TELUS Corporation

Good day, everyone. Welcome to the TELUS 2026 Q1 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 first quarter of 2026 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'll begin with remarks by Darren and Doug, For the Q&A portion, we will be joined by Daniel, 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 securities commissions in Canada and the United States, including our Q1 2026 and 2025 annual NDA. And with that, over to you, Darren. Thank you, Ian. Hello, everyone. In the first quarter of 2026, our team's unwavering commitment to operational excellence and cost efficiency has once again empowered TELUS to deliver industry-leading customer growth, stable profitability, and industry-best free cash flow growth of 19% on a comparable basis. These results were achieved within a dynamic operating environment reinforcing our disciplined approach to respond tactically to market conditions whilst preserving our premium TELUS brand value. This strategic focus reflects the enduring resiliency of our business and the compelling strength of our leading portfolio of bundled services nationally. Our mobile and fixed customer growth underscores the sustained demand for TELUS's premium offerings, underpinned by our world-leading broadband networks and customer service excellence. Notably, we achieved industry-leading customer growth of 262,000, demonstrating the compelling strength of our integrated mobile and home strategy in action. This result included 12,000 mobile phone net additions and 229,000 connected device net additions, a first quarter TELUS record and the second highest quarterly result ever. This was further supported by internet customer net additions of some 21,000. Together, this growth is powered by our world-leading pure fiber and 5G plus broadband networks, which continue to differentiate TELUS meaningfully from the competition. Our pure fiber network is a significant strategic asset, valued at approximately $20 billion based on comparable fiber infrastructure asset valuations in the United States. This valuation reflects the substantial capital invested in building Canada's most extensive fiber-to-the-home network, and underscores the competitive moat and long-term value creation of our broadband infrastructure. Indeed, Telus is the top fiber operator globally, with industry-leading penetration, product intensity, churn, and cost-to-serve performance parameters that set the benchmark for operational excellence. Our consistent strategy of leveraging our superior and growing portfolio of bundled products and services on a national basis creates compelling value for our customers. This was supported by our commitment to economic margin-accretive customer growth. This is once again evidenced by our ongoing industry-leading customer lifetime revenue, supported by our industry-best turn result, and continued improving our group performance. Indeed, as a result of our moderating ARPU decline, network revenue was higher by 1%, the second consecutive quarter of positive growth and modesty within the industry. This is a trend we intend to build upon throughout 2026 and well beyond. Our sustained focus on enhancing the customer experience, combined with the strength of our customer relationships and the value of our bundled solutions, provisions us well for an improving trajectory going forward. Let's turn to our unique and differentiated data-centric growth businesses. Teleself delivered another quarter of strong growth, achieving service revenue and adjusted EBITDA growth of 11%, fueled by strategic investments, continuous product innovation, and cost efficiencies across our global platforms. Notably, this marks our 15th straight quarter of double-digit adjusted EBITDA growth since acquiring LifeWorks in Q3 of 2022. This performance was bolstered by the $431 million in annualized LifeWorks synergies, overachieving our $427 million target and nearly three times our original $150 million commitment. Furthermore, When combined with TELUS Health's lower capital intensity, this business drives strong cash flow generation, serving as a strategic capital contributor to TELUS's overall capital allocation priorities. TELUS Health is now generating over $2 billion in annual revenue and is targeting EBITDA of over $400 million in 2026. By way of illustration, We are targeting more than $200 million of simple free cash flow in 2026 coming from Telus Health. The economic scale of Telus Health continues to grow, now covering nearly 170 million lives globally, further progressing our position as the world leader in workforce digital health solutions. Telus Health is capturing meaningful industry, technology, and societal tailwinds that position it for sustained growth. Our financial advisors continue to support our comprehensive review of strategic partnership opportunities for Teletel. As part of this process, we are looking to bring in strategic investors across key areas of the business. This includes, by way of example, retirement benefit solutions. As we look to accelerate growth, enhance capabilities, and unlock value within telehealth's attractive lines of business while maintaining our commitment to customers and market leadership. As we advance these aforementioned strategic partnerships, telehealth will concentrate its focus on strengthening still further its globally leading position across the workforce digital health and well-being market. In this regard, our employer health solutions platform remains the cornerstone of our TELUS Health Growth Strategy. Our goal here will be to drive penetration and cross-selling, deliver new product innovation, seize greater market share, expand geographically, and leverage full business digital AI transformation. And to do that, aided and abetted by TELUS Digital, and delivering sustainable value and value accretive growth along the way. This strategic review, which we foreshadowed a