Rogers Communications Inc. (RCIB) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Rogers Communications, Inc. Second Quarter 2026 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Paul Carpino, Vice President of Investor Relations with Rogers Communications. Please go ahead, Mr. Carpino.

Thank you, Gaylene, and good morning, everyone, and thank you for joining us. Today, I'm here with our President and Chief Executive Officer, Tony Staffieri; and our Chief Financial Officer, Glenn Brandt. Today's discussion will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's earnings report and in our 2025 annual report regarding the various factors, assumptions and risks that could cause actual results to differ. With that, let me turn it over to Tony.

Thank you, Paul, and good morning, everyone. In releasing our second quarter results this morning, I'm pleased to report that Rogers continued to deliver solid performance across our 3 lines of business. We remain focused on driving growth and delivering on our commitments. Consolidated service revenue and adjusted EBITDA were up 8% and 3%, respectively, despite an overall low-growth telecom market. In April, we updated our full year 2026 guidance to reflect stronger free cash flow growth alongside a meaningful reduction in our capital spend. In Q2, we generated free cash flow of $1 billion, which was up 6% year-on-year. CapEx was down 16%. This reflects our commitment to adjust our spending given market realities and the current regulatory environment. In the quarter, capital intensity improved a notable 350 basis points to 12.4%. This is the lowest capital intensity ratio Rogers has achieved since the first quarter of 2008. We expect free cash flow growth to further accelerate in the second half of the year, particularly as CapEx declines and capital intensity shows additional improvements. We are managing our capital prudently while investing to provide Canadians with the best network experience. Our network leadership was reaffirmed once again recently by umlaut, ranking Rogers as Canada's best 5G network and the country's most reliable wireless network. Turning to our telecom results. We continue to perform in a low-growth environment. Both wireless and cable delivered adjusted EBITDA growth, underpinned by balanced and disciplined subscriber additions. In Wireless, total net additions were 40,000 customers. This was driven by our strong base management, combined with the popularity of our Rogers plans. We have increasingly looked to meaningful, sustainable value propositions for our customers and moved away from short-term promotional price discounting. We saw a similar trend overall in the marketplace in Q2 and in terms of much reduced promotional pricing activity. We remain focused on subscriber acquisition and retention that supports solid financial results. You will have seen that yesterday, we launched our back-to-school offers consistent with this approach where we are leading with perks and partnerships that deliver more value for our customers. As we continue to focus our base management strategy, we were pleased to see postpaid mobile phone churn dropped to 0.94% in the quarter, a solid improvement of 6 basis points from 1 year ago. In Cable, we continue to grow and deliver on our commitments. Service revenue grew 1%. This is the fifth straight quarter of growth. Strong execution also drove disciplined loading. In Q2, we added 17,000 retail Internet net additions. Finally, our Sports & Media business delivered robust results revenue topped $1.2 billion, a 53% increase. More impressively, organic Sports & Media revenue, which excludes the impact of MLSE grew an impressive 13%. Profitability was also strong with adjusted EBITDA improving $61 million year-over-year. As you saw earlier this month, we signed an agreement to acquire the remaining 25% ownership state in Maple Leaf Sports & Entertainment. When the acquisition closes, Rogers will be 100% owners of MLSE's iconic teams and assets. We are experienced Sports & Media operators with a successful track record spanning decades. The combined set of assets have scale and they are profitable. They have incredible national appeal and represent one of the top Sports & Media portfolios in the world. Our full ownership of MLSE will bring together Canada's premier communications company with one of the world's premier sports and entertainment organizations. MLSE will add to our already deep sports, media and entertainment portfolio. This includes the Toronto Blue Jays, the Rogers Center and Sportsnet the #1 sports media brand in Canada. We are fans, owners and broadcasters operating in one of the best cities and countries in the world. Of course, winning is everything for fans and it's also good for business. So we plan to continue to invest in building championship caliber teams. But the strategic value of sports is not just about winning, the value is even greater when combined with our core connectivity business. This gives us a unique value proposition in a competitive telco marketplace. We will create more opportunities for fans to connect with the teams and artists they love and we will invest to deliver unique rewards for our customers. We remain committed to our plan to sell a minority stake in our consolidated sports, media and entertainment assets after we become 100% owners of MLSE. We plan to surface value by monetizing our world-class Sports & Media portfolio. And importantly, as we complete this process, we remain committed to retaining our investment-grade balance sheet. Overall, we're executing on our telecom priorities and sports monetization plan with discipline. We are doing what we said we would do, and we're doing it ahead of schedule. We're doing this while maintaining a strong balance sheet during this period of investment. I want to thank our team for their strong execution their commitment to Rogers and to our customers. I'll now turn the call over to Glenn for a few more highlights.

