TELUS Corporation

Good day and welcome to the TELUS 2023 Q3 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 third quarter 2023 results, news release, MD&A financial statements, and detailed supplemental information were posted on our website this morning. On our call today, we'll begin with remarks by Darren, Doug, and Zainal. For the Q&A portion, we'll be joined by other members of our executive leadership team, Briefly, prepared remarks, slides, and answers to questions contain forward-looking statements. Actual results could vary materially from these statements. The assumptions on which they're based and the material risks that could cause them to differ are outlined in our public filings with securities commissions in Canada and the U.S., including our third quarter 2023 and annual 2022 MD&A. With that, over to you, Darren.

Thank you, Roscoe, and hello, everyone. In the third quarter, our TELUS team once again demonstrated execution strength in our T-TECH business segment, characterized by the potent combination of leading customer growth alongside strong operational and financial results. This was complemented by sequential EBITDA improvement and margin expansion in our DLCX segment. Notably, we achieved our strongest quarter of telecom customer growth on record, with total net additions of $406,000 up 17% on a year-over-year basis. This was driven by strong demand for our best-in-class portfolio of bundled services. Our all-time record customer growth is reflective of our dedicated team who are passionate about consistently delivering customer experience excellence, leveraging our superior service offerings and digital capabilities over our world-leading wireless and pure fiber broadband networks. In the third quarter, we delivered solid consolidated operating revenue growth of 7.5% and resilient EBITDA growth of 5.5%. In spite of the macroeconomic challenges, TELUS International continues to manage through globally. Let's turn now to our T-TECH mobile operating results. TELUS achieved leading and record wireless customer growth of 339,000 net additions in the third quarter, up 24% over this time last year. This included strong mobile phone net additions of 160,000, up 7%. Notably, this represents our best third quarter on record and our best quarterly result since the second quarter of 2008. This strength was driven alongside our continued focus on profitable and margin-accretive customer growth. Indeed, this consistent and disciplined approach will continue throughout the fourth quarter and into 2024 to ensure our net ads exclusively drive EBITDA and cash flow accretion. It also included leading and all-time record quarterly connected device net additions of 179,000, which was up 44% on a year-over-year basis. This reflects continued strong momentum from with respect to our 5G and IoT B2B solutions that are so critical for the future. Importantly, our team delivered another quarter of industry-best loyalty results, which continues to be the hallmark of the Telus organization and is emblematic of our customers' first culture in action. While splendid mobile phone churn of 1% and post-paid churn of 0.84% were up slightly, against the backdrop of heightened competitive activity, both represented industry-best results. Notably, our post-paid churn is now in the 10th consecutive year at less than 1%, and will soon be entering its 11th year. The close on mobile, third quarter ARPU of $59.19, was down slightly year-over-year as a result of intense promotional activity in the market, and heightened activity in the flanker space. This was mitigated, however, by our long-standing focus on AMPU accretive loading, driven by our team's passion for winning and retaining profitable customers. At the same time, we are maintaining a keen eye on efficiency by remaining highly disciplined on device subsidies and leveraging our leading digital capabilities. Furthermore, Connected devices and IoT will increasingly be an important contributor to network revenue, ARPU, and AMPU growth in the quarters ahead. Indeed, our solid ARPU and leading churn continue to drive our industry-best mobile phone lifetime revenue, which consistently exceeds our national peers by a considerable margin. This is reflective of the combination of our continued focus on high-quality customer growth and leading client loyalty, enabled by our highly engaged team who passionately delivers superior service offerings over our world-leading broadband networks, offering customers the fastest, most expansive, and most reliable service in Canada. Let's turn now and take a look at our fixed operating results. TELUS delivered another quarter of robust external fixed net additions of 67,000 in the third quarter. This represented an industry-leading result of the company's reporting today. Moreover, it included strong and steady internet net additions of 37,000, powered by the significant advantages of TELUS's extensive pure fiber network. Our leading performance indicators reflects the continued strength and success of our unique and highly attractive bundled offerings across our truly unmatched portfolio of products and services. These are buttressed by our ever-expanding, globally leading Pure Fiber and 5G networks, all of which are backed by our long-standing customer-centric culture. I'll turn the call over to Zainal in a moment to provide further color on our consumer T-TECH performance. Let's turn now and take a look at TELUS Business Solutions, or TBS, which continues to contribute meaningfully to the success of the wider TELUS organization. Notably, this includes delivering another