year ago and announced publicly in January, has generated significant interest from multiple parties, reflecting the strength and quality of our TELUS Health portfolio. Notably, we have received more than 75 inbound inquiries from interested parties prior to launching the official marketing process demonstrating the significant value and market appetite in our health assets. Furthermore, as part of this process, a confidential information memorandum is currently being distributed to qualified parties. And as you know well, proceeds from strategic partnerships will be deployed towards deleveraging supporting our path to augmented financial flexibility in the future. Another area of differentiated growth is TELUS Digital, the engine to TELUS's customer experience leadership for over the last two decades and the accelerator to our enterprise-wide AI and data capabilities. Indeed, TELUS Digital is uniquely positioned to provide TELUS and our clients complete end-to-end AI solutions, from AI transformations all the way through to the compute needs of our clients, with a special differentiating emphasis on world-leading CX AI transformation for the massive global market in customer care operations. At Telus Digital, we are especially encouraged by the Q1 growth in our legacy CX business, which we are transforming end-to-end by deploying our CX AI capabilities, which include our proprietary fuel platform and best-in-class third-party AI solutions. Indeed, our combination of existing CX relationships, deep client data, and world-class technical and AI capabilities, underpinned by TELUS as our living lab, creates a unique competitive position for TELUS Digital in the industry. The results? Well, they demonstrate that we're gaining meaningful traction with CX clients, enabling cross-promotion of our industry-leading AI solutions across TELUS. Furthermore, the strategic expansion of our AI capabilities is synergistic with the integration of Telus Digital, which continues to unlock meaningful operational efficiencies for us. Notably, annual cash synergies of approximately $150 million to $200 million is tracking well against plan, realizing annualized free cash flow synergies of approximately $115 million as at the end of the first quarter of 2026. With TELUS Digital operating at a modest capex intensity of approximately 4%, combined with the cash synergies realized by TELUS, we are driving strong cash flow generation for the benefit of our shareholders of $150 million per annum. Moreover, between these cash synergies and strong cash flow generation, The discounted payback period on privatizing Telus Digital will be realized in short order and shift thereafter to value accretion. In respect of commercializing the compute capabilities that Telus has been building, our sovereign AI factory in Rimouski, which launched in September of 2025 as Canada's first fully sovereign AI factory, is now sold out. validating strong market demand for sovereign AI infrastructure. Accordingly, we are expanding our compute inventory in Rimouski to meet continued demand, whilst our second facility in Kamloops, British Columbia, will be coming online in fairly short order. This new compute capacity will serve the growing ecosystem of businesses, researchers, entrepreneurs and startups, and government organizations seeking to innovate rapidly and leverage AI capabilities for training, models, or inference applications. We look forward to sharing an important update regarding our sovereign AI factories on Monday, May 11, which will further demonstrate our commitment and progress in advancing Canada's digital infrastructure and AI capabilities. Indeed, with these unique capabilities across the entire value chain of AI, we are creating prescient and meaningful new revenue streams for the TELUS organization and our portfolio of companies. As we bring together the power of TELUS, leveraging assets from TELUS Digital, TELUS Business Solutions, and TELUS Health, we are bringing end-to-end solutions for our clients, validating our integrated approach in this regard. Altogether, our AI enabling capabilities delivered strong double-digit revenue growth of 22% in the first quarter of 2026. This result? demonstrates the continued momentum of our AI-driven strategy as we progress towards our revenue target of circa $22 billion in 2028 across TELUS Digital and TELUS Business Solutions, including contributions from our sovereign AI factories. TELUS has well-developed world-class networks, data-centric growth assets, and customer experience leadership positions tell us to execute on our strategic priorities, including moderating capital expenditures and generating strong free cash flow of approximately $2.45 billion in 2026. An important component supporting this execution is the welcome stabilization in competitive dynamics, with a gradual retrenchment from the relentless pricing aggression that has certainly characterized recent years in our industry. This is complemented by an ongoing emphasis on cost efficiency as a way of life, leveraging digitization and further integration of AI across all areas of our business, stewarded by Telus Digital. This is further supported by our team's unwavering commitment to customer service excellence, positioning TELUS to deliver sustainable, value-accretive growth for years to come. As we move through 2026 and beyond, TELUS will progress its balance sheet strength as compared to our Canadian peers still further with an industry-leading net debt-to-EBITDA leverage ratio. This position reflects the most resilient financial and operational profile in the Canadian telecommunications industry, particularly since 2022, a period marked by significant competitive, regulatory, and macroeconomic headwinds. Driving our performance is a disciplined approach to financial management supported by compelling business fundamentals and significant free cash flow generation. Our confidence