TELUS Corporation (TU) Q2 2025 Earnings Call Transcript

TELUS reported solid Q2 2025 results, achieving 198,000 net customer additions and 3% TTech adjusted EBITDA growth, driven by strong fixed data services and TELUS Health's 29% EBITDA increase, despite ongoing mobile ARPU pressures and a non-cash impairment in TELUS Digital. A key strategic announcement was the sale of a 49.9% interest in its new tower operator, Terrion, to La Caisse, which is projected to accelerate deleveraging towards a 3x net debt-to-EBITDA target by 2027 and enhance financial flexibility for continued broadband expansion and AI initiatives. The company reaffirmed its 2025 free cash flow target of $2.15 billion, underscoring its focus on profitable growth and asset monetization.

Analysis

TELUS Corporation's Q2 2025 results demonstrate strong operational execution, highlighted by industry-leading total customer growth of 198,000, even as the company navigates a challenging mobile pricing environment. While mobile network revenue saw a slight decline and mobile phone ARPU contracted by 3.3% year-over-year, management noted sequential improvements and expressed cautious optimism about increasing market rationality. The standout strategic development is the monetization of its tower infrastructure through the sale of a 49.9% stake in a new entity, Terrion, to La Caisse. This transaction is projected to reduce leverage by approximately 0.17x, accelerating progress towards the company's 3x net debt-to-EBITDA target by 2027 without impacting consolidated EBITDA. Diversified growth engines performed robustly; TELUS Health delivered impressive 16% revenue and 29% adjusted EBITDA growth, while realizing $400 million in synergies from the LifeWorks acquisition, substantially exceeding original targets. The wireline segment was the only one in the industry to post positive net additions, underscored by 3% growth in fixed data services revenue. Despite a non-cash goodwill impairment in the TELUS Digital division due to revised macro-assumptions, the company reaffirmed its 2025 guidance, including a $2.15 billion free cash flow target, signaling confidence in its diversified asset base and capital-efficient AI strategy, which leverages existing data centers.

Key Decisions for Investors

• The tower monetization is a significant de-risking event that accelerates balance sheet deleveraging, enhances financial flexibility, and provides a clear path towards eliminating the discounted dividend reinvestment program, which should be viewed as a primary positive catalyst.
• Investors should closely monitor the mobile ARPU trajectory for an inflection point, which management cautiously projects could occur in the next 3-4 quarters, as a sustained recovery is critical for returning the core wireless segment to service revenue growth.
• It is prudent to value TELUS on its diversified asset mix, giving significant weight to the high-growth TELUS Health segment and the capital-efficient AI strategy, which provide a buffer against telecom-specific pressures and represent distinct, long-term value creation opportunities.
• Given the confirmed 2025 free cash flow target of $2.15 billion and stable capital expenditure outlook, investors should assess the company's capacity for continued investment in its fiber expansion and shareholder returns while maintaining its disciplined deleveraging path.