Good day. Welcome to the TELUS 2024 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 2024 results, news release, MD&A and financial statements, and detailed supplemental investor information were posted to our website earlier this morning. On our call today, we'll begin with remarks by Darren and Doug. For the Q&A portion, we will be joined by other members of our 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 are based and the material risks that could cause them to differ are outlined in our public filings with Securities Commissions in Canada and U.S., including second quarter 2024 and annual 2023 MD&A. With that, over to you Darren.

Thank you, Ringo, and hello, everyone. In the second quarter, our team built upon our track record of execution excellence to drive industry-leading customer growth and strong financial results, leveraging our premier portfolio of assets, coupled with our relentless pursuit to drive cost efficiency and effectiveness. Our results clearly demonstrate how we are delivering sustainable, profitable growth, underpinned by our consistent strategic focus on margin-accretive customer expansion, our globally leading broadband networks, and of course, our customer-centric culture. This enabled a record second quarter with total customer net additions of 332,000, up 13% on a year-over-year basis. This included healthy mobile phone net additions and record second quarter customer growth for both connected devices and total fixed net additions. Our team's passion for delivering customer service excellence once again contributed to leading loyalty results across our key product lines. Notably, postpaid mobile phone churn was again below 1% alongside PureFibre churn of circa 1%. This showcases the consistent potency of our unmatched bundled product offerings across Mobile and Home, and our leading customer experience over our industry best PureFibre and wireless broadband networks. For the second quarter, TELUS achieved resilient EBITDA growth of 5.6%, and margin expansion of 170 basis points. These results reflect the progression of our ongoing transformational efficiency programs that are clearly bearing fruit. Let's turn now and take a look at our TTech mobile results. TELUS realized second quarter customer growth of 262,000 net additions, our strongest second quarter on record. This included robust mobile phone net additions of 101,000, driven alongside our continued focus on profitable margin accretive customer growth. Indeed, we are doubling down on our disciplined focus on profitability as we progress through the remainder of 2024 and beyond. Our efforts will ensure our mobile customer growth drives sustainable EBITDA and cash flow…

Thank you, Darren, and hello, everyone. Mobile Phone and Connected Device subscriber additions drove network revenue growth of 0.9%, partially offset by lower Mobile Phone ARPU, which declined by 3.4%. The ARPU reflects the ongoing impact from the competitive pricing environment with customers optimizing the rate plans, as well as declining contribution from overage and roaming. This is partially offset by higher IoT revenue. As we progress through the back half of the year, we expect the highly competitive environment to continue. Importantly, we continue our intense focus on AMPU and bundling to drive the right economic outcomes. This is supported by our continued focus to drive lower cost to serve, as well as leverage our significant digital capabilities. This is further bolstered by TELUS Digital, the key enabler to our customer experience leadership. Our significant and ongoing focus on cost efficiency is helping us offset the top-line competitive pricing pressures, allowing us to invest in new product development that will support sustainable EBITDA growth and margin accretion. Fixed data services revenue grew by 1% year-over-year, driven by strong customer net additions of 78,000 across Internet security and TV, as well as B2B growth, including cybersecurity and cloud services. Despite the competitive landscape, the solid growth demonstrates our superiority of our PureFibre network and growing product intensity. Internet ARPU in the quarter was stable due to our successful base management, while our TV revenue for household was lower as customers continue to evolve their entertainment packages along with technological substitution. This includes positive growth from the continued strong adoption of our Stream+ offering, featuring a bundle of leading OTT content made available nationally through TELUS and Koodo. At the segment level, TTech operating revenues were up 0.5% driven by mobile network and fixed data services, as well as positive health…

Thanks, Doug. Carl, we're ready for questions, please.

Certainly, sir. The first question is from Vince Valentini from TD Securities. Please go ahead, Vince.

