Good morning, ladies and gentlemen. Welcome to the TELUS 2019 Q1 Earnings Conference Call. I'd like to introduce your speaker, Mr. Robert Mitchell. Please go ahead.

Hello, everyone. Thank you for joining the call today. The second quarter 2019 news release, quarterly report, and detailed supplemental information are posted on our Web site at telus.com/investors. On the call today, we have Darren Entwistle, President and CEO, who will provide opening comments. This will be followed by Josh Blair, Group President and Chief Corporate Officer, with an update on TELUS International. Doug French, our Executive Vice President and CFO will then conclude the prepared remarks with a review of our second quarter results. Following that, we will move to the question-and-answer session for usual. With that, let me direct your attention to slide two. This presentation and answers to questions contain forward-looking statements that are subject to risk and uncertainties, and are made based on certain assumptions. Accordingly, actual performance could differ from statements made today, so we ask that you do not place undue reliance on them. We also disclaim any obligation to update forward-looking statements, except as required by law. And we refer you to description of risk and assumptions in our second quarter MD&A and 2019 annual report. With that, let me turn the call over to you, Darren, starting on slide three.

Thanks, Robert, and good morning everyone. As you've seen today, TELUS reported second quarter results that reflect strong operational and financial performance, including healthy revenue and EBITDA expansion in both our wireless and wirelines product portfolios, in concert with robust customer growth across the business. These strong results combined with continued value-creating financials are anchored by our team's relentless focus on providing the best customer experience on our world-leading broadband networks. In the second quarter, consolidated operating revenue increased by 4.2%, while EBITDA was up 4.5%, or 9% before normalizing for IFRS16. Notably, the robust customer growth that we delivered in the quarter included 186,000 new wireless, Internet and TV net additions, as well as continued improvement in residential voice resulting in total RGU growth that was up 33% over the prior year. This was driven by a low combined churn rate of 1.05% in respect of wireless mobile phones, high-speed Internet and TV, inclusive of consistent industry-leading wireless churn and ongoing improvements in wireline royalty rates. Moreover, this result was fueled by the ongoing generational investments we are continuing to make in our globally-leading broadband networks. Notably, looking at total wireless and wireline customer growth over the last ten years, inclusive of wireless, Internet, and TV net additions, as well as residential voice, TELUS led the industry in nearly half of the 40 quarters while ranking second in 15 others. This is undeniably a clear demonstration of our consistent focus on profitable customer growth and the resulting significant value creation over the longer term, buttressed by the best customer experience in the industry on world leading networks. Turning now to wireless, we achieved solid growth in second quarter wireless revenue and EBITDA, which were up 2.8% and 5.1% respectively, with reported EBITDA, up to 8.6% before normalizing for IFRS16.…

Thanks, Darren, on our Investor Call last August, Darren provided enhanced disclosure on TELUS International. As promised, I'm pleased to provide a follow-up on TI's progress and our robust growth plan in 2019. And just the last 12 months, our TI team has grown by 6,000 to close to 36,000 team members across North America, Central America, Europe, and Asia. Today with the benefit of a strong leadership team, TI continues to be a global customer experience innovator partnering with many of the world's leading brands across the telecom and utilities, fast growing technology, games, healthcare and travel and hospitality verticals. Our solutions support our client's different stages of growth, and cover customer experience, digital transformation, IT lifecycle management, and digital support. It's also worth underscoring that since its inception 14 years ago, TI continues to be an important extension of TELUS as Darren covered. Notably, our international team truly embodies our caring culture, as well as the remarkable and consistent commitment to putting customers first. Complementing TELUS's global leadership and broadband network performance and an offering value to our clients, 2019 is shaping up to be an outstanding year for TI. Thanks to our exceptional team around the world and their successful efforts to both sign on a range of new clients, as well as onboard many of our existing clients on the newer solutions, such as robotic process automation and migrating applications to the cloud. As you may recall, last year, we had to digest two challenges; first, some downsizing by certain clients in response to unique challenges in their own businesses. And second initial dilution from our Voxpro and Xavient acquisitions. This year, I'm pleased to report that we expect TI to surpass total annual revenue of $1.3 billion driven by strong organic growth including revenue derived from TELUS and strengthened contributions by Voxpro and Xavient. Earnings performance this year is also strong and we're on track to achieve our year-end EBITDA margin target of above 20% on a post IFRS 16 basis and for sake of clarity IFRS 16 has added approximately five basis points of margin in the case of TELUS International. Given typical mid-single digit capital intensity with continued strong TI is well positioned to be a meaningful contributor to TELUS cash flow growth this year and in the years ahead. With that I will turn the call over to Doug to provide some additional color in respect of our second quarter results.

