Q1 2021 Telus Corp Earnings Call
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Conference recording has been turned on.
Good morning, ladies and gentlemen, and welcome to the Telus 2021 Q1 earnings conference call.
To introduce your speaker Mr. Robert Mitchell. Please go ahead.
Thanks, Mike Hello, everyone and thank you for joining US today, our first quarter 2021 of the results news release, MD&A and financial statements and detailed supplemental investor information are posted on our website. This morning at Telus Dot Com slash investors.
On our call today, we have remarks by Darren Entwistle, President and CEO as well as the top executive Vice President of Telus Health Telus Agriculture on Telus tobacco, and Doug French Executive Vice President and CFO.
Well for the Q&A portion of today's call will be joined by the General MAU Gee President of home solutions, Jim Senko, President of mobility solutions, and Tony <unk>, EVP and Chief customer Officer.
Briefly on slide two of this presentation and answers of questions contain forward looking statements that are subject to risks and uncertainties and made based on certain assumptions. Accordingly actual performance could differ from statements made today. So we ask that you do not place undue reliance on them, we disclaim any obligation to update forward looking statements, except as required by law and we refer you to the risks.
And assumptions as outlined in the public disclosures, including our first quarter of 2021, MD&A on 2020 annual MD&A and filings with Securities commissions in Canada, and U S with that overview of Dr.
Thanks, Rafael and Hello, everyone for the.
The first quarter of Telus once again achieved strong financial and operational results in both of our operating segments, Telus technology solutions or <unk> for short and digitally led customer experiences at Telus International DLC ex for short.
Our continued execution excellence realized against the backdrop of the unprecedented operating environment was characterized by the ongoing combination of robust high quality and profitable customer growth alongside strong financial results throughout our business.
The solid performance reflects the efficacy of our world leading performance culture in action underpinned by a highly engaged team and their dedication and passion for delivering outstanding connected experiences for our customers.
This contributed to the industry, leading customer net additions of 145000 and globally, leading customer loyalty across our T mobile and fixed product lines.
Moreover, our results, we're buttressed by a highly differentiated and potent asset mix geared towards high growth technology oriented verticals, which are going to have the opportunity to discuss in a moment.
Looking at our consolidated financial results for the first quarter revenue was up almost 9% year over year, while EBITDA increased by one 9%.
This performance reflects continued resilience and execution excellence and bolsters, our unmatched capabilities and competitive position as we look ahead to the anticipated post pandemic recovery one that we're all looking forward to.
Taking a look at our mobility operating results, we achieved once again industry leading customer growth.
This included healthy mobile phone net additions of 31000, which was up close to 50% over last year.
For connected devices, we realized strong net additions of 63000 up almost 30% on a year over year basis, reflecting continuing increased demand for Telus is the Iot solutions.
Importantly, our team delivered another quarter of best in class loyalty results.
Blended mobile phone churn was zero debt eight 9%, representing a five basis point improvement over this time last year.
Underlying this result, postpaid churn of zero debt, 72% puts us in our eight consecutive year of leading postpaid mobile phone churn being below 1%.
This performance is backed by strong digital capabilities and superior service offerings over of our world leading broadband networks.
You know at a time when network connectivity is more important than ever Telus was once again recognized as the best Mobile network in Canada for the ninth time in the UK based open signals Mobile network experience report for February 2021.
Telus took first place across seven key metrics.
Open signal further acknowledged our next generation <unk> network with six awards for superiority in respect of wireless speed and coverage in the Canada by G user experience report.
Similarly, Canada base the tele named Telus is the best mobile experience provider nationally in the Canada State of Mobile network March 2021 report.
Furthermore, Seattle based Uccle subsequently named tell us the fastest mobile operator in Canada for the third quarter in a row in the global index market analysis for Q1 2021.
These continue with the awards earned by our team are a testament to the significant investments that we're making in our world leading networks as well as the passion and skills exemplified by the Telus team in putting our customers and communities first in everything we do as an organization.
In respect of on mobility financial results <unk> declined by three 7% in the quarter.
This of course reflects industry wide pressure on roaming associated with pandemic related restrictions and reduced travel, which we will lap in Q2 of 2021.
Partially mitigating this we continue to thoughtfully migrate our base to our endless data plans, while at the holding the line on our premium brand <unk>.
Notably in this regard more than 65% of rate plan changes in the quarter were either step ups or remained flat.
Despite continued pressure on roaming we again drove a sequential improvement in mobile network revenue.
Lowest decline amongst our national peers as we continued to successfully strive to manage the aspects and manage the impacts in the throes of the pandemic.
Excluding pandemic related roaming impact network revenue was up approximately 3% driven by high quality customer growth and strong underlying <unk> improvements reflective of our high quality customer growth and the upgrades that we are realizing.
Turning now to our wireline operating results.
<unk> once again delivered another quarter of robust customer growth, which was industry leading across the board.
First quarter Internet net additions of 33000 represented an increase of close to 30% on the year over year basis.
This was aided and abetted by the churn rate well below 1% for our Internet product line.
Alongside of double digit percentage increase in monthly recurring revenue for new customers. This continues to bode exceedingly well for future lifetime economics of our fast growing fiber based internet product line of tell us.
Additionally, we realized healthy TV net additions of 11000, which was up close to 40% on a year over year basis also being supported by strong loyalty with churn well below 1%.
Residential voice line losses came in just below 10000 in Q1, representing the fourth consecutive quarter at or below $10000 and a 23% improvement over the prior year.
Demonstrating incredible consistency in our customer loyalty churn for residential voice lines also came in sub 1% of true Testament to the exceptional customer service delivered by our frontline team members.
