TELUS Corporation today released its unaudited results for the
third quarter of 2022. Consolidated operating revenues and other
income increased by 10 per cent over the same period a year ago to
$4.7 billion. This growth was driven by higher service revenues in
our two reportable segments: TELUS technology solutions (TTech) and
Digitally-led customer experiences – TELUS International (DLCX).
TTech service revenue growth was driven by higher mobile network
revenues, growth in health services revenues, increased data
service revenues and growth in agriculture and consumer goods
service revenues. Increased DLCX revenues resulted from growth from
both expanded services for existing clients and growth from new
clients. See Third Quarter 2022 Operating Highlights within this
news release for a discussion on TTech and DLCX results.
"In the third quarter, the TELUS team once again demonstrated
continued execution excellence, characterized by the potent
combination of industry-leading customer growth, resulting in
strong operational and financial results across our business," said
Darren Entwistle, President and CEO. “Our robust performance
reflects the chemistry of our globally leading broadband networks
and customer-centric culture, which enabled our strongest quarter
on record, with total customer net additions of 347,000, up more
than 8 per cent, year-over-year. This included strong mobile phone
net additions of 150,000, up 11 per cent over last year and the
best quarterly result since the third quarter of 2010; record high
connected device net additions of 124,000; and industry-leading
total fixed net additions of 73,000. Our leading customer growth is
underpinned by our consistent, industry-best client loyalty across
our mobile and fixed product lines. Notably, again this quarter,
blended mobile phone, PureFibre internet, security and voice churn
were all at or below one per cent. Moreover, our industry-leading
postpaid mobile phone churn of 0.76 per cent represents the eighth
quarter out of the last 11 below 0.80 per cent.”
"Our results are backed by our highly differentiated and
powerful asset mix geared towards high-growth, technology-oriented
verticals,” continued Darren. “Despite a challenging macroeconomic
environment, earlier today TELUS International (TI) once again
announced solid double-digit revenue growth, coupled with leading
profitability and robust cash flow in the third quarter. TI’s
continued focus on profitable growth, powered by attractive
end-to-end digital capabilities, position TI as a trusted advisor
for premier digital customer experiences and IT services for its
over 600 global clients. In October, TI announced an agreement to
acquire WillowTree, a full service digital product provider, that
will bolster TI's front end and design competencies, and unlock
attractive cross-selling opportunities, while adding new marquee
customers and further diversifying TI's enviable list of client
partners. Importantly, WillowTree will augment our go-to-market
transformation capabilities in respect of digital, cloud and
software-based services that will be highly sought-after as we
progress toward a period of economic recovery in the months to
come. Furthermore, WillowTree’s software development capabilities
will enhance TI’s ability to support and accelerate TELUS’ ongoing
digital transformation and support key product development across
our business, particularly within health and agriculture and
consumer goods.”“At TELUS Health, our team drove ongoing
year-over-year health services revenue growth, while continuing to
meaningfully scale our health operations as we improve health
outcomes for citizens through access to better health information.
This includes our healthcare programs covering over 60 million
lives, inclusive of LifeWorks, an increase of more than 41 million
over the third quarter last year; along with executing 143 million
digital health transactions during the quarter, up 4 per cent over
last year; and earning 1.7 million new virtual healthcare members
in the last 12 months, increasing our virtual healthcare members to
4 million, up 74 per cent over the prior year. On September 1,
2022, we completed our acquisition of LifeWorks, welcoming their
employees and customers into our TELUS Health family, and have
already commenced integration to combine our respective skills and
capabilities. This powerful combination creates a globally leading,
end-to-end, digital-first employee primary and preventative
healthcare, mental health and wellness platform covering more than
60 million lives in Canada and beyond. Customers will benefit from
our team’s steadfast focus on providing exceptional customer
experiences over our world-leading broadband networks, and as well,
our consolidated engineering talent that will incorporate
best-in-class data platform technologies to positively impact
health outcomes for employees and their families, and our
significantly expanded economies of scope and scale. This includes
complementing LifeWorks’ international relationships with TI’s
proven expertise in digital transformation and client service
excellence, as well as their expansive client base and delivery
teams spanning 30 countries, to extend our offerings to customers
well beyond Canada. Our combined organizations, guided by a shared
set of values, will provide employers with convenient, innovative
and effective, data-driven primary and preventive care solutions
for employees and their families to proactively manage their health
and wellness, including their mental health, so that they can lead
their healthiest and most productive professional and personal
lives. LifeWorks brings significant benefits to TELUS Health, and
we are focused intensely on integration efforts aimed at
crystallizing these benefits, including meaningful synergies of
$200 million or more over the next three to five years, inclusive
of revenue synergies, and approximately $50 million in nearer-term
cost synergies.”
“At TELUS Agriculture & Consumer Goods, our team drove
revenue growth of 29 per cent over the same period last year, as a
result of our team’s ongoing efforts to integrate and grow this
compelling global business. We are creating significant value as
the leading provider of agriculture and consumer goods technology
solutions around the world, as we advance the sector’s efficiency
and effectiveness, including food quality production and waste
reduction, through data analytics.”
“Our consistently strong operating and financial performance is
buttressed by our highly engaged team who are passionate about
delivering superior service offerings and digital capabilities over
our world-leading wireless and PureFibre broadband networks,”
Darren further commented. “More than ever before, Canadians value
fast, reliable connections, and the consistent recognition from a
range of independent organizations reinforces the superiority of
TELUS’ world-leading networks. Notably, in August, independent
global analytics company Opensignal named TELUS as Canada’s best
provider for consistent mobile network quality. This recognition
makes TELUS the most awarded network in Canada, and one of the most
awarded globally, by Opensignal for the 11th consecutive time.
