Q1 2020 Earnings Call
Thank you for standing by this is the conference operator, welcome to Rogers Communications Inc. first quarter 2020 results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
Following the presentation, there will be an opportunity to ask questions.
The joined the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star and zero I would now like to turn the conference over to Paul Carpino, Vice President of Investor relation with Rogers Communications. Please go ahead.
Thank you Ariel good morning, everyone and thank you for joining us today I'm here with our President and Chief Executive Officer, Joe Natale.
Chief Financial Officer, Tony Staff theory.
Today's discussion will include estimates and other forward looking information from which our actual results could differ. Please review the cautionary language in today's earnings report in or 2019 annual report regarding the various factors assumptions and risks that could cause our actual results to differ.
With that let me turn it over to Joe.
Thank you Paul and good morning, everyone I Hope all of you and your families are safe during this unprecedented <unk>.
Our countries in the midst of an incredibly challenging moment in our nation's history.
Where our collective actions and responses are needed to make a difference.
It's amazing to think.
After the first time in our lives.
The phrase what can I do to help is not relevant and applicable to all 37 million Canadians.
We all have a role to play and that includes the telecom industry.
Which a step up to the challenges the new demands in our lives.
Posed by the Corbett 19 academic.
Our networks provide the foundation for the way we are living today are we stay in touch.
Work.
Learn stay informed to entertain and.
And our efforts at Rogers are going beyond our business. So new community partnerships to help provide extra help those are most vulnerable in this crisis.
We are committed to supporting our customers and Canadians through these challenging times now and into the future.
Despite a meaningful slow down in business in March or overall wireless and cable financial results were in line with expectations going into the quarter.
Although media felt the pressure associated with the cancellation Oh above all life professional sports.
Tony will take you through some details momentarily, let me give you a broader perspective and how we look at the business during this period.
In this environment near term monthly and quarterly results are not a reflection of our company's underlying fundamentals.
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Pardon me this is the operator.
Hello, Dave Brown.
Hello.
Is it possible you heard me on mute.
Term needs of society.
People are adjusting their day to day behaviors to protect their fellow Canadians and the Braves frontline healthcare workers, who need our support during this crisis.
Just there's nothing more important and everyone at Rogers, It's just it's completely focused on this.
As you know.
We are financially strong company with a long term focus we don't run our business on a strictly quarterly basis under normal circumstances, let alone during extreme EXONDYS events like the one we're dealing with right now.
Nations businesses and people around the world are tackling this challenge together I.
We know the current environment will pass.
In the meantime.
Our energy and resources are focused on protecting our employees and customers and ensuring Canadians remain connected.
As you saw in the first quarter, we closed about 90% of our retail stores.
The remaining open locations are providing essential services.
Well this affected our near term business, we believe it's highly inappropriate and this environment to be offering or responding to aggressive promotions that drive foot traffic into stores that put employees and customers at risk.
Let me take a moment to think our frontline teams that are working hard to deliver essential services to our customers. We are extremely proud and incredibly grateful for what you're doing every day.
Well, we won't be providing specific financial guidance during the short term period of volatility.
You can rest assured that we will be managing the business as responsibly.
And as efficiently as possible.
Just as we have consistently demonstrated in the past.
Well there will be additional pressure in the coming months as Canadians work together to defeat Cobot 19.
Rogers is a financially strong company.
You provide services that matter more.
Than ever before in People's lives, we will navigate through this effectively.
We are a trusted brand and we have a leadership role to play in Canada.
Yeah total liquidity will total liquidity of $3.8 billion and you can expect strong free cash flow to continue this year.
Canadian should feel confident that our world class networks will be there for them.
Analysts and investors should also continue to feel confident in our company.
We will remain disciplined stewards of capital. It gets you need to manage the company thoughtfully for the long term as we help our country navigate through the current environment.
Let me spend a few moments shedding some light and how we are operating to protect our teams customers in communities and to ensure Canadians remain connected.
As I said I'm, so proud of our teams and how organization is adapting to new ways of doing business.
Our networks that helps power our nation for 60 years supporting people communities in businesses, we're working hard to ensure new network usage needs are being met.
Throughout the day hold Internet usage on average is up over 50%.
And our teams have been working hard to manage capacity to meet these rapidly changing needs.
Meeting the needs of customers that's required us to quickly evolved the way we do business.
Our teams have stepped up to meet the challenge by coming up with new and innovative ways to serve our customers.
About 10% of our retail locations remain open to provide urgent customer support for our wireless services, including support for those providing essential services and for our health care heroes were managing the impossible to keep a safe.
We've also adopted our recently launched pro and the go service so customers in the GE a in the greater Vancouver area can still get a new device deliberate and set up within hours using contact less delivery and one on one support through the phone or video chat.
We'll be expanding this to other markets shortly.
In cable we've watched a series of no contact self installation programs.
So customers can activate TV internet at home phone safely from inside their homes are technicians communicate directly with them for guided support through video chat without entering the customers home.
In terms of customer care, we've undergone a major transition with great success Weve rapidly deployed thousands of work from home technology kits to team members over the past month to enable our customer care agents virtually all of whom are based in Canada to serve our customers.
Customers can still call us service levels are strong and our agents can seasonally answer those calls while working remotely from home.
In February we had 800 care agents answering customer calls from home.
We are now nearing to 7000 at home care agents this week.
At first glance this task seen insurmountable.
But our team to drive in collaboration with second to none.
And our media business sports that operations were materially up ended as every lie professional sports league shut down in a matter of days.
As we wait for the return of life sports our teams have been creative in experimenting with unique formats across TV and digital platforms featuring beloved historical games.
Our immediate teams are doing what it takes to ensure quality news and information continues to pour into homes across the country.
James or broadcasting from their basements and living rooms, because they know Canadians are counting on us to bring trusted sources of news and insight to them every day.
Our engineering a field technicians are also frontline heroes.
There are out there working support health care providers running fiber in parking lots and fields to create new cobot testing sites.
