BCE, Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Margin Expansion: Adjusted EBITDA margin for Q1 was 42.7%, expanding 0.8 percentage points. Focus on operational efficiencies and cost realignment to address competitive and economic pressures.
• Fiber Growth: Fiber continues to gain share in all markets with a symmetrical speed advantage over cable, driving best Q1 retail Internet net additions in 17 years and 22% year-over-year increase in households subscribing to mobility and Internet service bundles where fiber is available.
• Wireless Performance: Strong growth in total gross mobile phone activations (up 25% year-over-year) and 4% consumer service revenue growth, balancing volume growth and economics in a competitive environment.
• Business Enterprise Investments: Investing in new IT products/services, with partnerships and acquisitions to advance cloudification, security, and managed automation. Excluding FX Innovation acquisition, Business Solutions revenue grew 12% organically.
• Media Digital Pivot: Bell Media is the only Canadian media company pivoting to digital at scale, with 72% increase in digital ad revenue. Strong performance in programmatic advertising, SAM TV sales tool, and Crave's ad-supported tiers, and expanded distribution of Crave on Amazon Prime Video.

Segment Performance

• Wireless: Added 45,247 new net postpaid mobile phone subscribers, up 4.5% from last year (best Q1 performance in 6 years). Service revenue grew due to strong mobile phone net subscriber loadings. 56% of postpaid customers were on 5G capable devices, up from 44% last year.
• Wireline: Delivered highest Q1 retail Internet net adds since 2007, up 13.9% year-over-year. Fiber gained share in all markets, with bundle sales exceeding internal budget targets. Q1 retail Internet net adds were 31,078, and Bell IPTV added 14,174 net new subscribers (up 30% year-over-year).
• Business Enterprise: Business Solutions and Services revenue grew 12% organically excluding the favorable impact of FX Innovation acquisition. Growth in cloud-based computing, managed automation, and security solutions, with partnerships with Microsoft, Google, etc., and acquisition of FX Innovation.
• Media: Bell Media had positive year-over-year advertising revenue growth, with a 72% increase in digital ad revenue. Strong performance fueled by programmatic advertising, SAM TV sales tool, and ad-supported subscription tiers on Crave. Expanded distribution of Crave on Amazon Prime Video and launched 10 FAST channels.

Guidance

• EBITDA Growth: Anticipate stronger EBITDA growth in the back half of 2024 as OpEx benefits from workforce restructuring ramp up.
• Leverage Target: Updated internal target leverage policy to 3x adjusted EBITDA, reflective of operational size, strength, and investment-grade credit ratings.
• CapEx: CapEx down $84 million in Q1, with year-over-year quarterly step-down in spending to continue as construction conditions remain favorable.

Risks

• Competitive Pricing Pressures: Aggressive wireless rate plan pricing and higher residential service bundle discounts moderated overall revenue performance in the quarter due to intensive competitive market environment.
• Economic Uncertainty: Business wireless growth impacted by slower subscriber growth, lower demand, and cost rationalization initiatives by customers due to general economic uncertainty.
• Content Cost Increases: Content costs expected to increase in future quarters with normalization of content deliveries from major U.S. studios post-Hollywood strikes.

Question and Answer

Q: Could you talk a little bit about margins as they flow through the quarter because it looked like you had some pretty good cost control. But in light of your comments that the benefits of the restructuring, not really in the numbers yet. How should we think about that kind of cadence through the rest of the year?

A: The workforce restructuring is underway. Estimate is that as we continue to finish the project, we'll continue to ramp up some cost savings over time. Also, transformation initiatives like digitizing and automating to drive results and improve margins.

Q: I wanted to ask you a general view on wireless in Canada. We've seen churn ramp up really significantly over the last couple of quarters. Longer term, what's your view if churn remains elevated like this? How that will impact your overall wireless margins and the cost to operate in that business?

A: Churn is concerning. We focus on premium subscriber loadings and bundling. Customers choosing fiber churn at lower rates. In Quebec, fiber Internet net adds were strong, and NPS results improved.

Q: I noticed in the release, you guys have changed your assumption for ARPU growth for 2024 from decelerating growth to a decline. And yet in the first quarter, you were able to hold ARPU flat year-over-year. Could you talk about kind of how you expect the pricing environment to maybe evolve over the course of the year that would get you to that kind of assumption of negative ARPU growth?

A: Reflects low pricing environment. Focus on premium subscriber loadings and bundling to generate good household revenue and improve lifetime value of bundled customers. Pricing environment is dynamic, and we can't fully control it.

Q: You've noted 3% Internet revenue growth, which seems a bit lower than in previous quarters. Maybe just talk to that element. I know that there were some price adjustments that happened in the beginning of the year.

A: Net revenue growth reflects impact of residential service bundle discounts. Focus on underpenetrated fiber market share, particularly in Quebec. Bundled discounts have positive churn impact in long term.

Q: I was hoping you could give us an update on the restructuring in terms of the timing of the cost synergies and how we should think about them rolling out through the year?

A: Workforce restructuring is underway, not complete. Benefits not seen much in Q1. Estimate is that benefits will ramp up over time as the program progresses.

Q: Just one question on Business Wireless for a second, I mean, any update perhaps you can give us on what you're seeing from a business perspective, whether it's some mines being perhaps maybe some competition or maybe some lines being dropped because of workforce rationalization from some of your peers there in Canada?

A: Business wireless growth was softer due to slower subscriber growth, lower demand. Customers undertaking workforce rationalization, cost rationalization initiatives, and lower travel affecting roaming and data overage.