Q3 2023 TELUS Corp Earnings Call
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The conference is now being recorded.
Good day and welcome to the <unk> 2023 Q3 earnings conference call I would like to introduce your speaker Mr. Robert Mitchell. Please go ahead.
Hello, everyone. Thank you for joining us today, our third quarter 2023 results news release, MD&A financial statements and detailed supplemental information were posted on our website. This morning.
On our call today will begin with remarks by Darren Doug and Zeno for the Q&A portion will be joined by other members of our executive leadership team briefly prepared remarks slides and answers to questions contain forward looking statements actual results could vary materially from these statements the assumptions on which they are based and the material risks could cause that could cause them to differ are outlined in our <unk>.
<unk> filings with Securities commissions in Canada, and the U S, including our third quarter 2023, and annual 2022, MD&A with that over to you Darren.
Thank you Rocco and Hello, everyone in the third quarter, our Telus team once again demonstrated execution strength and our T Tech business segment characterized by the potent combination of leading customer growth alongside strong operational and financial results. This was complemented by sequential EBITDA improvement and margin expansion.
In our <unk> segment.
Notably, we achieved our strongest quarter of telecom customer growth on record with total net additions of 406000 up 17% on a year over year basis.
This was driven by strong demand for our best in class portfolio of bundled services.
Our all time record customer growth is reflective of our dedicated team who are passionate about consistently delivering customer experience excellence, leveraging our superior service offerings and digital capabilities over our world, leading wireless and pure fiber broadband networks.
In the third quarter, we delivered solid consolidated operating revenue growth of seven 5% and resilient EBITDA growth of five 5% in spite of the macroeconomic challenges Telus International continues to manage through globally.
Let's turn now to our T Chek mobile operating results.
Telus achieved leading and record wireless customer growth of 339000 net additions in the third quarter up 24% over this time last year. This included strong mobile phone net additions of 160000 up 7%.
Notably this represents our best third quarter on record and our best quarterly result, since the second quarter of 2008.
This strength was driven alongside our continued focus on profitable and margin accretive customer growth.
Indeed, this consistent and disciplined approach will continue throughout the fourth quarter and into 2024 to ensure our net adds exclusively drive EBITDA and cash flow accretion.
It also included leading and all time record quarterly connected device net additions of 179000, which was up 44% on a year over year basis.
This reflects continued strong momentum with respect to our five G and Iot <unk> solutions that are so critical for the future.
Importantly, our team delivered another quarter of industry best loyalty results, which continues to be the hallmark of the Telus organization and is emblematic of our customers first culture in action.
Whilst blended mobile phone churn of 1% and postpaid churn of zero dot, 84% were up slightly against the backdrop of heightened competitive activity both represented industry best results.
Notably our postpaid churn is now in the 10th consecutive year at less than 1% and will soon be entering its 11th year.
The close on mobile third quarter, ARPA with $59 and 19 was down slightly year over year as a result of intense promotional activity in the market and heightened activity in the flanker space.
This was mitigated however by our long standing focus on <unk> accretive loading driven by our team's passion for winning and retaining profitable customers.
At the same time, we are maintaining a keen eye on efficiency by remaining highly disciplined on device subsidies and leveraging our leading digital capabilities.
Furthermore, connected devices and Iot will increasingly be an important contributor to network revenue <unk> and <unk> growth in the quarters ahead.
Indeed, our solid <unk> and leading churn continued to drive our industry best mobile phone lifetime revenue, which consistently exceeds our national peers by a considerable margin.
This is reflective of the combination of our continued focus on high quality customer growth and leading client loyalty enabled by our highly engaged team who passionately deliver superior service offerings over our world, leading broadband networks operating customers the fastest.
Most expensive and most reliable service in Canada.
Let's turn now and take a look at our fixed operating results.
Telus delivered another quarter of robust external fixed net additions of 67000 in the third quarter.
This represented an industry, leading result of the company's reporting to date.
Moreover, it included strong and steady Internet net additions of 37000 powered by the significant advantages of Telus has extensive pure fiber network.
Our leading performance reflects the continued strength and success of our unique and highly attractive bundled offerings across our truly unmatched portfolio of products and services.
These are buttressed by our ever expanding globally, leading pure fiber and <unk> networks, all of which are backed by our longstanding customer centric culture.
I will turn the call over to Zane will in a moment to provide further color on our consumer T Chek performance.
Let's turn now and take a look at <unk> business solutions, or TBS, which continues to contribute meaningfully to the success of the wider Telus organization.
Notably this includes delivering another strong quarter with continued revenue and EBITDA growth.
Our performance reflects the strength of execution and cost transformation and our highly differentiated solutions market segment and geographic diversification.
It is also indicative of how we uniquely extend our social purpose through our stand with owners brand promise, including technology solutions that empower businesses to thrive in an increasingly digital world.
During the quarter, our TBS team secured several notable wins to bring our highly differentiated assets and capabilities to meet the evolving needs of our customers.
This included a significant strategic deal with flow to provide Telus is world leading connectivity to the most extensive electric vehicle network footprint in Canada, as well as underpinning a record setting quarter for connected devices performance.
