Conference Transcript - RCI 2026-09-15

Operator

Welcome. We have Glenn Brandt, the CFO of Rogers Communications. Good morning. Good morning. Thanks for coming, Glenn. Look, rather than start with the networks businesses, why don't we start in sports? Mainly because it's so topical and timely for investors right now.

Glenn Brandt, CFO

Just about the game last night?

Operator

Oh, that's tough.

Glenn Brandt, CFO

Oh, man.

Operator

That's a lost opportunity. Yeah. Look, this is a live file, so I don't expect you to negotiate in public, but can you frame the process for investors and maybe frame some expectations we should have as you move forward with approaching some potential partners? Sure.

Glenn Brandt, CFO

It comes up once or twice. so the the first priority is closing on the kilmer purchase um we uh we are uh expectant hopeful that we'll close that very very early fourth quarter uh we still have a couple of league approvals uh nba which i think is meeting this week um and nhl which uh i think they have a meeting coming up in the next few days. I don't expect those to be difficult approvals to obtain or a known quantity. The transaction is well known. And so I expect those to go through, close the acquisition then early Q4. Once we close, we'll bring MLSC, Blue Jays, Rogers Sports and Media together, consolidate into a single corporate entity. It'll be a single corporate holding company with a few holding-owned subsidiaries underneath it. But that will be a single Rogers sports and media group. And then focus on two things. One, running the revenue and cost synergies. And that's an exercise that we really are just at the starting point on. but I expect those to run fairly quickly. We've run some changes through once we took control of MLSC. We were able to run some of the changed priorities, some of the cost containment, and just change in approach with some of the teams. But that exercise is one that I expect will take one to two years to come to full fruition like we had within Shaw. And then bring that to market. We've already started very, very, very early conversations with prospective investors. We have advisors in place. We have a SIM and a teaser deck that are with the leagues for final approval. before we bring those to market. The intent is to move fairly quickly after acquiring control to then approaching to sell. I expect it to be a private placement sale. We're not looking to create another public entity. I expect it to be probably institutional investors, But there are a number of private name individuals and families that have reached out as well. And so we'll keep an open mind. And then hoping to bring that to conclusion. If not late this year, that might be pushing it on timing. But early in 2027, we bought the Bell Stake on July, well, closed effective July 1st. and so that was in 2025 and so we have until mid-year 2027 under the two-year calendar that the credit rating agencies run by to delever and that gives us plenty of time to bring this to market get it closed get the valuation and the proceeds we're looking for um i've i've held off with continuing to estimate or to to declare a valuation um you've seen the transactions that have closed over the last few months the valuations continue to go up i'm optimistic but we'll see where the market pegs the the valuation certainly i expect it to be um reflective of the quality of the assets that we're bringing um the the significant difference between what we're selling and what we're buying the purchase was under a call option arrangement that we have with our partner and so we were the only buyer um there was no no ability for kilmer to take this to a competitive bid exercise we have the opposite on the other end of this where i expect that it will be competitive um and and so I'm hopeful that we can drive a reasonable valuation on that combined entity, a very strong valuation. But we'll see where the market comes. I'll leave it at that.

Operator

The folding of the sports and media business into MLSC, is there strategic value in doing that? Or is it more to leave Legacy Co as a pure networks, cable, and wireless business? Or is it a bit of both?

