TELUS Corporation

Good morning, ladies and gentlemen. Welcome to the TELUS 2020 Q2 earnings conference call. I would like to introduce your speaker, Mr. Robert Mitchell. Please go ahead.

Hello, everyone. Thank you for joining us today. Our second quarter 2020 results, news release, MD&A and financial statements, and detailed supplemental investor information were posted on our website this morning at telus.com slash investors. On our call today, we have Darren Wintwistle, President and CEO of Doug French, Executive Vice President and CFO, Francois Gretin, Group President and Chair of TELUS Health and TELUS Quebec, and Jeff Puritt, Executive Vice President and President and CEO of TELUS International. And also joining us today for the Q&A portion of the call, we have Zainul Mauji, President, Home Solutions, James Senko, President, Mobility Solutions, and Tony Guerin, EVP and Chief Customer Officer. Given we have a virtual call today, Darren will be taking the questions, and he will be allocating them amongst our various participants on the call today. Briefly on slide two, this presentation and answers to questions contain forward-looking statements that are subject to risks and uncertainties and made based on certain assumptions. Accordingly, actual performance could differ from statements made today, so we ask that you do not place undue reliance upon them. We disclaim any obligation to update forward-looking statements, except as required by law. And we refer you to the risks and assumptions as outlined in our public disclosures, including our second quarter 2020 MD&A, our 2019 MD&A, and filings with security commissions in Canada and the U.S. With that, over to you, Darren.

Thanks, Robert, and hello, everyone. Our TELUS team continues to respond dynamically to the needs of Canadians and our communities whilst demonstrating exceptional operational execution and providing innovative solutions for our customers and communities during the COVID-19 pandemic. Notably, at a time when the human connection has never been more important, our TELUS team remains committed to ensuring Canadians have access to the technology and support that enables them to work and learn remotely, apply for critical government resources, receive vital medical care, and stay connected to family and friends. In this regard, our TELUS team continues to deliver on our commitment of $150 million to support COVID-19 relief across Canada. Additionally, since the start of the global pandemic, the TELUS Friendly Future Foundation has contributed $5.5 million to 326 charitable health projects. With the launch of our virtual TELUS Days of Giving this quarter alone, TELUS team members have participated in 200,000 acts of giving, including 500,000 volunteer hours served and 131,000 masks sewn for our communities. Clearly, we're stepping forward. This past quarter, we expanded our TELUS Internet for Good program to help people living with disabilities access the vital tools and resources they need to live fulfilling lives from the comfort of their own homes. Since introducing our Internet for Good program on a Canadian leadership basis, we've now enabled more than 65,000 Canadians from low-income families with low-cost, high-speed TELUS Internet. I'd like to take this opportunity to thank the entire TELUS team for their tireless efforts in aiding our customers and our communities and in taking care of each other. Despite the challenges we faced with respect to the global health crisis, Telus achieved resilient second quarter financial and operational results. Our team delivered industry-leading customer growth of 141,000 net additions, all while maintaining the safety and well-being of our customers and team members by leveraging our strong digital capabilities and demonstrating the efficacy of our long-standing strategic focus and providing the best in-class customer experience over our world-leading broadband networks. This accomplishment, realized against the backdrop of an unprecedented operating environment, is reflective of our long-standing focus on fostering a leading culture with a highly engaged team. Importantly, Our strong second quarter results were achieved while 95% of our team embraced working from home while continuing to respond with excellence in meeting the evolving needs of our customers. Leveraging our distinct and excellent digital capabilities in concert with our team's characteristic grit and adaptability within the new operational environment we added 61,000 high-quality mobile phone net additions comprised entirely of higher-value postpaid customers. We also added 47,000 wireline customer additions driven by 37,000 intranet and 12,000 security net additions, which were both up over last year. This strong customer expansion was supported by leading customer loyalty across our key growth product lines, including historically low post-paid churn of 0.59%, backed by the Telus team's longstanding dedication to delivering premium customer experience over the world's best wireless networks. In Q2, consolidated revenue was up 3.6%, while EBITDA decreased by 2.9%, clearly due to the impacts from the ongoing health crisis. In that regard, our second quarter results reflect various COVID-19 impacts across the business, including lower wireless roaming revenue, the implementation of numerous customer support