BCE Inc. Q1 FY2025 earnings call

• Strategic Priorities: Focus on four key areas - putting customers first, providing best Fiber and 5G networks, unlocking potential for businesses with technology solutions, building digital and media content powerhouse. Also have a transformation program to modernize and simplify business, with cost savings target upsized to $1.5 billion by end of 2028.
• Partnership with PSP Investments: Announced major partnership with PSP Investments to help fund expansion of U.S. business, which could see commitment in excess of $1.5 billion, de-risking future funding requirements and supporting U.S. Fiber growth strategy.
• Dividend Adjustment: Board established annualized dividend per BCE common share at $1.75 per share effective with July dividend payment to help achieve deleveraging targets and optimize balance sheet.
• Fiber Performance: Since 2020, increased Fiber footprint by over 50%, with over 7.8 million households and business locations covered. Doubled Internet customer base on Fiber to three million, over 60% taking gigabit plus speeds. Doubled Fiber revenue, market share grew 18% to 48% where Fiber is present. Residential Fiber penetration rate approximately 44% across footprint.
• U.S. Fiber Market: U.S. is attractive for Fiber expansion with lower deployment, favorable competitive dynamics, higher household income, etc. Acquisition of Ziply on track to close in second half of 2025. PSP Strategic Partnership to build new Fiber locations in U.S. and support Ziply's footprint expansion, with BCE retaining 49% equity stake.
• Business Technology Solutions: Launched Ateko, an all-new Montreal headquarter technology solutions provider bringing together acquired tech startups to deliver better outcomes for enterprise customers.
• Digital Media and Content: Aim to grow Crave from four million subscribers to six million by 2028, maintain sports leadership, and expand content distribution with acquisition of majority stake of global content distributor Sphere Abacus.

Bell CTS

• Internet: Revenue up 2.4%, Fiber-to-the-Home customer base accounts for 68% of total retail Internet subscriber base. Retail Internet net adds of 9.5 thousand in Q1, down from strong Q1 last year. Business Solutions revenue grew 8% driven by Technology Solutions sales and acquisitions.
• Wireless: Total mobile phone subs had small net loss in Q1 compared to 25,000 net adds last year. Gained 25,000 net new customers on main Bell brand. Postpaid churn remained stable after nine consecutive quarters of year-over-year increases. Mobile phone ARPU down 1.8%, second straight quarter of improvement in year-over-year rate of decline. Wireless service revenue down 1.8%, wireless product revenue down $60 million due to lower sales of mobile devices and loss of revenue from source store closures.

Bell Media

• Digital revenues up 12% mainly due to strong Crave D2C streaming growth. Total advertising revenue increased for fifth straight quarter. Subscriber revenue growth 7.8% driven by Crave and sports streaming. Media EBITDA up 35.9% with margin increasing to 20.5%.

• 2025 Guidance: Reconfirmed financial guidance for 2025. Adjusted EBITDA essentially stable, margin improved due to operating cost reduction. Total revenue down 1.3% due to low margin product sales and competitive pricing pressures. Net earnings up nearly 50% in Q1 due to early debt redemption gains. CapEx down $273 million, on track to reduce capital investment by $500 million in 2025. Q1 free cash flow increased $713 million year-over-year.
• Deleveraging Targets: Aim to achieve net debt leverage ratio of approximately 3.5 times adjusted EBITDA pro forma Ziply by end of 2027 and longer-term goal of approaching three times by 2030. Free cash flow growth, asset sales, and revised dividend level will help achieve deleveraging.
• Dividend Policy: Updated long-term common share dividend payout policy to target 40% to 55% of free cash flow. Will disclose free cash flow after capital lease repayments and implied dividend payout ratio on an annual basis.

• Economic and Operating Environment Risks: Significant changes in economic and operating environments since fall of 2024 have impacted the business, leading to dividend adjustment and changes in capital allocation strategy. Uncertainties in the market can affect funding needs and financial performance.
• Competitive Risks: Intense competition in telecom industry, including competitive pricing pressures which impact revenue and ARPU. Industry dynamics such as pricing levels in the market over the last 12 months continue to have an impact on wireless service revenue and product revenue.

Q: In terms of your leverage targets, do they include any asset sales that have not been announced yet? And on wireless, is Q1 an aberrant quarter or the environment going forward?

A: Curtis Millen said the plan remains to sell $7 billion in assets including MLSE, Northwestel and others. Mirko Bibic said on wireless, early Q1 had pricing stability green shoots but back half of Q1 had reversion to frothy pricing activity, overall industry loadings affected by macro environment and pricing, but metrics trending in right direction for Q2 with ARPU decline improvement, churn improvement, and sales okay.

Q: On the 2025 reiteration of guidance, working assumptions in competitive environment and macro, and reconciliation of leverage target with asset sales and other factors?

A: Mirko Bibic said reconfirming guidance as put in place in February acknowledging the environment. Curtis Millen said delevered in Q1 by issuing hybrids, once Ziply closes leverage would go up but free cash flow growth, asset sales, and partnership with PSP improve free cash flow and deleveraging.

Q: Clarification on guidance, gain on bond redemptions and Ziply joint venture details?

A: Curtis Millen said gain on repurchase not included in free cash flow. Mirko Bibic said Ziply Fiber is exclusive tenant on network, contributions to network Fiber Co over time, and Board considered range of options to land on $1.75 dividend for flexibility in capital allocation.

Q: Timing of PSP network Fiber Co, Bell brand net adds year-over-year?

A: Mirko Bibic said partnership is long-term with contributions over time. On Bell brand, net adds down 9,000 year-over-year.

Q: $1.5 billion contribution from PSP, why $1.75 dividend, leverage math and U.S. Fiber greenfield opportunity?

A: Mirko Bibic said contributions to network Fiber Co over time, Board landed on $1.75 dividend for flexibility. Curtis Millen said $7 billion asset sales net proceeds part of sources and uses for Ziply Fiber. Mirko Bibic said done extensive due diligence on U.S. Fiber greenfield opportunity with attractive cost of capital.

Q: Acceleration of Fiber deployment rationale and pro forma free cash flow details?

A: Mirko Bibic said acceleration of Ziply Fiber build plan, with PSP partnership strengthening ability to capture Fiber opportunity and improving free cash flow profile. Curtis Millen said CapEx pro forma for Ziply would live within 16.5% CDI envelope, expected to be close to 14.5% with partnership, and CDI percentage to drop after Ziply builds out 500,000 locations in ILEC footprint.

Q: New government impact on TPI and immigration, and breakdown of additional $500 million cost savings?

A: Mirko Bibic said looking forward to constructive dialogue with new federal government on topics like Fiber resale. On cost savings, business transformation initiatives including automation, AI use, consolidating billing and ordering stacks, copper to Fiber migration, self-serve and virtual agents, and leveraging Ateko's expertise for workflow automation.