Q4 2019 Earnings Call
Conference recording has been turned on.
[noise] good morning, they ladies and gentlemen will come to the towards 2019 Q4 earnings Conference call. All makes for introduce your Speaker Mr. Robert Mitchell. Please go ahead.
Hello, everyone. Thank you for joining the call today, they tell us fourth quarter 2019 results in 2020 targets news release, and Ulundi named financial statements and detailed supplemental investor information are posted on our website at <unk> Dot com is wash investors.
On a call today, we have Darren Entwistle, President and CEO, Jeff Your ASP Executive Vice President and President and CEO tell US International does French executive Vice President and CFO, and Crosswalk <unk> group, President and share Aptose come back.
With that let me direct your attention just like to this presentation and answers to questions can be forward looking statements that are subject to risks and uncertainties made based on certain assumptions accordingly actual performance could differ from statements made today. So we ask that you do not place undue reliance on them. We also disclaim any obligation to update forward looking statements except.
Just acquired by law.
For each of the description of risks and uncertainties in our annual <unk> 2019, Mdna filed today.
Now, let me turn call over to you during starting on slide three.
Thanks, Robert <unk> and good morning, everyone. In 2019 tell US continued its track record of delivering strong and consistent financial and operating results in both wireless and wireline business line.
And the trend that tell us team has just demonstrated over a longer term continues in terms of the consistency the excellence and the diversity of our results across both our wireless and wireline business and it's.
Well it 2019, and indeed, the fourth quarter were characterized by profitable growth with a thoughtful balance between continuing to meet we expand our customer base and enhancing profitability quarter in quarter out year in Europe.
The fourth quarter concluded another year of robot client growth, where we added a leading 713000 net customer additions, while still achieving our annual revenue and EBITDA growth targets are now the ninth consecutive year.
We've realized this can gene performance. Thanks to the tells team's unwavering dedication to executing effectively on our long standing growth strategy.
Indeed, our team's commitment to providing an industry that customer experience over a globally, leading network enabled tell us to continue our leadership in respect of customer loyalty and retention.
The fourth quarter consolidated revenue was up and industry, leading three dot 3%.
Moreover, EBITDA increased an industry bad, but I've got 2%.
Our team delivered leading fourth quarter customer growth of 176000, net additions, reflecting the superiority of our broadband networks and customer service as well as our unmatched portfolio of products and services that are clearly resonating with clients both existing.
And new.
Turning now to take a look at our wireless business.
Fourth quarter network revenue expanded by 2% and was flat versus Q3 adjusting for the impact of lower wholesale roaming revenue and it was driven by our consistent focus on profitable high quality smartphone centric subscriber growth.
In respect of wireless EBITDA tell if it she year over year growth of almost 5%.
Wireless loading in the fourth quarter included 70000 mobile phone net additions down slightly over last year, largely as we purposely choose to remain on the sidelines, whereas some of the last economically sanguine competitive activity that was experienced in the fourth quarter of 20.
<unk> team.
Notably with an elevated level of competition in the low end to the market pre paid losses were offset by strong postpaid loading.
Fourth quarter mobile phone net additions were largely unchanged on a year over year basis when adjusting for this year do you see pro rata decision that occurred late in 2018.
Net additions for mobile connected devices 60000 were down 5000 in the quarter driven by tablet reductions of 3000, or 36000 fewer low or negative margin tablets versus last year that were partly offset by strong.
Long continued growth in our important aiotv business.
And just how it a wireless net additions inclusive of both more backbone.
And connected devices were 130000 in the fourth quarter.
Our fourth quarter results reflect the second full quarter of our peace of mind enlist eight or rate plans alongside our attractive tell us badly discount offering and easy payment device financing.
In addition to facilitating a substantially enhanced customer experience on the path to Fiveg deep service offerings are supporting sustainable customer growth enhancing our bodily option and enabling significant opportunity to improve the cost structure of our Oregon.
Asian, well offering customers attractive affordability opportunities pervasively across our three all brand Rotel is the koodo the public mobile.
We continue to be encouraged by the customer response to this exciting product portfolio, including strong adoption with over 50% of migration stepping up the higher monthly plans and tracking favorably to our original business plan of 70% step down.
Yeah.
This includes also robot digital adoption with online transaction, Oh, 85% on a year over year basis, and it includes a 40% improvement in on recoverable subsidies bad compared to previous plans and I think the long term benefits of that are going to be signet big.
Good for the Dallas organization in particular.
Well, if an average we've seen a decrease in the promotional device cost component of see away and see a war. It was amplified in the black Friday and holiday selling period.
This was due to the high level of competitive intensity around device promotion and the persistence of the subsidy model alongside unlimited data plan exhibited by some of our viewers in the industry.
Notwithstanding that easy payment provides compelling tools to enhance handset affordability such as zero percent financing.
Certified pre owned devices as well as trade in and bring it back offerings that are important for our clientele.
Looking at customer loyalty tell us once again led the industry wide considerable margin with our mobile phone churn rate of one doesn't do 2%, which was inclusive of both postpaid and prepaid results.
Notably this result is up to 63 basis points better than the blended churn rate posted by our key competitors.
The nine basis point increase over last year is reflective of intense competition in the consumer market and heightened industry wide churn in Q4, as new unlimited data and device financing offers continued to be stress tested through the busy selling period.
The extent of our churn leadership. It further illustrated by our postpaid churn rate of zero got 95% that we delivered in the fourth quarter.
Thanks to our frontline team members tell us achieved our sixth consecutive year of industry, leading postpaid wireless churn below 1% and in fact came in below 9% for the second straight year in 2019 building upon what we achieve.
In that regard into when he 18.
Finally at two of $72.79 in the fourth quarter was zero dot, we present or roughly in line with Q3, when adjusting for the impact of lower wholesale roaming revenue.
Well, we indicated that there could be some initial ARPU pressure from our analyst data plans as high value customers step down in particular through heightened market activity characteristic of the holiday season Encouragingly, we continued to see a relatively stable traject.
After eight with respect to ABPU and ARPU.
This has been achieved against the backdrop of industry wide robust data growth and increasing data buckets and ongoing trend that the industry will continue to navigate through the transition to larger data plans, leading up of course to the commercialization and ample of vacation.
Fiveg.
