BCE Inc.

Good morning, ladies and gentlemen. Welcome to the BCE Q1 2025 results conference call. I would now like to turn the meeting over to Mr. Richard Benjen. Please go ahead, Mr. Benjen.

Thank you, Matthew. Good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, BCE's president and CEO, and our CFO, Curtis Millen. You can find all our Q1 disclosure documents on the investor relations page of the bce.ca website, which we posted earlier this morning. We have a lot of material to get through on this call. However, before we begin, I would like 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 assumptions and risks. With that out of the way, I'll turn the call over to Mirko.

Thank you, Richard and good morning. Everyone I shared in February our strategic and operational roadmap that will guide our actions for 2025 and beyond focusing on our customers and on creating value for shareholders. We have a clear strategy for growth and that's anchored in 4 key priority areas. Putting the customers 1st, providing the best Internet and wireless networks and services. unlocking potential for businesses with technology solutions and building a digital and media content powerhouse. Moreover, we will continue to modernize and simplify how we do business and how we operate. And before providing an update on our progress against each of these, I want to call out two key and very material developments. This morning, we announced a major partnership with PSP Investments, one of Canada's largest pension investment managers with approximately $265 billion in net assets. PSP is an extremely experienced telecom investor. It will be helping us fund the expansion of our U.S. business, which could see a commitment in excess of $1.5 billion. This will significantly de-risk our future funding requirements and bring support for our U.S. fiber growth strategy, while still allowing us to proceed with our deleveraging plans. I'll describe our partnership in more detail in just a few minutes. Secondly, given the significant changes in our economic and operating environments that have occurred since the fall of 2024, our board has established the annualized dividend per BC common share at $1.75 per share from $3.99 per share. This change will be effective with the July dividend payment. This will help us achieve more quickly our near-term deleveraging target of 3.5 times adjusted EBITDA by the end of 2027, as well as our longer-term target of 3.0 times. Both of these developments are consistent with our strategy to optimize the balance sheet, invest for growth, and enhance total shareholder returns. Now, on to the four priorities. As you see on slide four, we're putting customers first as our top priority. Earlier this year, we became the first Canadian telecom company to name a dedicated chief customer experience officer. Since taking on this role, Badir Hassan has been hard at work on improving the entire customer experience, and that's grounded in four key commitments that define service excellence from a customer's point of view and our path towards making it easy to do business with Bell. our objective is to put our customers at the heart of every interaction with us we know their time is valuable that's why we're prioritizing self-serve tools to help customers get the support they need whenever they need it including 24 7 ai powered virtual assistants while keeping our phone lines free for more complex cases or people who prefer to speak to someone directly We've also introduced a new intuitive digital bill, and we're improving the tools available to our representatives so that no matter how customers interact with us, our team has access to the same up-to-date information. And because we know that life does not wait, we're enhancing our callback experience so that our team can follow up without customers having to sit on hold. This approach will materially improve customer satisfaction, churn, and ultimately customer lifetime value and financial performance. Turning to slide five now. The next key priority is to provide the best fiber and the best 5G networks. Internet and wireless, as you all know, are our largest businesses and most important revenue drivers. We've made significant investments over the past several years in fiber and 5G, which continue to receive third-party recognition for delivering the fastest download and upload speeds, lowest latency, robust security, and standout reliability and resiliency. Now over to slide six. I know I say this often, but I can say it again. Fibre is the future. It's clearly the superior technology and customers know it. Fibre gives us a sustainable advantage that will last for decades. Since 2020, when we made the decision to accelerate fibre deployment, we've increased our total footprint by more than 50%. We have the largest fibre footprint in Canada at more than 7.8 million households and business locations. And it's clear that our strategic investment is paying off. We more than doubled our internet customer base on fiber to 3 million. And over 60% of these customers are taking gigabit plus speeds. We doubled our fiber revenue over the same period. Where we have fiber, our market