initiatives, in response to the pandemic, incremental bad debt expenses, and as well the temporary closures of the vast majority of our retail points of distribution, certain TELUS international locations, and our TELUS health clinics. Thanks to our relentless focus on improving our cost structure in this environment, as well as our tireless pursuit of incremental opportunities to enhance the contributions coming from all areas of our business, we mitigated some of these downside pressures whilst managing through various stakeholder initiatives. Had it not been for the total net impact of this exogenous event, EBITDA would have grown by approximately 5% at the consolidated level. Notably, we generated strong free cash flow of $511 million in Q2, up more than 57% over last year. These results are a further reflection of our team's resiliency and adaptability in the face of a challenging and rapidly changing operating environment. Importantly, our robots' free cash flow is and will continue to be achieved without having to sacrifice the strategic capital investments necessary to ensure the execution and success of our long-term growth strategy. Let's take a deeper look at wireless. Second quarter network revenue decreased by 3.3% as our consistent focus on profitable, high-quality, smartphone-centric subscriber growth was offset by the aforementioned pandemic-related impacts. As a result, wireless EBITDA was down 3.7%, partially mitigated by an intense focus on cost management at the Telus organization. Our 61,000 Q2 mobile phone net additions reflect very strong performance, particularly in light of the market environment we face with COVID-19-related channel restrictions. as well as our team's agility and innovation in leveraging our digital channels and leading network to offer superior customer service throughout the health crisis. And the results speak for themselves. It is incredibly encouraging to see our smart simplification thesis playing out so effectively in our wireless loading results this quarter, and that bodes well for the future. Our ability to seamlessly pivot our wireless business to operate almost entirely through our digital platforms without missing a step along the way is only possible thanks to the simplification journey and the technology investments that we made in digital that began several years ago. Healthy connected device net additions of 33,000 were down on a year-over-year basis, primarily due to lower IoT growth additions from a reduction in business customer activity as customers delayed purchasing decisions during the pandemic, which was partly offset by growth in our consumer health personal emergency response system devices and part of our overall health and home security thesis. In totality, wireless net additions including both mobile phones and connected devices, were 94,000 in the quarter. Our team delivered another quarter of strong and best-in-class loyalty results, with a mobile phone churn rate of 0.8%, which represents a 21 basis point improvement over this time last year. Notably, our incredibly low post-paid churn of 0.59% marked a 23% basis points improvement over this time last year. Whilst we benefited from reduced voluntary switching activity as a result of the pandemic, customers are clearly staying with us for our premium customer experience delivered by our team members and our globally leading networks built by our team members. TELUS's network has continued to perform exceedingly well throughout the crisis, inclusive of the resulting significant changes in usage patterns and added demand, as network volumes have become significantly amplified. The efficacy of our ongoing broadband technology investment continues to be reflected in numerous recent awards from leading independent third-party network authorities. Tetella recognized our wireless network as best in consistent quality, lowest latency, and fastest download speeds. Furthermore, in early July, Telus won US-based Ookla's 2020 Speedtest Fastest Mobile Award, marking the sixth consecutive year that Telus has won this award, as well as best mobile coverage for the third time. Notably, in the State of Rural Canada's Mobile Network Experience Made 2020 report, UK-based OpenSignal found that rural Canadians benefit from some of the fastest download speeds in the G7. It noted that the rural experience on TELUS' network is better and faster than in any location within G7 nations, with the exception of Japan. clearly a significantly smaller country than Canada, which at 49 megabits per second was only slightly faster than TELUS's 48 megabits per second. Consistently earning these prestigious third-party accolades is particularly gratifying as our team focuses relentlessly on maintaining robust reliability and world-leading performance across all of our critical services in rural as well as urban areas to keep Canadians connected to the vital economic, educational, health and social resources that they need, that they need particularly so during the contagion. Looking to our next major network evolution, in June we announced the first wave of our 5G network rollout in Vancouver, Montreal, Calgary, Edmonton, and the Greater Toronto Area, with an expansion to 26 additional markets across Canada throughout the remainder of 2020. In addition, we announced new partnerships with Ericsson