Cogeco Inc (CCA) Q3 2022 Earnings Call Transcript

Cogeco Inc (TSX: CCA) Q3 2022 earnings call dated Jul. 14, 2022

Corporate Participants:

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Philippe Jette — President and Chief Executive Officer

Analysts:

Maher Yaghi — Scotia Capital Markets — Analyst

Jerome Dubreuil — Desjardins Securities — Analyst

Vince Valentini — TD Securities — Analyst

Aravinda Galappatthige — Canaccord Genuity — Analyst

Matthew Griffiths — Bank of America/Merrill Lynch — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to the Cogeco Inc. and Cogeco Communications Inc. Q3 2022 Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Patrice Ouimet, Senior Vice President and Chief Financial Officer. Please go ahead, Mr. Ouimet.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Thank you. Good morning, everybody, and welcome to this quarterly conference call, which Philippe Jette and I will present today. As usual, before we begin this call, I’d like to remind listeners that the call is subject to forward-looking statements, which can be found in the press releases issues yesterday. So, I’ll turn the call over to Philippe Jette.

Philippe Jette — President and Chief Executive Officer

Good morning. And thanks joining us for the third quarter results discussion for Cogeco Communications and Cogeco Inc. We’re happy to be with you today because the Cogeco story is a good one. On our second half of fiscal ’22, started with strong organic growth as projected on our last call. That’s a result of U.S. operations doing financially better than planned despite the more challenging environment. In Canada, operations came in as expected. On the radio side, even in a slow advertising market, Cogeco Media revenue is up over last year, and don’t forget dividend increases and share buybacks. Patrice will have more later on that. And I will have more on our ESG performance and the recognition it’s getting.

So, let’s start with the U.S. operations. At our Ohio Broadband acquisition, the Breezeline team transitioned the customer management system ahead of schedule, and they rebranded from WOW! to Breezeline. They’re on track with the next steps being to interconnect the Ohio network with core Breezeline networks and prepare for the launch of our IPTV platform by the end of ’22 in that market. In West Virginia and New Hampshire, Breezeline is expanding its network. Morgantown came in, in May, in West Virginia. And more recently, expansions in Dover and Madbury, New Hampshire, went live. These are fiber-to-the-home edge outs, where Breezeline offers residential Internet service at symmetrical speeds up to 1 gig with no data caps, and up to 10 gig for business customers.

Let’s move to our Canadian operations. Cogeco Connexion accelerated its network expansion programs over the past months. The expansions are going well, even with the challenges in the labor market and with supply chains. Cogeco, as you know, is on a mission with Quebec, Ontario, and federal governments to bring high-speed Internet service to unserved and underserved areas. We’ve already started connecting new homes to high-speed Internet networks, and it will be available to many more soon. Short term, we will focus on the major network expansion efforts in communities where the Quebec government awarded us 13 high-speed projects. That includes Internet speeds of 1 gig, our flexible and interactive IPTV entertainment system and telephony service. And speaking of phone services, we’re making progress towards our entry in the mobile market in Canada. Our plan is to increase our addressable market in areas we already serve by offering new services in a capital-efficient model, but we’re still waiting on the CRTC. And that means that we have no time line information to share with you today. And as I said before, we expect the CRTC to implement reasonable MVNO, mobile virtual network operator, terms and conditions under the new regulatory framework for mobile services. Securing satisfactory wholesale rates for access to incumbent wireless networks will also be a critical condition for us to move ahead. The proof that this country believes in competition in wireless services depends on those CRTC decisions.

And while we’re on the topic of competition, let’s look at Cogeco Media. In the ratings competition, radio stations are again at the top of the — in the numerous audience surveys. We’re proud to say Montreal listeners are loyal to Cogeco Media. 98.5 is once again the most listened-to station in Canada. Rhythme [Phonetic] is the most listened-to music station in Montreal and expanded its brand all the way to Saguenay. And The Beat 92.5 is the most listened-to English station in Quebec, but we plan to build on that strength with a roster of new talents coming on air in the second half this year and by progressively redefining our radio stations as multi-platform audio content providers.