Bringing more wife wide to hospitals, so patients can stay connected with families.
We've implemented premium pay for our colleagues who provide the is critical in customer facing roles with the public and we thank them.
For their dedication.
For their service.
But there's a bigger purpose for corporations and individuals in this environment that requires doing as much as we can to support our customers and our communities at large.
We're not immune to the short term pressures, but we can certainly respond by providing extra support to the best of our abilities.
Our customers have chosen us as their communications provider.
When we take their responsibility very seriously.
Here are some of the measures we brought in through the end of June as part of our forward together program.
We've lifted data usage caps for home Internet plans, so customers don't have to worry about orbitz charges were waving Canadian long distance voice, calling fees for homes to small businesses. So customers can checking on loved ones and keep in touch with customers.
Without worrying about extra charges.
We're offering a free rotating selection of channels to keep viewers and families entertained with additional hours at home.
We've added more flexible payment options and the commitment that customers will remain connected to the service. So nobody has to worry about losing their digital lifeline.
After our commitment to waive roam like home Fido roam and pay per use roaming fees for March 16th April Thirtyth in more than 180 countries. We helped more than 150000 Canadians to stay connected at no additional cost while they made their way home from abroad.
Beyond these customer initiatives. The Roger's team is committed to helping the most vulnerable in our communities that are hit the hardest.
Last week, we announced that we're working with the government of Ontario, local school boards in the province, and Apple to offer I pads with wireless data at no cost to help students in need who don't have the tools for online learning.
In addition to this.
And many local efforts in communities across the country.
We've launched three national partnerships with community organizations to help deal with additional crises brought on by Cobot 19.
We partner with food banks, Canada to donate over 1 million meals and are leveraging the power of our radio and TV assets to reach over 30 million people every week in an awareness campaign to help build the shelves with food.
Our customers and employees a opened up their hearts and their wallets and raised funds for an additional half a million meals.
We're providing smartphones in collaboration with Samsung and offering six months or free wireless service to Big Brothers Big Sisters, Canada.
So vulnerable young people.
The littles can stay connected to the mentors and their schoolwork.
And with domestic violence or on the rise we've partnered with women's shelters of Canada to help make devices and plans available and help raise awareness of shelter safe dossier services.
The available through ads, all across our digital and social platforms.
I couldn't be prouder of our team.
To a person.
Each has accepted their leadership role.
And is committed to just doing the right thing.
We are all part of Canada's national fabric that makes our country thriving good times.
Survive through times of crisis.
And now like never before.
We all appreciate.
The importance of staying connected.
Good names across the country and governments have recognized telecommunications is an essential service.
We serve as the lifeline that binds our nation's together.
We take our responsibility seriously are proud to be working closer than ever with our government partners to support Canadians through this challenging moment.
And that won't change.
Our networks power the business in the services that are getting Canadians through these difficult times.
When we come through the other side.
We will still be there for Canadians.
Our shareholders and all of our stakeholders can rely on our resilient networks and our leadership in supporting the inevitable economic recovery.
During this crisis and moving forward, our disciplined and balanced approach to capital allocation remains unchanged.
Priority continues to be investing in technology and capabilities that will ensure Canadians remain leaders in the global digital economy over the long term.
And as we have demonstrated in the past we will also focused on returning healthy levels of capital to shareholders over the long term.
Through dividends and stock repurchases our track record with is balanced model has proven to be effective.
For both our business.
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We want our customers and all Canadians to know.
Our entire Rogers chain.
Over 25000 across the country.
Our board the Rogers family.
Stands shoulder to shoulder with Canadians and Canadian businesses to get through this together.
And come out stronger together.
Let me now I'll turn the call over to Tony.
Ah Tony will you. Please provide your comments and some more detail on the quarter. Thank you.
Thank you Joe and good morning, everyone.
Our first quarter results captured be initial stages of the coated endemic issues that we experienced as a company.
As a result in another themselves are not reflective.
In the usual sense of the run rate of our business.
In fact, the impacts were only experience in the last several weeks of the quarter.
We've learned a lot more in that three weeks following our quarter end.
As a result, my comments will provide more color on the first quarter results with it for you to how they were impacted specifically in the final month of the quarter.
And then I'll expand these comments to include some context on trends, we're seeing post quarter end.
Before I do getting to some of those details. However, I wanted to take a moment to thank her entire roger's team for continuing to deliver and doing the right thing for our customers and for each other.
While these are difficult times, the attitude of our entire workforce has been inspirational.
I also want to give a big thank you to our entire finance team, who achieved a major milestone in closing our Q1 books all remotely from home this quarter even.
Even more impressive they did it in the same timeframe. They would have completed this past if they were all at the office I.
Out of necessity, we're all learning creative and innovative ways of working and collaborating to get things done and as you heard in Joe's remarks, we're seeing this across all lines of our business in these learnings will make our organization stronger more productive going forward and will no doubt help shape, our operating models going forward.
Our operating cadences change quickly during this pandemic with widespread store closures shifting of thousands of team members to work from home and assisting customers new ways with their most urgent needs, we pivoted our operational priorities far beyond traditional operations and sales growth metrics are over.
We're writing priority was to ensure our customers are being served and our employees were being kept saying. This was a time to ensure we just did the right thing.
So with that guiding framework.
The inability to know how the issues relating to the pandemic would unfold.
We shifted our overriding financial barometer in this environment to cash flow.
Balance sheet liquidity.
While we entered this crisis with a solid balance sheet cash flow and liquidity position as a result of our prior capital allocation decisions. We wanted to ensure we remain prudent and prepared on this front. So that we could maintain flexibility in our business for whatever comes next in short we remain financially strong.
And our year to meet the needs of Canadians and our customers.
We currently sit with $3.8 billion of available liquidity the highest in the company's history.
We recently strengthened our position with a successful debt issuance of seven year funds at an effective yield of 3.7%.
And we ended the quarter with a debt leverage ratio at a comfortable 2.7 times.