Furthermore, we delivered security net additions of 17000 in the first quarter of 2021 up 13% on a year over year basis. Likewise also supported by a churn rate once again being below 1%.
Notably our security of results represent the North American industry, leading result, as it relates to the excellence of our security operations and execution and what we are delivering on our net adds basis buttressed by our sub 1% churn rate.
In summary, our leading overall fixed <unk> net additions of 51000 were up 15000 or more than 40% on the year over year basis in terms of 2021 day.
<unk> of the Q1 of 2020.
These results in my opinion underscored the unique and attractive bundled offers available to customers across our superior product portfolio.
Coupled with our team's focus on leveraging the distinctive competitive differentiation inherent in our pure fiber network.
Telus is wireline revenues were driven by data revenue growth of 11% through a combination of higher revenues from our diverse service and solution offerings, including robust growth in Internet and third wave data services resilient performance once again from our TV offering.
Strong growth in home and business Smart technology inclusive of both of our security solutions portfolio and increased revenues from our agriculture technology solutions business.
Our wireline revenues were also driven by a 10% year over year growth and health services revenue.
This was supported by the accelerated demand for virtual care in spite of clinic visits preventative health services and claims processing moderating substantially through the pandemic related lockdowns.
Today tell us it's introduced increased disclosure related to our health care business.
Sign of things to come on the AG Tech front as well.
We are confident that this will provide investors meaningful insight into the valuable asset we are creating as a world leading provider of digital healthcare technology solutions. Indeed, we've assembled a portfolio of digital health assets that is second to none on a global basis.
I'll turn the call over to Francois shortly to talk more about our unique and compelling healthcare business and the significant future and potential for value creation inherent in this portfolio.
Overall revenue for Telus technology solutions, or T Chek, which as a reminder includes both our mobile and fixed products and services increased by 6% year over year, while its EBITDA was up one 8%.
Doug is going to provide more details on <unk> financials in just the moment.
Turning to our digitally led customer experiences or DLC ex segment, which incorporates the result of Telus international products and services.
For the first quarter, we once again achieved healthy double digit year over year revenue growth with the strong and resilient bottom line profitability profile adjusting for onetime items in respect of Telus International's successful IPO.
Earlier today, Jeff on our team at GI reported robust first quarter results and announced annual guidance for 2021.
Indeed for the full year 2021, Ti is targeting strong double digit revenue and EBIT Dag growth complemented by a sub 5% capex intensity environment within this line of business for Telus.
This showcases in my view the significant global opportunity available to our organization global opportunities in respect of driving digital performance journeys for our existing and prospective clients globally and enabling those customers to more quickly embraced next.
Generation digital technologies to deliver better business outcomes. Thanks to the capability set that we're bringing to bear at Telus International.
Doug is going to provide further details on <unk> financials during his commentary.
Before handing off the Francois I'd like to take this moment to address our accelerated broadband investment program that we had the opportunity to announce in March which is going to significantly bolster our already leading position in terms of network infrastructure and technology across wireless.
In wireline.
Our successful equity offering completed in March will underpin the unique strategic opportunity that we have to pull forward. The expansion of Telus is leading pure fiber network in Alberta, British Columbia at Eastern Quebec, as well as the accelerated rollout of our national.
The <unk> network and the digital experience capabilities that we're bringing to bear from customer service through two of our channel operations.
Investing from a position of considerable strength and leadership the generational investments are going to further bolster telus is leading customer experience and our superior competitive position.
This includes the enablement of up to 225000, additional urban and rural premises with fiber technology as well as enhancing the speed coverage and quality of our world, leading wireless network with five G capabilities on an expedited basis.
In terms of our national footprint.
The strategic investments represent $750 million of incremental annual capex over and above the $2 $75 billion plan in each of 2021 and 2022 buttressed by proceeds from our equity offering undertaken the fund this important strategic.
T J opportunity vending into the momentum if you will that we already enjoy.
These transformational investments will fuel enhanced customer growth and underpin significant operating efficiencies supported by the accelerated decommissioning of legacy copper infrastructure.
In turn this will drive positive revenue EBITDA and cash flow benefits as we complete our expedited buildout.
The outstanding performance, we've achieved on fiber over the past eight years clearly illustrates the significant opportunity in respect of this important program.
Notably by way of example, with fiber the number of products within a customer's home is 25% greater than copper ARPA per home is approximately 50% higher churn is lower by 30 basis points and operating expenses to support <unk>.
<unk> are approximately 25% lower as compared to copper.
Indeed, these are compelling economics and competitive differentiating factors on a holistic basis.
Given the synergies and economies of scale and scope between fiber and five G. This investment program, we will have a meaningful positive impact in terms of further fueling our beat of B activities and building product ecosystems and the in respect of <unk> in this room.
Guard, but also the fiber and <unk> combination is going to propel our digital health care solutions, and our digital AG Tech solutions, and a weighted deeply meaningful and it will unlock significant value of expansion opportunities in these two critical sectors for Telus.
Furthermore, as a result of the pull forward of our broadband investments the trajectory of our Capex decline will be steeper than previously expected.
Commencing in 2023 of our annual Capex is expected to decline to $2 $5 billion or less.
As a result of 2023, we expect consolidated capex intensity at or below 14 present, which would represent the lowest capital intensity result on record for our organization, having broken the back with the coverage that we want on our broadband footprint on both why.
Your line and wireless.
Furthermore, free cash flow will be bolstered by the expected capex decline of at least the $1 billion over 2022 as well as the EBITDA growth from additional customers and services and the incremental cost efficiencies associated with our digital transformation program, which is a distinguish.