Data overage has now become a very very small part of our overall revenue and longer term, we anticipate significant ARPU step up and network service revenue expansion as customers move the larger data plans with improved momentum financially.
They grew twentytwenty and beyond.
Our positive results continued to be underpinned by our significant broadband network investment.
Thanks to the skill in innovation of our gene jealous earn tough spot from EU club in respect of network speed and coverage for the fifth consecutive time.
In addition, just this morning open signal relief its latest report with Canada, placing second in its global ranking behind only South Korea, a country that has already launched nationwide by GE and his consequently, known for its bath wireless be in.
The National report tell US ranked number one in Canada for network excellent our six consecutive win from open signal in this regard.
More specifically talented average fourg download speed of 75 Megabits per second it significantly faster than South Korea has averaged a 59 megabit per second within their fiveg framework quite an accomplishment quite Nick a comparison.
And a very strong notable for Canada in General these latest reports build on that can fitbit recognition that we've received every year over the last two years or more from JD power from PC Mag front to tell a in addition to those from open sake.
And who club.
Tell us is clearly the network leader in Canada, and a month, the very best globally, a key differentiator for organization and I would say a terrific springboard positioning on the eve of Fiveg being commercialized in our country.
Furthermore, a recent robust Pwc study on wireless affordability found that a smaller portion of Canadian household spending is used for wireless services as compared to countries such as the U.S. and Australia.
Indeed Canadians are spending significantly that as a percentage of income on the basket of services, including home phone postage photography audio video and predictive BT material that enhancing their disposable income overall.
Moreover, when comparing global unlimited plan on speed comparing them on access comparing them on data quality and cost per gigabyte, New Canadian unlimited data plan performed the best on average amongst the G seven as well as Australia.
The increase data consumption driven by unlimited data plan on world, leading Canadian networks will unleash substantial productivity and value for our economy and Canadian society, particularly when used in combination with fiveg.
Today, the telecom sector injects over $50 billion annually into our Canadian economy, which is more than 2.5% of our GDP with the advent of Fiveg to telecom contribution to our national economy is expected to quadruple the $200 billion.
Annually.
Notably candidate decade long facility based regulatory approach as incentive by billions of dollars of investment to build the infrastructure and deploy the latest technology from herbal urban rural confines that's required to view.
All our digital economy and fuel our digital society and answering some of the biggest social challenges that we pay on the health, Brian on the environment, Brian and bridging the gap on economic disparity.
It is these investments that have resulted in Canada being recognized its having amongst the best wireless networks in the world in terms of speed quality and coverage second only to South Korea, a country that is circa one 100 the size of Canada.
Moving now to wireline and are consistently robot financial and operating results in that segment of the business what a consistent story. It is in terms of this strength of our performance and detail is delivered another quarter of industry, leading performance industry, leading in respect of.
Revenue EBITDA and subscriber growth buttressed by our premium diversified and evolving product portfolio over our globally, leading network and underpinned by our industry best customer service.
In this regard fourth quarter wireline revenues increased seven dot 6%.
Importantly, wireline data revenue grew by 11% in the quarter driven by robot high speed Internet and TV customer growth strong performance in both tell its international and tell us how and solid growth in home and business security.
Wireline EBITDA increased by almost 6% driven by growth in Internet TV and tell us how as well as a solid contribution once again from tells international and of course complemented by our smart home and business security services.
Impressively, we're now in our eight year up consecutive quarterly wireline EBITDA growth outperformance unrivaled amongst our global peer group.
Looking now at our wireline customer expansion strong Internet net additions of 28000 were stable over the fourth quarter of 28 team industry, leading TV net additions were 15000 down 9000 over last year due to heightened competitive activity.
As well as an evolving landscape of increased over the top streaming services.
Moreover, strong residential voice resiliency continues to be a positive and highly differentiated story, but tell us coming in at 12000, net losses, which represent a 1000 improvement over last year and also represents our third year of flat or moderate.
Voice losses.
Security net additions of 15000, reflecting 11000 improvement over last year, driven by strong organic growth and enhance bundling opportunities.
Notably this excludes any benefit from our acquisition of 80, Canada, and we will look to build on our momentum in home and business security solutions, and Twentytwenty and well beyond.
When including our fourth quarter acquisition of 80 de Canada. Our year end security connections increased to include approximately 490000 subscribers, bringing our base to just over 600000 security customers as we've commenced twentytwenty.
Indeed, we remain excited with respect to this significantly enhanced scale and incremental opportunities inherent in this transaction, particularly on the back of the strong organic growth momentum that we've established and increasing scale that we've driven in our existing security business and recent quarter.
There is as we've been a north American leader in this regard.
In summary, we earned an industry, leading 46000 wireline yet argue additions in Q4, and notably tell what was the only carrier with positive wireline argues in the quarter and in the year, even when we exclude security.
These results also underscore the premium bundled offers available to customers across our highly diversified product portfolio, which includes the superior attributes of our internet Optik TV pick TV consumer out and smart home security and home automation offerings.
Our strong and consistent wireline and the combination of potent operating and financial results clearly highlights the importance of our data cave focus on delivering customer service excellence over what is truly a world leading fiber network.
In this regard during the fourth quarter, our team expanded our pure fiber coverage to approximately 70% of our high speed broadband footprint on our way to 80% coverage by the end of Twentytwenty. This positions us well not just for what we want to do in our future.
Your friend the home portfolio, but of course, the advent of Fiveg.
Notably 2019 tell us fiber burned a distinct.
Recognition of providing Canada is number one netflix streaming experience and being the country's best Wi Fi provider clearly our network awards are not just relegated to wireless but of course, they expand into wireline with this significant third party recognition.
And that we're earning on pure viber coming from the likes of Netflix and other organizations that have recognized our in home solutions on the Wi Fi bright indeed, more recently tell US was recognized as Canada is bad gaming Internet service provider for major iotsp than Twentytwenty by PC magazine.
These awards are a testament to the significant investments that we've made in our leading peer fiber network and the innovation and the spirit team work exemplified by the tell his team in putting customers first in every single thing that we do and every investment that we make and execute upon the strong and consistent but.
Formants, that's been delivered by the tell his team driven by our enhanced pure fiber offerings will support the continued and sustainable growth of wireline and wireless services and as I've said positions us superbly for the commercial rollout of Fiveg.
