TELUS Corp reported better-than-expected earnings for the first quarter of 2025, with both earnings per share and revenue surpassing forecasts. The company’s stock responded positively, rising 7% in pre-market trading. This performance underscores TELUS’s strong operational execution and strategic growth initiatives. According to InvestingPro data, TELUS maintains a GOOD overall financial health score and has demonstrated its commitment to shareholder returns by raising its dividend for 21 consecutive years, currently offering a 4.04% yield.
Key Takeaways
- TELUS’s Q1 2025 EPS of $0.26 exceeded the forecast by 16.8%.
- Revenue reached $5.06 billion, surpassing expectations.
- Stock price surged 7% following the earnings announcement.
- Strong growth in EBITDA and free cash flow.
- Continued focus on innovation and strategic acquisitions.
Company Performance
TELUS demonstrated robust performance in Q1 2025, with notable growth in both earnings and revenue. The company reported a 4% increase in EBITDA and a 22.3% rise in free cash flow, highlighting its operational efficiency. Despite competitive pressures in the wireless market, TELUS achieved strong customer growth and expanded its product offerings.
Financial Highlights
- Revenue: $5.06 billion, a 2% increase year-over-year.
- Earnings per share: $0.26, up from previous expectations.
- Consolidated free cash flow: Increased by 22.3% to CAD 48 million.
- Operating revenues: Up 2% year-over-year.
Earnings vs. Forecast
TELUS’s actual EPS of $0.26 was significantly higher than the forecasted $0.2225, resulting in a surprise of approximately 16.8%. Revenue also exceeded expectations, coming in at $5.06 billion compared to the anticipated $5.01 billion. This positive surprise reflects TELUS’s effective cost management and strategic initiatives.
Market Reaction
Following the earnings announcement, TELUS’s stock price rose by 7%, reflecting strong investor confidence. Trading at a P/E ratio of 17.12, the stock appears to be trading above its InvestingPro Fair Value, suggesting investors should carefully consider entry points. The company’s low price volatility (Beta: 0.61) and position as a prominent player in the Diversified Telecommunication Services industry make it an interesting watch for value-focused investors. For a complete valuation analysis, check out the detailed Pro Research Report available on InvestingPro.
Outlook & Guidance
TELUS is targeting operating revenue growth of 2-5% for 2025 and confirmed its free cash flow guidance of CAD 2.15 billion. The company is focusing on AI-driven efficiency and revenue optimization, with plans to potentially monetize or partner with TELUS Health.
Executive Commentary
CEO Darren Entwistle emphasized the need for industry change in marketing and sales strategies, while other executives highlighted the dual opportunities presented by AI and potential monetization avenues for TELUS Health.
Risks and Challenges
- Competitive pricing pressures in the wireless market.
- Decline in mobile ARPU by 3.7%.
- Macroeconomic pressures that could impact future growth.
- Potential risks associated with new product launches and acquisitions.
Q&A
Analysts inquired about strategies to address wireless ARPU challenges and the implementation of AI across business operations. TELUS executives also discussed plans for balance sheet deleveraging and the growth potential of TELUS Health.
Full transcript - Telus Corp (T) Q1 2025:
Conference Moderator: Good day, everyone. Welcome to the TELUS twenty twenty five Q1 Earnings Conference Call. I would like to introduce your speaker, Mr. Robert Mitchell. Please go ahead.
Robert Mitchell, Investor Relations, TELUS: Hello, everyone. Thank you for joining us today. Our first quarter twenty twenty results news release, MD and A, 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 and A portion, we will be joined by Zainul, Naveen, Jason 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 the Securities Commissions in Canada and The U. S, including our first quarter twenty twenty five and our annual 2024 MD and A.
Darren Entwistle, CEO, TELUS: With that, over to you, Darren. Thank you, Remington, and hello everyone. In the first quarter, our team’s dedication to operational excellence coupled with cost efficiency empowered TELUS to deliver another quarter of industry leading customer growth and financial performance. These results were achieved within a dynamic operating environment, demonstrating the resiliency of our business and the strength of our leading portfolio of services. Our industry best total mobile and fixed customer growth of 218,000 net additions represented our strongest first quarter on record.
This performance was driven by strong demand for our highly differentiated integrated product offerings across mobile and home, powered by our leading pure fiber and wireless broadband networks. Our team’s commitment to customer service contributed to continued strong loyalty results across our key product lines once again this quarter. And notably, postpaid mobile phone churn was 0.84%. This represents a six basis point improvement over last year as we progressed through our twelfth consecutive year below the 1% level. Looking at our financial results, we achieved solid and resilient TTEC EBITDA growth of 4%.
In mobile, we drove Q1 total net additions of 168,000. This includes mobile phone net additions of 20,000 and record Q1 connected device net additions of 148,000. These results were supported by our ongoing focus on economic margin accretive customer growth. And this is evidenced by our consistent industry leading lifetime revenue underpinned by our industry best churn. Let’s turn now and take a look at our wireline business.
TELUS delivered another quarter of industry leading total fixed customer additions of 50,000, alongside industry best fixed data services revenue growth of some 3%. Furthermore, our highly differentiated technology and data centric growth businesses continue to demonstrate impressive momentum for TELUS. TELUS Health, which we’ve begun to report as a separate business segment, achieved revenue and EBITDA growth of 1230% respectively. Moreover, the team drove a 7% year over year increase in global lives covered to $76,500,000 This was fueled by global expansion, product enhancements, expanding sales channels, and effective cost management through technology and synergy optimization underpinned by a deeply rooted dedication to putting customers first. We are excited to maintain and build on this momentum throughout 2025 and well beyond.