Yes. Thanks very much. I'm going to try to sneak in two. One, you talk about record sub-adds, and it just isn't translating into much revenue growth. In fact, your fixed data revenue was lower in the second quarter than the first quarter by CAD1 million, despite net subs being up 70,000. So, wondering if you can talk a little bit about, are you happy with this? Does there need to be a bit more of a balance between pricing and volume in your mind? Are you looking to try to take advantage of higher pricing in any areas in the next few months to try to get that revenue growth up? And second, I'm sure you'll get this from others in a different way, but given what we've seen at TELUS International or TELUS Digital today, does this make it more likely that you need to consider privatizing that company or is that on your radar as the share price and valuation gets lower, given that you still seem positive on the long-term outlook there? Thanks.

Okay. I'll let Zainul kick off the first part of the question, Vince, and let Doug maybe provide any editorializing that he would like to do on that, and then I'll answer the second part. Zainul, over to you.

Thank you, Darren. Thanks, Vince, for the question. I think to be clear in terms of suggesting, are we satisfied with this performance? The clear answer to that would be no. We are not satisfied with the level of performance we've seen in this very competitive environment. I think one of the things that is very clear to us though is that we have and will always be focused on economic and profitable loading at the household level. You can see that in terms of many characteristics of our performance. Our Mobile and Home additions have increased significantly year-over-year. Our product intensity on a per household basis for fiber households is over 3.2 now, which is significant. And we are consistently driving cost reduction in a very competitively intense environment. So, we've seen about a 6% year-over-year cost to serve improvement just in the consumer business. That said, we're leaning into our product roadmap. Darren highlighted a number of elements of our product roadmap, to continue driving intensity, to drive new revenue streams that our competitors are differentiated from. And we are going to continue to find levers to improve our AMPU performance. And continue driving better overall retention outcomes in doing so. We're a company that has always been focused on ensuring that we support the retention of our customers and drive overall customer lifetime value at the household level. This competitive dynamic is not one that we created. And it is one that we are going to continue to persevere through with those levers as stated.

I think maybe just a quick top-up. I think our Internet ARPU as I highlighted was flat quarter-over-quarter. So, again, managing the value prop that that brings and with the EBITDA growth at 5.1%, I think it reinforces Zainul's comment on our focus on AMPU and generating economic value.

Well, the second part of the question, Vince, whilst we obviously have a fiduciary obligation to keep all of our options open, explicitly, it is not our intention to privatize TELUS Digital. We still believe in the assets that we have and the potential in terms of the value that they can generate going forward. And how well they are positioned to leverage developments that are taking place in the industry at the data, data analytics, and AI, from legacy to GenAI basis. I think you can draw inference from the structure that we have put in place. This is not going to be the long-term structure for TELUS Digital, but it is the right structure for right now. And I think this structure is going to be excellent in driving the recovery and growth program over the next 18 months. And you can expect tremendous consistency in that regard. The other attribute of the structure that I think is good for investors to focus on is that it provides an explicit focus and accountability on the two major components of our business, which of course is driving the considerable potential as it relates to Digital, AI for which we are very well positioned and Tobias has that remit. And then of course the other area is driving remediation, growth, and digital transformation in the CX part of our business and leveraging the TELUS case study in that regard along the way. And Jason's credentials to do that given what he's delivered at the TELUS organization are second to none. Both Tobias and Jason know each other very well. So, I would expect this to be a very strong partnership between the two. And both of them are smack dab in their areas of expertise where they've got a proven track record, credentials, and experience to deliver on the objectives that we have here and drive that recovery and growth program extremely successfully. And I've got a lot of confidence that we're going to do exactly that.

Thanks, Vince. Carl, next question, please.

The next question is from Drew McReynolds from RBC. Please go ahead, Drew.

Yes. Thanks very much. And I'll try and squeeze into myself. First, a clarification just to make sure I'm looking at it the right way. With wireless ARPU and I will get in my second one to network revenue with growth, which is kind of the more important KPI. But on wireless ARPU, you're down 3.4%, but you've restated last year's, and if you were to do an apples-to-apples comparison with Rogers or BCE, they'd be down kind of 1.5% to maybe 3%, respectively. I just want to confirm, I guess with you, Doug, that that's the right way to look at it in terms of how you're reporting.