In addition to our broadband growth engine, our wireline results continue to be supported by our unique tell us how teluss AD Tech Entellus international businesses in a moment I'll hand, the call over to Jeff pure for an update on tells international and the exciting opportunities stemming from our recent.
The acquisition, which will propel tells international to the next phase of its growth as this business business significantly scales and drive significant customer growth and as well significant expansion in the economics of its operations from a scale point of view.
We also have ramped what Greg home with Doug that it's got to tell us how in the queue in a portion of our call.
In summary, good the success of our strategic growth investments in combination with our extra ordinary team delivering an industry best customer experience over globally, leading networks, we demonstrated our ability to consistently drive profitable growth over the long term in both wireless and wireline are.
Proven strategy gives us confidence again in delivering on the leading annual targets for Twentytwenty that we've announced today, including revenue and EBITDA growth of up to 8% and 7% respectively.
Capex is expected to further moderate in 2022, approximately two and three quarter billion dollars as anticipated and we've progressed materially of course on our fiber builds and that's reflected in our moderated capital appetite. This alongside strong EBITDA growth will support free cash.
Below growth opted to dot $1 billion before taxes, representing a year over year increase in free cash flow of 33%.
Without question, it's the unparalleled execution by our talented team that enables our shareholder friendly initiatives, notably our multi year dividend growth program, which now quite unbelievably is in its 10 year in 2019, we returned more than one dollar $30 billion the shareholders building on the close.
The $18 billion, we've returned to shareholders since 2004, which represents almost $30 per share.
Consistent with the approximate 7% dividend growth achieved in each of the last three years and following six consecutive prior years of circa 10% annual dividend growth. We continue to target an additional seven the 10% annual increases in our dividend in Twentytwenty.
See through Twentytwenty too.
Notably in 2020, we expect to be comfortably within our free cash flow keep free cash flow payout ratio guideline of 60, 75%.
Our dividend growth program is supported by our robust twentytwenty targets that we've announced today, it's supported by our track record for delivering against these goals and our expectations for significant free cash flow expansion not just in twentytwenty, but in the years to come due to a potent.
Combination of moderating Capex and strong EBITDA growth.
Further amplified the success of our leading track record of shareholder friendly initiatives, we've announced the two for one shares split that will become effective March 13 2020.
In conclusion 2019 represented another strong year, where they tell us organization and our investors and our 2020 target reflects our team's commitment to building upon this level of performance and Twentytwenty and the years thereafter.
I'd like again to take this opportunity to thank the tell his team for their innovation skill and grit and consistently delivering on our strategy navigating a challenges that we always encounter along the way and for how this translate in a strong results for our customers strong results for investors the economy and the communities where we live.
Where we work on where we serve.
The positive outcomes generated by our focus on adds three key societal issues enabled us to create value for all of our stakeholders in 29 team, including supporting tens of thousands of Canadians through our connecting for good initiatives, which provided almost 40000 Canadians from low income.
Finally access to low cost subsidized high speed Internet through tell us Internet for good supported almost 4000, you aging out to foster care with access to a free smartphone and Threed data plan through tell us mobility for good.
And finally supporting 22000 Canadians living on our streets with access to mobile healthcare with our tell us help bring good mobile clinics.
And that inspiring note I'll turn the call over to Jeff to provide some color on or tell us international operations, Jeff over to you.
Thanks, very much there and good morning, everyone. At the end of January we were very pleased to close the acquisition of CCC, a leading provider of higher value added business services with a focus on customer relationship management and content moderation.
The expanded capabilities of our combined companies will further elevate it globally admired customer experience and innovative digital solutions that are synonymous with the tell us International brand.
With this acquisition tell us international size scope and reach has now grown to encompass almost 50000 of the most inspired team members, providing customer experience digital transformation content moderation I T lifecycle advisory and digital consulting rich.
Management and back office support in over 50 languages for more than 50 delivery centers in 20 countries across North and Central America, Europe and Asia.
This significant increase in tell us international scale and important and differentiated growth driver for tell us will support telesis consolidated financial and operating results, including revenue EBITDA and free cash flow growth.
The merger will also support our global leadership in customer service excellence over our world, leading broadband network in Canada.
Notably this transaction substantially increased tell us internationals estimated enterprise value to approximately $5 billion up from one to 2 billion just over three years ago.
On a pro forma basis tell us International's 2019, combined annualized revenue surpassed one dot seven $5 billion with EBITDA of over $400 million.
The acquisition of CCC will be immediately revenue and EBITDA accretive to tell us and to tell us international as well as EBITDA margin accretive to tell us international.
Additionally, given the moderate capital intensity of the combined business at circa mid single digits. The transaction will support immediate free cash flow expansion.
Moreover, the acquisition of CCC further bolsters the continued advancement of tell us international successful growth strategy by positioning us well for a potential future initial public offering targeted in the next 12 to 24 months, thereby providing us with the transaction currency to support accelerated continued growth.
In the years to come.
Looking ahead, we expect tell us international EBITDA margins trend on the higher end of the 20% to 25% range and we anticipate another year of double digit year over year organic EBITDA growth for Twentytwenty. We're very excited about the bright prospects ahead for our organization in terms of the opportunity.
Yes to both grow our customer base and expand services to our current customers as well as those directly stemming from the acquisition of CCC, all of which will propel tell us international toward our next growth Phase. Let me now turn the call over to does it to provide some additional details on the fourth quarter and on our targets for 2020, Doug.
Thank you, Jeff and Hello, everyone.
Let's begin with review of our fourth quarter results, starting with wireless on slide 10.
Well as revenue decline veered off 5% and was impacted by certain non operational items, including an atypical decline and wholesale roaming revenue in the corner as well as the lapping of gains on sale of assets from the prior year. After normalizing. These wireless revenue increased by zero about 2%.
Underlying growth was driven by an increase in network revenue of wind up 5% or 2%, excluding the wholesale impact due to a higher subscriber base, primarily offset by a 4% decline decline in equipment revenue due to more bring your own device loading increase device financing transactions.
And intense competition around device promotions gift cards and subsidies during the holiday season.
Excluding the wholesale roaming revenue impact mobile phone ARPU growth would have been zero down 3% versus the reported decline or zeroed out wine and ARPU would have shown a decline of one down 2% versus a record a decline of one dot seven.
