Quebecor Inc. (QBRA) Earnings Call Transcript & Summary

Good day, everyone, and thank you for standing by. Welcome to the Quebecor Inc.'s Financial Results for the Second Quarter 2026 Conference Call. I would like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead.

Ladies and gentlemen, welcome to our conference call this morning. My name is Hugues Simard, and joining me to discuss our financial and operating results for the second quarter of 2026 is Pierre Karl Peladeau, our CEO. Anyone unable to attend the conference call will be able to access the recorded version by logging on to the webcast available on our website until the 4th of November. As usual, I also want to inform you that certain statements made on the call today may be 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 the regulatory authorities. Let me now turn the floor to Pierre Karl.

[Foreign Language] Good morning, everyone. So I'm happy to report once again solid operational and financial results for Quebecor in the second quarter of 2026. In all our business sectors, we're continuing to improve our performance quarter after quarter through disciplined execution and rigorous management, resiliently delivering on our expansion plan, growing our wireless market share in all markets across Canada, generating consistently strong cash flows and maintaining the best balance sheet of the industry. On a consolidated basis in the second quarter of 2026, Quebecor continued to improve all its key financial indicators. Free cash flow increased by $44 million or 12% to $419 million. EBITDA, excluding stock-based compensation, improved by $62 million or 10% to $691 million, and net income attributable to shareholders grew by $53 million or 24% to $227 million. We maintained our net debt-to-EBITDA ratio at 2.87x, still the lowest leverage of the Canadian industry by some margin after buying back nearly $100 million of our stock in the quarter and investing $174 million in capital expenditures for growth projects, investment in our core systems and the continued improvement of our network and best-in-class client experience to fuel -- I'm sorry, pursue our resilient profitable growth. Moreover, we did not issue any hybrid debt or perform any financial engineering of any kind in the quarter or ever, as we always manage our balance sheet so as to minimize our interest expenses quarter after quarter. On the strength of these excellent results and considering our comparatively lower payout ratio, as well as in the continuation of our balance sheet and disciplined capital allocation strategy. That being continuing to lower our debt and improve our ratios while renewing our annual NCIB stock buyback program and continuing to buy back our stock, Quebecor Board of Directors have decided to increase our quarterly dividend on both A and B shares from $0.40 to $0.45, a 12.5%, increase, reflecting our strong confidence in our consistently growing cash flows. I will now review our operational results, starting with our Telecom segment. I'm very pleased to report a record second quarter for our Telecom segment. In the second quarter, we delivered adjusted EBITDA of $642 million, up $32 million or 5% over year, the highest quarterly growth we ever recorded for a second quarter. Our adjusted EBITDA margin was 52%, an improvement of 60 basis points. Total revenues were $1.2 billion, up 4%, driven by an increase of 4.2% in Service revenues to $1.103 billion. Adjusted cash flow from operational reached $474 million, up 3.1%. We're proud of these results, the product of a focused team executing with consistency and discipline quarter after quarter. And what makes this quarter particularly meaningful is not just the headline numbers. For the third consecutive quarter, our consolidated Mobile ARPU grew 86% in the quarter or 2.5% year-over-year to reach $35.62. Let me put this in its proper context. As our competitors are losing revenue per subscriber, we are improving ours while also expanding our subscriber base. We added 53,200 net mobile subscribers in the second quarter, a significant acceleration from the 28,800 in the first quarter. Although the conventional wisdom in the industry has long been that you must choose between [indiscernible] and ARPU, we are proving it wrong, consistently, measurably and concurrently growing our subscriber base and our ARPU rather than sacrificing one to achieve the other. I'd also like to add that our ARPU is clean and honest without any subtraction or creative calculations, that seems to be the norm for our competitors. While