Transcript

FINAL TRANSCRIPT
Manitoba Telecom Services Inc.
Second Quarter Results Conference Call
Event Date/Time: August 3, 2016 — 6:00 p.m. E.T.
Length: 14 minutes
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
CORPORATE PARTICIPANTS
Brenda McInnes
Manitoba Telecom Services Inc. — Vice President and Treasurer
Jay Forbes
Manitoba Telecom Services Inc. — Chief Executive Officer
Heather Tulk
Manitoba Telecom Services Inc. — Chief Customer Officer
CONFERENCE CALL PARTICIPANTS
Drew McReynolds
RBC Capital Markets — Analyst
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
PRESENTATION
Operator
Good afternoon. My name is John (phon), and I will be your conference Operator today. At
this time, I would like to welcome everyone to the MTS Second Quarter Results Conference Call. All
lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. If you would like
to ask a question during that time, simply press *, then the number 1 on your telephone keypad. If
you'd like to withdraw that question, press the # key. Thank you.
Brenda McInnes, Vice President and Treasurer, you begin your conference.
Brenda McInnes — Vice President and Treasurer, Manitoba Telecom Services Inc.
Thank you, John. Hello, everyone, and thank you for joining us today on our Q2 2016 results
call.
Our news release, MD&A, financial statement, and supplemental information package can
be found on our website at mts.ca under the About Us link.
Please note that due to the arrangement agreement with BCE, we do not expect to declare
or pay any more dividends to shareholders prior to closing. Our last dividend was declared on May
11, 2016, and paid to shareholders on July 15, 2016.
Our call will consist of comments by Jay Forbes, our President and CEO, followed by a
question-and-answer period.
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
Before we start, I'd like to remind all listeners that today's presentations and remarks may
contain forward-looking statements. A number of assumptions were made by us in preparing these
forward-looking statements, which represent our expectations as of today. As such, they are subject
to the risk that actual results may differ materially from a conclusion, forecast, or projection in such
forward-looking information. Therefore, forward-looking statements should be considered carefully,
and undue reliance should not be placed on them.
We disclaim any intention or obligation to update or revise any forward-looking statement,
whether as a result of new information, future events, or otherwise, except as required by law.
For additional information about such material factors and assumptions, please refer to our
second quarter 2016 MD&A released today and our 2015 annual MD&A, which are available on our
website.
I will now turn the call over to Jay.
Jay Forbes — Chief Executive Officer, Manitoba Telecom Services Inc.
Thanks, Brenda, and good afternoon to everyone joining us on the call today. We would like
to use our time this afternoon to discuss our progress on our multiyear transformation program and
to provide an update on the BCE transaction.
It's been a year since we completed the review that led to our strategy to transform MTS
into a customer-first organization. We've come a long way in the past year, making significant
progress with the transformation initiatives we started in the third quarter of 2015.
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
Our transformation program remains a top priority, even with the pending sale of MTS to
BCE. BCE strongly values our commitment to improve the customer experience.
More on our transformation update in a minute, but first I'd like to focus on our pending
transaction with BCE, which is advancing nicely.
Following the May announcement, we worked quickly to meet two important milestones.
We secured the necessary approvals from the Manitoba courts, and we received an overwhelming
endorsement from our shareholders with 99.66 percent of shares voted in support of the transaction.
Working jointly with BCE, we filed all the necessary applications for the required regulatory
approvals with the CRTC, the Competition Bureau, and Industry (sic) [Innovation], Science and
Economic Development Canada, or ISED. These three regulatory approvals are the last of the
approvals needed to close the transaction.
The regulatory process is an interactive process, and we've continued to work with BCE and
the regulators to ensure the approvals can be obtained as quickly as possible. With this in mind, we
continue to expect the transaction to close in late 2016 or early 2017.
Meanwhile, it's business as usual at MTS as we remain focused on executing our strategy to
generate the results we've committed to deliver to our customers and to our shareholders.