Glenn Brandt, CFO

I think there's a very strong benefit of grouping or combining Sportsnet and Sportsnet Plus with the teams. The concentration of teams in this market area, one of the largest in North America, together with the media property that carry the games, that's unique. and you combine that with the national audiences, there's a tremendous strength in that. If I give the recent example, and hopefully we'll run it back again this year, the Blue Jays run last year. That drove a substantial amount of revenue in EBITDA that was significant. It was split roughly equally between Sportsnet and Blue Jays in terms of the beneficiaries of that run. And that was, you know, that was a one example. The other is, you know, just through the regular season this year. Sportsnet has drawn strong audiences. Blue Jays are drawing strong attendance. I watched some of the games in the other team's stadiums. I watched Cleveland last night. they're racing for their playoff spot just like we are and i think the cleveland stadium was maybe half full and the blue jays we've averaged 95 percent um i say averaged it's a sellout more often than we're at 95 percent um and so i look at the attendance i look at the audiences on sportsnet and the fact that that's a national audience um that's a really strong benefit that our peers in the U.S. don't have, and the investors. The ones we've talked to recognize it. We'll make sure that we emphasize that. So there's a benefit to that. The legacy media businesses, right now they're going to be combined. We'll see when we come to the market whether or not that's viewed as being neutral, positive, or negative, and we'll react accordingly. I expect it will be part of the media group. It could be that we curtain those off. It could be that they are all discontained within the group. The intent, though, to be clear, is our legacy telecom business and our legacy media business. I'm reluctant to use the word legacy because they're very, very live right now. But they're complementary. entry we can use those live entertainment properties the stadiums concerts the sporting events and the tickets for them we can use them to help drive attraction to the telecom business and we've started that you hear our our references to one rogers um and and providing you know beyond the seat experiences for for fans that we can take across the country um and we have For the Jays, we also have sponsorships in place with the Western hockey teams, Vancouver, Calgary, Edmonton, that provides us with ticketing in those facilities as well that we can use for driving customers. Each of those interactions helps to retain, manage our customer base, but also bring in new customers. So we see it as being a tremendous opportunity for helping to drive the network business as well.

Operator

Let's just finish up one more question on the sports side, and that is you did re-up with the NHL for another long-term deal. Any implications for financials on that, or do you think the terms are going to be sort of similar to what the last deal?

Glenn Brandt, CFO

Similar. Like everything, with the passage of time, the costs go up, but the revenues have gone up as well, the audiences. We have brought in some, I'll loosely say, partners on that deal. So TVA came in and took the French language rights, and they've signed up for the full term of that contract, as well as Prime will carry the one-weekday game. That allows us to lighten up some of that financial load, but it also helps expand the audience for the offering. We don't carry the properties in Quebec, and so TVA is a natural offering there. And so it helps to lighten the economic impact, bring in some revenues, but also leaves us with control of the property for another 12 years. It's served us very well over the initial contract. And it's evolutionary in terms of those prices that they're not stepping up immediately. They step up smoothly through the years. So we're excited about it. And once again, we control the NHL. We control MLB. We share Raptors MBA with Bell here in Canada. It's a strong part of our media strategy.

Operator

Let's shift to wireless. You know, it's that time of year. We're coming out of back to school. What did Roger see in the back to school competitive?

Glenn Brandt, CFO

It continues to be a – it's a busy period in terms of market activity. We launched our plans early in July. We did that deliberately to launch plans that were based on premium service rather than discounting. And so we leaned in on added service offerings to try and entice customers from our peers. We've also leaned in heavily on or emphasizing on base management rather than trying to create froth. We saw that in the first quarter where with the discounting that started with one of our peers, we resisted, saw churn elevate. Bell saw the same. We both then leaned in to match some of the discounting, pulled those volumes back into our customer base through the first quarter. But all that did was left all of us with heightened churn, lower pricing, and we learned from that quickly going into the second quarter. I think some of that was managing legacy for the head of one of our peers who was on his way out. We've seen more stability come in through the second quarter around that level of competition. It's still very competitive, but it's not emphasizing price discounting. Um, uh, and so, uh, with back to school, we've seen volumes are still down. They're down about 30% year over year, as we have been for a few quarters now. Um, but we're, uh, we're seeing through penetration gains still about 2% growth across the sector. In that environment, there's no sense trying to, um, uh, overheat the market. And so, as I say, we've leaned in on price plan features, trying to manage where customers come in on their life cycle. Prepaid is a part of that. But we find that our peers and ourselves have settled down some of that discounting, which is good. That's constructive for the industry and for the sector. The headwinds we have going into the second half of this year are coming from the ongoing effects of that first quarter discounting, but then also the CRTC regulation around fees. All of us are adjusting to that new regulation and trying to figure out how to offset it. And so I think that has helped temper some of the price strategy around the discounting. We have a price change, a price action that we put in in the third quarter. I expect that to have a little bit of an impact on churn in the quarter as that rolls through. but modest. We're still running roughly around 1% churn on postpaid, as we have been for several quarters. And so all in all, I'd say it's a very balanced environment, roughly 2% growth, largely driven by penetration, more stability around pricing, less emphasis on discounting. And we can make that work.

Operator

So to boil it down, I think what you're implying is that there's probably pressure on ARPU for a couple more quarters as we flush through Q1 and then deal with the service changes. And then, you know, hopefully sometime next year, you would see that stabilize. Is that a fair assessment?

