BCE Inc.

Please stand by, your meeting is about to begin. Good morning, ladies and gentlemen. Welcome to the BCE Q3 2022 Results Conference Call. I would like to turn the meeting over to Mr. Thayne Fotopoulos. Please go ahead, Mr. Fotopoulos.

Thank you, Donna, and good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, BC's President and CEO, and our CFO, Glenn LeBlanc. You can find all our Q3 disclosure documents on the investor relations page of the bce.ca website, which we posted earlier this morning. Before we begin, I want to draw your attention to our safe harbor statement on slide two, reminding you that today's slide presentation and remarks made during the call will include forward-looking information. and therefore are subject to risks and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements except as required by law. Please refer to our publicly filed documents for more details on our assumptions and risks. With that, I'll turn the call over to Mirko.

Thank you, Thayne, and good morning, everyone. The Bell Team's continued execution excellence and customer-centric approach combined with our unmatched leading broadband networks, yielded a record 401,132 total broadband wireless and wireline net customer activations in Q3. Our disciplined focus on balancing market share growth and financial performance delivered healthy consolidated revenue growth of 3.2%, despite an ad recession causing pressure in media advertising and some continued pressures in the B2B sector. Adjusted EBITDA grew a more modest 1.2% as we absorbed $38 million in exceptional storm-related costs and inflationary pressures, while also funding record subscriber acquisitions. Hurricane Fiona, which devastated Canada's Atlantic region and eastern Quebec in late September, was the biggest storm to ever hit anywhere in Canada, and our team stepped up like never before. Our preparations ensured our core networks remained largely operational, but the damage to our infrastructure in the field was unprecedented. A huge thank you to our field, network, and wireless operations teams who work tirelessly to keep our customers connected. I also want to acknowledge every Bell employee who supported our storm efforts, whether you're a part of service and restoration, managing customer inquiries, welcoming people in our stores to charge phones, or news crews covering the story. Your focus on preparing and delivering for customers is greatly appreciated and I'm so proud to be part of this dedicated and talented team. Without question, this event underscores how much Canadians value fast and dependable connections. This is why Bell has been investing in our networks to build a communications infrastructure that is among the best and most reliable in Canada, if not the world. In fact, a study recently commissioned by the CWTA shows that Canada's network operators outpaced international peers in CapEx in 2021, investing $168 per subscriber compared to a G7 and Australia average of only $87. But we are not standing still. As you know, we continue to push ahead with our historic CapEx acceleration program, having invested close to $3.5 billion so far this year. We remain firmly on pace to reach $5 billion in planned CapEx for 2022. By the end of the year, 80% of our mid-term broadband internet build-out plan, comprising 10 million residential and business locations, will be completed and 5G Plus service will be available to 60% of the addressable population, offering the best data speeds and lowest latency of any Canadian network provider. Both PCMag and Ookla recognize Bell's 5G mobile network as Canada's fastest in their latest reports. Such third-party recognition reinforces Bell's network leadership and the value of our unprecedented generational investments, which will continue to drive socioeconomic benefits to Canadians while supporting substantial free cash flow generation for years to come for our investors. A quick look now at Bell's wireless operating results in Q3. It was another standout performance with our highest ever number of total mobile phone net ads, which increased 64% over last year to more than 224,000. This drove strong revenue growth of 7.4% and 7.8% higher adjusted EBITDA, demonstrating that our consistent focus on higher value mobile phone loadings, customer-based management, and acquisition cost discipline continues to pay off. We achieved these results against the backdrop of declining wireless prices, even as the Canadian economy faces rampant inflation. According to latest StatsCan data, the price of all goods and services in aggregate has increased approximately 7% over the past year and 11.6% since the beginning of 2020, while the cost of cellular services has declined 3% and 25.7% respectively. In residential wireline, fueled by a growing fiber footprint, we continue to gain a significant share of internet subscriber growth. We added 95,036 new net fiber customers in Q3. That's up 33% over last year and our best ever result, driving strong residential internet revenue growth of 8%. These results are a direct reflection of the differentiated value of fiber-based Internet services that provide the fastest, dedicated, symmetrical speeds that cable cannot match. By the end of the year, 5 million homes will qualify for symmetrical speeds of at least 3 gigabits. That is the broadest multi-gig broadband footprint anywhere in North America. And in September, we announced an agreement to purchase Internet Reseller Distributel, This acquisition will further strengthen our competitive position and support Bell's internet growth strategy, particularly in the value segments of the residential and SMB markets. Turning to media now. We continue to see good momentum across our streaming distribution platforms and digital ad markets, which enabled us to take share in a TV ad market that is currently facing some significant pressures. Growing customer