Q2 2019 Earnings Call
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Yes, I am forensic team had an approximately two cents unfavorable impact on EPS in the quarter.
Turning to slide 15, we generated 1.1 billion of free cash flow in Q2 up 10% over last year. This was driven by strong EBITDA growth and lower capital spending.
This quarter's results also reflected higher interest paid due primarily to the imputed interest on a lease liabilities under IRS 16, accounting and the reduction in cash.
From working capital resulted from the timing of supplier payments and higher accounts receivable driven by strong advertising sales at Bell media.
We also took advantage of the favorable market conditions to complete.
Two public debt offerings in Q2, the first a six year 600 million Canadian issuance and the second $600 million in 30 year Us dollar debentures.
These two new issuance effectively satisfy the financing or refinancing needs of the near term maturities through to April of 21, and maintain our weighted average after tax cost of debt at a historic low 3.1%.
While increasing the average term to maturity to almost 12 years from around 10 years previously.
So with year to date free cash flow of more than 1.7 billion, we remain on track to achieve our 2019.
Growth target of 7% to 12% this together with a positive financial outlook as we look to the end of the year positions us well to maintain our dividend growth model into 2020.
Let's wrap up on slide 16, we continued to leverage our advanced broadband networks and services to deliver.
Higher wireless postpaid and residential wireline net customer additions in a financially disciplined manner during a seasonably slower quarter, providing the foundation for sustained financial performance going forward.
Our consistently strong operated operational execution and favorable financial profile across all of our operating segments as we move into the second half of the year provides us with considerable flexibility to execute our strategy and achieve our 2019 guidance targets all of which I am reconfirming here today on that I'd like to turn the call back over to Fay and the operator to begin human it great. Thanks, Glen So before we start the Kunaev period, just to keep the call as efficient as possible I would ask that you limit yourself to one question and a brief follow up if you must filling get through as many in the queue as possible in the time, we have left on that Donna we're ready to take our first question.
Thank you.
If you have a question and you are using a speaker phone. Please mr. handset before making your selection. If you have a question. Please press star one on your telephone keypad to cancel the question. Please press the pound sign. Please press star one at this time if you have a question there will be a brief pause all participants register thank you for your patience.
And the first question is from David Barden from Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking the questions Marco welcome.
To the call.
Tough to argue with with the performance in the quarter.
With strength across all the different units I guess two questions. If I could one would be how you guys would describe for us the impact of the unlimited plan launch into Q in kind of the shape of the ABPU or ARPU that we're going to see.
In the second half of the year and into 2020, and then I guess my my follow up would be just on the strength of prepay if you could kind of.
Do some performance attribution and where you think the market strength is coming from is it on the Lucky mobile brand the distribution platform the pricing the positioning would be helpful to get some color on that thank you.
Let me take the first one and Merck will take the the second one.
So yes. It is we had a tremendous quarter literally across the board I'm on the unlimited data plans.
But a lot talked about obviously clearly this was not a move initiated by bell.
In the marketplace, but one that we obviously all as we will always be competitive.
In the market.
The impact on ARPU.
Will all take time for us to all C. I think it's fair to say that structurally.
The change does ultimately moderate ARPU growth in the industry.
From our position this year, we believe we will and our outlook still continues do expect positive ARPU growth.
This year.
I would say this with the harmonization and simplification of the rate plans across all carriers.
You know the key pointed refrained differentiation, which Merck were talked about truly now becomes.
Our network performance.
Because that actually.
In one sense.
Makes that focus that brings that focus much more into the eyes of the consumer.
And on that front as everyone knows we come out way ahead of the competitors who lead this change and I think we're in an excellent position then to continue to move market share.
And Thats really my my view on that and then Merck would want to maybe pick up the second one is sure hi, David on the second one.
I think shows you clearly the results show you how competitive we are we're becoming in the prepaid segment Lucky mobile certainly the brand is a big driver of that performance, we certainly have.
Distribution advantage, there and the dollar amount a relationship which as you know is an exclusive relationship was working really really well and fundamentally that brand Lucky mobile is resonating with consumers in that segment of the marketplace.
Great. Thank you guys.
Thank you.
The next question.
Is from Jeff Wang from Scotia Bank. Please go ahead.
Good morning, Thanks for taking the question George Congrats on a stellar career been a pleasure working with you and.
Marco Congrats on your new role.
My question to start off with is also on wireless.
You've made some recent moves I guess in reaction to what your competitor had done to unlimited first she came out and matched the 75, but then it went up to 85.
And then on the equipment financing it looks like you keeping that.
Option for customers available. So I'm wondering if you can just talk a little bit about the rationale behind those moves.