Since announcing the move of Telus, agriculture, and consumer goods or Tac to GBS, we've begun executing a robust strategic plan leveraging the strengths of both organizations to capture the market opportunity across the business.
Also allowing us to streamline our focus.
Find the right talent to key leadership roles and of course as always improve our cost structure.
While Tac revenues of $83 million in the quarter were relatively flat against the backdrop of ongoing macroeconomic headwinds we remain strongly confident in the positive outlook for this exciting business.
Notably our consumer goods business had its strongest sales quarter in over three years with a strong sales funnel to continue that momentum going forward into 2024.
TAC is exceedingly well positioned as the globally, leading provider of digital technology and data insights leveraging its superior products platforms distribution channels and enviable client base. The scale of this business into a true asset of consequence and delay.
Ever meaningful and sustained growth for the Telus organization.
Furthermore, we are accelerating efforts to build AI capabilities into the full suite of product offerings that capitalize on data commercialization and monetization across animal agriculture, agronomy, and rebate management and as well our consumer goods capabilities.
A trade promotion management and retail execution.
Let's turn now and take a look at our Telus health business.
We achieved third quarter revenues of $422 million in Telus health alongside 20% EBITDA growth normalizing for life works.
We continue to execute on our global growth strategy and progress towards our goal of being the most trusted well being company in the world accelerated by the acquisition of Lifeworks.
This includes our health care services and programs now covering nearly 70 million lives around the world an increase of more than 9 million on a year over year basis.
It includes supporting health outcomes on nearly 151 million digital health transactions during the third quarter up more than 5% over the same period a year ago.
It includes increasing our virtual care membership to five 5 million up nearly 40% over the prior year.
As we evolve to answer the needs of our customers worldwide. We proceed Telus health continuing its double digit growth over the medium and longer term.
Indeed, since acquiring <unk>, our team is committed to driving $427 million in annualized synergies by the end of 2025.
This includes $327 million <unk>.
Expected to be realized through operating cost synergies from continued integration and optimizing our organizational structure systems and our real estate portfolio.
Furthermore, we continue to anticipate $100 million from longer term revenue synergies driven by cross selling health service products within our Telus health customer base and throughout our <unk> portfolio of assets, including Telus International.
To date, we've achieved $194 million in combined annualized synergies towards our overall objective.
These synergies will allow us to reinvest in the growth of our business and as well improve our profitability, whilst we focus on delivering efficient secure and best in class health and wellness solutions to our customers.
Notably we continue to grow our revenue opportunities globally with significant wins in Canada. The U S and Europe exemplified by deals one year to date, representing over $450 million in total contract value.
Indeed in the third quarter alone we closed several material deals across our employer line of business, our payer and provider line of business and our retirement benefit solutions portfolios.
The strength of our combined health and wellbeing solutions and services remain unmatched in the marketplace.
Now, let's turn and take a look at Telus International.
Earlier today, <unk> reported steady year over year revenue growth.
Meaning full improvement in sequential profitability and margins and reiterated its 2023 full year outlook.
Revenue growth was driven by a combination of higher volumes and the ramp up of projects across key clients, notably within Telus International's AI data solutions, demonstrating the significant potential in the AI space and portending what is to come in the quarters and years ahead.
<unk> adjusted EBITDA margin increased meaningfully quarter over quarter, a positive trend that we expect to continue in the fourth quarter and into 2024.
The strong improvement reflects the team's considerable efforts to realize the significant cost savings from our cost efficiency program aimed at rebalancing supply and demand factors across <unk> operations, most notably those in Europe.
Despite the near term macroeconomic pressures that Ti has faced this year, we remain highly confident in Ti strategy and investment thesis.
This is amplified by meaningful opportunities in respect of digital transformation, particularly regenerative AI adoption and the continuing critical importance of differentiated digital consumer and B to B business experienced solutions in the overall marketplace.
In this regard earlier this week Ti launched fuel IX and enhanced end to end offering that integrates generative AI into clients customer experience ecosystems enabled by Ti's capability and digital consulting ti's capability and data analytics.
<unk> their capabilities in self serve applications and Ti leveraging of their AI enabled platform integration.
Critically <unk> helps companies overcome disjointed data and organization silos and ensures that AI is thoughtfully embedded in the functionality of day to day client experienced operations and workflows driving better outcomes.
And driving better inherent efficiency.
Moreover, Gi offers an accelerated program that unlocks Gen AI potential with a clear path to production for a company that the start of their AI journeys, representing a vibrant tailwind for ti's medium and long term growth and profitability.
Doug is going to provide further commentary on both T Chek and Telus International's third quarter results in just a moment.
This significant broadband network investments that we've made and those that we continue to make enable the advancement of our financial and operational performance and underpin the long term sustainability of our industry, leading dividend growth program.
The seven 1% year over year dividend increase announced today represents the 25th increase since we initiated our multiyear dividend growth program in 2011, which is now in its 13th year.
Since 2004, Telus has returned more than $24 billion to shareholders, including over $19 billion in dividends, representing approximately $17 on a per share basis.