Now, here’s Patrice to discuss the financial results.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Thank you, Philippe. So, revenue at Cogeco Communication is up 15.2% and adjusted EBITDA up 15.8% in constant currency when compared to the same quarter last year. This reflects the impact of the Ohio Broadband Systems acquisition and organic growth. Free cash flow decreased by 20% in constant currency due to the higher capital expenditures and higher interest and current income taxes. Capital intensity reached 25% compared to 20% last year due to the increased activity related to the network expansions in our Canadian operations.

In the third quarter, Cogeco Communications continued to be very active in its share buyback program with a purchase of close to 300,000 shares for CAD31 million. And a dividend of CAD0.705 per share was declared for the quarter, which is an increase of 10% versus last year. Given our overall performance for the first nine months, we are maintaining our fiscal ’22 financial guidelines, which we issued in April.

Now, let’s look at the individual components. In the U.S., Breezeline’s revenue and EBITDA in constant currency increased by 31.7% and 33.3% respectively in the third quarter, mainly as a result of the Ohio Broadband Systems acquisition and as I said earlier, growth in the business. Excluding the Ohio impact, revenue in constant currency increased by 5.6%, mainly driven by higher Internet service customer base and a higher product mix. EBITDA excluding the Ohio acquisition in constant currency increased by 8.9%, mainly as a result of organic revenue growth and reduced video service costs.

In the fourth quarter of fiscal ’22, we expect slightly lower year-over-year organic growth than what we achieved in the third quarter at Breezeline. As for PSUs, the demand pull forward during the pandemic and the current macroeconomic environment are resulting in a soft market, which is impacting our ability to grow our customer base. And we always have to strike a balance between customer additions and maintaining ARPUs. The Internet customer losses this quarter are mainly related to limited customer movements in the industry, higher levels of disconnections, especially for entry-level offerings and increased competition in certain portions of the footprint. The product mix has, however, improved with a greater proportion of new connections taking faster Internet speeds, resulting in a higher average revenue per unit.

We expect Internet customer additions to remain soft during the fourth quarter, partially due to the system and billing migration in Ohio, which has led to a higher level of churn and some cleanup of accounts, which were expected. The loss in video and phone customers for the third quarter relative to last year is mainly due to the Internet-led strategy, which is focused on the higher product mix, obviously focusing on the Internet products.

Now turning to our Canadian operations, Cogeco Connexion’s revenue increased by 2.5% in constant currency relative to the same quarter last year, mainly due to the higher Internet service customer base and revenue per customer as well as last year, CAD4.6 million retroactive revenue reduction related to the CRTC’s decision on aggregated wholesale Internet rates.

EBITDA increased by 3.9% in constant currency, mainly from last year’s retroactive adjustment, also from organic growth and lower marketing and advertising expenses. As for the fourth quarter, we expect similar revenue and EBITDA growth compared to what we achieved in the third quarter. The Internet customer additions in the third quarter were lower compared to last year, reflecting slower activity in the industry. However, similar to the U.S., the Canadian business is also improving its ARPU for the Internet product by having a higher customer product mix and the video and phone customer losses were in line with historical trends.

Let us now discuss Cogeco, Inc. In the third quarter, consolidated revenue increased by 14.9% and EBITDA increased by 15.7% in constant currency. Revenue related to the radio operations increased by 6.8% as the economy was less impacted than last year by the pandemic due to the relaxation of public health measures. We are confirming our fiscal ’22 financial guidelines, which were updated in April. As for shareholder distribution, Cogeco Inc. acquired during the third quarter, 37,000 shares for CAD2.8 million. The repurchase pace varies from one quarter to another, and we have a program in place for a full year to repurchase up to 325,000 shares. A dividend of CAD0.625 was declared for the quarter, which is an increase of 14.7% versus the prior year.