You see our leverage position continuing in the range of two and a half to three times for the next few years and we believe this is sound and reasonable.
Given the spectrum auctions on horizon, and the continuing downward pressure and pressure on interest rates.
We ended Q1 with free cash flow of 462 million up 14% year over year.
In terms of our first quarter results I'd summarize the co good impacts to our financials and our business.
That's falling into a few key themes.
In wireless our revenues were impacted by the rapid decline in roaming activity and related revenue dropped as well as the impacts of some customer support of initiatives such as free long distance calling.
As well subscriber activity substantially slowed in wireless with much fewer new customer activations, but conversely churn dropping dramatically.
This lower volume translating to material reductions in handset investments, thereby adding to our overall wireless net cash flow growth.
Our business revenues were much more stable stable and continue to see strong internet performance or speed and reliability became essential in a work from home environment.
The impacts of growing unemployment rates did not surface in the quarter in terms of planned downgrades, but I'll have more comments on this factor in a few moments.
We have moved our table operations to 100% self install and this cash savings will show more materially in future quarters again, assisting in maintaining cash flow stability overall for our cable business.
Our media business saw the most immediate impacts a pandemic in our Q1 results a sporting events were suspended.
These declines were offset to a limited extent by suspended content rights costs and player salaries.
Our capital expenditure programs only slightly declined in the final few weeks of March as a result of lower volumes and slowed ability to get work done.
Our results in Q2, we'll see more material impacts from these items.
But we remain confident in our financial strength and ability to efficiently manage the business. During this transitional coded pandemic period.
Along with the immediate health issues relating to a pandemic and the more direct an immediate impacts to our financials.
We're also pleased paying close attention to the direct direction of macroeconomic indices and their potential impact to us and the industry.
In particular with elevating unemployment levels, we anticipate bad debt costs could increase in the second half of the year.
In addition, we're seeing the early signs of customers looking to downsize their packages with us in both wireless and cable.
As a rightsized their spend to their new cash flow realities.
We expect this volume will pick up depending on the depth and duration of the economic downturn and will ultimately impact recurring ARPU in revenue.
All of these items as well as others that may arise are difficult to estimate at this time and as a result were withdrawing our annual guidance that was originally provided.
In January.
Turning now to some specific numbers in Q1.
In wireless service revenue declined 2% year on year.
The slight increasing year over year decline.
And compare to Q4 was specifically as a result of Covidien packs experienced in the month of March as expected revenue continued to be impact by the reduction in overage revenue associated with the transition.
Sure Infinite unlimited plans, we saw about a 40 million dollar reduction in year over year overage revenue in the first quarter.
And currently have over 1.6 million customers on these unlimited plans.
During March we saw sharp decline in roaming volumes, both inbound and outbound as international travel significantly scaled down.
Well, we also offered free roaming and free long distance to ensure Canadians could stay connected at a time when speaking with family friends and customers was never more important.
Revenue from these programs was approximately 15% lower than the same period last year and amounted to $14 million in the quarter.
Excluding these specifically identifiable cove it impacts our wireless service revenue would have otherwise decline, 0.8% year over year the same as Q4.
The koby pandemic also caused the subscriber market to essentially halt during most of March and otherwise high volume month in the corridor.
Postpaid gross it [noise].
Gross additions were down and notable 13% for the quarter and down more dramatically in the final weeks of March.
Shopping malls were closed and we shut down over 90% of our retail stores.
All but emergency services as this was essential to protect our employees and customers.
In this environment, we chose not to engage in pricing incentives that were encouraged customer traffic to stores or stimulate loading.
We just did the right thing and did not match many promotional activities that occurred in the last month quarter.
Conversely churn dropped dramatically in the month of March we posted 0.93% churn for the quarter, but again churn was even lower in the last few weeks of the corridor.
As a result of the market essentially being frozen with no or very limited growth in March we posted net postpaid subscriber losses of 6000.
This wasn't a normal result than due solely to the coded related decisions to substantially wind down competitive offer activities and the final weeks of the quarter.
We don't view any subscriber metric during this period as being meaningful so any long term franchise franchise value of our wireless business.
Notwithstanding the softness in revenue wireless EBITDA still grew 1% this quarter up from negative 3% in Q4 once normalized for the lease accounting impact.
This was primarily driven by lower call center volumes lower handset subsidies ongoing efficiencies from our transition to unlimited plans and some naturally lower expenses associated with the overall business environment.
On the handset subsidy front you saw that we eliminated all subsidy plans from our offerings.
Moving to a full installment plan financing model early in the quarter.
Prior to cope with it we saw a notable improvements in the amount of handset discounting being offered.
Combined with the drastic reduction of handset volumes in March our total net handset costs on a cash basis was down 19% or about $90 million year over year.
Let me now turn to cable.
Before getting into the financial specifics I want to spend a moment to highlight two additional Cape YY metrics, we are providing to replace some metrics.
That have become much less relevant in how we manage the business.
We have removed the revenue split by cable product and introduce metrics about household level.
The number of customer relationships added during the quarter household penetration rates and household cable ARPA or average revenue per account.
This change aligns our according to our team manages the business are focusing cable is to maximize the penetration of all homes and businesses past.
As well as the revenue and margin per household <unk>.
For competitive reasons, we won't be disclosing the margin per household.
We have eliminated the reporting of revenues by product as the allocations have increasingly become more arbitrary as we focus on multiproduct households at bundled prices and its technologies amongst our products migrate to all IP based offerings.
These new metrics will also give more meaningful information going forward in terms of network penetration and monetization of our connectivity at the household level.
Hey, Ryan cable revenue was approximately flat compared to Q1 last year, while adjusted EBITDA grew by 2%.
While these are solid results in the current environment. Our cable business also felt some coated related impacts in Q1.
Similar to offering support programs to help our wireless customers were also helping or interment internet customers, what cap data plans by eliminating data overage charges and providing access to certain freed premium video content to TV customers.
It's impacted revenues by less then.