Our robust outlook for the continuity of our strong free cash flow expansion portends, well for future dividend growth, particularly in the context of our dividend payout ratio guideline of 60% to 75% and the opportunity for increases.
As we prospectively approach the lower end of that range in the quarters and years ahead.
Indeed, this represent an attractive investment scenario, particularly in combination with our dividend growth program for 7% to 10% annual growth through 2025, and an attractive current dividend yield of well over 6%.
The buttress our consistently strong performance against the backdrop of rapid transformation in our industry and the evolving regulatory competitive and macroeconomic environment. We continue to focus on executing the extensive efficiency and effective.
This initiative across tell us that we announced back in the month of August.
Importantly, the transformational investments we have prudently made over the course of more than a decade and building the best culture, and enabling industry, leading customer experiences over a globally, leading wireless and pure fiber broadband networks are allowing us.
To accelerate our well progressed plans to digitally revolutionize our business and further streamline our operating costs.
Our team's grit.
Resilience and ability to embrace change.
And continuously evolve the way that we operate have enabled us to substantially complete the targeted team member reductions.
The incremental cost savings are expected to more meaningfully contribute to fourth quarter EBITDA with the full run rate expected to be felt by the second quarter of next year.
Whilst this initiative has certainly come with many difficult decisions, we've leveraged our decades long track record of successfully navigating exhort genus factors from regulatory and competitive the macroeconomic and most recently through the global.
Pandemic.
Order to rise and answer the current challenges and future proof, our business and all of our profitable growth aspirations.
Importantly.
Your company's global leadership in social capitalism was exemplified by the recent launch of the $50 million tellers student Bursaries, the largest burst refund in all of Canada.
The <unk> student Bursaries will enable thousands of young people, who might otherwise lack the means to enrich their lives through post secondary education at a University college or technical vocational school.
Our annual grocery program will empower these leaders up tomorrow to pursue their ambitions realize their potential and create a brighter future for themselves and their communities.
Myself and our entire leadership team as well as the <unk> Board of directors remain exceedingly grateful for our team's passionate efforts to support our global communities as we strive to deliver outstanding results for all of our stakeholders.
Finally.
From the head and from the heart I would like to conclude by extending my sincere appreciation to my long term colleague and friend Jim Senko.
Today marks Jim's final Telus investor call before he retires at the end of the year.
Over the past 22 years, Jim has amazing dedication to tell us and his team alongside us tremendous scale and expertise has set a remarkably high standard of excellence for our entire organization.
I know I speak on behalf of our entire leadership team when I say, we will dearly Miss Jim's considerable skill is relentless competitive spirit and his outstanding ingenuity and respected delivering innovative programs and exceptional outcomes for our customers.
Thank you Jim for the many outstanding contributions and congratulations on a truly truly truly outstanding career. Thank you on.
On that note I'll turn the call over to <unk> <unk> over to you.
Thank you Darren amidst an intensely dynamic market, we remain steadfast in our commitment to our consistent strategy.
Administrated by our strong results and driven by our dedicated team who relentlessly put our customers first provide the best products and services in our industry and passion that we believe and our social purpose.
As Darren highlighted our winning strategy has resulted in another record quarter for mobility loading, including robust share within the new Canadian and other key growing segments.
In addition, our household intensification strategy is yielding impressive results. This is translated into industry, leading customer retention rates and strong customer loyalty, our leading postpaid churn is resulting in an industry best customer lifetime value of over 59.
<unk> hundred dollars, our focus on product intensity has yielded superior churn and all cell optimized acquisition and retention costs.
While our <unk> momentum has softened by competitive aggression deceleration of bromine growth versus pre pandemic performance and a skew in loading towards lower ARPA segments, we remain disciplined on quality profitable loading.
Growth in the new Commerce segment has been predominantly through our public and kudos brands, which are heavily digitized and have a lower cost to serve.
We have achieved our 10th consecutive quarter of year over year network revenue growth supported by a 60% year over year growth in the percentage of RB on five <unk> enabled devices.
Our ability direct margin growth.
Pacing revenue growth by 35% or four 2% versus three 1% respectively.
Our device subsidy per subscriber is declining at a three five times faster rate than <unk>.
As customer step up to access device discount.
And as a result of our transformative cost evolution, we have reduced overall cost to serve by 4% year over year.
This underscores our historic commitment to focus on profitable customer growth and axiom that has served us well in the past and one we will continue into the future.
In fixed customers continue to choose tell us over our competitors.
We have achieved year over year growth in Internet net additions and five of the last six quarters enabled by our network superiority with pure fiber as we expand our premium leadership in the west due to the launch of symmetrical three gigabit per second high speed, which is 20 times the upload.
Cap of the competition on a vastly more reliable network.
This has supported a 19% year over year growth and the percentage of our base on one gig plus plans.
In August U S based PC Mag named Telus, the fastest Internet service provider in Canada for the fourth consecutive year.
The best Internet service provider for Alberta, and British Columbia.
This demonstrates our commitment to connecting Canadians to the people and information that matter, most and underscores the tremendous value of our generational investments and world, leading wireline and wireless network technology.
