Quebecor Inc.

Ladies and gentlemen, welcome to this Quebecor conference call. My name is Hugues Simard, I am the CFO.

And joining me to discuss our financial and operating results for the second quarter of 2021 is Pierre Karl Péladeau, our President and Chief Executive Officer. Anyone unable to attend the conference call will be able to listen to a recording by telephone or webcast.

Access details are available on Quebecor’s website at www.quebecor.com. The recording will be available until November 4.

I also want to inform you that certain statements made on the call today maybe considered forward-looking and we would refer you to the risk factors outlined in today’s press release and reports filed by the corporation with regulatory authorities. Let me now turn it to Pierre Karl.

[Foreign Language] and good morning everyone. Before turning to our operational and financial results, I would like to briefly come back to our discussion last week, further to the conclusion of the 3,500 megahertz auction.

As I had stated then, we are very pleased to have won a significant band in the strategically important and valuable spectrum, both in Québec and also in key regions of Ontario, Manitoba, Alberta and British Columbia. The outcome of this auction is for us the first essential step towards the expansion of our telecom services outside of our own base of Québec into key markets of Ontario and Western Canada where we believe we are uniquely qualified through our operational track record, innovative approach, and a solid balance sheet to succeed in providing Canadians with well-priced, technologically superior telecom services always in line and evolving with their needs and expectations.

In terms of the next steps, it is important that the regulatory authorities make good on their recently announced decision and they be an appropriate framework whereby efficient and timely negotiation can be concluded, and that ensure that MVNO become a true alternative to encourage ongoing competition in Canada. Specifically, as it was no doubt the CRTC objective in this recent decision, the Telecom Regulatory Policy 2021/130, to foster and encourage competition in the wireless market, it is important to highlight once again the difficulties we have for years to access the infrastructure owned by Bell to accelerate the deployment of high speed Internet in our Québec market.

CRTC intervention was ultimately required to force Bell to give access to its infrastructure on reasonable terms so that CRTC should not be proactive this time around and impose as quickly as possible specific regulation for wireless network access to achieve the policy objectives. I will now review our operational results, starting with telecom.

Over the past few weeks, I have had the pleasure of traveling across Québec to announce to the residents of several rural areas that we are very pleased to soon be able to offer connectivity to their own and neighborhoods. That said, our project to deliver high-speed Internet to 37,000 households in the municipality of [indiscernible] to name a few, is well underway.

Again I wish to salute our teams and partners who have taken up the challenge of connecting those all by September of next year. As a result of this project, we will essentially be doubling the average output of incremental owned pass during 2022.

Starting with our Wireline segment, we are pleased with our performance this quarter, especially considering the accentuated seasonal impact resulting from the Québec moving period observed in Q2 this year. However, it has been the case for many years, due to this unique moving situation in Quebec, the third quarter started on a very positive note in terms of volume growth.

For a fourth consecutive quarter, we added over 100,000 customers to our Helix services, bringing our total to 922,000 RGUs as of June 30, 2021. In less than 2 years, more than a third of our customer base, have subscribed to benefit from our Helix platform in all its superior functionality.

As we continue to develop our Helix experience, we are pleased to announce that we have signed new deals with [indiscernible] to integrate content to the Helix catalog. We have also recently introduced super to our Helix platform.

Furthermore, at Helix self-installation, which launched in March, is being widely adopted as close to two-thirds of our customers now opt for this option to initiate their services. We have already surpassed 100,000 self installations since the launch.

With a 90% overall customer satisfaction rate, this program has proven very successful. Solid broadband growth continue to our sales brand, which offer a unique consumer experience that allows us to differentiate ourselves from competitors.

Despite the dilutive impact of the thin broadband pricing, we posted a 5% or $2.73 consolidated Internet ARPU growth. On the wireless front, we posted 27,000 new ads during the quarter in a more competitive environment than last year.

Let’s keep in mind that last year, we capitalized on the fact that we were out of the gate, better prepared than all of our peers to welcome back customers in our retail stores. Once again this quarter, we captured on a combined basis the largest share of gross adds in Quebec, despite our competitors continuing to be aggressive, especially towards the end of the quarter.