Thank you, Tony, and good morning, everyone. Thank you for joining us this morning. I'm pleased to report that our second quarter results reflect continued strong execution and leading operating performance with substantial progress on several key initiatives, most notably, 8% growth in consolidated service revenue and 3% growth in consolidated adjusted EBITDA. 57,000 combined net new mobile phone and retail Internet customers added in the quarter with adjusted wireless and cable margins of 66% and 58%, respectively, each up year-over-year, 53% growth in media revenue, including 13% stand-alone organic growth in Rogers Sports & Media with an approximately 8.5x increase in adjusted EBITDA to $69 million. Consolidated capital intensity ratio of 12%, our lowest level since first quarter of 2008 with consolidated free cash flow just shy of $1 billion for the quarter, which is up 6% year-over-year as a result. And finally, with our successful negotiations to purchase the final 25% of MLSE, we are now set to combine Roger Sports & Media with MLSE and pursue the sale of a minority interest in our world-class sports, media and entertainment assets. Importantly, each of our 3 businesses contributed positively to these results. In Wireless, service revenue was stable year-over-year, and adjusted EBITDA was up 1%. We added 40,000 subscribers in the quarter, 22,000 of which were postpaid customers. Mobile phone nets are down 34% from the prior year, reflecting continued flat to declining overall population. And while the wireless market remains extremely competitive, we are seeing competition moving toward relative value and away from the aggressive discounting of premium services seen in the seasonally low first quarter. Mobile phone ARPU was $54.25 for the quarter, down 2% from 1 year ago. Postpaid mobile phone churn performance was 0.94%, which is down 6 basis points versus prior year and reflects our focus on disciplined subscriber loading, careful base management and our emphasis on value for premium services. Moving to Cable now. Once again, we delivered strong disciplined financial and operating performance, growing each of service revenue and adjusted EBITDA by 1% and adding 17,000 Internet subscribers. Our industry-leading 58% cable margin is up 10 basis points over prior year, reflecting continued cost efficiencies and our ongoing emphasis on value for premium services. Notably, Cable's organic growth is roughly double our reported 1%. When adjusted to exclude the impact of our December 2025 sale of our hosted data center business, our cable service revenue and adjusted EBITDA were each up by 2% year-over-year. Turning to Rogers Sports & Media. Our operating and financial performance here is particularly noteworthy. Consolidation and control of MLSE has added a substantial growth opportunity but we have also achieved significant organic growth of 13% on a stand-alone basis for Rogers Sports & Media revenue. And so overall, media revenue of $1.2 billion for the quarter is up by $0.4 billion or 53% year-over-year with approximately $0.3 billion of that increase coming from the consolidation of MLSE. The 13% stand-alone organic growth, roughly $100 million was largely driven by higher Toronto Blue Jays related revenue with over 95% near-sellout attendance for our home games at Roger Center and by higher subscriber revenue from the 2025 launch of the Warner Bros. discovery suite of channels. Similarly, Media's adjusted EBITDA was $69 million, up roughly 8.5x from the $8 million reported 1 year ago. Rogers Sports & Media combined with MLSE, creates a truly unique collection of sports teams, live sports and entertainment venues and media properties, one of the best and most complete collections globally and all in one of North America's largest metropolitan areas. Add to that, the unique standing for Toronto Blue Jays and Toronto Raptors as the only national Canadian MLB and NBA franchises and Toronto Maple Leafs widely regarded as the NHL's most valuable franchise and one of the original 6 teams. These are tremendous world-class sports and media assets, generating strong operating and financial results. We remain firmly committed to realize on the very substantial unrecognized value of these assets and using the proceeds to strengthen our balance sheet. We expect to close on our purchase of the remaining 25% of MLSE in the fourth quarter with timing subject to league approvals. As a result, we have recorded in other expense a $1 billion noncash loss related to the negotiated purchase price and resulting settlement and termination of the MLSE put liability. This reflects the change in the fair value of the MLSE put liability from $3.3 billion established in July 2025 to the $4.35 billion negotiated transaction at June 30, 2026. Now turning to our consolidated results and balance sheet. Total service revenue was up 8% to $5.1 billion, and adjusted EBITDA was up 3% to $2.4 billion. Capital expenditures declined to $0.7 billion or down 16% as we execute on our new capital efficiency program announced in April. Our capital intensity improved a substantial 350 basis points to 12%, our lowest capital intensity ratio in more than 18 years. We anticipate further capital spend reductions in the third and fourth quarters, affirming our earlier 2026 guidance of $2.5 billion to $2.7 billion. As a result, free cash flow in the quarter increased by 6% to $1 billion. Our liquidity remains strong at over $6 billion, and we continue to strengthen our balance sheet with leverage at June 30 of 3.8x, down from 4x at December 31, 2025, with more to come as we complete our sports and media transactions and use our free cash flow to pay down debt. Our quarter end liquidity included $1.7 billion in cash and cash equivalents and $4.4 billion available under our bank and other credit facilities. And as noted in our press release, we are reaffirming our 2026 outlook ranges associated with total service revenue growth, adjusted EBITDA growth, capital expenditures and free cash flow. So to summarize, we delivered strong and disciplined results across all 3 businesses, advanced our sports monetization strategy, strengthened our balance sheet, and reiterated our 2026 outlook. These are all excellent outcomes. We are completing an important and transformative period at Rogers. And once again, our team has delivered excellent results. I would like to thank the team for their disciplined approach and strong execution in the current environment. I will now ask Gaylene to open the call for questions. Thank you very much.

