two large cables in the U.S.
Speaker #5: Companies that launched wireless a few years ago, and have the larger wireless base, are able to protect their results better. This is giving us optimism about when we scale it up ourselves in the U.S.
Speaker #5: As well, it's just not a quick fix, but over time, it provides room for optimism.
Frédéric Perron: It's not a quick fix, but over time, it provides room for optimism.
Speaker #6: 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 U.S. markets?
Stephanie Price [Executive Director, Equity Markets: Thank you. Maybe just finally from me, can you talk a little bit about satellite competition in the US and if you're seeing any increase in competition in your US areas?
Speaker #6: areas?
Speaker #5: Yeah. We see it in very limited pockets of a 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, rather than something more pervasive.
Frédéric Perron: We see it in very limited pockets of very rural footprint. 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.
Speaker #6: Thank you so much.
Stephanie Price [Executive Director, Equity Markets: Thank you so much.
Speaker #5: Thanks.
Frédéric Perron: Thanks.
Speaker #1: Your next question comes from Jérôme Dubreuil with Desjardins. Your line is now open.
Operator 2: Your next question comes from Jérôme Dubreuil with Desjardins. Your line is now open.
Jérôme Dubreuil: Good morning. 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. 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.
Speaker #2: 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.
Speaker #2: First, I'm 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.
Speaker #2: 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.
Speaker #4: Morning, Jérôme. So, for the first question—that's the easiest one—the direct-to-device spectrum is not meant for that. It's only for terrestrial use.
Frédéric Perron: Morning, Jerome. 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 a 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.
Speaker #4: So, typically, mobility refers to the traditional mobile products and fixed wireless access. Now, can it be used for terrestrial relays? My understanding is no, at this point.
Speaker #4: 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.
Speaker #4: But it is meant for terrestrial use.
Speaker #2: And on foreign ownership, could they own that?
Jérôme Dubreuil: On foreign ownership, could they own that?
Speaker #4: That I don't think yeah, I don't think we'll have an answer to you on that at this point. It gets anything has to that's a little different has to be has to be approved in any event.
Frédéric Perron: That I don't think we'll have an answer to you-
Jérôme Dubreuil: Okay
Frédéric Perron: on that at this point. Anything that's a little different has to be approved in any event. Sometimes there are gray zones, but let us think about this question. We don't have a specific answer right now.
Speaker #4: And sometimes there are gray zones, but let us think about this question. We don't have a specific answer right now.
Speaker #2: Yeah, fair enough. That's good. That's all for me. Thank you.
Jérôme Dubreuil: Yeah. Fair enough. That's good. That's all for me. Thank you.
Speaker #5: Thank you.
Frédéric Perron: Thank you.
Speaker #1: 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.
Operator 2: 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.
Speaker #1: Your line is now open.
Speaker #7: Hi, good morning. Thanks for taking the question. I just wanted to circle back to the comment about a difficult Q4, I guess, on the U.S.
Matthew Griffiths: Hi. Good morning. Thanks for taking the question. I just wanted to circle back to the comment about a difficult Q4, I guess, on the US side for subscribers. You seem very confident when presenting that it's going to be very temporary and limited to Q4. 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? How else should we read into that? The second question is on leverage. With your evolving view of the US, really illustrated by the impairment. Are you thinking differently about what your group leverage target should be? Like should it be lower? Are you working towards Any comment on that would be helpful. Thanks.
Speaker #7: ... side for subscribers. And you seem very confident when presenting 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?
Speaker #7: Or how else should we read into that? And then the second question—it's on leverage. With your kind of evolving view of the U.S.
Speaker #7: Kind of really illustrated by the impairment, are you thinking differently about what your group leverage target should be? Should it be lower?
Speaker #7: Are you working towards any comments on that? That would be helpful. Thanks.
Speaker #5: Great, I'll take the first one, and 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.
Frédéric 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 what looks to be temporary blitzes. They seem very focused point-in-time blitzes. Internally, indeed, we've been optimizing our marketing investment. We've shifted some marketing money to Welo, which helps build brand awareness. That doesn't generate sometimes immediate PSU gains on Breezeline.
Speaker #5: I won't say all of them, but many of them 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.
Speaker #5: You sometimes have competitors doing what look to be temporary blitzes. They seem very much like focused, point-in-time blitzes. And then internally, indeed, we've been optimizing our marketing investment, which shifted some marketing money to WELO.
Speaker #5: Which helps build brand awareness, but it doesn't sometimes generate 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.
Frédéric Perron: We've been, as alluded to before, playing with an optimization of our retention discounts, which sometimes results in some customer losses. All that to say, it's very unlikely that all those factors will be permanent going into the following quarters. There's Welo kicking in over time in a positive way, there's ongoing scaling of our channels. Nobody has a perfect crystal ball here, but that was a bit the context behind the comment.
Speaker #5: So, all that to say, it's very unlikely that all those factors will be permanent going into the following quarters. Plus, there's WELO kicking in over time in a positive way, and there's ongoing scaling of our channels.
Speaker #5: So, nobody has a perfect crystal ball here, but that was a bit of the context behind the comment.
Speaker #4: Yeah. 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.
Patrice Ouimet: On leverage, 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. You know we have two structures which have different levels of debt between the two countries, but the US one has not been decreasing as fast as we were thinking initially, whereas in Canada, it continues to decrease at the same pace as before. We'll have to see. To your point, I've mentioned this before when people ask me, we'll have more discussions internally with our board as well into the next year. It's possible that we'll target something that's below. We've always targeted about 3x in the past or low threes.
Speaker #4: It has not decreased as fast as in the past, mainly because of our U.S. business. And, you know, we have two structures, which have different levels of debt between the two countries, but the U.S.—
Speaker #4: One has not been decreasing as fast as we were thinking initially, whereas in Canada, it continues to decrease at the same pace as before.
Speaker #4: 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 next year.
Speaker #4: And it's possible that we'll target something that's below what we've always targeted—about three times in the past, or low threes. It's possible we'll want to run below that number in the long term, but I don't have a specific number to give you right now.
Patrice Ouimet: It's possible we'll want to run below that number in the long term, but I don't have a specific number to give you right now.
Speaker #7: Okay. Great. Thank you.
Matthew Griffiths: Okay, great. Thank you.
Speaker #1: There are no further questions at this time. I will now turn the call over to management for closing remarks.
Operator 2: There are no further questions at this time. I will now turn the call over to management for closing remarks.
Speaker #4: Okay, well, thanks for participating today, and feel free to call us if you have any questions. Otherwise, we’ll meet for the next quarter in October.
Patrice Ouimet: Okay. Well, thanks for participating today. Feel free to call us if you have any questions. We'll otherwise meet for the next quarter in October. Thank you.
Speaker #4: Thank you.
Operator 2: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