share has grown 18% to 48%. Where we've had fiber for a longer time, our market share is above 50%. And if you look at our numbers quarter after quarter, we consistently capture the majority of new broadband additions with fiber. Moreover, Where we have fiber, our mobility and internet bundled sales continue to grow and now comprise more than 50% of our total residential households. Our residential fiber penetration rate is approximately 44% across our entire footprint. That's a blended figure that comprises older tenured and more recently deployed markets. In our oldest tenured markets, penetration is at 50% or higher. In our experience, the average penetration rate in new fiber footprint reaches 45% by the third year after deployment. And since we've built more than 1.9 million new fiber locations in the last three years, many of our markets are lower on the penetration curve. All of that to say, lots of room to grow. The bottom line is this. Our commitment to fiber is at the core of our strategy, and where we have fiber, we win. Turning to the U.S. fiber market now on slide 7. The U.S. is a natural expansion market for BCE where we can leverage our deep expertise in building fiber infrastructure. As a reminder to investors, let me briefly outline the reasons why the U.S. fiber market is so attractive. U.S. fiber deployment lags behind Canada. Only 51% of homes in the U.S. have fiber. compared to 75% here in Canada. Fibre penetration also lags. Competitive dynamics are favourable given a largely two-player market driven by retail competition with no mandated wholesale access to fibres. The market structure is even more attractive for Ziply. Household, income and economic growth across its four states in the Pacific Northwest is above the national average. There are one or fewer gigabit-capable competitors in 93% of Ziply Fiber's operating footprint, no multi-gig-capable competitors, and relatively less overbuilding activity in the Pacific Northwest than in some other U.S. regions. The U.S. has attractive fiber economics with a low cost to build and strong ARPU growth. Importantly, like in Canada, U.S. customers are choosing fiber. Which brings me to our acquisition of Ziply on Slide 8. Ziply's delivering consistently strong results with EBITDA growing an impressive 17% in 2024, powered by fiber. This growth rate is even greater than planned, which is a testament to the Ziply management team's execution excellence. Management's demonstrated ability to execute will become even more valuable as the fiber footprint expands. Ziply's more mature, tenured markets have already reached 40% penetration. That compares with an average penetration rate of 23% in locations built in the last few years. So we're getting in at a very opportune time where there's still meaningful growth ahead of that penetration, particularly when you consider that over 40% of fiber locations were built in the last four years with more to come. 85% of Ziply's approximately 400,000 retail subscribers are on pure fiber service. Ziply also benefits from a favorable operating mix with over 70% of total revenues from consumer and SMB, and with a robust enterprise and wholesale business also built on the back of fiber. The acquisition is on track to close in the second half of 2025. It's an important part of our plan to generate sustained top-line and EBITDA growth. Now let's move to slide 9. We previously said we'd be open to working with third parties to help fund our fiber growth in the U.S. as we look to strengthen our balance sheet, diversify our revenue streams, and improve free cash flow. There's been strong interest amongst financial partners to join us in capturing a significant growth opportunity given the power of Ziply's assets and strong track record of its management team and BC's experience and success with fibre. As mentioned, we're very pleased to announce the long-term strategic partnership with PSP Investments through their infrastructure portfolio to build new fibre locations in the US and support Ziply's footprint expansion. BCE through Ziply will retain a 49% equity stake in the partnership with PSP owning 51%. PSP has been an investor in Ziply and knows the management team well. To be clear, and this is important, BCE will own 100% of Ziply's existing operations, subscribers, and financials. Ziply, as a BCE subsidiary, will continue its fiber expansion within its remaining copper footprint. Ziply will also retain all retail customer relationships associated with the incremental fiber locations to be built by the strategic partnership. What the partnership will be focused on is building last-mile fiber in Ziply's growth markets. This includes the near-term development of approximately 1 million fiber passings in Ziply's existing states, with the ability to expand to 6 million fiber locations longer term. This will enable Ziply to eventually reach up to 8 million total fiber locations, an increase from its original target of 3 million. The strategic partnership structure is a cost effective and capital efficient way to fund our US fiber growth while still meeting our D, leveraging targets and I'll detail that momentarily. Now, let's