Good day and welcome to the TELUS 2023 Q3 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 third quarter 2023 results news release, MD&A, financial statements and detailed supplemental information were posted on our website this morning. On our call today, we’ll begin with remarks by Darren, Doug and Zainul. For the Q&A portion, we will be joined by other members of our executive 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 the U.S., including our third quarter 2023 and annual 2022 MD&A. With that, over to you, Darren.

Thank you, Roscoe and hello everyone. In the third quarter, our TELUS team once again demonstrated execution strength in our TTech business segment, characterized by the potent combination of leading customer growth alongside strong operational and financial results. This was complemented by sequential EBITDA improvement and margin expansion in our DLCX segment. Notably, we achieved our strongest quarter of telecom customer growth on record with total net additions of 406,000, up 17% on a year-over-year basis. This was driven by strong demand for our best-in-class portfolio of bundled services. Our all-time record customer growth is reflective of our dedicated team, who are passionate about consistently delivering customer experience excellence, leveraging our superior service offerings and digital capabilities over our world-leading wireless and PureFibre broadband networks. In the third quarter, we delivered solid consolidated operating revenue growth of 7.5% and resilient EBITDA growth of 5.5% in spite of the macroeconomic challenges TELUS International continues to manage through globally. Let’s turn now to our TTech mobile operating results. TELUS achieved leading and record wireless customer growth of 339,000 net additions in the third quarter, up 24% over this time last year. This included strong Mobile Phone net additions of 160,000, up 7%. Notably, this represents our best third quarter on record and our best quarterly result since the second quarter of 2008. This strength was driven alongside our continued focus on profitable and margin-accretive customer growth. Indeed, this consistent and disciplined approach will continue throughout the fourth quarter and into 2024 to ensure our net adds exclusively drive EBITDA and cash flow accretion. It also included leading an all-time record quarterly connected device net additions of 179,000, which was up 44% on a year-over-year basis. This reflects continued strong momentum with respect to our 5G and IoT B2B solutions that are so…

Thank you.

On that note, I’ll turn the call over to Zai. Zai, over to you.

Thank you, Darren. Amidst an intensely dynamic market, we remain steadfast in our commitment to our consistent strategy, demonstrated by our strong results and driven by our dedicated team, who relentlessly put our customers first, provide the best products and services in our industry and passionately believe in our social purpose. As Darren highlighted, our winning strategy has resulted in another record quarter for mobility loading, including robust share within the new Canadian and other key growing segments. In addition, our household intensification strategy is yielding impressive results. This has translated into industry-leading customer retention rates and strong customer loyalty. Our leading Postpaid churn is resulting in an industry-best customer lifetime value of over $5,900. Our focus on product intensity has yielded superior churn and also optimized acquisition and retention costs. While ARPU momentum has softened by competitive aggression, deceleration of roaming growth versus pre-pandemic performance and a skew in loading towards lower ARPU segments, we remain disciplined on quality profitable loading. Growth in the newcomer segment has been predominantly through our Public and Koodo brands, which are heavily digitized and have a lower cost to serve. We have achieved our tenth consecutive quarter of year-over-year network revenue growth, supported by a 60% year-over-year growth in the percentage of our base on 5G-enabled devices. Mobility direct margin growth is outpacing revenue growth by 35%, or 4.2% versus 3.1%, respectively. Our device subsidy per subscriber is declining at a 3.5x faster rate than ARPU as customers step up to access device discounts. And as a result of our transformative cost evolution, we have reduced overall cost to serve by 4% year-over-year. This underscores our historic commitment to focus on profitable customer growth, an axiom that has served us well in the past and one we will continue into the future. In…