Q2 has seen a return to somewhat more disciplined pricing, certainly a pivot away from the aggressive promotional offers that defined Q1, some competitors still resort to hefty discounting in select channels, automobile clubs being a prime example, which we believe is inefficient and [indiscernible] way to build a loyal and durable customer base. Our continued ARPU growth is the clearest possible evidence that authentic value creation is a more resilient and ultimately more successful strategy than manufactured promotion or [ fake ] employees purchase plan. Building on the successful rollout at Fizz and supporting our ongoing deployment of a common BSS platform across our Videotron and Freedom brands, Quebecor increased its equity interest to a majority position in Etiya, a global software company based in Turkey with more than 1,500 employees and a leading provider of digital business support system platforms powered by artificial intelligence. This transaction, which doubles down our initial investment in 2021, will also strengthen Etiya's ability to deliver large-scale BSS transformation projects worldwide, a sizable and yet untapped opportunity. [indiscernible] I pause to survey our telecom performance in the first half of 2026. I see a business executing with remarkable consistency. First half service revenues improved 4% to $2.1 billion. Adjusted EBITDA increased 6% to $1.3 billion and adjusted cash flow from operations reached $963 million, up 7%, showing our continued ability to lower our cost structure and reflecting an investment strategy geared towards long-term growth and lasting performance, not short-term results. Freedom Mobile, our national growth engine, is keeping up its momentum and see it continue to establish itself as the leading digital wireless brand in Canada. 3 years after the game-changing Freedom acquisition, we are performing ahead of every plan and commitment we made, integrating our operational efficiently and positioning our brands even more strategically. Looking ahead to the second half of 2026, I am confident in our trajectory. In Videotron network leadership in Quebec remains strong. Fizz is reaping the rewards of an ever-expanding digital consumer market and Freedom Mobile national expansion continued to mature in Ontario with significant opportunities still ahead of us in British Columbia, Alberta and Manitoba. Furthermore, as our rigorous cost management continue to improve operating leverage and as our 5G and 5G+ investments are delivering the increased speeds, the network differentiation and best-in-class client experience that will drive ARPU for years to come, we continue to execute on our expansion plan with the confidence of an operator who has already demonstrated it can beat its competitors and grow profitability in any competitive market. Turning to the Media segment. I'm also quite happy to report a much improved performance with adjusted EBITDA reaching $27 million in the quarter, up $18 million year-over-year driven primarily to [indiscernible], where the Montreal Canadians playoff run boosted both advertising and subscription revenues. Our numerous cost efficiency initiatives throughout all of our Media sectors also contributed to our improved financial results, along with higher low -- I'm sorry, long overdue affiliate rates. On the NHL renewal rights process, we have nothing else to say than we're still to finalize our negotiations. In addition to the outstanding [indiscernible] performance, TVA must see programs and original product productions, including the daily series [indiscernible], which remains the most watched drama series in Quebec with an average of over 1.2 million viewers every day from Monday to Thursday and [indiscernible], which climbed to the top spot among entertainment program across all channels on the spring schedule with an average of 740,000 viewers helped TVA Group to retain its lead in Quebec with commanding a 44.2% market share. While severance challenges persist in the Media business we remain focused on operational discipline and premium content to provide Quebecers with homegrown entertainment, news and sports content produced by Quebec creators and crews. However, we cannot ignore the structural challenges facing the industry, which remain as daunting as ever. We will continue making our case to government and regulatory bodies since we're building a viable and sustainable model for our entire industry, requiring the involvement of all stakeholders. I will now let Hugues review our detailed financial results.