Now, let’s discuss Cogeco Communications’ financial guidelines for the upcoming year. On a constant currency and consolidated basis, Cogeco Communication expects to grow its revenue in the range of 2% to 4% and EBITDA in the range of 1.5% to 3.5%. At Cogeco Connexion, we expect low single-digit growth in revenue and EBITDA, reflecting growth in both our traditional operations and our newly built expansion areas in Quebec and Ontario. At Breezeline, we expect low single-digit growth and mid-single-digit EBITDA growth, reflecting our Internet First strategy, growth in the commercial sector and growth resulting from the network expansion program.

Turning to our capital expenditures. We are expecting to spend between CAD750 million and CAD800 million, including CAD180 million to CAD230 million in growth-oriented network expansion, resulting in a capital intensity of approximately 26% or 19% excluding the network expansions. These network expansion projects should add approximately 3% to the homes passed in Canada and 5% to the homes passed in the U.S. in fiscal ’23.

Free cash flow on a constant currency and consolidated basis should decrease between 2% and 12%, mainly due to the EBITDA growth being more than offset by higher capital intensity related to these network expansions and interest costs. Excluding the expansion projects, the free cash flow would otherwise be neutral in our guidance, which is basically a range of plus or minus 5%. We expect to leverage close to 3 times EBITDA, which is basically our target at Cogeco Communication by the end of next year absent any further acquisitions, which should allow us to pursue our dividend payment strategy as well as our share buyback program.

At Cogeco Inc., we have issued the same financial guidelines as Cogeco Communication.

I’ll now turn over to Philippe to provide his concluding remarks.

Philippe Jette — President and Chief Executive Officer

So, you heard it here. We believe fiscal ’23 looks promising. We have a strong plan, yet we recognize that we will be operating in an environment of increasing economic and political instability. Our focus is growing our business by offering great products and services to our customer, significantly expanding our network with fiber-to-the-home service to new areas in both countries, finalizing the integration of the Ohio acquisition and preparing the launch of a mobility service should their regulatory framework allow us to proceed. We will also stay focused on the execution of our ESG strategy, a strategy that is producing results. Recently, Cogeco was ranked one of the best 50 Corporate Citizens in Canada for ’22 by Corporate Knights. That makes it five years in a row. And as a reminder, CDP gave us an A rating for environmental transparency, recognizing Cogeco’s leadership and commitment to best practices and governance disclosure and emissions reduction. Only three other Canadian companies earned this top rating. None of our peers in Canada and in the U.S. made the grade. This tells us we’re on the right track and inspires us to keep building on our record of social engagement, environmental performance and solid governance practices to drive sustainable and inclusive growth.

All in all, it’s a good story, and we’re very proud of it. At this point, we will be able to answer your questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from Maher Yaghi of Scotiabank. Please go ahead.

Maher Yaghi — Scotia Capital Markets — Analyst

Thank you for taking my questions. I wanted to start by asking if you can provide some more insight on the competitive dynamic in the U.S., specifically. I think this is the first Q3 that you observed the negative Internet loading. You mentioned in your prepared remarks, low activity in the market. How lasting do you believe this trend will be? And can you indicate a little bit if you’re seeing increase in competitive dynamic when it comes to fixed wireless? My second question is regarding your network expansion plans. When do you think we should start to see some positive impact from those investments on your customer metrics either in the U.S. or in Canada? And can you weigh in on the capital allocation comparing these organic growth initiatives versus M&A, i.e., they’re both competing for funding from your balance sheet, how do you stack them up, how do you stack these organic initiatives versus M&A in terms of preferences? Thank you.