Sure fiber continues to yield superior results, including markedly higher products per household 68% fewer outside plant repairs and resulting in a 26% higher margin per household.
Pure fiber internet churn is 31% lower than copper driving higher customer lifetime value.
Our long track record of positive subscriber growth in video also continued in Q3 with our strongest growth in over 10 quarters.
This hinged on the success of our industry, leading video platform, which offers bundled bundled premium and OTT content. In addition to the success of stream plus our affordable OTT aggregation offering for cord shavers that is resonating significantly among customers.
Cross the country.
As Darin conveyed our focus on innovation to provide the most comprehensive suite of products in the industry underpins, our leading bundling strategy, we will continue to enhance the breadth and depth of our portfolio offering unparalleled value to our customers with smart home security.
Automation stream, plus and our unique suite of consumer health products like Telus Health, Mike here in my pack.
These results demonstrate our company's ability to drive consistent growth deliver strong customer loyalty and maximize household lifetime value.
And what is anticipated to be a seasonally competitive fourth quarter, we will maintain our long standing focus on quality profitable customer growth that will deliver positive financial outcomes, including ample and cash flow per subscriber.
Finally, if I could take a moment to echo <unk> comments and thank Jim for his unwavering dedication to our team Jim Your outstanding leadership has set the team up well for the future I am grateful for your partnership and support we wish you all the best in this next chapter now I will hand, it over to Doug.
Okay.
Thank you <unk> and Hello, everyone.
Mobile network revenue increased <unk>, 4% year over year, driven by strong subscriber additions, which has been supported by Canadian population growth.
ARPA growth declined by <unk>, 5% in Q3, given the competitive environment, particularly within flanker and as roaming revenue growth slowed overall amphora was strong as we predominantly focus on profitable loading cost reduction and service delivery managing device subsidies.
To higher value loading and as we leverage our leading digital capabilities.
Our strong <unk> performance is further evidenced by our strong mobility direct margin contribution increasing by $4, 2% in the quarter, notably exceeding mobile network revenue growth of three 4%.
On a year to date basis, <unk> was higher by one 6% and for the fourth quarter, we anticipate <unk> on a year over year basis to improve relative to Q3.
Our continued focus on profitable loading strong base management, leveraging our product superiority and bundling and including strong growth in connected devices.
Fixed data service revenue grew by four 9% year over year, driven primarily by strong customer growth in Internet security and television and higher but moderating revenue per internet customer.
Within fixed data residential internet grew 10% year over year, a leading result, primarily driven by continued market share gains health.
<unk> service revenue increased by 88% or 197 million over Q3 last year, reflecting the contribution from Lifeworks as well as continued organic growth as a reminder, we've now lapped the lifeworks acquisition on a year over year basis as of September 1st.
EBITDA contribution on our health business area, which excludes shared services from Telus continues to grow at a very good rate in the mid teens, which will include any.
<unk>, which we expect to increase in 2024 and beyond benefiting from organic growth revenue cross sell synergies and significant cost synergies overall <unk> operating revenues were up seven 8% over last year and adjusted EBITDA grew by 7%.
<unk> operating revenues from external customers were up five 8% year over year, driven by additional services provided to existing and new customers, including those from the acquisition of Willow tree.
A strengthening of both the Canadian sorry, the U S and European dollar against the Canadian dollar also benefited revenue growth.
<unk> adjusted EBITDA was down six 5%, primarily due to revenue pressures from some of their larger technology customers, partially offset by the right sizing of our cost structure during.
During the third quarter, our international team executed against it significant and ongoing efficiency plans to meaningly right size that cost structure, notably as compared to the prior quarter VLC acts EBITDA improved 12 percentage points to adjusted EBITDA margin and increased 410 basis.
This points to 21%.
Heading into the fourth quarter. These ongoing efforts for Ti in a strong position to continue to build on this momentum.
Overall consolidated operating revenues increased by seven 5% and adjusted EBITDA of $5 five.
On an adjusted basis net income was lower by 21% as higher depreciation amortization and interest costs offset the strong adjusted EBITDA growth.
While we have substantially completed our targeted head count reductions that we announced in August, including approximately 4000 and <unk> in 2000 team members within Dlcs, we anticipate consolidated restructuring and other costs to remain elevated in the first fourth quarter of up to approximately 175.
$5 million, all with their and our revised outlook that we gave last quarter as we continue to implement our efficiency programs, including non labor initiatives free.
Free cash flow in the quarter was up $355 million increased by seven 3% driven by lower Capex higher EBITDA, and partially offset by a higher restructuring cost and cash interest paid our balance.
Sheet remained strong as evidenced by our successful multi tranche $1 75 billion debt offering in September, including our fifth sustainability linked bond, which contributes to <unk> position as the largest issuer in Canada.
The average cost of our long term debt stands at three <unk> at three 3% at the end of Q3, well below current rates.
In addition, we expect our in addition, we have our long term debt to maturity of 12 years 12 years and our ratio of fixed to floating is at 85%.
As we progress through the seasonality.
Competitive final quarter of 2024, we remain in a strong operating and financial position.
Today, we reconfirmed our 2023 financial targets.