Notably, since acquiring LifeWorks, we’ve realized $376,000,000 in combined annualized synergies. This includes $3.00 $6,000,000 from cost efficiencies and $70,000,000 and growing from successful cross selling strategies. And they are plentiful. We remain on track to meet our goal of $427,000,000 by the end of twenty twenty five and continuing to push the outside of that envelope well beyond the 2025 timeframe. In May, TELUS acquired Workplace Options, a leading global provider of integrated employee well-being solutions with 88,000,000 employees served across 200 countries and territories.
In aggregate with TELUS Health, this brings our lives covered to more than 160,000,000 or roughly 8% of the entire global market. Together, we will offer the most comprehensive suite of health and well-being solutions globally powered by innovative technology and delivered with unmatched service excellence. This acquisition will be made in partnership with a leading private equity investor within the healthcare vertical, with deep expertise across the healthcare landscape, and they will be a value added partner supporting our efforts to accelerate growth and realize significant synergies. Moreover, with Intel’s agriculture and consumer goods, our team demonstrated strong performance, with a 20% revenue increase on a year over year basis, supported by enhanced profitability and notable margin improvements. The results that we are achieving in these businesses reflect our dedicated efforts to deliver outstanding customer experiences, maximizing shareholder value and driving our social capitalism initiatives, all the while with a data centric insights based strategy, just like our core telco.
The strategic investments we’ve made in our leading broadband networks underpin the continued advancement of our strong financial and operational performance. This includes obviously growing EBITDA, which when combined with moderating CapEx supports meaningful and sustainable free cash flow generation as evidenced by the 22.3% growth this quarter. This gives us a lot of confidence in the robust outlook for consistent long term profitable growth and the sustainability of our industry leading multi year dividend growth program. Today, we are announcing a 7% dividend increase, reflecting our commitment to delivering superior value to our shareholders. This builds on our consistent track record of delivering on our multi year dividend growth program first established in 2011.
Furthermore, we announced today for the fifth time the extension of our industry best dividend growth program. TELUS is targeting three to 8% annual growth for our dividend from 2026 through 2028. This moderated growth range will allow us flexibility to support the key priority of deleveraging our balance sheet and eliminating the dividend discount drift program associated within our dividend reinvestment plan. This is in line with our target of achieving a net debt to EBITDA ratio of circa three times by 2027 in conjunction with the ratcheting down and removal of the discount dividend reinvestment plan. Our dividend growth model will be supported by the best combination of EBITDA growth rates and capital intensity ratios globally, yielding meaningful and sustainable free cash flow expansion.
Moreover, as we have seen today, this is augmented materially by significant value creation in our emerging growth businesses and a succession of asset monetization opportunities that are deeply material that will further reduce TELUS’ leverage and interest outlays, improving the cash story yet again at this organization. Our management team at TELUS remains laser focused on building on the strong operational and financial performance momentum with which we exited 2024 and achieved in the first quarter. We remain dedicated to achieving our robust targets for 2025 and delivering sustainable free cash flow expansion year in and year out for the foreseeable future. Reflecting our TELUS team’s long standing commitment to putting our customers and our communities first. This month, we will celebrate our twentieth annual TELUS Days of Giving in 33 countries now.
Over the past two decades, thanks to the support of our valued clients, we have led our corporate peers globally by contributing 2,400,000 in the communities where we live, where we work and where we serve, striving to make the future friendly for all. If you want to understand why our churn rate is where it is, you need to look quite clearly at the relationship that we’ve built with our communities underpinned by the social purpose of this organization. In closing, I’d like to express my gratitude to our team for their efforts in this regard and for their expertise, their resiliency, their executing on our consistent winning strategy to meet our commitments to all stakeholders no matter how difficult market conditions may be. And on that note, I’ll turn the call over to Doug.
Doug French, CFO, TELUS: Thank you, Darren, and hi, everyone. Effective with our Q1 results today, we have changed our reporting structure and introduced the new TELUS Health reporting segment, which was previously included in TTEC. We have also provided historical information for TELUS Health, which you’ll find in our IR supplemental. Mobile network revenue was down slightly as robust mobile phone and connected device subscriber additions as well as higher IoT revenue growth of 11% were offset by lower mobile ARPU. The 3.7% decline in ARPU is reflective of ongoing competitive pressures and lower roaming.
Fixed data services grew 3% year over year driven by strong customer growth across our leading product portfolio of pure fibre internet, TV and security and automation. Additionally, higher internet, security and automation ARPU supported that growth. At the segment level, TTEC operating revenues were up 2%, driven by higher mobile equipment revenue, fixed data services, fixed equipment and agriculture services revenue. TTEC adjusted EBITDA, excluding Health now excluding Health, increased 3% alongside margin expansion of 30 basis points to 42.4%, demonstrating our disciplined operational execution and cost management in a highly dynamic operating environment. These results were driven by our consistent emphasis on profitable customer growth and the benefits from our ongoing focus on cost efficiency and effectiveness, gains planned from our non core asset divestitures as well as our real estate and copper monetization program.
In Health, Health operating revenues and adjusted EBITDA grew by 1230% respectively. The growth was driven by organic growth across various services, including our payvider vertical, retirement and benefit solutions, cost reduction efforts as well as the mix in our recent acquisitions and employer solutions. TELUS Digital operating revenues and adjusted EBITDA were in line with expectations. Please refer to TELUS Digital’s earnings release and analyst call commentary earlier today. On a consolidated basis, reported net income and basic EPS more than doubled year over year, primarily due to lower restructuring.