Absolutely, that's the right way to look at it.

Okay. And then just shifting more important to network revenue growth. In the prepared remarks, you know, your commentary on IoT and that kind of bucket of revenues beginning or continuing to build, just -- can you help us just understand the relative size or contribution of that bucket? I think everybody's assumption here is on the B2C side. Within wireless, there'll continue to be some kind of pressure or commoditization. So just wondering how that mix kind of flows through looking into next year and the extent to which you can kind of rebuild the 1% network revenue growth that you're currently generating. Thank you.

And I think maybe we'll hand that to Zainul again on some of the ARPU initiatives. Maybe one thing leading to the ARPU trajectory and the profitability that we talked about on the 5.1%. If you think through confirming the bottom end of our guidance, whether it means to our growth rates as well in the back half of the year, as our growth rates will continue to accelerate above 6% for the next six months. And again, that is leveraging all the tools that Zainul was talking about in addition to our efficiency, effectiveness, and our growth engines of health and ag as Darren highlighted in his presentation. So leveraging all the tools in our toolkit. Zainul, you want to top up?

Yes, sure. I mean, I think fundamentally. there are a number of ARPU initiatives that we're going to continue to drive. And you know, you've seen us create premium capabilities and bundled capabilities across our brands. We have a differentiated suite of brands that we're leaning into more effectively that help us compete in underpenetrated segments in some areas and help us drive premium capabilities in other segments. And we've really led on that. We're leaning into our entertainment and our smart home and other differentiation to continue driving that premium opportunity. And of course, there's a general block and tackle in terms of the level at which we have to drive improved ARPU performance and drive that relationship between customer renewal and churn performance, along with managing the very challenging device and promotional subsidies in our market. So we're going to continue to lean into the brand differentiation and the product differentiation that we have. I think the other thing to highlight is that we've always been focused on economic loading and on household ARPU. And we've talked about the fact that we should transition to household ARPU over time as the most meaningful metric, and we're going to focus on economics and profitable growth across our brands. You know, I think you've seen strong performance from an EBITDA perspective, and we're going to continue to drive that performance over time.

Thank you very much.

Thanks, Drew. Next question, please, Carl.

The next question is from Jerome Dubreuil from Desjardins. Please go ahead.

Hi. Thanks for taking my questions. First one, the release from TELUS Digital is saying that the company is pivoting its focus to revenue growth. That's what a lot of tech investors are after. But historically, telecom investors have talked maybe more about free cash flow growth. Obviously, you're still getting a lot of free cash flow growth, and both revenue and free cash flow growth are good to see, but I'm trying to reconcile if the telecom and tech objectives are aligned at this point.

Jeff, do you want to take that question and talk about both what we want to achieve prospectively on EBITDA growth driven by top line revenue and where you see the major opportunities prospectively in that regard as we overcome the challenges, and then maybe speak to the free cash flow potency of the business and the consistency on that front with the very low level of CapEx intensity?

Certainly, Darren. And thank you, Jerome. We absolutely believe that the revenue growth potential of TELUS Digital is just at early days and we have not executed as well as we should have or could have. And you will have seen and heard from me and the team earlier today, a more detailed discussion on the efforts underway to try and get back to achieving that level of growth that we believe is possible given the asset mix that we enjoy today, particularly around not just a legacy of customer experience excellence, but particularly around technology-enabled Gen-AI enabled capabilities. The upside opportunity for this business we believe is significant, and we just need to do a better job of marshaling these resources and leveraging these assets to achieve high single-digit revenue growth potential. Along the way the legacy pedigree heritage of the TELUS family in focusing on profitable growth has informed our approach to the market. And I think a few years ago we were able to enjoy outsized margin yield because of our superior and differentiated service level performance. The appetite for customer changing to more and better for less has really forced us to revisit that profile only in the near term. And we absolutely expect that that will improve in the months -- years ahead as we continue to demonstrate the capabilities of helping our customers themselves to do more and better with less leveraging our support. Along the way, you will have seen that the focus on cash flow yield at 15% year-over-year -- year-to-date has, I think, continued to distinguish us and that has enabled us to continue to reinvest in the business to ensure that we can get back to that level of growth and profitability that we've enjoyed historically.

