TELUS Corp. Q2 FY2023 earnings call

Management Statement and Operational Highlights

• Customer Growth: Strong total customer net additions of 293,000, up 19% year-over-year, driven by a superior product portfolio and service excellence.
• Churn Rates: Mobile phone churn (postpaid) has been less than 1% for 10 consecutive years, and pure fiber Internet has been below 1% for 14 consecutive quarters.
• TELUS Health Integration: Acquired LifeWorks in 2022, aiming for $425 million annualized synergies by 2025, with $127 million achieved to date.
• Cost Efficiency Program: Announced $325 million annual cost savings through restructuring, including 6,000 staff reductions (4,000 in TTEC, 2,000 in TI).

Segment Performance

• Mobile Operating Results: TELUS achieved 234,000 net wireless customer additions in Q2, with 110,000 mobile phone net additions and 124,000 connected device net additions. Blended mobile phone churn was 0.91%, postpaid mobile phone churn was 0.73%. ARPU grew 1.8% due to roaming improvements, higher domestic monthly recurring revenue, and churn rate.
• Fixed Operating Results: TELUS had industry-leading wireline customer growth, with 35,000 Internet net additions, 17,000 TV net additions, and 15,000 security net additions. External fixed net additions totaled 59,000.
• TELUS Business Solutions: Delivered 6% revenue growth and profitable EBITDA contribution. TELUS Agriculture and Consumer Goods revenues were $79 million, flat year-over-year, with headwinds in agribusiness.
• TELUS Health: Second quarter revenues were $428 million, up 212%. Normalized LifeWorks EBITDA grew 11%. Covered 68 million lives, with Virtual Care membership at $5.3 million.
• TELUS International: Impacted by macroeconomic pressure, leading to staff reductions and cost efficiency programs.

Guidance

• Revenue and EBITDA: Consolidated revenue increased 13%, EBITDA grew 5%. Revised 2023 free cash flow guidance due to higher restructuring costs, now up to $750 million for the year.
• ARPU: Targeting ARPU growth approaching 2% for 2023.
• Capital Expenditures: Reaffirmed $2.6 billion CapEx guidance, with 85% of expenditures in the first three quarters.

Risks

• Macroeconomic Pressure: Impacted TELUS International's service demand from larger tech clients, leading to staff reductions and cost efficiency programs.
• Regulatory and Competitive Environment: Pressures influencing the need for digital transformation and cost efficiency measures.

Question and Answer

Q: Interest in digitization vs global peers A: Jeff Puritt stated TELUS was an early adopter of digital interactions, giving a competitive advantage in cost to serve and client experience.

Q: Guidance update since mid-July A: Douglas French explained it was about bringing the full picture with restructuring initiatives finalized.

Q: Leverage and capital allocation A: Douglas French and Jeff Puritt discussed deleveraging through EBITDA growth and TI standing on its own feet.

Q: Competition and bundling A: Jim Senko and Zainul Mawji talked about strong customer growth, bundling, and maintaining ARPU growth.

Q: Cost savings and TELUS Health A: Darren Entwistle linked TI's success as a model for TELUS Health and discussed dividend growth commitment.