On an adjusted basis, net income and EPS were essentially unchanged on a year over year basis. Capital expenditures, excluding real estate, declined by CAD132 million or 19%, primarily driven by planned slowdown of our fiber and wireless network builds. Overall, consolidated capital intensity of 11% was down 300 basis points over last year. Our quarterly capital our quarterly free cash flow of CAD48 million was higher by 22%, driven by lower CapEx and higher EBITDA. These factors were partially offset by higher taxes and interest paid.
Looking ahead, we remain focused on driving towards achieving our 2025 targets, which we reiterated today. This includes targeting TTEC operating revenues and adjusted EBITDA growth, including TELUS Health of 2% to 43% to 5% respectively. Consolidated capital expenditures excluding circa £100,000,000 for capital and real estate development initiatives are targeted to remain stable at $2,500,000,000 Lastly, free cash flow guidance for 2025 of $2,150,000,000 is also confirmed. As it relates to our balance sheet, the average term to maturity of our long term debt stands over ten years with a weighted average cost of 4.4%. While leverage is elevated at 3.9% or 3.9x, we remain committed to improving our leverage ratio, targeting our net debt to EBITDA ratio by 3x by 2027.
Our efforts to deleverage our balance sheet will be supported by continual operational growth, including EBITDA and free cash flow expansion. Additionally, ongoing monetization initiatives, including the planned divestiture of non core assets, continued real estate and copper monetization, as well as our potential monetization of wireless towers are well underway and will continue to further strengthen our balance sheet. During the quarter, we monetized certain non core assets within the business as well as our TELUS Global Ventures portfolio, receiving proceeds of $66,000,000 In April, we successfully raised CAD1.6 billion in hybrid debt securities with the proceeds being entirely directed to debt repayment, the 50% of the proceeds receiving equity treatment by credit rating agencies. On a pro form a basis, when including the benefit of our hybrid offering, leverage would have been approximately 3.8 times at the end of the quarter. As it relates to the D DRIP discount, we expect to lower the discount from the current 2% by zero five percentage point in each of ’26 and ’27 before removing it completely at the end of twenty twenty seven.
If the balance sheet deleveraging plan as we have outlined, is quicker in execution, we will review removing the DDRIP discount earlier than the current timeline. As Darren highlighted earlier, we recently completed the purchase of workplace options of approximately CAD500 million, net of assumed debt of approximately CAD100 million. We’ve also signed a non binding term sheet with a third party investor who will invest CAD285 million as part of the acquisition, which we expect to be completed in Q2. As we progress through 2025, we are well positioned to drive strong growth and sustainable growth despite the dynamic operating environment, supported by our leading asset mix and robust business strategy. Before we move to our Q and A, I just want to congratulate Darren on his one hundredth earnings call since February.
It’s been a remarkable journey over the past twenty five years and congratulations, Warren. Robert, over to you. Thank you, Doug, and
Robert Mitchell, Investor Relations, TELUS: congratulations, Darren. Carl, please proceed with the questions.
Conference Moderator: Thank you. The first question is from Stephanie Price from CIBC. Please go ahead, Stephanie.
Stephanie Price, Analyst, CIBC: Good afternoon. Maybe I’ll start with TELUS Health. Just very strong revenue and EBITDA growth in the quarter. Just curious what’s fueling that? Is it primarily synergy related?
Have there been other tuck ins? And maybe you could talk a little bit about Workplace Solutions and what that brings to the health solution? And more broadly, how do you see TELUS Health evolving over the next few years and the key milestones you’re looking for from the business before monetization opportunity?
Darren Entwistle, CEO, TELUS: Beam will take that question, Stephanie.
Beam, Executive, TELUS: Yes, thanks, Darren, and thanks, Stephanie for the question. I think I’ll start by saying that we’ve been building very strong momentum in TELUS Health over the last couple of years. And that growth is coming from a number of areas. Number one, we’ve made some smart tuck in acquisitions that are accretive immediately accretive. The synergies that we’re getting from those acquisitions are on track and doing well.
On the other part of that, I would say, we’ve made some really good investments in terms of our go to market and channel capabilities. And those are yielding strong returns. In fact, we had our best bookings quarter in TELUS Health since the LifeWorks acquisition. Thirdly, tied to the LifeWorks acquisition, as Darren mentioned, we continue to have very strong synergies. A lot of the cost synergies are behind us, but the revenue and cross sell synergies are just starting to really ramp up.
And in regards to cross sell, we’re starting to see some very good ramping across all of the B2B assets. So for example, cross sell across the core B2B telecom, healthcare, TELUS agriculture and consumer goods and TELUS digital was up over five times relative to at this time last year. So we feel very good about the momentum on health, bringing options is a really, really positive development for us. We’re acquiring workplace options from a position of strength. It’s a high growth asset that again is immediately EBITDA accretive, really strong industry leading client experience capability, a really strong customer base.
We’re really pleased with the talent level and the level of leadership that’s coming along with this asset, the digital capabilities and the data capabilities and the monetization opportunities with the data that we get with WPO is super strong. Their cost structure is excellent. Their capital intensity is low, great global reach, great complimentary set of products with what we have today in TELUS Health. So I think we’re really excited about WPO and more to come on that in the subsequent quarters. And then just lastly, we’re very pleased to be able to report TELUS Health as a segment.