Our positive outlook reflects the confidence we have in our business to successfully navigate through a dynamic and competitive macro economic environment globally.
Our outlook is further supported by our significant investments in our cost efficiency, which we are expected to begin yielding more notable savings in the fourth quarter and well beyond.
Furthermore, our go to market strategy remains consistent and prioritizing strong economic and financial outcomes, including EBITDA and cash flow accretion balanced against the focus on profitable customer growth with that I'll turn it back to Robert.
Thanks, Doug Mihai, we're ready to proceed with our questions. Please.
Yes of course first question comes from Maher Yaghi from Scotiabank. Please go ahead.
Great. Thank you for taking my question.
Darren can you provide some context around your wireless net adds in the quarter.
I ask this because your numbers are strong even though.
You said the path on handset financing sitting.
Sitting at a higher price point than your peers during the quarter. So what is it that allows you to hit these numbers.
And just as a follow up on <unk>.
Takeda that you expect <unk> to improve.
Doug next quarter I'm trying to just understand what are the reasons behind the deterioration that we saw in Q3 is it.
Is it like mix shift lower overage or general decline in pricing across the different price points. Thank you.
Given that it's his last investor call I'll give Jim the opportunity to hit the ball out of the park on this one as it relates to not just the loading answer, but the <unk> and the ampoule answer why don't you tackle both Jim Thank you.
Firstly I want to thank you, Darren and Doug and tell us.
Including humbled products towards today I really appreciate that.
So despite.
The highly competitive environment, we saw strong customer growth and accelerating ampoule or margin in.
In the quarter.
We had our best Q3 mobile phone nuts, and we were up 10000 year over year and that was driven largely by the new to Canada loading and strong bundling.
But also we had the best ever connected device additions, which bodes well for future <unk>.
And we do expect improving <unk> going into Q4, and Thats really being driven by two things. One is our stubhub programs are gaining momentum in compounding and we're lapping aggressive rate promotions from last Q4.
So when you look at the loading.
We are seeing and expect to see newcomer growth to continue.
And though that growth is lower than <unk>, it's predominantly coming in are public and kudos brands, which are heavily digitized and have a lower cost to serve when you look at it public mobile.
Which we're excited about our public mobile, but public mobile has no retail commissions no call center costs and those subsidies. So we're getting we're tapping into that volume.
But our costs are coming down.
With that lower ARPA profile.
We also are doing well and expect to continue to do well from bundling, which is driving great household turn outcomes not just for mobility, but across all of our products protecting both our wireline and wireless and they also come with the characteristic of lower device subsidy as Anil talked about earlier.
The combination of the subsidy discipline bundling and digital customer experiences are driving the meaningful EBITDA flow through and cash flow.
And as Zane will mentioned earlier, our device subsidy is declining at a rate of three five times faster than our peers. So in Q3, when you look at it our device subsidy per subscriber declined by $1 five year over year, which is which is quite a dramatic number and we expect this to continue along with the.
Growing pre owned device volumes that we're seeing.
So, yes, so we're getting that growth and the newcomer segment and through our bundling a lot of that growth is coming.
Without.
Without a device, but we're keeping our churn down through the bundling and the intensification across our product lines.
And that lower device subsidy combined with the operational efficiencies.
Resulting in mobility direct margin growth that is significantly outpacing our revenue growth. So we have a nice dynamic happening there, which is tapping into where the growth is coming from but also driving down device subsidy and our operating costs. So that we're getting the volume, but we're also getting the margin as well.
Well.
And I would say from an outlook perspective, we expect tell us to continue to prioritize profitable loading over volume.
Our ongoing focus will be <unk>.
And as an example, we continue to drive step up to five <unk> and five <unk> plus plans to unlock device promotions.
And then finally, I'd say, we see promising revenue growth in the future from all the connected devices and Iot.
Believe there's even more future upside on privacy business applications, especially in this world fueled by artificial intelligence and automation.
No.
Net net we're tapping into where the loading volumes coming from we're driving the cost down.
And we're very focused on ampoule.
Thanks, Jim I think that covers it very very well.
Thank you very much.
Thanks <unk> next question please.
Yes of course next question comes from.
Vince.
Valentini.
Please go ahead Vince.
Did I hear correctly that wireless EBITDA was up four 2% year over year this quarter or was that some other metric.
Hi, guys its contribution margin so in our financial statements, we disclose as part of segmented info. The direct contribution so that would be revenue minus call it direct costs.
It does not include the allocated costs below direct margin okay.
And that's up 35% versus the revenue component.
Yes got that far into the margin growth.
Got it thank you and I wanted to ask I mean, you are going to painstaking links to give us a lot of metrics to show how good the profitability is and I fully agree these are digital brands.
Can't be judged just on on <unk>, if the profitability is good.
Why give so many metrics when every other company just gives us one simple metric called EBITDA and then we can see how well youre doing in terms of EBITDA growth versus revenue growth.
We continue to drive synergies.
And rely on our bundled products within our wireline and wireless environment.
And when you actually do co selling co operations and co customer service in each of those streams. Your overall cost structure comes down on a integrated area.
And so when we brought wireline and wireless together on a consumer and business level years ago.
