Good morning, everyone. Welcome to the TELUS 2021 Q4 Earnings Conference Call. I would like to introduce your speaker, Mr. Robert Mitchell. Please go ahead.

Hello, everyone, and thank you for joining us today. Our fourth quarter 2021 results news release, MD&A and financial statements and detailed supplemental information were posted on our website this morning at telus.com/investors. On our call today, we will have remarks by Darren Entwistle, President and CEO; Zainul Mawji, EVP and President of Home Solutions and Customer Excellence; Doug French, EVP and CFO. In addition, for the Q&A portion of our call, we will be joined by Jim Senko, EVP and President, Mobility Solutions; Navin Arora, EVP, President of Business Solutions; Tony Geheran, EVP and Chief Operations Officer. Briefly on Slide 2. This presentation and answers to questions contain forward-looking statements that are subject to risks and uncertainties and made based on certain assumptions. Accordingly, actual performance could differ from statements made today, so we ask that you do not place undue reliance upon them. We disclaim any obligation to update forward-looking statements, except as required by law. And we refer you to the risks and assumptions as outlined in our public disclosures, including our fourth quarter and annual 2021 MD&A and filings with the Securities Commissions in Canada and the U.S. With that, over to you, Darren.

Thanks, Ronaldo, and hello, everyone. Throughout 2021, TELUS again achieved strong operational and financial results across our business. This is a trend the TELUS team has demonstrated over the longer term and in 2021 was once again successfully realized against the backdrop of an unprecedented operating environment. Our performance in the fourth quarter and for the full year was characterized by our hallmark combination of robust, high-quality and profitable customer growth across our diverse portfolio of products, alongside complemented by strong financial results. The fourth quarter concluded another year of industry-leading customer growth with 960,000 total annual net customer additions representing our best result on record for TELUS. This included yet another year of leading and best-ever wireline customer growth of 255,000, reflecting the potency of our expansive PureFibre network and its inherent capabilities. Our industry-leading customer growth was driven by our team's passion for delivering outstanding customer experiences. This once again contributed to strong client loyalty across our key product lines, including blended mobile phone, Internet, Optik TV, security and voice churn, which were all below 1% again in 2021. For the full year, consolidated revenue and EBITDA growth of 9% and 6.4%, respectively, was in line with our targets for 2021. Furthermore, we achieved strong free cash flow for the year, slightly ahead of our guidance as updated in May to reflect our accelerated broadband expansion program. This robust performance continues to be driven by consistent operational execution, leading product offerings and client service excellence bolstered by continued strong operating momentum in TELUS International, TELUS Health and TELUS Agriculture. Impressively, looking at our 2-year performance from 2019 to 2021 through the pandemic period, our total revenue and EBITDA growth of close to 18% and 7%, respectively, as well as our more than 1.7 million net new total customer…

Thank you, Darren. As our fourth quarter results demonstrate, our customers' first strategy, world-leading networks and superior product diversification across mobile and home continue to yield positive outcomes. We delivered record fourth quarter results with respect to fixed customer growth with an industry-leading 79,000 net additions, bringing our full year results to a record high of 255,000. Notably, for the fourth quarter, this far exceeds the 46,000 we delivered in the pre-pandemic 2019 period. These results build on our track record of consistently delivering strong customer growth and are reflective of our strength across segments, inclusive of Navin's team on the B2B front. Together, over the last 2 years, we have added an industry-leading 495,000 fixed customer additions, including 306,000 Internet customers, 105,000 TV net additions and 165,000 security customers. The success of our whole home bundle, an unmatched package of differentiated products and services, is bolstered by Jim and his team's leading mobility performance and drives an average of over 3 products per household within our pure fiber footprint. In turn, this is leading to high brand affinity for our services and lower churn. As demonstrated in the 2021 annual CCTS report, customer complaints against TELUS were a fraction relative to our national peers, solidifying our #1 ranking of the fewest customer complaints among national carriers for the 10th year in a row. This leadership showcases how our team puts our customers first at every opportunity, generating customer loyalty and building trust to further intensify our base. For the fourth quarter, Internet net additions of 40,000 reflect the ongoing demand for our unparalleled TELUS PureFibre Internet services across homes and businesses. We continue to drive robust TV attach rates with TV net additions totaling 18,000. Notably, due to our high content engagement, we remain the only provider in North…