Furthermore, in October, US-based Ookla recognized TELUS as the
fastest mobile provider in Canada, in their Q3 network performance
report, also representing the 11th consecutive time TELUS has
received this award. Alongside the numerous other third-party
network awards our skilled and dedicated team has earned, these
acknowledgements reinforce TELUS’ leadership in terms of offering
customers the fastest, most expansive and reliable service in
Canada across both our wireless and PureFibre networks. Moreover,
this recognition of the leadership of TELUS’ national broadband
networks underscores the tremendous value of our generational
investments in world-leading network technologies, including our
ongoing accelerated broadband expansion program nearing completion
at the end of 2022, which will continue to drive extensive
socio-economic benefits to Canadians from coast-to-coast, for
decades to come.”
“Importantly, our significant, ongoing broadband network
investments further enable the continued advancement of our
financial and operational performance, strengthening our confidence
in the robust outlook for our business, and the long-term
sustainability of our industry-leading dividend growth program. The
7.2 per cent year-over-year dividend increase announced today
represents the twenty-third increase since we initiated our
multi-year dividend growth program in 2011, with our program now in
its twelfth year and recently extended through 2025. Since 2004,
TELUS has returned more than $22 billion to shareholders, including
over $17 billion in dividends and more than $5 billion in share
purchases, representing approximately $16 per share. Future
dividend growth and affordability will be supported by strong
EBITDA growth and free cash flow, value creation across our TI,
Health and Agriculture and consumer goods businesses, as well as a
significant reduction in annual capital expenditures beginning in
2023, leading to a meaningful and sustainable expansion in free
cash flow.”
“Our TELUS team continues to demonstrate that when things are at
their worst, the TELUS team is at its best. This is highlighted by
our team’s support for humanitarian and disaster relief efforts
this past quarter, including Hurricane Fiona, Hurricane Ian,
flooding in Pakistan and the unrest in Iran. Thus far, TELUS, our
team members, the TELUS Friendly Future Foundation and our
customers have contributed more than $760,000 in cash and in-kind
assistance. By way of example, in the aftermath of Hurricane Fiona,
local team members and TELUS Community Ambassadors volunteered on
the ground in impacted communities to distribute disaster relief
kits, donate supplies and provide support for local charities. In
addition, as a leading provider of mental health and well-being
services, we launched a free 24/7 crisis support hotline through
LifeWorks to support the Iranian community and their loved ones.
Indeed, our TELUS teams’ passionate efforts to support our
communities across the globe further exemplifies our leadership in
social capitalism, Darren concluded.”
Doug French, Executive Vice-president and CFO said, “Our third
quarter results build on our strong operating momentum, reflecting
a continuation of our execution excellence and supported by our
high growth and diversified asset mix. As we progress through the
final quarter of the year and into 2023, our team remains highly
confident of our growth trajectory and long-term strategic plan to
further advance our leading growth profile. Our domestic core
telecom business continues to perform well, benefitting from our
world-leading wireless and PureFibre networks. At TI, the current
macroeconomic environment is influencing customer spending in the
near-term, leading TI to update its 2022 outlook for revenue growth
as announced today. Importantly, TI continues to target robust
double digit revenue growth with continued strong margin profile.
TI remains focused on leveraging its key strategic partnerships and
expanding its service offerings across its deep client roster,
benefitting from the industry tailwinds as the pace of digitization
continues at a robust pace. Considering TI’s updated revenue
outlook, and lower than expected mobile equipment revenues, offset
by the inclusion of LifeWorks, we are updating our 2022 guidance.
We are now targeting consolidated revenue growth of approximately 8
per cent, tightening upwards adjusted EBITDA growth of 9 to 10 per
cent, and capital expenditures of approximately $3.475 billion,
inclusive of LifeWorks. For free cash flow, we are increasing our
target to approximately $1.3 billion.”
“During the quarter, our team successfully closed our
acquisition of LifeWorks earlier than anticipated, accelerating the
recognition of the financial and operational benefits of the
transaction, as well as accelerating the integration process months
earlier, advancing our ability to begin unlocking the significant
synergy opportunities.” added Doug. “Importantly this acquisition
enhances the growth profile of TELUS Health by opening new business
and revenue opportunities. In October, we announced the planned
acquisition of WillowTree, significantly scaling TI’s digital
services portfolio, augmenting its design and build capabilities,
and increasing its higher-value digital services mix and revenue
per team member. These two transactions represent important steps
we are taking to scale these high growth, technology-oriented
businesses. They augment their capacity for value creation, further
diversifying our business and benefit from a larger addressable
global market, building on our track record of execution
excellence, industry-leading growth and profitability, and will
further enhance our growth profile as we head into 2023.”
“Our team also successfully accessed the capital markets during
the third quarter, issuing $2 billion in new debt securities across
three different maturities, notably including our third
sustainability-linked bond. This offering was met with high
investor demand, within a dynamic market environment, and further
demonstrates our strong access to the capital markets as we further
advance our growth strategy. Importantly, our balance sheet remains
strong. At the end of the third quarter, the average cost of our
long-term debt remained low at 3.95 per cent, reflecting how our
team has successfully leveraged the ultra-low interest rate
environment over the last decade to accelerate our growth strategy,
including our generational PureFibre build which is now nearing
completion. We have a strong debt maturity schedule with the
average maturity of our long-term debt at over 12 years along with
no significant debt maturities until 2024. Our balance sheet
strength will be further enhanced in 2023 with a meaningful
increase in cash flow generation. At the end of 2022, our
accelerated broadband build will wind down, setting ourselves up to
see a meaningful positive impact to cash flow with capital
expenditures declining by approximately $1 billion beginning in
2023,” concluded Doug.
For the third quarter, net income of $551 million increased by
54 per cent over the same period last year and Basic earnings per
share (EPS) of $0.37 increased by 48 per cent over the same period
last year. These increases were driven by the impacts of higher
Operating income, including increased earnings before interest,
income taxes, depreciation and amortization (EBITDA), as detailed
below, as well as virtual power purchase agreements (VPPA)
unrealized change in forward element in the third quarter of 2022,
partly offset by higher depreciation and amortization; higher
income taxes; and, as it relates to EPS, higher shares outstanding.