We've been monetizing those benefits and providing better customer touch point. So we actually don't go down to that level on an individual product level anywhere.
Okay, and just to make sure we're clear.
Guidance on our <unk> for the fourth quarter, Youre, not saying <unk> will be up from Q3, what youre, saying is the rate of year over year decline will improve versus at a 0.5%. We just saw in Q3 is that fair.
That is correct okay perfect. Thank you.
Thanks, Vince next question please manner.
Alright.
Next question comes from.
<unk> from theirs.
Please go ahead.
Hi, Thanks for taking my questions.
The first one I have is coming back to Darren your comment about the payout ratio in the future are trending towards the lower end.
Of your up here come toward zone, I think it was $65 to 75%.
Just wanted to confirm that this does not include any drip going forward and then related to that.
Maybe maybe for Doug what are the maybe free cash flow implications for next year, not not asking for guidance, but maybe directionally in terms of.
The items, we don't think about too often like cash taxes and interest rates.
And what would be these assumption behind behind that payout ratio.
Okay.
Okay.
So the ratios not 65% to 75% to 60 to 75 in terms of the payout ratio on the cash upfront.
The comment that I made indeed indicated specifically in the quarters and years ahead.
That we expect through our EBIT Dag growth that we will be delivering complemented by our significantly moderated capital profile.
That we will be pushing on the bottom end of that range.
Particularly when you do the calculation on a prospect of basis. So you can do your calculations in terms of.
Our 7% T Chek EBITDA growth this quarter are reconfirming, our guidance for the full year.
And where you think we would be shooting for in terms of the EBITDA guidance in 2024.
You run those numbers, we would be hitting or falling through the lower end of that payout ratio range of 60%.
And the point there of course is that.
That bodes well for the affordability of our 7% to 10% dividend growth model.
It also is indicative of our confidence in the free cash flow picture for this organization.
We don't just expect to see significant free cash flow growth in 2024.
But beyond 2024, as well and we see that as a synergistic combination with the affordability and the expansion potential expansion of our dividend growth model.
Finally in respect of the of the D drip.
Our view here within management is that it's a necessary mechanism at the present point in time.
We look forward to the future of turning that D component of the deed rip off.
Given the free cash flow expansion strength of the organization and what it portends for the strength of our balance sheet.
And maybe just adding to the capital and EBITDA that Darren covered the next three main ones will probably be handset investments on renewals.
And I would say, we we don't see.
Material change in that going forward.
It would be cash taxes to your point and again I think probably no surprises on that front and then restructuring and I think the only item to highlight is there probably be some of the restructuring that we've executed this year of where the cash will be paid out next year.
And when we give out guidance, we'll be clear on on the cash versus expense component.
Free cash flow next year, but other than that I would say, it's very straightforward and clear it's darin discussed.
No repeating of Union payments correct.
Great. Thank you.
Thanks, Jerome next question please.
Alright next question comes from drew Mcreynolds from RBC. Please go ahead.
Yes. Thank you very much good morning, two for me.
First.
Maybe for you Doug just on the cost savings that were actually realized in Q3, obviously they will ramp up in Q4. So just wondering if you could.
Highlight for US just like what percentage, we did see here in the quarter.
Then second lien and a bigger picture question, maybe for you Darren.
Alluded to the transformation period that the industry then.
It's probably always income kind of transformation period, but.
We'd love to get your high level view looking out three to five years on.
Kind of where you see the major changes in the industry, whether it's competitive regulatory technology.
And why I'm asking this question is it looks like your playbook differentiates itself from your Canadian peers, and when I think about the contributors to growth.
Equity shareholders want to see maybe have a different definition of where those growth drivers come from all of that medium term. So just at a high level I'd love to get your updated thoughts on that one.
Okay.
Okay.
Go ahead go on savings rates.
On savings.
It will be at full run rate as we suggested by Q2 of next year.
I would say, we will probably exit the year, a little greater than 50% to 60%.
And in quarter than if you prorated it backwards it would be substantially less than half this quarter and approaching an exit rate of above above the halfway run rate in Q4.
Thank you.
I really appreciate that.
Tight question that you gave me.
First name basis.
Let me try and tackle this.
Efficiently.
I think the investments that we've made on the broadband front, both wireline and wireless will be key in the years ahead.
Leveraging whatever the environment at that juncture will entail.
For sure.
Our goal to commercialize and monetize those investments is going to be key so when I look out.
I look at <unk> and to date beyond.
Faster speeds and bigger buckets, it's not really delivered on its promise on the product Ization upfront.
Particularly within the B to B and B to B to C space.
I am cautiously optimistic that over the years ahead the product <unk> on on five G is going to be a big value generator for our business, because it's going to be a big factor.
Within the private sector, the public sector and consumer lifestyles I think with that also comes the massive opportunity because of the data volumes generated for the.
Data analytics commercialization and data monetization opportunity, so I, just see that as being a massive.
On the on the wireline front.
It's all about economies of scope when you spend $7 billion positioning fiber I think the goal is how many differentiated RG use that are meaningful the clients can you deliver over that particular mechanism.
To get the desired.