Thank you, Zainul, and hello, everyone. Our Q4 results extend our proven track record of leading financial and operational results led by smart, strategic growth initiatives and our strong and consistent execution. In December, we successfully completed the sale of the Financial Services business for $500 million. This amount is not included in our operating revenue or adjusted EBITDA. It's in the other income line. In the quarter, we continue to see growth coming from all our business areas. Mobile network revenue growth improved sequentially for the sixth consecutive quarter, increasing by 5% compared to 3.7% in Q3. This network revenue result included a $27 million year-over-year increase in roaming revenue as travel activity increased. Roaming revenue exited the year just below 70% of pre-pandemic levels. And assuming trends related -- travel trends related into the future, we anticipate a recovery gradually throughout 2022. As we continue to see the strong adoption of unlimited data plans, overage charges have now declined and data overage represents only less than 2% of mobile ARPU. The strong adoption of our unlimited data plans has driven increased customer satisfaction as well as lower calls to our call center, fewer bill credits, and that is leading to a benefit in our direct mobile contribution, which improved by 120 basis points in Q4. On the fixed side of our business, data revenue growth was above 10% for the sixth quarter in a row with Q4 growth coming in close to 12% and up 26% over Q4 2019. Underlying this result, residential Internet revenue grew an impressive 20% year-over-year, driven by double-digit growth in residential Internet ARPU and continued market share gains. Notably, we also continued to see good traction on our B2B front and drove positive consolidated B2B EBITDA growth on a year-over-year basis for both…

Thanks, Doug. Mehai, can we proceed with questions, please?

[Operator Instructions]. First question comes from Jerome Dubreuil from Desjardins.

Two for me, if I may. First, Doug, you mentioned that overage was now approximately 2% of ARPU. That's in the context of heavily limited data consumption. Do you think we could expect this to be bottoming approximately at this level? Or you think there's more to go with the transition to unlimited? And then a second question would be the rationale for selling the financial solution business, you're intact. Is this not something you wanted to pursue or different competitive environment? So if you can provide context on that, please.

So we'll let Doug handle the second question first, and then we'll hand it over to Jim for commentary.

So we've continued to look at our maximizing the value of all of our asset base. So we've talked numerous times about our copper to fiber migrations and how we can monetize real estate in the long term. We looked at the financial services area, and it has great potential, but is not core to us. And so we found that it was a perfect win-win as an opportunity for the purchaser and for us to remain our focus in our strategic areas of health, ag and TI. And so that's why the sale happened and we will continue to use those resources to invest in our strategic growth areas.

I think an interesting stat as well on that, if you look at that asset that came to TELUS by the acquisition of Emergis back in 2008, if you look at the proceeds from the financial services disposition plus the EBITDA that we've been able to secure over the past years, we effectively got the Emergis Health business for free, and I think that's smart financial management and a good concentration of our strategy on the growth opportunity going forward within the health area. And then the other thing that I think is important is that we've retained a commercial relationship with that asset. So we can provide them with TELUS' services that supports what they want to do on the financial services front, so it will be a legacy commercial relationship that will continue on. Jim, over to you.

Yes. Look, our TELUS brand unlimited mix increased significantly year-over-year, up 34%. And the majority of our TELUS brand is now on unlimited. I think where you see data overage is still on the flanker space, but more and more of our Koodo customers are migrating up to TELUS, which is great news. And I think you got to get back to we continue to see benefits from the consistent high-quality customer additions, which is moving that mix to unlimited, and then our base management activities have really been minimizing the volatility around our rate plan changes. And so feeling really strong about where our ARPU is. And I look at the remaining 2% in the flanker space, has a huge opportunity to drive upsell and move customers towards unlimited, especially with the 5G device life cycle coming through, and that's a real opportunity for driving that upsell.

Next question comes from Drew McReynolds from RBC.