When excluding the effects of restructuring and other costs, income
tax-related adjustments, VPPA unrealized change in forward element
in the third quarter of 2022 and long-term debt prepayment premium
in the third quarter of 2021, adjusted net income of $471 million
increased by 20 per cent over the same period last year, while
adjusted basic EPS of $0.34 was up 17 per cent over the same period
last year. Adjusted net income is a non-GAAP financial measure and
adjusted basic EPS is a non-GAAP ratio. For further explanation of
these measures, see ‘Non-GAAP and other specified financial
measures’ in this news release.
Compared to the same period last year, consolidated EBITDA
increased by 10 per cent to over $1.6 billion. This growth
reflects: (i) higher mobile network revenues driven by growth in
our subscriber base over the past 12 months, in addition to higher
mobile phone ARPU; (ii) increased contribution from our DLCX
business; and (iii) increased internet and data service revenues
driven by a combination of subscriber growth across internet,
security and TV, business acquisitions, higher revenue per internet
customer, and expanded services; and (iv) contribution from our
acquisition of LifeWorks on September 1, 2022. These factors were
partly offset by: (i) higher employee benefits expense; (ii) higher
costs related to the scaling of our digital capabilities, inclusive
of increased subscription-based licences; (iii) bad debt expense
returning to pre-pandemic levels driven by macroeconomic pressures
compared to the prior period, which saw historically low bad debt
expense; (iv) higher external labour; and (v) lower legacy fixed
voice and legacy fixed data services revenues. Adjusted EBITDA,
which excludes restructuring and other costs and other equity
losses related to real estate joint ventures, increased by 11 per
cent to more than $1.7 billion.
In the third quarter, we welcomed 347,000 net customer
additions, up 27,000 over the same period last year, and inclusive
of 150,000 mobile phones and 124,000 connected devices, in addition
to 36,000 internet, 25,000 security and 18,000 TV customer
connections. This was partly offset by residential voice losses of
6,000. Our total TTech subscriber base of 17.7 million is up 6.3
per cent over the last twelve months, reflecting a 4.4 per cent
increase in our mobile phones subscriber base to 9.6 million, and a
15 per cent increase in our connected devices subscriber base to
2.4 million. Additionally, our internet connections grew by 6.3 per
cent over the last twelve months to 2.4 million customer
connections, our security customer base expanded by 23 per cent to
950,000 customers, and our TV subscriber base increased by 4.9 per
cent to more than 1.3 million customers.
In health services, as of the end of the third quarter of 2022,
virtual care members were 4.0 million, up 74 per cent over last
year, while healthcare lives covered of 60.4 million increased by
41.1 million over the past twelve months, primarily due to the
inclusion of approximately 37 million lives covered by LifeWorks.
Digital health transactions in the third quarter of 2022 were 143.2
million, up 3.8 per cent over the third quarter of 2021.
Cash provided by operating activities decreased by $9 million in
the third quarter of 2022 and free cash flow of $331 million
increased by $128 million compared to the same period a year ago.
The increase in free cash flow was driven primarily by higher
EBITDA and lower capital expenditures.
Consolidated capital expenditures decreased by $66 million in
the third quarter of 2022, driven by a $70 million decrease in
TTech, mainly due to a planned slowdown in fibre network
investments due to approaching our current build target compared to
the accelerated investments in the first half of the year.
On March 25, 2021, we announced that we intended to accelerate
$1.5 billion of capital spending in 2021 and 2022, with up to $750
million of accelerated capital in 2021 and the remainder brought
forward into 2022. Accelerated capital invested during the third
quarter of 2022 and first nine months of 2022 was $226 million and
$691 million, respectively. This spend has enabled: (i) the
acceleration of premises to be connected to our fibre network; (ii)
the acceleration of our copper-to-fibre migration program; (iii)
the expansion of our fibre build to a number of additional
communities, including many rural and Indigenous communities; (iv)
the advancement of our 5G network build, which covered
approximately 80 per cent of the Canadian population at September
30, 2022; and (v) progress with the implementation of our digital
strategy, and enhancement of products that will bolster both
long-term revenue growth and operating expense efficiency.
As at September 30, 2022, 2.9 million households and businesses
in B.C., Alberta and Eastern Quebec were covered with fibre-optic
cable, which provides these premises with immediate access to our
fibre-optic technology. This is up from more than 2.6 million
households and businesses in the third quarter of 2021.
Furthermore, as of the end of the third quarter 2022, we have
substantially completed migrating copper TV and internet customers
within our PureFibre footprint. Going forward, we will continue to
migrate any customers newly enabled with TELUS PureFibre. In
addition, we will progress to our next phase, focusing on targeted
central office copper retirement to drive synergies and optimize
assets.
Consolidated Financial Highlights
| C$
millions, except footnotes and unless noted otherwise |
Three months ended September 30 |
Per cent |
|
(unaudited) |
2022 |
2021 |
change |
|
Operating revenues (arising from contracts with customers) |
4,640 |
4,246 |
9.3 |
| Operating revenues and other
income |
4,671 |
4,251 |
9.9 |
| Total operating expenses |
3,875 |
3,559 |
8.9 |
| Net income |
551 |
358 |
53.9 |
| Net income attributable to common
shares |
514 |
345 |
49.0 |
| Adjusted net income(1) |
471 |
392 |
20.2 |
| Basic EPS ($) |
0.37 |
0.25 |
48.0 |
| Adjusted basic EPS(1)($) |
0.34 |
0.29 |
17.2 |
| EBITDA(1) |
1,646 |
1,496 |
10.1 |
| Adjusted EBITDA(1) |
1,724 |
1,559 |
10.7 |
| Capital expenditures (excluding
spectrum licences)(2) |
925 |
991 |
(6.7) |
| Cash provided by operating
activities |
1,300 |
1,309 |
(0.7) |
| Free cash flow(1) |
331 |
203 |
63.1 |
| Total telecom subscriber
connections(3)(thousands) |
17,670 |
16,615 |
6.3 |
| Healthcare lives
covered(4)(thousands) |
60,400 |
19,300 |
n/m |
Notations used in the table above: n/m – not meaningful.