King characteristic of Telus versus our peer group.
Importantly, this initiative will further support the advancement of our financial and operational performance strengthening our confidence in the robust outlook for our business and amplifying the valuation of our emerging growth businesses.
Moreover, it will bolster the long term sustainability of our industry, leading dividend growth program now in its 11th year with the dividend increase of eight 6% that we announced today.
In closing as we all continue to navigate very unfamiliar and certainly challenging territory the <unk>.
Telus team remains committed to supporting Canada's COVID-19 relief efforts.
By way of but one example, nearly 800 dedicated <unk> team members are supporting the health and wellbeing of our fellow citizens through the government of BCS Immunize BC initiative.
Due in part to our team's efforts are unwavering efforts, we've been able to significantly accelerate the phased vaccination rollout booking more than 1 million vaccination of appointments for eligible British columbians and providing hope for better days ahead.
We're also offering further assistance through eight of our 13 health for good mobile clinics across Canada, which have provided 18000, COVID-19 of debt assessments from marginalized populations, who need a helping hand, who are the most impacted by the nefarious reach of COVID-19.
During this particular pandemic.
On behalf of the board and the leadership team and all of our 80000 Telus employees.
Remain exceedingly proud of.
And grateful for the entire Telus team and the culture that they exude an action to deliver the type of results that we posted for all stakeholders.
On that positive note first of all I'll hand, the call over to you to talk about the exciting progress and the exciting outlook for our healthcare business.
First of all of the year.
Thank you Darren and Hello, everyone.
For the last 13 years, Telus health has invested more than $3 $2 billion to build a set of innovative capabilities that re imagine the way health care is delivered to and then experienced by Canadians positioning Telus health has the largest and leading integrated health care services and.
The company in Canada.
Indeed in 2020 revenue derived from the health vertical including from our diversified portfolio of digital health Technology solutions health care centers and broadband connectivity totaled over $800 million importantly over <unk>.
50% and growing its coming from a health care services and solutions.
While the results in 2020 were impacted by the COVID-19 pandemic.
Particularly in our health care centers, we have seen significant accelerated adoption for our digitally enabled health care tools as.
As a result of the health crisis.
Most notably.
Demand for virtual care has grown exponentially since the onset of the pandemic, helping bridge GAAP and access to health care and ensuring Canadians are supported through these difficult times and keeping everyone safe.
Collectively.
Our Telus health virtual care services of reach more Canadians.
Than any other provider in the country.
Notably.
Our virtual care members base of approximately $2 million as nearly tripled over the last 12 months covering more than 4 million lives when including family members within the household.
As consumers embrace digital health solutions to conveniently access medical care and as employers recognize the critical importance to support the physical health mental health and well being of their team members.
In addition.
Our virtual visits module integrated into our electronic medical records have allowed physicians to stay connected to their own patients scheduling over 585000 consultations and just over a year, while assuring the continuity of care during this critical period.
Good.
Indeed.
With the number of health care systems across Canada, feeling tremendous pressures from the third wave.
Our digital health solutions are helping bridge GAAP and access to care.
Enabling Canadians to connect with care teams from the comfort and safety of their homes our share.
During the continuum of care.
And the allowing hospitals to focus on the most urgent cases.
For the quarter.
Health services revenue of $123 million increased by a healthy 10% year over year.
Importantly.
The revenue and the operating keep alright disclosure that we announced today reflect the higher growth technology solutions, including inclusive of our three primary areas of focus.
First.
We have our primary care services, including 16 health care centers across Canada, and third the combination with our virtual care services across the consumer and the employer to employee verticals.
As well as our connected care solutions, such as our home health monitoring solutions in our on our consumer oriented services, such as our living well companion <unk>.
Electively. This represents approximately 35% of our health services revenue. This growth today and is expected to be of growing contributor to our results as virtual care continues to scale rapidly and as consultations within our health care centers returned to growth as we manage our way through the pandemic.
The second.
We have our health care provider solutions, which include our physicians and pharmacy solutions to key areas debt together represent over 30% of our disclosed revenue today.
Notably.
Through a recent integration tell.
Telus Health virtual care is also the first service in Canada to be able to securely share of patient information with the appropriate content with anyone of the 32000 clinicians who are using our electronic medical record or collaborative health record solutions that.
The together did it digitally connect and support more than 14 million Canadians thus.
Thus, ensuring improved continuum of care.
Furthermore.
6500, pharmacists are cross Canada use our pharmacy management systems, while our recent acquisition of Alliance pharmacy.
This is us well to tap into the online pharmacy services.
These services.
Represents an exciting growth opportunity that complements our telus health ecosystem and the continuum of care.
With the ability to leverage our tremendous reach develop with our virtual care services, our health care centers.
And the physician community using our electronic medical records.
Lastly.
Health benefits management or <unk> for short and important in mature business represents approximately 20% of our health services revenues.
Notably.
The scale of our reach in terms of lives covered and digital health transactions and Telus health as a whole differentiate us from any competitor.
Indeed in the at the end of the first quarter.
Telus care service Telus Health care services and technology reached a total of approximately $17 5 million lives covered and generated approximately of $133 million digital health transactions across H B M virtual care and EMR as well.
As the digital pharmacy, enabling better preventative care.
There is a bright future ahead for digital health as the leading end to end integrated health care services and technology income company in Canada, combined with our leading broadband networks and data analytics capabilities. We are indeed uniquely positioned to continue transforming.
How Canadians experienced health care and we are not done innovating.
Our Telus health team is excited about our opportunities to drive technology innovation and in turn continue delivering better health outcomes and strong financial results and we look forward to sharing our progress with you through our regular quarterly disclosure.