Philippe Jette — President and Chief Executive Officer

Good morning, Maher, and thank you for your two questions. Let me give you a couple — four, five points to help answering your first question, but this will answer the second one. So, just before and — just to be clear with everyone, for our guidance from this point on, we have included the inflation and the competitive intensity in our guidance. So, all these factors and there are numerous, cost, pricing, product mix, everything, it’s all in. Now, to the specific of the competitive environment, in the U.S., we are seeing limited activity after the big pull forward that we benefited — all benefited in the COVID period, it’s much quieter. And so, that’s one. We are also seeing more price competition than before resulting from this slower environment. So, that’s true. But, we see it in the entry-level packages. Though we — as our quest for value is our focus, we have worked on our product mix, and we keep improving with our broadband first or Internet first approach. So, that’s our focus. And then we try to bring as much value as possible to customers with add-ons to a broadband link as well as benefiting to our shareholders with a product mix and profitability improving at the same time. The current inflation is also causing a pressure on the revenue as customers are — some are optimizing their current package and there is some disconnection. But again, the disconnection, we see them more in the entry level. Maybe, some don’t need anymore some lines for work at home or other — or schooling or other needs they might have, and they’re disconnecting there, but it’s not a major trend. I could also add that some areas in our network, we are seeing more competition. And our plan is actually offsetting those more challenging areas with our new builds. So, all in all, we still see growth as we’re adding new networks and a lot of home pass and new adds to our network. Now to the last component of your question, technology. We see little impact from FTTH and almost no impact from fixed wireless access in our operating territories. That doesn’t mean they’re not active elsewhere. I’m just telling about our footprint, the FWA is not an impact.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Moving on to the other two questions. So, on the network expansion, so — we’re quite excited with this. We’ve been working at it for some time. And now we’re at the point where some of these projects are live now, and we can connect customers. And these are all fiber-to-the-home projects in both countries. And just as a reminder, in Canada, those are done with — in partnership with government. So, we’re going into areas where there’s no high-speed Internet. And in U.S., it’s more an agile strategy that we have. So, we’re planning to see some RGU [Phonetic] additions in the coming year. I would say in Canada, it’s going to be more meaningful and will be noticeable during the year. In the U.S., it will be a smaller number as we’re not as advanced in the U.S. as we started earlier in Canada. So, that will be exciting. And I would say if you fast forward to next fiscal year, the following one, fiscal ’24, then we should start to see a meaningful impact on the EBITDA growth, which is left through this year. It will be more of a PSU story.

In terms of your question on capital allocation, the way we see it is we try to have a balanced approach to our capital allocation. So, it does include these expansions. It does include M&A. It does also include buybacks and dividends. So, we are fortunate enough that we have strong free cash flows, and we’re able to do all these things. So, there’s an opportunity right now to build, especially in Canada, where we’re building as part of programs with governments and we want to be there at the right time. These things don’t necessarily appear every year. And in the U.S., we see an opportunity to do these jobs as well, which might not be the case a few years from now. As for M&A, we always look at it. We do have capacity on our balance sheet. We’re getting close to the target. So, we’re in the low 3 times EBITDA right now. So, we have financial capacity. At the same time, we’re still finalizing the integration of the Ohio acquisition.

Maher Yaghi — Scotia Capital Markets — Analyst

Thank you, Philippe and Patrice.

Operator

Your next question comes from Jerome Dubreuil of Desjardins. Please go ahead.

Jerome Dubreuil — Desjardins Securities — Analyst

Thanks for taking my questions. Two from me. First one, still on the U.S. subscribers there. Is the impact from the system update mostly done? How is the cleanup done for the quarter? Or should we expect in the next few quarters? And could that mean a bit maybe lower ARPU growth in Internet in the next quarter? And then second question, in terms of next year guidance, maybe a bit lower capex than we had anticipated, but free cash flow, not necessarily higher, is there a change expected in terms of the cash tax maybe for next year? Thank you.