These trends are being driven in part by our new service offerings, including peace of mind easy payment family discounts, partially offsetting the reduction in overage revenue and promotional activity. Despite an intense competitive corridor wireless adjusted EBITDA increased by six that 9% or.
Got a excluding the previously mentioned items.
This is reflects higher network revenue growth lower operating expenses and the implementation of IR for F 16.
On a pro forma basis Frac Rsixteen adjusted EBITDA increased a healthy three dot Weiner, Florida nine excluding the above mentioned items on a pre IYR, perhaps 15 basis, which reflects more of a cash contribution adjusted EBITDA was higher by almost 8% for the quarter, reflecting our consistent approach.
Roger focusing on smart profitable subscriber growth, we saw strong adoption of our easy pay plans and started to recover more subsidies than previous previously.
In wireline Exterran on slide 11 in wireline external revenue was up 66% driven by a synergistic acquisitions and organic data revenue growth of 11%, primarily driven from organic growth and tell us international and tell us how increase internet enhanced data service revenues, reflecting.
Higher revenue per customer as well as a six dot 6% increase in our internet subscriber base over the past 12 months increase TV revenues, reflecting growth of six dot one of our subscriber base over the past 12 months and revenues from our home and and business Smart technology lines a bit.
And it's including security.
Wireline adjusted EBITDA increased nine down 6% reflected an increase margin contribution from palace international higher Internet margins higher tell us how margins and a growing security business and the implementation of IRS 16.
In addition, after normalizing for the gains on sales of assets for a period ago external wireline revenue and adjusted EBITDA increased by seven Dot sex and 13 dot three respectively for the fourth quarter.
On a pro forma basis, excluding IRS 16, adjusted wireline EBITDA growth of approximately two dots X four or five dot nine excluding the asset gains.
Notably once again, we led the industry on wireline EBITDA growth on both the recorded as well as an excluding IR for US 16 basis. This reflects the value of our fiber investments and the quality of our unique tell us international and tell us health businesses.
Consolidated revenue and adjusted EBITDA growth continued to be driven by positive grow contributions from both our wireless and wireline operating segments as highlighted on no 13 consolidated Capex is 472 million and was up for about 4% compared to Q4 last year, reflecting our capital intensity of 19%.
Flat to the same period a year ago.
At the end of a corridor more than two dot 2 million premises or 70% of our high speed broadband footprint of approximately three to 2 million premises were covered by our tell us.
Fiber network.
Free cash flow before income taxes increased 22% to 209 million or free cash flow of 135 million was essentially unchanged from year ago.
It's important to remind investors the adoption of IRS 16, and I, perhaps 15 as an accounting change only it does not affect our economic results economic finding our financial position or the cash flows of our business. Our free cash flow metric is calculated by adjusting for these items that are non cash.
I've summarized free cash flow continuity is in the appendix of her presentation.
Overall, despite the competitive environment, we finished the year of another strong quarter financially and operationally, allowing us to achieve our original.
2019 consolidated targets for revenue EBIT, adjusted EBIT da and basic earnings per share.
With our consistent strategy and market execution, we continue to drive economically accretive customer loading, which will support future profitability and sustainability of cash flow, while continuing to offer the best customer service on the best networks as Darren mentioned today, we're establishing our industry leading to.
Turning 20 solid financial targets as shown on slide 15.
Lets them or 2020 assumptions can be found in our disclosure also provided today consolidated revenue growth is expected to be 6% to 8%, reflecting the continued growth of data services supported by our strategic investments in advanced broadband technologies and our leading networks. In addition to the close.
Tons, including 80 and CCC.
Our 2020, adjusted EBITDA is targeted to be 5% to 7%.
Adjusted EBITDA growth reflects higher revenue ongoing EBITDA contribution from tell us how often tell us international as well as the continued focus on operational efficiency and effectiveness.
And 2020 total restructuring and other costs are expected to be approximately 150 million, including certain 80 integration costs.
It's also worth noting that the margin contribution from BTG is expected to be below its normal run rate as we incur integration and customer experience improvement cost in 2020, we expect 80 t. margins to return to more levels in 2021.
Our leading EBITDA growth rates are inclusive of a higher pension expense due to lower accounting discount interest rates as well as the new see RTC broadband fine together. These two items impacted our EBIT the estimate EBITDA estimates by approximately 50 million or 1% of growth.
We'll expect to continue our investments to support growth in AG Tech, where we were adding another element of diversity to our operations building on the success of tells international as well as tell us how.
As previously disclosed we're reiterating our capital target for 20, and 21 of approximately seven to 10.75 billion per year.
Our Capex plan reflects the continued expansion of our leading fiber network and ppas positions positions, our converged network for future capabilities that Fiveg networks will enable while supporting sustainable free cash flow expansion.
Our growth targets combined with our moderating capital expenditures result in a free cash flow targeted at one dot four to 1000 7 billion, we expect our dividend payout ratio.
To be 60% to 70% of.
Cash flow on a perspective basis importantly, our 2020 financial targets are supported.
Of our multiyear dividend program first announced in May 2011, under which tell US has achieved 18 dividend increases.
Sure I conclude I want to spend a moment to discuss and important reporting change coming later in 2020 as highlighted on slide 16, and our disclosure today, we were retrospectively recast our reportable segments. Later in 2020, specifically, our current wireline and wireless reported mint reportable segments, where we replaced with two new.
Reportable segment telecommunications inclusive of both wireless and wireline and a segment capturing tells international.
[noise] change is how we will grow and manage our business and continue to build our converged network technologies and the commercialization of fixed wireless solutions has made an increasingly difficult to distinguish between our wireline and wireless operation and cash flows and the assets in which they they use.
Additionally, it is to reflect palace International's continued expansion and enhanced scale and significance to our consolidated results as we plan to go public and 12 to 24 months.
These progressive changes are now how we will be running reporting our business into the future and looking at resource allocations.
Importantly, we do not anticipate a significant change of the reporting of our products and services revenue and we'll continue to disclose mobile and fixed revenues as well as Cape size on a subscriber related results.
M&A draft of the new reporting structures available in the appendix.
We will look forward to showing you more as we go forward.
