TELUS Corp. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Successfully navigated competitive and macroeconomic landscape in 2023, achieving strong operational and financial results.
• Strong customer growth: 2023 had industry best customer net additions ~1.3 million, surpassing 2022 by over 21%. Fourth quarter had 404,000 total net additions (+34% YOY).
• Network accolades: TELUS recognized as Canada's most awarded network by OpenSignal for 6 consecutive years, PCMag named TELUS Canada's Best Mobile Carrier and Best Mobile Carrier for Business.
• TELUS Health integrated into TBS to leverage B2B expertise. LifeWorks acquisition expected to drive $427 million in annualized synergies by 2025, with $233 million achieved to date.
• Focus on efficiency initiatives: Targeting $300 million in restructuring investments in 2024, with cost savings from team member reductions expected in Q2 2024.
• Team volunteerism: 1.5 million hours logged in 2023, brand value increased from $10.3 billion to ~$11.5 billion.

Segment Performance

• TTech: Q4 operating revenues up 2.6%. Mobile results: net additions of 329,000, including 126,000 mobile phone net additions (+13% YOY) and 203,000 connected device net additions (all-time quarterly record). Fixed results: internet net additions 36,000, TV net additions 23,000 (+35% YOY), security net additions 23,000, external fixed net additions 75,000. Adjusted EBITDA increased 8% with margin expansion 190 basis points.
• DLCX: Operating revenues from existing customers up 6.8% YOY. Adjusted EBITDA up 19% (excluding 1x earn-out adjustment), margins improved 120 basis points.
• TELUS Business Solutions (TBS): Continued revenue and EBITDA growth, strong in SMB with notable wins, 5G monetization, and TAC had best back-to-back sales quarters in over 3 years.
• TELUS Health: Q4 revenues $432 million, 24% YOY EBITDA growth. Annual revenues $1.7 billion, healthcare services cover 70 million lives, virtual care membership 5.6 million (+24% YOY).
• TELUS International: Solid revenue growth, improved profitability in H2 2023, margin profile aligned with historical trend, AI solutions contributing.

Guidance

• 2024 outlook: TTech operating revenues and adjusted EBITDA increases of 2%-4% and 5.5%-7.5% respectively. Consolidated CapEx ~$2.6 billion, free cash flow ~$2.3 billion (+30% YOY).
• TI's 2024 targets: Revenue and EBITDA growth of 3%-5% and 7%-10% respectively.
• Multiyear dividend growth program in its 14th year, continuing through 2025.

Risks

• Regulatory, competitive, and macroeconomic environment uncertainties impacting business performance.
• Potential pressure on ARPU due to competitive market activity.
• Working capital gyrations and potential impact on financial results.
• Challenges associated with restructuring and real estate rationalization.

Question and Answer

Q: Vince Valentini from TD Securities asked about the DRIP and free cash flow, specifically if they're close to removing the DRIP discount and working capital gyrations in 2024.

A: Doug French responded they're assessing removing the DRIP discount, looking to spectrum auction completion, and there are no notable working capital gyrations in 2024.

Q: Maher Yaghi from Scotiabank inquired about AMPU metrics for Public Mobile and revenue growth expectations for TELUS Health in 2024.

A: Zainul Mawji stated loading Public Mobile customers gives 6x AMPU improvement vs traditional subscribers. Navin Arora mentioned TELUS Health aims for double-digit EBITDA contribution and significant cash flow from the business.

Q: Jerome Dubreuil from Desjardins asked about deleveraging targets and long-term fiber potential.

A: Doug French said deleveraging continues in 2024 but slower, with M&A not impacting leverage. Tony Geheran discussed PureFibre deployment, copper decommissioning, and urban mining opportunities.

Q: Simon Flannery questioned sustainability of wireless industry growth and churn reduction.

A: Zainul Mawji and Navin Arora highlighted focus on premium loading, product intensity, bundling (e.g., Stream Plus 2.0), and leveraging TI for B2B growth to improve churn.