Philippe Jette — President and Chief Executive Officer

To your first question, I suppose you specifically refer to the Ohio integration. So, in Ohio, we are, as I said, on track to integrate actually faster than originally planned. Remember we had a plan for up to 18 months. So, the first portion, the customer relationship management system has been completely integrated to our Breezeline platform as well as our billing. So, that was important to realize we’ve done it. There’s always a percentage of churn in such an operation. Some customers actually are taking this opportunity to revisit their need as well as when you change an e-mail address, it triggers some questions. So, there’s a natural amount of churn. I would say we are maintaining our number lower than what is usually encountered in this transition. So, we’re very happy about that. Now, there are other steps and other things to do to complete the integration. As I said, there’s a lot of network work, so that should not impact customers. It should be done at night for the most part. There will be transitioned completely transparently. So, even if we have a lot of work, it will be more and more transparent. The other thing that is highly visible for customers is the rebrand. So, now WOW! to Breezeline, that started, that’s part of the percentage of churn usually. We could expect maybe some customer movements because of rebranding and customer management and billing, as I said, but they’re on the decline going forward.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

On your question on the free cash flow, the current tax should be still at around 11%, so that’s similar to this year on our guidance. The difference probably lies into — in the interest costs. We do have a portion of the debt that is building. So, as interest rates are going up, this one will go up, but the major portion of our debt is fixed.

Jerome Dubreuil — Desjardins Securities — Analyst

Okay. Great. So, no year-on-year change in terms of cash tax between ’22 and ’23, right?

Patrice Ouimet — Senior Vice President and Chief Financial Officer

In percentage, it should be the same at around 11%.

Jerome Dubreuil — Desjardins Securities — Analyst

Great. That’s helpful.

Operator

Your next question comes from Vince Valentini of TD Securities. Please go ahead.

Vince Valentini — TD Securities — Analyst

Thanks very much. I would also like to thank you for taking Maher’s question. It’s good to have him back on these calls. The questions I have are on the U.S. as well, first with Ohio. I mean you’ve always indicated it could be the Internet subs are not going to be impressive for the first 12 to 18 months as you go through all the integration efforts you just talked about, Philippe. Are you — can you possibly break it out for us? I mean if you take Ohio out of the picture, would your Internet sub adds have been closer to flat or maybe even positive in Q3, if you just look at the legacy Atlantic Broadband footprint?

Philippe Jette — President and Chief Executive Officer

Well, first, we don’t usually disclose that at the intra-country level, but just come back to what I said. When we have point of pressure, like some areas are more competitive in our network, and we know where they are, there are plans to offset and counter balance. So, net new adds will come from other areas. Now, we have a lot of edge outs coming. So, that’s going to ramp up a number of new connected homes. But, at the same time, the market is very quiet right now. So, the variations are more meaningful when you’re around neutral. So, we expect the market to eventually pick up, but as long as they will stay quiet, we will continue to work on our product mix. That’s where we can continue to improve. And it’s a better alignment of value for everyone. That’s one thing. And second, it’s also a better alignment of service because we optimize our service to some products and product sets. Customers that are still enjoying products that are older with legacy technology don’t receive a great support. And we would rather have them have excellent support and the latest products. So, that’s why the product mix is still on focus for us, and it’s improving the financials at the same time.

Vince Valentini — TD Securities — Analyst

Okay. Let me go back to your earlier comments, Philippe, because I am not sure if I really understand. You said in some regions, you seem to indicate a pretty small segment of your households in the U.S. But in some regions, you’re seeing increased or new competition, but you said there’s virtually no impact from fixed wireless and almost very little impact from incremental fiber-to-the-home. So, in these regions where you are seeing new competition, what is it, if it’s not neither of those two things?

Philippe Jette — President and Chief Executive Officer

Okay. Yeah, I should have been clearer. It’s those areas where we have some overbuild overlays, so — where there is already more competition. So, it’s not fixed wireless access coming in or it’s not new builds. It’s overbuilders that are already there.

Vince Valentini — TD Securities — Analyst

So, effectively, Miami and Ohio are the only two notable areas where that is the case. Is that correct?