Oh, why which is why you see us going from voice and data and entertainment into.
Into the areas of security into the areas of health into the areas of energy and home automation on both the wired.
And wireless basis.
Telus launched our strategy 23 years ago, saying that the future was all about data both on wireline and wireless and I think it's as true are more true today than what it was 23 years ago, and how well do you position yourself for that digital revolution, and leveraging everything from legacy AI opportunity.
These degenerative AI opportunities and I believe that they are truly profound.
Within both our telecom business and our emerging business.
And there are profound because they can help us on the customer service upfront better service for less money spent they can help us on product development.
New sources of revenue they can help us on what we need to do to materially reduce our cost base.
So our story of our margins growing 35% faster than our revenues isn't a story that's isolated to Q3 2023, but a story that's indicative of what happens over the next five years.
And we got to be an organization through Telus and Ti.
Thats out there, helping our <unk> customers.
With their digital and AI transformation journey, along the way I also think people look at the sector a place that we've made on agriculture consumer goods and health.
So really just data place, they're a digital thesis inaction to drive value creation. The leverage the advent of these capabilities and what theyre going to mean in terms of driving better health outcomes better food outcomes, along along the way.
As it relates to the regulatory environment in God forgive me for saying this but I see over the longer term that the environment moderating.
A lot of the goals that the federal government has had on the regulatory upfront.
Have effectively been answered.
And I think this is an era.
To allow free market forces determine competitive outcomes, not regulatory or government intervention I'm, not saying that it's going to go away I believe strongly that it's always going to be there.
But I believe that on the whole.
The regulatory environment of the future will be more moderate or benign versus what we've seen in the in the past and if you look at whether it's the competitive landscape.
The number of offerings that are out there in the competitive landscape the number of competitors or even if you just want to go down to the key metrics like as the affordability objective has been achieved while theres one hell of a dichotomy right now within the Canadian landscape, where if you look at the magnitude of general.
<unk> on the CPI front.
Its a non trivial number and you can see what federal governments around the world are doing as it relates to quantitative lightning on the flipside prices on telecom.
Have come down appreciably to the tune of like 17% to 20% within the wireless industry alone. So it is quite a.
Deflationary inflationary dichotomy as it relates to telecoms versus general goods and services along along the way.
And then lastly, I think the organization.
That best execute a technology play.
Does it with the best culture of execution and the best customer Centricity.
Manages its cost base really well and find the type of sustainable sources of growth that you see within the complexion of the <unk> portfolio and bundles those solutions in a way, that's very elegant and meaningful the clients.
I think I think that they're going to they're going to win and so.
<unk>.
That's the best I can give you on a continuous basis for the purposes of this call. Thanks.
Thanks Darren.
Thank you Drew me My next question please.
And our next question comes from Stephanie price from CIBC World markets. Please go ahead.
Good morning.
And you posted solid.
Internet net adds in the quarter I'm, just curious about what youre seeing in the west in terms of competition, but also what sort of contribution youre non western footprint played an internet adds in the quarter.
Okay, maybe after.
My last answer I'll hand, it over to Zane.
To do this one Stephanie and I'll go ahead.
Darren So Stephanie I think.
Important to highlight that what we're seeing in the west it's pretty consistent our value propositions are resonating well.
We're continuing to drive bundled economics, and bundled households, as we've talked about and as Jim reinforced as well that that's giving us some retention momentum that serves us well on the on the net adds front and.
There are areas that we're continuing to build new fiber capability, even though our capex is declining there is still some fiber new footprint as well as tenured footprint network growing into.
And we're seeing a lower.
A lower sort of rate.
Or a higher rate of occupancy across our cross footprint. So that's continuing to add to growth as well.
I would see that.
The eastern side is humble at this point, we're really looking at that in terms of we've been providing home security and automation nationally for several years now.
In some areas, having a solid Wi Fi and high speed service is the backbone of that and we're also seeing.
Bundling economics, and helping us with wireless speeds management in in those areas as well. So we'll continue to look at that and again really focused on profitable net growth based on the rate at which we're able to access facilities as well as the bundling economic sense.
The base.
Okay.
Thanks, and then maybe just one other one for me just on Telus health and its trajectory now that the rebranding has been completed and it looks like revenue growth was solid in the quarter and it was obviously very strong EBITDA growth how should we think about the changes you're implementing in the business to drive growth and the trajectory here.
I think theres lots of opportunity.
Within the Telus Health Arena.
I think we've spoken.
At length on the cost synergy front and provided the the specificity on the $327 million cost goal alone within the $427 million.
Envelope, Stephanie and we've already realized $194 million of the 427 goal along the way.
The the revenue.
And the cross sell funnel is voluminous and Telus health space all of our products are hunting well within all of our theaters of operation, Canada, The U S and Europe.
And I'm, particularly bullish about the opportunity specifically within employer health solutions, both at the physiological level, but also at the mental health level.
And it's not just the remediation a component of that but what we can do to promote and optimize our wellness from an employer health perspective, which fits beautifully with our existing thesis on on workforce productivity.
AI from legacy degenerative AI opportunity Intel itself is extremely attractive.