Wireless app too was essentially flat for the quarter with both the fees and Internet home separate ARPU increasing as has been the case for several quarters and improving due to a slight uptick in rolling, greater value for equipment, and most importantly, sees ARPU growing faster compared to the last quarters. We launched its Equipment Installment Plan, EIP, model in mid-June, strengthening our marketing strategy and addressing evolving customer needs.

So far, we are pleased with the customers’ adoption to our new model. As expected, we experienced some learning curve issues relating to our sales channels during the initial week following the launch, but they have since been resolved.

Furthermore, in line with Quebecor and Videotron strategic vision focused on continuously meeting the expectations of today’s consumers, we will shortly be launching Vrai, the first video subscription platform dedicated to exclusive unscripted lifestyle, documentary and entertainment content. The promise is to offer thousands of hours of all-French on-demand content, including over 40 first-run exclusive original Québec productions.

We also commit to offer over 100 original Québec productions by the end of 2022. Along with the success of [indiscernible], which is dedicated to series, movies and use programs, this new platform will likely complement our content offering.

With the addition of Vrai, Quebecor strengthened its leadership position as the largest catalyst for original productions in Quebec. We are expanding our collaboration with local producers and we will continue to invest significantly in the production of new local content.

Turning to media, we are very pleased with our results in this second quarter as activities came back on stream leading to a significant increase in advertising revenues in television, both for at the TVA network and our specialty channels as well as in newspapers and Out of Home. TVA Group’s total viewer market share was 42.6%, continuing to be the reference in television in Quebec.

The TVA Sports specialty channels stood out with an exceptional 5.0-point market share growth, mainly because of the Montreal Canadiens strong performance in the National Hockey League playoffs. In Production & Audiovisual Services, MELS Studios are also operating at full stream again and we’re really pleased to announce the construction of MELS 4, which will increase the size of our studios by more than 160,000 square feet, making MELS even more attractive to foreign producers of Blood Busters and television series.

Speaking of Media, I feel compelled to repeat that in order to ensure the sustainability of our advertising revenues and the vitality of our competitiveness on local news media in the pace of global competition, it is more urgent than ever that the federal government legislate to enable Canadian press publishers to negotiate collectively with the Web giants to obtain fair compensation for the use of their content. Canadian heritage concurs with this decision which we have been defending for years.

It is time for the government to table a bill to establish a framework that enables newspaper publishers to negotiate on a level playing field. We need to stand together if we are to secure the future of news coverage in Québec and Canada.

Finally, turning to our Sports and Entertainment operation, activities remained lucid this quarter, but we are basically planning the gradual resumption of events with a full calendar lining up in sports and music for the fall and winter. I will now let Hugues review our telecom and consolidated financial results.

Quebecor’s revenues were up 13% in the quarter to $1.13 billion. Revenues from our Telecom segment grew 7% to $928 million, driven by equipment revenue as well as wireless and wireline services.

Revenues from our Media segment grew 49% to $198 million. Quebecor’s EBITDA was up 5% to $501 million.

Our Telecom segment recorded EBITDA growth of 4% to $482 million. It represents a 52% margin, still the highest in Canadian telecom despite heavier equipment loading, and greater sales and marketing expenses.

Our Media segment reported an EBITDA of $17 million, a $9 million increase. We reported a net income attributable to shareholders of $124 million in the quarter or $0.50 per share compared to a net income of $175 million or $0.69 per share reported in the same quarter last year.

The decrease is mainly explained by an unfavorable variance related to debt refinancing. Adjusted income from continuing operations, excluding unusual items or gains or losses on valuation of financial instruments, came in at $158 million or $0.65 per share compared to an adjusted income of $145 million or $0.57 per share in the same quarter last year.

For the first 6 months of the year, Quebecor’s revenues were up 8% to $2.22 billion after 6 months and EBITDA was up 5% to $954 million. Revenues from our Telecom segment grew 6% in that period to $1.84 billion after 6 months.

Telecom CapEx spending increased 8% or $11 million in the quarter as a result of a heavier ramp-up in the LTE Advanced and 5G rollout plan, leading to a wireless uptick in CapEx of $18 million. Our cash flow from operations for the second quarter of 2021 increased by $12 million or 4% to $338 million, once again demonstrating the resilience and strength of our business model.

Our financial profitability, propelled by the strong returns from our Telecom segment, remains very solid. Cash flow from operations for our Telecom segment grew $7 million to $330 million.