[Operator Instructions] The first question is from Drew McReynolds with RBC.

Two questions from my end. First, on the outlook for network revenue growth, obviously, the last 4 quarters, we've bumped in and around flattish. I think it's pretty widely known. There's still wireless market expansion of about 2%. Wireless ARPU down 2%, which kind of gets you to flattish. So just wondering with all the puts and takes that go through network revenues. Can you, Tony or Glenn just point to what we should expect in the back half of 2026 and maybe some of the bigger deltas that you're looking to manage. And then second, on the Cable revenue and EBITDA growth, Glenn, thanks for stripping out the data center impact -- just wondering, satellite TV presumably is under ongoing pressure. And that's not something that you report, but certainly in your numbers relative to peers. Can you perhaps isolate that impact as well for us.

Thank you for the questions, Drew. I'll start with the first part in terms of revenue growth, and I take it your comments are really geared towards the wireless side of the business. On the cable side, we continue to be pleased with the growth that we're seeing there. As you heard in Glenn's opening comments, organic growth there of 2% on top line as well as on EBITDA. And so that business continues on a very solid trajectory. On the Wireless side, as you point out, and we looked at the volumes for the second quarter, we continue to see growth in the range of 2%, as you highlight. We had previously said 2% to 2.5%. Our sense is it's at the lower end of that range. And so that's what we're seeing in the marketplace. To answer your question, it really is about ARPU and ARPU growth, frankly, for us and the industry. And we were extremely pleased to see our strategy of focusing on other value propositions in our value plans, resonating in the marketplace just given the low growth of the industry. Our view was, and you heard that coming out of Q1, intensive promotional price discounting wasn't a sustainable long-term economic way forward. And so we pivoted to a few other factors. We focused on our base, first and foremost, and you saw that with not only solid churn reduction performance, but also as we look to our base and how we think about ARPU up-selling within our base, we like what we're seeing there. But importantly, for new customers, focusing on a value proposition that gives them value that is much more sustainable and creates a long -- a better long-term customer economic value for us. and that includes on certain plans, including satellite, certain plans, higher-tier plans, including roaming, a number of initiatives that include savings on streaming applications. We focused on [ Autoline ] pricing. And providing value where more lines come in, then there's more value savings for the customers. Discounting is pivoted to hardware discounting, and you saw that in the second quarter. And as I mentioned, in launching our back-to-school promotions yesterday. The hardware discounting is tied to the tiers that you see coming in. There are some additional ones for back-to-school, and those offers are largely funded by the OEMs. And so all of that points to in our view, a strategy that we're following focusing on initiatives that will drive ARPU growth. We were pleased to see in the second quarter that the market was much more muted in terms of promotional discounting. And so we think that's a good sign. We'll see how the market continues to evolve in the back-to-school period and certainly into the fall. And those are going to be key determinants for how ARPU behaves for us and the industry and ultimately leads to ARPU growth. So it's a difficult one to predict because it is going to depend in large part on market conditions, but we think we've got the right strategy. It seems to be resonating. And you see that with what we think is fairly solid subscriber loading in the second quarter, notwithstanding that focus on price discipline. Hope that helps you.