I talked about fuel IX on Telus International and what we're doing with external clients, but tell us and Telus health are also buyers of fuel IX in terms of what we can do to leverage our data thesis on steroids within Telus health.
Monetize that on a very very attractive basis, and it's all within the field of dual ability within the primary care ecosystem, we're dealing directly with employers along the way and we set a goal for how fast and how significant are we want to scale. This business.
Into an asset of consequence, and so the.
The task that management has set for itself is what we call our forging 50 program.
We're looking to take our monthly EBITDA within Intel itself from the low 20 millions.
The $50 million over the next 18 months.
That's an exciting program.
It's going to be driven by revenue growth through new product opportunities, new markets and cross selling as well. It will also be significantly aided and abetted by our efficiency programs, but when we.
Blish This particular program in and get to that $50 million per month level or 600 on an annualized basis with the CAGR that would underpin it.
Think the valuation implications are a real you know relatively obvious and we're certainly excited by those and that's the that's the type of aspiration that we've got for this asset.
And I think it's doable.
Alright, Thank you very much.
Thanks, Stephanie.
Have time for one more question. Please.
Yes last question, we have in the queue comes from Simon Flannery.
From Morgan Stanley. Please go ahead.
Right. Thanks, very much and thanks for fitting me in just a couple of follow ups on <unk>, if I could you talked a bit about the opportunities here Iot and other things one thing we started to hear from the U S carriers more as a modest interest in private networks. I was just wondering to what extent are you starting to see those deployments start to gain traction here.
And then the other thing we're seeing a lot of and as fixed wireless in the U S.
Are you thinking about using follow capacity in <unk> outside of your wireline footprint as a potential broadband alternative for bundling with your wireless service.
Diamond Thats, a very fortuitous question to conclude with I want to thank you.
For it.
<unk>.
Fastball down the middle of the plate for you given the traction that we've got on the private wireless network upfront. So I'll hand that one over to you and Tony.
Why don't you talk about F. W. A.
And how we leverage that capability within our connectivity portfolio in terms of making smart choices on connectivity and the economics associated with that.
Yes, thanks, very much Darren and Simon Thanks for the question.
So we've actually had significant success and had meaningful progress when it comes to commercializing a number of our private wireless network opportunities.
Really given our superior network leadership, we're very bullish on leading the market across all our segments. When it comes to this important product set.
We have a large funnel of opportunities to provide solutions and they support critical.
Use cases across many industry verticals and interestingly enough.
Lots of ESG related use cases to drive environmental efficiencies as well as worker safety through autonomous vehicles, robotics video analytics and security and safety device type.
Type applications.
And while we're talking about.
Monetizing by GE as.
As you saw we had record loading on connected devices this quarter and a lot of.
What we're doing.
With connected devices bodes well for the future and as we build out.
Greater industry solutions use cases, we expect acceleration.
Across stop <unk> monetization capability, so specific areas would be.
Smart building technology solutions.
You may have.
Read the release and of course, and Dan's comments, we talked about slow as an important.
New customer new win where we can start we're in the process of installing 60000 intelligent electric vehicle Chargers across North America our.
Previously, we did something similar with Joel.
Up to 5000.
EV charging stations here across Canada.
And then lastly, we've got a lot going on when it comes to smart cities as well. So this will be an important developing story and an important contributor to <unk>.
As we move into 2024.
Back to you Darren and then over to you Tony I guess.
Thanks.
Go ahead, Tony Thanks, Darren Simon.
Great question.
What youre seeing in the U S with the millimeter wave fixed wireless access is something we're excited about is the capability not yet available in Canada as the spectrum hasn't yet been released.
Essentially we would see broadband connectivity, leveraging pure fiber, where economically feasible as a first choices by far and away the best technology to deliver a broadband experience for wideband experience if you will.
We would leverage our <unk> mobile assets for <unk>.
Mobile broadband connectivity and we have been using our mobile spectrum.
To support.
Wireless high speed Internet in some remote and rural areas and that will continue to be a niche strategy, particularly in low dense.
Community environments, and then when the fixed wireless millimeter wave spectrum becomes available that will be.
Probably the final piece in the connectivity.
[noise] Jigsaw puzzle, if you will excluding Leo satellite servicing areas where that.
That plays a role.
We would leverage fixed wireless access is one of our connectivity network measures to drive the widest possible extensible broadband coverage. We can we can get and of course in some of those areas Youre leveraging government subsidy, where it's available as we've been doing very successfully for the past few years in <unk>.
Rural communities.
So really it's a mix of those technologies, Simon and we would see it will have a role to play it will extend fixed network areas, where it might be the geography or the cost in particular.
Particular terrain is prohibited.
You can get that coverage will allow an attractive urban infill in certain circumstances, where tactically you might want to deploy this in advance of a build this ongoing so we would expect to be utilizing the capability as soon as the spectrum is available.
Great. Thanks for the color.
Thank you Simon and thank you everyone for joining US today, please feel free to reach out to the IR team with any follow ups, you may have and without me high back over to you.
This concludes the Telos 2023 Q3 earnings conference call. Thank you for your participation and have a nice day.
Yeah.
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