in delivering free cash flow growth at a minimum 10% compounded annual growth rate through 2028 reflects our strong financial momentum. Our comprehensive deleveraging strategy is moving ahead of plan and expected to reach circa 3.3 times or lower by the end of 2026. and three times or better by the end of 2027, years ahead of our peers. In 2026, our team is advancing monetization opportunities, including the accelerated monetization of real estate and copper assets. This monetization program is being enabled by our Pure Fiber bill, which at the same time is making our real estate, including our central offices, redundant. Indeed, and importantly, 77% of our pure fiber bills will be self-funded by the real estate and copper assets that we are monetizing. Notably, our copper to fiber transition is generating substantial real estate opportunities with a portfolio of 70 sites representing some $4 billion in total value and including $600 million from commercial assets. These 70 sites, which represent nearly 10,000 homes, will drive future customer growth through exclusive TELUS products and services, while positioning us as the first telco globally to scale real estate value from owned network assets, addressing housing needs in our communities. These efforts will be buttressed by operational growth, including EBITDA and robust free cash flow expansion, supported by moderating capital expenditures, and an industry-leading CapEx intensity ratio trending from 12% towards circa 10%, which of course would represent an industry fast. Telus is already at where others strive to be, given our early start and proficient fiber build and preemptive OpEx improvements from sequential staff level reduction programs implemented presciently a couple of years ago. Notably, we are achieving this industry low CapEx intensity while maintaining world-leading broadband connectivity and continuing to invest meaningfully in Canada's digital infrastructure, demonstrating the operational efficiency of our network strategy in action. As part of our capital allocation framework, we continue to maintain our dividend at the current level. Additionally, in the first quarter, we reduced our drift discount to 1.75% from 2%. Further reductions are planned through 2026 and into 2027, with the full removal taking effect by the end of 2027. if not better, given our monetization programs. Importantly, in this regard, we continue to assess both an accelerated deleveraging and an expedited de-drift step-down in conjunction with the execution of our monetization program targeting $7 billion of assets, inclusive of the near-term telehealth monetization opportunities. Myself and the leadership team remain confident that the TELUS organization prospectively will provide clarity in respect of TELUS's capital allocation priorities based on what is best for TELUS and our shareholders, including our employees who collectively represent our third largest shareholder group. One way or the other, I'm sure TELUS's future will be underpinned by the strong operational and financial execution TELUS has long been known for and the lucrative capital allocation associated with such. Replacing on our team's longstanding belief in the synergistic relationship between doing well in business and doing good in our global communities, since 2000, TELUS has contributed $1.85 billion dollars including two and a half million days of volunteerism more than any other company in the world. This is supported by our annual telethase of giving event in 35 countries around the globe. For 20 years, our annual days of giving events have been a powerful and authentic demonstration of our team's unparalleled legacy of giving being put into action. In closing, I would like to express my gratitude to our global team for their efforts and expertise in executing on our winning strategy to meet our commitment to all stakeholders. Your dedication to operational execution and customer service excellence and community impact continues to set TELUS apart and positions us for sustained success. Before I conclude my remarks, I would like to extend my sincere gratitude to Doug French, Uncle Doug as he's known here, who, as you would now have well heard, is retiring at the end of June. Doug has had, without a doubt, a truly extraordinary career at Tullis, and I'm a huge admirer. I feel exceedingly fortunate to have had the opportunity to work alongside him for 26 of his 30 years at TELUS. The people on this call know very well Doug is one of North America's most respected and experienced CFOs. Throughout his story tenure, Doug has demonstrated an outstanding ability to support TELUS in generating leading results, excellence in balance sheet and cash management, alongside world-best shareholder value creation. Doug is also the living embodiment of our social purpose thesis in action in terms of the way he gives back to our communities and makes such a meaningful difference. Doug leaves behind him an extremely impressive legacy of success. He is undoubtedly, truly, one of a kind, both as a professional and as a human being. I'd also like to congratulate Gopi Chandi on being named TELUS's new CFO, which will take effect on the 1st of July. Gopi has considerable CFO experience with TELUS Digital, as well as nearly three decades of strategic financial leadership, and she'll be a great partner for Victor, and ensuring that both Victor and our entire leadership team have a strong continuity of financial leadership and the financial excellence and the business results that that drives. So, to my phenomenal partner, the best partner that I've ever had the opportunity to work with, I'll hand over one last time and just again express my gratitude that I had the opportunity to take our 78 years of combined telecommunications experience between the two of us and put it to work fruitfully for investors, for customers, for team members, and our communities.