I think 5% in the quarter.
In Q1, we reported 17000 Internet subscriber net additions 3000 more than the first quarter last year and Internet penetration increased 90 basis points.
You can make TV has also performed solidly solidly in this challenging environment, adding that adding 91000 subscribers to reach a base of 417000.
More than four and a half times higher than one year ago.
In addition, we reported 2000, new customer relationships in the quarter with ARPA of $129 slightly below last year and our penetration now sits at 55.8% of homes passed.
EBITDA margins were 47% up 100 basis points year on year and cable Capex intensity declined further to 25.8%.
As Joe noted, we launched self installs in Internet and ignite TV in March which should help both of these metrics going forward.
Media, the Kobin pandemic had a more dominant impact on revenue, but less so on habit.
Revenue was 12% lower year on year. This was driven by lower advertising revenue associated with the suspension of life TV broadcasting for all scores the postponement of Blue Jays gains in late March.
And the sale of our publishing business in 2019.
Despite the logs declined and media revenue EBITDA was down only 1% due primarily to not incurring the significant broadcasting rights costs for NHL and NBA like programming lower Blue day salaries, and a onetime impact relating to clear salaries in the prior years first quarter.
Moving to consolidated results through total service revenue was down 3%.
And adjusted EBITDA was flat.
We invested $593 million in Capex for the quarter, which was a year over year decrease of 4%.
Well reflected a C.I. ratio of 17.4%.
The decrease in capital expenditures was largely driven by the continued improvements in cable capex efficiency and by the initial stages of slowed capex spending as a result of code.
We expect capex for the year to come in well below the guidance range. We previously provided.
It is too early to provide more specific guidance at this point, but we will continue to focus our capex spend on network coverage and capacity.
We generated free cash flow of 462 million this quarter, an increase of 14%. Notable increase this quarter was the result of lower capital spending and lower cash tax payments.
Our cost our cash tax rate as a percentage of adjusted EBITDA was 7% in the quarter and should be in that same range for 2020.
As I've already noted even with the current pressures associated with the impact of Cobot, we expect strong free cash flow to continue.
Additionally, our balance sheet as well structured with long term maturities and low interest rates on our outstanding debt.
Our weighted average interest rate at quarter end was 4.24% with average term to maturity of 13.5 years.
In terms of an outlook, we have withdrawn guidance because it's too difficult in the short term to predict various combination of factors that could impact our financials.
However, here as a snapshot of how we are trending on some key forecast variables.
In wireless ARPU will continue to be impacted by declines in roaming revenue in the last 30 days roaming volume has declined 80% and this will translate to a loss of roaming revenue of $80 million in Q2.
Although our pacing of migrations to or even an unlimited plans.
Slowed recently, we will continue to experience the over a year on year declines from previous migrations.
This is expected to be approximately $50 million.
In Q2.
We are seeing increasing numbers of customers looking to downgrade their wireless price plans.
This will have a downward pressure on ARPU as early as Q2.
As you would expect we do not anticipate the subscriber market to reactivate in any material way until the public is allowed to safely return the malls in our stores while the market was previously growing at approximately 4% on an annual basis. This lack of subscriber growth rate will impact our revenue growth.
As a result postpaid nets will continue to be down on a year on year basis, and churn will continue to decline.
Conversely, handset cash expenditures will continue to come down a meaningful meaningfully in this environment.
Last year, we spent $2 billion on handsets in Q1 handset expenditures were down 25% and down 60% in the last few weeks of March on a year on year basis.
This will yield material cash savings that has already started.
In both our cable and wireless businesses, we have giving customers the opportunity to extend bill payment terms if needed while our receivables metrics have not yet in been impacted by these extended terms, we do anticipate that cash collections on a our may start to slow in Q2, we're starting to see early increases a number of.
Calls relating to bill payment and Bill payments and expect this will increase as unemployment rises and persist and business customers continued to be impacted.
This will likely show up in rising bad debt costs in the back half of the year, but again difficult to predict the quantum at this early stage.
We continue to see positive demand for our internet offerings, particularly as in home bandwidth and reliability takes precedence you know work from home environment.
In this business, we're seeing settle improvements in Internet ARPU and household ARPA. However, this is being offset by an increasing level of calls for agents as some customers look to reduce their monthly bills similar to what we see on wireless on balance we see household ARPA being negatively impacted as early as Q2.
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[noise], notably in moving 100% self install on our Internet and TV products, we are seeing significant improvements in opex and capex related installation and upgrade costs. Our current assisted self installation approach reduces our cost by 30%.
Pair to traditional technician enabled installations.
And the savings will get higher as we move to full self install models at a later time.
Capital intensity for our cable business continued its steady downward trajectory to 26% in Q1. This is largely the result of our targeted efforts to drive more efficiency and cable capex.
However, reduced volumes and self installation together with delays on certain projects will drive this lower in Q2 and for the rest of year.
Our media business will likely continue to incur losses in the near term as the startup of live sporting events continues to be delayed.
I'll reduce content costs offset some of the revenue loss certain other fixed costs will cause us to be a button negative for a period of time.
To summarize while we expect the revenue impacts in our industry to be much milder than other industries and do anticipate offsetting cost and cash flow savings naturally are rising we will see shorter term pressure on our financial results. During this period.
As I stated at the top overall cash flow and liquidity is strong and will be our focus during these times, while we don't foresee major issues on that front. We will continue to ensure we are prepared for the various scenarios that may unfold.
Do not see any reason to cut or reduce our dividend. We continue to have a low payout ratio as a percentage of foreseeable cash flow sunbelt auction is needed at this time.
On balance we're pleased with our results and other companies operating in this environment.
Culture at Rogers is about doing the right thing we're proud of the corporate social responsibility actions, we've taken to support our customers keep our nation operating digitally and protecting the safety of our employees and customers.
We entered this crisis from a position of strength and you can count on us to maintain our disciplined financial stewardship as we help Canadians navigate through this period.
Let me now turn the call back to the operator to commence with our Q in it.