move to slide 10. This long-term partnership provides clarity on our U.S. fiber ambitions. Ziply's ILAC footprint covers approximately 2 million customer premises. Upon closing of the acquisition, fiber will already be available to approximately 1.5 million of these locations. The remaining 500,000 locations will be built and owned by Ziply over the coming years as part of Ziply's existing in-footprint fiber build strategy. And as I mentioned, the partnership has long term visibility into as, as many as 6Million additional locations outside of 2Million location footprint. The partnership unlocks our ability to capture the significant additional footprint and related financial benefits. So, when you combine our 8M locations in Canada that have fiber this year, our US fiber assets will grow BC's position as North America's 3rd largest fiber internet provider with access to approximately 16M total passings. There's clearly long term growth potential in this critical space. Turning now to slide 11 to wrap up on the US fiber. The PSP Strategic Partnership is an exciting announcement for BCE and for our shareholders. It allows us again to support the fiber expansion in a cost-efficient manner while optimizing the balance sheet and improving our free cash flow profile. Through this endeavor, Ziply will retain the retail economics of its existing and future customer relationships in the fiber footprint to be deployed by the partnership, and this will improve BCE's revenue and EBITDA growth profiles. BCE and PSP will proportionately fund any equity needed by the partnership as required over time. This significantly reduces the capital investment by BCE and improves BCE free cash flow by over $1 billion over the 2026 to 2028 time periods. The partnership will also have its own non-recourse debt financing, which is anticipated to be the majority of its capital over time. This further reduces BCE's cash funding requirement. The partnership will be deconsolidated with all CapEx and debt financing remaining off BCE's balance sheet. This structure and attractive cost of capital will improve our expected returns in the U.S. We're estimating an all-in rate of return in the U.S. of 20% or higher. So now let me turn to the next element of our strategic roadmap, and that's on slide 12. Our third priority is to unlock the potential of businesses with the best technology solutions. And we've set an ambitious goal, which I've shared before, to generate a billion dollars in revenue by 2030. And we're well on our way. And just two days ago, we launched Atteco. It's an all-new Montreal headquarter technology solutions provider, and Ateco brings together under the same banner the tech startups we've recently acquired, which are FX Innovation, Cloud Kettle, and HGC Technologies. Its competitive differentiators uniquely position it to deliver better outcomes for enterprise customers. Ateco's team of workflow automation experts will draw on their experience in the world's largest hyperscalers and automation platforms like AWS, Azure, Google Cloud, Salesforce, and ServiceNow to help customers streamline their operations, improve automation, enhance customer experience, and facilitate data-driven decision-making. We've created a one-stop shop for businesses' networking and technology solutions needs. Ateco's capabilities position us to achieve significant growth in the enterprise space. I'll now move to slide 13. The fourth key area of focus is to build a digital media and content powerhouse. Our digital pivot in media is bearing fruit after a lot of hard work and focused investments. Digital advertising is expected to have a total addressable market of $22 billion in Canada in 2028, up from $16 billion in 2024. As we continue to capture more share of that digital advertising market, profitable growth lies ahead for Bell Media. Our priorities in digital media and content are the following. Grow crave from 4 million subscribers today to 6 million by 2028. Maintain sports leadership through the best breadth of content. accelerating conversion to digital inventory and a focus on extending content value and monetization. This is already being realized with Bell Media's acquisition of a majority stake of global content distributor Sphere Abacus. This move expands Bell Media's content distribution opportunities. Let me touch briefly now on the fifth key pillar on slide 14. As I outlined in February, we have an extensive transformation program in place to modernize and simplify how we do business. We started this transformation in 2022, and it's already delivered 500Million dollars in savings. At the time I stated that we had 500Million dollars more to go through 2028 to achieve our goal of a 1Billion dollars in cost savings. Given our transformation momentum to date, we've upsized that objective by an additional 500Million dollars for a new goal of 1.5Billion dollars in total cost savings by the end of 2028. I'll now turn to our capital allocation strategy on slide 15. We're navigating a complex operating environment which has evolved significantly since the fall of 2024. In February of this year, we laid out a clear roadmap to adapt to this evolving