Thanks, Josh. Let's continue with an overview of our wireless results in Slide 10. External revenue increased by 2.8% driven by both network and equipment revenue growth. Network revenue increased 26 million or 1.7%, up sequentially by 30 basis points, reflecting 5.4% growth in our subscriber base over the past 12 months, partially offset but improving mobile phone ARPU as declining chargeable data usage was partially offset by growing monthly recurring charges from step-ups and higher rate plan additions and renewals. Wireless adjusted EBITDA increased by 8.6%, reflecting higher network revenue growth, lower network operating expenses, higher equipment margins and the implementation of IFRS 16. Adjusted EBITDA margin increased by 250 basis points to 46.3%. On a pro forma basis for IFRS 16, adjusted EBITDA increased by a strong 5.1%. On a pre-IFRS 15 basis, which reflects more on a cash contribution perspective, adjusted EBITDA was higher than 6% for the quarter and 7% on a year-to-date basis. Moving to slide 11, In wireline external revenue was up a strong 5.9% driven by organic data growth of 12% reflecting organic growth in TELUS International is, Josh, as highlighted, from expanded services to existing clients from and new clients. Increased Internet and enhanced data service revenues, reflecting higher revenue per customer as well as our 7.1% increase in our Internet subscriber base over the past 12 months. Increased TELUS Health revenues driven by expanded services to existing customers and new customer growth. Revenues from our home and business smart technology business lines including security and increased TV revenues reflecting subscriber growth of 7.1% over the past 12 months. Wireline adjusted EBITDA of 478 million increased by 10%, reflecting an increased margin contribution from TELUS International, Internet margins, higher health margins and the implementation of IFRS 16.Adjusted EBITDA margin increased by 80…

Thank you, Doug, Darren, and Josh. Mike, can you please proceed with questions from the queue?

Sure. So, next question comes from Drew McReynolds from RBC Capital Markets. Please go ahead.

Yes, thanks for taking my question. Just starting the big picture here, there's obviously been a lot of discussion around how relevant the U.S. experiences as a benchmark for Canada with respect to the unlimited plans and the IPs. Darren, your comments suggest Canada will certainly do better, but I would like to get your insight here, and somewhat of a related follow-up, four quarters ago you're pretty outspoken about the need for Canadian operators to shift the value drivers away from loading for the sake of loading and core price increases, and given what's happened since, but also like your view on where the industry is on this shift and how it's mitigating or could mitigate regulatory risk across the sector? Thank you.

Thanks, Drew. I want to let Doug touch on Canada versus the U.S., and then I'll make some comments with specificity as it relates to the Peace of Mind plans and where I see the industry going.