Thank you, Zainul, and hello, everyone. Mobile network revenue increased 3.4% year-over-year, driven by strong subscriber additions, which has been supported by Canadian population growth. ARPU growth declined by 0.5% in Q3, given the competitive environment, particularly within flanker and as roaming revenue growth slowed. Overall, AMPU is strong as we predominantly focus on profitable loading, cost reduction and service delivery, managing device subsidies to higher value loading and as we leverage our leading digital capabilities. Our strong AMPU performance is further evidenced by our strong mobility direct margin contribution increasing by 4.2% in the quarter, notably exceeding mobile network revenue growth of 3.4%. On a year-to-date basis, ARPU is higher by 1.6%. And for the fourth quarter, we anticipate ARPU on a year-over-year basis to improve relative to Q3 through a continued focus on profitable loading, strong base management, leveraging our product superiority and bundling and including strong growth in connected devices. Fixed data service revenue grew by 4.9% year-over-year, driven primarily by strong customer growth in Internet security and TV and higher but moderating revenue per Internet customer. Within fixed data, residential Internet grew 10% year-over-year, a leading result primarily driven by continued market share gains. Health Service revenue increased by 88% or $197 million over Q3 last year, reflecting the contribution from LifeWorks as well as continued organic growth. As a reminder, we have now lapped the LifeWorks acquisition on a year-over-year basis as of September 1. EBITDA contribution in our Health business area, which excludes shared services from TELUS, continues to grow at a very good rate in the mid-teens, which will include any – which we expect to increase in 2024 and beyond, benefiting from organic growth, revenue cross-sell synergies and significant cost synergies. Overall, TTEC operating revenues were up 7.8% over last year, and…

Thanks, Doug. Mihai, we’re ready to proceed with the questions, please.

Yes, of course. First question comes from Maher Yaghi from Scotiabank. Please go ahead.

Great. Thank you for taking my question. Darren, can you provide some context around your wireless net adds in the quarter? I mean, I asked this because your numbers were strong even though you stayed pat on handset financing, sitting at a higher price point than your peers’ during the quarter. So what is it that allowed you to hit these numbers? And just as a follow-up on ARPU, you indicated that you expect ARPU to improve, Doug, next quarter. I’m trying to just understand what are the reasons behind the deterioration that we saw in Q3. Is it like mix shift, lower overage or a general decline in pricing across the different price points?

Given it’s his last investor call, I’ll give Jim the opportunity to hit the ball out of the park on this one as it relates to not just the loading answer, but the ARPU and the AMPU answer, why don’t you tackle both, Jim.

Thank you. Firstly, I want to thank you, Darren, Zainul and Doug and TELUS. I’m completely humbled by the words today. I really appreciate that. So despite the highly competitive environment, we saw strong customer growth and accelerating AMPU or margin in the quarter. We had our best Q3 mobile phone nets, and we were up 10,000 year-over-year. And that was driven largely by the new to Canada loading and strong bundling. But also, we had best-ever connected device additions, which bodes well for future ARPU. And we do expect improving ARPU going into Q4. And that’s really being driven by two things. One is our step-up programs are gaining momentum and compounding. And we’re lapping aggressive rate promotions from last Q4. So when you look at the loading, we are seeing and expect to see newcomer growth to continue. And though that growth is lower in ARPU, it’s predominantly coming in our Public and Koodo brands, which are heavily digitized and have a lower cost to serve. When you look at it, Public Mobile, which we’re excited about, Public Mobile, but Public Mobile has no retail commissions, no call center costs and no subsidies. So we’re getting – we’re tapping into that volume, but our costs are coming down with that lower ARPU profile. We also are doing well and expect to continue to do well from bundling, which is driving great household churn outcomes, not just for mobility, but across all of our products, protecting both our wire line and wireless. And they also come with the characteristic of lower device subsidy, as Zainul talked about earlier. The combination of the subsidy discipline, bundling and digital customer experiences are driving the meaningful EBITDA flow-through in cash flow. And as Zainul mentioned earlier, our device subsidy is declining at…

Thanks, Jim. I think that covers it very, very well.

Thank you very much.

Thanks, Maher. Next question, please, Mihai.

Yes, of course. Next question comes from Vince Valentini. Please go ahead, Vince.

Did I hear correctly that wireless EBITDA was up 4.2% year-over-year this quarter? Or was that some other metric?

It’s contribution margin. So in our financial statements, we disclosed as part of segmented info, the direct contribution. So that would be revenue minus, call it, direct costs. It does not include the allocated cost below direct margin.

Okay, thanks, Doug.

And that’s up 35% versus the revenue component.

Yes, I got that part.

To the margin growth.

Got that part. Thank you. And I want to ask, I mean, you are going to painstaking lengths to give us a lot of metrics to show how good the profitability is. And I fully agree, these all-digital brands can’t be judged just on ARPU if the profitability is good. But why give us so many metrics when every other company just gives us one simple metric called EBITDA, and then we can see how well you’re doing in terms of EBITDA growth versus revenue growth?