And obviously, congrats on the results and the outlook. It certainly exceeded my expectations. A couple for me. Maybe just starting with you, Doug, on the guidance. Thanks for the additional granularity just in terms of COVID impacts. Just remind us just kind of where the pockets of headwinds are lingering here for you in 2022. And then second question, maybe for you, Zainul, on the multi-gig kind of symmetrical household for Internet. Can you give us a little sense of really what the demand or how the demand for that is evolving within your fiber footprint? What do you see in terms of adoption and penetration of just the multi-gig and the importance that households put on the symmetrical side? And then lastly, just could you give us an update, maybe for you, Doug, just where you are with respect to assessing strategic scenarios or options for TELUS Health and TELUS ag?

Okay. Doug, why don't you kick it off? And then over to Zainul. Thank you.

So on the headwinds, obviously, roaming is going to be the largest as we look into 2022 and the speed of what recovery of way that may happen. We have highlighted that with a lot of the lockdowns in the first quarter, that roaming has fallen off a little bit from the trends we saw in the fourth quarter. So you'll see that pressure out of the gate, but we believe it will rebound as the year progresses. The flow-through impacts to health care and some of the transactional services have been a bit of a headwind with COVID but are improving substantially as the year ended. We haven't seen that slow down a lot with the recent changes, but it is a potential. And then probably the last one being business, and business is always going to be more volatile depending on the recovery plan. Navin has a lot, and maybe we can ask Navin to top up in a moment, Navin has a lot of plans on how we will actually turn biz and keep the momentum that we currently have in biz to overcome any of those headwinds. On the health and ag one and our future potential, we'll continue to assess it, and we'll bring back to you when the timing is right. But what we're going to continue to build assets of consequence. And any partner, any IPO, any timing around that will be a win for ourselves, a win for the organization to drive it further. And it will be strategic, not financially, make that decision.

Zainul, do you want to go ahead?

Sure. Absolutely. Drew, thanks for the question. So I think you had sort of a 2-part question, one on the adoption of 2.5 and the PureFibre X as well as what we're seeing in terms of upside on 1 gig and beyond. So I'll address those 2. Essentially, Drew, one of the things to think about is we've always made really smart capacity investments in our network. And so that the PureFibre X has certainly provided that speed advantage and the halo product of the 2.5 and beyond opportunity, but it's also driven by some capacity upgrades that we needed to do. So we're future-proofing our network, and we're doing it on the back of being able to provide incremental speed tiers. In terms of the take rate, Doug highlighted the revenue growth that we've enjoyed on the Internet front, particularly on residential, and what I would say there is that we still have a proportion of our customers that are not taking 1 gig, but a higher mix of our new loads that are trending to take 1 gig and more. So we have a ton of upside potential as we push customers up the curve in terms of taking those higher speed tiers. And in terms of customer demand for symmetry, we've seen that, I would say, explode through the pandemic. In the context of prior to the pandemic, I don't think a lot of customers would have recognized we were putting a lot of work into educating customers on the benefits of symmetry, the capabilities of PureFibre. But now that's a recognized benefit, and it's a valued benefit to pull customers into the PureFibre footprint. So we're seeing a lot of customers recognize and want the value of PureFibre in terms of the capacity to have multiple streams in their household, multiple video conferences, and of course, with our security services, multiple video feeds as well. So we see that demand continuing to increase, and we see the value potential and upside potential is very high.

Drew, just on the health front, and I've said this before, but I can't emphasize it enough, you can really draw inference from the model that we followed on TI as to what the future portends as it relates to both TELUS Health and TELUS Agriculture. The next thing is this is very much front of mind in the here and now for us in terms of that future and how we cultivate the optionality. And maybe just some elements that might be helpful to you. If we were going to do something with those businesses in the future, our desire, of course, similar to TI, would be to establish a transaction currency in servitude to the strategy. And the better the transaction currency, the better the addressable market of opportunities that we have. If we're going to get a great transaction currency, that's going to be down to the multiyear track record that we developed in advance in terms of double-digit revenue, EBITDA and cash flow growth for those assets. Secondly, we want to focus on scale. These assets have to be meaningful for us, what we call a TELUS asset of consequence, and creating that large yes is something that's very much front of mind for us. We are, and I highlighted this in my comments, we are pursuing market leadership. We don't want to be a player. We want to be the market leader in the select markets on health and ag, and we want to do that both domestically and prospectively at the international level. And of course, we're already with a foot in that camp on the ag front. And then the last thing that you can expect from us is we're going to bring our customer service excellence game to bear that has helped our core business so very much. And then every tech move that we make, when we think about fiber, 5G, our digital leadership, our cloud transformation and then the fact that we've evolved to being a broadband software-as-a-service company, that particular paradigm is going to be inculcated within the thesis for health and ag because they're going to be data analytic businesses. And then the other element that you can watch for is how we leverage the TI asset to support the growth of health and ag given the ambitions that I've just laid out, but this is very much for us here and now. We're thinking about it day in and day out because the results that we generate now set up a great transaction currency tomorrow because that's what the valuation is going to be predicated upon, including as well, obviously, the future earnings potential as well.