|
(1) |
These are non-GAAP and other specified financial measures, which do
not have standardized meanings under IFRS-IASB and might not be
comparable to those used by other issuers. For further definitions
and explanations of these measures, see ‘Non-GAAP and other
specified financial measures’ in this news release. |
|
(2) |
Capital expenditures include assets purchased, excluding
right-of-use lease assets, but not yet paid for, and consequently
differ from Cash payments for capital assets, excluding spectrum
licences, as reported in the interim consolidated financial
statements. Refer to Note 31 of the interim consolidated financial
statements for further information. |
|
(3) |
The sum of active mobile phone subscribers, connected device
subscribers, internet subscribers, residential voice subscribers,
TV subscribers and security subscribers, measured at the end of the
respective periods based on information in billing and other source
systems. Effective January 1, 2022 on a prospective basis,
following an in-depth review of our definition of a subscriber, we
adjusted our connected devices subscriber base to remove 34,000
subscribers within a legacy reporting system. During the second
quarter of 2022, we adjusted our cumulative security subscriber
connections to add approximately 75,000 subscribers as a result of
a business acquisition. |
|
(4) |
Healthcare lives covered means the number of users (primary members
and their dependents) enrolled in various health programs supported
by TELUS Health services (e.g. virtual care, health benefits
management, preventative care, personal health security and
employee and family assistance programs). It is probable that some
members and their dependents will be a user of multiple TELUS
Health services. During the third quarter of 2022, we added 36.9
million healthcare lives covered as a result of the LifeWorks
acquisition. |
Third Quarter 2022 Operating Highlights
As noted in Section 1.2 of our third quarter 2022 Management’s
Discussion and Analysis (MD&A), the COVID-19 pandemic, which
emerged in the first quarter of 2020, continued to have a global
impact into 2022. We expect the pandemic to continue to affect our
operations until at least 2023. Whether this occurs will depend on
both domestic and international factors, such as rates of
vaccination, including booster doses, as well as the potential
proliferation of COVID-19 variants of concern. Therefore, results
described below may not be indicative of future trends, as the
COVID-19 pandemic prevents us and our customers from operating in
the normal course of business in certain areas, while we continue
to adjust our mode of operations to continue delivering on our
customers first priorities and social purpose. Our results
discussed below are compared to the equivalent period in 2021,
unless otherwise indicated.
TELUS technology solutions (TTech)
- TTech operating revenues (arising from contracts with
customers) increased by $314 million or 8.6 per cent in the third
quarter of 2022, driven by higher mobile network revenues, growth
in health services revenues, increased data service revenues and
growth in agriculture and consumer goods service revenues, as
described below. A slight decrease in fixed voice services revenues
was a partial offset.
- TTech EBITDA increased by $102 million or 7.5 per cent in the
third quarter of 2022, while TTech Adjusted EBITDA increased by
$114 million or 8.1 per cent, reflecting an increase in direct
contribution from mobile and fixed products and services, as
outlined below. This was partially offset by higher goods and
services purchased and higher employee benefits expense.
Mobile products and services
- Mobile network revenue increased by $108 million or 6.8 per
cent in the third quarter of 2022, due to an increase in the mobile
phones and connected device subscriber base over the past twelve
months, in addition to roaming improvements. As compared to the
third quarter of 2019, mobile network revenue is higher by $118
million or 7.5 per cent.
- Mobile equipment and other service revenues increased by $22
million or 4.2 per cent in the third quarter of 2022, reflecting
the impact of higher-value smartphones in the sales mix, partly
offset by lower contract volumes.
- TTech mobile products and services direct contribution
increased by $110 million or 7.7 per cent in the third quarter of
2022, largely due to higher network revenues and higher equipment
margins.
- Mobile phone ARPU was $59.48 in the third quarter of 2022, an
increase of $1.35 or 2.3 per cent. This increase reflects higher
roaming revenue as a result of increased international travel
volumes. Roaming improvements were partially offset by: (i) lower
top-ups and chargeable usage revenues as customers continue to
adopt larger or unlimited data allotments in their rate plans; (ii)
the impact of the competitive environment putting pressure on base
rate plan prices in the current and prior periods; and (iii) a
greater uptake of family discount and bundling credits to our
customers, which helps us drive lower churn and greater lifetime
value across our mobile and fixed products and services.
- Mobile phone gross additions were 421,000 in the third quarter
of 2022, an increase of 41,000, driven by growth in high-value
customers as a result of improvements in retail traffic as
pandemic-related restrictions had lessened when compared to the
prior year, as well as success in our selective promotions during
an aggressive back-to-school period.
- Mobile phone net additions were 150,000 in the third quarter of
2022, an increase of 15,000, driven by growth in high-value
customers as a result of improvements in retail traffic as
pandemic-related restrictions had lessened when compared to the
prior year, as well as success in our selective promotions during
an aggressive back-to-school period.
- Our mobile phone churn rate was 0.95 per cent in the third
quarter of 2022, as compared to 0.90 per cent in the prior year
period due to increased switching activity as a result of customer
response to the previously mentioned aggressive promotional period,
compounded by increased retail traffic. Churn continues to benefit
from our successful bundling of mobility and home services, our
focus on executing customers first initiatives and upgrade volume
programs, and our leading network quality.
- Connected device net additions were 124,000 in the third
quarter of 2022, an increase of 14,000, largely attributed to
successful promotions of consumer connected devices.