We continue to drive synergies and rely on our bundled products within our wire line and wireless environment. And when you can actually do co-selling cooperations and co customer service in each of those streams, your overall cost structure comes down on an integrated area. And so when we brought wire line and wireless together on a consumer and business level years ago, we’ve been monetizing those benefits and providing better customer touch points. So we actually don’t go down to that level on an individual product level anywhere.

Okay. And just to make sure we’re clear, the guidance on ARPU for the fourth quarter, you’re not saying ARPU will be up from Q3. What you’re saying is the rate of year-over-year decline will improve versus the 0.5% we just saw in Q3. Is that fair?

That is correct.

Okay, thank you.

Thanks, Vince. Next question, please, Mihai.

Alright. Next question comes from Jerome Dubreuil from Desjardins. Please go ahead.

Hi, thanks for taking my questions. The first one I have is coming back to Darren, your comment about the payout ratio in the future trending toward the lower end of your comfort zone. I think it was 65% to 75%. Just want to confirm that this does not include any drip going forward? And then related to that, maybe for Doug, what are the maybe free cash flow implications for next year? Not asking for guidance, but maybe directionally in terms of the items we don’t think about too often like cash taxes and interest rates. And what would be these assumptions behind that payout ratio comment?

Okay. So the ratio is not 65% to 75%, it’s 60% to 75% in terms of the payout ratio on the cash front. The comment that I made indeed indicated specifically in the quarters and years ahead that we expect through our EBITDA growth that we will be delivering, complemented by our significantly moderated capital profile that we will be pushing on the bottom end of that range, particularly when you do the calculation on a prospective basis. So you can do your calculations in terms of our 7% TTEC EBITDA growth this quarter are reconfirming of guidance for the full year. And where you think we would be shooting for in terms of EBITDA guidance in 2024. If you run those numbers, we would be hitting or falling through the lower end of the payout ratio range of 60%.And the point there, of course, is that that bodes well for the affordability of our 7% to 10% dividend growth model. It also is indicative of our confidence in the free cash flow picture for this organization. We don’t just expect to see significant free cash flow growth in 2024, but beyond 2024 as well. And we see that as a synergistic combination with the affordability and the expansion, potential expansion of our dividend growth model. Finally, in respect of the D-DRIP, our view here within management is that it’s a necessary mechanism at the present point in time. We look forward to the future of turning that D component of the D-DRIP off, given the free cash flow expansion strength of the organization and what it portends for the strength of our balance sheet.

And maybe just starting to the capital and EBITDA that Darren covered, the next three main ones will probably be handset investments on renewals. And I would say we don’t see a material change in that going forward. It would be cash taxes to your point. And again, I think there will be no surprises on that front. And then restructuring, and I think the only item to highlight is there will probably be some of the restructuring that we have executed this year or where the cash will be paid out next year. And when we give out guidance, we will be clear on the cash versus expense component to free cash flow next year. But other than that, I would say it’s very straightforward and clear, as Darren discussed.

And no repeating of union payments.

Alright. Thank you.

Thanks Jerome. Next question, please.

Alright. Next question comes from Drew McReynolds from RBC. Please go ahead.

Yes. Thank you very much. Good morning. Two for me, first, maybe for you, Doug, just on the cost savings that were actually realized in Q3. Obviously, they will ramp up in Q4. So, just wondering if you could highlight for us just what percentage we did see here in the quarter. And then secondly, in a bigger picture question, maybe for you, Darren. You have alluded to the transformation period that the industry is in. It’s probably always in some kind of transformation period. But I would love to get your just high-level view, looking out 3 years to 5 years on kind of where you see the major changes in the industry, whether it’s competitive, regulatory technology? And why I am asking this question is it looks like your playbook differentiates itself from your Canadian peers. And when I think about the contributors to growth that equity shareholders want to see, maybe you have a different definition of where those growth drivers come from over that medium-term. So, just at the high level, I would like to get your updated thoughts on that one.

Okay. Go ahead.

Go on savings first. On savings, it will be at full run rate, as we suggested, by Q2 of next year. I would say we will probably exit the year a little greater than 50% to 60%. And in quarter then if you prorated it backwards, it would be substantially less than half this quarter and approaching an exit rate of above the halfway run rate in Q4.

Thank you.