usage of Bell Media's SAM TV advertising sales tool platform, which more than doubled bookings in Q3, together with a 29% increase in Crave direct-to-consumer subscriptions, contributed to strong 40% growth in digital revenues this quarter. I'd also give a quick update on some recent ESG developments. Clean50, a national sustainability organization, named Bell its inaugural GHG reductions champion for achieving meaningful greenhouse gas emissions reductions and recognized Bell's solar cell site initiative as one of the most innovative and inspiring sustainability projects undertaken in Canada in the last two years. Additionally, our science-based targets for GHG emissions reduction were approved by the Science-Based Targets Initiative positioning Bell as a corporate leader in the transition to a low carbon economy. By reducing GHG emissions across our operations, we are continuing to take action to help fight climate change and improve our energy performance. One way we're tackling direct emissions is through the electrification of our vehicle fleet and the shift away over time from fossil fuel based transportation. we've installed over 200 EV charging stations to power our growing fleet of electric vehicles. I'm going to turn now to slide five of our presentation for a review of some key operating metrics. First off, wireless. We added 167,798 new net postpaid mobile phone subscribers, which is up 46% over last year. This record Q3 result can be attributed to greater foot traffic as retail stores return to full operation, continued 5G momentum, immigration growth, strong business customer demand, increased focus on bundling wireless with residential internet service, as well as our lowest ever Q3 churn rate, which improved three basis points over last year to 0.9%. Our ARPU is up 2.2%, which is our sixth consecutive quarter of year-over-year growth. This was supported by higher roaming revenue that is now at 114% of pre-COVID levels. Roaming should continue to support ARPU growth for the balance of the year. And beyond roaming, we remain focused on driving sustainable ARPU growth via our 5G monetization strategy. With only 35% of post-paid subscribers currently on a 5G-capable device and the vast majority of them taking premium unlimited data plans, we see good runway for continued growth. As for mobile-connected devices, net ads increased 49% over last year to 49,044, driven by higher demand for all of our IoT solutions. Let me turn now to Bell Wireline. It was an outstanding quarter for Bell Internet with 89,652 retail net ads, our best result in 17 years as we leveraged our rapidly growing fiber footprint, strong brands, fastest symmetrical speeds, and network reliability. And as I mentioned earlier, we had our best ever five performance for fiber net ads. We also added 38,093 net new IPTV subscribers, which is up 20.4%. and that's on the strength of our multiple brand customer segmentation approach and a more active back-to-school period versus last year. Taken all together, total retail residential net customer ads, including satellite and local phone, were 56,314 this quarter, which is up 70% or 23,000 higher than last year. This represents our strongest results since 2005 and really is a testament to the Bell team's execution and our extensive network investments. I'll turn now to Bell Media again. As I mentioned, advertiser demand slowed in Q3 due to the economy and ongoing supply chain issues and certain key consumer good verticals, and that impacted traditional TV and radio advertising sales. However, given Bell Media's broad mix of assets and consistently top-ranked properties, the year-over-year decline in total advertising was contained to only 2%. Notwithstanding this backdrop, digital revenues continue to accelerate, as I mentioned earlier, growing 40% over last year, and that now represents 31% of total Bell Media revenue, up from 22% last year. This was supported by growth in Crave subscriptions and the strong increase in SAM TV bookings that I referenced earlier. CTV remained Canada's most watched conventional network in Q3, expanding its lead with a 29% increase in audience market share, while Bell Media's English language entertainment specialty channels also had a strong showing, finishing the broadcast year with five of the top ten properties, including the top three spots for CTV comedy, CTV drama, and Discovery. On the French language TV side, Nouveau continued to gain viewership, outpacing its French-language TV competitors with market share primetime audiences up 4%. And RDS was once again the top-ranked sports TV channel, benefiting from record audiences for F1 racing and a strong start to the NFL season. And before I hand the call over to Glenn for a financial overview of the quarter, I wanted to end by saying that I have great confidence in our long-term outlook. That confidence is underpinned by our investments in leading long-life infrastructure assets that will support meaningful growth opportunities and cost reduction across the business, the strength of our products and services, and consistent strong execution by the Bell team within our well-defined and clearly articulated strategy. Although no company obviously is completely immune to the risks of a recession, We do have a very stable and diversified business that generates consistent and substantial cash flow. We have a strong balance sheet and cost discipline, and all of that enables us to offset economic pressures as they arise. Glenn, over to you. Thank you, Mirko, and good morning, everyone. Our Q3 financial results highlight our consistent execution excellence and leading asset mix across all Bell operating segments. Total BCE revenue grew 3.2%, which delivered a 1.2% increase in adjusted EBITDA. Our results this quarter included the cost impact of Hurricane Fiona, as well as ongoing inflationary pressures, particularly on fuel, utility, and