As of the end of the quarter, our net debt-to-EBITDA ratio was 2.71x, down from 2.75x reported at the end of the second quarter last year and one of the lowest of all our Telecom peers. I would like to point out the success of our recent refinancing exercise where Videotron issued $750 million of senior unsecured notes in the Canadian market and $500 million of senior unsecured notes in the U.S.

market, both yielding 3.58%. Pro forma the redemptions of Videotron’s 5% senior note and Quebecor Media’s 6.58% senior notes in July, our available liquidities of $2.4 billion provide us with much flexibility to continue our investments in strategically important growth projects, while maintaining a balanced approach to M&A.

During the first 6 months of the year, we purchased and canceled 4.1 million Class B shares for a total investment of $132 million. Since we initiated our NCIB 10 years ago, approximately 44.7 million Class B shares have been repurchased and canceled.

Please note that the Board of Directors upon termination of the August 2020 program has approved the renewal of the program for an additional year. I will now turn it back to Pierre Karl for the conclusion.

Thanks, Hugues. In conclusion, we’re pleased with our operating and financial results for the second quarter as we continue to deliver steady and disciplined growth in revenues, profitability and cash flow.

Along with one of the strongest balance sheet in the industry, we are well positioned to play a central role in the major expected evolution of our telecom competitive dynamics over the next few months. Our track record speak for itself, and we intend to continue to make our mark as the one of the best managed and most innovative telecommunication company in Canada.

We thank you for your attention and we will now open lines for the questions.

[Foreign Language] First, congrats on the results. We saw strength in telecom revenue, but maybe margins were a bit lower than expected.

And I’m wondering what’s the role of the deployment of Helix in that situation given the royalties? And should we expect a continued impact from that going forward as the percentage of clients on Helix has ramped up?

Thank you, Jerome, for the question. Yes, we’ve talked about that in the past.

I mean, of course, the Helix model is slightly different from – with fewer CapEx and a little bit more OpEx. So that does obviously have an ongoing impact on the margin.

But its – I mean most of the impact this quarter has to do with equipment – the increase in equipment sales on the top line where our margins are slightly lower, as I’m sure you understand and a little bit more investments in marketing and advertising.

And I would add, Jerome also that as I mentioned in my script, is the self-installation has the feature which obviously provides true the continuation of our deployment, reduce expenses and reduce operational expenses. So looks promising.

Great. And then in terms of wireless where some people are looking for sort of growth vectors, where do you see your market share going eventually maybe in the medium to long-term?

So the market share for wireless in Quebec.

Well, what we can say right now is that our gross adds are favorable to the rest of the different operators or the rest of the other brands also because as you know, we operate two brands and we I think are fulfilling well the different segments. We will continue to be aggressive where we were, we will continue to be innovative, and we look forward to at least maintain our market share and even growing it.

Thank you.

Yes. Thanks very much.

Good morning. Just a couple for me.

In terms of the sequential improvement in year-over-year wireless ABPU or ARPU, you talked in your opening remarks about those dynamics. I just want to confirm there is nothing necessarily unusual in the quarter that we should account for.

And then secondly, with respect to Q3, nice to see the seasonal pickup in terms of activity post the moving season. Just wondering, when you look at that moving season this year versus last year as well as what you anticipate on a back-to-school season, how close do we – are we to a normalized Q3 from your perspective?

Thank you.

I’ll start, Drew, with the second question. It depends practically the last date of the quarter.

This is why we consider that we – and we always talk in our conference call Q2 about the first experience of the weeks after the critical July 1 date. As I mentioned, what we’ve been seeing is very positive.

And for the back-to-school, we’re coming in shortly and slowly, and we’re well preparing to have an interesting program in terms of the different services that we’re able and we will continue to provide. Obviously, we’re talking about wireless and Internet access, but also with Helix which is providing also an interesting product looking forward.

Maybe for the first part, Hugues?

Yes, the ARPU, Drew, nothing to specifically answer your question, obviously nothing unusual. It’s what we’ve said.

I mean it’s – there is a slight little bit more roaming, a little bit more equipment or value per equipment. And mostly both of our brands moving up and with FIS moving up a little bit comparatively more, so picking up and so, not having such a dilutive effect as it has had for a number of quarters.

I think that’s good news.

Yes, thank you.