And then, Drew, just adding in, on your question on satellite. I won't give you the detail on satellite, but I would say that it hasn't really changed from the last few years, what you've seen embedded in our results are reflected in our results that is part of what we are offsetting and getting to the 2% organic growth and it continues to be a fairly flat steady rate.

The next question is from Batya Levi with UBS.

Great. As part of the driver of lower churn, are you also seeing a pickup in demand from converged offers? And if you could maybe update us on what that stands for you in terms of what percent of your maybe cable households also have Rogers wireless? And just a follow-up on the ARPU commentary. I believe the lower or no activation fees kicked in mid-June. How do you anticipate to navigate that pressure in the second half?

Thanks, Batya, for the question. I'll start with the first one. In terms of the churn tactics, if I understood your question and what we're seeing in that. Certainly, the lower promotional pressing activity drove less froth in the marketplace in the second quarter. And so part of the reduction in churn is certainly from that. But importantly, some of the other tactics that we're looking at and using with customers that is encouraging them to stay with us at better rates. We're pleased with the performance that we're seeing there. And I can tell you that those tactics have moved well beyond additional promotional and extended discounting and instead providing other value services that the customers see value in. And so that's trending well. Batya, if you could remind me the second part of your question relating to ARPU?

The impact from activation fees.

Yes. On the fee, actually, I'll let Glenn answer that one.

I think we're seeing a fairly minor effect in the second quarter. Obviously, it came in late in the quarter. We're looking at a number of options for some value-added fees for service with our customers. As I think you've probably seen, and we're working on that together with price initiatives and again, leaning in on our value for premium service emphasis rather than the discounting we saw in the first quarter to help sustain ARPU. And so we'll be leaning in on all of those different levers to offset not only the potential discounting through the holiday period and what have you, funding other value-added features to retain customers. but also pricing initiatives to help offset the fee impact.

The next question is from Aravinda Galappatthige with Canaccord Genuity.

I'll maybe just start with a follow-up to the last question with regard to the activation and cancellation fees. Glenn, based on your answer, I mean, is it fair to assume that we should expect maybe a sort of like in terms of the shape for ARPU and service revenues that we should expect that there could be a bit of a dip in Q3 and then perhaps a recovery later on as some of your mitigating strategies sort of play out. I was wondering if you can sort of comment a bit further on that. And then secondly, the OpEx side. I know that last quarter, you announced material reductions to CapEx perhaps talk to your ability to make sort of material cuts on the OpEx side. I know that, that's been sort of an ongoing effort, but the prospect of perhaps a step change there. Any update would be helpful.

Thank you, Aravinda. The on the activation and cancellation fees, I'm not going to start guiding specifically for quarter-by-quarter. We are focused on again, emphasizing our premium services and looking to provide value for fee service on whether it's phone setup or what have you and delivery charges and the like, which you've seen. So we will continue to focus on price initiatives and providing fair value for service. We -- and we'll continue to manage that file. You've seen the ARPU trajectory over the last several quarters and I don't anticipate a substantial change in that in the coming quarters. But it's block and tackle on several different initiatives to address the impact of the government decision. On the OpEx side, we continue to focus on driving improved efficiencies, some coming from synergy opportunities with the combination of RSM MLSE, that's still to be realized and in the early stages. You've seen the impact of that with the Shaw and Rogers transaction from a few years ago. We continue to see the benefits of that with continued strengthening on our margins. And again, it's a number of detailed initiatives rather than an overarching single lever that we're pulling on. We're looking at vendors, we're looking at either insourcing or outsourcing costs and changes to address the underlying operating cost of delivering our services, all while trying to drive improved value for our customers and improved premium fees for our customers. And you saw that with adding satellite mobile to satellite backup coverage for our wireless customers. So we are adding features along the while of looking to try and reduce our operating costs and improve our margins. It's all a balance.

The next question is from Stephanie Price with CIBC.

I wanted to focus on MLSE. In terms of the Kilmer MLSE acquisition, can you talk a little bit about the time line to monetization of a stake in the combined Rogers MLSE business? And what the key milestones investors should be expecting as we think about potentially a minority monetization there? And then related just on leverage post the Kilmer transaction, is the sale of a minority stake, the major catalysts reduce [ lever ]? Are there other options you're looking at?