And then maybe a quick follow up for for Merkel if.
Yes.
If I may this first time you on the call. So wondering if you can just give those on the call and investors. Some early high level thoughts on maybe areas that you may.
Think about focusing on thanks.
Hi, Joe Let me, let me, let me pick up a.
First of all the questions on pricing in the marketplace competitor market will always be competitive in our rate plans to reflect that and have in terms of our our move to the unlimited data plan. So thats really what all I will say around that addressed earlier and then in terms of moving into the equipment financing programs in the market where folks are getting the handset then paying for it over time again that was another development in an industry, which we will clearly participate in we're in that space now.
We think one of the programs to have that financing over three years is a intelligent move for the consumer market and one that you'll probably ultimately see us roll out with as well as we're currently at the 24 months and part of this margin of course is just reacting at a pace to the chase and pace of the competitive change there and then in terms of having both choices. That's just something where it will reflect on as the market stays competitive some competitor have gone one way one of the competitors have gone another way and were Frank right. At this point, making sure consumers have maximum choice and we'll see how that how that unfolds and then over to Morocco and by the way. Thank you for the comments.
You do have to put up with me on one more call everybody, but I really appreciate the kind comment Jeff with over to Morocco on what he's thinking next year. My instincts tell me is going to tell you what that next year not today, but over to Margo ethnic.
All right George So Jeff. Thank you for the comments as well, but there will be lots of time next year when I take over as CEO to discuss my my vision I will say one high level thing right now, which is you and we will.
Continue on our quest to be the broadband leader in Canada, So that that's clear I'll leave it at that.
Thank you.
Thank you.
The next question is from Simon Flannery from Morgan Stanley . Please go ahead.
Great. Good morning, and thanks, very much congrats AMERCO and best of luck, George said screen, great working with you.
Maybe following up on that last point AMERCO on broadband.
Do you have you continued to make great progress in pushing on fiber to the prime can you just talk about.
What sort of speeds, you're seeing people, taking and what sort of penetration levels, you're getting on first pass on as you. That's been in the market for a couple of years. So what is the potential as we.
See that program come to completion thanks.
Well as you know as you heard from from George We have we have strong coverage now at over 50% of our broadband footprint and that's going to continue to grow and we're seeing strong demand, where we do have fiber again, both George and I mentioned the growth in our fiber footprint in that footprint, we have more subscribers, so more subscribers and fiber to the home and in that in that geography, where we do have fiber, we're seeing an increasing mix of subscriber take up on the higher speed tiers. So that's all very good as well. We also considered our wireless to the home program. It's you know it's part of our broadband a next generation broadband deployment in there too while early days on wireless we're seeing strong customer demand quite pleased with the response you know clearly the service meets a need in those areas, which were more than delighted to more than delighted to fill so strategys working strong execution and we're quite pleased with the progress.
Great. Thank you.
Thank you.
The next question is from our agenda.
Gala patchy from Canaccord Genuity. Please go ahead.
Good morning, Thanks for taking my questions I also want to offer my congratulations to George in Morocco.
My question's on wireless.
Been seeing.
Well in Q1, and Q2 pretty good wireless EBITDA grow them anyway, if I kind of move out I as far as 16 hitting in Q2 I get a number that's closer to 7% on 2.5% service revenue growth I was wondering if there is a little you could offer a little bit more color on that I was wondering if there is any movement on the equipment margins or perhaps any additional cost reductions that would have facilitated that.
Thanks.
Just a couple of quick things on I talked about last quarter. It's so hard to see now because of all this the accounting changes the last few years. So I know reinvest and I'll just follow the sources and uses and you can figure it all out but but served underlying service revenue growth for us has been a very positive the first six months of the year.
The as Merck will just talk about that to change the trajectory on prepaid small in one sense, but as we've said on a couple of calls much more positive in another sense because it takes something thats negative and makes it into a positive and we've seen again, a blended improvement in our ARPU as clients have migrated to more and more smartphones as Michael just mentioned.
We did do a cost restructuring last year at the end of the fourth quarter and that was across the entire organization and we're really trying to be as careful as we can with the cost of upgrades et cetera through the cost structure. So a lot of things that we werent exactly we're okay with last year, we're not totally thrilled with we think we've got some of that wind at our back again on some of those key metrics.
Great. Thank you very much.
Thank you. Your next question is from Vince Valentini from TD Securities. Please go ahead.
Yes, thanks, very much coming back to the strengthen in broadband which is clearly impressive can I ask about the video component of that.
Do you still think we should look at video subscribers is that as a key performance metric going forward or is it really just up a bundling tool that to help you get broadband and I'd note in particular I mean, your recent back to school offer.