Yes. Hi, thanks for taking my question.

So, congrats on the good quarter. My first question is on wireless revenue growth, like it was solid at 9.5% this quarter.

How should we think about the EBITDA growth this quarter? And then a quick one on the Internet revenues, as you mentioned, Quebecor generated meaningfully higher ARPU in Internet despite the FIS broadband.

If you could just give us some color as to what is driving that and how should we think about it going forward?

Okay. Good morning, Pratik, Hugues will give you details.

Okay. On the wireless, wireless EBITDA growth, I mean we’re – it’s not something that we give out, Pratik, as I’m sure you know.

But we’re well in the high teens. So I think nothing – I think it’s continuing on its path that it’s been on for quite some time as we continue to grow our profitability and our margins in wireless.

In terms of your second question, your second question has to do with Internet revenues. And it was specifically what, sorry, Pratik, can you repeat?

Yes, like, so Quebecor generated higher ARPU in Internet despite, like you mentioned, FIS broadband. So just wanted to understand as to what is driving that?

And how should we think about it going forward?

Yes. Well, the first point is the first full quarter of annual increases.

And also more importantly, continuing to see more customers upgrading to higher packs and higher speeds as well. So that was mostly the reason behind our 9% Internet revenue growth.

Awesome. Thanks a lot.

Yes, thanks very much. A question maybe more for Pierre Karl, now that you’ve been more on the President’s seat for a couple of months now, any big picture thoughts from your perspective on the competitive environment in both your cable business and the wireless business, and your thoughts about the balance of pricing versus market share gains going forward?

Are you happy with what the company is doing currently or if there is any tweaks to that model that you might be thinking about?

Well, thanks, Vince. No, I think we – yes, there is a changing environment, but not completely.

I mean Québec has been always competitive. Québec has always provide full competition on the wireless side with many brands, more brands than elsewhere.

As we all know, this is where you can get the cheapest price for the wireless. And with the also the TPI component, which is probably more largely available in Québec with many companies, we have been also seeing highly competitive prices in the Internet access market.

I was just watching this morning prices in Toronto for, let’s say, 150 megabytes and it’s going to cost close to $90, where you can have that kind of or close to that product for $50 in Montreal or in Quebec. So it remains very competitive and will continue to be competitive.

So therefore, we need to continue to differentiate ourselves with customer service, which we for the last 20 years have been involved in to continue to launch new products. Helix been there to continue to offer a positive perspective, to continue to highlight in our convergence play and I was referring to the new streaming service that we will launch shortly.

So, all those participates in our capacity continues to be strong, but we need also to be a slick operator, taking care of the amount of money that we’re spending being sometimes more details. So it’s business as usual.

I would say there is nothing completely new. We’ve been used and we will continue to succeed in a more competitive environment and elsewhere in Canada.

Thanks for that. A couple of other smaller maybe clarification type questions.

I know you said you were number one in gross ad share in wireless again this quarter, but are you willing to give us that figure again or did I miss it in your opening remarks?

No, we didn’t get that figure, but 30 – we get that set, 30 – yes, 30%. I think it’s altogether, 30% of the gross ads as this quarter.

Okay, thank you. And another clarification, the new Vrai service, is that a subscription service or advertising driven?

And is it owned and the start-up costs borne by Videotron or is it through your broadcasting company TVA?

It’s a subscription service. And if you were to take also ECO, you have a bundle of better pricing.

And the model that we’ve been using is a model that has been successful in the past. I mean the first window of broadcasting goes on streaming service.

And the additional windows, if any, then we will go on the different channels that we operate to TVA, either on the specialty channels or either on the main network a few months or years later. So we’re not going to tell you how we break down the prices.

But you can imagine that auditors goes through this operation on a steady basis.

Okay. And the last one probably for Hugues, is that the operating cost run-rate within the telecommunications segment, excluding wireless handsets which I know bounce around from quarter-to-quarter depending on volumes and promotion.

The base operating costs beyond that, are we at a kind of a new normal run rate in the second quarter where all of the sort of pandemic impacts have reversed themselves out or is there another potential step-up in operating costs in the second half of the year as you continue to have more normal employee costs and retail store costs and other things?

No. I think there’ll be puts and takes, Vince.

But I think we’re looking at improving. There was some higher investments in a number of areas this quarter.