Thank you Pierre Karl. On a consolidated basis in the second quarter of 2026, Quebecor recorded revenues of $1.4 billion, up 4% from last year, and EBITDA reached $627 million, up $22 million or 4% despite a $40 million increase in share-based compensation expense across all of the corporation segments. Excluding share-based compensation, EBITDA is up $62 million or 10%. Free cash flow is up $44 million or 12% to $419 million, and cash flows provided by operating activities increased $32 million to $570 million, up 6% compared to the same quarter last year. In our Telecom segment, total revenues increased 4%. Total service revenues, our primary indicator of recurring revenue momentum, were $1.03 billion, up 4% year-over-year. Wireless service revenues were $476 million, up 9%, driven by continued subscriber and ARPU growth across our 3 brands. Wireline service revenues were $559 million, up 0.3%, with Internet revenue growth of 3.1%, partly offset by the continued structural decline in traditional services, though Television revenues declined only 1.1%, a marked improvement compared to recent quarters. With rigorous cost management, adjusted EBITDA reached $642 million, up 5%, our highest adjusted EBITDA ever recorded for Telecom in the second quarter. And with our adjusted EBITDA margin reaching 52%, a 60 basis point improvement year-over-year. More critically, our adjusted EBITDA grew at a rate significantly higher than our revenues, which is a natural consequence of the structural efficiency gains embedded in our platform. Operating expenses thus fell to 48% of revenue from 48.6% last year and to 48.5% year-to-date from 49.3%. This is not a onetime optimization, and it has not come from headcount reductions. It is the compounding effect of the continued optimization of our cost base while improving the quality of our revenues. And we expect AI, including our ATF BSS platform to which Pierre Karl referred earlier, to generate further efficiencies going forward. Telecom CapEx spending, excluding Spectrum licenses, was up by $18 million or 12% in the quarter, primarily reflecting the accelerated build-out of our Internet infrastructure and the continued 5G and 5G+ rollout, including the expansion of Freedom Mobile's national footprint. We deploy capital where it creates genuine competitive differentiation and lasting network value for our customers and shareholders. Despite these additional investments, quarterly adjusted cash flows from operations still increased by $14 million or 3% to reach $474 million. This sustained cash flow generation gives us the flexibility to keep investing in our networks, expand Freedom Mobile nationally and create long-term value for our shareholders. Our Media segment revenues reached $185 million, up 6% or $10.4 million year-over-year, driven by strong advertising sales from the Montreal Canadiens [indiscernible] and NHL playoff run and higher subscription revenues. EBITDA improved by $18 million to $27 million, reflecting this revenue growth as well as the benefits of our cost reduction initiatives. In Sports and Entertainment, revenues declined by $3 million to $48 million with EBITDA down $1.6 million to $3 million. Quebecor reported a net income attributable to shareholders of $271 million in the quarter or $1.21 per share compared to a net income of $218 or $0.95 per share reported last year. Adjusted net income, excluding unusual items, came in at $241 million or $1.07 per share compared to $227 million or $0.99 per share in the same quarter last year. Looking at the first 6 months of the year, our revenues rose 4% to $2.8 billion, and EBITDA increased 4% as well to $1.2 billion, held back by an $87 million increase in stock-based compensation charges. Excluding [ SBC ], EBITDA would have grown $136 million or 11%. In our Telecom segment, EBITDA grew 8%, an improvement of nearly $100 million year-over-year, excluding SBC. As of the end of the quarter, Quebecor's net debt-to-EBITDA ratio stood at 2.87x, stable sequentially, still the lowest among all Canadian telecom operators by quite some margin. As we continue to proactively optimize our capital structure, the USD 1 billion commercial paper program we established at the start of the quarter is now fully operational, diversifying our funding sources and providing additional flexibility at very attractive short-term rates. We also paid down debt during the quarter. Videotron repaid the $500 million balance on the tranche on its term loan tranche maturing in April 2026 and $300 million of the $700 million tranche maturing in April 2027, followed by a further $100 million early repayment on July 8. All in all, we have the best-in-class balance sheet with available liquidity of $926 million at the end of the second quarter. During the first 6 months of the year, we purchased and canceled 3.1 million Class B shares for a total investment of $185 million. And more importantly, upon termination of the August 2026 program, the Board of Directors has approved the renewal of the program for 1 additional year. Finally, in light of these results and our confidence in our growing free cash flow, Quebecor's Board of Directors declared yesterday a quarterly dividend of $0.45 per share for both Class A and Class B shares, up from $0.40, an increase of 12.5%. We thank you for your attention, and we'll now open the lines for your questions.