Let me now pass the call over to you Doug.
Thank you Francois and Hello, everyone.
With our track record our Q1 results reflect the superior asset mix, leading network and customer experience and strong operational execution.
Roaming revenue decline of approximately $50 million as compared to Q1 2020 from.
From continued reduced travel.
Our mobile phone ARPA decline of $3, 7% also represents the third consecutive quarter of sequential improvements.
Looking ahead, we anticipate returning to positive <unk> growth starting in Q2 and with quality loading will result in network revenue growth.
This will recover this recovery will be driven by the lapping of COVID-19 impacts in addition to our strong underlying trends from.
Our sustained focus on smart based management and profitable customer additions and upgrades. In addition, the impact from lower data data overage revenue continues to steadily decline as we are approaching steady state that will no longer represent a notable year over year in <unk>.
Pat.
Thank you your activity was strong during the quarter and mobile the equipment revenue growth of 27% benefited from upgrades and new customer growth.
The higher than expected activity on an upfront cash flow impact of approximately $60 million as more customers the premium devices on the financing plans.
On the fixed side of our business, we continue to showcase our superior customer growth of <unk>.
The one total net additions continuing the momentum that we built throughout 2020.
Impressively, we posted more than double digit revenue growth in both fixed data and fix the equipment.
Clearly our high quality customer additions.
Are driving important revenue and EBITDA contribution, particularly on the anchor internet product to help offset the pressure with continuing to face from our legacy business services.
In total <unk> revenue grew 6%.
And to just one 2% compared with the one two.
The 2% in Q4 of 2020.
Additionally, despite the challenge of COVID-19, as well as scaling our costs within AG Tech and virtual health care.
Our <unk> adjusted EBITDA grew one Daddy per second quarter of sizable improvement from the negative read at 8% in Q4.
DLC ex revenue grew 33% and adjusted EBITDA grew three driven by growth across targeted hybrid of high growth verticals, such as tech and games communications and media the.
The DLC actual results includes an unfavorable foreign exchange impact of approximately $8 million on the translation of dlcs operations into Canadian dollars.
Excluding the FX impact.
<unk> adjusted EBITDA growth was approximately 10%.
The clarity, while our D. All of the AG segment entirely represents Telus International's operations. There are notable reporting differences on or Ti on public disclosure of these.
These differences are due to ti reporting under a different currency the us dollar as well as slightly different definitions on certain financial metrics of <unk>.
And so all of the differences on revenue on adjusted EBITDA, We provided a walk down reconciliation in the appendix of our posted investor debt.
Free cash flow of $321 million down from the prior year.
Recall, we are able to defer our cash taxes in March of last year, driving a portion of the $96 million increase in tax cash taxes in the current period.
This year, we also had higher payments related to certain DLC ex AG Tech and health acquisition.
While the cash impact from higher than expected customer loading included and including strong upgrade activity, which was up almost 20% over last year impacted free cash flow of by $60 million as previously noted.
With our strategic acceleration of the $750 million in additional Capex from 2021, we now expect our annual free cash flow to come down by the same amount of highlighted by Darren though with the acceleration was pre funded by equity offering.
While there is the near term free cash flow of dilution of <unk>.
Record has shown that these investments will drive a very strong outcomes of our organization as highlighted by Darren earlier. These include our mobility and home bundle across our footprint, leading to loading gains contributing hierarchy and lower customer churn.
AG maintain operational efficiencies, including accelerating in our copper to fiber migration and amplifying our cash flow in conjunction with an accelerated capex decline beginning in 2023.
In addition to our successful equity offering in March we completed a well received debt transaction. The 30 year debt offering represented Telus is lowest 30 year coupon.
Lower sorry, 30 year coupon on record.
Our weighted average interest rate on long term debt is now at three 8% down 12 basis points from the previous year as well our average term maturity decreased slightly to 12 years.
Notably our leverage ratio improved to $3, one five times compared to $3 four of five times at year end as we continue to delever to our targeted range as planned.
Additionally, our healthy balance sheet combined with our positive about what gives us confidence the continuing our longstanding dividend growth program as we have done today.
And our announced dividend increase.
As outlined in our disclosure today innovation signs of economic development approved our acquisition of certain <unk>.
3500 megahertz spectrum licenses through the commercial transactions during the period, including 50 megahertz in the urban area of cores of Edmonton, Kitchener, Waterloo or kitchen here in London.
London Ottawa in Winnipeg. Additionally, during the quarter. We also obtained the use of AWS for licenses from the original licensee and hope the Victoria and Vancouver.
To conclude our Q1 results represent a very strong start to the year, our momentum will continue to deliver outstanding long term value creation for all our stakeholders on what that Robert I'll turn it back to you for Q&A.
Thank you Doug Mike can we please proceed with questions from the queue.
Of course first question comes from Jeff Fan from Scotia Bank. Please go ahead.
Thank you good afternoon, and hope everyone is well.
A couple of maybe questions related to Telus health and then the bigger picture question for Darren.
On Telus health.
The quarter saw 10% revenue growth.
Given all of the positive momentum that you're seeing both the from the virtual side as well as the recovery on COVID-19 I'm wondering if.
If you can provide some commentary about where the growth will continue the accelerated through the rest of the year and then maybe of some comments on margin related to Telus health, It's a mixed bag of business in there.
Different.
Revenue streams I'm wondering if you can help us.
For the purposes.
Did I get some valuation for Telus felt on what the EBITDA margin looks like and then the bigger picture question is.
On the commentary about Capex on investment post this acceleration.
Very encouraging guarantee here about the plan beyond 'twenty two.