And I think we may be looking at a slightly lower OpEx going forward.

Okay. So, no step up.

Maybe you can get better. I am sorry I’d add one last one.

Was there anything unusual in Q3 that we need to think about in terms of one-time revenue or one-time costs related to regulatory or other settlement issues?

Yes, we had a one-time adjustment last year of – it was – yes. We will get into that.

But yes, there was a one-time adjustment last year, about slightly in the teens of millions of dollars from what I remember.

One-time benefit, not a headwind.

One-time benefit, exactly. Yes, yes.

Okay, I will pass it on. Thank you.

Thanks, Vince.

Change my firm to Bank of America, that’s…

No problem at all. Thanks for taking the question.

I just wanted to ask a question on wireless. BYOD in the past has been something that you guys have talked about.

And with the introduction of the EIP, I was wondering if you could talk about maybe how that percentage, both of maybe gross adds or perhaps of the base is changing? And just to piggyback on the margin questions asked earlier, if we should think of a change in that mix impacting margins in the telecom segment?

Thanks Matt. No, on the margin, I think my answer is there is nothing.

I wouldn’t add anything to my previous answer. I wouldn’t expect any major further impact going forward.

And your first question, yes, on BYOD. This is something that’s been highly successful for us for many years.

It continues. It continues to be.

As we have said in the past, the important part of the BYOD is to make sure that you are there because at some point, you may or you will have to transition your customer from a BYOD model to weigh subscription or to an EIP or to some other model. So, it’s important for us to remain very, very close to that.

And I think our churn numbers are demonstrating that we have and now we have – we offer all of the various models. And having been able to be successful at offering to our customers, what they want and being able to migrate them from the entry BYOD model at similar margins for us, which is interesting, and moving them up to other models and continuing on the margin basis.

So, as you know, Matt, you our Fizz brand is 100% BYOD. And so with the – since it’s coupled with a digital model, and you can imagine that the cost of acquisitions are – is very low compared to when you are delivering the cost of acquisition cash wise in terms of getting the latest iPhone in the end of the customers.

So, the capacity of offering many possibilities or many scenarios is positively impacting our capacity to get the new customers.

Okay, great. Thanks.

And maybe just a quick follow-up, I don’t know if it was said earlier, but did you guys give the wireless churn and the wireless CapEx numbers for the quarter?

Maybe we have or not but our wireless churn was slightly higher than last year, of course. But I think we have talked about this that it was a very unusual year with much fewer port outs, but sequentially better than on Q1, 1% or something that’s sort of – we didn’t do it out, but it’s 1%, right.

Yes, 1%, looking at my number. And CapEx – your second question was with wireless Capex, right.

Yes.

Other CapEx was 100 – did we give it out? Let me get you the number.

The wireless CapEx was for the quarter was $48 million for the quarter.

Thanks so much.

Hi. Yes.

A couple of questions, just looking at the wireless ARPU, in the past it was declining a little bit. And this quarter, it was flat on a year-over-year basis.

So, I was just wondering what’s changed, what’s driving that? I know you mentioned the slight uptick in roaming, but I imagine that wouldn’t really be the factor there.

Is it just more data consumption? Are people moving up to higher-priced plans?

If you can give us any color on that, that would be helpful.

Yes. On the – on that, David, yes, a little bit of roaming we said, but it’s not the main thing.

I mean it’s – and a little bit of higher value of equipment – per unit of equipment, but it’s mostly people in – in both brands, actually, to be honest, moving up and really increasing ARPUs in both of our brands. And importantly, Fizz, comparatively moving up or increasing a little bit more, so having less dilutive impact.

Was that price increases or just people deciding to go for just like a higher price plan or more data?

No. I mean people know there is a few other – there is a couple of things.

I mean as we said, there was no roaming decline, okay. That’s the first thing.

And secondly, people just moving up to higher packages and just having an average service spend a little bit higher and continuing to be higher in the quarter.

Okay. And then just on the Québec wireless gross ads.

When you look at your net ads, I mean, they are still very good. They are just down a little bit from what they used to be previously.

So, I am just wondering if the Québec wireless market growth is maybe slowing a little bit. Is that – are you seeing that?

Well, it’s – I think we commented on that. I mean it’s a very competitive market.