[Operator Instructions] Your first question comes from Sebastiano Petti from JPMorgan.

If I could just perhaps ask you in terms of outlook for CapEx and free cash flow for the year, any updates relative to prior commentary, just given the pacing and phasing of investments that you're making to expand the network and expand the geographic reach of Freedom as well as your other investments there? And free cash flow, obviously, so stock-based comp was a big benefit last year, I think year-to-date as well. Just help us think about maybe, I think, stability ex stock-based comp is generally how I think we were told to kind of think about it for the year in 2026 relative to 2025. Any reason to think that things would deviate from that?

Thank you, Sebastiano. I'll ask Hugues to give you some more details on the numbers you've been talking about. Hugues?

Yes. Sebastiano, yes, I think stability, as we've talked and as we've said many times over the last few months is the right way to think about it. We're quite confident. Our momentum is good. Our execution is good and efficient. And as I said, from a balance sheet standpoint, we are continuing to lower our interest expense. So I'm generally confident and to a stable, yet maybe slightly better than stable cash flow generation towards the end of the year.

And then just on CapEx, you in terms of phasing or balance of the year, I mean, how should we think about it maybe pickup in spend as network investments maybe perhaps pick up as you think about the geographic reach or any help on phasing?

No, Sebastiano, we're still along with the guidance we gave for the year. We're -- there's a bit of timing issue sometimes between quarters. But we're in line, and I would expect to reach our guidance for the year, just like we did last year. And so some -- you'll see a little bit more CapEx in Q2 there may be a bit more and then maybe some timing in Q4. So -- but all in all, in line with our guidance for the year.

Your next question comes from Mahir Yaghi from Scotiabank.

[Foreign Language] I wanted to ask you very strong -- obviously, very strong ARPU growth print in the quarter. In Q1, I think you guys mentioned that your most sold plans are in the $35 to $40 price range, and your blended ARPU now is $35.62. I was trying to figure out how much more tailwind you have left in your subscriber base that should continue to support your ARPU growth forecast going forward? And are we to expect the same similar type of growth in the back half of the year? Or any kind of directional view on ARPU metrics going forward? I'll have a follow-up after.

Okay. Thank you, Maher. Just before letting Hugues, I would say it's unfortunate that we say the usual thing about this. We cannot anticipate what the market will be for the next quarters, but we will certainly continue to make sure that our brands are getting more solid, our capacity to offer what could be and should be -- I'm not going to say a premium, but certainly a value-added type of service should position and continue to position ourselves of growing our customer base without being forced, again, as I mentioned, to get in the tranches of deep discounting. So it's always sensitive to talk about this too much because, as you know, it's commercially quite important intelligence. So we'll remain prudent about the affirmation that the statement will make. Hugues, I don't know something else to say?

Well, not really. I mean I think you've -- yes, I think we should remain prudent. I think the only thing perhaps I would add is that we're very satisfied with the loading, with the ARPU loading that we're getting. And we believe that there's still room to grow for us. And as we did not participate in the craziness, I'll call it, of Q1 so much, I think that generally should bode well for both loading and ARPU growth going forward.

We think that some managers at our competitors are receiving their bonus by having an upload at the end of quarters because this is the kind of circumstances that we're often meeting, but that's another ball game.

It's very clear in your results, the financial performance and operating leverage is quite clear in your results and kudos to your team, finance team. But Pierre Karl, in your prepared remarks, you provided some context on the Etiya acquisition. Is it possible for you guys to give us some guardrails when it comes to what's the annual run rate on revenue and EBITDA from Etiya pro forma? And also, are you looking for any bolt-on acquisitions to support that business and grow it to continue to grow it? Or should we think about this acquisition as a onetime off?

It's an interesting question, Maher. I guess that what we need to do is try to explain a little bit better. I'm not sure the conference call is the best place to do it. So I'm sure that Hugues will make his time available to explain. But in a nutshell, I would say BSS and OSS are a significant portion of our cost in the Wireless business and also in our legacy business. We look forward to get rid of this legacy, which was on [indiscernible] framework. Never forget that we're coming from a cable environment. This is the legacy of the business and cable was not invented last week. It's been there for 50, 60 years. So we need to make sure that we will migrate on other digital platform that will make our cost more efficient and less costly. And we found out -- and usually, it's the kind of situation that is naturally the kind that you'll need. Buying Freedom, we're not saying that the platform was not efficient. In fact, it was, but certainly costly. So by getting the platforms being altogether under the same roof, you can easily understand that will generate significant savings. On top of -- and I know that's a little bit of a buzzword for the last weeks or months, but artificial intelligence is bringing some significant advantages on those platforms, and it will help us significantly, again, to reduce our cost. This is the way that we're looking at it. And we saw -- and this is one of the reasons of the great success of Fizz because Etiya built a Fizz platform, and we are now in the process of migrating our other platforms under Etiya. So it will make our business even I understand it's internally, but it brings a value added and something that we can be a kind of a showcase for other worldwide operators that are facing the same kind situation. They're looking to improve their BSS costs on top of which, again, AI should be a significant tool to achieve it. So where this business will grow in the future, can we consider considering acquisitions? As we mentioned, we own 70% now. We are in partnership with the founders, 3 gentlemen that we appreciate and have been doing a great job. They will continue to be part of it, and we will continue to be with them to grow the business. On top of our brands, Etiya also have significant other customers, large Turkish customers and French customers. And we look forward because of this showcase to grow this business and have the capacity to increase our revenues in the future. Sorry for the long answer, long response. I don't know, Hugues, if you have anything to add. But I'm sure, again, Hugues will make him available for further details.