Looking at we remain excited about the future cash flow opportunities across our unique and growing asset base, our generational and superior fiber build out continues to lay the foundation for the evolution to fiveg positions and and tell US is broadband network among the both among the best globally, we continue to maintain our transport.
And and leading dividend growth program and our commitment to balancing the interest of all tell US stakeholders now let me return it back to Robert for County.
Thank you Doug May can you. Please proceed with question some Q.
Of course, so first question comes from a Simon Flannery from Morgan Stanley. Please go ahead.
Hi, This is at the Gopro Haas on for Simon.
Firstly, how is competitive intensity trended in the early part of the air and.
How do you expect that trend over the.
The back half of the year are you also expecting handset supercycle driven by.
Fiveg handsets and then.
Second on the IP do you expect this materially drive down subsea this year or one when should we expect that benefit.
Thank you.
Yes, so I'll start off the second half and then Darren can talk to the competitive nature.
As we a.
We currently experience, we do expect to be recovering more handset.
Subsidy as we progress throughout 2020, we have seen a good traction on.
The device financing or that easy pay plans and our unlimited plans as Darren mentioned in his item and we're looking to where else through our product base. We will continue to roll that out in 2020. So we saw very good traction on recoverability as compared to.
The first part of 2019, and we expect that trend to continue.
And as it moves further into the flanker brands on the competitive front and it continues to be competitive.
And I would say.
We expect to be normal course, and I think as a.
The the offerings.
All right there in offering more to our customers at a reasonable rates I think.
To see that as a continuation from 2019.
We expect for Doug's comment.
We will have robust growth in 2020 in the face of a highly competitive environment I think it would be positive to see a delineation between subsidize Asian and as it relates to our.
Deployment of unlimited data plan and device financing and to see that delineation hold fast during promotional selling seasons over the course of the year I think thats the right set of economics for our industry prospectively, but we're expecting.
Within the context of robust competition to deliver and pointing 20 significant and profitable customer growth building on the strategy that we've had an effect in terms of profitable.
Customer expansion for the last few years.
Without a doubt we're looking to deliver improvements in network revenue growth over 2020 with growing momentum that takes place throughout the year seen ARPU and ABPU stabilize and then as we work through the re rate as well.
We get into the second half of the year 2020 in terms of the lapping embraced the back of the migrations to see continued expansion in network revenue growth as it relates to profitable client expansion.
Great. Thank you and as a quick follow up on the IP.
How much of the IP working capital drag is within the free cash flow guidance.
Others. If you if you saw our disclosure you would've seen that our device financing our ERP plans on increased in the period by over 300 million and so part of it was definitely the the financing on nine and you'll see a little bit of that into a 2020 as well.
But at the end of the day economically.
It will drive better outcomes for the long run AG as we see more recoverability, the subsidy and programs such as bring it back as well are definitely economically accretive on on how we manage through that.
Great. Thank you.
My next question please.
Alright.
Question comes from model Yaghi from my because of them. Please go ahead.
Thank you for taking my question.
My first question is on the trends and ARPU degradation that you saw in the quarter I mean, that's an industry wide phenomenon.
Pricing, maybe you can maybe talk a little bit about the trends that you see going forward.
I will reach to may be across and in terms of the pressure or there's still some to be seen.
In terms of.
The year on year degradation and ARPU.
The second question I have isn't there right.
Forward looking segmented reporting changes that you're planning.
So interesting to see that.
You are looking to remove some of that but.
Segmentation on.
Fixed and mobile can you talk about why.
This decision at this point.
Recognized.
The versions of the networks and.
Going forward, but there's still some really high level operating costs can be split. So maybe just talk about your view your view and the vision on this phenomenon often integration enough wireless and wireline once told me into Europe.
Product sales operation and marketing.
Okay Mer I'll kick it off and then handed over to Doug to talk about the segmentation component.
Firstly as it relates to ARPU and ABPU.
As Doug indicated in his remarks network revenue was impacted in Q4 by us atypical nonrecurring decline in our wholesale roaming revenue when you normalize for that roaming impact the trend is completely consistent with the result that we posted inc.
Q3 to be specific about that app, we want to normalized basis would be dots be present and network revenue growth would be at 2% and I think we're in a pretty stable position right now the underlying economics from our peace of mind device fan financing.
And family discounts are all all moving decidedly in the right direction Portales on I think thats going to yield.
ARPU MPU.
Stabilization and growth through 2020 that will be reflected at the network revenue line No. I gave you some color during my remarks, but just to give you little bit more insight into that.
We're looking at 50% of total migrations.
Being either step ups or flat to our business plan.
And that original business plan as I remarked upon had anticipated 70% step down so we're doing better than what we anticipated and clearly theres an appetite for larger data buckets, which I think is only going to get amplify as we progress into the fiveg environment.
Encouragingly as it relates to the and prove economics of our business to go with ARPU in Abu stability ever seen a 40% improvement in the Unrecoverable subsidies, Ben as compared to our older plans and I think thats going to pay economic dividends.
Prospect of Lee for our organization and bodes, particularly well for 2020 and beyond.
Encouragingly, we are seeing extremely strong digital adoption, our digital transactions are up almost 100% on a year over year basis with our smart simplification activities at clearly supporting the scaling a better digital results and I think that bodes well.
Now for cost efficiencies within our call centers.
And also it bodes well for leveraging the digital business that Jeff is building I'd tell us that international.
Buttress, the economics of our wireless business in Canada.
Data usage as I indicated right now within the Fourg context is up about 40% on the unlimited plans, where is where we're seeing an average data appetite just over five gigs and of course, I think thats going to get extenuated within the Fiveg.
Construct and then lastly, as it relates to smarts in for vacation, it's driving a strong holistic reduction in our operating cost areas, including reduction in contract credits inbound call volumes through the simplification and the like and I think that bodes well for.
Our business overall, and so I think encouragingly, what you can expect prospectively in 2020 is strong and steady performance as we continue to migrate to the new offerings again with our characteristic strong focus on profit.
The ability and cash flow, we expect to see continued growth in revenue network momentum through the year with ARPU ARPU stabilization and accretion I, particularly the ABPU level as we work our way through the re.
Rate as we lap the launch as we get into the third quarter or second half a 2020 and as we break the back of the migrations, which will happen.
