TELUS Corporation

Good day, everyone. Welcome to the TELUS 2025 Q4 earnings conference call. I would like to introduce your speaker, Ian McMillan. Please go ahead.

Thank you, Carl, and hello, everyone. Thank you for joining us today. Our fourth quarter 2025 news release, annual MD&A and financial statements, and detailed supplemental investor information were posted on our website earlier this morning. On our call, we will begin with remarks by Darren and Doug. For the Q&A portion, we'll be joined by Zainal, Naveen, and Tobias. Briefly, prepared remarks, slides, and answers to questions contain forward-looking statements. Actual results could vary from these statements. The assumptions on which they are based and the material risks that could cause them to differ are outlined in our public filings with security commissions in Canada and the United States, including our 2025 annual MD&A. With that, over to you, Darren. Thanks, Igor. And hello, everyone. As you know, this morning I announced that I'll be retiring from TELUS on the 30th of June, 2026. It has, without a shadow of a doubt, been a tremendous privilege to be part of the TELUS team for the past 26 years and to have an opportunity to work alongside many of the people on this call. The success TELUS has realized belongs to the extraordinary team members who have built so passionately the amazing culture that sets this company apart and has led to our significant accomplishments over the years. This team shows up every single day to serve our customers, support our communities, and build a company that Canadians and shareholders can trust. To be part of this extraordinary team and to support them has indeed been the greatest honor of my career. As a result of my retirement, I'm pleased to share that Victor Dodick, an exceedingly accomplished and talented leader, will become CEO effective the 1st of July. I'll remain part of the TELUS family as an advisor to Victor until May of 2027. The CEO progression was enabled through a robust succession planning process. Indeed, our board of directors have selected an outstanding successor in Victor, who is, of course, the former CEO of CIBC. Victor embodies TELUS's core values, embraces a commitment to putting customers first, demonstrates exceptional character and excellent business acumen and cares deeply about creating stronger communities. Victor's tremendous skills, CEO expertise, leadership values, and his proven track record of value creation will effectively complement Telus' strong leadership team and position him well and the company well to lead Telus into this exciting new chapter. We'll have more time to speak about this leadership progression in the coming weeks. However, today I'd like to focus on TELUS' strong fourth quarter and 2025 full-year operating and financial results. In the fourth quarter and for 2025, our team's unwavering commitment to operational excellence continued to differentiate the TELUS organization, delivering strong, quality customer growth and robust financial performance. Our leading asset portfolio and focus on profitable customer expansion delivered strong results to close out 2025, including our fourth consecutive year surpassing 1 million combined mobility and fixed customer additions. Powered by our world-leading broadband networks and, of course, our famous customer-centric culture, this momentum positions us well for continued growth in 2026 and beyond. Once again, TELUS led the industry with 1.1 million mobile and fixed customer net additions in 2025. This included record connected device net additions of 716,000 robust mobile phones of 207,000, and fixed net additions of 158,000, representing our 16th consecutive year delivering positive wireline net additions, which is indeed a highlight, and it does significantly and positively differentiate the telestory within Canadian and global telecoms. This performance is a testament to the compelling value of our comprehensive bundled offerings across mobile and home nationally and our team's passion for delivering client service excellence in combination with our fiber moat and our best-in-class 5G wireless network. Indeed, our sustained focus on customer experience leadership continues to drive best-in-class customer loyalty results. This was demonstrated by industry-leading post-paid mobile phone churn of 0.97% for the full year in 2025, and notably marks our 12th consecutive year below the 1% threshold, which is a global hallmark of the TELUS organization and, of course, a best-in-class result. This churn result is up to 25 basis points better than our peer group. Despite a dynamic operating environment, T-TECH adjusted EBITDA, including health, increased 3.1% for 2025. This result is within our guidance range and demonstrates our team's disciplined execution and unrelenting focus on cost efficiency and effectiveness. Furthermore, TELUS achieved record free cash flow of $2.2 billion for the full year. This represented an increase of 11% over 2024 and exceeded our annual target. It is notable that this growth of 11% in 2025 is on top of the 12% free cash flow growth we realized in 2024 and the 38% free cash flow growth we realized in 2023. And of course, It is foundational to the double-digit free cash flow we are forecasting to deliver through 2028. Let's turn now and take a look