We’re excited about where it can go. And in terms of the future, we’ll look at the right monetization or partnership opportunities as it evolves. That’s it for me. Darren, any top ups from you?
Darren Entwistle, CEO, TELUS: Just one thing, Stephanie, to elucidate. Of the 30% EBITDA growth in Q1, ’20 ’6 percent was the organic growth rate. So the preponderance coming from organic.
Stephanie Price, Analyst, CIBC: Thank you very much.
Robert Mitchell, Investor Relations, TELUS: Thanks, Stephanie. Next question please, Carl.
Conference Moderator: The next question would be from Vince Valentini from TD Cowen. Please go ahead, Vince.
Vince Valentini, Analyst, TD Cowen: Hey, thanks very much. First, can I just clarify on the Workplace Options acquisition? The partner is putting up $285,000,000 out of the $500,000,000 total, but TELUS is retaining over 50% control. If you can just maybe clarify that for me. And then the other question, bigger picture is on wireless.
Good results overall today. Everybody’s happy with the share price performance and great to see the dividend commitment. But wireless service revenue at almost minus 1% cannot be viewed as satisfactory, I’m sure, you either, Darren. Do you have any thoughts on what’s going on in the market and what perhaps needs to change? And do you think TELUS needs to play a role here on sort of balancing volume versus pricing as one of the leaders in the industry to sort of set an example for others?
I’d love to hear what your views are on the industry at this stage. Thanks.
Darren Entwistle, CEO, TELUS: Thanks for the question, Vince. The answer to the second part of your question is yes. And we’ll provide color on that in a second with Daniel and myself. And Doug will kick it off as it relates to the workplace options, acquisition and the role in the PE front of the February and how that plays out at an equity level. Doug, over to you.
Doug French, CFO, TELUS: Yes, so that $500,000,000 was cash, Vince, there was $100,000,000 of assumed debt. So the all in purchase price is $6,000,000 in substance and then the $285,000,000 is obviously less than 50%.
Darren Entwistle, CEO, TELUS: Thank you. Zaneil?
Zainul, Executive, TELUS: Thanks, Darren, and thanks Vince for the question. I think first and foremost, we have to say that we are not satisfied with that performance. It is not headed in the direction that we wanted and we are going to significantly improve it. I think it’s important to highlight that there’s a few levers that are going to be critical to achieving a better performance. And I’ll focus internally because we have to focus on what we can control.
I think fundamentally, we have to do a much better job of leveraging our product intensity, our bundling capabilities, improving our loyalty and retention, which is headed in the right direction, but it’s certainly not achieving the performance that I think is commensurate with what we can achieve when we put more focus and energy into that. And even in certain areas like leveraging AI and the capabilities that TELUS Digital provides to help us with revenue management and predictive models. I think on the other side of it is really balancing and aligning investment with outcomes. So when you look at the three core elements of rate, subsidy, device pricing and the financing floor, ultimately in this type of environment, what we need to do is ensure that our investment in subsidy and handsets is commensurate with the right return levels. And then finally, I think there’s an AMPU qualification element.
If there are segments of the market that are still profitable to support and drive growth in, we need to make sure we continue to align the ANHU outcomes and the cost to serve model with the demographics of those markets. So those are the areas that we’re going to focus on. I’ll keep it succinct. My peers may want to add with respect to the B2B side, but I think it’s really important to highlight that we’re not satisfied and we’re going to focus on this to improve it.
Darren Entwistle, CEO, TELUS: Yes, do you want to add anything? Just
Beam, Executive, TELUS: to top up, would say on the B2B side, we aren’t satisfied either. I think we have some levers in terms of strong five gs IoT growth. We had really strong IoT loading in the quarter. That needs to be a more material percentage of wireless network revenue. On the B2B side, we’ve actually had strong loading and we’ll continue to focus on accretive loading.
We have an opportunity to continue to drive product intensity, which will help both with churn and lifetime revenue that we’re very much focused on and the opportunity to drive geographic expansion across core segments like SMB and mid market is also progressing well, but an opportunity for us to do more there.
Darren Entwistle, CEO, TELUS: I think, Vince, your point is well made. One of the benefits of having strong and resilient financial results and a premium asset mix as our results have demonstrated today is it gives us the latitude to take a leadership position in the market and move to a more sanguine economic model. So I think the point that you’re pressing on there is quite cogent. Secondly, and this is I think where you would expect us to lead, we have been the most progressive on digital is driving our ANPU thesis, not from a traditional cost cutting, cost efficiency point of view, but leveraging our digital progression and leveraging our AI capabilities. We have the best assets to support that in TELUS Digital and putting that to work in terms of the AMPU for our business overall and wireless in particular, in terms of what we should be able to do on digital and AI better than our peers on a global basis.
I think that has to be a priority for this organization because we have a differentiated capability set there. And then lastly, you saw me make the comment that we set a record on connected devices. Yeah, okay, clap, clap, that’s great, but it’s not good enough. We have to scale more aggressively on the connected device, machine to machine, IoT front that is profitable business, that is attractive revenue growth for this organization. It’s an ROI on all that money we spent on five gs infrastructure and spectrum along the way.
It’s good business from a retention characteristic point of view, and we’ve got to scale that business. And that’s the type of thing that really alleviates the ARPU pressure and shows up in terms of network revenue growth. So those are the three areas I think that are key to take away for investors.
Robert Mitchell, Investor Relations, TELUS: Vince. Karl, next question please.