Next question comes from Jeff Fan from Scotiabank.

Just a follow-up first on Doug's comment about the guidance for free cash flow for 2022. Doug, I think you mentioned some spending related to handsets and handset investments. I just wanted to see if you can elaborate on that a little bit as to whether there is -- is this volume-driven purely or if there's some assumption regarding competition around handset subsidies? The second question is around the 5G ecosystem. I think, Darren, you've talked a lot about commercialization of new 5G applications as a long runway and opportunity. Just wondering if you can give us an update as to how you see 2022 progressing on that front and if there is any contribution, I guess, in revenue related to the 5G new applications in your 2022 guidance?

Doug, go ahead.

On the cash flow one, when you think through the last couple of years, digitization was a significant opportunity and success for us. There was a great mix of, call it, contracted customers and BYOD. And there was also a lot of deferrals of business and consumer customers who just waited to upgrade and not do it on a digital environment. So everything that's included in our 2022 forecast is volume-related. There is nothing built in to assume increased subsidy beyond a normal market condition.

Maybe I'll ask Navin to comment on the commercialization in just a second. You're quite right, Jeff. We've said repeatedly that 5G is a marathon, not a sprint. In a lot of other jurisdictions, the expectations have been overcooked, and I don't think that serves anyone particularly well. For us, as we deploy new spectrum, new technology and develop the right product, services and applications for commercialization that takes time, particularly given this is a B2B opportunity that we're pushing. I would note that atypically, at TELUS versus other companies around the world, we're progressing into 5G from a position of superior strength as it relates to both our 4G LTE network and its performance relative to 5G operators in other jurisdictions as well as the fact that our wireless network technology is complemented by our PureFibre network that underpins it. And of course, leveraging the network sharing agreement that we have in place with our partner helps everything in terms of deployment, the competitiveness of our functionality and the cost efficiency of putting the 5G infrastructure in place. But I do believe that this is going to be meaningful for this organization. It's not hugely material in our '22 results beyond the CapEx that we're spending to enable it. We're going to be pushing up over 80% coverage on our 5G footprint. By the time 2022 finishes off, we'll be operationalizing our mid-band spectrum, and we will have our stand-alone 5G network operational by the midpoint of the year. Clearly, the focus for us as you've got smartphone ubiquity leveraging 5G network connectivity is to be smart creators of data usage. The machine-to-machine opportunity within the IoT world is huge, and we are excited by it. And as you know, it has particularly pertinent applications in verticals that are key to us whether it's logistics, the manufacturing or ag and health care are pretty exciting. And of course, it's not just the data flows and the bandwidth, but the data analytics that you can monetize as well along the way. And we are excited by what that's going to do to support ARPU amelioration in the years ahead as well as the fact that the cost curve on 5G should support the margin strength of the wireless business. So I'll hand it over to Navin to give you a flavor of what we're thinking about from a commercialization point of view, as it relates to our product portfolio and the market opportunities that we're seeking to address.