Thank you.

Thanks, Jerome. Carl, next question, please.

The next question is from Stephanie Price from CIBC. Please go ahead, Stephanie.

Good afternoon. Congratulations on the revenue and EBITDA growth at TELUS Health in the quarter. Just wanted to focus in on the growth businesses. I'm curious if you still envision a monetization event for TELUS Health in kind of the near to mid-term, and how you think about the growth businesses or if you're thinking about the growth business has this changed from what we've seen with TELUS Digital?

All right. I'll take this one. The short answer to your question is yes, we still do envisage a monetization opportunity that relates to our emerging businesses, where I would say TELUS Health is in the leading position in that regard. I would be more medium-term than near-term in terms of its orientation. The manifestation of that monetization may be something that is synonymous with what we did historically back in 2016 and thereafter on the IPO front with TELUS Digital. So it's not just looking at going public, but also looking at partnership opportunities along the way. But we are very clear in terms of things like a pre-IPO checklist that we have to earn our way to that monetization event through the organic performance of the business because we have to have that strong organic performance delivered on a consistent basis to support the premium valuation because it's not about the repatriation of money, but it's a monetization event to establish a transaction currency so that we can expand the addressable market of inorganic opportunities to complement what we're earning in terms of the organic performance of that business. I think it's encouraging to see this quarter the improved performance of TELUS Health. We've experienced some macroeconomic impacts within that business, but clearly, the business is on the right track with the return to mid-single-digit revenue growth and an EBITDA contribution of north of 30%, which has been the case now for well over a year on a quarter to quarter-to-quarter basis. And the quality of the contribution within TELUS Health I think is indicative. Within my remarks, I made the comment that the performance is not coming from a single product or agency within TELUS Health, but across the totality of the business asset mix that we…

Thank you.

Thanks, Stephanie. Next question, please.

The next question is from Tim Casey from BMO. Please go ahead, Tim.

Yes, thanks. Good afternoon. A couple for me. One, Doug, can you just clarify Darren's comments with respect to an EBITDA contribution of 30% from TELUS Health? Is that an EBITDA margin we're talking about, or is that a contribution to growth? And then second one is on the fixed data line metric. It was a little under 3% in the first quarter, down to 1% in the second quarter. How should we think about that in the back half of the year? Just wondering if there's any price increases we should think about? Or is it more going to be in the 1% area for the back half of the year? Thank you.

I'll answer the question and clarify my own comment, and then Doug can clarify my clarification if he wants. No, it's not a margin number. It's a growth number. I referenced it in my opening remarks at 33%, and I rounded it to 30% in the Q&A that just took place. That's a EBITDA contribution number and it reflects year-over-year growth in terms of TELUS Health profitability. The other element of it that I alluded to but to give you greater specificity. From the 11% EBITDA contribution that we achieved in Q2 of 2023 on a year-over-year basis, since that particular juncture in every quarter that has followed right through to now Q2 of 2024, we've been in the 11% to 20% to now 30% EBITDA contribution coming on the TELUS Health side. The preponderance of that, obviously, given my synergy comment is coming from the cost synergies that we're realizing. But now in Q2 of 2024, we're starting to see the increased contribution at the EBITDA level coming from profitable revenue growth.

Thank you.

And maybe just a quick thought about health margins we've talked about from EBITDA margin are still below 20% with the opportunity that we desire to get them well above 20% as Darren highlighted with some of the soft services, cost reductions and complementary bundling. So there's still room to go significantly on margin enhancement on that end. And on fixed data, we haven't given forward-looking on the component side. That being said, obviously, there's been some give and takes within that number, but focusing on margins really what matters. So within that item, I highlighted that TV revenue was actually down, yet the margin on TV we would be managing through the different programs we're offering, including the national call it light program that Zainul referred to. And so I think there's a lot of give and take in there. Highlighted our ARPU on the Internet remains flat so that the growth coming from that would be obviously positive growth and business is also included in that number as their business component. So I'll just say -- our objective is we are to take it back up and continue the growth on -- well above the one, but I think there will be some give and takes along the way depending on product set, and however, though focusing on margin and AMPU.