Conference Moderator: The next question is from Jerome Dupuy from Desjardins. Please go ahead.
Jerome Dupuy, Analyst, Desjardins: Hey, thanks for taking my question. The first question for me, sorry for the long term guidance question, but given the three year dividend growth plan, I’ll allow myself. So can you talk about the puts and takes maybe about the free cash flow trend that you’re seeing in the coming years with numbers, if possible, that allows you to grow the dividend for the next three years by that much? And then the second one, Doug, you mentioned that if deleveraging is quicker than expected, we may remove the DRIP quicker. What specifically are you referring to in terms of potential events that may happen maybe outside of quicker organic growth?
Thank you.
Darren Entwistle, CEO, TELUS: Okay. I’ll kick it off and I’ll let Doug pull up our three year free cash flow view so that he can give you multi year guidance at a quarterly level on that front. So let’s just say a couple of things. When we did the reset from seven to 10 to three to eight, you can imagine the amount of modeling analytics, scenario planning, contingency views that we put into this from a conservatism perspective. So we chose those numbers wisely to give us the latitude that we need prospectively.
I’ll let Doug comment on that in a second. In terms of sustainability, I really meant what I said in my remarks. We are looking at TELUS to have the best combination of EBITDA growth prospectively and lower CapEx intensity to support the successive expansion at the free cash flow level. And that’s underpinned by a few things that I think are important. One is, we expect to see strong continued execution within our outperforming telecom business.
I think you can expect it to be resilient when we’re in a corrosive competitive pricing environment and I think you can expect it to be robust when that environment gets more sanguine, which eventually it will. I think we have an emerging growth story in Health and TELUS Agriculture and Consumer Goods that’s second to none. And again, you’re seeing that in today’s results and to Naveen’s excellent point. The healthy EBITDA expansion that we’ve disclosed in Q1 is really just a carry through of what we’ve been reporting on over the last six quarters in that regard. Next, for us, it’s a huge factor to be able to rely on, call upon leverage what TELUS Digital is doing on a leading basis on the digital transformation because for us that’s a four point game and helps us sustainably take cost out of our business, but it’s equally potent in respect of revenue generating go to market strategies.
And so for us that’s transformative and it’s a unique asset within our portfolio. And I don’t think people have done the right tail of the tape on this because all of the above is complemented by a very smart, very specific, very well structured, laid out successive deleveraging plan that’s going to yield prospectively continued cash and economic benefits to this organization, again enabling what we want to do in terms of growth overall, but also buttressing the sustainability, durability, the predictability, the reliability of our 3% to 8% on the dividend expansion from 2026 to 2028. And so I think that’s a lot in terms of the free cash flow story of this organization and why it’s unique to tell us, but maybe Doug, if you want to provide a little bit of additional color on prospective cash, go ahead.
Doug French, CFO, TELUS: Yes. In addition to that, as Darren highlighted, we are continuing to invest in our business appropriately with CapEx, but with our accelerated build and the completion of fiber, we have the ability to bring CapEx intensity down to industry if not world leading loads as we’ve talked about in the past. So that will be continued to be a future driver. As we delever, interest will flat line and decrease over time. So we can assume you’ll get an uptick in free cash flow over interest.
Restructuring costs also were elevated as we had to right size our organization through some of the digital and economic challenges that we’ve seen over the last little bit. And you’ll see that leases will also start to decrease in the future on payments for leases into 2026. So free cash flow starts to accelerate on all those fronts in addition to everything that Darren had already highlighted in his overview of the operations of the business. And on monetization or other events that would allow us to reduce the de DRIP sooner, we continue to talk about our and Darren referred to the deleveraging plan. We have in our base plan, I would say a risk adjusted execution that allows us to hit that plan and have multiple levers to get there.
And if there are some items we can’t execute on, we have others. So I would say if we can continue to execute more than the assumed rate, which I believe is conservative, it would allow us to delever faster and more deeply in that timeframe, which would give us the opportunity to reduce the faster and that includes the items that we continue to talk about. Darren talked about the value of health and ag and partnerships. We did a hybrid as you saw in April and we still are very low in the hybrid offering within our industry and there’s more room on that opportunity should we desire to go there. Our asset divestitures between copper, real estate are well underway and then you would have seen the first wave of our non strategic divestitures of $66,000,000 this quarter and we are not expecting anything unreasonable to hit our three point zero plan.
It really is then just accelerating any of these pillars that we just talked about.
Darren Entwistle, CEO, TELUS: A new measure I think that would be helpful in terms of looking at TELUS is our goal to have the lowest or be near the lowest CapEx intensity minus the EBITDA growth rate. That particular outcome CapEx intensity minus the EBITDA growth rate, we want to lead the industry with and complement that by chunking our way through all of our deleveraging programs in a very methodical fashion.
Jerome Dupuy, Analyst, Desjardins: That’s very helpful. Thank you.
Robert Mitchell, Investor Relations, TELUS: Thanks, Jerome. Next question please, Carl.
Conference Moderator: Next question is from Drew McReynolds from RBC Capital Markets. Please go ahead, Drew.
Drew McReynolds, Analyst, RBC Capital Markets: Yes, thanks very much. Three follow ups for me. First on the, I guess, Vincent’s wireless question. In the spirit, Darren, of your one hundredth conference call, recall within one of these calls going back to 2018, you look forward on the industry, and I think it was a warning shot on competition and wireless pricing. And it seems since then you’ve kind of built TELUS to absorb whatever was coming, I guess, the industry’s way.
