Q3 2020 BCE Inc Earnings Call
81000, FTT h. subscribers this quarter, bringing the total number of direct fiber customers to more than $1.6 million and that's up 17%.
Over last year.
In TV, we added 19000, net new IP TV subscribers supported by our new App based Virgin TV service and significant customer churn improvement.
All in all a pretty solid result, given given a mature Canadian TV market and some ongoing pandemic related constraints.
We also continued to see strong progress with satellite TV and home phone customer losses, which improved 29% and 24% respectively. As Canadians continue to stay in work from home during the pandemic and certainly any time the rates of decline slow for these high margin services, that's important to us from a cash flow perspective.
So despite ongoing cobot impacts on customer activity really was a strong quarter from NRG perspective with positive total retail net adds in our wireline footprint of 16000, that's an increase of 22000 over last year fact, it's only the second quarter in the past five years, where we've achieved positive wireline retail.
Net ads, including NAS and satellite TV.
I'll turn now to Bell media TV.
TV advertising demand picked up in several key categories, especially with the return of live sports and increased spending by advertisers.
Radio and out of home advertising have been slower to rebound.
On radio Elite radio Listenership, it's declined during the pandemic and some key out of home advertising faces as well such as restaurants airports those have been severely impacted by lockdown measures, but we are seeing momentum returned outdoor categories, such as street furniture and billboards.
On the subscriber front TSN and Rds have remained largely stable, particularly with live sports coming back in Q3 as have subscribers across all Bell media TV properties since at Covance situation began.
TSN remains the number one ranked sports channel for the latest broadcast year that just ended on August 30, Onest and year to date Rts viewership has outpaced our largest French language competitor by 32%.
On crave it continued to deliver with strong direct to consumer growth, 3% year over year increase in total subscribers for crave and.
Overall, the subscriber results speak to the quality and depth of our programming, which is frankly second to none in the marketplace.
And a couple of other items in the quarter that I wanted to mention.
Regarding media to coincide with the fall season of New TV programming Bell media launched a new all in one digital video streaming platforms or four CTV content essentially.
CTV Avon service. So now viewers can access all live and on demand CTV content at no additional cost directly from CTV Dot CA and the CTV app on mobile and smart Tvs and other connected devices. So it's a single hub. It offers advertisers a compelling way to reach our digital audiences and an easy way for.
Viewers to watch our content, it's 100% AD supported and it was built using the same technology that powers crave.
And at the end of August Bell media rebranded our newly acquired French language conventional TV network TV. The new brand is nouvel, our goal is to make new royal broader and fully integrated conventional TV destination with multiple points of contact for video content. We're.
We're already seeing results from that strategy with significant gains in primetime viewership and AD sales. This fall season, and that's expected to continue this broadcast year.
So I'm going to turn it over to Glenn in just a moment, but before I do I want to emphasize the following key.
Q3 was all about building momentum back into the business and delivering the consistent results. We said we would deliver this.
Despite cold we continue to push forward with the deployment of high speed broadband fiber wireless home Internet and Ken is underserved rural communities and mobile Fiveg technology.
We're keeping our eyes fixed firmly on the long term.
At the same time, we're maintaining operational excellence in the short term to steer us through the pandemic recovery period and to generate even greater momentum with each successive quarter.
We're competitively well positioned to succeed with significant liquidity and the financial flexibility to drive both our national investment strategy and Vcs common share dividend, which we just announced this morning for Q4.
And on that let me turn it over to Glen.
Thank you Mark and good morning, everyone.
With the easing of covered restrictions beginning in the latter stages of Q2 consumer and commercial activity gradually picked up gaining steady momentum throughout the summer.
Despite the continued.
The effects of coal that all bell operating segments delivered better performance trajectory is with improved year over year revenue and EBITDA declines in Q3 that contributed to strong ongoing free cash flow generation.
Consolidated revenue was down 2.6% year over year, which translated into a 4.4% decline in adjusted EBITDA.
We estimate that the total incremental covert related costs in the quarter could have been approximately $40 million down from $85 million last quarter. Excluding these direct covert related costs, our consolidated EBITDA margin was stable year over year.
Net earnings for Q3 were down 19.7%. This was the result of lower year over year, EBITDA and a noncash net mark to market equity derivative loss, resulting from the decrease in BC share price this quarter compared to a gain last year.