and Nokia for our core wireless network and Samsung for our radio access network. Importantly, our 5G network will profoundly enhance the way our customers connect to information, connect to resources, and of course, connect to each other. Building on our consistently world-leading technology, our 5G network will bridge digital divides and drive innovation across businesses, government, healthcare, education, and social pursuits, whilst creating an estimated 250,000 jobs and contributing $40 billion annually to Canada's economy. something that we're clearly going to need in the aftermath of COVID-19. This critical development in our 5G ecosystem is a testament to our team's dedication to maintaining a world-leading network experience from coast to coast in Canada, from urban to rural. We've done it for 20 years on the network front. We'll do it going forward with 5G. Finally, to close on our wireless results, AVPU, was $69.65 and down 5.1%, and ARPU was $56.82, which was down 5.8%. We continue to pursue strategies with attractive economic characteristics to mitigate the effects of the pandemic and its impact on these metrics. This includes the continued strong adoption of our TELUS easy payment device financing, our TELUS peace of mind endless data plans, and our TELUS family discount plans that are all performing exceedingly well within the marketplace. Indeed, once again, over half of rate plan changes and migrations in the quarter were either step-ups or flat from a revenue perspective. And I think this should be encouraging for investors. We're also continuing to seek out and secure new avenues of wireless revenue growth in high margin areas, such as Internet of Things, which will clearly get volumized as the 5G ecosystem gets commercialized. We are excited about prospects in this space in concert with the commercialization of 5G and the opportunities that this is going to unlock in terms of new long-term growth curve initiatives for our wireless business that will drive not just top-line revenue growth, but will drive significant EBITDA expansion and free cash flow generation as we exact an ROI on the capital investments that we've made in commercializing 5G, volumizing the speeds, and delivering on the pervasive coverage. Now let's turn to our wireline results. TELUS once again delivered a solid quarter with smart execution and performance buttressed by our premium diversified and evolving product portfolio. Second quarter wireline revenues increased by 13%. This was supported by data revenue growth of 18%, driven by a combination of higher revenues coming from our diverse portfolio of services and solutions, including robust performance at TELUS International, with contributions from our successful acquisition of Confidence Call Center, as well as strong organic growth, which Jeff will top off on later in this call. We're also seeing strong data growth coming from excellent results achieved once again in home and business smart technology and security with the inclusion of ADT Canada, as well as robots growth in internet, third-way data services, and a very resilient performance from our TV offering. And finally, we're seeing significant data growth with increased revenues from the hyperscaling of our virtual healthcare solutions. where we've seen a tenfold increase in demand for Babylon by TELUS Health and 300 new corporate customers within our Akira virtual care platform. Francois will provide additional color on our health results in a few moments. But clearly, from wireline to wireless, from TI to security to our health business, the diversity of our data growth at TELUS is both strong, resilient, and it bodes well for continued performance in this regard prospectively. In addition to COVID-19-related disruptions at TELUS International, revenue growth was partly offset by a decline in health revenue from the temporary closure of clinics for all non-essential services, as well as reduced health benefits claims. It was also offset by lower revenue and EBITDA from business customers as they redeployed resources to answer the unique challenges that they faced within their markets, within the respecting operating environments that they struggled to cope with. Wireline EBITDA decreased by 1.2%, reflecting temporary impacts from the pandemic in the quarter, including the previously mentioned disruptions at TELUS International and TELUS Health, along with customer-first initiatives, including the waiving of overage fees and increased bad debt expenses. Clearly, we were deeply sensitive to the predicament of our customers during this period and acted accordingly and respectfully and humanely in that regard. These factors were partly offset by the increased contribution from TELUS International and our home and business smart technology, as well as excellent cost containment across the business, thanks to the efforts of our team. Looking at our robust customer expansion, we earned industry-leading second quarter internet editions of 37,000. a 12,000 year-over-year improvement on the back of higher gross loading and significantly lower customer churn. We also realized TV net additions of 8,000, including solid double-digit basis point churn improvement, as well as strong security net additions of 12,000, which was up 1,000 over this time last year. Not bad going given all the constraints