Great, thanks, Darren. I think that's a significantly different circumstance to the U.S. experience. I think there is a lot of the U.S. learnings that we definitely took into consideration, but as Darren pointed out, the amount of ARPU that is on overage now is reduced significantly. The double data bonus plans that have been in market, the larger buckets that have been in market and even family plans that have been in market for a significant time in the Canadian market has taken us almost to unlimited or Peace of Mind type plans already. And so, the impact on us is actually going to be -- you know, as we had talked about potential upside to our ARPU, and we're looking at that as the step-ups continue as Darren said would benefit to our expectations. In addition, family plans in Canada are not dilutive to ARPU, where in the U.S. when they're first launched they were at that stage. The second side of that on Easy Payment was when you look at the plans that have also been in place for a very long time in which a lot of it was initiated by TELUS to bring it back plans, the tab, and premium plus plans were already down the path of device financing. So again it's -- I think it's just an evolution of the path we're already on, and adds transparency and simplicity to our customer base, which allows us also to benefit from that, from a cost structure and a customer experience perspective. And so, I would say we are significantly better position than it was launched years ago in the U.S.

Thanks Drew for by bringing at the previous comments because they are important. I think as we look back on the last 20 years, one of the things that's been most punitive to TELUS in the industry hasn't been robust competition, it's been regulatory intervention, and I think with the launch of the Peace of Mind plans with device financing, we present a very interesting trade sector in Canada, and I will speak for TELUS, but I believe my comments are extensible to the industry. When you look at the Peace of Mind plans undeniably as it relates to price value and affordability, we stand tall within the global context in that regard. But it's not a situation that just ends with that parameter, where we compare favorably on value price and affordability. We lead the world when it comes to customer service excellence within our industry, and clearly as we have shown repetitiously, because of the per capita investments that we've been making in technology we also consistently lead the world when it comes to the performance of our networks, be they wireless and wireline. So I think we have significantly reduced the reasons for the government to intervene in our industry when you're delivering excellence on value and affordability, excellence on service, and excellence in terms of the performance and pervasiveness of your technology across the landscape, the necessity to intervene is significantly mitigated, and I think that bodes well for TELUS and the industry prospectively. Next, I just think the time has come for what we've done with the potent combination of the Peace of Mind endless data plans in combination with the family discounts and of course device financing in an arrow where devices are very expensive and the cost of those devices is outside the…

Now, thanks for the question…

Next question please, Mike.

Next question comes from Maher Yaghi from Desjardins Securities. Please go ahead.

Thanks for taking my question. Darren, I wanted to ask you a question regarding your discussion about ARPU, the path for ARPU, direction in upcoming quarters. As you said longer-term, medium-term you expect ARPU to be up, as you said more than 50% of the tankers of the new unlimited plans are increasing their spending. Can you discuss the trend over the short-term. When it comes to ARPU and overage is expected to be declining and offsetting that on the margin side, with the reduction in promotion, how do you see your margins behaving over the next few quarters, let's say over the next three, four quarters? And just to follow that is, do you believe that the industry can sustain the healthy profits or the margins that they have right now if these unlimited plans which create pressure on ARPU are not offset by the reduction in subsidies as some of your competitor, one of your competitors continue to offer subsidies on these plans?

I think the industry in terms of that last point will discipline itself and in that regard. Secondly, if that happens, I don't think it's going to be sustainable. I think the pressure will drive the right economic decisions within the industry. And thirdly it is an interesting to look at TELUS on a differentiated basis where we're not a one trick drove pony but that we have high performing businesses, both operationally and financially on both wireless and wireline and very, very, very interesting growth exposure on emerging businesses and TELUS International and TELUS Health. So I do think that this is going to be a situation where we see sustainable economic accretion and I do think that this is a future mode of operation that will be economically superior to the present mode of operation for the industry. I do think Maher that the early returns are interesting. I'm giving you hard data points as to what the early responses have been in terms of we had conservatively included within our business plan and expectation on step down re-rate and what we're seeing actually in terms of migrations is step up the higher data plans, our Family Discount construct is superior to the families share plans and so those things are going to be economically accretive not over the medium to longer term, but the immediate of now in terms of the trends that we're seeing and I caveat that by saying, it's still early days. We're only a few weeks into this and we got to see what happens when we pressure tested through the seasonal periods of back-to-school and Black Friday and the Christmas period. Secondly, in the world in $1,500 to $2,000 devices, we have to find a better subsidy absorption model and I like…

And maybe just a top up tiny EBITDA margin Maher for your modeling. Just remember as well that with some of that reductions in COA, COR going forward that takes a while to flow through with IFRS 15. So as you see, last year's amortization come through in your modeling out margin, I'll just take into consideration the IFRS 15 impact, impact versus the economic impact of the programs that we're initiating.