at our fourth quarter results. In the fourth quarter, our team achieved industry-leading total telecom customer net additions of 377,000. In wireless, we drove strong industry-leading total net additions of 337,000. This included mobile phone net additions of 50,000 and industry-leading connected device net additions of 287,000, representing an all-time quarterly record for our organization. This was supported by our commitment, our strong and unrelenting commitment to economic margin-accretive customer growth. This is once again evidenced by our consistent industry-leading customer lifetime revenue supported by our industry-best churn results and an improving ARPU performance that was the best in the industry on a sequential basis. Indeed, as a result of our moderating ARPU decline, network revenue returned to positive growth in the fourth quarter, something that we intend to build upon in 2026. This is an encouraging result that we look forward to executing against in the coming year and thereafter. Moving now to take a look at our wireline portfolio. TELA delivered another quarter of industry-leading total wireline customer growth of 40,000 in the fourth quarter. This included 35,000 internet net additions powered by our leading pure fiber offering on a national basis. Our consistent strategy of leveraging our superior and growing portfolio of bundled products and services on a national basis continues to differentiate our company meaningfully from the competition in a way that matters to customers and a way that creates shareholder value. We are delivering far more than connectivity. We are empowering Canadians with transformative digital experiences, including AI-powered smart home energy solutions, cutting-edge tech-enabled health care and well-being services, comprehensive security offerings, and, of course, premium entertainment solutions. Furthermore, we drove continued strong momentum in our unique and highly differentiated data-centric B2B growth businesses. Our Telus Health team delivered another strong quarter of double-digit revenue and adjusted EBITDA growth, fueled by strategic investments, continuous product innovation, and disciplined execution across our global platforms. We successfully delivered $431 million in LifeWorks annualized synergies, surpassing our $427 million public target and the commitment that I made to you in this regard. This comprises $334 million in cost efficiencies and $97 million in cross-selling revenue, demonstrating our ability to execute on transformational integrations. Notably, this result is nearly three times above our original target of $150 million that we set when we first acquired Lifeworks in September of 2022. Moreover, we expanded our global reach to more than 161 million lives covered, solidifying our position as the world leader in workforce, digital health, and well-being services. By way of just one example, our commercial initiative with M42's Abu Dhabi Health Data Services marks a significant milestone in our expansion into high-growth markets globally. This collaboration combines TELUS's proven global expertise with M42's regional clinical excellence and AI capabilities to deliver comprehensive workforce health solutions across the Middle East and within the broader region. And it clearly aligns explicitly with Prime Minister Carney's Snow and Sand International Trade Initiative. As we continue to expand our operational footprint Our engagement with financial advisors to explore strategic investment opportunities for telehealth demonstrates tangible progress on our well-articulated commitment to the investment community. As a leading digital health platform with expanding global reach, AI-driven innovation, and strong profit and cash flow growth, TELUS Health is well positioned to attract strategic partners that unlock significant value for our shareholders. In parallel, following the privatization of TELUS Digital, we are accelerating our enterprise-wide AI and data capabilities. enabling strategic cross-promotion of our industry-leading AI product set throughout our entire business portfolio. At the same time, we are enhancing Telus Digital's capacity to drive growth opportunities across its external client base. These positions tell us for differentiated growth, with our AI enabling capabilities revenue targeted to grow from circa $800 million in 2025 to approximately $2 billion in 2028 across both Telus Digital and Telus Business Solutions, including important contributions from our sovereign AI factories. Notably, in the fourth quarter of 2025, AI-enabling capabilities revenue increased by 44% to $229 million, supporting a 35% increase for the full year, underscoring the strong momentum in this high-growth area and what it portends for the future. This performance reinforces our position as a trusted partner to enterprises navigating digital transformation and implementation of AI, and validates our strategy of leveraging TELUS as an innovation lab to commercialize cutting-edge AI enabling capabilities for our clients. Alongside this growth, we expect the integration of TELUS Digital to unlock meaningful operational efficiencies that we intend on harvesting. This includes delivering annual cash synergies of approximately $150 million to $200 million, with circa $150 million being realized within the 2026 