within the pandemic from marketing and sales through to the handcuffing of a lot of our fulfillment activities that we would have done on a more traditional basis, calling for greater innovations in that regard to be forthcoming from the TELUS team. And indeed they were. These results underscore the attractive bundled offers available to customers across our highly differentiated product portfolio. Our strong results also reflect our team's steadfast focus on leveraging the competitive differentiation inherent in our pure fiber broadband network. Notably, despite being largely unable to enter the homes or premises of our customers, we achieved exceptional internet and security loading results due to the success of our innovative virtual technician model and the grit of our team in providing best-in-class customer experiences even in the most challenging of circumstances. And this was the most challenging of circumstances. As a result, overall, total wireline RGU net additions of 47,000 were up 4,000 on a year-over-year basis, which represents an outstanding achievement while facing the challenges of the global pandemic and remaining steadfast in keeping our customers and our frontline team members safe and healthy. Our consistent industry-leading wireline execution clearly highlights the importance of our dedicated focus on delivering customer service excellence over our world-leading fiber network. During the quarter, our team expanded our pure fiber coverage to approximately 73% of our high-speed broadband footprint, on our way to approximately 80% coverage by the end of 2020. Maya, we have come a long way since the end of 2012 to be able to be within spinning distance over the back half of 2020 now to get to a coverage footprint of 80% as it relates to our internet broadband territory. This bodes well for the future, not just what it means for our FFH business, but what our pervasive fibre network will enable for our 5G wireless operations, given the synergy between the two. Indeed, the current environment underscores the potency of the TELUS pure fibre network, which enables millions of Canadians to work learn, access entertainment, transact online, and socialize virtually from home on a significantly intensified basis. All as we, as a nation, as citizens, as consumers, and as businesses make a quantum progression into the digital society and digital economy that will endure and grow well beyond the current global health crisis. We are clearly positioned for sustainable competitive advantage in this regard, given the technology investments that we have made on a prescient basis over the past decade. Notably, the efficacy of our ongoing broadband technology investments is also reflected in a recent award from leading independent network authority, U.S.-based PCMAG, which ranked TELUS as the fastest internet service provider in Canada. And this is down to the pure fiber investments that we've made and the massive footprint that we have built and realized for the benefit of customers and shareholders alike. Despite the challenges we face with respect to COVID-19, TELUS delivered resilient financial results industry-leading subscriber growth and customer churn, alongside robust free cash flow generation. Importantly, we continue to expect to drive strong free cash flow within the lower half of our target range of $1.4 to $1.7 billion, based on management's goal to deliver flat to slightly positive EBITDA for 2020, and doing that, making astute capital investments in line with our original CapEx guidance for the full year 2020. Moreover, we remain hopeful that conditions will permit us to meet or exceed our targeted dividend increase when we report our third quarter results in November. As we continue to advance our broadband leadership and embrace our winning go-to-market strategy, backed by our globally recognized culture and industry-best customer experience, We remain confident in the long-term outlook for our business and the significant opportunities before us to further elevate the Telus brand, accelerate our growth strategy, and build increasing value for shareholders and return that money to shareholders given the success of the implementation of our go-to-market actions. Our robust and consistent performance over the longer term, coupled with our strong balance sheet, and our cost containment measures positions us well to navigate the uncertainty caused by the global health emergency. These factors, alongside the incredible innovations we are driving in response to the current crisis and the tuition value that we've gleaned over the past several months, will also support the ongoing evolution of our operating model and the resiliency of our organization ensuring that we are strongly positioned for anticipated economic challenges and the ability to also seize upon significant market opportunities. Our team's unwavering commitment to improving outcomes for our fellow citizens in concert with our leading operational execution and our vastly superior asset mix continues to define TELUS's leadership in social capitalism, reflecting the symbiotic relationship between our company and the communities that we serve. I remain proud and grateful to the entire team, and I think that was exemplified over the past three months. And on that note, Francois, I'll hand the call over to you.