labor costs, which in aggregate totaled $38 million. Normalizing for these exceptional costs, adjusted EBITDA growth would have been 2.7%. Despite higher EBITDA net earnings and statutory EPS, we're down year over year. But this is mainly due to the non-cash market to market equity derivative losses from a decline in the BCE share price during the quarter. Additionally, as part of our multi-year post-COVID plan to consolidate real estate space that I detailed last quarter, we recorded a further asset impairment charge this quarter as we continued to vacate some leased properties. However, adjusted EPS was up 7.3%, benefiting from an $80 million tax provision reversal from the resolution of uncertain tax positions related to the MTS acquisition. As a result, we now expect an effective tax rate of 25% for the full year of 2022, down from our previous expectation of 27. No further tax adjustments are anticipated in Q4. Lastly, despite a $153 million increase in capital expenditures consistent with our broadband acceleration program. Free cash flow was up 13.4%, reflecting the timing of cash tax installments, lower pension funding due to our strong solvency position of our defined benefit pension plans. Turning to wireless on slide eight, another strong quarter and a long line of strong quarters. Service revenue is up 7%, driven by our focus on high-value 5G subscriber growth, strong year-over-year mobile connected device growth, and continued recovery and roaming with the Q3 amount at approximately 114% of pre-COVID 2019 levels. Despite consumers holding onto the handsets longer and a sustained high level of pre-owned device activations, Equipment revenue increased 8.6% year-over-year, reflecting a higher sales mix of premium mobile phones. Due to the flow-through of high-margin service revenues and our disciplined and targeted response to competitors' promotional offers, wireless EVTA grew a very healthy 7.8%, which delivered a 20 basis point margin increase to 44.2%. Let's move now to slide nine. Wireline reported its first quarter of positive top line growth in almost two years, with total revenue up 1%. This was led by residential internet revenue, which increased 8% on the combined impact of strong subscriber growth, including higher year-over-year business activations and higher ARPU. Although our overall B2B results continue to reflect the effects of the global chip shortages and related spending delays on new services, the year-over-year rate of service revenue client has stabilized. Total product revenue, however, was up 46%, and this can largely be attributed to the timing of sales to certain large enterprise customers and easier year-over-year comparisons given that the data equipment supply issues began to intensify in Q3 of 21. Notwithstanding the increase in revenue this quarter, wireline EBITDA did decline 1.2%. This was a direct result of $34 million in costs absorbed because of Hurricane Fiona and ongoing inflationary impacts. Normalizing for these cost pressures, underlying EBITDA growth was quite respectable this quarter increasing 1.4%. Over to media on slide 10. Despite a weaker advertising market this quarter, total media revenues remain stable year over year. As Mirko said in his opening remarks, and it's worth repeating, that it is a testament to our diversified mix of media assets, including a growing contribution from digital platforms and consistently high ratings for all, of our TV properties. Advertising revenue is down 2.3%, reflecting softer TV advertiser demand and a slow radio recovery from COVID due to ongoing macroeconomic uncertainty, as well as the non-recurrence of approximately $15 million in revenue generated last year from the federal election, Euro Cup soccer, and the Tokyo Summer Olympics. The financial impact of these factors was moderated by a strong COVID recovery in our out-of-home, further gains in digital advertising, as Mirko mentioned, and a 2.2% increase in subscriber revenue from ongoing crave streaming growth. Although total media revenue was flat year-over-year, EBITDA was down 15.3%. This result was expected given our higher programming and broadcast rights costs associated with the return this year to regular sports broadcast schedules and the normalization of TV content deliveries. This return to a more typical pre-COVID cost structure and a choppy advertising market are expected to weigh heavily on Bell Media's EBITDA in Q4. That said, advanced advertising for the upcoming FIFA World Cup is exceeding our expectations with revenue already up 50% from the 2018 World Cup. This success is a testament to the massive popularity and value advertisers place on premium sporting events. And lastly, I'll finish on slide 11. With $3.5 billion of available liquidity, a manageable debt leverage ratio of 3.2 times adjusted EBITDA, A historically low after-tax cost of debt of just 2.8%, with an average term to maturity of 14 years, and a capital structure that has a substantially high portion of fixed-rate debt, BCE's balance sheet is very healthy, helping to mitigate the impact of rising interest rates. Moreover, with a substantial pension solvency surplus totaling $3 billion in that has low sensitivity to interest rate movements, approximately $1 billion in US dollar spending that has been economically hedged well into 2024, and a relatively low cyclical cycle for our majority of our revenues. BCE's free cash flow generation is strong, reliable, and well protected from market uncertainty. With three quarters of favorable consolidated results already reported, sound industry fundamentals, and a competitive position that is better than ever, we are on track to deliver on our 2022 financial guidance despite some difficult economic conditions that are expected to persist in parts of our business through Q4. And on that note, Dane, I'll turn it over to you and the operator to begin Q&A.