Glenn Brandt, CFO

I think, yeah.

Operator

Subject to competitive action.

Glenn Brandt, CFO

Subject to the competitive framework. None of us, I shouldn't say none, one of us, I guess, expected the first quarter. None of us expected to start this year with where we started in the first quarter. um and so you have to react to that it has an effect we'll see that roll through over the next few quarters um as we as we uh um move you know move into the other quarters with more stable pricing it helps even that out and as we all of us adjust to figure out how to offset the loss of that fee income. And we're all doing it with setup fees, shipping fees, delivery fees that have always been there, but they become more of a part of our strategy rather than an administrative item to try and offset the impact of that fee regulation that came in.

Operator

One of the things that's topical with investors is the potential threat of a new competitor with Starlink. Do you want to just give some brief thoughts on that?

Glenn Brandt, CFO

We see the technology here in Canada as being very complementary. If you think of the vastness of this country and in urban markets and suburban markets, we all have strong networks that cover very well. But as you get out into the rural areas, in the more remote areas, there's vast parts of this country where there are population centers there, but it's uneconomic to cover them with cell towers. The satellite technology can cover it ubiquitously. Our deal with SpaceX runs from the Pacific to the Atlantic, from the 49th all the way up to the 58th parallel. We have ubiquitous coverage on satellite backup to mobile. So outside of our wireless network, we cover virtually every road in the country now with that satellite backup. As SpaceX launches its second generation of satellites, that coverage will move to 5G coverage. It'll become much more user-friendly. You won't even have to think about it. You won't have to activate the satellite coverage. You'll pull your phone out of your pocket, go to make a call. If it can't connect on a cell tower, it'll disconnect on the satellite. You don't need an app to make that call on the second generation. That becomes much more user-friendly. That's how we see the technology as being very complementary. In order for SpaceX to be competitive with wireless or wireline operators, they would need terrestrial facilities. The aperture of those satellites covers such a broad area that if you were trying to use that to compete with wireline or wireless, one, you can't keep up with the speeds, fiber and fiber coax and fixed wireless can surpass the speeds that you could get from the satellite. And in any suburban or urban environment, the population density is just too vast. They don't have the bandwidth to carry it. So they would need terrestrial network and spectrum. That's not available to SpaceX in Canada under regulatory restrictions. And then finally, I would say the one significantly limiting factor is that you can't use them in buildings. You need clear access to the sky. in order to connect. Again, they, in order to compete, Starlink can compete because you put an antenna on the house, an externally mounted antenna that brings the satellite coverage inside your home. You can't do that with the cell phone coverage broadly on a mobile user. So we don't see it as competitive. We see it as though a wonderfully complimentary service to our coverage that allows us to immediately cover much more of the country without the economic investment of building towers. Any questions from the audience?

Operator

Okay, let's shift to cable. You have recaptured growth, modest growth, but you've recaptured some growth on the top line and margins have been very strong and resilient. What's the outlook for that side of the business going forward?

Glenn Brandt, CFO

It's like wireless. Wireline is a scale business, and so you see the benefit of that scale that we have now being truly national on the wireline side with the margins. On the service revenue growth that you see, and you're right, it's modest. But when we started, at the start of the Shaw acquisition, that trajectory was negative 4%, negative 3% to negative 4% in any given quarter. And we've turned that around to being, as I like to say, on the right side of zero. So we're zero to 1% growth depending on the quarter, depending on the competitive framework at any given time. that's come on the back of stringent base management taking advantage of bundling opportunities particularly with the acquisition at west that continues to have opportunities and then the expansion of that coverage area through fixed wireless and so all of that combined there's it's all bunt singles it's none of it is uh is is an over you know an overriding or dominant theme it's emphasis around um attention to pricing and uh and price changes where we're able moving customers up um adding services um and uh and just just block and tackle day in day out That's what's allowed us to turn it around. I don't see that revenue trajectory moving into a very substantial level of growth. But when I look at our peers being in the 1% growth area, most of our peers are negative globally. And so we continue to emphasize the bundling opportunities tying in with wireless and looking to that one Rogers strategy to help us drive further expansion of our customers. And how about the margin side? Are you confident you can keep those numbers? We've held them and expanded them, modest expansion, but expanded them continuously over the last several quarters. I think, again, with scale, you have the benefit of being able to run a fairly steady ship. I'm confident that we'll hold the gains we've made. And I think as we can pare back our capital intensity, that's underway. You'll see stronger growth in free cash flow. So I see those margins being sustainable, maybe a little bit of upside. Yeah.