Thank you we will now begin the question and answer session.
And the question Q you know press Star then one on your telephone keypad.
You'll hear a tone acknowledging our request.
If you are using a speakerphone please pick up your handset before cracking and include.
Try your question. Please press Star then too.
During the question can you. Please press Star then one now.
Our first question.
Comes from.
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Alan.
TD Securities.
Thanks, very much guys and congrats for all the hard work you're doing due to help you in plays in society through this.
A couple of questions on costs, the 90 million dollar reduction in your cash costs for equipment subsidies in Q1.
Tony can you talk to us a little bit about how much of that translated into an EBITDA benefit and under I first 15 with the more significant reductions in Q2 will will we see like a quarter of that or 40% of that benefit EBITDA in 2020 or is it really gets stretched out over two years.
Thanks for the question Vince its its a combination of both factor it factors actually so we saw $90 million in Q1 as you said.
The volumes of handsets that we see today are running 60% to 60% lower year on year.
You're going to see too to isomedix some of it will flow through right away under IRS accounting as we allocate.
Some of the total contract revenues to hardware revenue, you'll see some of that in better margins. In Q2, you saw some of that in Q1 expect to see I'm slightly more in Q2. So of the handsets that are being sold and offered there's much less of a discount.
On a than you would've seen previously and so that's a continuation of trend that we saw in January February and comes together with installment financing and that piece of it seems to be going well. The second piece of it will be seen over 24 months of the contract term and so that means a lot harder to predict.
But all of that to say is between those two items.
A number will will be higher in Q2.
Okay. Thanks, and just a couple of quick a cost ones I'll leave I'll throw them both of their one I'm not quite sure I understand your Blue Jays salaries comment is that just saying that you had planned to have lower salaries. This year versus last year and that showed up or are you, saying that the players actually not being paid one of the games arc.
Happening.
Oh gosh, what can you just go from there was no bad debt allowance in Q1, you're not taking any reserves for trying to predict what that that might be at this time, it's it's going to wait until second half that's it for me. Thanks.
Okay on both of those when so in terms of Blue Jays player salary costs.
That's correct. The players aren't played if there aren't games, except for a very small amount that are putting the category is immaterial.
And so those are costs that are suspended if you will until games are actually play.
The second piece of your question, we did not increase our bad debt allowance in Q1, as we go through or typical processes of quarter end estimation.
We didnt see and continue to see very limited.
Defaulting collections and so we are calling out a potential risk that may arise in the second half, we think likely will arise as unemployment.
Any continues to rise and the period it seems more extended than than we might have originally thought and so.
You should expect to see that likely increasing in Q2.
Thank you.
Thanks, Vince next question area.
Our next question comes from Jeff Fan of Scotiabank. Please go ahead.
Thank you good morning hope everyone is doing well on the call I've a question on.
Outside and then a maybe a post pandemic question.
On the Internet site I guess one of the.
Greetings about offices is that you've been able to expand your network very quickly to one gig service across your footprint I'm wondering what you're seeing in the market today in terms of demand I guess couple that with your ability to self installed 100% now are you seeing.
Your service demand pick up as a result, yes, the ability to offer that one gig across your footprint on a more consistent basis.
That's the first question on Internet. The second question is just looking try to look beyond.
I guess, the pandemic a little bit.
Some of your revenue streams.
Related to on the wireless side or even on the internet side related overage and roaming obviously all coming off.
Do you think on a more I guess at a high level that structure, a pricing is something that solemn will remain.
I guess I'm I'm, asking because Rogers was obviously a leader in shifting every one overdue unlimited.
I'm wondering if there is any opportunities or post pandemic to kinda wean yourself off with some of these.
Got it.
Revenue streams. Thanks.
Thanks, Jeff.
Good questions.
Let me, let me start with Internet.
I look at the Internet.
Demand sort of in two ways image first talk about the current demands I'll talk about DOCSIS and the advantage.
In terms of current demand as I said, we're seeing yeah. When we first started.
Looking at and that workload right in early March or so we saw a internet demand go up.
30% on average.
The last two weeks, we've been sort of sitting seeing a 60%.
A year on year increase in internet demand from customers in terms of households in general and the network has fared very well the teams that are very good job of.
Hi study in the moment, whether it's you know reallocating some of the RF spectrum in our Darcis network, whether it's looking at different ways of changing the payloads coming on the network et cetera that are really good job of tuning it and it's performing very very well given the increase load was that a perspective, that's about two years of growth.
That's as I said, that's happened really in the last number of weeks.
In terms of ads were not up they're promoting or stimulating in the market for all the reasons, we talked about we're trying to find the time when it's both appropriate and worthwhile to try to us in light of demand. We don't think that's right now.
But we are seeing unsolicited demand come through for people.
The or at home using their network more than ever.
For working at home like it.
The the top halos right now are not flux is number one and that all forms of video conferencing or number two.
Whether its zoom face time, Skype Webex et cetera, and then number three would be sort of you tube in general kind of social media surfing that goes on so that's created that sense of demand and the need for speed as families are home and kids are all mine has stimulated the market from that perspective, but we're seeing actually.
Liberty both in terms of customers wanting to upgrade.
Speech here.
But also customers that are for whatever reason unhappy with their current provider.
And looking to make a switch to our capability as you said rightfully you know we are operating a one gigabit one gigabit per second speed profile across our 4.4 million.
Homes and businesses and therefore, we have that flexibility to do that and the capacity to do that based the work that's been done and the self serve ability really has made a difference.
We visit about 6000 homes a day.
And virtually no 100% of them now are such that we do whatever work might have to be done outside and then guide the customer through the installation inside and it's working very well and customers are really happy for it.
In some extreme emergency cases, we do have people that on a volunteer basis that were full protective gear and go into locations, where there is no choice, but to go inside it could be a nursing home it could be a shelter could be places like that but that is oh, the exception versus versus the rule.
I do think that you know more than ever there was an essential nature to.