Thank you Pierre Karl. Maybe, Hugues, if you can give us the run rate -- the annual run rate of the business?

Yes. We'll discuss because it's a little more complicated than that. I mean it has -- it's basically a more than $100 million revenue company, but then some of it is internal, of course, because it's not part of our Telecom segment. So it's -- you need to net out a few things. So we'll talk about that in more detail if you want. But I'll -- we always follow up after this call, and I'll make sure that I give you all the important numbers.

I will finish now to say, and I think this is a great asset, controlling our BSS is something that makes a difference because we all know that we need to be agile. And agile is not just a word. It's also an action. It's also an attitude. And when you're controlling the tools that you're working with, you're certainly in one of the best situations to remain agile and looking forward to get the full picture of where your BSS will go in the future.

Your next question comes from Vince Valentine from TD Cowen.

I stick on [ APF ] for a second, just to clarify something. The annual revenue you do include, I'm assuming Hugues is that's -- I'm looking at your supplemental disclosure page. I'm assuming it's part of the $54 million of other revenue within the Telecom segment. And I assume that's already net of intersegment eliminations for the stuff that they're selling to you?

Yes. Yes to both questions, yes.

Okay. And just to clarify, I assume there was some small revenue contribution in this quarter given you bought it in April, but was there any meaningful impact to your Telecom segment EBITDA this quarter from that acquisition?

No, no, nothing material this quarter. I'll guide you a bit more going forward. But this quarter, because of the acquisition and some noise, some timing noise, there's honestly no material EBITDA contribution.

Okay. That's good. And also maybe just clarify a bit on the Wireless ARPU. I know you don't like giving predictions, but I want to ask about something that is probably already happening today and just get your sense as to how big it is and how you think it may continue to trend. And that's the step-ups. As you know, after you bought Freedom for a long time, you had pricing like oftentimes at $35, but the customer contract would say it steps up after typically 18 months. Sometimes it was a slightly different time frame. And typically, it would go up by $5 for a while, it didn't look like you could do those step-ups because the market pricing was too low, especially in the first quarter of this year, it seemed like those step-ups wouldn't be accepted and customers would revolt. But are you now seeing that actually starting to come through? And is it any sort of meaningful contributor to your Wireless revenue growth and ARPU?

Thank you, Vince. Just I'll start, Hugues, and you follow or you add. I think that one differentiating factor that has been very strong for Freedom was that it's a price [ free ]. We built significant campaign on this. So to the opposite of our competitors, which are saying that they'll enjoy a very low price. They've been facing quite quickly then increases. You call that step up, but I guess that the customer or the subscriber consider that as a price increase, which we do not make. We consider that the only increase, if increase there is, will be because you're changing your package. So if you were to change your package, obviously, you will migrate in another one. But if you remain with the same package, your price is freeze. And that's a promise that we are respecting. And certainly, that gives us credibility in the marketplace for our subscribers and our customers. And we remain focused on this because at the end of the day, credibility in front of our customers is part of customer service. And therefore, there is no reason why we should change our strategy since it's been working pretty well. I don't know, Hugues, if you have anything else to say.

Well, maybe just specifically to -- you're referring to the $5, Vince just specific on this, yes, some impact there because we had 18 months before. So we can -- so yes, I mean, we do see somewhat of an impact. But other than that, I'll stick to what -- [indiscernible] answered.

Okay. Fair enough. Maybe I'll follow up with you. But then one last question, just Internet revenue, up 3.1%. There's nothing wrong with that. It's still a good result. But it was slightly better growth in the first quarter. I just wondering, is this just sort of slight timing differences from quarter-to-quarter that are irrelevant in rounding error? Or have you seen some sort of re-acceleration in promotional intensity or competitive intensity from the telcos that has caused the Internet promo pricing to start to get worse again?

No, nothing like that, Vince. By the way, Vince, I have to say going in your note, and you just said it again, going from 3.2% -- so 3.1%, you say is a decline. I mean, come on. I mean there used to be a time I used to call that stable. I would still call that stable. Wouldn't you? I think you're being tougher on us. I mean what's going on here?

Yes. I agree it's not a meaningful decline. I just want to make sure it's not a symptom of competitive pressures and it's...

Yes. There's no material change in the market. It's -- I think we're continuing to execute well. And I think 3.1% is pretty good in Internet for the quarter and continuity over Q1.