All of our transformation program workstreams have now been launched, and as we work
through implementing the various initiatives under these workstreams, we expect to transform our
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
operations, improve our customer experience, and provide the levels of service that our customers
demand and deserve.
We also expect to realize significant free cash flow savings as these workstreams become
fully implemented over the next two years.
Let me briefly touch on our recent results and key financial highlights before we open the
call to your questions.
Two of our key performance indicators, free cash flow and free cash flow per share,
increased this quarter, both on sequential quarters and a year-over-year basis. Our free cash flow of
$54.5 million for the quarter was up by 8.9 million over Q1 2016 and 25.5 million from Q2 2015, as
we generated substantial free cash flow from both EBITDA growth and reduced capital spending.
Our free cash flow per share of $0.73 was up by $0.15 over Q1 and $0.36 per share from Q2
2015. Contributing to the increase was the completion of our share buyback program in Q2, when we
purchased an additional 2.3 million shares. In total, we bought back just over 5 million shares and
returned over $164 million to shareholders under our normal course issuer bid through the first half
of this year.
Capital investments were $15.5 million lower than Q2 2015, giving us a capital intensity ratio
of 14.3 percent, which is below our 18 percent annual target. Our new capital investment process has
been a key driver in lowering our capital investment spend in the first half of 2016, which ensures our
capital investments are tied to our strategic priorities and deliver economic benefits.
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
The new processes yielded savings and efficiencies, some of which we plan to reinvest in
the second half of 2016. Customer delays and the effect of implementing a new process also
contributed to the lower capital investment. As our new process matures, we expect our capital
intensity level to be more in line with our long-term target.
EBITDA before restructuring and transformation expenses, which forms the basis of our free
cash flow, was up 5.5 million in Q2 2016 when compared to Q2 of 2015. This was mainly due to a
reduction in operating expenses resulting from our restructuring and transformation initiatives, as
well as an increase in revenue in the quarter.
You can find more details in our financial results in our Q2 2016 MD&A and supplemental.
We delivered strong financial results in the second quarter, with our free cash flow and free
cash flow per share continuing to improve. I'm extremely pleased with the momentum we've created
in our business over the last several quarters.
And I would like to end by thanking our employees. It's all of their hard work, their
dedication to customers, and their willingness to embrace change that is allowing us to build a
foundation for the future. Together our efforts are providing notable benefits to our customers and
to our shareholders.
With that, we would be happy to take whatever questions you might have.
Q&A
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
Operator
At this time, I would like to remind everyone in order to ask a question, please press *, then
the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Drew McReynolds from RBC Capital Markets.
Drew McReynolds — RBC Capital Markets
Yeah. Thanks very much. Brenda, just maybe for you, just trying to gauge where the pension
solvency deficit is, and obviously in the supplementary you provide the grid there. Is it—am I reading
it right when I look at the current rates line and then look at your year-to-date performance on the
plan assets are roughly flat, and then I can conclude where the deficit is as of the end of Q2?
Brenda McInnes
Yes. Drew, that's—it's a high-level proxy, but it's as close as we can get with the information
that we have right now.
Drew McReynolds
Okay. Okay. No, I just wanted to confirm that. And then also just in terms of the annualized
free cash flow improvements, I noticed the 53 million was the same as of last quarter. Just wondering,
obviously purely timing, I suppose, in terms of kind of realizing nothing incremental between Q2 and
Q1? Or did I see a different amount last quarter?
Jay Forbes
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
Yeah. In terms of that, we got off to a very quick start with both the capital investment
program overhaul, as well as the streamlining of the back office, and were able to as a consequence
of both of those generate a very positive uptick in terms of our free cash flow momentum.
As we guided the analyst community, the next set of initiatives that we're undertaking will
be pricing, promotions, and discounts, the online customer experience, et cetera; are going to require
more lengthy planning periods and longer execution, and as well as some of that $100 million of
investment that we spoke to as well.