Operator

You just alluded to it. One of the more significant announcements Rogers made this year, certainly for the financial community, was a pretty material cut in CapEx, about 30%. What can you say to investors to, I guess, manage any concerns they might have that will impact growth going forward or network performance? How have you managed such a significant cut in CapEx? Sure.

Glenn Brandt, CFO

So the impetus for the cut came from the regulatory environment and yet another stepping in by the regulator. on uh on industry pricing and uh and so we looked at that we looked at where our capital intensity was the intention always was to bring our intensity down and we brought it down modestly but that was really the driver for it was to say look this this environment whether it's tpia and MVNO competition, whether it's price regulation, this environment requires much less capital intensity. Now, and you've heard me say this before, if you take a capital plan over four quarters and do nothing more than say, you know what, instead of four quarters, you now have six quarters to build out those priorities, stretch it out. That doesn't mean everything gets completed within six quarters that means you you stretch out some of those projects will stretch out eight or ten quarters some of them still have to get completed within you know that year because they're a priority for for either dealing with a service issue in an area greenfield expansion what have you but we now look at it as we've got to contain our spend within that lower capital intensity. I expect the $2.5 to $2.7 billion guideline we gave this year to be sustained for the foreseeable future. Not guiding beyond 2026 just yet, but I don't expect you to be surprised when you see 2027. You'll see a similar level there if you're working on what to forecast out. The intent then is to manage our timeframes and our framework for priorities. It's also to scale back some of the work we were doing. We were moving into rural areas where the economics were much more challenged. In a less, I'll call it intrusive regulatory environment, you can make those work over several decades. But where you can have your peers come in and use TPIA access to take a share of those customers anyways the economics become less compelling for us and so some of those projects we are moving off to others that selling them off and allowing them to step in some of the greenfield expansion still makes sense some of it maybe doesn't that doesn't mean there's not opportunities for growth but the emphasis here is not just growing customers. The emphasis here is growing service revenue, and most importantly, free cash flow. And so when you put all of that together, that's the balance we're following. Priorities that we followed before, if they're still priorities, they will still get done. They may still get done in year. They may get done over expanding the quarters. But if you take a four quarter plan and put it over six quarters, you've got your 30% reduction in spend pretty easily.

Operator

We're right up against it on time. So maybe just quickly, you've talked in the past about how Roger's credit card has been another tool in the toolbox, so to speak, for base management. But you've been at it for a while. Is there an opportunity to securitize some of those receivables in terms of balance sheet management? Can you set some expectations for investors on that?

Glenn Brandt, CFO

Sure, we have a facility that we've negotiated with a few of our lead banks that is near complete to put in place. We're just waiting on every financial institution, regulated financial institution, needs its capital structure to be approved by OSFI. So OSFI is looking at it to see whether or not I know what we're doing in Treasury. Once they say it's a good facility, then we can put it in place. Once we can put that in place, it'll take up to a billion dollars of working capital that is currently sitting on RCI's balance sheet, funding the bank, and put it directly onto Rogers Bank's balance sheet. It's a Rogers Bank facility. It will fund the receivables, as I say, up to a billion dollars. We're just over a billion dollars of receivables now. It'll take some time to work into that full billion dollars as we make the draws, not very long. That could be in place before we close out the quarter, more likely early Q4. I expect as we start drawing that down, we will start our reporting, and I'm hoping it's this quarter, We'll start our reporting with deconsolidating Rogers Bank, pulling that funding off of RCI's leverage, and pulling the EBIT out, which is currently still startup losses, although they're coming under control. But we'll pull those out from the RCI leverage structure. I've spoken with credit rating agencies. They haven't seen the reporting yet, but it's a well-established principle that if you have a self-contained financing vehicle and you set it up to be self-funded, you can deconsolidate it from the operating entity. And so that is now underway. I expect that to be in place this year. I think we're going to have to leave it there.

Operator

We're right out of time.

Glenn Brandt, CFO

Thank you very much. That was great. Thank you.