Especially given where fiber coverage for us kind of be.
But there is a lot of talk about the transitioning of telecom networks to the cloud. So I'm just wondering if that's an initiative. That's included in your pull forward investment or was that something that's likely to be that material. As you look ahead of the next few years. Thanks.
Okay Francois why don't you handle the first part of the question for Jeff.
And Doug if you want to kick in as well you can and then I'll take the last question.
Okay.
Hi, Jeff and thank you for the question.
We do expect to continue to see strong growth for 2020 one.
Some of the aspects of our business like the health care centers, who have experience.
On the impact of the sanitary restrictions across the country.
The impacted negatively from.
From the COVID-19 perspective on the same thing with.
The drug claims adjudication or dental claims of education business, who have seen as well.
A reduction of volume because of the same sanitary measures.
We expect those businesses in those lines of business to pick up as we get out of these measures and.
And we also expect the virtual care aspect of our business or even the online pharmacy aspect of the business continued to grow significantly in the future. So we are.
Ambitious about the future and we are seeing strong growth for the remainder of the year from of margins perspective.
It is.
Mix of.
Different assets in terms of maturity.
On the <unk> side or the provider solutions side.
Being a much more mature business with healthy margin, while on the virtual care side of things online pharmacy side of things.
These are businesses that are still in the investment of phase, but are seeking to grow profitably.
Into the future and the Holistically when you look at to make a point on margins Holistically. When you look at Telus Health are also that I also think that's the differentiator to other competitors in the marketplace, where we are at the business.
And the ecosystem.
Reinforces each other within the ecosystem and are growing profitably into the future.
And maybe just a quick top up.
So the margins were challenged a little bit.
During COVID-19.
As we highlighted on on the revenue component as well and we would see recovery of that as we scale back up from recover as Francois and Darren had highlighted I think you could also.
The French laws comment we had previously disclosed that the help margins were very similar to the old the old wireline margins.
And I would suggest as we build the portfolio of grow with the portfolio. There is an opportunity that would be that or potentially more.
But the bigger item that continues to be foremost in our product that is the bundling and the value that all of these assets bring to the our telecom assets concurrently as you remember a lot of these customers are also.
Our wireline and wireless for the old term right.
On customers and providing are using those services. So it helps reduce our churn rate. It helps increase the value of our organization across the board.
What should the margin and margin accretive even further.
So Jeff to give you a complete the conclusive answer to your question.
In respect of our transformation to the cloud of what we call our digital program.
That is included in both of our base budget of $2 75 billion as well as the incremental $1 5 billion prospectively over 2021 of 2022.
So the answer is yes. It is included in that investment and not just the accelerated component, but it was already in the base investment and maybe just to underscore the that comment.
For investors to understand what we've done on the capital acceleration, 90% of the accelerated capital is being directed to high performing programs that are going concern activities, not J curve investments and thats focused on fiber <unk> and accelerating.
In our digital transformation those are of the three headlines in terms of the Capex investments.
And maybe the breakdown what 2023 looks like beyond the sub $2 5 billion capex spend in the 14% or lower capex intensity if.
If I had to simplify it.
<unk> three categories I would say watch for the accelerated capital to expand profitable customer growth with with its attendant economic attributes on revenue EBITDA and cash flow and of course, that's underpinned by our expansion in fiber by our expansion in <unk>.
<unk> and our expansion of our digital capabilities.
Secondly, what perhaps has not got enough of the.
Airtime.
Is the cost efficiency component of our capital acceleration and this is where your question on digital transformation.
Is extremely significant if you look at the cost efficiency component of the accelerated Capex. This involves our digital transformation as it relates to customer service and what we're doing within our <unk> robotic process automation environment are bought capability set.
The digitization of.
Of our go to market channels.
And not just on a digital basis on a stand alone of point of view, but the synergy of our digital capabilities with our physical channels.
Our Digitization program is going to support new RG use from a product development point of view as we leverage the voluminous data analytics and dynamic insights coming off the traffic generated by fiber and five G. So digital is not just about cost efficiency, but it's also above.
Profitable revenue growth at the same time and doing it all while elevating our customer experience.
And then the secret weapon within Telus is that our digital program is aided and abetted by Telus International.
They are digitally led customer experiences that is there a thesis to assist companies with their digital transformation and they're not just doing it with external customers that are helping us in that regard as well and when you complement that with what we're doing on copper decommissioning.
And the cost efficiency benefits. If you look at the cost efficiency profile of five G vis vis <unk> extremely exciting and then as I said in my remarks look at what fiber does for us as it relates to cost efficiency from our home serving point of view of whether it's fewer truck.
Rolls, whether it's a slower churn whether it's self serve capabilities, whether it's better economies of scope. It's extremely significant and then the third leg of that particular component is reduce capex in 2023 and prospectively. So when you add profitable clients.
Supported by our technology investments and fiber <unk>, <unk> and digital transformation with cost efficiency with reduced capex, it's a pretty exciting story to say the least and these are all going concern programs that are outperforming as we speak so that's where we're targeting the one.
$5 million, along the way and I think the.
The exciting component within that.
Is that that revenue growth that EBITDA growth that free cash flow expansion, that's going to come from the accelerated capex supports the long term sustainability of our dividend growth model and I think thats, an investor story frankly, the second to none.
Thank you everyone.
Mike next question please.
Of course next question comes from drew Mcreynolds from RBC.
Go ahead of drilling.
Thanks, very much good morning, or good afternoon, everyone.
Two from me just.
I want a clarification on the Telus health disclosure I appreciate all the additional disclosure.
Reconciling the $450 million in health services revenue in 2020 with the $800 million.