Philippe Jette — President and Chief Executive Officer

Yeah, where we have overlays, exactly.

Vince Valentini — TD Securities — Analyst

Okay. And if I can, just a couple of other quick things. Any — it doesn’t seem like there are any big bulk contracts that came on this quarter. I think you had been talking about some stuff coming on in the second half of the year. Is there maybe a bulk condo or other development coming on in the fourth quarter?

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Yeah. As we talked last time, the second half is a bit more bulk than the first half of the year, and that’s going according to plan, but it’s not meaningful, I would say, but I would say the Q3 and the Q4 have higher bulk numbers than in the first half of the year.

Vince Valentini — TD Securities — Analyst

And the last couple. One, just the restricted cash, Patrice. Can you just clarify that you released CAD183 million, seemingly your net debt is now lower. I guess this is a more true picture now that that was just cash that you should have counted before, but you couldn’t because the rural projects weren’t green light or something. Can you just explain why that’s turned from restricted to usable cash now?

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Yeah. So, it’s a change in accounting rule, which we had to make a change basically. So, the rules now ask that the cash not become restricted cash, but group with the cash. So, we do disclose in one of the notes, the amount of it. The recognition of it remains the same where when we expand capex, we will recognize the value of this cash as we use it. That’s basically the government contribution against the capital investments, but it really came from an accounting rule that forced us basically to not segregate the restricted cash on the balance sheet.

Vince Valentini — TD Securities — Analyst

Last question is bigger picture, and I doubt you’ll answer Philippe, but I’m going to ask it anyway. It’s — looking at the Quebecor deal to acquire Freedom, do you think there’s an opportunity there where they may be a more willing partner to negotiate on an MVNO versus the legacy incumbent operators and that could be a great opportunity for you going forward?

Philippe Jette — President and Chief Executive Officer

Yeah. Well, let’s first focus on the first necessary first step for us, which is the CRTC to release the right framework for competition in Canada. So, until we’ve reached that milestone, I don’t really want to speculate of what other things could happen, now specifically for what we have read, that where Quebecor is having an interest for the — in Western Canada to expand its footprint, good for them. It’s good for competition. And we’ll see where that goes in the future. But for us, and I said it before, we are focused on our operating territories. So, if and when you see activities for us, it will be in our operating territories.

Vince Valentini — TD Securities — Analyst

Fair enough. Thank you.

Operator

Your next question comes from Aravinda Galappatthige of Canaccord. Please go ahead.

Aravinda Galappatthige — Canaccord Genuity — Analyst

Thanks. Good morning. To start off with, I guess, a housekeeping question, maybe for Patrice, can you just sort of update us on the expansion spend thus far up to — as of Q3? And how that — how the 2022 and 2023 guidance breaks down in terms of U.S. and Canada? I know that the numbers moved around a little bit. And then a clarification on your comments about when we can expect sort of some returns initially in terms of subs. Did you indicate that in Canada, we can expect it this year and the U.S. next year? Or did I kind of mix up ’22 with ’23. I’ll stop there.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Okay. So, I’ll answer in reverse order. So, the additions of PSUs, we are expecting additions in both countries in fiscal ’23. It’s expected to be more meaningful in Canada because the projects are more advanced. We have more delivered homes than we have done in the U.S. because the project started earlier. So, I would say it would be — we expect it’s going to be more noticeable in our results in the coming year in terms of PSU loading in Canada than the U.S., but both should contribute. What I was referring to after for fiscal ’24 is more at the EBITDA level. We are not expecting major changes or impacts to EBITDA this year and fiscal ’23. But when we fast forward to the following year, then we should see a bigger impact on financial contribution. In terms of the year-to-date, I’ll get back to you in a second. I don’t have the number right in front of me. But for next year, we do have — you do see the breakdown at a consolidated level. The split between the two countries will be a bit heavier in Canada as we have a number of projects that will finish in Quebec, and we have several in Ontario. And so, I would say heavier in Canada than the U.S. And if you fast forward again in fiscal ’24, you should see Canada coming down as a lot of these government-sponsored projects will have been done whereas in the U.S., the agile strategy, we can decide the pace of it.