Fixed products and services
- Fixed data services revenues increased by $56 million, or 5.4
per cent in the third quarter of 2022. The increase was driven by:
(i) increased internet and data service revenues, reflecting a 6.3
per cent increase in our internet subscribers over the past 12
months, in addition to higher revenue per customer resulting from
internet speed upgrades, larger allotted data internet rate plans
and rate changes; and (ii) increased revenues from home and
business security driven by expanded services and customer growth
of 23 per cent over the past 12 months. This growth was partially
offset by: (i) the impact of the fourth quarter 2021 disposition of
our financial solutions business; (ii) lower TV revenues,
reflecting an increased mix of customers selecting smaller TV
combination packages and technological substitution, mostly offset
by subscriber growth of 4.9 per cent over the past 12 months; and
(iii) the ongoing decline in legacy data service revenues.
- Fixed voice services revenues decreased by $10 million or 4.8
per cent in the third quarter of 2022, reflecting the ongoing
decline in legacy voice revenues resulting from technological
substitution and price plan changes. Declines were partly mitigated
by the success of our bundled product offerings, retention efforts
and the migration from legacy to IP services offerings.
- Fixed equipment and other service revenues increased by $24
million in the third quarter of 2022, reflecting higher sales
volumes and lower discounts on business and consumer premises
equipment, along with higher other services revenue.
- TTech fixed products and services direct contribution increased
by $97 million or 8.7 per cent in the third quarter of 2022 due to
growth in margins for internet and data, as well as health and
agriculture and consumer goods services, inclusive of business
acquisitions and organic growth. These were partly offset by
declining legacy data and legacy voice margins.
- Internet net additions were 36,000 in the third quarter of
2022, a decrease of 10,000, due to modestly higher churn compared
to relatively low churn rates during heightened pandemic
restrictions in the prior year, in addition to macroeconomic
pressures impacting consumer purchasing decisions. This was partly
offset by our success in driving strong gross additions through
bundled product offerings, including the TELUS Whole Home bundle
and our bundling of mobility and home services.
- TV net additions were 18,000 in the third quarter of 2022, an
increase of 8,000, mainly due to strong loading in the business
market and our diverse offerings, partly offset by modestly higher
churn due to the factors discussed above for internet.
- Security net additions were 25,000 in the third quarter of
2022, a decrease of 5,000, due to modestly higher churn due to the
factors discussed above for internet. Our continued focus on
connecting more homes and businesses directly to fibre, expanding
and enhancing our addressable high-speed internet and Optik TV
footprint, and bundling these services together, contributed to
combined internet, TV and security subscriber growth of 378,000
over the past 12 months, including the addition of 75,000 customers
from our second quarter 2022 acquisition of Vivint Smart Home.
- Residential voice net losses were limited to only 6,000 in the
third quarter of 2022, compared to residential voice net losses of
11,000 in the same periods in 2021. The residential voice
subscriber losses continue to reflect the trend of substitution to
mobile and internet-based services, mostly mitigated by our
expanding fibre footprint and bundled product offerings, as well as
our strong retention efforts, including lower-priced
offerings.
Health services
- Through TELUS Health, we are leveraging technology to deliver
connected solutions and services, improving access to care and
revolutionizing the flow of information while facilitating
collaboration, efficiency, and productivity across the healthcare
ecosystem, progressing our vision of transforming healthcare and
empowering people to live healthier lives.
- Health services revenues increased by $95 million or 73 per
cent in the third quarter of 2022, driven by: (i) our acquisition
of LifeWorks on September 1, 2022; (ii) higher revenues from the
continued adoption of our virtual care and virtual pharmacy
solutions inclusive of organic growth and business acquisitions;
and (iii) growth in collaborative health records adoption.
- At the end of the third quarter of 2022, 4.0 million members
were enrolled in our virtual care services, an increase of 1.7
million over the past 12 months due to the continued adoption of
virtual solutions to keep Canadians and others safely connected to
health and wellness care.
- At the end of the third quarter of 2022, our healthcare
programs covered 60.4 million lives, an increase of 41.1 million
over the past 12 months, mainly due to the addition of
approximately 37 million lives covered from our third quarter
acquisition of LifeWorks. Organically, lives covered increased due
to the continued demand for virtual solutions, an increase in
value-added services including vaccination solutions, and an
increase in coverage related to elective health services.
- Digital health transactions were 143.2 million in the third
quarter of 2022, an increase of 5.3 million, largely driven by
higher adjudication transactions as plan members resume the
utilization of elective health services with pandemic restrictions
easing.
Agriculture and consumer goods services
- Through TELUS Agriculture & Consumer Goods, we provide
innovative digital solutions and actionable data-insights that
better connect the global supply chain, driving more efficient
production processes and improving the safety, quality and
sustainability of food and consumer goods. Importantly, these
efforts are also enabling better traceability to the end consumer,
further supporting improved food outcomes.
- Agriculture and consumer goods services revenues increased by
$19 million or 29 per cent, largely reflecting the impacts of
business acquisitions, particularly with increased revenues from
Software-as-a-Service (SaaS)-based revenue management software for
consumer goods manufacturers, in addition to organic contributions
from increased animal agriculture pharmacy and research revenues.
Our agriculture and consumer goods revenues are largely earned in
U.S. dollars, and in the third quarter of 2022 compared to the
third quarter of 2021, the Canadian dollar weakened against the
U.S. dollar, resulting in higher reported revenues in the
quarter.
Digitally-led customer experiences – TELUS International
(DLCX)
- DLCX operating revenues (arising from contracts with customers)
increased by $80 million or 14 per cent in the third quarter of
2022. The increase was primarily attributable to: (i) higher
revenue growth of 19 per cent in the tech and games vertical, due
to expansion in our TELUS International AI Data Solutions (TIAI)
business and continued growth within our existing clients and the
addition of new clients; and (ii) higher revenue growth of 77 per
cent generated from the banking, financial services and insurance
vertical driven by the addition of a leading global financial
institution. The strengthening of the U.S. dollar against the
European euro resulted in an unfavourable foreign currency impact
on our European euro-denominated operating results and more than
offset the favourable currency impact from the strengthening of the
U.S. dollar against the Canadian dollar.
