BCE Inc. (BCE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the BCE Q2 2026 Results Conference Call. I would now like to turn the meeting over to Chris Summers. Please go ahead, Mr. Summers.

Thank you. Good morning, everyone, and thank you for joining our call. With me here today are Mirko Bibic, BCE's President and CEO; and our CFO, Curtis Miller. You can find all our Q2 disclosure documents on the Investor Relations page of the bce.ca website, which we posted earlier this morning. Before we begin, I'd like to draw your attention to our safe harbor statement on Slide 2, reminding you that today's slide presentation and remarks made during the call will include forward-looking information, and therefore, are subject to risks and uncertainties. Results could differ materially. We disclaim any obligation to update forward-looking statements, except as required by law. Please refer to our publicly filed documents for more details on assumptions and risks. With that out of the way, I'll turn the call over to Mirko.

Thank you, Chris, and good morning to all. Our Q2 results show continued execution against the strategy we laid out at Investor Day last year. Consolidated revenue increased 1.5%, adjusted EBITDA grew 1%, and we generated more than $1 billion of free cash flow in the quarter. We also reduced our net debt leverage ratio to approximately 3.7x while continuing to invest in the growth platforms that will shape BCE's long-term profile. The quarter also reflects progress across a number of key areas. Wireless trends improved with pricing better reflecting the value we offer customers, postpaid churn reaching its lowest quarterly level in 3 years and improved product margins. Fiber continued to drive Internet growth across Canada and the U.S. Bell AI Fabric continued to build momentum, and Bell Media delivered a strong quarter supported by FIFA World Cup performance and continued growth at Crave. This is exactly how we said we would run the company, disciplined execution in the core business, focused investment in higher growth opportunities and a clear path to sustainable free cash flow growth. In fact, we've led the industry for the past couple of years in bringing down Canadian telecom capital spending in the face of unfavorable regulatory decisions, while at the same time, redirecting that capital toward AI fabric and U.S. fiber. I'll start on Slide 3 with our progress against the 4 strategic priorities we outlined last year. Putting the customer first remains foundational. In Q2, the customer experience and retention initiatives we've executed over the past year and even before that continue to pay off. Postpaid churn improved 4 basis points year-over-year to 1.02%, which is the lowest quarterly level in 3 years. And in a lower growth market, that matters. We also launched our always-on Internet solutions, wireless Internet backup and power backup. These are practical solutions that help customers stay connected when Internet service is disrupted or the power goes out, and they reflect how Bell's network assets can work together to deliver a more resilient experience. That focus on reliability and performance is also being recognized externally. During the quarter, Bell received leading network recognition from OpenSignal, Rod & Schwarz and Ookla, including Canada's most reliable Internet, Canada's fastest 5G+ network and a suite of 10 Ookla Speed test awards. Now turning to our second priority. delivering the best fiber in wireless networks, you see that fiber continued to drive growth in the quarter. In Canada, we added more than 45,000 residential FTTH Internet subscribers. Including Ziply Fiber, total residential FTTH net adds were nearly 55,000, which contributed to 14.2% Internet revenue growth. Where we have fiber, we continue to win. That's been consistent. It's consistent in Canada and now in the U.S. as well. At Ziply, the focus remains on build execution, as we mentioned as early as the beginning of this year and reiterated in May of this year. Permit submissions accelerated significantly through Q2, increasing more than fourfold from April to June. Contractor capacity and fiber supply are in place to support the expected second half build ramp and penetration trends remain consistent with our investment case. In wireless, we delivered more than 41,000 postpaid mobile phone net adds, comprising significant loading on the main Bell brand, consumer share, which is in line with our peers, and we saw improved performance in the large enterprise segment. This reflects our focus on higher-value customers, lower handset discounting and a healthier recurring revenue mix across all customer segments. Video also remains an important part of the household