Drew, I really appreciate that tight question that you gave me. Let me just try and tackle this efficiently. I think the investments that we have made on the broadband front, both wireline and wireless, will be key in the years ahead, leveraging whatever the environment at that juncture will entail. For sure, our goal to commercialize and monetize those investments is going to be key. So, when I look out, I look at 5G and to-date, beyond faster speeds and bigger buckets, it’s not really delivered on its promise on the productization front, particularly within the B2B and B2B2C space. I am cautiously optimistic that over the years ahead, the productization on 5G is going to be a big value generator for our business because it’s going to be a big factor within the private sector, the public sector and consumer lifestyles. I think with that also comes the massive opportunity because of the data volumes generated for the data analytics commercialization and data monetization opportunity. So, I just see that as being massive. On the wireline front, I think it’s all about economies of scope. When you spend $7 billion position in fiber, I think the goal is how many differentiated RGUs that are meaningful to clients can you deliver over that particular mechanism to get the desired ROI, which is why you see us going from voice and data and entertainment into the areas of security, into the areas of health, into the areas of energy and home automation on both the wired and wireless basis. TELUS launched a strategy 23 years ago, saying that the future was all about data, both on wireline and wireless. And I think it’s as true or more true today than what it was 23 years ago. And how well do…

Thanks Darren.

Thank you, Drew. Mihai, next question, please.

The next question comes from Stephanie Price from CIBC World Markets. Please go ahead.

Good morning. You posted solid Internet net adds in the quarter. And I am just curious about what you are seeing in the West in terms of competition? But also what sort of contribution your non-Western footprint played in Internet adds in the quarter?

Okay. Maybe after my last answer, I will hand it over to Zainul to do this one, Stephanie. Zainul, go ahead.

Thanks Darren. So Stephanie, I think it’s important to highlight that what we are seeing in the West is pretty consistent. Our value propositions are resonating. We are continuing to drive bundled economics and bundled households, as we have talked about. And as Jim reinforced as well, that’s giving us some retention momentum that serves us well on the net adds front. And there are areas that we are continuing to build new fiber capability even though our CapEx is declining, there is still fiber new footprint as well as tenured footprint that we are growing into. And we are seeing a lower sort of rate of – or a higher rate of occupancy across footprint. So, that’s continuing to add to growth as well. I would say that the Eastern side is humble at this point. We are really looking at that in terms of we have been providing home security and automation nationally for several years now. In some areas, having a solid Wi-Fi, and high-speed service is the backbone of that. And we are also seeing bundling economics helping us with wireless base management in those areas as well. So, we will continue to look at that and again, really focus on profitable net growth based on the rate at which we are able to access facilities as well as the bundling economics of the base.

Thanks. And then maybe just one other one for me, just on TELUS Health and its trajectory now that the rebranding has been completed. It looks like revenue growth was solid in the quarter and there was obviously very strong EBITDA growth. How should we think about the changes you are implementing in the business to drive growth and the trajectory here?

I think there is lots of opportunity within the TELUS Health arena. I think we have spoken at length on the cost synergy front and provided the specificity on the $327 million cost goal alone within the $427 million envelope, Stephanie. And we have already realized $194 million of the $427 million goal along the way. The revenue and the cross-sell funnel is voluminous in the TELUS Health space. All of our products are hunting well within all of our theaters of operation Canada, the U.S. and Europe. And I am particularly bullish about the opportunity, specifically within employer health solutions, both at the physiological level, but also at the mental health level. And it’s not just the remediation component of that, but what we can do to promote and optimize a wellness from an employer health perspective, which fits beautifully with our existing thesis on workforce productivity. The AI from legacy – the generative AI opportunity in TELUS Health is extremely attractive. I talked about Fuel Ix on TELUS International and what we are doing with external clients, but TELUS and TELUS Health are also buyers of Fuel Ix in terms of what we can do to leverage our data thesis on steroids within TELUS Health and monetize that on a very, very attractive basis. And it’s all within the field of doability within the primary care ecosystem or dealing directly with employers along the way. And we set a goal for how fast and how significant we want to scale this business into an asset of consequence. And so the task that management has set for itself is what we call our 1450 program, where we are looking to take our monthly EBITDA within TELUS Health from the low $20 million to $50 million over the next 18 months. That’s an exciting program. It’s going to be driven by revenue growth through new product opportunities, new markets and cross-selling as well. It will also be significantly aided and embedded by our efficiency programs. But when we accomplish this particular program and get to that $50 million per month level or $600 million on an annualized basis with the CAGR that would underpin it, I think the valuation implications are relatively obvious, and we are certainly excited by those. And that’s the type of aspiration that we have got for this asset. And I think it’s doable.