Yes. Thanks very much, Darren. And thanks for the question, Jeff. So I would start by reiterating Darren's point that 5G and IoT is a marathon, definitely not a sprint, and we're quite bullish on our plans to commercialize 5G and IoT. And a big part of our return to growth in B2B overall is our ability to outrun declining parts of our business with next-generation growth capabilities, and we feel confident that we can continue to accelerate that growth in 2022 and beyond. We believe 5G and IoT will be a significant part of that continued accelerated growth, along with other key fixed and wireless next-generation services. And our plan to commercialize 5G includes a few components. So of course, fixed wireless solutions, monetizing mobile edge computing as well as network slicing capabilities. We'll also be enabling key vertical solutions. You heard Darren just speak about agriculture and health. Another key vertical is smart cities, where you may have seen our press release from yesterday around the ecosystem that we're creating for municipalities in partnership with Google and NXN. There will also be a number of horizontal capabilities that we'll be commercializing. So one example is transportation. Our recent General Motors strategic partnership being a great use case of what we're doing there. And in terms of IoT, we expect growth in terms of not only connections but also ARPU growth as we will see industry shifting on to 5G networks as chipsets and device availability improves and the number of the OEMs start embedding those newer 5G chipsets into their equipment. In addition, given the high quality and large volume of data that will come from the combination of our networks, both 5G as well as fixed broadband networks services and overall industry solutions and the ecosystem associated, we'll also see acceleration in our ability to add value to this data and monetize it. And Darren mentioned the importance of data in ag and health, and the combination adjacencies of our overall B2B data across those verticals will be a very important component of our go-forward commercialization plans. I would end by saying that all of this bodes well for strong growth in 5G and IoT devices, data usage and industry solution value-add use cases in the coming years, not only for our net new customers, but as Darren said, we have a very strong foundation of IoT subscribers that we can build off of and grow from.

Our next question comes from Vince Valentini from TD Securities.

I want to stick with that handset comment you made, Doug, for a second. I appreciate the color on just being volume-related that you're expecting, but just to make sure we have the quantum right within your guidance. It looks like it's about a $200 million to $300 million impact if we triangulate your free cash flow guidance versus the EBITDA and CapEx and interest and other -- and cash tax guidance you've provided. I want to make sure that sounds right. Or is there some other working capital usage that accounts for the delta in the free cash flow other than just handset volumes? Second, just a clarification from you is I want to make sure I just understand, when you're saying 7.3% organic EBITDA growth for TTech versus 6.7% reported. What are you adjusting for? Is that just the financial services business that you sold? Or is there something else? And then third, last question, maybe for Zainul, or Doug, you can take it. I want to just make sure I have this math right on the fiber program you're disclosing. So if you have 1.3 million fiber subs on a footprint of 2.7 million homes that are now upgraded or premises upgraded and 11% of customers in those areas are still on copper, that implies 1.46 million total customers on that 2.7 million total footprint or approximately 54% penetration. So I just want to make sure we're reading in, triangulating the numbers you're disclosing to us properly.

On the free cash flow one, there is some other small items in there, I'd say, when you include cash taxes and other items, but I would say they are less than 100 million. So your reconciliation is directionally reflective. On your second question, no, it's not the TFS sale that organic is. We actually have made some investments, particularly in our virtual platforms for health care that have required some investment initially that are paying off very shortly into the future, but we drive a lot of synergies with our product set. So there's actually the other acquisitions that have been a little bit dilutive out of the gate and the J-curve investment leading to that longer-term integrated strategy. So TFS, that is not an impact at all.

Zainul?

Thanks for the question, Vince. So I think the challenge on the fiber footprint and comparing that with copper is that as we continue to build out the fiber footprint, whenever it's a new footprint, we're, of course, in a lower state of both penetration organically as well as in a lower percentage of copper to fiber migrations for that respective new footprint. So in addition to that, the numbers that you've quoted, we've quoted in terms of our footprint represent both business and consumer connection and capability, and we look at that on a premise basis. And then to look at -- to try and triangulate that back to a share or penetration view, there's several things in terms of, is that footprint actually occupied? And then what's the rate of growth of occupation and the penetration of the overall Internet service? So it's not a clear triangulation. But I think what you can deduce from all of the disclosures that we've provided, is we're continuing to grow the footprint. We're continuing to penetrate the footprint, both organically in terms of net new additions as well as in the copper to fiber migration. And we're doing that at a very aggressive pace, and we are making commitments on ensuring that we get to a closure on that base by the end of the year.