More broadly for the health vertical I mean, presumably that's that's the connectivity reconciliation, but just if you could provide a little bit of color there and then secondly, Darren.
A lot of let's say very good stuff coming.
Coming down the pipe here.
On the accelerated capital program on the specific piece of copper decommissioning and what that roadmap looks like can you just help us level set expectations here just with respect to.
I guess the timing.
The specific benefits from that and if there's anything that magnitude wise, you're willing to kind of provide in terms of those.
Of those benefits that'd be great. Thank you.
Thanks Drew Francois Doug again, I'll, let you guys kick it off and I'll close it out.
Yeah, maybe Doug I can start on the train.
Hundreds of millions of dollars question. So drew that's absolutely correct that is tied to our.
Telecom infrastructure and digital services.
Our added to our health specific technology solutions and there are of great synergies to be had and we've seen that through throughout the pandemic as we supported the health care system hospitals clinics.
That revenue for the influx of increase.
Activity and sometimes opening new centers and we have seen the the correlation between those asking and the actual results from the from a telecom perspective, and I think youre going to continue seeing that correlation increasing in the future as we continue to invest in five day not just.
<unk> infrastructure, but five D application in solutions and services as it relates to health care and other of the verticals by the health care. In particular, you will see some use cases that really changed their way in which the Canadian health care system actually Leverages technology to advance better health outcomes.
And all of the.
The physicians the the practitioners continue to interact with consumers patients more collaboratively in the future of again leveraging the use cases that will be brought forward by five G. So you should see that correlation continued to increase in the future.
And the only other thing I would add would be the number is lower because of COVID-19. The COVID-19 impacts of we discussed the discussed earlier as well so I would assume as we recover that run rate would go up naturally.
Is assuming not the ongoing run rate and the comparison to the old numbers. So I would take the COVID-19 discount than the the.
The telecom.
The interlock.
Okay.
Thank you drew the Capex acceleration is really unfolding now as we speak.
So it's.
About a footprint expansion I gave you some empiric as it relates to the 225000 premises incrementally that are now going to be covered on an accelerated basis, both urban and rural within our fiber plan. There is of similar acceleration of footprint expansion on five G.
That will be augmented by the Capex investments being made by our partner in that regard as well.
And of course, we are materially expanding our digital footprint as I, just alluded to which doesn't just relate to our core telecoms operations, but expanding our digital capability set to support.
Where we're going on digital health and digital AG Tech I would say youll start to see the financial benefits from that expanded footprint on the broadband or wideband basis, both wireline and wireless supported by our digital capability set leading to increased loading and then.
The natural results flowing from that increased loading because again the loading that tell us will be pursuing is quality loading with positive economics youll start to see the financial implications manifest themselves in late 2021, but more materially at the revenue and the EBITDA level in 2022.
And then significantly at the free cash flow level in 2023 and beyond.
At a very accelerated basis, given our revenue and EBITDA expansion the cost reduction that I alluded to earlier and of Capex budget that will be sub two 5 billion.
As it relates to our 14% or lower capex intensity, delivering I think very exciting.
Cash flow growth for this organization, but in terms of footprint driving quality loading and quality loading driving revenue and EBITDA financials youll start to see that creep into our 2021 results.
In the late third quarter fourth quarter of 2021, and then more materially within the 2022 financial year, and then free cash flow thereafter in 2023.
And Darrin sorry, just just on the copper decommissioning component.
Maybe just 30 seconds on just level setting expectations on that roadmap I know 30 seconds doesn't do it justice, but the that'd be great.
An easy one to answer in 30 seconds. So the goal of this organization is to have Oh.
All of our copper decommissioned within our fiber footprint by 2023.
And if we can beat that.
And have a closer to the end of 2022.
The type of ambition in execution that you should expect from this organization and of course, our fiber footprint is expanding dynamically as we speak but we're looking to retire our copper infrastructure within our fiber footprint by the 2023 time frame.
Which will provide very exciting economics, whether it's multi product penetration.
Whether it's higher average revenue per home.
Whether it's lower cost to serve or very importantly, greater stickiness in terms of our client relationships that supports augmented lifetime value.
We'll also support where we want to go with the simplification of our networks moving more towards homogeneity versus heterogeneity and everyone always forgets about the potency of the fiber <unk> combination.
All of the that entails bringing in the mobility component.
Super Thank you.
Thank you we'll take our next question next question. Please.
Yes next question comes from Vince Valentini from TD Securities. Please go ahead.
Yes, thanks, very much a couple of things from me as well one Doug the spectrum you purchased especially the 3500 megahertz stuff was that transaction closed in the first quarter or is that money still going out in the second quarter and if so can you give us any ballpark on how much youre going to have to pay for that.
The second question.
We're hearing about obviously, the chip shortages and maybe some issues with getting the internet modems.
Continue to grow at the aggressive pace you have been in terms of subscribers to your forecasts show that you could start to run out of modems by summer or fall or is that is that of supply issue that you are concerned about and last one.
Just in terms of I get the difference in the $450 million revenue versus the 800 and what what's in there, but when we think about your plan that I think you've stated in the past to look for financial partners are of strategic partners or maybe monetize through an IPO or in the future should we think about the base of revenue that the being monetized.
As being the 450 or the 800.
Okay.
On a rate Doug you kick it off the Zee.
And Jim you can talk about supply chain securitization in terms of what we're doing in that regard.
Doug and I can maybe.
Vitalize the question on the final component.
Yes, so it did close in the quarter. There are some small payments to go into the future, but it would be insignificant on the total.
And you'll see that number disclosed in the acquisitions and our new of disclosure on intangible assets.
German Zeno.