The home Internet connection, we just did some customer insights work and.
People's confidence in home Internet and the importance no is roughly on par with drugstores and pharmacies in terms of how they look at home Internet.
And that's a remarkable lift from where it was even you know a future months ago.
I hope that helps to add color.
We recognize also that that most of our channel activity in cable happens in the field as opposed to in the stores. So the stores have more of an impact on the wireless business less so on the cable business.
Thank you Jeff next question.
Sorry, Joe.
Well, there's other part of the question sorry, Paul sort of post pandemic.
And I think Jeff you had a question posed pandemic around some of the cost structure around price plans or will that change.
You know, we decided last June that some of the constructs in the business, where we are ripe for change. It was time to make the move towards unlimited. It was time to make the move towards you know overs protection on Fido, our views have not changed and I do thing.
As you know.
There are certain behaviors.
That are being set right now with consumers in general some of them we'll stick.
And you know some of those behaviors are very positive we believe for the future of of the industry from a productivity point of view and from our relationship with stakeholders and government as a whole.
And we're going to look at each one of these oh the case by case basis I do think that as we said last year overage, we'll continue to kind of diminish.
Until it becomes.
Immaterial for that matter over the course of time as more and more people moved infinite.
We have a step back from stimulating the market in terms of promotional activity for other reasons that we talked about so therefore, you've seen some of the infinite migration continue but really slow in terms of pace as a whole.
I think the roaming constructs will remain intact once people.
Feel comfortable again traveling I think that.
The getting on an airplane in traveling will be worth a lot steps in terms of resumption of each of the economy personally I believe that's that's a little the very last steps and and that's probably the first snowed in terms of resumption as a whole.
But we're seeing good resiliency in the course subscriber business.
Any challenges, we face will really be a reflection of the economy.
Terms of.
Unemployment or business defaults.
Thanks, Joe for the color.
Yes next question Arial.
My next question comes from drew Mcdonald's of RBC. Please go ahead.
Yeah. Thanks, Thanks for him aren't much good morning to relatively high level questions for me at first maybe for you Tony.
In terms of visibility and and not just kind of on the 2020 outlook, but <unk> more specifically.
Terms of getting back to a little bit more normal where you you shift gears.
From the <unk> good to serve customers and.
And and society back to.
You know <unk> that back to focusing on a Cape <unk>, what do you have any sense when that visibility.
Or what kind of milestones or things you'd be looking for at this point would they <unk> come in Q2 Q3, maybe very high level just comment on what you're you're looking for on that front and then secondly, maybe for you Joe on the five G.
Deployment road map you'd been very active out of the gate here in 2020 on initiatives wondering how all of this at this point to your knowledge in packs a your five G. plans as you go forward here. Thank you.
Okay drew one and I start with the the first part of your question. It was I said we.
Oh focus on overriding cash flow because the short term impacts are difficult I think the two pieces. We look to one is when will people will be able to be out and about malls open up and have competence to be out their shopping et cetera.
So you know for a wireless business, that's going to be a key factor in terms of market starting to resume.
In terms of subscriber volumes and grow and then the second piece of it is as well you been on our cable business. The they're comfortable looking at alternatives and have time to consider you know best Internet best T.V. and things like that and so we think that's going to be.
While in terms of you know whenever that happens, but the second piece of it is equally important witches and wonder the macro economic factors like unemployment rates and our government's assistance programs.
How long do those go for how deep as it and those will have you know and then during impact for awhile, our businesses a momentum business and so.
Even after those happen it'll take a while for that momentum to start picking up again, and so we don't see something that happens in the very short term, but rather it's gonna take many months and probably several quarter's but that's what we look to is kind of the no key.
Factors that we'll get the momentum in our business going again.
Drew on me five G. question.
You know the last few weeks, we've sat down and looked at all of our capital projects and initiatives that.
We had on the go or we are about to start.
It kind of categorize them into sort of three buckets or three flavors. If you will one was capital that is volume oriented.
Where volumes right now we're changing for example, you know.
We think there'll be a bunch of new homes added to the footprint tour footprint in the very near term. These are subdivisions that we're just about to you know how people move into the homes, but housing starts have fallen off and there will be.
But in terms of housing starts as a result, we typically have been adding.
60 to 80000 homes year tour footprints of as volume oriented things that we are adopting or shifting.
Number two.
Is.
She lives, where there is or isn't permission.
In other words, if we worked very hard to get a building permit to put up a tower to do something and we can still do it then we're doing it if it's you know if we still require that permission.
Given that a lot of building departments are close that a lot of road work is not happening et cetera, then of course, but capital won't be spent.
The third category, which gets to five G. is what are the strategic priorities that still makes sense to go after.
That we believe is still possible to get it done efficiently effectively and that is still reasonably tied to the expectation of rubber you are returned less and want to do is put capital underground and have a lay fallow for a long time.
We think of the case of far G. and we we you know we we were first though the gate got a great partnership with Ericsson, that's working very very well.
We launched four cities around five G. and we have a plan to keep going for the rest of the year, whether we do 20 or 15 or 10 cities, there's going to depend on the the point around permission and keeping are good or strong runrate going.
With the the contractors in their ability to get the work done, but we do you think five G. is is an important strategic plan for us as an organization. We do believe that there's still has all the benefits of we've talked about in terms of you know efficiency in delivering.
With spectrum efficiency in terms of enabling capabilities down the road and therefore, we think into the money well spent we also do believe there may be a point in time, where there are opportunities to do some of these projects on a better unit cost basis as different suppliers organizations are looking to.
You know shore up the work for their businesses and therefore are willing to kind of you know make a better deal for lack of a better word and deploying their technology are deploying the resources. So.
Yeah, five g. is important and a few other areas like that we also look at this is an opportunity to do some things that we were already doing.
And given the fact, there's a bunch of things, we can't do and that capital will not be spent that will help support our caution liquidity position the Tony talked about but there are some smaller things around digital evolution et cetera that we can double down on up through this period I mean these are good choices to.