strong quarter with continued revenue and EBITDA growth. Our performance reflects the strength of execution and cost transformation, and our highly differentiated solutions, market segment, and geographic diversification. It is also indicative of how we uniquely extend our social purpose through our stand with owners brand promise, including technology solutions that empower businesses to thrive in an increasingly digital world. During the quarter, Our TBS team secured several notable wins to bring our highly differentiated assets and capabilities to meet the evolving needs of our customers. This included a significant strategic deal with Flow to provide TELUS's world-leading connectivity to the most extensive electric vehicle network footprint in Canada, as well as underpinning a record-setting quarter for connected devices performance. Since announcing the move of TELUS Agriculture and Consumer Goods, or TAC, to TBS, we've begun executing a robust strategic plan, leveraging the strengths of both organizations to capture the market opportunity across the business. Also, allowing us to streamline our focus, align the right talent to key leadership roles, and of course, as always, improve our cost structure. Whilst TAC revenues of $83 million in the quarter were relatively flat against the backdrop of ongoing macroeconomic headwinds, we remain strongly confident in the positive outlook for this exciting business. Notably, our consumer goods business had its strongest sales quarter in over three years, with a strong sales funnel to continue that momentum going forward into 2024. TAC is exceedingly well positioned as the globally leading provider of digital technology and data insights, leveraging its superior products, platforms, distribution channels, and enviable client base to scale this business into a true asset of consequence and deliver meaningful and sustained growth for the TELUS organization. Furthermore, we are accelerating efforts to build AI capabilities into the full suite of product offerings that capitalize on data commercialization and monetization across animal agriculture, agronomy, and rebate management, and as well our consumer goods capabilities of trade promotion management and retail execution. Let's turn now and take a look at our TELUS Health business. We achieved third quarter revenues of $422 million in TELUS Health, alongside 20% EBITDA growth normalizing for LifeWorks. We continue to execute on our global growth strategy and progress towards our goal of being the most trusted well-being company in the world, accelerated by the acquisition of LifeWorks. And this includes our healthcare services and programs now covering nearly 70 million lives around the world, an increase of more than 9 million on a year-over-year basis. It includes supporting health outcomes on nearly 151 million digital health transactions during the third quarter, up more than 5% over the same period a year ago. And it includes increasing our virtual care membership to 5.5 million, up nearly 40% over the prior year. As we evolve to answer the needs of our customers worldwide, we foresee TELUS Health continuing its double-digit growth over the medium and longer term. Indeed, since acquiring LifeWorks, our team is committed to driving $427 million in annualized synergies by the end of 2025. This includes $327 million expected to be realized through operating cost synergies from continued integration and optimizing our organizational structure, systems, and our real estate portfolio. Furthermore, we continue to anticipate $100 million from longer-term revenue synergies driven by cross-selling health service products within our TELUS Health customer base and throughout our TELUS portfolio of assets, including TELUS International. To date, we've achieved $194 million in combined annualized synergies towards our overall objective. These synergies will allow us to reinvest in the growth of our business and as well improve our profitability whilst we focus on delivering efficient, secure, and best-in-class health and wellness solutions to our customers. Notably, we continue to grow our revenue opportunities globally with significant wins in Canada, the U.S., and Europe, exemplified by deals won year-to-date representing over $450 million in total contract value. Indeed, in the third quarter alone, we closed several material deals across our employer line of business, our payer and provider line of business, and our retirement benefit solutions portfolios. The strength of our combined health and well-being solutions and services remain unmatched in the marketplace. Now let's turn and take a look at TELUS International. Earlier today, TI reported steady year-over-year revenue growth, a meaningful improvement in sequential profitability and margins, and reiterated its 2023 full-year outlook. Revenue growth was driven by a combination of higher volumes and the ramp-up of projects across key clients, notably within TELUS International's AI data solutions, demonstrating the significant potential in the AI space and portending what is to come in the quarters and years ahead. TI's adjusted EBITDA margin increased meaningfully quarter over quarter, a positive trend that we expect to continue in the fourth quarter and into 2024. This strong improvement reflects the team's considerable efforts to realize the significant cost savings from our cost efficiency program aimed at rebalancing supply and demand factors across TI's operations, most notably those in Europe. Despite the near-term macroeconomic pressures that TI has faced this year, we remain highly confident in TI's