Then I'll talk about mobility first and then over the year on Internet It sounds good.
Yes.
Vince at this point, our supply chain looks looks.
It looks really solid on Apple and Samsung.
But that said I think one of the things that we've worked really hard on is building out our certified pre owned portfolio. So all of our programs like trade in and bring it back and mobile clinic.
Hum.
Have a really nice and robust.
CPO inventory and portfolio.
That we can fill in the gaps if there are any gaps and lastly during COVID-19.
Rotating lockdowns.
We've seen.
Bring your own device type activations that are going digital.
And those are also great clients for us to sell the CPO because theyre looking to buy.
Super devices, all right. So we feel like we have a great plan and we're ready for any contingency there.
Zane I'll over to you.
Thanks, Tim Yeah. So I'll tell pop we've also taken a number of proactive measures as you outlined it is a global situation, but we have gotten ahead of it a few things that we're doing on the wireline side of the business as we've advanced our lead times, we've added some heterogeneity into our supply.
Hi team are looking at incremental suppliers and the way in which we are servicing our customers the cross.
Regeneration of the activities like our Wi Fi deployment solutions and then finally, we also have quite a robust refurbishment program for our equipment as well and we leverage that very effectively.
We have excellent execution in terms of our reverse logistics programming and how we refurbished devices back into the field.
Great.
I think Vince it's also worth pointing out the one of the secondary reasons that we have been so clear and certain on the capital of the acceleration.
Is to lock in longer term supply contracts within our supply chain to support both of our wireless and wireline businesses. So to provide that clarity of accelerated spend and destroy longer term agreements with suppliers through to 2023.
That accelerated spend gives us a level of advantage and certainty within an anxious uncertain world. That's another positive attribute related too.
The Capex acceleration program.
As it relates to your $4 5500, 800 question of my answer would be both.
So from of some of the parts valuation point of view I would say both attributes would be part of a prospect of valuation.
And the multiples associated with those being different whether it's the core telecoms of multiple taking us up to 800 or the circa half of $1 billion that we have as it relates to digital health and the intended higher multiples associated with that so when people are putting together the overall financials for that business in the.
Underlying technology that supports it we would guide people towards a sum of the parts valuation that recognizes that there are different growth profiles inherent within that construct and the.
Then finally.
What we've said repeatedly which continues to be true.
Is that investors can draw inference from what we have done at Ti.
As it relates to what we intend to do prospectively with Telus health and tell us.
And we feel that the best way.
We could have a ti like outcome.
Is to focus on the core principles of profitably scaling the businesses that we are building.
The level of strategy operational execution and competitive differentiation that investors will find very meaningful and earning our way if you will to an IPO if the.
That's where we want to take the businesses in that regard.
There were about six criteria the Ti had to hit on earn your way to an IPO of basis and they did exactly that in spades and it's going to be the same mentality as it relates to Telus health earn your way to future opportunities in that regard, particularly if those future opportunities.
Involve creating the transaction currency debt.
Can take the growth of the business to yet another level and that's very much the philosophy being brought to bear.
Thank you.
Next question please.
Yes.
Of course, our next question comes from Jerome of debris from days out of the bank. Please go ahead.
Hi, Thanks for taking my questions two questions on the Capex exploration plan.
Maybe first on the on the wireless the I'm trying to assess what's included in the 14%. The Capex starting in 2023 does that include some buffer for for expenses for the future increased five day demand or use cases that we might not be aware of yet and second question also on the Capex exploration plan, maybe more for it.
First I know.
Does that has an impact on.
On the wireline services, maybe on the future friendly home in the security products as well. Thank you.
So the answer to your first question is yes.
On the 14% Capex intensity is holistic across fixed and wireless it's not.
Retaining singularly to wireless, but it's an amalgamated capex intensity.
Cross both.
So it's important for me to point that particular factor out.
Given what we will have done on the expansion of our <unk> and fiber footprint, but it includes those prospective cost that you've alluded to.
Yeah.
Dana.
Thanks, Darrin, yes, so I think what's important to highlight there as as Darren talk to the capital investment supports both lines of business and as we've talked about as well, we're going to advance our copper to fiber migration activities and within that that gives us the op.
The acuity to add incremental products and services, which to your point include Smart home security and automation. It includes consumer health, we've launched a line of online security protection for our customers across their devices and their identity, including dark web monitoring and will open us up for a number of.
The new revenue opportunities, but I wanted to double click a little bit as well on the cost efficiency side of the business and our digital Digitization program combined with our accelerated capital rollout is going to enable a number of opportunities and I'll add a bit of color in terms of how to think about it.
First off we have do it yourself capabilities that will be enabled as we move our customers to more of a digitized infrastructure.
The second is that our data and analytics capabilities are going to give us channel synergies and loading synergies from a perspective of adding incremental product intensity and increasing the level of engagement with our products. So can we be at the forefront of the customers' understanding how the active.
The services in their home and can we provide value in terms of their automation services and increase their level of engagement with our services leveraging data and analytics. We can also leverage the same data and analytics to deliver self correcting behaviors and get ahead of the assurance cycles, so that our.
<unk> don't have to reactively reach out to us, but we can proactively identify issues, whether they be buffering or other service impacting issues and we can correct those in advance and and finally, the open ecosystems that we will be deploying our services across.
Enable us to offer new Archie used so working with RTI partners, we're advancing our platforms in the home and those will enable us to add new products and services and we will be able with our DIY infrastructure to also create premium services for installation repair and maintenance. So we have a.
Number of opportunities to advance and agree on the margins from a revenue enhancement as well as the cost efficiency perspective.
