BCE Inc. Q2 FY26 Earnings Analysis

- AI-powered solutions (Ateko, Bell Cyber) are collectively growing north of 30% year-over-year. - AI Fabric contracts are expected to provide increasing free cash flow and EBITDA over time, with the majority of future contracts structured as operating leases. - Ziply Fiber's revenue and EBITDA are expected to grow significantly by 2027-2028, driven by continued footprint expansion and subscriber growth. - Bell Business Markets revenue grew 9.7% in Q1, powered by 113% growth in AI-powered solutions. - Residential fiber-to-the-home net adds remain strong, with Ziply Fiber targeting approximately 3 million fiber passings by 2028. - Streaming bundles and digital video advertising in Bell Media show significant subscriber and revenue growth. - AI Fabric aims to monetize approximately 800 megawatts of power, with a high degree of confidence in demand and expansion potential beyond that. - Overall, focus remains on driving absolute EBITDA and free cash flow growth with sustained revenue increases in key growth segments.

- BCE expects strong growth in AI-powered solutions, targeting $2 billion in AI-powered revenue by 2028, driven by AI Fabric data centers and businesses like Ateko and Bell Cyber. - Ziply Fiber's revenue and EBITDA are projected to grow significantly by 2027-2028, focusing on footprint expansion and penetration gains, with Q1 2026 showing $234M revenue and $102M EBITDA. - Short-term growth percentages are moderate, but the company emphasizes total dollar EBITDA and revenue growth by 2027-2028. - Adjusted EPS in Q1 2026 declined by $0.06 due to higher depreciation and interest costs but is consistent with 2026 guidance. - Capital allocation prioritizes high-return growth areas such as AI Fabric and U.S. fiber, while controlling legacy telecom spend. - Free cash flow growth is a key focus, excluding one-time taxes, with expectations for continued improvement through disciplined execution.

- Capital investment focus is shifting toward high-return growth segments like AI Fabric and U.S. Fiber platform while maintaining discipline on legacy telecom segments. - Canadian Telecom CapEx has decreased by over $2 billion from $5.1B in 2022 to below $3B in 2026. - Wireless capital intensity remains at an industry low of 7%. - AI Fabric investments are significant and accretive, with ongoing build-out of data centers across Canada. - Ziply Fiber in the U.S. is expanding, with Q1 2026 marking the first capital deployment by Network FiberCo, expected to ramp further in 2027 and 2028. - Saskatchewan AI data center under construction with heavy equipment onsite, major permits expected by July; first phase targeted for H1 2027. - Majority of AI Fabric contracts signed going forward expected to be operating lease treatment. - Purchase orders for over 90% of equipment for Saskatchewan are in place; CapEx spending to increase in Q2 and Q3 2026.

- In Q1, Bell raised liquidity through debt issuance: - $1.5 billion hybrid note issuance in February 2025 - $750 million public debt offering in late March 2025 - Total available liquidity ended Q1 at $4.3 billion, up from $2.5 billion at year-end 2024 - No mention of new equity fundraising during the call - Announced disposition of Land Mobile Radio Network Services to Motorola Solutions for $675 million expected to close in Q4 2025, which will improve leverage - Bell aims to achieve a net debt leverage ratio of 3.5x by end of 2027 and reduce it further in 2028 while funding strategic growth - No explicit plans disclosed for new fundraising beyond these points during the current period

- The company has strong confidence in monetizing approximately 800 megawatts (MW) of power for its AI Fabric business. - 40% of the initially targeted 73 MW capacity for AI Fabric has already been fully contracted, just one quarter into a 3-year plan. - Discussions with significant potential customers are progressing well, indicating a very high degree of confidence in achieving targets. - There is potential upside beyond the 800 MW currently targeted, as the company is actively exploring opportunities for additional power capacity. - No formal announcements have been made regarding power access beyond the 800 MW, but the company remains open to seizing opportunities if they arise.