Able to make as we said, yes, we'll feel the revenue and resulting you bits are pressure that we can manage through a series of ideas and initiatives, but we have the ability to kind of reprioritize the capital based on strategic value and permission.
<unk> I hope that helps.
I was thinking.
Thanks to our next question area.
Our next question comes from K.C.F.B.M.L. Please go ahead.
Thanksgiving morning, one for Tony one or I guess two for Tony probably.
Help us I understand what the baseline for Baghdad expense would be and how.
You increase that that'll work through.
Reported either and and also cash flow just with the puts and takes there will be as you work it through.
<unk> just a clarification the ruling impact you cited.
For the corridor for two two.
Is that all role like cold and.
That number it'd be a decent quarterly runrate, you know business travel maybe down in the summer but.
He says or did they sorta upset or does that number that's easily peak at other periods of the year. Thanks.
Great. Thanks for a picture of a question.
In terms of putting a bad debt into context.
Typically run a bad debt at about 3.8%.
Of of revenue on a normalize basis.
Translates to know about $130 million a year for us.
A quarter a year I should say and so.
No we kind of think about it as you know if that number were to double you know the magnitude we're talking about as 130, and so we have different models sort of depending on a number of factors, but no. We kind of see the bad that we had to put you know fence posts on it we think somewhere between 50, possibly.
Up to $250 million is kind of the outer post of it and so now while it significant in the overall scheme of things, it's not it's not drastic and we do see that are sort of see it as you know one time item as opposed to something that will continue but again, it's her early days and we're only see.
<unk> very small inklings of it.
Even today and so will if something were watching closely and so those numbers. I gave you are really just to provide sort of the context around it well, it's a risk it's it's not an an unmanageable risk.
The second question you had was on search and go ahead.
That's directly on <unk> told me that that plugs directly through D. encompassing.
That's correct okay.
Okay.
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The second question you had was <unk> well, let me expand on that I think you know the accounting for that separately in terms of whether it's an <unk> at one time item.
We'll decide at the right time, how we account for it but it'll be transparent, but that's sort of the number that ultimately impacts cash flow Jim.
A second.
The second piece of it.
Of your question related to roaming let me give you a bit of context on that and color.
When we talk about roaming it's both inbound and outbound rolling that we see a reduction of.
Our total roaming revenue is.
Slightly less than the total overage revenue, we talked about about a year ago. So it running around on an annual basis, roughly 400 million.
So the $80 million that we talked about for acute too. It is typically a seasonally higher period.
And you know, we see that coming down by $80 million or roughly 80 per cent in q. too.
That would include folks that pay under the per use Rome like home or they may still not beyond Rome like home and they just pay roaming charges on a per you spaces. So that combines both numbers as well as as I said, the inbound roaming volume that is.
Now.
<unk>.
Thank you Tim Arrow, we have time for two more questions.
Certainly our next question comes from Mari Aggie updates are down. Please go ahead.
Yes. Thank you for taking my question I Wonder who ask your on on your capable business related to Smbs in enterprise.
We talked a lot bad debt that set try but can you maybe talk a little bit about what you have seen so far in terms of collection.
And maybe a reduction in service is related to enterprise customers and your cable business, knowing that that's not a big exposure, who you but.
So maybe it's interesting to know what's what's going on there and maybe a bigger picture type question related to the spectrum auctions that are coming up.
Given all the.
Efforts you guys are doing to continue to support Canadian is with their demands for connectivity, but still pacing <unk> quite a bit that's pressure.
<unk> would you say at this point would be a better thing to push out the spectrum auction.
That is coming up late this year early next year and just on the free cash for when you say.
Do you continue to expect strong creek cash flow.
That's a qualitative assessment that it will be positive.
In terms of growth year on year is that what's your meaning by that.
<unk>.
Well I take the the first two questions the B.D.B. sector and spectrum auction than Tony ask you to to frame up the free cash flow from our.
So rodgers for business or enterprise business, you're you're.
You're correct Meyer in that it is a more smallish part of our business relatively speaking were under indexed against our peers in that sector as a whole and in some cases materially so.
If you look at proportion of revenue coming from that sector.
Right now the most difficult part of.
Enterprise business is in Alberta.
And they're it's a very small part of our business in the enterprise sector think of it as you know.
Mid single digits in terms of proportion of revenue and mostly wireless in nature.
We are starting to see more phone calls coming from the business sector.
I'd say, it's coming more from.
<unk> main street.
Stores single operators.
Who yellow cat open up their shop.
And therefore suspending their services and we've created some you know disconnect mechanism. So they can suspend but keep it active in alive. So we don't actually lose the customer or or force changing customer. We actually you know turn it back on again relatively easily when.
The economy begins to resume as a whole.
So we feel that you know we're in a good position on a relative basis with respect to exposure to the sector and that given our mixed based on S.I.C. or industry codes are look of that way. We've done analysis based on you know, which industries are most affected least affected in the short to medium term.
And as you know is quite quite a range. We feel we also have.
A good mix that we can manage our way through overall and I think it'd be remiss to stay there that there are also some areas of growth, albeit smaller that we're seeing in the middle of this right now you know why fight conductivity.
To the health care sector Internet connectivity, we've got a team that is just busy working day and night too that capability.
And those you know those are often customers that are long tenure to nature. Once you get the first piece of business on the front and then of course as we support government.
With you know phone lines of bandwidth given all the various programs of their enacting it's also creating some opportunities for us to.
Telecommunication network services to all orders of government.
On the spectrum auction.
You know we've been waiting.
Awhile for this mid band spectrum. It is important to five g. as you've heard me seeing the past you know five g.'s a bit of three pack of spectrum, we need the low frequency 600 megahertz spectrum. When we did very well, we got 80 per cent available spectrum in the market, we need the mid frequency spectrum.
That's coming up at the next to auction and then of course, the at some point the millimeter wave.
So we would like to proceed.
With this auction.
