BCE Inc.

Good morning, ladies and gentlemen. Welcome to the BCE Q3 2024 results conference call.

I would now like to turn the meeting over to Mr. Thayne Fotopoulos. Please go ahead, Mr. Fotopoulos. Thank you, Matthew. Good morning, everyone, and thank you for joining our call. With me here today, as usual, are Mirko Bibic, President and CEO of BCE, and our CFO, Curtis Millen. You can find all of our Q3 disclosure documents on the investor relations page of the bce.ca website. which we posted earlier this morning. Before we begin, I'll draw your attention to the safe harbor on slide two, reminding you that today's slide presentation and remarks made during the call will include forward-looking statements and 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 BCE's publicly filed documents for more details on our assumptions and risks. With that, over to Marco.

Thank you, Thane, and good morning, everyone. Our operating results for the third quarter demonstrate that we're pursuing growth in a financially disciplined and responsible manner in what's arguably been the most competitively intense market we've seen. Against this backdrop, we remain focused on better quality long-term margin-accretive subscriber acquisition and reducing costs to help offset short-term revenue impacts from sustained competitive pricing pressures, expected revenue losses from the source, which we've discussed in the past, slow economic growth, and a media advertising market that's still in transition, particularly on the linear side. this focus on disciplined customer growth and ongoing efforts to drive cost savings across the organization through our advanced broadband networks expanded digital and ai capabilities as well as other transformation work streams is reflected in our q3 consolidated ebitda growth of 2.1 percent and a 1.7 point margin increase to 45.6 percent Notably, this was our best quarterly margin performance in over 30 years. This contributed to 10.3% higher free cash flow in Q3, which was in line with our plan as profiled in our quarterly budget at the start of the year. So really good execution by the Bell team in a highly competitive marketplace. I'm going to move now to our operating results, starting first with wireless. You'll see combined mobile phone and connected device net ads in Q3 totaled 158,412. Our objective was to strike a balance between subscriber loadings and economics. We also tried to reset rate plan pricing to more rational levels, reflective of the tremendous value our services provide to customers. Despite some green shoots, those didn't stick throughout the quarter. Nevertheless, we held firm to our strategy and we chose not to match every promotional offer just for the sake of capturing a higher number of subscriber activations. Rather, as I said, our focus was on acquiring margin accretive customers and increasing our service bundle penetration, given its importance as a churn management and value driver tool. In fact, all of our new postpaid customer net activations this quarter were on the main Bell brand. Moreover, in an effort to strike a better pricing tier balance between our various brands, we stopped selling prepaid service on Virgin Plus at the end of September and we plan to discontinue Bell branded prepaid service in Q4. Now on to residential wireline. Not surprisingly, fiber continues to anchor new internet subscriber growth and drive higher multi-product penetration, contributing to a 15% increase in households subscribing to mobility and internet service where we have fiber. Notably, internet revenue growth improved to around 5%, which represents our best quarterly results since Q2 of 2023. And it's a direct reflection, again, of our balanced approach to broadband market share growth and disciplined pricing. Now I'll talk about media. Digital revenues were up 19% over last year, and that helped to offset the secular pressures in traditional media platforms. And digital now comprises 42% of total media revenues. This result was driven by continued growth in products such as Crave with ads and connected TV, strong client demand for Bell Media's advanced advertising solutions, and ongoing direct-to-consumer streaming growth. And investments to sustain the strategic shift to digital are continuing, with the availability of TSN and RDS content on Amazon Prime Video channels in Canada, and the expansion of Bell Media's existing licensing agreement with Warner Brothers Discovery, announced in 2023, to extend Cray for multiple years as the exclusive home of HBO and of Max content. Bell Media also recently secured a content and licensing agreement with NBCUniversal to bring USA Network and Oxygen True Crime cable channels to Canada for the first time. Discovery Canada will be rebranded as USA Network at the start of next year. As for our transformation initiatives, we're making significant progress modernizing how we operate across the company by leveraging technology, automation and simplification in a way that's more agile, digital and lower cost. And all this is designed to drive significant CapEx and operating cost efficiencies. Although these initiatives have required upfront investments, and more investments will be made as we further accelerate this transformation, we're already seeing the benefit in terms of CAPEX efficiencies. In fact, we're ahead of plan in decreasing CAPEX by more than $1 billion over the 2024-2025 timeframe, including a year-to-date reduction this year of more than $600 million while working towards our fiber-built target of 8.3 million locations by the end of next year. However, as we move more workloads to the cloud, it will result in a shift of dollars from CapEx to OpEx that will moderate margin expansion in the short term, but this will be meaningfully cash cost accretive longer term. And we remain on track to deliver in-year savings of approximately $200 million from workforce reductions announced in February. These are just a few examples of the initiatives and work streams currently underway at Bell that are contributing to better efficiencies and lower costs. We also continue to advance our transformation to a tech services leader in the B2B space with FxInnovation's