You want to get Internet customers, but you throw in all TV for $10 I can't imagine Thats profitable video subscriber growth and I don't really care, which is driving better broadband sub adds it's all good by me, but do you really think video subs is a volume indicators. The key thing you should be pushing on going forward.
Yes, that's a great question and I'd say, we would still say, yes, absolutely for sure.
Promos I will call him promos I don't get everybody I understand we don't do anything doesn't make money.
So thats for sure and some of those all programs would have just conventional but no no operating cost to us.
So you are absolutely on the right track that are underneath all that everything we do of course is to drive broadband subscriptions Weve talked about this for a long time that.
The the value proposition on the broadband from fibers, where there is going to be more revenue growth. There, we're going to see across our overall video platform, but our strategy evolved in IP TV is to continue to take share and then use the internet.
Using the videos that pull through but I still think it's an important metric for us and one that we're paying a lot of attention to and there is no doubt.
TV without set top box with always has a different cost structures doing what we want it to do and we're learning as we go I mean, we've just got to keep trying to drive and of course don't forget with the ownership of Bell media, we bring eyeballs through the TV business that helps bell media on the advertising side.
And so we're it's still important to us.
And seeing as you mentioned advertising I'll I'll try to avoid things wrapped with a follow up it's somewhat linked.
Ensco has on the Bell media side, you are lapping you've said four quarters in a row of positive TV advertising revenue growth. So when you get into Q3, you'll be lapping a quarter, where you already positive last year can you give us any sense of does that make year over year comps Thompson, you may not be able to keep growing TV AD revenue or do you have some sense that the market is still strong in bookings at this point would indicate you can you can maintain that positive trajectory. Thanks, let's bring Glenn into this alpha has got to work this morning.
I figured he brought me to work at some point, So hi, Vincent Good morning look we're delighted with our performance in the media business and and our funnel looking forward very very strong advertising continues to be strong hurdle Marco mentioned our lineup in the fall very very strong now the corner, we just experienced 6.4% revenue growth to truly outstanding.
A portion of that of a third of that propped up by just the incredible run from the rafters Sol.
Thank you.
The next question is from Mayer Yaghi from National Bank. Please go ahead.
Hi, Thanks for taking my question.
Again, congrats melco and George.
I wanted to just go back on your thoughts on your discussion on both wireless ARPU growth.
When you talked about ARPU.
Eventually.
Turning positive.
Are you referring this.
About the ARPU, including the GLC government contract or.
Excluding that contract.
While our ARPU includes everything and I what I. We are we have had great man and I get that question quite right. We've got ARPU positive year to date, we expect to see ARPU growth in the second half of the year continue to be positive and we'll see what that amount is.
So I'm not sure we got the question right or maybe.
Yes, I just wanted to just understand exactly what you're referring to all of our numbers at all versus in our metrics, which is a little different I know that other people and how they treated the government account. Okay. Okay, just wanted to clear that up.
So when when you look at the wireless market with all the changes that we are seeing.
A lot of.
The companies are still trying to find.
The place where they are going to sit eventually.
I had a negative impact on ARPU too.
To take place over the next couple of quarters until we see the full.
Implementation of the plan.
In your ARPU numbers.
Related to overage and.
In terms of profitability.
How should we try to your performance in terms of.
Removal of the subsidy model from your base.
Do you think you can offset the overage impact on your topline.
Okay.
I guess, what I'm going to say is what I said almost of the beginning which is.
We.
I think people lot of full focus attention on our cash flow generation.
Off the entire enterprise off the wireless business will be competitive with what the peers are doing.
In the marketplace and I talked about.
Would there will be some moderation of ARPU.
As a result of this change in the industry.
But we're not going to go beyond what I said, obviously this year on ARPU Weve got to see how the market is competitive you see us responding in the market.
And we'll adjust according again to make sure we're always generating which we have historically, leading free cash flow in the wireless space that will be our focus.
Trying to.
Get your sense about.
The end game in terms of moving the market to an unlimited plan.
There is always going to be some arbitrage.
For consumers to take the unlimited plan and tried to get subsidy from the companies that are offering. These unlimited. So I'm trying to understand if both can be at the same time implemented then still not impact the bottom line.
And just trying to understand it from your perspective.
Well, that's what I said earlier I think first of all the movements on unlimited plans, we think puts an enormous focus on your network and your network performance and our superior network now should turn out to be even that much more of a competitive advantage.
Going forward and then I think as a Merck was reminded me there is a general view that certainly it within the call centers haul lengths of drop we should see some of that just because again for a customer buying its a clearer.
Rate plan Lessray plans in the market.