strategy, of course. Video net adds improved by roughly 24,000 year-over-year, driven by strong uptake of streaming bundles and a successful transition to hardware-free TV. Again, these are things we said we were going to do at Investor Day last October. And if you combine that with fiber growth and adoption of Bell's own streaming and content services, you see support and continued momentum in product intensity on the full-service Bell brand. We also completed construction of our first sovereign direct-to-device satellite ground station in Quebec with additional ground stations underway as we build the infrastructure to extend wireless connectivity beyond the reach of traditional networks through our AST partnership. Turning to our next strategic priority, which is leading in enterprise with AI-powered solutions. This remains one of the clearest examples of how we are repositioning Bell for growth. We're bringing together cloud, cybersecurity, AI adoption, data sovereignty, connectivity and AI infrastructure for enterprise and government customers. This is where Bell's enterprise relationships, national networks and AI capabilities come together. In Q2, demand for Atecho and Bell Cyber remained strong with combined revenue up 29% year-over-year. Again, clear proof of underlying momentum in AI-powered solutions. At the same time, Bell AI Fabric continues to move from announcement to execution. Saskatchewan remains on track with construction progressing at the 300-megawatt facility and first phase operations expected in the first half of 2027. The facility in Winnipeg is on track to enter service in the second half of this year and Merit Phase 2, which is supported by the Cohere, Buzz HPC and Hypertech partnership across AI models, GPU infrastructure and Canadian-built hardware, that facility Phase 2 expected in early 2027 as well. Turning to the last of our 4 strategic priorities, which is building a digital media and content powerhouse. The digital strategy, which we've been executing in Bell Media for several years now, continued to show strong momentum in Q2. Crave surpassed 5 million subscribers, growing 23% year-over-year to 5.1 million, supported by 49% growth in direct-to-consumer streaming subs. That scale matters because it gives a strong owned and operated domestic platform for premium content, sports and streaming, anchored in Canadian storytelling and our commitment to cultural sovereignty. FIFA World Cup 2026 was a major highlight this quarter, of course. Our live coverage reached 30.5 million Canadians across TSN, RDS, CTV, Nuvo and Crave with millions more through FIFA programming across our platforms. The tournament Final in July became the most watched World Cup match ever in Canada with an average audience of 6.4 million viewers. Matches also consistently ranked among the most watched content on Crave. More broadly, premium content becomes more valuable as we monetize it across the full Bell Media ecosystem and increasingly through global content distribution. In Q2, digital video advertising revenue grew 39% year-over-year and total digital revenues were up 6%. That reinforces the monetization opportunity we continue to see from this strategy. Overall, Q2 reinforced the strategic role Bell Media plays inside BCE, premium content, growing streaming scale and stronger digital monetization, translating into 8.9% revenue growth and 3.8% adjusted EBITDA growth in the quarter. Now I'll move to Slide 5 because I want to come back to Bell AI Fabric and show the physical progress we're making on the ground. Saskatchewan is the anchor project. Since our Q1 call, piling has been completed and structural steel work is underway at our 300-megawatt facility. Key construction partners are in place, and the first phase remains on track for operations in the first half of 2027. We now have approximately 335 megawatts of contracted capacity, real facilities, real construction milestones, real customer commitments, all supporting the long-term AI-powered solutions growth platform we're building. Turning now to Slide 6. This is the scorecard we introduced at Investor Day to track whether the strategy is translating into deeper customer relationships, stronger monetization and sustainable growth. Q2 shows continued execution against that road map. We're focused on the operating drivers that support long-term revenue, EBITDA and free cash flow growth. And before I close, I want to thank the Bell team. The results we're sharing with everyone today reflect their focus on serving our customers, growing our business and executing against the transparent plan. Curtis will now take you through the financial and operating results in detail. So Curtis, over to you now.