We invested over 1 billion in Capex in Q3. This represents a notable step up in spending from last quarter, reflecting both the seasonal increase in construction activity during the summer months and the resumption of usual business operations. Following a slower pace of spending during the initial stages of covance when certain.
Projects could not be executed we expect capital expenditures to ramp up further in Q4.
Despite the softer year over year earnings we generated over $1 billion of free cash flow this quarter, even with lower EBITDA flow through at higher cash taxes, which were expected.
Let's turn over to slide eight on wireless financials Q3 marked the return to positive revenue growth for Bell wireless.
As the year over year decline in service revenue improved sequentially and product sales rebounded with a pickup in retail sales activity.
Service revenue was down 4.3% year over year.
The result of covert related impacts.
Primarily from an approximate 70% decline in roaming due to global travel restrictions as well as lower data overage, driven mainly by customer rate plan optimization and ongoing adoption of unlimited plans.
On a year over year basis, lower roaming volumes and data overage accounted for more than the entire decline in service revenue this quarter and are expected to remain headwinds for the foreseeable future.
Product revenue was up 11.9% year over year benefiting from a mix shift away from tablets to.
New higher value devices, as well as stronger year over year consumer electronics sales at the source driven by the increased online shopping during the pandemic.
Consistent with the year over year loss of high margin roaming in overage revenue EBITDA was down 4.4% in Q3, a significant improvement from the 9% decline we reported last quarter.
Let's flip over to slide nine on wireline financials total revenue was down 8.8% versus last year, a slight improvement over the previous quarter, which speaks to the resiliency of our wireline operations and the strong demand for our leading connectivity service in the current coal that environment.
Residential wireline growth in Q2 Q3 was positive. This result was driven by a strong 10% year over year increase in Internet revenue combined with an improved rate of voice decline as fewer customers disconnect home phone services during the pandemic.
In business wireline well results this quarter reflected slower customer spending on business service solutions, and data equipment, which declined 5% and 10% respectively in the quarter.
Overall performance continued to hold up well, despite covance and our low small business in certain industries have been hit really hard closures and bankruptcies have been better so far than we feared.
Wireline EBITDA decreased 1.6%. This represents a notable sequential quarterly improvement as operating costs were stable year over year. Despite the cobot related cost impact I referenced earlier, which included a modest increase in our bad debt expense provision to reflect the increased risk environment, particularly in.
In the SMB segment.
Flip over to slide 10 on media financials, a much better quarter for Bell media as advertising demand improved across all media platforms with the resumption of live sports programming and gradually the gradual reopening of the economy. This.
This resulted in a smaller year over year decline the revenue decline of 16% compared to 31 last quarter.
Advertising revenue decreased 22% in Q3, a significant recovery from the 51% decline we saw in Q2 with the biggest improvements coming in TV, most notably sports Entertainment and news.
Operating costs were down 14% over last year, driven in large part by the lower cost of revenue because of TV production shutdowns and delays as well as the elimination of discretionary spending.
This contributed to a sequential improvement in EBITDA, which declined 21% year over year.
Adjusted EPS on Slide 11 provides our usual walk down of the key components of adjusted EPS, which was 79 cents per share in Q3 down 12 cents versus last year.
He he's liquidity position remains very strong at five 2 billion in available cash at the end of September. Additionally, our balance sheet as well structured with long term majorities.
And low interest interest rates on our outstanding debt.
That leverage ratio also remains manageable at $2 nine times adjusted EBITDA with no expected improvements in the foreseeable future given the number of wireless spectrum auctions on the horizon.
We also recently strengthened our liquidity position by raising an additional $750 million a seven year funds.
At an effective yield of only 165%.
Proceeds of this MTN issue, we're used to early redeem higher cost public debenture that more importantly, we have no near term financing requirements as our next material public that majority does not occur until Q4 of 22.
Lastly, Bell, Canada is defined benefit pension plan continues to remain fully funded despite the unfavorable impact of lower discount rates.
This speaks volumes to the success of the actions we have taken over the many years to secure the financial position of all of our plans.