In 2020, so if we can generate results like this in the re rate period. If we can generate results like this in the migration period I think the in the second half in particular a 2020.
It's very attractive indeed in that regard and again I would encourage you not just the look at ARPU and ABPU stabilization and network revenue growth, but what it means that the ABPU level because of the simplification characteristics of our peace of mind plans and device financings and.
Finally discounts and of course once again as you relate to the the economics of our business Holistically, we're seeing a highly differentiated level of retention to accompany what we're generating on a per client basis at the absolute level generating lifetime revenue.
So.
That are 45% to 70% better than our peer group and I think that that bodes well for this organization prospectively.
Go over to you yeah and on the segmentation front, we've been disclosing for multiple years now.
Convergence that was occurring within.
Wireline and wireless and that's not just networks. So networks is probably the more obvious one and especially as we get into Fiveg delivering high speed broadband at speeds that are not far off each other if not identical allow you to deliver the service then and whatever medium unit you you feel.
Will fit during that region.
But as you look as well and we've been talking for years as well on how do we continue to integrate our multi products and then homes.
And we start marketing and looking at our even our new.
Enhanced I guess security offerings with the ABT acquisition wireless and security have definitely synergies that go hand in hand, our wireless and help have definitely synergies that go hand in hand, and so as we look forward, we will absolutely be marketing and and changing our enhancing the multi product opportunity.
That we have through both wireline and wireless.
That it becomes a in essence, one product set.
As we look forward as mentioned, though we will still be reporting some of those items that you referred to so topline revenue on a product reporting basis for internet versus wireless will still be an opportunity and still be disclosed. So we will start still show net ads.
I will will show a data versus wireless revenue on the on on the wireline side.
Down to probably more of a margin or gross margin level versus rate to EBIT da and.
And so you'll still have a leading indicators of where growth is coming from and the type of margins to expect because of that and then we will definitely drive synergies between the DNA levels, which are substantially shared today.
Thank you.
Next question please Mike.
Yes next question comes from a true Mcreynolds from RBC. Please go ahead.
Oh, Thanks, very much two questions from me first maybe for you Doug on the 2020 guidance. We're all getting some questions on whats organic versus acquisition related are you able to unpack that at whatever level you're comfortable with.
On that and just a point of clarification on the Eightd, Canada margin, what kind of margin would you could be considered a normal margin just for modeling purposes and.
Lastly, perhaps for you Francois.
We've got pretty good detail here on tell us international.
I love to hear what the outlook is here for for tell US health looking into 2020. Thank you.
So on your first line.
We will no we haven't broken out the organic versus not I think highlighting the pension and.
Regulatory impact is showing not that differential.
Thank you you can take the trajectory of all of our assets are continuing to grow and Oliver assets are very strong on that front as we talked about in the past.
I think.
When you get to the 80 margin I think it would you would assume would be margins in wireline zones, so in and not zone as being a normal but will be definitely.
Substantially lower than not in 2020.
Oh, Thank you Andrew.
Truckload here on the health side of things that offer to over three point. So first I would say that we continue to expect how we are very exciting area of growth for Thomas. This is on the back of an increasing in freight emphasis on chronic chronic disease management.
The enhanced focus that we're seeing in the marketplace for from both consumers and employers alike on optimizing wellness.
Benefits that are leading network in innovative technology and deliver in terms of efficiency and effectiveness within the healthcare sector.
But then I would say as the leader in their Canadian market. We are really in the unique position. When you look at the breadth of asset that we have from electronic medical and Health Records Pharmacy management systems employer health offerings consumer health offering benefits management for insurers and extended healthcare provider.
Owners and platform with like China does electronic prescription service.
In addition, we have now increased our reach to include business to business virtual care enabled by mid assistant material. These two acquisitions with the launch of Babylon by telescope.
In March of last year are giving us and consumers and implores access to convenient for personal care. That's alleviating the burden on walk in clinics and emergency rooms, and helping over 5 million Canadians without a doctor today.
Our fast growing consumer health business is also enabling us to have more touch points with our consumers in terms of expanding our bundled services from ability Internet TV home phone smart security and home automation to now include virtual care on personal medical alerted services.
And finally.
In terms of financial we've seen in 2019, our revenue from our home health verticals.
Witnessed strong growth, reaching now almost $800 million and as a reminder, this is that on the back of our health solutions, which make up the majority of this portfolio and the remainder of being the broadband services, we offer to our VTB outcomes.
Within health solutions, our EBITDA, our tubular achieved double digit growth in 2019 with improving margins that continue to support our broader long term goal to deliver 35% and work our wireline business in terms of margin.
And finally, when you look at 29 team I think we're going to continue on the same thread of double digit both on the revenue side and EBITDA in terms of growth for 2019, as we scale our business through organic growth partnerships and acquisitions now, let's sell is well positioned and will be a meaningful contributor.
Through to our consolidated financial and operational performance.
That's great that's why I appreciate the color. Thank you.
All right.
Next question comes from.
Thanks Valentini from TD Securities. Please go ahead.
Thanks very much.
So first Doug.
The new segmentation I assume you're going to give us restated numbers for 2019, and hopefully 2018, even on the new basis. So we can build a model and compared to you know when we'll get those.
Our planning to do 19 for sure all I'm not sure about 18, but well we'll take that away.
And it will be before we.
Launch so you'll have.
Adequate time to redo their models, but not X dare to you're talking closer to Q1 release.
Yeah, it's not the next day or two it'll be months.
And you say.
Now lets international segment. It is that just tells international the 62% owned entity or is there any other 100% own tell us operations that again included in there it's just.
Sorry.
So healthcare so within fixed revenue for now that's correct.
Okay.
And bigger picture question.
Just on.
ARPU in service revenue trends.
Correct me, if raw probably for you Darrin.
On the Q3 call.
I thought I'd heard you guys talking about being gradual with the movement to unlimited plans and and easing off of the overdraft renew at a more moderated pace than one of your competitors. Your commentary today seems adjusted by Q3 of this year you will have lapped most of the migration cycle and start to get back to favor.
Full year over year comparisons on total ARPU and an implied overage revenue impacts is is that the cases is the overall revenue going away of it faster than than what you may have thinking on the Q3 calls.
No.