Great. Thank you, Mirko. Good morning, everyone. I'll begin on Slide 8 with BCE's consolidated financial results. We're pleased with our results, which reflect continued execution against our plan, balancing measured investment with a clear focus on returns and free cash flow. Total revenue was up 1.5% year-over-year in Q2, driven by the contribution from Ziply Fiber and growth at Bell Media. Adjusted EBITDA increased 1%, driven by Ziply Fiber, with Bell Media also contributing positively. Adjusted EBITDA margin was essentially stable at 43.8% -- adjusted EPS was up $0.02 to $0.65, supported by higher adjusted EBITDA and the absence of certain noncash mark-to-market losses on FX hedges and options recorded in Q2 of last year. CapEx was up $317 million year-over-year, reflecting Ziply Fiber's fiber build-out in the U.S. and capital investments to support Bell AI Fabric. Putting aside the highly accretive AI fabric investments, our Canadian telco CapEx declined year-over-year, consistent with the disciplined multiyear reduction we've been executing. As shown on the slide, the majority of expected 2026 Saskatchewan AI data center CapEx of approximately $1.3 billion is to be incurred in the second half of the year. Consistent with the structure we outlined in March, we received our first tenant payment on the Saskatchewan facility in the quarter, part of the approximately $400 million in setup fees and prepayments that partially offset the build cost of the facility. Free cash flow was over $1 billion in the quarter. While down year-over-year due to higher CapEx, this was a strong result and is tracking consistent with our full year '26 guidance. Overall, in Q2, we delivered revenue and adjusted EBITDA growth, generated strong free cash flow and continue to fund targeted growth investments in Ziply fiber and Bell AI Fabric. Turning to Bell CCS Canada on Slide 9. Starting with a high-level summary of Q2 submetrics. We delivered 41,594 postpaid mobile phone net adds in the quarter. This was modestly lower year-over-year, reflecting less active market and reduced promotional intensity compared to Q1. Postpaid churn improved 4 basis points year-over-year to 1.02%, the lowest quarterly level since Q2 of 2023. The improvement reflected lower customer switching activity in the quarter, together with the continued benefit of our customer service and retention initiatives. ARPU was relatively stable year-over-year, down approximately 0.2% without the impact of G7 Summit-related revenue in Q2 of last year. Importantly, the monthly recurring charges component of ARPU increased 0.7% supported by higher quality loading and a healthier recurring revenue mix with improved transaction rates quarter-over-quarter and year-over-year. In broadband, residential FTTH Internet net adds were 45,271, a strong result. Demand for fiber remains strong and fiber continues to be the anchor of our household strategy. Video also continues to improve with 8,741 net adds compared to a net loss of 15,851 in Q2 of last year. The improvement was supported by strong uptake of streaming bundles and a successful transition to hardware-free TV, reinforcing the product intensity strategy we outlined at our Investor Day. Turning to the financial results for Bell CTS Canada. In Bell Business Markets, underlying revenue grew approximately 3.4% year-over-year, supported by continued momentum in AI-powered solutions, including Atteko and Bell Cyber. On a reported basis, EBM was lower, reflecting 2 nonrecurring items in Q2 of last year. Revenue from the Mission Flat AI data center in Kamloops, BC, which was recognized upon delivery under finance lease accounting as well as G7 Summit-related revenue. Wireless service revenue also affected by the G7 Summit in Q2 of last year. Without that impact, wireless service revenue was stable year-over-year. Wireless product revenue was down 6.6% year-over-year, reflecting our focus on healthier product margins, which drove fewer contracted mobile phone sales. Lower product revenue also reflected a Q2 market shift towards BYOD activations and fewer device upgrades. We'll continue to maintain discipline on hardware discounting given our focus on product margin improvement, ARPU growth and service revenue growth. To address affordability, we'll leverage device residual programs and trade-in rather than hardware discounting. Our adjusted EBITDA result was in line with plan. Notably, margin improved 40 basis points over last year to 46.1%. This reflects our continued focus on cost management with operating costs down 4.7% this quarter. Turning to Bell CTS U.S. on Slide 10. Ziply remains focused on build execution and fiber penetration. Build activity is expected to increase significantly in the second half of the year. Local permit submissions accelerated through Q2 and the broader readiness work is progressing across state approvals, engineering, contractor capacity and fiber supply. For expansion markets, state-level approvals have been obtained for approximately 75% of the 2027 location funnel and high-level engineering is complete for approximately 60% of those locations. On subscriber performance, Ziply delivered its highest quarterly residential net adds since BC acquired the business at 9,600, where Ziply has fiber penetration continues to track the business case. Revenue was broadly stable sequentially as fiber growth in consumer and small business was offset by ongoing legacy copper and voice declines and wholesale pressure. Adjusted EBITDA was $95 million, representing a 40.6% margin. The margin reflected higher subscriber acquisition activity associated with stronger Internet net adds. We're comfortable making that investment given penetration trends. Key point is that the fiber thesis remains intact, where Ziply has fiber, it is winning customers and the work needed to support the second half build ramp has advanced. Over to Bell Media on Slide 11. Continued digital momentum and strong overall financial performance marked the quarter. Total revenue up 8.9% and adjusted EBITDA up 3.8% year-over-year. Revenue growth was driven by strong FIFA World Cup performance and continued Crave growth with additional contribution from the Formula One Canadian Grand Prix and higher program sales. Advertising revenue increased 5.3%, supported by strong FIFA advertiser demand. Subscriber revenue was also up. It was up 6.7%, driven by continued D2C streaming growth. Crave subscribers grew 23% year-over-year to reach 5.1 million subscribers with direct-to-consumer streaming subs up 49%. Digital video advertising revenue also grew 39%, reinforcing the progress Bell Media is making in streaming scale and digital monetization. Adjusted EBITDA growth reflected the flow-through of higher revenue despite higher content and event-related costs associated with FIFA, Formula One Canadian Grand Prix and other premium programming. In short, a strong quarter for Bell Media. Turning to the balance sheet on Slide 12. We ended Q2 with $4.6 billion of total available liquidity, providing significant financial flexibility to fund our capital allocation priorities. Our reported net debt leverage ratio improved to approximately 3.7x at quarter end, down about 0.1x since Q4. As part of our ongoing focus on balance sheet optimization, we completed public debt offerings totaling $2.5 billion in June and repurchased debt securities trading below par value through tender offers. Together with growth in adjusted EBITDA, these actions contributed to the improvement in net debt leverage. Our defined benefit pension plans remain in a very strong position, solvency surplus of approximately $4.9 billion and an aggregate solvency ratio of approximately 125%. Looking ahead, the pending disposition of our land mobile radio network service business is expected to provide additional support for deleveraging. We remain on track to achieve our target net debt leverage ratio of 3.5x by the end of 2027. Turning to Slide 13. We are reconfirming all of our 2026 financial guidance targets. We remain focused on executing the plan we laid out at Investor Day, delivering revenue and EBITDA growth focused execution across our core telecom business, funding our key growth priorities in Bell AI Fabric and U.S. fiber, generating meaningful free cash flow and progressing towards our 3.5x leverage target by the end of 2027. With that, I'll turn the call back over to Chris and the operator to begin Q&A.