Aravinda Galappatthige — Canaccord Genuity — Analyst

That’s very helpful. Thank you. And then shifting to the U.S. specifically, I know that in the past, you’ve talked about sort of traction that you were gaining on the B2B front, SME included, can you maybe just kind of update us on where things stand there? I mean what have been sort of the trends in recent quarters? And what have been the developments that you can maybe talk to?

Philippe Jette — President and Chief Executive Officer

There’s nothing really unusual with the B2B. The exception was the COVID period, where there a lot of business reduced their business or even shut down. But, now that they’re resuming, except for selected industries and market segments, the B2B side is resuming its business. It is a small portion of our business and we’re now seeing a post COVID that is likely back to normal for the B2B, and we’re still expecting growth from bulk and B2B segments in both sides — in both countries, U.S. and Canada.

Aravinda Galappatthige — Canaccord Genuity — Analyst

Okay. Great. Thank you. And last question from me. I mean, I think you’ve discussed about the U.S. trends in a bit of detail, but I wanted to kind of focus a little bit on Canada. What are your expectations in terms of sort of the net adds here outside of sort of expansion? And I know that you obviously want to kind of move towards the higher ARPU, higher economic value subs, but is there — are there other factors that are maybe sort of serving as a headwind in Canada? I don’t know if it’s competition. I haven’t seen heavy promotions as such. That’s not sort of something that would be observed. But I wanted to get your thoughts on that.

Philippe Jette — President and Chief Executive Officer

Well, the state of competition in Canada has been installed many many years ago with fiber deployments, a lot of advertising and branding campaigns from our competition. We were very successful and still growing in most of our footprint and neutralizing the campaigns and others. So, now they’re at the point of diminishing return. I think we have very, very strong products in Canada where — with our HFC and more and more fiber-to-the-home as well. And we have superior customer support and customer care. So, I think we are now going to see not no loss in customer disconnection, but the net adds are going to slowly take place again.

Aravinda Galappatthige — Canaccord Genuity — Analyst

Excellent. Thank you so much. I’ll pass the line.

Operator

[Operator Instructions]. Your next question comes from Matthew Griffiths of Bank of America. Please go ahead.

Matthew Griffiths — Bank of America/Merrill Lynch — Analyst

Hi, good morning. Thanks for taking the question. I just had one quick follow-up on the U.S. sub numbers this quarter, and I think you addressed a lot of it, but I just was curious if the migration — the customer management system migration that’s been complete now, I think you called out that it generated some churn. Was that enough churn to account for the negative? Or was that just one component of the negative plus the competition layering in on top of that?

And then secondly, on capex I think I understood your comments to mean that the kind of growth capex in Canada comes to an end or should be completed, I should say, in 2023. But in the U.S., are the current plans to wrap up your projects by the end of 2023? Or should we assume that there is an increased capital intensity going forward and then you may choose to do additional projects in the future. But just from what is laid out now in your plans, should we assume that there’s a step down? Or should we assume that it carries on going forward?

And maybe just thirdly, I think we seem to be entering a period where maybe the market will be a little weaker for a little longer. And you’ve been focusing some of your comments on mix within the base and the success that you’re having there. Is there any metrics that you can point us to for — that’s highlighting that? Or maybe highlight how it’s — how some elements of the mix have changed period-over-period, so we can get a sense as to your progress on something that might be becoming more meaningful rather than just the net add numbers. Thank you.

Philippe Jette — President and Chief Executive Officer

Thank you, Matthew. Let me start by first reminding us that the — on the product mix, your third question, the broadband or the Internet service is where we have the highest margin. So, as more and more of our customers are subscribing to broadband and they’re adding IP-based services like IPTV in Canada, in Breezeline and more is coming in Ohio, we are able to improve service and at the same time, improve margins, so the legacy or more costly technology is going away, improving the margins.