I think that will be and erroneous conclusion, Vince I think it's not going away faster. The key takeaway on overage is that our exposure on overage is de Minimis and we're basically in the position now where we have broken the baca about particular challenge.
The comment that we're making related to 2020 at really just has two components. One is we'll get a year over year, albeit the lapping benefit as we get into the Q3 period of 2019 and given the launch of peace of mind at the start of Q3 in 2000.
18, our 2019, rather and then of course, we will have broken the back of the migration at challenge over the course at 2020, which will expose us to greater and greater economic accretion that you'll see in terms of expansion at the network revenue level and stability and.
Accretion as it relates to our ABPU and Ampoule economics, and an increased improvement in overall profitability as a result of that particularly with the amplification of data growth within the Fiveg construct that's why we felt it was important to talk.
About.
The fact that we're seeing fewer step downs.
Talk about what progress we've made as it relates to the and Unrecoverable subsidy component, which is going to be an increasing economic contributor for us and as well. This significant data growth that we're seeing averaging out now over the five gig level and in particular cost efficiency costs.
Efficiency and cost efficiency as we have significantly simplify our wireless business model in this regard in a way that fits very well with customer expectations that are out there from quality service through two affordability constructs.
The other thing I think thats important.
Is that we're not saying that this is all on the com.
Post the lapping.
Post break in the back of the migrations, what we're seeing is well delivered strong results three the lapping I'm. So we'll deliver that and I think these results reflect that and.
We can deliver strong results through the migration period and I was.
I wanted to emphasize that particular component and if you go back and have we'll look at a wireless cash EBITDA construct for Q4, we almost hit 8% wireless cash EBITDA growth for the quarter and for the full year, we're in the circuit, 7% zone.
So I think Thats had pretty good going overall as we are in a attrit transitional period, and then lastly is the free cash flow story component. When you look at them improving economics, both in terms of profitable top line, but flow through to the.
EBITDA line in both our wireless and our wireline operations. When you look at the increasing contribution from T. I a at the EBITDA level and complement that with a moderating capital appetite I think we've got a strong free cash flow story not just for 2020 at.
Greater than 80%, including taxes and 33% excluding taxes.
But a propagation of that story in terms of chronic strong growth in cash beyond 2020, because of the EBITDA growth complement against the moderating capital appetite and seen that growth coming from wireless wireline and T. R and so that's really the commented drums.
The ARPU ABPU ABPU flow through to the overall of wireless economics, complementing that with wireline and TR.
Okay. Thanks for that and last one Doug for you.
It looks like EPS guidance is not on your less this year, but it can you give any color on that metric. It last year EBITDA growth was good but DNA expense went up by almost as much LTPS only went up a penny does someone is better EBITDA and free cash flow growth in 2020 translate into better EPS growth as well.
We didn't have that in our projection at the moment, we did disclose depreciation and amortization, though in our assumption.
And so maybe we'll just take that off and get back to you on the exact exact where hum rough rough Fisher. Thanks.
The alignment there Vince was just really responding with the industry in terms of expectations that theres setting with the street, having drifted from as to cash flow and so we thought that that was appropriate and then secondly, given the dividend growth model was such a big component of the tell a story. The fact that we're doing.
I mean, the dividend payout ratio range as a percentage of cash flow at the 60% to 75% zone and talking about the type of dividend accretion that we want to deliver over the next three years, we thought that that was a a better metric construct the guide the street towards.
Thanks, Vince next question, please Mike Alright.
Next question comes from a Arvind go up but to get from Canaccord Genuity. Please go ahead.
Thanks for taking my questions from me.
Darrin on Fiveg I was wondering if you can generally provide a roadmap.
From here on obviously, you've talked a lot about the significance of fiber there and we have a center the spectrum auctions, but when you think about radio equipment. When you think about the transformation of the core network and the upgrades that are required. There can you give us a sense of what I said the milestones off from here on and the timeline.
And then secondly, with respect to tell US International I was wondering if you can talk to sort of the revenue mix that thinking about say at the mix of digital I'll call it to IP type services.
Good for the high growth segments within that we satisfied with that make but do you think that needs to progress little bit more before that have moving ahead to sort of an IPO types that IPO stage call. It.
Thanks very much.
Progressing that particular digital metrics for GE is the essence of the tea and story and I'll hand over to Jeff to talk about that in a minute.
Im not going to Preannounce, our fiveg launch plans.
For competitive reasons.
I think it's important to kind of convey.
The mentality at tell us.
Which has consistently.
I've been a etiology did says to us let's focus on getting the execution right from day, one and then let's coupled that with the announcement and it really is the way that we operate so when we launch fiveg from a network.
Readiness to device availability to speed accretion than the press release will go out that morning.
So clearly this is something that we're going to do in 2020, I'm just not going to step beyond that from its specificity at point of view, but when we do it we want to make sure that we can offer an experience where the network speeds are distinctly better.
Then our globally, leading industry speeds on LTE advanced LTE advanced fro, leveraging the advent of the first for rate on the network technology front than you can look for greater specificity in definition in that regard in the months to come from.
This organization as it relates to what is really an excellent question that you're asking I think it's important to guides the street.
That the progression on Fiveg is is not a sprint, but rather a marathon.
And some of the most meaningful capabilities that relates to fiveg are going to emerge gradually.
And sequentially as larger channels of key Fiveg egos system spectrum comes available most obviously three to five gigahertz and millimeter wave spectrum.
Also as that spectrum of Billability takes place within large channel Swat, we're going to be of course building on our core Fiveg network architecture that importantly, there's not a lot of discussion of of this but importantly.
Thats, coupled with our edge computing and deployment within a Mac world.
And leveraging our deep and pervasive fiber infrastructure that of course within the Fiveg World is of Paramount importance as it does the front haul delivery and backhaul redistribution of the wireless Fiveg traffic and then finally I think what has been a nice.
Critical differentiator foretell as as we progress from two GE to Threeg to Fourg to Fiveg is our next generation network sharing a framework that allows us to execute new technology deployment at a level of speed at a level of pervasiveness.
And at a level of cost efficiency.
That's the competitive advantage for this organization. It has been historically and I would say the past will be prescient in that regard. So the three key components that I would draw out in terms of the roadmap is watch for T. spectrum coming available really the global ecosystem on Fiveg is at the Threed up by.
