TELUS Corp. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Customer Growth: Strong mobile and fixed customer growth, with total net additions of 406,000 in Q3, driven by bundled services. 5G and IoT B2B solutions critical for future growth.
• Cost Efficiency: Substantially completed targeted team member reductions, with incremental cost savings expected to meaningfully contribute to Q4 EBITDA. Full run rate expected by Q2 2024.
• Social Capital: Launched $50 million TELUS Student Bursary, largest in Canada. Jim Senko retired after 22 years with TELUS.
• Strategy Execution: Household intensification strategy driving industry-leading retention rates and customer lifetime value. Focus on profitable, quality loading to optimize acquisition and retention costs.

Segment Performance

• TTech Mobile: Achieved leading wireless customer growth with 339,000 net additions in Q3, up 24% YOY, including 160,000 Mobile Phone net additions (+7%). Connected device net additions reached an all-time record of 179,000 (+44% YOY). Postpaid churn was under 1% for the tenth consecutive year. ARPU was $59.19, down slightly YOY due to market promotions but mitigated by AMPU-accretive loading. Connected devices and IoT are key contributors to future growth.
• Fixed: Delivered 67,000 external fixed net additions in Q3, including 37,000 Internet net additions powered by TELUS' PureFibre network. Industry-leading performance driven by unique bundled offerings and PureFibre/5G networks.
• TELUS Business Solutions (TBS): Continued revenue and EBITDA growth. Secured notable deals, with TAC revenues relatively flat but Consumer Goods business having strongest sales quarter in over 3 years. Accelerating AI capabilities integration.
• TELUS Health: Q3 revenues of $422 million, 20% EBITDA growth (LifeWorks adjusted). Covers nearly 70 million lives globally. Expected to realize $4.27 billion in synergies by 2025, with $1.94 billion achieved to date. Significant global deals won in Canada, U.S., and Europe.
• TELUS International: Steady YOY revenue growth, improved sequential profitability and margins. Adjusted EBITDA margin increased quarter-over-quarter. Launched Fuel iX integrating generative AI,看好AI领域潜力.

Guidance

• Maintained 2023 financial targets. Fourth quarter ARPU expected to improve YOY through focus on profitable loading, strong base management, and connected devices growth.
• TELUS International maintained 2023 full year outlook, with adjusted EBITDA margin improvement trend continuing into Q4 2023 and 2024.
• Confident in free cash flow expansion, supporting 7%-10% annual dividend growth through 2025, with dividend payout ratio trending toward the lower end of 60%-75% range.

Risks

• Macro-economic pressures impacting TELUS International.
• Regulatory, competitive, and macro-economic environment changes that could affect business performance.

Q: Can you provide context around wireless net adds in the quarter and reasons for ARPU deterioration?

A: Jim Senko responded that strong customer growth was driven by new to Canada loading, strong bundling, and best-ever connected device additions. ARPU deterioration was mitigated by newcomer growth in Public and Koodo brands (lower cost to serve), bundling, and declining device subsidy at 3.5x faster rate than ARPU.

Q: Why give multiple metrics instead of just EBITDA?

A: Douglas French explained that bundled products and co-selling cooperations in wire line and wireless environments lead to cost structure reduction, and metrics show integrated area performance beyond individual product EBITDA.

Q: On payout ratio and free cash flow, what's the outlook?

A: Darren Entwistle stated payout ratio expected to trend toward lower end of 60%-75% range, confident in free cash flow growth supporting 7%-10% dividend growth. Douglas French mentioned no material change in handset investments, cash taxes, and restructuring costs.

Q: Thoughts on industry transformation over 3-5 years?

A: Darren Entwistle highlighted 5G productization, data analytics monetization, economies of scope in wireline, and moderate regulatory environment as key drivers. Emphasized leveraging AI for customer service and cost reduction.

Q: Insights on TELUS Health's trajectory and growth?

A: Darren Entwistle mentioned $4.27 billion synergy goal by 2025, $1.94 billion already realized, and focus on employer health solutions, generative AI, and 1450 program to scale monthly EBITDA to $50 million.

Q: Private networks and fixed wireless in 5G?

A: Navin Arora stated significant progress in private wireless network commercialization across industry verticals. Tony Geheran mentioned leveraging 5G fixed wireless access in suitable areas as spectrum becomes available for broadband connectivity