acquisition last month of HGC Technologies, a leading ServiceNow managed services provider based in Montreal. This investment builds on our purchase in July of Cloud Kettle, based in Halifax, to further strengthen FXI's expertise in process automation, cloud technologies and digital transformation. And in line with our strategic goal to become a cybersecurity managed services leader in Canada and North America, complementing our acquisition of tech services company Stratagem in July, we expanded our relationship with Palo Alto Networks in a first of its kind partnership to offer their full suite of managed security services. This agreement directly supports our Bell Business Markets growth agenda and is already evident in key wins with some of our largest Canadian customers. Against the backdrop of these investments, on Monday we announced our acquisition of Ziply fiber, the largest broadband and fiber internet provider in the U.S. Pacific Northwest. The acquisition marks a bold milestone in Bell's history. It's a significant investment that will help us take our competitive edge beyond Canada, and it will enhance long-term growth for Bell by providing us with a foothold in the under-penetrated U.S. fiber market while increasing our scale, diversifying our operating footprint, and establishing a platform for further expansion opportunities. The acquisition is immediately accretive to cash flow from operations, enhancing BC's financial growth profile. We expect the transaction to be free cash flow accretive post the completion of Zimpli Fiber's planned fiber build-out to more than 3 million locations. All in, it will help to support our long-term capital markets objectives. We intend to finance a transaction largely with the $4.2 billion of net proceeds from the pending sale of MLSC. Effectively, what we're doing is monetizing an asset with no impact on BC's operating results to fund the acquisition of an asset aligned with our core business and our fiber growth strategy, which is, again, very strategic, growth-focused redeployment of capital, and one that will be accretive to free cash flow in the long term. Importantly, as part of the condition of sale of MLSC, as you all know, Bell Media secured access to content rights for the Maple Leafs and Raptors for the next 20 years, and that will solidify TSN's position as Canada's sports leader. The pending sale of Northwest Tail that we announced earlier this year is another clear indication that we'll take seriously any opportunity to monetize assets where and when it makes sense. I'm turning now to slide 5, reviewing with you some key operating metrics for the quarter, again starting first with wireless. We added 102,196 new net mobile phone subscribers in Q3, down from 167,000 in Q3 of last year. Although post paid net ads of 33,111 were down compared to an exceptionally strong prior year, consistent with our operating strategy to focus on margin of creative subscriber ads and disciplined device subsidization, like I said at the beginning, all new customers were on our main Bell brand. While post-pay churn this quarter was up against the backdrop of elevated competitive activity relative to seasonal trends and higher than we'd like, it did represent a third consecutive quarter of deceleration in the year-over-year rate of increase. So we're moving in the right direction when it comes to churn. Prepaid net ads were up considerably versus last year, increasing to 69,085. This represents our best quarterly results since Q3 2019, and it's a direct reflection of the strategy to increasingly address the flanker and newcomer market with our prepaid brand. To close off on wireless, ARPU was down 3.4%. As expected, this result represents the accumulation of excessive rate plan discounting and promotional offer intensity over the past year. Until prices stabilize, we'll continue to focus our efforts on delivering enhanced customer experiences and value and on improving wireless ARPU and margins. Although we believe that Q3 should be the peak quarter of decline, the magnitude and timing of ARPU recovery will depend on how aggressive Black Friday and holiday promotions will be this year. Now to wireline. In internet, we delivered 42,415 new net retail subs. Although the environment remains ultra competitive and overall industry growth is slowing, we continue to capture the majority of new growth in our markets because of our superior fiber internet service offering. We also added around 9,200 new net IPTV subscribers. And lastly, I'll turn to Bell Media. Total advertising revenue increased for a third consecutive quarter on the strength of digital, the strength of live sports, and our acquisition of OutEdge that we completed in June. Crave subscribers were up an impressive 12% to more than 3.4 million, driven by a 34% increase in direct-to-consumer streaming subscribers. TSN and RDS digital subscriptions collectively grew subscribers by 45%, thanks to premium sports content, including the President's Cup, Euro Cup Soccer, Copa America, and the Summer Olympics, which helped TSN and RDS retain their number one rankings in Q3 yet again. Bell Media once again led all competitors in the French language entertainment and pay specialty market, while Nouveau continued to grow market share with prime time audiences increasing 4% compared to the same fall to date period last year. In summary, the Bell team continues to consistently execute our plan with discipline in the most competitive market we've seen in years to grow subscribers responsibly, to serve our customers with the best pure fiber and mobile 5G networks, to further improve the customer experience through digitization, and of course to reduce costs to align with the revenue profiles of each of our segments. Due to top-line pressures in the first three quarters of the year stemming mainly from lower than anticipated product sales, which Curtis will discuss, as well as an unconstructive wireless pricing environment, we're revising B.C. revenue guidance for 2024. And again, Curtis will cover that with you in a second. On that, I'll turn the call over to him. Thanks for the time, everyone, and looking forward to the Q&A after Curtis presents.