We are hearing that English, Canada or Ontario more specifically has been a little bit less competitive. I mean here, we have to fight.

We have to fight for these things. And it’s switching from year-to-year.

Last year, switching, 4,000 switching was down. Now it’s back up.

People are increasingly focusing on price. And I think we have got the right tools, that being said, to really offer them what they are looking for.

But it is a market where building net new ads is not easy. And certainly compared to last year, it’s a market that continues to be comparatively more competitive than the rest of the country.

We have launched EIP, which is also at the beginning, as we said, it’s just starting out. So, we haven’t I think reached full steam on that one.

And I think this will provide a little bit more momentum there. And with 30% share of growth ads and our two brands being rightly positioned in terms of pricing and promotions, we think as Pierre Karl mentioned earlier that we have got all the right tools and all the right strategies to continue to be successful in that.

But it has to be said, highly competitive market.

Okay. Great.

Thanks.

Thank you. Good morning.

Just wanted to follow-up on the CapEx, the wireless CapEx question and maybe ask about what the breakdown is? If you have that roughly between what you would consider maintenance-type CapEx versus 5G?

Not really just for the quarter, but maybe since you started your 5G CapEx, curious what the rough breakdown is. If you didn’t have 5G CapEx, what would your CapEx be if you look back the last few quarters?

And then also looking ahead, then how much do you tend to spend on 5G to cover Québec specifically? And then the second question, just a follow-up perhaps on national expansion.

I know we visited that topic extensively last week. But maybe one question that wasn’t quite asked is, what would make you stay inside Québec?

We talked about lots of reasons why you would go outside and lots of conditions that you want to see. But what would make you stay inside Québec and not expand?

I am wondering if you can just elaborate and talk a little bit about that. Thanks.

Good. I will start, Jeff, and maybe Hugues will add.

So, our wireless CapEx – I understand that what you were asking is what’s the breakdown between maintenance and pure CapEx. And perhaps for us, we are not going to give the detail of that for competitive reasons.

But what we can say and what I would say is we have been through all it and it relates to the second part of your question regarding 5G. It relates to the fact that we know that our competitors make a lot of noise around 5G.

And I guess probably that they don’t have a lot of other choices, given that they have been unable to offer something else. So, they are focusing on that.

That doesn’t mean that we don’t consider 5G important. In fact, we will continue to invest.

As you know, we launched in Québec. We launched in Montreal.

We will continue to invest to have a full 5G network. And – but we consider there is no rush to do that.

So, it is important to say that we – it’s another migration from the other ones that we experienced for the last 20 years or a little bit less than 20 years since we are a wireless operator. So, that’s for the first part of your question.

The second, I guess it’s a strange question, Jeff. But I understand that you can ask it.

We – I think that last part to certain questions, we were honest enough to say yes. We have limited potential of growth in Québec.

And now we have the entire tools to be able to move forward in other markets. I would like to re-emphasize the fact that when we came in 2008 with the first auction and the other ones, our objectives were not to speculate on buying spectrum.

For whatever reason and the different reasons that we have been facing at that time, we thought that it was probably not the appropriate time to move forward in the wireless market elsewhere. As you know, we have certain obligations, namely – and this was important because we have been able to acquire to do at home because of them.

But we have deadlines and obligations to reimburse or to buy back position, which we did. So – and it is important to mention again that our balance sheet is one of the best of the industry.

And there is no such obligation anymore, like the one we were facing not last week, obviously, because the purchase was done a few months – a few years ago. But we have now the capacity to grow our free cash flow.

We have no obligation. We have been refinancing recently, as you said in the script.

So, all those favorable elements are there to provide us with a new segment of growth, which we think that we will be successful to develop.

And maybe just one quick follow-up, are you – would you consider some partnerships in this venture for this growth segment?

Yes. We are open to all sorts of possibilities.

We have been in partnership with many companies in the past in different activities, whatever pristine newspaper. So, I think that we – we have been always a good partner, and we will continue to be one.

We understand the advantages of the partnership and also the obligation. Yes, there are always two sides on a coin, you have obligations, and you have also advantages.

And this represent a good balance. And this is why we will always going to be open for successful endeavors in this direction.

Great. Thank you.

So, I think it’s the close on our conference call. Jeff was the last question.

So to all of you, thank you very much for your attendance, and talk to you at next quarter.