Over to you, Uncle Doug. Thank you, Darren. It's been an amazing journey. I'm incredibly proud of our results that we've built together. I have confidence in the leadership team to take our organization into the future. It's been a real honor. Darren, I'd also like to thank you for everything you've done for our customers, our team, our communities, and our investors over the past 26 years. You've evolved TELUS from a regional telecom to a national telecom company and a global powerhouse spanning health, agricultural, digital, and will benefit our stakeholders around the world for many years to come. Here you are 104 IR calls later. You've certainly created an amazing legacy. On behalf of the Telus team, congratulations on your well-deserved retirement. I hope the next call we make together will be whether to use a 7-iron or an 8-iron as we dump a hole-in-one. Now turning to results. First quarter results illustrate our team's discipline with focus and operational execution and vigorous cost management. On a consolidated basis, service revenue increased by 1% year-over-year and adjusted EBITDA was stable. These results were supported by continued strong performance of TELUS Health and consistent execution of T-TECH and TELUS Digital, demonstrating the resilience of our diversified business portfolio and a dynamic and ever-changing telecom market. During the first quarter, our response to competitive dynamics continued to focus on preserving our premium TELUS grants. Our consistent strategy and discipline are evident in our financial results, delivering on continued positive network revenue growth of 1%, while ARPU demonstrated continued sequential improvement. Our strategy is built on a proven thesis of bundling mobile and home, driving lower churn, higher revenue for households through internet and wireless, and further differentiated service offerings. As we progress through the year, our team will continue to execute maintaining a strategy that differentiates us from our competitors and protects long-term wireless industry health. In fixed, you will note our disclosure. We are no longer reporting on TV security and automation and residential subscribers and have removed them from the reported subscriber base. This change underscores our focus on product intensity, reflecting our core business thesis of mobility and internet, complemented by a suite of additional products and services that will add value to our customers. Overall, this update reinforces our focus on economically accretive growth, supporting our efforts to drive profitability and cash flow. Fixed data service revenue for the first quarter increased 1%, driven by continued residential internet subscriber base, and revenue per customer growth within fixed. In business, fixed data continued to reflect revenue variability with customer contract changes partially offset by continued growth in small and medium business. Overall, T-TECH adjusted EVTA was stable, while adjusted EVTA margin expanded 80 basis points to 44.4%. This is a reflection of our cost efficiency programs, synergies achieved from privatization of Telus Digital, along with our AI enablement. In health, operating revenue and adjusted EBITDA each grew 11%. The growth captures benefits from global business acquisitions, notably WTO, and in May of last year, an organic growth in payer and provider solutions. At the same time, profitability and health reflects our realization of integration synergies as the migration of customers to the workplace options platform continues. For TELUS Digital, I'll remind you that our results reflect the updated segment reporting to align with operational realignment of TELUS Digital following TELUS's privatization of the business. TELUS Digital segment operating revenues were lower to start the year, reflecting an overall unfavorable foreign exchange impact and lower volumes from certain tech clients. However, in U.S. dollars and including the intersegment revenue, Palace Digital's revenue grew by 3%. We are seeing increases in service revenues from clients across their digital solutions and customer experience management service lines. At the same time, Palace Digital's segments adjusted EBITDA increased 2% year-over-year, with the margin expanding by 20 basis points to 10%, reflecting operational expense efficiencies. The team will continue to drive further efficiencies through business simplification and AI enablement as we progress through the year, with the expectation of both revenue and EBITDA improving in the second half. Our net debt give and take ratio as of March 31st was 3.5 as compared to 3.9 at the same time last year. Telus leverage remains the lowest of our national peers. We remain highly confident in delivering on our leverage goals of 3.3 or lower by the end of 2026 and 3.0 or better by the end of 2027. Supporting these efforts is strong free cash flow generation. In the first quarter, We deliver cash from operations of more than $1 billion and industry-leading free cash flow on a comparative basis of $583 million, increasing 19% year-over-year. This underscores our solid financial foundation as we look to achieve our objectives established with our investors. Importantly, we are delivering on all our commitments we set out. If this includes deleveraging and moderating capex intensity, stepping down on the discount on the D-DRIP, and executing on our asset monetization program. Regarding our targets, we are striving to be within the mid to lower end of our consolidated service revenue and adjust to the VA range. As economic and market conditions improve, we anticipate seeing more accretive growth supplemented by efficiency and effectiveness in the second half. As we navigate through the competitive environment, our focus remains on generating free cash flow, affirming our target of $2.45 billion for 2026, supported by EBITDA growth, CapEx intensity moderation, and ongoing efficiency and synergy realization. With our free cash flow growth target, a minimum 10% compounded annual growth through 2028, Combined with our portfolio of asset monetization opportunities, we are on solid footing to support our capital allocation plan and deleveraging targets. Ian, back to you. Thank you, Doug.