- DLCX EBITDA increased by $48 million or 35 per cent in the
third quarter of 2022, while DLCX Adjusted EBITDA increased by $51
million or 36 per cent for the same period. The increases in EBITDA
and Adjusted EBITDA were primarily from revenue growth, as
discussed above, and lower share-based compensation expense
associated with the lower average share price of TELUS
International during the quarter, resulting in lower expense on
liability-accounted awards. This was partly offset by business
growth leading to a higher team member count coupled with higher
salaries and wages and the strengthening U.S. dollar to Canadian
dollar exchange rate.
Corporate Highlights TELUS makes significant
contributions and investments in the communities where team members
live, work and serve and to the Canadian economy on behalf of
customers, shareholders and team members. These include:
- Paying, collecting and remitting approximately $1.8 billion in
the first nine months of 2022 to federal, provincial and municipal
governments in Canada consisting of corporate income taxes, sales
taxes, property taxes, employer portion of payroll taxes and
various regulatory fees. Since 2000, we have remitted over $33
billion in these taxes.
- Investing $2.8 billion in capital expenditures primarily in
communities across Canada in the first nine months of 2022 and over
$50 billion since 2000.
- Disbursing spectrum renewal fees of approximately $52 million
to Innovation, Science and Economic Development Canada in the first
half of 2022. Since 2000, our total tax and spectrum remittances to
federal, provincial and municipal governments in Canada have
totalled approximately $40 billion.
- Spending $6.4 billion in total operating expenses in the first
nine months of 2022, including goods and services purchased of
approximately $4.5 billion. Since 2000, we have spent $146 billion
and $99 billion, respectively, in these areas.
- Generating a total team member payroll of approximately $2.5
billion million in the first nine months of 2022, including wages
and other employee benefits, and payroll taxes in excess of $151
million. Since 2000, total team member payroll totals $56
billion.
- Returning approximately $1.8 billion in dividends through four
quarterly dividend payments in the first ten months of 2022 to
individual shareholders, mutual fund owners, pensioners and
institutional investors. Since 2004, we have returned more than $22
billion to shareholders through our dividend and share purchase
programs, including over $17 billion in dividends and $5.2 billion
in share repurchases, representing approximately $16 per
share.
TELUS updates 2022 consolidated financial
targetsTELUS’ consolidated financial targets are being
updated to reflect the inclusion of our acquisition of LifeWorks,
which closed on September 1, 2022, and for lower mobile equipment
revenue, as well as to account for TELUS International’s updated
outlook. Consolidated capital expenditures are being increased to
approximately $3.475 billion to include LifeWorks and free cash
flow is being raised to $1.3 billion.
|
|
2022 original targets |
2022 updated targets |
| Operating revenues(1) |
Growth of 8 to 10% |
Approximately 8% |
| Adjusted EBITDA |
Growth of 8 to 10% |
Growth of 9 to 10% |
| Capital expenditures (excluding
spectrum licences) |
Approximately $3.4 billion |
Approximately $3.475 billion |
|
Free cash flow |
$1.0 billion to $1.2 billion |
Approximately $1.3 billion |
|
(1) |
For 2022, we are guiding on operating revenues, which excludes
other income. Operating revenues for 2021 were $16,838
million. |
The preceding disclosure reflecting TELUS’ 2022 financial
targets is forward-looking information and is fully qualified by
the ‘Caution regarding forward-looking statements’ in this release.
It is based on management’s expectations as of the date hereof and
management’s assumptions as set out in Section 9.3 TELUS
assumptions for 2022 in the 2021 annual MD&A, as updated under
‘Caution regarding forward-looking statements’ in this news
release. This disclosure is presented for the purpose of assisting
our investors and others in understanding certain key elements of
our expected 2022 financial results as well as our objectives,
strategic priorities and business outlook. Such information may not
be appropriate for other purposes.
Dividend Declaration - quarterly dividend increased to
$0.3511 per shareThe TELUS Board of Directors declared a
quarterly dividend of $0.3511 per share on the issued and
outstanding Common Shares of the Company payable on January 3, 2023
to holders of record at the close of business on December 9, 2022.
This quarterly dividend reflects an increase of 7.2 per cent from
the $0.3274 per share dividend declared one year earlier and is
consistent with our multi-year dividend growth program.
Community HighlightsGiving Back to Our
Communities
- TELUS Friendly Future Foundation® and TELUS Community Boards
are directing all of their 2022 support to charitable initiatives
that help youth and marginalized populations. During the first
three quarters of the Foundation’s fiscal year, the Foundation has
directly impacted the lives of 726,000 youth by granting $7.8
million to over 450 charitable organizations. Since its inception
in 2018, the Foundation has approved $33.1 million in cash
donations to our communities, making a positive impact on the lives
of 13.4 million youth.
- During the third quarter, driven by our commitment to give
youth in need every opportunity to reach their full potential, we
donated 17,000 backpacks filled with back-to-school essentials
through our 17th annual Kits for Kids program. Since 2006, we have
donated more than one million care items to local communities,
including 200,000 Kits for Kids, 33,000 refurbished computers to
local schools and 157,000 comfort kits to support displaced
families.
- In September, as part of our Indigenous Reconciliation
Commitment, TELUS, in partnership with the Canadian Museum of Human
Rights and Indigenous master carver Carey Newman, launched the
Digital Witness Blanket. Supported by a $1 million commitment from
TELUS and TELUS Friendly Future Foundation, this dynamic artwork
shares truths and memories of residential school Survivors.
- During the quarter, we launched TELUS Wilderness Point and
hosted our first-ever youth camp, a new summer adventure for
Canadian youth focused on inclusivity, well-being and nature
experiences. This new camp is a not-for-profit initiative to help
more Canadian youth participate in safe and inclusive summer
retreats with their peers.