Alright. Thank you very much.

Thanks Stephanie. Mihai, we have time for one more question, please.

Yes. The last question we have in the queue comes from Simon Flannery from Morgan Stanley. Please go ahead.

Great. Thanks very much. Thanks for fitting me in. Just a couple of follow-ups on 5G, if I could. You talked a bit about the opportunities here, IoT and other things. One thing we started to hear from the U.S. carriers more is a lot of interest in private networks. I was just wondering to what extent are you starting to see those deployments start to gain traction here? And then the other thing we are seeing a lot in is fixed wireless in the U.S. How are you thinking about using fallow capacity in 5G outside of your wireline footprint as a potential broadband alternative for bundling with your wireless service? Thanks.

Simon, that’s a very fortuitous question to conclude with. I want to thank you for it. Navin, fast ball down the middle of the plate for you, given the traction that we have got on the private wireless network front, so I will hand that one over to you. And Tony, why don’t you talk about FWA and how we leverage that capability within our connectivity portfolio in terms of making smart choices on connectivity and the economics associated with that?

Yes. Thanks very much, Darren, and Simon, thanks for the question. So, we have actually had significant success and had meaningful progress when it comes to commercializing a number of our private wireless network opportunities. Really, given our superior network leadership, we are very bullish on leading the market across all our segments when it comes to this important product set. We have a large funnel of opportunities to provide solutions, and they support critical use cases across many industry verticals. And interestingly enough, lots of ESG-related use cases to drive environmental efficiencies, as well as worker safety through autonomous vehicles, robotics, video analytics and security and safety device-type applications. And while we are talking about monetizing 5G, as you saw, we had record loading on connected devices this quarter. And a lot of what we are doing with connected devices bodes well for the future. And as we build out greater industry solutions use case, we expect acceleration across that 5G monetization capability. So, specific areas would be smart building technology solutions. You may have read the release. And of course, in Darren’s comments, we talked about Slow as an important new customer, new win, where we are in the process of installing 60,000 intelligent electric vehicle chargers across North America. Previously, we did something similar with JOLT, up to 5,000 EV charging stations here across Canada. So – and then lastly, we have got a lot going on when it comes to smart cities as well. So, this will be an important developing story and an important contributor to ARPU as we move into 2024. So, back to you, Darren, and then over to you, Tony, I guess.

Go ahead, Tony.

Thanks Darren. Simon, great question, the – what you are seeing in the U.S. with the millimeter wave fixed wireless access is something we are excited about as a capability, not yet available in Canada as the spectrum hasn’t yet been released. But ostensibly, we would see broadband connectivity leveraging PureFibre, we are economically feasible as the first choice is, by far and away, the best technology to deliver a broadband experience or a wideband experience, if you will. We would leverage our 4G and 5G mobile assets for mobile broadband connectivity. And we have been using our mobile spectrum to support wireless high-speed Internet in some remote and rural areas. And that will continue to be an edge strategy, particularly in low-dense community environments. And then when the fixed wireless millimeter wave spectrum becomes available, that will be probably the final piece in the connectivity jigsaw puzzle, if you will, excluding LEO satellite servicing areas where that plays a role. We would leverage fixed wireless access as one of our connectivity network measures to drive the widest possible extensible broadband coverage we can get. And of course, in some of those areas, you are going to be leveraging government subsidy where it’s available, as we have been doing very successfully for the past few years in remote and real communities. So really, it’s a mix of those technologies, Simon. And we would see, it will have a role to play. It will extend fixed network areas where maybe the geography or the cost in a term, particular terrain is prohibitive. And I will allow you to get that coverage – we will allow an attractive urban infill in certain circumstances, where tactically, you may want to deploy this in advance of a build that’s ongoing. So, we would expect to be utilizing the capability as soon as the spectrum is available.

Great. Thanks for the color.

Thank you, Simon and thank you everyone for joining us today. Please feel free to reach out to the IR team with any follow-ups you may have. And with that, Mihai, back over to you.

This concludes the TELUS 2023 Q3 earnings conference call. Thank you for your participation and have a nice day.