That does it for my formal remarks on the quarter I would like to turn it back over to Saint and the operator to begin questions. Great. Thanks, Glenn said before we start to Q&A in an effort to make a call as efficient as possible as always please limit yourselves to one question one grief follow up at a few months. So we can get to everybody in the queue and the time, we have left so thanks for your cooperation in advance.
Donna we are ready to begin with our first question.
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And the first question is from Jeff fan some Scotiabank. Please go ahead.
Hi, good morning, everyone I'll start with wireless.
Wondering if you guys can help characterize.
The wireless competitive environment that you saw during the back to school period, and maybe a little bit of a prediction or outlook going into the holidays and into 21 Uhm I guess the reason for the question is we've seen a lot more win back almost lower rate plans.
Wondering if that's just because of the reopening that we saw in with a smaller cool subscribers is shawl mobile in the west triggering some reactions is.
Is it competitive just trying to make up lost ground. Just wondering if you can show some thought there. Thanks.
Thanks, Jeff It's Murko here.
Yeah on on.
Kind of pricing and promotions.
You know kind of spirit of your question I'm not entirely surprised but what we saw in Q3, especially after.
Close to absolute lockdown in queue too.
Say from our perspective, we did.
Tend to lead promotional activity and I think that's pretty obvious and you can go back to Steven June when we launched our five G network and in our attempt to.
To implement kind of Ah.
She will charge for five G connectivity that reflects the real value, we're delivering with a premium <unk> network I mean that.
That's evolving but we did try that you can even see some of them.
Early price suggest some price adjustments we made in early October again trying to better reflect the value. We are delivering overall with unlimited plans on premium networks. There's a lot of other examples but ultimately it is an incredibly competitive market.
And I'd say from from the Bell perspective, Here's the approach we take in here, what kind of customers and shareholders are going to get from US number one will always be competitive.
To emphasize this in my.
In my opening comments, we are focused on high quality smartphone loadings, because that's what drives service revenue growth and you can see the very positive results of that strategy in our Q3 numbers. What we're doing is we're deemphasizing tablets, we're going to let.
Others Chase that segment will obviously plane and the tablet segment when it's when it's accretive.
But otherwise our focus is squarely on on high quality loadings, and then back to your.
Question on some of the promotional intensity and we've got to take a step back a little bit and then with the move to installment plan like what was the vision.
We were.
Part of the vision is to deliver ultimate transparency for for the customer you pay for your rate plan.
For your handset, there's a variety of handsets pick the one that delivers the features you want at the price that you want to pay so when you have that that that total transparency in that sense and you are offering all kinds of of handsets just kind of.
Don't understand why we would continue as an industry to continue engaging.
In deep deep discounting of handsets like we like we used to and we put a lot of effort into building. The it systems around installments, we all put a lot of effort into changing the way we sell not naive I've said, all along since installments, where launch if there would be periods of time of year, where they would continue to be intense promotion.
<unk> activity, but now I'm personally a little bit disappointed and the pace of subsidy reduction I think we can do a whole lot better.
But hey, I mean, there was the total lockdown in queue to you asked about Black Friday in the holiday season that remains to be seen and we're in the midst of a second wave.
Jeff.
But on the other hand, you've got the the iPhone that's just launched.
Our digital functionalities are so much better than than they were so we will be ready. However, black Friday turns out however, the holiday season turns out in terms of sales activity, we're ready to capitalize.
Just a quick follow up on the on your comment about high quality loading uhm is licensed to disclose the 130000, plus like phone ads or a smartphone ads.
Is this a number that you expect to systematically report and you're reporting to kind of.
Exclude the tablets and then just a quick clarification your wireless home Internet AD. So those in your wireless sides or those in your wireline Internet.
Okay. So on the last one.
The wireless home internet or in the Internet numbers.
Land over to you on the on the tablets versus smartphone loadings.
Good morning, Jeff.
Look it's a logical approach, especially as we shift.
Increasingly to <unk> in our focus is merkle said is on high value subscriber loadings.
I think it makes it makes a lot of sense to look at this reporting and I know.
One of our competitors has has switched to this reporting it I'm seriously considering giving that's making the reporting change for next year. So stay tuned but it makes a lot of sense, it's a logical approach gap.
Okay. Thanks, a lot.
Thank you the.
The next question is from June Mcreynolds from RBC. Please go ahead.