Emergency and Humanitarian Relief
- As part of our unwavering commitment to put our customers and
communities first, throughout September up to October 19, 2022, we
enabled over $760,000 in community giving through cash and in-kind
contributions from TELUS, our team members and customers as well as
TELUS Friendly Future Foundation to support those impacted by
Hurricane Fiona, Hurricane Ian, the flooding in Pakistan as well as
the unrest protests in Iran.
Empowering Canadians with Connectivity
- Throughout the third quarter of 2022, we continued to leverage
our Connecting for Good® programs to support marginalized
individuals. So far this year, driven by our commitment to bridge
digital divides, we have positively impacted 60,000 Canadians.
Since we launched our programs, we have supported 320,000
individuals.
- In the first nine months of 2022, we welcomed 13,000 new
households to our Internet for Good® program, resulting in more
than 44,000 households and 142,000 low-income family members and
seniors, in-need persons with disabilities, and youth leaving
foster care all benefiting from subsidized internet since the
launch of the program in 2016.
- Our Mobility for Good® program offers free or subsidized
smartphones and mobile phone rate plans to all youth aging out of
foster care and to qualifying low-income seniors across Canada
receiving the guaranteed income supplement. Throughout the first
three quarters of 2022, we have added 9,000 youth, seniors and
other marginalized Canadians to the program. Since we launched
Mobility for Good in 2017, more than 37,500 individuals have
benefited.
- Our Health for Good® mobile health clinics, now serving 22
communities across Canada, supported 35,500 patient visits in the
first nine months of 2022. Since the program’s inception, we have
enabled over 131,000 cumulative patient visits, helping bring
primary and mental health care to individuals experiencing
homelessness.
- During the first three quarters of 2022, our Tech for Good™
program provided 1,300 Canadians with disabilities access to
personalized one-on-one training, support and customized
recommendations on mobile devices and/or access to discounted
mobile plans. Since the program’s inception, we have provided 6,000
Canadians with disabilities with professional assistance to help
them independently use or control their mobile device and/or the
TELUS Wireless Accessibility Discount.
- Throughout the first three quarters of 2022, 90,000 individuals
in Canada and beyond participated in virtual TELUS Wise workshops
and events to improve digital literacy and online safety, bringing
our cumulative participation to over 538,000 individuals since the
program launched in 2013.
Driving Social Impact
- During the third quarter of 2022, the TELUS Pollinator Fund for
Good™ closed an additional five investments in socially innovative
startup companies, including Mycocycle and Limeloop, two circular
economy solutions led by women. The fund’s total portfolio
investment now includes 22 startup companies for which 40 per cent
are led by women and 60 per cent by Indigenous and racialized
founders.
Global Social Capitalism Awards and Recognition
- In September 2022, TELUS won the Loyalty360 Best In Class Award
for its Corporate Social Responsibility and Social Impact program
excellence.
- In September 2022, TELUS achieved Bronze position in the
Loyalty360 Awards for its Social Impact and Corporate Social
Responsibility. The awards recognize brands that are building
stronger and deeper loyalty with their customers in a proactive,
meaningful, and measurable way.
Access to Quarterly results
informationInterested investors, the media and others may
review this quarterly earnings news release, management’s
discussion and analysis, quarterly results slides, audio and
transcript of the investor webcast call, supplementary financial
information at telus.com/investors.
TELUS’ third quarter 2022 conference call is scheduled for
Friday, November 4, 2022 at 12:00 pm ET (9:00 am
PT) and will feature a presentation followed by a question
and answer period with investment analysts. Interested parties can
access the webcast at telus.com/investors. An audio recording will
be available approximately 60 minutes after the call until midnight
December 4, 2022 at 1-855-201-2300. Please quote conference access
code 53762# and playback access code 0112793#. An archive of the
webcast will also be available at telus.com/investors and a
transcript will be posted on the website within a few business
days.
Caution regarding forward-looking
statements
This news release contains forward-looking statements about
expected events and the financial and operating performance of
TELUS Corporation. The terms TELUS, the Company, we, us and our
refer to TELUS Corporation and, where the context of the narrative
permits or requires, its subsidiaries.
Forward-looking statements include any statements that do not
refer to historical facts. They include, but are not limited to,
statements relating to our objectives and our strategies to achieve
those objectives, our plans and expectations regarding the impact
of the COVID-19 pandemic and responses to it, our expectations
regarding trends in the telecommunications industry including
demand for mobile data and ongoing internet subscriber base growth,
and our financing plans including our multi-year dividend growth
program. Forward-looking statements are typically identified by the
words assumption, goal, guidance, objective, outlook, strategy,
target and other similar expressions, or future or conditional
verbs such as aim, anticipate, believe, could, expect, intend, may,
plan, predict, seek, should, strive and will. These statements are
made pursuant to the “safe harbour” provisions of applicable
securities laws in Canada and the United States Private Securities
Litigation Reform Act of 1995.
By their nature, forward-looking statements are subject to
inherent risks and uncertainties and are based on assumptions,
including assumptions about future economic conditions and courses
of action. These assumptions may ultimately prove to have been
inaccurate and, as a result, our actual results or events may
differ materially from expectations expressed in or implied by the
forward-looking statements.
The assumptions for our 2022 outlook, as described in Section 9
in our 2021 annual MD&A, remain the same, except for the
following:
- Our revised estimates for 2022 economic
growth in Canada, B.C., Alberta, Ontario and Quebec are 3.2%, 2.9%,
4.7%, 3.1% and 3.4%, respectively (compared to 4.3%, 4.2%, 4.4%,
4.5% and 3.7%, respectively, as reported in our 2021 annual
MD&A).
- Our revised estimates for 2022 annual
unemployment rates in Canada, B.C., Alberta, Ontario and Quebec are
5.4%, 4.9%, 5.8%, 5.7% and 4.5%, respectively (compared to 6.1%,
5.2%, 7.1%, 6.1% and 5.3%, respectively, as reported in our 2021
annual MD&A).