Thank you, Curtis. With that, operator, we are ready to take our first question.

[Operator Instructions] The first question is from Meyer Yagi from...

Curtis, I wanted to ask you in terms of the spend on Saskatchewan, you mentioned that to expect a ramp in the second half. Just wanted to ask you, on the last call, you mentioned that the ramp is going to be Q2, Q3 mostly. Now it's Q3, Q4. Can you maybe just help us understand why CapEx has been pushed out a little bit further down the year? Is that timing on payments or timing on construction changes?

Yes, thanks for the question. No change to construction time line. This is a recording of CapEx when we actually spend the money. So we've ordered the vast majority of the equipment. I mean the construction is pay as you go, but the vast majority of equipment has been ordered, but the CapEx will be recorded when the cash is actually being spent. And that's less in Q2, more in Q3, Q4. So again, no change in timing. Just about all the materials, all the equipment has been ordered with delivery schedules that are on time with our overall project, penalties for late delivery and in line with our budget.

Okay. That's great to hear. So just turning to Ziply now. my follow-up question is on the ramp in the second half. Now obviously, it looks like we should expect fiber deployment to ramp in the second half and going into next year. You have been adding quite a few subscribers since you started disclosing results. I'm looking at 5% subscriber growth in fiber since Q4, but the revenue line is essentially flat. So the whole concept of Ziply is to provide you with revenue growth and EBITDA growth over time. But I want to focus just on the revenue growth angle here. So do you expect the ramp in the second half to contribute to reaccelerating the revenue run rate of Ziply? And when should we expect that growth to be visible? Because over the last 3 quarters, top line is essentially flat. So you got legacy decline offset by broadband growth. So I'm trying to focus on the top line, please.