So we're very much on track to implement these additional programs in 2016, and we’ll start
seeing an upturn in terms of the cumulative benefits that we expect will total that $100 million of
improved free cash flow as the year unfolds
Drew McReynolds
Okay. Appreciate that, Jay. And then with respect to the year-over-year EBITDA growth,
which was certainly an improvement sequentially, presumably again that's timing-related in terms of
the flow-through of what was realized in Q1. Is that correct?
Jay Forbes
That is correct. We had a lot of the departures in terms of the streamlining of operations
took place in December, but there was a goodly amount of those that were more towards the end of
the first quarter. And so you'll begin with each subsequent quarter to see that annualized run rate in
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
excess of $20 million that we expected in terms of the free cash flow improvement coming from those
operating statements.
Drew McReynolds
Okay. No, that's great. Last question for me then just in terms of just operating metrics. Your
wireless churn year over year, very impressive; can you just provide a little bit of colour around that?
Is that a function of some of the things you're doing internally? Is there anything unusual kind of this
quarter to drive that? Thank you.
Jay Forbes
Yeah. Drew, on this one I'll let Heather give you a little bit of detail behind her program. She
came in as our Chief Customer Officer about a year ago, and had this firmly in her sights as kind of
one of the key priorities she wanted to introduce into the organization in terms of more aggressive
stance around churn management. And very pleased with the results that we've been able to cultivate
in the short time she's been with us.
And maybe, Heather, you could talk a little bit about some of those improvements?
Heather Tulk — Chief Customer Officer, Manitoba Telecom Services Inc.
Thank you very much, Jay. Thanks for the compliment. It's certainly a credit to the team, not
just to me; that's for sure.
But as you mentioned, churn management has been a huge focus for us over the last
number of quarters. Obviously we didn't see the early results we might have liked to also with some
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
of the impacts of the double-cohort last year, but we are proud to say that we've seen improvement
in our post-paid churn now for the third consecutive quarter. And when you take out that slight glitch
or bump around the double-cohort period, certainly market improvement since early last year.
Buried under that, Drew, we're seeing improvements in both our off-contract and oncontract churn, which is a very big focus for us. Obviously we knew going into the shortening of the
contracts from three-year to two-year contracts that the mix was going to go against us significantly
with more customers off contract.
Off-contract churn is anywhere from 4 to 6 times on-contract churn, so we really had that
as a headwind, and we needed to address it. So we put a number of programs in place to really
manage our churn right through the organization, everything from focus in our marketing programs
to focus in our contact centres to a lot of work we've done around our retention queues and our
retention management with both our dealers and our contact centre channels.
So there really wasn't a silver bullet here; it's a series of bronze bullets. And as you
mentioned, we're really, really proud of the trend we're on and the fact that we've been able to land
this churn at this level even with a much higher than historical level of our customers off contract at
any given time.
Drew McReynolds
Okay. Thanks. Thanks very much for that.
Operator
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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FINAL TRANSCRIPT
August 3, 2016 — 6:00 p.m. E.T.
Manitoba Telecom Services Inc. Second Quarter Results Conference
Call
That concludes the question-and-answer session. Ms. McInnes, please continue.
Brenda McInnes
Ladies and gentlemen, we've reached the end of our Q2 2016 results conference call. Once
again, thank you for joining us today.
Operator
Thank you. The conference call is now over.
*****
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
liabilities which may arise out of or result from any use made of this transcript or any error contained therein."
« Bien que CNW Telbec ait fait tous les efforts possibles pour produire cet audioscript, la société ne peut affirmer ou garantir qu’il ne
contient aucune erreur. CNW Telbec ne peut être tenue responsable de pertes ou profits, responsabilités ou dommages causés par ou
découlant directement, indirectement, accidentellement ou corrélativement à l’utilisation de ce texte ou toute erreur qu’il contiendrait. »
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