Yeah. Thanks, Thanks, very much good morning.
Merkel, you're clearly seeing the success.
And expanded fiber to the home footprint and you're keeping your foot on the gas here this year and really seeing some some pretty good momentum.
And that's whether it's orange you use or 10% increase your internet revenues when you.
Not going to give guidance.
For 2021 or beyond the thematically.
Just your updated thoughts on accelerating not fiber to the home deployment is everyone's pretty eyes wide open up some momentum that I think the telcos are gaining on the cable comes with it and.
And secondly.
<unk> on Bell media would like to get your updated thoughts on.
What was tabled or will be cable that's proposed amendments to the broadcasting Act and just your initial thoughts on the impact there for adult media. Thank you.
That's true Okay first on the.
On broadband so.
And.
Reiterate what I also set in my at the end of my opening comments and where.
Where got her eyes fixed firmly on the.
The long term future.
In the long term future is underpinned by.
Our strategic imperatives.
One of the key ones is building the best networks, and we don't we don't veer from the strategy.
And we can see as you pointed out drew that it's having a positive impact on our financials for wire the wireline segment and clearly on our on our operating metrics. So it's significant.
And I want as much fiber as possible and urban and suburban markets and frankly I want to connect as many underserve homes in rural areas as we possibly can as fast as possible.
And when you.
Not going to give forward looking guidance as he said, but when you look ahead and right now and I hope. It continues we have favorable regulatory environment with with positive signals, having been recently been sent by the federal government that.
Facilities based competition matters and investment in facilities matters. So when you put that altogether I think it's clearly a case to be made for accelerating the pace of rollout I certainly want to do it. It's Y 2021, Covid first hit us at the beginning of the year. We said we are not scaling back on the strategic investments we have to can.
<unk> going so not going to not going to give guidance for 2021, but it's going to continue to be a very important point in Memphis for us.
And on on the regulatory side with the with the announcement on Tuesday, I would say this I have to kind of tip of the hot to the to administer mutable for.
We're putting forward the amendments that that they did on on Tuesday, I think it was and to really important points there.
And the points of principle, but they're really important one is we do the recognition that there needs to be a level playing field and Canadian broadcasting is between our domestic players large and small and.
Internet Global Internet Giants very very important principle, we've been asking for the recognition of regulatory cemetery and level playing field for a long time.
So that's really important the second the second one that I want to highlight is the recognition of the importance of local news that's going to be built into the broadcasting Act also very important. So those are two real positive steps again tip of the hat to the government for that however, what's really going to matter.
Is.
How all this how these important principles are going to be implemented because that's where the rubber hits the road and that remains to be seen like what will the policy directions from the government look like to the Crt's seen how will the Crt's C. Generally.
Our subscribers are up 4% year over year. So it implies something going on with either the mix of your internet base or or net pricing gains, perhaps can you try to break that down a little bit for us is it something to do with the movement to fiber to the home or or fixed wireless access or is it actually just pricing increases.
Net over the past year. Thanks.
Hi, Vince on the on the first one on Fiveg in wireless it's it's an MRC issue new monthly recurring charges are driving that that growth that you're seeing with the fiveg customer base and on on Internet. It's a function of a number of things.
Kind of the.
Co bid.
The cobot effect in terms of promotional intensity.
Really pricing, reflecting the value that we are delivering to customers with with fiber networks its customers choosing higher plans with.
Higher speed given.
Working from home.
And staying at home more that's why you're seeing that impact on the wireline side bins.
Thank you.
Thank you. The next question so much David Barden from Bank of America. Please go ahead.
Hey, guys. Thanks for taking my question.
I guess my question is relating to the ABS too so.
The situation could you elaborate a little bit on.
How much or what percentage are you through the overage.
[noise] headwind.
On the business and then at the same time.
From an overall standpoint, he said it was down 70% year over year at what rate is that improving and.
And when do you think that these two kind of headwinds.
Headwinds start to abate. Thanks.
Well I'll start and then Glenn you can you can pick up and start just first with a comment on the on the overall decline you know the.
The decline improved.
Q3 compared to Q2.
And.
Again, I'm a bit of a broken record on this one since.
Since unlimited plans were launched.
Our focus is is.