financial year. Driving our performance is a disciplined approach to financial management, supported by strong business fundamentals and significant free cash flow growth generation. Our confidence in delivering free cash flow growth at a minimum of 10% compounded annual growth through 2028 reflects our strong financial momentum in action. Additionally, effective with today's dividend declaration, we are reducing our drift discount to 1.75% from 2% with further reductions planned through 2026 and into 2027 with the full removal taking effect in the 2027 financial year. Importantly, we continue to assess a more accelerated step-down facilitated by the execution of our monetization program targeting $7 billion of assets under management. And I think it's interesting to note, when we look at the $7 billion of dispositions that we're considering, the synergistic effect with our overall growth strategy. By way of example, our pure fiber bill is what is enabling our real estate monetization and our copper recycling. Our real estate monetization and our copper recycling, cumulatively, are going to end up paying for about half of the cost of our fiber bill. Now that's a strong strategy. Secondly, when you look at the opportunity to bring in a strategic investor in TELUS Health, The investments that we have made historically in this business are going to yield significant multiples over the capital that we've invested. As part of our capital allocation framework, we are maintaining our dividend at the current level until our share price and associated dividend yield better reflects the considerable growth prospects of TELUS. Based on the current quarterly dividend, our cash dividend payout ratio is approximately 70% on a prospective basis, and we anticipate that it will remain in the 70s over the course of our multi-year plan, with the net effect of our deleveraging plan in action and the D-DRIP removal. Resuming dividend growth will be contingent upon maintaining this payout ratio trajectory with the drift discount fully removed as we execute against our strategic plan, including free cash flow generation and achieving our deleveraging target. Indeed, in 2025, we undertook several targeted activities to further appreciably strengthen our balance sheet. This included the successful issuance of hybrid debt securities, as well as our partnership with LACES, Interion, our dedicated wireless tower infrastructure operator, enabling wholesale access and co-location. Notably, our Terrian transaction reduced TELUS's net debt by $1.26 billion, or approximately 17 points on TELUS's net debt to EBITDA ratio, accelerating deleveraging and advancing TELUS's progress towards robust and long-term sustainable growth. Looking ahead to 2026, our team is advancing additional monetization opportunities, including strategic investors for both TELUS Health and TELUS Agriculture and Consumer Goods, and the accelerated monetization of real estate and copper assets. These efforts will be buttressed by operational growth, including robust EBITDA and free cash flow expansion, supported by moderating capital expenditures, and an industry-leading CapEx intensity ratio of 12%, trending to circa 10%. Our comprehensive deleveraging strategy is moving ahead of plan, with a leverage ratio ending 2025 at 3.4 times and expected to reach circa 3.3 times or lower by the end of 2026, and achieved three times or better by the end of 2027. Our strong financial and operational performance are enabled by our world-leading broadband networks, our data-centric growth assets, including what we are building and have built on the AI front, and as well, our commitment to customer service excellence. This provides a sustainable foundation in delivering on our 2026 targets announced today, including consolidated service revenues and adjusted EBITDA growth of up to 4%, consolidated free cash flow of approximately $2.45 billion, And finally, moderating capital expenditures of circa $2.3 billion that support that CapEx intensity ratio tending from 12 to 10. Underpinning our outlook is a growth strategy centered on amplifying profitable revenue expansion complemented by ongoing and important focus on on cost efficiencies being realized, positioning TELUS to deliver sustainable value accretive growth. In closing, 2025 marked the 25th anniversary of our iconic TELUS brand and the 20th year that our team members have participated in our annual TELUS Day of Giving. Since 2000, TELUS, our team members, and retirees have contributed $1.85 billion, including 2.5 million days of giving, equivalent to 19 million hours in our global communities. This is more than any other company on the planet. And here's the equation at TELUS. Social purpose... and leading the way globally drives higher employee engagement. Higher employee engagement drives better business execution. And this has yielded a culture where better business execution from that higher engagement leads us to deliver the type of customer service outcomes and the lowest churn rate within global telecoms for decades now. It's quite the combination. And in closing, I'd like to express my gratitude to our global team for their efforts and expertise in executing on our consistent strategy to meet our commitments to all stakeholders. And on that note, I'll turn the call over to you, Doug.