And I think you kind of nailed it, to be honest. So just wondering, on the B2C wireless side, isn’t this kind of largely commoditized now? Or do you really see it as transitory? Second question, follow-up just on the AI dynamic, just maybe in the next three years going to 2027, can you give us specific examples where you’re driving lower costs and alternatively seeing new growth opportunities with AI? And then last quick clarification or comment maybe to you, Doug.
As you get closer to three times, what’s your thought on the institution of an NCIB? Thank you.
Darren Entwistle, CEO, TELUS: All right. Here we go on that. Doug, you’ll give the launch date for our NCIB first. To be as I think it would be great for people to hear from you given you’re a global thought leader on AI product, the go to market, I think a very exciting conversation and then we’ll do the Donnie and Marie and Zainul, you and I again on B2C on that front. So Doug, go ahead.
Doug French, CFO, TELUS: Yes, I would assume it would be after that 2027 period and we will bounce it off with all the capital allocation priorities that we’ve talked about on what is the best shareholder return at that timeframe, ensuring our balance sheet is to the strength not just for that hitting ’27, but future proofed as well, and then appropriate investment in the business, but I would assume it’s after ’27.
Darren Entwistle, CEO, TELUS: Tobias, do you want to comment on what excites you in terms of AI profitable revenue generating growth opportunities?
Robert Mitchell, Investor Relations, TELUS0: Sure, Darren. Thank you. I would note that I’m on my oneone hundredth as many earnings calls as Darren today. So thank you for having me. As Darren said, AI is a dual opportunity for us.
On the one hand, it’s helping TELUS drive those efficiency and operating excellence. But on the other side, it’s helping us take those learnings know how and products to clients to then monetize those. And I think that makes us extraordinarily unique, not just in the industry, but in the entire competitive landscape. We have made AI team member enablement a competitive differentiator across TELUS and TELUS Digital. I think what’s interesting about that is it’s not just access to LLMs and to AI tools, but its entire ecosystem around how you find and support new AI ideas, how you do the change management of not just improving existing processes, but reinventing processes, how you look at privacy and control of your data, and then how you continuously innovate and use improvement cycles, agile development techniques, etcetera, to make this happen.
And so I’ll just share a couple of examples with you as requested. So first of all, we have about 50,000 users in the two companies that have access to the tools who have built over 15,000 co pilots in the last nine months and a 15x, 15 times increase in token consumption over the last nine months. So you can just see the volume of AI usage that’s happening in the combined company. So examples of that are an agent trainer, right? We’ve created a fuel contact center agent trainer.
And usually, when you’re dealing with technology, you’re investing in, you’re saying, all right, are we going to decrease costs? Or is this going to increase quality? And with AI in many implementations, you’re actually able to do both on the same time. So for agent trainer, when we take our new agents through that we’re getting 15% to 50% reductions in training time, but also significant increases in proficiency which then leads to customer CSAT down the road. We’re giving our frontline agents co pilots which are reducing average handle time and calls between ten percent and forty five percent.
But they’re also increasing CSAT at the same time between 1020%, because our agents have so much better access to the most current information, the most current offers. They’re able to actually upsell on the call much more efficiently than they have in the past. We’ve integrated into our sales motion. So we have higher KPIs, 10% to 15% higher KPIs in three areas meetings, coverage, and funnel quantity. We’ve launched propensity to churn models working with Zainul and pricing simulation models.
We have proactive outreach based on AI analysis of data intents that’s driving up to a 50% reduction in repeat calls and in targeted programs. And what’s most exciting for us is all of this is just within TELUS and this constant interplay of what we do for TELUS, bringing that to our clients. And then conversely, with all the clients we talk to and work with bringing that to TELUS creates a pretty unique opportunity for us in the industry. Darren, anything you’d like to top up there?
Darren Entwistle, CEO, TELUS: No, that was excellent, Tobias. To wrap this up, a few comments. Guess time will tell whether they’re prophetic or erroneous. Number one, we have to change the psychology within the industry as it relates to marketing and sales. We have a wireless industry where we have to have price competition parity.
I for one don’t understand that. Why can’t we have a price premium if we have better product features, but more particularly better customer service for our clients. Why do we always have to price match, price match, price match in a race to the bottom? Why can’t we build the culture of psychology, a set of competencies to be able to sell at a premium? That’s a transformation that this organization is working ardently to achieve.
Should there not be, yes, a deserved premium if you can provide a higher quality of customer service. And we know empirically from customers that customers value reliability more than affordability. And so the opportunity is out there for us. Secondly, as I’ve said many, many times, we have been a chronic underperformer on product integration or bundling. There’s tremendous upside opportunity as it relates to product intensity.
And the benefits of that are obvious, but the one thing that is a secondary consideration is that when you get better churn through better bundling, you also get better ARPU resiliency, which supports what you want to do on the network revenue growth front. Third, back to the comment that I made earlier that I think is underappreciated. If you can do great things like what Tobias was specifically articulating on digital and AI and be more resilient on the AMPU front, which we should be clearly doing and you can see the manifestation of that in our results, it allows you to have greater discretion and make better choices at the ARPU front. And that’s an eclectic combination for this organization that’s tremendously powerful. Next, we’re still scratching the surface on IoT and machine to machine.
So and let me be specific on that front. There’s a lot of concentration on IoT within the logistics vertical, but our performance on IoT and health has been crap. Our performance on IoT and agriculture has been crap. And as it relates to B2B2C on wholesale, we’re deeply underperforming. So you know we launched our smart energy product, a classic IoT solution that would show up in network revenue growth and nowhere is built on it.