Words that level and the channels were getting larger and you need that as it relates to speed. The latency consideration. The same is true on middle millimeter wave, particularly with millimeter wave being used as an alternative acts as a mechanism on point to point to point out wireless access conductivity to comp.
Momenta, our broadband fiber expansion that we've been undertaking that look for interesting developments in Fiveg network architecture, and the distribution to the edge of our computing power processing power in that regard and all we think about wireless in combination with fiber.
And how those two things set you up or competitive success prospectively.
It's also important to begin having a better dialogue and I don't think we've done a good nut job in this regard as it relates to Fiveg potency and pervasiveness being critical for candidates economy in society. Our industry is not really a vertical it's more.
A horizontal underpinning of both the private sector and of course Canadian Society in a larger context, and Fiveg is going to drive significant improvement as it relates to productivity innovation efficiency and importantly digital transformation.
And the huge data swaps that are going to be using that wide band capability are going to give both businesses and to cyto considerations the ability to leverage a dynamic insights within an artificial intelligence of world and if we can do that not just in the private sector, but some.
For what we want to do on health and education in the environment than bridging socioeconomic digital divide that think thats going to be a great thing and really the mantra for us and this is important because I'd tell is this isn't dudgeon is it's a and axiom within an organization as we progress into Fiveg and we want.
As there will be obviously, the global leader in wireless technology, and we don't intend to yield that distinction it's important to our company as it is to our country and we're going to be extremely thoughtful as we progress through the roadmap.
I just shared with you and as we enjoy those benefits in terms of speed reach and latency and considerations and all the applications of Fiveg will enable.
Jeff over to you.
So on the mix of revenue anti there's no doubt that we want to continue to evolve and increase the.
Native digital nature of our service revenue, but I think.
As more visibility is provided in connection with our business.
Anticipates unpleasant surprises in terms of how much progress we've already made on that front.
I think we're already sub 30% of our revenues derived from legacy voice based customer care services were already.
Well evolved to north of 50% of our business being digital centric, whether its proprietary AI platforms building bots, both transactional and informational for our customers and for ourselves, providing big data analytics solutions, helping move our.
Customers from legacy premise based applications to the cloud.
We've got literally hundreds of plots and RPK solutions that we've been deploying for our customers and for ourselves.
And are continuing to evolve our business mix. So that we can take advantage of these macro transformational dynamics that are taking place in terms of digital adoption really into end. Unlike some of our appears though we don't anticipate legacy a human.
Assisted care disappearing, but rather we take a more.
Bifurcated approach, where we see.
Digital bias as a co pilot to our highly trade highly skilled.
Human population being capable of real time interacting with technology and next Gen solutions that provide sort of the best possible experience for end user community.
And the relationship with tell us has really been sort of.
The Genesis of our thinking in this regard and we get to test drive if you will in pilot. These solutions on behalf of our apparent company and then take those solutions to market when they've been heartened with us a pretty exciting referenceable.
Customer to endorse the the success that we're having.
Thanks.
Hello.
During I'll hand, it over to you for any final remarks, before we wrap up the call.
Thanks, Robert just.
Some color in terms of guidance for 2020, and I think what the investment community should look for from us.
On the strategy from more of the same with a amplified execution, that's going to deliver amplified results in 2020 over 2019, I think you can expect to see a strong performance from all three of our assets wireless wireline and tea.
And some very interesting developments within the emerging areas for us the Hello.
And AG Tech.
It's going to be continued focus on profitable subscriber growth and I would look vertellus to deliver robust and profitable and significant customer expansion in 2020 and doing that by leveraging both our network assets and our customer service excellence.
But also leveraging what has become a growing portfolio of new services I'd tell us that's yielding that profitable subscriber growth, we got new services on the help front, we've got exciting new services on the security, Brian We've got great New services as it relates to Io Gee that we'll be at a premium is.
Gee comes to fruition.
And we'll also see no new services on the B to B front as we leverage wave three solutions like software defined a wide area networks. I think you can look up for us to deliver improving network revenue growth throughout 2020.
And who ARPU stabilization to an accretion phase that we go group as we digest the re rate as we lap the launch a about unlimited as we break the back of the migration and we moved from strong transition based results did very accrete.
The forward booking results in that regard and see it reflected in our T.K.P. eyes on on the network revenue level and the MPU ARPU level. I think you can look from ish for a strong organic performance coming out of both T I and tell us how those Jeff and Francois had the opportunity to allude.
Too I think a story thats a little bit muscle within talos is the turnaround within our b to B wireline business.
That's been diluted to our EBITDA results for five consecutive years, we're looking to get to EBITDA neutral and EBITDA accretive in 2020 as it relates to our b to B at wireline business and I think thats, a nice attribute of our economic growth prospects are going.
Our board, we're going to get out a clear topline benefit from 88, a NCTC, but I would caution you as it relates to 80, Jake let's be a little bit conservative about it I would tell us procure distressed asset when we bought 80 T., we bought it at a reasonable.
On price, we've got work to do add too and that the net asset to turn it around that will mitigate its economic contribution in 2020, but will set up a strong economic contribution and 2025, one and beyond as we significantly scale, our security business and as we.
The harvest a security efficiency by bringing in that particular asset portfolio into a harmonized state. We're excited as Jeff said about not CCC as it relates to revenue growth on an EBITDA margin expansion coming from that business and then lastly may.
Maybe to conclude we're obviously not taking our eye off the ball as it relates to efficiency and effectiveness at the tell us corporate level. So on the efficiency front always always always be in front of mind, whether its wireline, whether its wireless or even within jeffs emerging area on the T.I. front, we've upped our re.
Structuring investment to a $150 million, we think it's the right thing to do to invest to know deficiencies and will be driving significant J curve that I think you're going to yield future growth again in the 80 area in the B to B area and in the emerging AG Tech business, but I think we'll pay.
By long term, great economics, great diversification, and it's all leveraging our telecom technology and Fiveg in fiber capabilities in a very meaningful way. So thanks for your support appreciate it.
Thank you Don and thank you everyone for taking the time to join US today. Please feel free reach out to the IR team for any follow up questions Mike back over to you.
Ladies and gentlemen, this concludes the tell US 2019 Q4 earnings conference call. Thank you for your participation and have a nice day.