Thank you, Stephanie. In terms of timing on, first, closing the acquisition, it's subject to league approvals. We don't anticipate that to be an arduous exercise, but it will be subject to scheduling for the leagues. We are targeting fourth quarter. And you saw in the release targeting October 1, but we are expecting to close in the fourth quarter, the acquisition of that 25% interest. We'll follow, I would say, as a fast follow bringing to market. First, the combination of Rogers Sports & Media and MLSE from an administrative standpoint, bringing those business units together and then bringing that combined entity to market to sell down a minority stake or minority stakes to investors. I expect that to take several months to complete. We're targeting first half of 2027. We will be looking to close that as early as possible. that also will be subject to league approvals in terms of qualifying the terms of the minority interest stakes as well as the prospective investors. And we'll complete that as quickly as we can. The proceeds from that will be used to pay down debt and to delever the original closing of the acquisition of Kilmer will come from arranged bank credit facilities, bilateral facilities that we have added to our existing lines so that we have ample liquidity to run our operations while we bridge the minority interest sale.

The next question is from Maher Yaghi with Scotia Bank.

Just following up on MLSE, Glenn, I just wanted to ask you, how should we think about the minority stake sale that you're planning to do in terms of -- should we think about the Kilmer price paid at the floor? Or are there meaningful differences between what you intend to sell in terms of minority stake versus the 25% that you just acquired in terms of how it's -- these ownerships are calculated or valued? And the second question, are you looking for a strategic investor to come in or multiple potential minority shareholders. I have a follow-up after on CapEx.

Sure. Thank you, Maher. On the valuation and the price of the transaction, I won't help our efforts at all. If I try negotiating that here on the earnings call, we'll see when we approach investors and negotiate that valuation. I would say that these are premium assets. There is a tremendous amount of interest expressed from investors, private individuals as well as institutions. We've talked to several. We have several more to talk to. As we go through the exercise, I'm confident that we will be able to present that these are a very premium collection of assets, and there are limited opportunities for buying in. You can tell from my comment, I do not expect discounts. And we will work hard to drive a strong evaluation as we can drive in the transaction. But the market will determine what that is. I don't mean to sound cagey, but we'll work that through in the process. In your question on whether or not we're looking for a strategic investor, we are well experienced in operating these businesses, our -- both our media side of things as well as the sports franchise side of things in each of these leagues, operating the venues and finding the opportunities for working with vendors as well as providing additional value for our customers and our other telecom businesses. So we're not looking for a strategic investor to assist with that if one comes along with other opportunities, whether it's as a vendor or as a potential investor, of course, we'll look at that. But the exercise here is to sell a nonvoting minority interest in common equity of the combined entities and to participate in the growth opportunity for that investment. That is the objective here rather than trying to find some other slot that fits. Does that help?

Yes, very much. Yes. So the follow-up is on CapEx. So there are a few puts and takes, as you know, in the CapEx reduction small asset sales, but still very strong reduction in CapEx. Q2 already seen in the results, boosting free cash flow. If we look at these levels of spending, do you believe these are sustainable CapEx run rate beyond '26 and given the ongoing regulatory environment, does it reinforce your view that lower capital intensity is the appropriate response in this environment?

Thanks for the question on CapEx, Maher. I'd say a couple of things. As we think about capital in 2 buckets, if I could be helpful. One is in sustaining our existing network infrastructure and our existing business. And we're always looking at how do we do that more efficiently. And that's one of the big drivers that you see here. The second piece relates to what I would describe as network expansion, particularly on the wireline side. And in those areas, we continue to reevaluate whether or not the payback economic models make sense. And as we've said previously, in this regulatory environment, it's made it much more difficult to boldly make some expansion capital investments, and we'll continue to work with the government and regulatory authorities to help shape policies that's going to be more conducive to a framework that incents capital investment, which the country needs in terms of digital infrastructure. So we'll continue to work on that front. But you ought to see those as separate in terms of capital that will bring forth future revenue streams. And at the time we start to increase those types of investments, and it's difficult to predict when, then we'll parse those out. But as we look to our run rate on capital intensity, we think we're at a position and continue to find the right formula on looking for focus and efficiencies that allow us to continue to have the best networks from a competitive standpoint as well as other infrastructure that we need to continue to run the business profitably and at a competitive advantage. And so we think we've got something that is sustainable on that front.

Next question is from Tim Casey with BMO.

Tony, one of the questions we seem to get with increasing frequency is the potential impact of Starlink and incursions into a traditional wireless business. It's obviously much more a front-burner issue in the U.S. given spectrum ownership and whatnot. But can you frame for us your current thinking on that as a potential threat to the domestic wireless business or another layer of competition down the road? How are you thinking about Starlink given you are doing business with now. But they've got some ambitious plans.