Thank you.

And maybe just to top up. Sorry. I wanted to highlight we're going to -- we've shown and demonstrated that we lean into product superiority and differentiation. So you would have seen us drive the 5 gig program for Internet in the last week. We've seen actually -- to Doug's point on the ARPU front, we've seen even in a very competitive and highly pressurized environment, both with respect to competition and Canadians driving their desire to reduce costs and lean into affordability, that our step-ups on Internet have been very strong as well. And there are some downgrades, of course, but at the same time, we have a healthy volume of step-up opportunity, and we also have some areas where we are quite under-penetrated than where we would like to be in our fiber footprint. And we've demonstrated success and strength in driving growth and subscriber growth in those areas. So we're going to continue to lean into that in terms of ensuring that our fixed data continues positive momentum.

Thanks, Tim. Carl, we have time for two more questions, please.

Certainly. The next question is from Maher Yaghi from Scotiabank. Please go ahead.

Great. Thank you for taking my question. And I wanted to just -- I'm sorry because I have to ask this question. I mean, when we look at the fixed data, you have a very low video component in there compared to cable companies in Canada, and the growth rate, I would have thought, you know, given that split, you would show higher growth than other, you know, cable companies. And obviously, we're seeing re-pricing in your base. You also talk about in your MD&A that you're seeing repricing in your securities business -- security business. Can you discuss how much of the re-pricing we've seen already and how much is left before we re-price the base on the security on some of the video components and maybe the broadband side? I'm just trying to figure out how much more pressure should we expect before we see the growth again. And the second question I had is on wireless, and public mobile offering 5G, is that a -- when you think about the value and the benefit on the subscriber loading on public mobile, and is there an opportunity maybe to price 5G services at a premium than 4G and then continuing to offer it as is right now? Thank you.

Thank you. That's a great question. Really like that one. Zainul, why don't you take a shot at answering that? Really like that question.

Yes, I know you do. So the answer on the public side is yes. I think the key thing is that we haven't been satisfied with the roadmap of capabilities we have on public. It's got a digital-first capability. We like the customer base that it's attracting and we like the positioning of the improvement in ARPU relative to where that brand had sat before. But there is absolute upside in differentiation and we're going to drive that with some unique channel and roadmap strategy. So still to come on that, not satisfied. I think on the fixed side, what I would say is that I can't -- we can't predict the competitive environment. We're going to take a long-term view, as I highlighted in terms of household economics and household customer lifetime value, but where we're going to lean in both on the two areas that you highlighted with respect to entertainment and security is counter the cord-shaving behavior that we're seeing from our customer base with differentiated products and services. So as customers are continuing to cord shave some of their linear products and services on the entertainment side, we're continuing to lean into OTT and becoming a real leader in our integration of OTT and linear, and giving customers different kinds of video and value bundles, which we can only do because we've built our own platform to do so. So we're going to continue to drive the outcomes based on differentiating value in a way that's meaningful to customers, and I would say that we're just on the cusp in both entertainment and security of being able to realize that upside. But we can't control sort of what the competitive dynamic will bring. We want to be immune to it.

I think also importantly, just to take people up to the top floor again, as it relates to absorbing re-rate on fixed and mobile, we're postulating a H2 in terms of our guidance that sees us at 6% profitability at an EBITDA level, or better absorbing the re-rate along the way. And so as that re-rate moderates and that pressure reduces the profitability upside for our organization is extremely attractive. And it's also complemented by something else that keeps getting left off the discussion. A CapEx intensity measure that is 13% today, drifting to the low end on the double-digit side of things on the 10% zone. So in terms of both absorption of re-rate, working our way through that challenges, leveraging in the future the profitable asset mix that we have aided and embedded by new products coming online that shouldn't experience the same degree of profit or price rather commoditization, because they are completely differentiated from the product portfolio of our competitors. And to complement that with a lowered level of CapEx intensity, that seems to bode well for a sustainable free cash flow story.