Yes. Hamir, thanks again for that question. So ultimately, at Ziply, look, we're quite happy with the progress. The build is ramping up, as you mentioned, it's permits, it's hard hats, it's actually doing the building, and that continues to ramp up as you've seen in our CapEx spend. And as you said, that will continue to ramp up back half of the year and then through into next year also. It's a continued ramp-up. So what the team at Ziply fiber has been really good at is where there is fiber, they are driving subscribers. So penetration rates on new fiber exactly in line with historicals and with plans. So again, where they have fiber, they drive subs, subs drive revenue. So the goal and frankly, the biggest driver of long-term value for our shareholders is continuing to drive that build and continuing to load fiber net adds. And in that part, quite successful. I'd say gross adds on fiber were up 25% quarter-over-quarter. So obviously, you have to spend the COA and it's a small base, but I'll take that temporary margin pressure for future revenue growth. I think that's a very good trade. And then yes, as you said, it's a small base. So if there's a -- this quarter, there was a heavier wholesale contract renewal than normal, and it has an impact on overall growth rates because it's still such a small base of revenue and EBITDA. But again, for us, what we're really focused on is build the footprint, drive fiber penetration and the financials flow from there. So again, we're seeing ramp up. And as we've kind of disclosed repeatedly, this continues to ramp up back half of the year.

The next question is from Drew McReynolds from RBC Capital Markets.

On the wireless side, a pretty good set of results considering a low volume environment, at least from my perspective. Just wondering if there's any unusual kind of dynamics in the quarter just given all the sporting events. I'm assuming no. So the question really is, can you provide an update on just how the bundling strategy is working, the premium brand strategy is working? And what should we expect for wireless ARPU network in the back half? And then second question to the data center side in the deck, you alluded to line of sight on 800 megawatts. Obviously, we've known that for a while. Just wondering if there's any update on that road map as we go from roughly 400 megawatts up to the 800...

So on the second one, still really, really kind of positive momentum across all the AI-powered Solutions businesses. But on AI fabric specifically, same goes. Funnel is very strong. So when we've got more to announce, we'll obviously do that, but well on track and remain quite confident in the ability to monetize in a reasonable period of time well more than the 335 megawatts that you already know about. On wireless, kind of wireless writ large, I say we're feeling that there's good industry momentum. And within that, we feel quite good about how we're executing certainly in accordance with plan. So I'd say you've seen in the back half of Q2, strong quarter-over-quarter pricing improvements and strong year-over-year pricing improvements, which have continued into July for sure. And again, as I said in my opening remarks, that's a good thing because it's far more -- the pricing we're seeing now is more reflective of the significant value and the significant investments that the entire industry, frankly, is delivering to consumers. So that's one thing. Within that, we are going to remain uber focused on profitability. And so what are the key drivers there that we need to look at? ARPU. In our case, very stable ARPU if you normalize for the impact of the G7 Summit last year, for sure. Same thing with wireless service revenues. On product revenue, you're seeing kind of good numbers there in the sense that you can see it's pretty obvious that we're focusing -- we're being very disciplined on hardware discounting. And that's what, frankly, the industry has to get back to ARPU and service revenue growth and has -- and that's what's going to allow us to continue to invest in the networks and in experiences that are going to drive value for consumers and of course, correspondingly and importantly, for our shareholders. So that's what we're going to remain focused on, Drew, and that goes with product margin improvements. So an example on hardware discounting rather than leaning into hardware discounting to address affordability of devices for consumers, what we'll be doing is using trade-in programs and device residual programs, and that's how we're going to address kind of the pro consumer agenda and enhancements, all while remaining focused on profitability. So I hope that answers the question. The underlying numbers there are pretty strong. What you see in terms of the net adds, good consumer numbers in line with kind of industry trends, and we've had strong performance in Q2 in the enterprise segment. And I think you referred to kind of the onetime impacts of sporting events. I thought you might have said that. The numbers that you see aren't reflective of anything unusual as a result of sporting events.

Our next question is from Stephanie Price from CIBC World Markets.

It's Sam Schmidt on for Stephanie Price. I wanted to follow up on the data center opportunity. A number of U.S. data center peers announced significant increases in CapEx this earnings cycle given demand tailwinds. Can you talk a bit about Bell's pipeline here and your appetite to spend more heavily on CapEx if the demand for the data centers is there?