environment and I've kind of expanded on it today. Core to this plan is our capital allocation strategy. Strengthening the balance sheet, investing for growth and driving total returns are the key priorities. Let me share the meaningful progress we've made over the last few months, beginning with optimizing our balance sheet. In February and March, we successfully accessed the hybrid debt markets in the U.S. and Canada, raising the Canadian equivalent of approximately $4.4 billion in our first hybrid notes offerings in each market. Given the 50% equity treatment afforded by the credit rating agencies, this has meaningfully improved our leverage ratio. Consistent with our deleveraging plans, we repurchased several bonds trading at a discount to par value, reducing the amount of debt. These actions have collectively lowered our net debt leverage ratio by approximately 0.3 times since Q4, bringing it to approximately 3.6 times adjusted EBITDA. Given BC's healthy balance sheet and business mix, we are best in class from a credit ratings perspective in Canadian telecom. In addition, our review of non-core assets continues to advance. The previously announced divestitures of Northwestel and MLSC are progressing as expected, and we've launched two processes for additional divestitures. Proceeds from any new sale will support our deleveraging efforts. The acquisition funding for Ziply is leveraged neutral, and we structure the transaction in a way that balances growth with financial discipline. I've explained that in detail in the earlier in the earlier sections on the US bottom line is the partnership will enable us to better capture the significant upside of fiber expansion, unlocking incremental cash flow to support the leveraging at the BC level. And it complements our broader efforts to strengthen the balance sheet. And as I mentioned earlier, we're already seeing simply outperform expectations. In fact, since we announced the acquisition in November. The transaction multiple of 14.3 times estimated 2025 adjusted EBITDA is now already closer to 13 times. The Ziply team is driving very strong customer acquisition and penetration on its fiber metrics, and the metrics will get even better as we go forward, as we capture the incremental synergies and growth opportunity from the PSP partnership. Now, the second component of our capital allocation strategy is investing for growth. Our approach remains grounded in those strategic pillars I've outlined previously, and we'll continue to execute on them with precisions. The investments are designed to position us for sustained success in an evolving market, ensuring we'll remain an industry leader. And the 3rd aspect of our strategy is delivering value to shareholders. The focus is on maintaining a resilient and sustainable dividend. Achieving leverage ratio targets and greater flexibility as we drive total shareholder returns. And that brings me to slide 16 and our dividend announcement this morning, which encompasses all 3 components of our capital allocation strategy. We spend considerable time with our shareholders discussing their perspectives and carefully evaluating our operating landscape. We must address a number of significant changes in our economic and operating environments that have occurred since the fall of 2024 as I've mentioned. Today's actions will allow us to definitely navigate through this cycle. Considering these factors, we've made the appropriate decision to adjust our dividend. The annualized dividend per BC common share will be established at $1.75 per year, effective with the Q2 dividend payment. Even with the adjustment to the dividend, we continue to provide an attractive yield that is among the highest on the TSX-60. Additionally, we're updating our long-term common share dividend payout policy to target a payout range of 40% to 55% of free cash flow. This policy range provides us with more flexibility for deleveraging. To make it easier for investors to consider the effects of capital leases on our cash flow, we will begin to also disclose our free cash flow after capital lease repayments going forward. In addition, we will provide on an annual basis the implied dividend payout ratio on the basis of free cash flow after cap lease repayments, along with the payout ratio based on our policy. The adjusted dividend will support our deleveraging efforts while providing enhanced flexibility and positions us as a resilient dividend-paying company. By the end of 2027, we expect to achieve a net debt leverage ratio of approximately 3.5 times adjusted EBITDA crow form a zip lead, with a longer-term goal of approaching three times by 2030. We will also eliminate the Treasury discount feature of the DRIP effective with the Q2 dividend payment on July 15th. These decisions are the right ones for the long-term health of BCE and the long-term interests of our shareholders. As we look to the future, I want to reiterate our unwavering focus on disciplined execution, financial resilience, and value creation. The steps we've taken this quarter demonstrate our ability to adapt and deliver in a challenging environment. And with that, I'll turn the call over to Curtis.