With the cash impact in also immediately, the last time I looked, the free cash flow story at TELUS is pretty compelling.

Thank you.

Mike, next question please.

All right. Next question comes from Simon Flannery from Morgan Stanley. Please go ahead.

Great, thanks very much. Darren on pure fiber in the past you've talked about some of the results you've seen in neighborhoods that have been open for a year or two year and just kind of signaling the potential as you continue to expand the footprint. So perhaps you could give us some more insight into that. And also as you hit 70%, how much further can you take the pure fiber into the neighborhoods versus maybe looking at 5G fixed wireless type solutions over time? Thanks.

Good question Simon. Thank you. With 5G, we're still going to take fiber into the neighborhoods, it just depends how far we going to take fiber into the neighborhoods, given the synergistic relationship between fiber and 5G that, as so very well. I think what you can expect is we're going to spend for the next couple of years the 2.85 billion zip code plus or minus 100 million that we've talked about previously. So that's what you can expect from us through 2019. In 2020, 2020 will look a lot like at the same fiber year that 2019 was I think the opportunities for access network diversification. From a technology point of view, leveraging 5G is something that's going to begin to kick-in in 2021 and beyond too critical prerequisites to that is getting access to the 3.5 GHz global ecosystem and the millimeter wave global ecosystem and of course the government has scheduled the 3.5 auction for 2020 and the millimeter wave auction for 2021. So, operationalizing 5G is a micro access technology. I think is something that's going to scale in 2022 and beyond. And the highly complementary to what we're doing in terms of our fiber penetration. In terms of how far we can take, it clearly we're going to hit the 70% mark or better by the end of 2019. As it relates to our Optik footprint we now surpassed the 2 million homes. I would see against that definitional contract, I was probably taking fiber up to the 80% level in that regard. And that's something where we're going to make smart economic decisions, we're going to choose the most attractive markets, in that regard, both in terms of addressable market opportunity penetration opportunities and cost of access and imposed 80% it's literally going…

Very helpful, thanks.

Mike, we're going to take time for two more questions.

Yes. Next question comes from Vince Valentini from TD - Sorry, Jeff Fan from Scotia Capital. Please go ahead.

Hi, good afternoon. One quick one on the DRIP and then just to follow up on the equipment financing, on the DRIP, with the move to a 2% discount what's your estimate of how much cash dividend do you think you may save as a result of this? That's the first question and then the second one just on the savings related to moving to a device financing. I mean I think we can all appreciate the impact and the value that can be created going from a $500 subsidy to a $100 economically, obviously very attractive. I guess looking at it from the consumers' perspective as a buyer even if you were to finance this past is a long overdue consumer. I mean this kind of works out to a 20% increase in the monthly payments for the customers. So I guess my question there is, is how do you think the take-up of this is going to be received, given the increase that the consumers would have to come up with on a monthly basis to subscribe to these plans? Thanks.

So on the first one on the DRIP, we've seen how it similar programs in the market-go anywhere from 20% to 25% to 30% of the dividend over time. So, it won't be overnight, but it's in place for a few quarters, so that's the range that we would expect.

In terms of value, I think, some interesting things when you look at rate plans, where you can get 10 gigs for $75, you can leverage attractive family discounts, on top of that and were you can finance the device over 36 months, that really supports the affordability thesis that we've been articulating.

Okay, thank you.

All right. And last question comes from Vince Valentini from TD Securities. Please go ahead.