strategy and TI's investment thesis. This is amplified by meaningful opportunities in respect of digital transformation, particularly with generative AI adoption and the continuing critical importance of differentiated digital consumer and B2B business experience solutions in the overall marketplace. In this regard, earlier this week, TI launched Fuel IX, an enhanced end-to-end offering that integrates generative AI into clients' customer experience ecosystems, enabled by TI's capability in digital consulting, TI's capability in data analytics, their capabilities in self-serve applications, and TI's leveraging of their AI-enabled platform integration. Critically, Fuel IX's helps companies overcome disjointed data and organization silos, and ensures that AI is thoughtfully embedded in the functionality of day-to-day client experience operations and workflows, driving better outcomes and driving better inherent efficiency. Moreover, TI offers an accelerator program that unlocks Gen AI potential with a clear path to production for companies at the start of their AI journeys, representing a vibrant tailwind for TI's medium and long-term growth and profitability. Doug's going to provide further commentary on both T-TECH and TELUS International's third quarter results in just a moment. The significant broadband network investments that we've made and those that we continue to make enable the advancement of our financial and operational performance and underpin the long-term sustainability of our industry-leading dividend growth program. The 7.1% year-over-year dividend increase announced today represents the 25th increase since we initiated our multi-year dividend growth program in 2011, which is now in its 13th year. Since 2004, Telus has returned more than $24 billion to shareholders, including over $19 billion in dividends, representing approximately $17 on a per-share basis. Our robust outlook for the continuity of our strong free cash flow expansion portends well for future dividend growth, particularly in the context of our dividend payout ratio guideline of 60 to 75% and the opportunity for increases as we prospectively approach the lower end of that range in the quarters and years ahead. Indeed, this represents an attractive investment scenario, particularly in combination with our dividend growth program for 7 to 10% annual growth through 2025 and an attractive current dividend yield of well over 6%. The buttress are consistently strong performance. Against the backdrop of rapid transformation in our industry and the evolving regulatory, competitive, and macroeconomic environment, we continue to focus on executing the extensive efficiency and effectiveness initiative across TELUS that we announced back in the month of August. Importantly, the transformational investments we've prudently made over the course of more than a decade in building the best culture and enabling industry-leading customer experiences over our globally leading wireless and pure fiber broadband networks are allowing us to accelerate our well-progressed plans to digitally revolutionize our businesses and further streamline our operating costs. Our team's grit, resilience, and ability to embrace change and continuously evolve the way that we operate have enabled us to substantially complete the targeted team member reductions. The incremental cost savings are expected to more meaningfully contribute to fourth quarter EBITDA, with the full run rate expected to be felt by the second quarter of next year. Whilst this initiative has certainly come with many difficult decisions, we've leveraged our decades-long track record of successfully navigating exogenous factors, from regulatory and competitive to macroeconomic, and most recently through the global pandemic, in order to rise and answer the current challenges and future-proof our business and all of our profitable growth aspirations. Importantly, your company's global leadership in social capitalism was exemplified by the recent launch of the $50 million Telus Student Bursary, the largest bursary fund in all of Canada. The Telus Student Bursary will enable thousands of of young people who might otherwise lack the means to enrich their lives through post-secondary education at a university, college, or technical vocational school. Our annual bursary program will empower these leaders of tomorrow to pursue their ambitions, realize their potential, and create a brighter future for themselves and their communities. Myself and our entire leadership team as well as the Telus Board of Directors, remain exceedingly grateful for our team's passionate efforts to support our global communities as we strive to deliver outstanding results for all of our stakeholders. Finally, from the head and from the heart, I'd like to conclude by extending my sincere appreciation to my long-term colleague and friend, Jim Senko. Today marks Jim's final TELUS investor call before he retires at the end of the year. Over the past 22 years, Jim's amazing dedication to TELUS and his team, alongside his tremendous skill and expertise, have set a remarkably high standard of excellence for our entire organization. I know I speak on behalf of our entire leadership team when I say we will dearly miss Jim's considerable skill, his relentless competitive spirit, and his outstanding ingenuity in respect of delivering innovative programs and exceptional outcomes for our customers. Thank you, Jim, for the many outstanding contributions, and congratulations on a truly, truly, truly outstanding career. Thank you. On that note, I'll turn the call over to Zae. Zae, over to you.