Yes. So -- thanks for the question. Our focus remains on, first of all, executing against the build for the data centers we've already announced and the primary one there is Saskatchewan. And as Curtis mentioned, we're on plan there across all metrics, including CapEx spend. And more broadly in terms of strategically, we are deploying capital as a company where we have structural advantages. And in the case of data centers, it's power, network infrastructure, enterprise relationships, artificial intelligence, and that's how we're going to drive greater shareholder value over the short, medium and long term. And again, no surprises. We do exactly as we say. We've been very, very transparent that we have line of sight to 800 megawatts of power, 335 megawatts already contracted. And as we contract more, we'll -- as we get from the 335 to the 800 megawatts, we'll be funding it. And on that front, again, it's been very, very consistent messaging, and we'll continue to do as we say.

And then just one follow-up on the wireline environment in Quebec. What are you seeing in terms of competition from traditional competitors and new entrants? And how are you thinking about potential growth drivers there?

Thank you. We're much like it's a little bit -- my answer on wireless is kind of similar to the answer I gave to Drew on wireless. So my answer on wireline is similar to the answer I gave to Drew on wireless. We're seeing kind of pricing across the board, Quebec or otherwise, that's more reflective of the tremendous value we're providing to consumers. And then, of course, within that, as ourselves, we are quite satisfied and happy right now with how we're executing. And the multiproduct focus on the premium Bell brand is working. And for us, it's working is we do have the superior broadband network in fiber. So that certainly helps. We've made some tremendous improvements in our video offering with hardware-free TV and the streaming apps and the bundling, which is very attractive to consumers based on the take-up rates that we're seeing. You're seeing kind of lower churn as a result, and our product intensity stats are continuing to improve as we signaled they would when we held our Investor Day. So the key touch points are headed in the right direction. And I'll end my wireline answer exactly how I kind of focus my wireless answer, which is our focus as a company is improving the profitability of the connections we get to the wireline business.

Our next question is from Vince Valentini from TD Securities.

I'll focus on wireless. So a couple of questions about the outlook trends. I appreciate your comments on price discipline. But if you put together everything you're seeing in the market of the bad pricing, if I call it that, in Q1, the better pricing in Q2 and then the activation fees to the extent that will have some impact in Q3. Do you think wireless ARPU is still trending towards flattish? And do you have any prediction as to roughly when that happens? And do you think Q3 could get a bit worse with the activation fees falling off? Or have you found a way to to offset that? Secondly, on wireless, there's some chatter about a reasonably large government contract that may have shifted this quarter. I wonder if you can try to clarify that. I mean, is that a material portion of your postpaid adds this quarter?

Yes. On the second one, it's -- that's what I was alluding to, Vince, when I gave the earlier answer to Drew's question. So if you unpack our wireless net adds in there is a reflection of an enterprise contract won. But even parsing that out, our net adds otherwise are very, very much in line with our peers. And in fact, if those were the only numbers we can be reporting, we'd be quite satisfied. So in line with our peers on wireless postpaid net adds, even excluding the government enterprise contract that you referred to. In terms of ARPU and service revenue and kind of predictions, I certainly appreciate the spirit of the question. And I think rather than start predicting when things -- exact point in time when we're going to see this type of growth or that type of growth, I'd rather just focus on continued stability rather than getting into prediction game on timing. The competitive environment seems to have normalized certainly for a number of weeks now. We expect that improving trend to resume, certainly as we remain focused on profitability, where the fundamentals are looking solid right now. And that's the case in the back half of -- that was the case in the back half of Q2 and certainly in the beginnings of Q3. So let's focus on the key drivers that will allow that to continue to improve rather than making predictions because if we do that, it will obviously show up in the reported results, I presume, across the industry, and that's a decidedly good thing.

Can I just clarify also, Curtis, how much of the $400 million of tenant prepayments was received in the second quarter? And I assume that's flowing through working capital.

Yes. Vince, call it in and around 1/4 of that $400 million, just below $100 million, and that is showing up in free cash flow.

Free cash flow, is it in the working capital line or the CapEx line?

Yes. Working capital.

Our next question is from Tim Casey from BMO Capital Markets.