Yeah, thanks very much. Sorry to ask about the same thing here, but just, Doug, I want to make sure I understand how these ZIP savings can flow through over the longer term as you say, does that mean your equipment margins will go up? Or is it some other cost line that has nothing to do with equipment revenue or cost that they can some it will come down if you can keep achieving $100 versus $500?

Yes, with IFRS 15 because you an essence take a two-year window to any kind of subsidy. The previous year's subsidy would flow through still continuously for the next year or two, even if your current spending goes down. So to Darren's point, the cash flow it improve, but the actual - it will be a catch up so called pre-IFRS margins and EBITDA returns would go up where post would stay lower until it cycles through. So, it's really that's the limitation in the modeling and will be some impact of that in the shorter term.

And I think, Vince, as well, if you could also look at our margin improvement at the corporate level, reflecting what Doug was talking about on wireless in our comments earlier with the opportunity for wireline margin accretion that has an attractive immediacy associated with it. We have two transient elements right now weighing on our wireline margins that are going to ameliorate prospectively. One is on the B2B front where we've seen EBITDA degradation on a year-over-year basis and we're looking to bring that back to EBITDA neutrality and then EBITDA growth. And then secondly within our fast growing TI area post the acquisition of two key assets in Xavient and Voxpro as those assets mature, we are going to see the average margin improved markedly within the TI organization, consistent with the comments that Josh made earlier. And when you couple that with the Internet growth the 12% data growth that I just talked about the fiber economics that I just talked about, including longer term copper decommissioning, our ability to bundle TELUS Health margins improving, getting nice margin contributions from smart home and smart business security as it relates to margin expansion there. And you saw our healthy loading in terms of incremental disclosure in Q2 as our wireline business improves it's cost structure from smart simplification. I think the opportunity of all of those things as a collective to bolster our wireline margins and be reflected at the corporate level at TELUS is an attractive growth story. And when you marry up those financials with what we've done at the half year on mobile phone, Internet and data Internet and TV loading. We delivered 143,000 nets on mobile, Internet and TV and that was up 41,000 on a year-over-year basis and it is a significant differentiator versus the performance of our peers. So I think the area of margin opportunity on wireline and strong operational execution of bode well for the future, both within wireline, but also in combination with wireless the wash through at the corporate level.

Thanks, Darren. And you actually I think predicted from my quick follow-up is going to be, but if I can just ask in one slightly different way. Your guidance for the year was 46% EBITDA growth pre any IFRS 16 impact. And I think you had to be indicating that somewhere in the lower end of that range for the wireline segment. And maybe the higher end for wireless but purely on the wireline segment you're plus 3.4 for the first-half of the year. So, is it safe to assume you still think low end of four to six as possible. So there may be a bit of a pickup because of a lot of those factors you just mentioned Darren in the growth rate in the second-half versus the first-half?

I wouldn't mind getting through, Vince the psychosis of Q3 and before we do any adjustments to our full-year guidance, and got to stick with the reaffirmation related to what Doug said. Where I would put some and that it that you can draw inference from as it relates to the confidence of this organization, I'm very confident in our operational and financial performance across both wireline and wireless. I think they will reflect the etiology inaction of amazing customer outcomes delivered by our amazing people on our amazing networks. And I think that that's going to deliver near medium and longer-term cash flow accretion that's going to be a very, very, very continue an exciting story for investors and it will underpin what we're going to do in terms of delivering on our dividend growth model, and I think the FCF expansion synergistic combination with the dividend growth model from 2019 through 2022 and hopefully beyond will be a very positive story on a differentiated basis for TELUS.

Thank you.

Thank you, Vince, and thank you everyone for taking the time to join us today. If you have any follow-up questions, please feel free to reach out to the IR team. And for those of you in Canada, we wish you a great long weekend.

Ladies and gentlemen, this concludes the TELUS 2019 Q2 earnings conference call. Thank you for your participation. And have a nice day.