Thank you, Darren, and congratulations on your retirement. Our fourth quarter and full year results demonstrated strong operational execution and financial discipline. closing out 2025 with strong momentum across all key metrics and continued significant progress on our deleveraging commitments. During the seasonal competitive fourth quarter, we executed in a highly tactical and disciplined manner that is evident in our financial results. We delivered positive network revenue growth while ARPU continued to stabilize, declining 1.6%. demonstrating an accelerated sequential quarterly improvement. Notably, this is the strongest sequential improvement amongst our peers, reinforcing the effectiveness of our go-to-market strategy and the focus on economic loading. Furthermore, T-TECH adjusted EBITDA, excluding lower mobile equipment margin from lower contracted volumes, increased 2.7%, and free cash flow increased 7%, supported by our positive free cash flow impacts of lower contracted volumes, undisciplined device financing, in addition to our lower cash restructuring. To summarize wireless, we had the largest network revenue growth, the largest improvement in ARPU, and the lowest contracted volumes in subsidies in handsets. This is a trifecta in value generation. And the numbers, not talk, support the financial market discipline that we have showed. Fixed data services revenue in the fourth quarter increased approximately 2%, driven by continued internet customer growth and higher internet ARPU. Declines in business fixed data revenue continue to reflect revenue, variability, and customer contract changes, and was partially offset by continued growth in small business and medium business. Overall, T-TECH adjusted EVA DA margin, expanded 240 basis points to 40.9%, driven by our commitment to strong economic growth and persistent efforts to reduce costs, including our competitive advantage of Telus Digital's AI enablement. In health, operating revenues and adjusted EVGA grew by 13% and 10% respectively. The growth was attributed to the acquisition of workplace options, as well as our organic growth in payer and provider solutions, and with strong performance across all product lines. Moving to Telus Digital, operating revenues grew 3% for the quarter, supported by services in our T-Tech and health segments. as well as expansion with our external customers, notably in banking and financial services. This was partially offset by a reduction in volumes from certain technology and e-commerce clients. Well, Telus Digital's adjusted EBITDA declined 5% year over year. The margin of 13.7% improved 260 basis points as compared to the third quarter. The team continues to streamline operations through digital transformation and and further implementation of AI, particularly in CX delivery, as well as looking closely at geographical optimization. On our balance sheet, we continue to benefit from a strong free cash flow generation as we're executing a disciplined capital allocation and deleveraging strategy. In 2025, we've made meaningful progress strengthening our financial position and our net debt to EVTA leverage ratio declining to 3.4x as compared to 3.9 at the end of 2024. Position as well as we advance towards our leverage targets highlighted earlier today in 26 and 27. During the year, we completed several proactive initiatives to support this initiative. These include the issuance of our junior subordinated notes, as well as successful execution of multiple debt tenders that required $2.9 billion of outstanding debt securities. Notably, the $400 million of 5.375 fixed-to-float-rate junior-support-added notes represented the lowest hybrid notes issued in Canada telecom cable hybrid debt history. At year-end, our long-term debt carried an average maturity of approximately 14.7 years, and a weighted average cost of debt of 4.75%. Moving on to our financial outlook for 2026 guidance, which reinforces our commitment to delivering strong shareholder value, and it includes consolidated service revenue growth of 2% to 4%, consolidated adjusted EBITDA growth of 2% to 4%, consolidated capital expenditures of $2.3 billion, including real estate, or approximately 10% decrease, and consolidated free cash flow of approximately $2.45 billion, circa 10% growth. Our outlook for free cash flow is driven by higher EBITDA and moderating CapEx, stable impact from contract assets, offset by higher interest, and restructuring charges. A detailed list of our assumptions for 2026 are included in our annual MD&A release today. To conclude, our 2026 reinforces our commitment to strong delivery of our strong shareholder values. We are confident that our ability to deliver sustained profitable growth, supported by a robust asset mix, diversified business portfolio, and proven operational excellence. With that, back to you, Ian. Thank you, Doug. Carl, please proceed with questions from the queue.