Thank you.

Thanks, Maher. Carl, we'll take our last question, please.

Last question is from Simon Flannery from Morgan Stanley. Please go ahead, Simon.

Great. Thank you very much. Doug, I wonder if you could expand a little bit on the copper retirement opportunity, a sense, I think you mentioned 18 markets, but what sort percentage are we through this? And I don't know if you can put some parameters around the financial benefits of that. From that you talked about freeing up real estate, but what are your latest findings in terms of OpEx savings, maintenance savings, and the overall impact on the business?

Maybe I'll kick it off, Simon, and I'll hand it over to Doug. In terms of the program, as we're de-commissioning a quarter of a million copper lines on the rump, and we would expect to have by the end of this year so over the next few months, 36 central offices that have been de-commissioned, which I think would put us in a global leadership position in that regard. In terms of the economics of it, we -- on the copper front, we see the gross opportunity here of being upwards of a billion dollars and at net level, somewhere between CAD400 million and CAD500 million on that front. And the real-estate opportunity that accompanies it, that Doug can speak to in terms of our long term recurring strategy and the opportunity there. In terms of the performance of our business as we go from a heterogeneous network environment with fiber and copper to a pure play fiber, maybe complemented by fixed wireless access. the opportunity on this front is huge. And we see cost reductions in the range of 25% to 30% on cost to serve. And these are now hard numbers. They're not speculations because we've been at this for well over a decade. We see churn improvement in the zone of 20% to 25%. We see the average revenue per household going up by roughly 15%. We see the products per household or product intensity banging away right now at 3.3%, up from what was the low twos. Historically on the copper front, which is extremely attractive. It allows us to be much more efficient with our field force. When you've got a level of two-third reductions in truck rules, you've got quite the story, from cost efficiency to reducing your environmental footprint. And those will be huge benefits for us in terms of positioning us for the future economically, allowing us to do everything from on the hygiene front, absorb re-rate from competitive activity. But the cost of launching new products when you've got fiber ubiquity on top of all the comments that I've just made, everything going forward is now soft provisioning. So you can soft provision a customer from an install basis, you can change their products and their value proposition on a virtual basis, or you can let the customer do it themselves along the way. And then lastly, the economy's a scope, given the limitless bandwidth opportunities on fiber, a second to none, which improves the economics on an accretive basis for every new product that you bring to market along the way. And so I think it's a very attractive composition of benefits and maybe Doug can top up on that and then maybe make a specific comment in terms of monetizing the real-estate opportunity.

Yes. So the exciting part about this, as you're well aware, is that it's the gift that keeps on giving. So, you know, where we build an asset with over six year life so monetizing it isn't for the short term and it's a superior asset to our competitors' offerings. And you heard all the operational benefits that Darren highlighted. On copper decommissioning specifically, of the 100% that Darren referred to at the billion level on gross were low single digits by the end of 2024. So well below 5% monetized so the significant upside over the next two to five years. We then started moving into land monetization, where we're putting the land into partnerships with development opportunities, where we put in the land and the developer would put in cash to get the projects off the ground. And so you're seeing land opportunities now moving into permitting and development. And as Darren highlighted, we're up to the -- well over 30 now of those that have been decommissioned in opportunities. We were building on collectively three to four as we speak, and 15 are in permitting. And so we expect to have by 2026, over 250 homes available for rental through Nanaimo and Seashell. We'll have over 1,500 in the next three to five years, and we have a commercial building that's launching in the fall of 2024. So to the development opportunity, there's multiple layers and these aren't one time. So you're going to see these kind of benefits coming through from us for the years to come and continuing then to build on that momentum.

Great. Thanks a lot.

Thanks, Simon. And thank you, everyone, for joining us today. And please feel free to reach out to the IR team if you have any follow-ups or questions.

This concludes the TELUS 2024 Q2 earnings conference call. Thank you for your participation and have a nice day.