We think we know exactly what we need them. We think we you know the headroom to proceed but the the fact that matter is that.
Even if the auction starts in December.
It won't finish until the new year and you know it might be delayed we don't know, we don't know who would be delayed or not and you know then the question comes down to win or the auction proceeds payable and worry now given.
The tone level cooperation discussions with government, there's some flexibility on on some of that stuff from a timing point of view I'm not going to say, that's gonna happen, but I think there's some flexibility on somebody's fronts as we've seen with other spectrum fees and trying to smooth the cash flow for a different sectors, but we'd like the auction to proceed.
And I'll throw at the Tony on the cash flow point 20. So you can help ILLUMENATE on my point.
<unk> comments on free cash what are they got to start kinda summarizing you know the impacts to free cash flow you know I've talked about we've talked about.
You know the impacts we see in each of our business on the rubbing your side and they will vary you know from cable probably being the least impacted to media, having the most significant impact and so you know, we and that part is difficult to predict.
Some of the costs will naturally come down it won't be one the one with respect to.
Revenue, but on a business generally has 50 to 60 per cent flow through rate you probably should expect to to see that on the other side and and so there'll be an habit to impact as well.
In the way, we've defined free cash flow yeah, it's it's adjusted of it though less.
Some of the big cash items, the largest one being cap X. and you know based on the training, we're saying, we expect cutbacks to come materially down from the original guidance range. We provided a one because of lower volumes on some things I get capitalize like installation unit.
US coming down but also the pacing of work yeah. It's just a lot more difficult to execute getting permits from cities and things like that is much more difficult, but also combined with our focus on what's more central right now given the environment when we're in so a week.
Cap X. two as I said come down so when you're not those out on balance.
Based on what we see now there's probably a good probability that will deliver free cash flow not materially off of the previous guidance that we provided but then again, there's still quite a few moving pieces, but.
That's as far as we can see right now.
We don't include working capital adjustments and in particular, the various account movements related to lower handset volume since so that'll be an additional cash flow help if you will to the extent that that market.
Continues to be stagnant or soft on a year on year basis, and so that'll provide additional free cash flow depending on on the definition that you're you're using.
I believe that provides a good contacts on how we're seeing it.
Definitely does thank you guys.
<unk> I think we take our last question aerial please.
Certainly our final question comes from David Pardon Bank of America Merrill Lynch. Please go ahead.
Oh, Thanks for taking the question, it's Matthew I sitting in for David just that too quick claims if I could to start off with just on wireless you mentioned, if I understood correctly that day, you're seeing some downgrade in a serious packages that people have as wondering if you're able.
To kind of put some color to that comment I you seeing that.
Do you think mostly because people at home and they're off loading to why fly or is this kind of the beginning signs perhaps on a financial distress that that group of customers is facing and then the other thing I want to task is obviously the self install has been you know positive.
And something that you were pursuing a even before this pandemic kind of sad changed everyone's a way of living.
I was wondering if the acceleration of south install has kind of changed your previous outlook for the kind of achieving a 25% cash margins in the cable business I believe it was by the end of 2021 previously if you think now looking past this crazy.
Is that that might be accelerated are able to achieve earlier just your thoughts it'd be helpful. Thanks.
Not wondering I start.
With a couple of those first off I'll start with the second question on self installed.
Acceleration of that has a and moving to 100% self installed is quite promising in terms of the customer experience, but also in terms of the cost reduction today. We're on a model that we would describe as assisted self install where the the tech is close by and help.
The customer inside that model will evolve over time over the longer terms or something that is a a complete self install and so.
Will for sure help I'll takes a little bit but materially it's going to help kept bucks on the cable C.I. side in the longer term in the near term talked about you know the reduction being a 30% cost reduction.
But the bigger factor is the lower volumes that we're seeing in the short term in terms of migrations two different tiers as well as new activations in the market. So for a while that's going to be the bigger factor that's going to reduce.
<unk> Oh, but in the former sometime we expect that volume to come back.
So all those factors combined you know could lead to an earlier achievement of the 25% cable cash margins it could but I caution you on the but the side of it.
Well, we see some good prospects for cost reductions.
Revenue may be pressured by some other factors relating to downward cheer migrations and so the net of those is difficult to predict there's good prospect that we could achieve it earlier all the ingredients seem to be there, but there's still quite a few variables that are difficult to predict.
And so don't want to call that out too soon.
The first part of your question is whether or not you know in terms of some of the cheer migrations that we're seeing on the wireless sort of what the root cause of those are as Joe said.
When you look at actual usage.
Certainly on the home front, it's out notably no 50% to 60% 60% of some of the more recent stats over the last week or two on a year on your basis.
The wireless side.
We're seeing usage being somewhat flat to slightly down and so I wouldn't think about it as something that is reducing materially the utility value of wireless and so we don't see that as a likely cause of that migration. We think what we're starting to see is the very early signs.
No potential a broader economic impacts and again I don't Wanna Overstated, you know the number of calls were getting on this is extremely small we're just being intuitive on it and you know we know over the longer term and having seen cycles in this industry that higher unemployment and.
You know difficulties and the enterprise side in a particular on small businesses are going to lead to a downgrade migrations and so we're being or a proactive on that front and calling out that potential risk.
That helps now.
Thank you so much.
I think I would add matters that fundamentally we we are a barometer of the economy with respect to unemployment and you know business losses and.
That's the the biggest thing that would drive phenomena I don't think we're getting some sort of fundamental switching behavior, we know that that people are relying.
On both wireline them wireless services more than ever.
And if you add them both together, it's still up dramatically you're over here.
Living voice services that have peak to record highs.
Thank you.
Great. Thank you Matt. Thank you everyone for joining us today, we will be following up as a as needed just remind her that our annual general meeting is this morning as well.
You can definitely kills remark say shortly after 11, A.M. and we will make those remarks available on our website as well thanks for joining us and everyone's they save as well. Thank you.
That's cool today's conference call you know disconnect too long.
Thank you for participating and have a program called.
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