Now, back to your first question on the Ohio transition, I would invite us just to look at the — to wait for the fourth quarter. So, we’re progressing in the transition. We have seen some, as I said, disconnection part of the transition. But, we want to avoid long to wait. In Q4, we’ll see where the numbers are landing, and I’m very hopeful that as soon as Q4, we will have better PSU numbers.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

So, just continuing and just to be clear, we did change the systems at the end of Q3, but it’s sort of straddling between the two quarters. So, some of the churn we’re talking about in the cleanup will happen in Q4, but we will not normally extend past that. So, that’s what I was referring to initially in the prepared materials. In terms of capex, for Canada, as you pointed out, fiscal ’23 is still a large year where we’re investing a lot in network expansions. Fiscal ’24 should normally have some, but we expect that it’s going to come down as a lot of projects will be done, but there’s still going to be some primarily in Ontario.

In the U.S., we’ll have to decide, and that’s something we’ll decide during the year, what we want to do for fiscal ’24. It is possible we’ll go at the same pace. But again, it’s a bit early to say. I think one thing that will be interesting in the U.S. is that we will have a lot of opportunities just like in Canada, and that’s probably a fiscal ’25 discussion, where we’ll be able to build with government assistance in areas where there’s no high-speed Internet. So, again, you go with fiber-to-the-home. The competition is fairly limited, because there’s no high-speed Internet by definition, to be able to access funds. And these will go through auction. So, we’ll have to see how successful we are in them, but at least there’s a good opportunity to replicate what we’re doing in Canada in these areas.

And in terms of metric for the success in the mix I was referring to, if I heard you correctly, one thing you can look at is our revenue per PSU. It does include the mix of all our PSUs. In the quarter, we did increase it in the U.S. by 4.9% compared to the previous year. There was an acquisition in there, but still, that’s something you can look at. And internally, we also obviously look at margins by product. I would say the Internet only product, which is not disclosed separately, shows a higher growth than what I just quoted for all the PSUs. And this has to do with a portion of some entry-level packages, which are — have lower ARPUs that have not been as strong in this quarter and also our Internet First strategy where we’re trying to push the right product to the right customer. And obviously, we — when customers take higher speeds, this comes with higher ARPUs as well.

Matthew Griffiths — Bank of America/Merrill Lynch — Analyst

Right. That’s great. Maybe if I can squeeze one more in, maybe a quick one because it’s on wireless. So, there’s an auction coming up in a year from now, pretty much right on the year. So, is there — should we assume that you’ll participate in that similar to the 3.5 gigahertz auction? Or since we’ll most likely get some decision from the CRTC before a year, will that outcome of the proceeding kind of act as a gating decision for participating or not? Or conversely, like is this just a long-term type of ambition? And you get one opportunity to participate in the auction, so if it comes up, you have to take it and just work away at the strategy over the long term. Like how should we think about your participation?

Philippe Jette — President and Chief Executive Officer

Yeah. You’re very right that auctions don’t come very often, but the first trigger for us is, as I said earlier, it’s the CRTC terms and conditions that we are going to learn about very soon. So, that’s the thing to watch for, understand and if, as I said, the government is serious about competition, that’s what we need to look at and find. And I’m convinced that if we have good terms and conditions, not only Cogeco, but also other regional players will be able to emerge.

Matthew Griffiths — Bank of America/Merrill Lynch — Analyst

Okay. Thank you so much.

Operator

Gentlemen, there are no more questions from the phone lines. Please proceed with your closing remarks.

Patrice Ouimet — Senior Vice President and Chief Financial Officer

Very well. Thanks, everyone, for participating. We’ll be back with our fourth quarter earnings report at the end of October and feel free to call us in the meantime. Thank you.

Operator

[Operator Closing Remarks]