TELUS Corporation Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Industry-leading customer growth was underpinned by the dedicated team delivering superior service and digital capabilities over world-leading wireless and fiber networks. Broadband network investments enabled resilient EBITDA growth, monetization of pure fiber and 5G, copper decommissioning benefits, and revenue/profit progression in TELUS Health and TELUS Agriculture and Consumer Goods, and supported dividend growth.
• TTech Mobile focused on profitable growth, avoided dilutive offers, and mobile customer growth drove sustainable EBITDA and cash flow growth, with connected devices and IoT contributing to growth.
• TTech Fixed leveraged PureFibre superiority for customer growth, and differentiated product portfolio provided industry-leading results, with new platform and product development offering growth opportunities.
• TBS, TELUS Health, TELUS Agriculture and Consumer Goods, and TELUS Digital each had their respective highlights: TBS's cross-functional sales, TELUS Health's sales booking growth and EBITDA contribution, TELUS Agriculture and Consumer Goods's high growth and profitability, and TELUS Digital's AI solution progress.

Segment Performance

• TTech Mobile: Realized industry-leading 289,000 net customer additions in the third quarter, including 130,000 robust mobile phone net additions. Connected device net additions were 159,000. Blended mobile phone churn was 1.09%, with postpaid mobile phone churn at 0.9%. Third quarter ARPU was $58.85.
• TTech Fixed: Delivered industry-leading 58,000 external fixed net additions in the third quarter. Internet net additions were 34,000, TV net additions were 21,000, residential voice had modest losses, and security net additions were 12,000.
• TELUS Business Solutions (TBS): All lines of business continued to grow. Private wireless networks had large multisite deployments, IoT revenue grew double-digit year-over-year, and customer loyalty was industry best for nine consecutive quarters.
• TELUS Health: Revenue grew 4%, sales bookings across key growth portfolios were up meaningfully, EBITDA contribution grew 50%, global lives covered grew 9%, and virtual care membership increased 18% year-over-year.
• TELUS Agriculture and Consumer Goods: Had record sales over the past four quarters, revenue grew over 20% year-over-year, bookings grew 65% year-to-date, and EBITDA contribution grew over 100% relative to the same period a year ago.
• TELUS Digital: Had stable financial performance, comprehensive AI solutions had strong momentum, operating revenue with TELUS was up almost 1%, but adjusted EBITDA was down 30%.

Guidance

• Updated TTech operating revenue outlook to be slightly below the lower end of the original target range while remaining above analyst consensus estimates. TTech adjusted EBITDA increased by 5.6% and adjusted margin expanded by 110 basis points to 39%. TELUS Digital, although facing macroeconomic and pricing pressures, had operating revenue with TELUS up almost 1% and有望实现全年展望. Real estate-related gains were expected to continue in the coming quarters as per the multi-year real estate development strategy.
• TELUS's adjusted EBITDA increased by 1.3%, net consolidated income grew 80% year-over-year, and free cash flow was $561 million, higher by $206 million or 58%.

Risks

• Market Competition: Intense competition led to pricing pressures, impacting ARPU and margins in various business segments.
• Macroeconomic Environment: Adversely affected TELUS Digital with associated pricing pressures.
• Real Estate and Copper Decommissioning: Execution risks related to real estate projects and copper decommissioning could impact related revenues.

Question and Answer

Q: From TELUS perspective, what is the revenue growth potential of the industry, divided into traditional core telecom business and new revenue streams?

A: Darren stated there are significant opportunities in fiber, 5G, product intensity, new product development, domestic and international expansion, emerging businesses, cost efficiency, and asset monetization. TELUS has opportunities in cross-selling existing products, new product and platform development, national and international expansion, emerging growth businesses, and cost efficiency improvements leading to EBITDA accretion.

Q: Why can TELUS continue to grow the dividend by 7%?

A: Darren and Doug mentioned that cost efficiency improvements, asset monetization, EBITDA growth, and the ability to return the fruits of investments via dividend growth model support the 7% dividend increase.

Q: Can you remind us exactly how the $36 million from real estate works?

A: Doug explained that it's 50% of the gain from selling properties, with the other 50% recognized upon development completion, and the cost base of the land is relatively low.

Q: What is TELUS's thinking about non-core assets?

A: Doug said TELUS will look at non-core asset monetization opportunities to strengthen the balance sheet while monitoring what's best for the organization moving forward.

Q: On restructuring, how should we think about the margin cadence for the remainder of the year and additional efficiency opportunities?

A: Doug stated restructuring will likely continue as digital and automation find more cost reduction opportunities, with benefits starting to be seen in Q1 2025. Darren emphasized proactive cost efficiency programs, digital transformation leadership, and the impact of fiber on cost structure.

Q: How is TELUS approaching its asset portfolio and wireless loading?

A: Zainul said wireless loading mix was consistent in Q3, with focus on customer life cycle management. Darren discussed capital allocation principles, with emphasis on balance sheet strengthening, investment opportunities, and dividend growth. Non-telecom businesses are data strategies extensible from telecom's data analytics, insights, and monetization.

Q: Are you guiding for more than 5% EBITDA growth in the future annually?

A: Darren explained that the 5% EBITDA growth from cross-selling existing products is just one opportunity, and the team will pursue both cross-selling existing customers and acquiring new customers for further growth.

Q: How should we think about the wireline line item going forward and wireless ARPU construct?

A: Zainul said there's consistency in wireline growth, retention capabilities, and product intensity, with continued competitive pressure but strong uptake. Navin added on the business side, volume and market share plays, digital automation investments, cross-sell opportunities, and IoT/Industry solutions contributing to wireless ARPU.