We have to have the ability to scale on that product and see it complement the legacy revenue lines within our wireless portfolio. And we have to get better at product development in general. At the end of the day, we spent all this money on broadband. Broadband wireless and broadband wireline. Our job should be to exact economies of scope.
More products over the same medium. More products over the same medium. So let’s get more product development happening within our five gs capability set and let’s scale it so that it actually shows up with an impact on ARPU and AMPU for this organization. And then finally, I’ll give you a true data insight. If we went back and did a set of data analytics over the last five quarters on what we did with pricing in all of our channels at TELUS and evaluated it on a pro form a basis as to what the optimum pricing decision would be to solve for the best economics, we left a ton of money on the table.
Now you think about what to be is just said on AI. If we can leverage that data set, leverage our AI capabilities within the area of price optimization with lifetime revenue economics, we will make better decisions and not leave that money on the table. And that’s a tremendously smart thing to do, and it fits well with our capability set. So that’s where I think we need to go in the future. And that’s just AI on price optimization.
Imagine what it can do on copilot bundling opportunities and the like. So that’s where I think this industry needs to go over the next three to five years. And if the industry doesn’t go there, TELUS will and we’ll be the differentiated benefit and enjoy those benefits for that. That would be my forecast for now.
Drew McReynolds, Analyst, RBC Capital Markets: Yes, very interesting insight. Thank you, Derek.
Robert Mitchell, Investor Relations, TELUS: Drew. Karl, we have time for two more questions, please.
Conference Moderator: Very well. The next question is from Mayor Yaghi from Scotiabank. Please go ahead.
Robert Mitchell, Investor Relations, TELUS1: Great. Thank you for taking my question. I’ll go back to the question on wireless. It’s been four quarters that we’re seeing ARPU decline above 3.5% from the 3.5% zone. When I look at your reported ARPU, and correct me if I’m wrong in any of my numbers that I’ll discuss, maybe about $7 in your ARPU is related to handset subsidy.
So your average service revenue ARPU is like $50.51 dollars maybe. And when you were looking at the market, the front book right now for average customers is probably $45 between $40 and $45 So are we to expect ARPU long term to decline by another $3.3.5 dollars before we reach or before we cycle through all the back book into the front book or any of my numbers are wrong.
Doug French, CFO, TELUS: Thinking backwards through the math on that and the weighted average of all our products, I’m not sure I can answer your question clearly. I do think there is obviously product mix, product quality, bundling and other items that go into that on does the whole base gravitate to the floor or not to essence the question you’re asking. I think I’ll have to come back with a what might that look like or Zainul can top up on the opportunities, as Darren just highlighted that there’s room to not gravitate for all the reasons of quality and product and pricing even within a handset world where at times device floors where offers are being out there for a financing handset is uneconomic at ARPUs of levels that are well below even what you quoted. So I think it’s going to be an average of all of that. Our goal obviously is not to gravitate to that bottom to leverage all the tools, leverage all the products and continue to build as Darren and Zane have highlighted.
And I guess that’s probably the best I could do at that top level, but Zane, was there any top up?
Zainul, Executive, TELUS: No, I just I think you’ve covered it well. It’s a complex mix between BYOD and contract revenue in terms of the handset mix and where customers are gearing in terms of the cost of devices and the length at which they’re keeping their devices. I think that all of those factors have an impact on that calculation. And then as I mentioned, you look at your base and your loyalty impacts and how to ensure that you have offers in the market that are attractive to your existing base to renew, coupled with the right investment for the right rate plans and the right BYOD and AMPU economics for the demographic that is not loading on the handset basis. So it’s a complex mix of all of those factors.
And I think the key thing is that, as Darren highlighted, product intensification and the ability to drive better household mix and better economics overall in terms of economies of scale have to be the way that we drive accretion in the business.
Robert Mitchell, Investor Relations, TELUS1: Okay. And my second question, just a follow-up on the question about the dividend and I don’t want to make it very theoretical here, but as long as you have the DRIP in place, any increase in your dividend is causing more dilution to shareholders, especially with the dividend yield on the stock at seven and change, given also your cost of capital and etcetera. You’re paying out more than your cost of capital. So, you know, I tried to dissociate the leverage from the decision about the dividend because the dividend has to be paid out from annual free cash flows rather than using the balance sheet. So why not wait until you stop the DRIP and bring down your distribution ratio below 100 before continuing to grow the dividend?
That’s my question that I was trying to figure out.
Darren Entwistle, CEO, TELUS: I’m a bit frustrated, so I’m pausing to bite my tongue on this response. Number one, we’re a pretty quantitative organization. So as I said previously, we’ve modeled this eight ways this Sunday, flexed it with scenarios and conservatism, and had an endogenous factor within it looking to have a Pareto optimal outcome for equity and debt holders. Frequently, they’re the same institution. Next, at an intellectual and emotional level, the management team is extremely keen to remove our discount dividend reinvestment plan.
So we are preoccupied with that. To the extent to which Doug in his remarks described the D drip ratchet down as a ceiling, not a floor. And if we can do better, we will do better than that. And that’s contingent upon our deleveraging plan. Next, our deleveraging plan is not aspirational.
It’s not qualitative. It’s not notional. And it’s not long term. So it’s not one that extends out for the next five years. It’s something that’s getting done in the next twenty four months.