Next question comes from Simon Flannery from Morgan Stanley.

Great. It was good to see that your margin -- your EBITDA guidance is pretty consistent with your revenue growth guidance for 2022. I think we're getting a lot of questions on inflation. You obviously flagged supply chain around inventory, so perhaps just talk to us about how you're managing costs and how you're ensuring that you're able to keep fairly stable margins in the businesses and what's happening with inflation in your various segments.

Thanks, Simon. There's a couple of items there. We definitely have worked through a lot of our supply chain to get multiyear commitments and ensure that we're getting the supply we need for a lot of the most essential services. But you are right, there are pressures coming in on, call it, the more variable supply chain that everyone is going to have on an annual basis. All the initiatives that we've been talking about in our capital acceleration from copper to fiber migrations, to the digitization investments, to the simplification programs that we've done with our customers is going the other direction and driving efficiency and effective throughout our business. So we're continuing to, say, offset and mitigate some of those external pressures with our internal operational excellence, and that is how we're keeping the margins flat to improving over time.

Okay. And any color on supply chain easing over the course of the year and better handset supply?

Yes. Q4 was an interesting quarter. It was quite competitive. We saw much more rate-based promotional activity from the flanker competitors due to some inventory constraints. On our side, we've weathered the storm very, very well. Our investments in digital, our investments in omnichannel capabilities enable us to optimize our inventory across channels. We weren't stranding inventory in our store footprint, and we could get our inventory to the customers and maximize the supply that we had. Additionally, our investments on CPO and Mobile Clinic played a really key role in providing additional device supply, which we benefited from. So we felt really, really good in terms of those investments, put us probably in a very good spot in managing the ups and down on the inventory. And then we're driving better -- also better mix and financial outcomes from that.

Thanks, Simon. Darren, over to you for closing remarks.

In the vein of trying to be helpful for investors and the analyst community, I'd like to postulate a 3-part model, which I would recommend be the models that you use to assess our business over the next 3 to 5 years. So module 1 within that construct would be our ability to leverage the significant momentum that we have created within our FFH and mobility business, both individually and collectively. And certainly, you've seen that in our results, and I think that bodes well that momentum for the future. Second component would be our B2B profit resurrection strategy so that we get an accretive profitable contribution, not just as it relates to '22 on the momentum front but thereafter on the B2B front, and that's been something absent from the TELUS story for the past 6 years. The other component of module 1 would be our leadership on technology. Clearly, for us, what we've been able to do on fiber, what we've been able to do on 3G, 4G and now 5G as well as our leadership position on digital is making a huge difference in terms of the competitive advantage. And when you combine that with the next element, which is our customers' first service excellence culture at our organization, yielding retention scores with customers that are global best, you have a lifetime value creation via wireline or wireless that, frankly, is unsurpassed. And then the last component of module 1 is cost reduction, cost reduction, cost reduction. We need to do it to fund our business, and we need to exact cost efficiencies from our tech investments from 5G and fiber all the way through to digital. The second module is our ability to scale and create value from TI, health and ag. So it's a simple story. We want to drive these business at scale, and it's a valuation conversation. We're looking to build significant value within that asset base and rinse and repeat on TI and follow the path of TI and whether it relates to health or ag. The third module is cash generation, and so it's a story for us of quality EBITDA growth coming from modules 1 and 2. sustainable, quality, significant EBITDA growth coming from modules 1 and 2, complemented by ameliorating capital appetite such that we get into a situation, a growing situation, where the sources of cash are chronically exceeding the uses of cash. And that is a fantastic combination of modules 1 and 2 in concert. And then, of course, the final element of module 3 is what do we do with that cash? And I think you know the answer to that question, which is returning it to shareholders. And so that's really the model for looking at our organization, not for next quarter, but for the next 3 to 5 years across those 3 modules as to what you can expect from us when it comes to value creation.

Thank you, Darren. And thank you, everyone, for joining us today. Please feel free to reach out to the IR team with any follow-ups. And take care, everyone.

Everyone, this concludes the TELUS 2021 Q4 Earnings Conference Call. Thank you for your participation, and have a nice day.