He is to continue to do what I consider to be a very good job managing that that decline.
We don't try to force migrate customers as you know, we obviously have unlimited plans and they are being chosen by customers, but as the customers choice frankly is not optimal financially to force migrate customers. So we're not going to do it. It's all about good subscriber base management and that's going to continue so yes over to decline.
<unk> continues to be a headwind and we continue to manage it and that rate of decline actually improved in Q3 over Q2, I'll stop there and then.
Glenn you can fill in the blank thanks, Marc I'll add a little more color Merkel said, we did have a 3% improvement in sequential quarters, albeit we continue to be down year over year, but if you look at the the fact of the person the decline year over year, 80% of the decline year over year is driven by the roaming and data over.
Revenue that we've spoken about the other 20% is mainly driven by higher prepaid mix.
If I if I Peel the onion, a little further as I mentioned in my previous remarks roaming revenue is still down.
Virtually 70% with and to put that in absolute terms, we were down about $60 million in Q2.
And were down 58 million in Q3, so virtually no change in Morocco.
Marco just started and I've said it a few times.
Unfortunately, we believe that.
Global travel restrictions are likely to remain in place for some time and I don't see a complete rebound in global or our domestic roaming to occur and they in the coming quarters. So I think for the foreseeable future.
This remains a remains a challenge thank you David.
Thanks, guys.
Thank you Nick.
Your next question is from Richard Kim <unk>.
Second please go ahead.
Hi, just wanted to get an update on your transition to 'em limited and what do you expect going into the house the season with the transition. There are you still looking for a measured pace or is this an opportunities kind of maybe.
Due a higher uptake rig on unlimited plans.
Yes, like I am.
I can in response to to David we.
<unk>. Please go ahead.
Good morning, Thanks for taking my questions.
First on the enterprise side, and I guess, we could be generally.
Thanks for the color on that on how Q3 is trending.
Any sign there.
Then as we kind of step into Q4 and look beyond that or do you kind of expected to be.
Maybe.
Sure the flatness or maybe even further decline before recovering under 21.
And then as a follow up.
With respect to the comments on free cash flow for Q.
For the full year.
Slow, but it's been consistent by connectivity has been inconsistent some projects professional services managed services projects that have been delayed that's what I also said and and Q2, but I'm really pleased.
With the performance in wireline generally and that includes being pleased with the performance in the enterprise segment and we do serve the largest Canadian Corporation the largest the most stable Canadian Corporation. So.
That's also our stability is also a function of the stability of our enterprise customer base Glen.
Glen.
Thanks, Margot, yes, free cash flow and the comments I made earlier on the headwinds that for facing with free cash flow in the coming quarter.
We expect it to be.
An aggressive quarter on sale. So obviously, that's going to impact just to remind.
Mind, our our free cash flow includes everything what I mean by that is it includes working capital. So as we ramp up on purchases of inventory. It is going to have a negative effect on free cash flow as we see sales accelerated and therefore, an increase in <unk>, it's going to have an impact I also mentioned that I expect a ramp up in capital expenditure as we are.
Very very focused on our network builds our network deployment, so I see that as being a drag on cash flow income tax payments, we enjoyed a deferral.
Many of the tax payments that the government offered relief deferral relief and those are all starting to.
Deblum rang as we.
As you know, we'll participate incredibly important spectrum coming available.
We did just divested the datacenter and that certainly gives us.
The additional cash to invest in the business, including investment in spectrum.
I do not see a material change the public policy of two to five times were above that have been for some time.
Very hard to see.
Point in time, and then we'll have new applications and services being delivered to consumers, but so far so good when we're used to this we've been through the cycles before <unk> et cetera.
But we'd like where we we like where we where we sit today both in terms of the competitiveness of our networks how far G is doing so far an iPhone sales have been just fine.
Okay. Thank you.
Thank you you are no further questions at this time that go with you Mister Fotopoulos right. Thanks, Donna So thank you again to everybody for their participation on the call. This morning is always I'm available for follow up question of the clarification throughout the day, so with that have a great day and take care of yourselves in today's day. Thank you. Thank you. Thank you.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.
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Steve.
Please note that this conference call has ended please disconnect. Your line at this time. Thank you.
Finishing up because it depends on the hotel meaning.
Consumer spending.
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