And it’s highly, highly, highly specific and doable. As a result, we have a lot of confidence in our ability to execute against that plan. And if we can, I think it presents us with the opportunity to be more expedient in the removal of the D Drip? And we are very much focused on the execution of that and you’ve seen what we’ve done already on the $1,600,000,000 with the hybrid and what we have in train right now with the monetization of our towers. So I think that’s hard evidence that speaks to the legitimacy of us eating our way through that well structured sequential deleveraging plan with the attendant benefits as it relates to the D DRIV.
Next, if I was just going to have a look at the organization at a temporal moment in time and say, okay, at this particular tight time zone, we’ve got a pro form a modeling payout ratio range of free cash flow greater than 100% when you make certain adjustments on the DRIP front and say, okay, well, let’s put in place a long term plan to deal up a short term issue. I don’t think that’s the right thing for this organization to do. If we had a chronic issue on that front where the payout was going to exceed our cash generative capability, then yes, yes, we would take a different decision. But I don’t think that. And when we make our decision on the dividend growth model, we are taking a longer term view for this organization.
And that longer term view says that three to eight is the right thing to do, balancing the interests of both equity and debt holders with the lowering of the low end of the range from 7% to 3% along the way. And it gives us the cash latitude to do what we want to do. The 3.8 is not driven off that temporal analytics on a finite basis in terms of the payout, but on the longer term view as it relates to having the best combination of EBITDA growth and lowering CapEx intensity for this company. It reflects our growing deleveraging through the execution of our asset monetization plan. It reflects the contribution from our emerging growth assets that are impervious to the price fashionations within the telecom industry.
It reflects our confidence in our continued cost efficiency capabilities underpinned by digital and AI. And so that’s the difference in terms of your question. We’re putting out a longer term view that is synergistic or synchronized with the longer term view of the sustainable free cash flow expansion that this organization is generating, including the 22.3% in this quarter. Thank you, Larry.
Robert Mitchell, Investor Relations, TELUS: Thank you, Mayor. Carl, we have time for one more question, please.
Conference Moderator: The final question is from Benjamin Swinburne from Morgan Stanley. Please go ahead.
Robert Mitchell, Investor Relations, TELUS2: Thank you for squeezing me in. And thank you for the disclosure on TELUS Health. As this business continues to compound, I’m wondering if this is an opportunity to unlock value either through a sub IPO or some other way to monetize the business and if we should interpret the decision to disclose more information as a a step in that direction. And then there’s been a lot of talk on the call about, you know, sort of TELUS’ focus on improving the wireless performance. Not a ton on how the competitive environment is currently shaping up here early in Q2.
I don’t know if you had any color on whether your competitors were shifting their approach to the marketplace here in early second quarter. Anything any comment there would be helpful. Thank you.
Darren Entwistle, CEO, TELUS: Nadine, you want to take the first one? Zay, you can take the second.
Vince Valentini, Analyst, TD Cowen: Sure.
Beam, Executive, TELUS: Yes. Thanks, Darren. So as we said before, we are open to looking at different monetization opportunities for TELUS Health. I think the way we’re looking at it is when is the right time for us to maximize that value. As you’ve seen over the last several quarters, we’re seeing some really strong growth.
We’re integrating a number of the assets we have. We’re seeing strong top line and EBITDA growth. We’re bringing in technology components that are going to digitize the business, allow us to monetize more data, bring in AI in partnership with Tobias and team. And all of those things are critical to improving the EBITDA and revenue multiple of this business and the valuation of the business. So we will continue to execute well and when the timing is right, to take the right steps around monetizing this business.
Robert Mitchell, Investor Relations, TELUS1: Maybe just a quick
Doug French, CFO, TELUS: top up and there has been a lot of interest as you could imagine in our health asset both from a partnership strategically perspective on participating in that growth and moving the whole strategy forward with that longer term potential IPO and maybe back to Drew’s question on NCIB, it could be even more linked to a transaction such as that which could unleash enough cash to do the next step on that front. But I would say, we will take whatever steps on partnering versus IPO at the right time as we continue to grow value And this business at this growth rate in this sector is gaining a lot of traction on multiple and value expansion within our organization.
Robert Mitchell, Investor Relations, TELUS1: Thanks. So I think go
Conference Moderator: ahead, sorry.
Darren Entwistle, CEO, TELUS: No, go ahead.
Zainul, Executive, TELUS: I was just going to get into your second question. Did you have a top up?
Robert Mitchell, Investor Relations, TELUS1: No, no, go ahead.
Darren Entwistle, CEO, TELUS: Thank Thank
Zainul, Executive, TELUS: you. So thanks for the question. I think we talked a lot about our introspective view of how we want to approach the market and what our learnings are. I can’t comment specifically on our peers, but what can say is that some of the elements of discipline that we’re trying to make sure that we’re aligning to in the market, we’re seeing other signs of that. I think that we’re seeing some performance related to looking at the offerings on the lower end of the market and aligning them with the right the value bundle and ensuring that there’s a better ARPU focus.
And I think it’s early in the quarter in terms of the way that promotional subsidies and other things will be undertaken. But I think what we can talk about is the approach that we’re going to take and how we want to drive value in the market.
Robert Mitchell, Investor Relations, TELUS2: That’s helpful, thank you.
Robert Mitchell, Investor Relations, TELUS: Thank you Ben and thank you everyone for joining us today. Please feel free to reach out to the IR team with any follow ups.
Conference Moderator: Ladies and gentlemen, this concludes the TELUS twenty twenty five Q1 earnings conference Thank
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