And on on wireless I, just wanted to touch quickly and we've been having.
Great success on both subscriber growth and underlying our crew management and we see the capital investment is helping us accelerate that.
And a number of ways one you know.
Continuing the trend we're on a on consistent high quality, new customer acquisition, we are seeing a really healthy mix to unlimited and premium and the investments from <unk> are only going to accelerate that and we've been able to.
Really be productive on our base management in terms of driving product intensity.
And great churn outcomes, but also driving good underlying revenue trends so able to.
Drive step ups.
And drive multi line and product intensity.
And these investments are going to help us accelerate.
And I think lastly.
This only helps us get even better with our digital channel execution, our data driven marketing and simplifying the journeys for our customers, which is so critical to our success.
Thank you Mike we have time for one more question. Please.
Yes. The last question comes from Simon Flannery.
From Morgan Stanley.
Please go ahead. Thank you for fitting me in.
Aaron I Wonder if you could just talk about your expectations for the regulatory and competitive environment. Following the end of year excuse me of the number you know a decision on what impact do you think that's going to have on your business from some of the other actions that are being taken on them on the the <unk>.
Roaming revenue.
Seeing.
Potentially changes in business travel trends over time do you think it's reasonable that you know of couple of years from now the industry is going to see roaming revenues back to.
Prior levels or do you think we're going to see some some portion of that come back, but not all of it.
Thanks Simon.
No.
Yeah.
For the last 21 years.
I think we've done a pretty good job as an organization.
Navigating through a continuum of exogenous events many of them regulatory decisions.
And I would say the envy of no decision.
Is frankly, no different we will again work our way through it.
It's the long decision with a lot of complexities inherent within it and we're still reviewing it.
We will continue to do so on the days and weeks ahead of working with the regulators in that regard.
I would say on the positive side, it's a constrained and D&O or limited envy you know in the sense of its not broad based.
It appears to be somewhat aligned on the line is what I would like or.
Or what I think would be appropriate, but seems to be somewhat aligned with consistent facilities based policy coming out of our regulator and.
I think our regulator is recognizing that the regulatory policy of facilities based competition drives the right outcomes for Canadians and they don't have to look very far for an empirical proof point of that they can look at how our networks have performed during the pandemic.
And how we have supported Canadians working from home.
<unk> from home accessing health care from home or virtually staying connected with friends and family, which of course is extremely important from a mental health point of view and I think our networks in Canada have performed at a level that is best in class on a global basis.
And certainly I think the Penny has dropped the quality matters. When it comes to network coverage network performance, particularly speed and latency.
And network reliability in that regard.
It's important to note that only regional carriers.
Are we will have.
The ability and the obligation to.
To hold spectrum assets are going to be the entities eligible for access. So you have to invest in and licenses on a spectrum basis, if youre going to be eligible to access the <unk> model, that's being implemented by the governor.
<unk>.
I think it's also a healthy thing to say that the government's not ordaining rates, but allowing a commercial set of negotiations between buyers and sellers in that regard on I think thats the right mentality to make sure that people get a fair return on the.
That they've made in their networks in the spectrum.
And the security of those networks and of course of fair markup on top of that so I like the fact that that's left for commercial adjudication of between the parties.
On.
Let's wait and see what happens in that regard I don't expect debt. The immuno decision is going to kick in until 2022 and of course at Sunset in terms of how long it's going to exist for.
With the specified time frame from the CRT D C at a seven year level.
I go back to.
What's tell us thinking about.
And whether it's any regulatory decision and D&O or otherwise.
Our goal is to work through it not use it as an excuse.
And the focus on keep on winning Telus will do what we need to do to win the generate the best operational results the best customer service.
<unk> the best Technology results, the best financial results and the best Social purpose results for all stakeholders.
And what's so beautiful about that is our strategy is pretty darn apparent.
We're going to lead with network excellence.
And we're going to derive through network and technology excellence. So that we are second to none on our <unk> network. We are second to none on our fiber network and we are second to none on digital transformation.
And we're not going to give that up ever we're going to lead on customer service excellence and we're not going to give that up whether it's human or digital or human and digital combined we're just going to lead and we're going to keep on leading.
We're going to leverage our performance culture the.
Level of engagement that we have people on our most important asset for this organization and I think we execute second to none on a global basis and we've got some beautiful.
The rent seating factors for this organization, whether it's our social capitalism thesis.
So our digital transformation capabilities, aided and abetted by Ti and what that does for this business on everything from digital transformation to labor arbitrage on cost efficiency to what it does in terms of quality of customer service because the realize those cost efficiencies we don't have.
To take of dilution in our customer service equation and of course, you know we've got the differentiated growth aspect.
And I really meant what I said during my AGM comments I think the best is yet to come for Ti Greg growth to date, even better growth on the boil for tomorrow and I think what Ti has done is emblematic of what you can expect this organization to deliver on the Telus health and the Telus AG front leveraging.
Our digital capability set and boy Oh Boy I think that sets us up for some attractive returns being delivered to shareholders.
Thank you and any thoughts on roaming.
I think on the roaming from Simon.
You can expect us to return to plan in that regard.
I don't expect it if.
If I understand your question correctly to be degraded prospectively I would expect the recovery to be of 100% in that regard.
And I think theres lots of other romaine opportunities for this organization as it relates to Iot that we can leverage prospectively within the voluminous data environment.
Thanks, a lot.
Thank you Simon Thank you Darren and thank you everyone for taking the time to join US today, Please feel free to reach out to the IR team with any follow ups and take care of everyone.
Ladies and gentlemen, this concludes the Telus 2021 Q1 earnings conference call. Thank you for your participation and have a nice day.