But you know we haven't changed our wire our guidance today as a result of any of this were very positive on the outlook, but I think some of these questions around this I think you probably ought to directed the companies that are leading this stuff and we're always going to be competitive and following it right and and a more I would say that you know you got in one swim lane you've had the installment plans in the other swim Lane you have the subsidy plans and the price points are different between those two swindling.
Thank you.
The next question is from Tim Casey from BMO. Please go ahead.
Yes.
Through what you're seeing on the business side and what your expectations are into.
Into next year and could you could you frame for investors.
Your perspective of the regulatory environment now I mean in the context of a general election coming where sometimes.
The it can get a bit noisy and then into the wireless review next year. Thanks.
Okay. So on on business markets as I mentioned and as you mentioned as welding is wherever you revenues are up year over year and that's.
That's a fourth consecutive quarter of positive revenue growth. What we're seeing is it's basically strong performance strong execution in the fiber strategy working and strong demand in that customer base for.
For bandwidth and expect that to.
To continue in <unk>.
Essentially as I as I mentioned, my opening remarks were seeing a slowing rate of.
Decline on the EBITDA EBITDA side, so all positive trajectory.
On on regulatory.
But the big the big issue coming up as you.
As you mentioned is the NVNO.
Proceeding with a a hearing in.
And we have the regional carriers doing with the regional carriers are doing and we have also talked about the prepaid segment, which has gotten.
A whole lot more competitive and certainly meets.
Meets a need of that yeah.
Lower costs segment in the marketplace. So if you put all those things together.
So I'll I'll leave it at that on the on the regulatory front as being the biggest item coming up.
Once again, please press star one if you have a question.
And your next question is from drew Mcreynolds from RBC. Please go ahead.
Yes, thanks, very much and then just reiterate congrats to you George NT Marco.
Two follow ups for me first maybe George.
Get your view, you've talked a lot on the potential impact of unlimited in yet because I know you're not kind of.
Staring at steering things you're out there in the market, but there's been a lot of discussion on whether what everyone has observed and witnessed in the US is a is a relevant kind of benchmark or blueprint for what will unfold here in Canada I'd love to get your.
High level thoughts on that one and then second.
Maybe to bring Glenn back into the conversation Glenn just a I know your pension funding is is.
Fully funded just wondering.
Yes, well first of all thank you for the comments for both medical and I.
But at the same time, that's really what we're going to we're gonna have to do and want to do within that space. So we'll stay competitive.
Good morning drew its Glenn I'll talk a little bit about pension funding as.
Predicted that a rising interest rate environment would put it put us in that enviable position of having to take to take contribution holidays, and although we continuously see ourselves migrating towards that path the solvency discount rates as fast as they start rising slip away and go the other traction on us, which I think has been my entire career I've been saying that a great news, though on our pension funding is despite the fact that solvency discount rates have actually come down since the in the last six months.
Our our our pension plan still find themselves in a fully funded position and that's really a product of the asset mix great returns that we're experiencing that fund so I couldn't be happier to find yourselves north of 100.
Ultimately getting to that to that data of having the contribution holiday of up to a couple of hundred million dollars is really a product of discount rates and.
No I I. Unfortunately, they slipped on us this year, so let's hope for a rebound.
Okay. Thank you.
Thank you.
There are no further questions registered at this time I'd like to turn the meeting back over to Mr. Fotopoulos. There was a question I guess the one.
Oh. Thank you. The next question is from Adam Shine from National Bank Financial. Please go ahead.
Thanks, a lot. Thanks for squeezing me in so congratulations to both you as well maybe George.
One issue around a topic that we see a lot of headlines about as you can imagine is the wawa issue and.
You've yet to put out your RSP I presume for.
For the next phase of Fiveg, but you know at some point as we watch.
You know the rhetoric from this government.
That could be the same government coming out of the election. It doesn't seem to be great quick movement on this issue can you speak to.
Your views on when you need to get going with this when a certain amount of.
Urgency sort of sets in.
Beyond the fall in regards to moving forward on that RFP.
We swapped to see how that unfolds, we've clearly listened to some of the public announcements from Ottawa and obviously, we have dialogue a very very positive dialogue I would say of sharing proper information between ourselves Canadians and also the government.
We should have in it we have an expectation that post the election will get clarity and we think that works within the timing of some of our our plans around appointments of who the vendors would be going forward. So some resolution to this shortly after the election.
Which fit within our strategic time frames and we'll work on that at the end of it and we said before we however, this unfolds, we see it not having a material impact on us. So we love the fact of having multiple vendor choices.
Super Thanks, a lot.
Thank you.
Thank you.
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