- Our revised estimates for 2022 annual
rates of housing starts on an unadjusted basis in Canada, B.C.,
Alberta, Ontario and Quebec are 258,000 units, 39,000 units, 37,000
units, 87,000 units and 61,000 units, respectively (compared to
224,000 units, 39,000 units, 30,000 units, 83,000 units and 55,000
units, respectively, as reported in our 2021 annual MD&A).
- Mobile products and services revenue
growth resulting from improvements in subscriber loading, with
continued competitive pressure on blended average revenue per
subscriber per month (ARPU). Roaming revenue from business and
consumer travel will return to pre-pandemic levels with the easing
of travel advisories and border restrictions, including those in
Canada and the U.S.
- Employee defined benefit pension plans:
current service costs of approximately $98 million recorded in
Employee benefits expense and interest expense of approximately $8
million recorded in Financing costs; a rate of 4.95% for
discounting the obligation and a rate of 3.10% for current service
costs for employee defined benefit pension plan accounting
purposes; and defined benefit pension plan funding of approximately
$41 million.
- Restructuring and other costs of
approximately $200 million for continuing operational effectiveness
initiatives, with margin enhancement initiatives to mitigate
pressures related to intense competition, technological
substitution, repricing of our services, increasing subscriber
growth and retention costs, and integration costs associated with
business acquisitions.
- Net cash Interest paid of approximately
$790 million to $810 million.
- We expect continued fluctuations in the
average Canadian dollar: U.S. dollar exchange rate ($1.25 in
2021).
- We expect that bad debt expense will
return to pre-pandemic levels driven by macroeconomic pressures in
combination with the easing of government funding programs that
support consumers’ ability to pay.
- We expect that we will be able to
operate our retail stores back to pre-pandemic levels, allowing us
to serve our customers in person, in addition to the digital
capabilities that have enabled us to continue serving our customers
through the pandemic.
- Continued growth of health services
revenue and EBITDA generated by strategic business acquisitions,
including LifeWorks, expanding our breadth of health offerings. We
anticipate being able to drive cross-selling opportunities and
harvest synergies between our organizations. We continue to expect
a slow recovery in our organic TELUS Health business due to:
reduced health benefits management claims resulting from reduced
activity and rate changes associated with a contract renewal; and
higher operating costs associated with growth related to scaling
our digital health offerings, inclusive of increased
subscription-based licences, all with a focus on effective
deployment of value-added services and optimizing efficiency.
- Our international operations will be
impacted by the recoveries in other global economies based on
vaccine availability, distribution and effectiveness on their
respective populations and regional lockdown measures as well as
currency fluctuations. Additionally, we anticipate a period of
continuing macroeconomic uncertainty.
The extent to which the economic growth estimates affect us and
the timing of their impact will depend upon the actual experience
of specific sectors of the Canadian economy.
Risks and uncertainties that could cause actual performance or
events to differ materially from the forward-looking statements
made herein and in other TELUS filings include, but are not limited
to, the following:
- The COVID-19 pandemic including its
impacts on our customers, suppliers and vendors, our team members
and our communities, as well as changes resulting from the pandemic
to our business and operations, including changes to the demand for
and supply of the products and services that we offer and the
channels through which we offer them.
- Regulatory decisions and developments
including: changes to our regulatory regime (the timing of
announcement or implementation of which are uncertain) or the
outcomes of proceedings, cases or inquiries relating to its
application, including but not limited to those set out in Section
9.1 Communications industry regulatory developments and proceedings
in this MD&A, such as the potential for government to allow
consolidation of competitors in our industry or conversely for
government intervention intended to further increase competition,
for example, through mandated wholesale access; the potential for
additional government intervention on pricing; federal and
provincial consumer protection legislation; a new policy direction
to the CRTC; the introduction into Parliament of new federal
privacy legislation that could expand consumer privacy rights,
create significant administrative monetary penalties and a privacy
right of action and implement a new regulatory regime for the use
of artificial intelligence in the private sector, with significant
enforcement powers; amendments to existing federal legislation;
potential threats to unitary federal regulatory authority over
communications in Canada; potential threats to the CRTC’s ability
to enforce competitive safeguards such as the Standstill Rule and
the Wholesale Code, which aims to ensure the fair treatment by
vertically integrated firms of rival broadcasting distributors and
programming services; regulatory action by the Competition Bureau
or other regulatory agencies; spectrum and compliance with
licences, including our compliance with licence conditions, changes
to spectrum licence fees, spectrum policy determinations such as
restrictions on the purchase, sale, subordination, use and transfer
of spectrum licences, the cost and availability of spectrum and
timing of spectrum allocation, and ongoing and future consultations
and decisions on spectrum licensing and policy frameworks, auctions
and allocation; draft legislation permitting the government to
restrict the use in telecommunications networks of equipment made
by specified companies, including potentially Huawei and ZTE; draft
legislation imposing new cybersecurity reporting requirements; the
Minister of Innovation, Science and Industry’s request to
telecommunications service providers, including TELUS, to improve
network resiliency; restrictions on non-Canadian ownership and
control of the common shares of TELUS Corporation (Common Shares)
and the ongoing monitoring of and compliance with such
restrictions; unanticipated changes to the current copyright
regime; and our ability to comply with complex and changing
regulation of the healthcare and medical devices industry in the
jurisdictions in which we operate, including as an operator of
health clinics. The jurisdictions in which we operate, as well as
the contracts that we enter into (particularly contracts entered
into by TELUS International (Cda) Inc. (TELUS International or
TI)), require us to comply with or facilitate our clients’
compliance with numerous, complex and sometimes conflicting legal
regimes, both domestically and internationally. See TELUS
International’s financial performance which impacts our financial
performance below.
- Competitive environment including: our
ability to continue to retain customers through an enhanced
customer service experience that is differentiated from our
competitors, including through the deployment and operation of
evolving network infrastructure; intense competition, including the
ability of industry competitors to successfully combine a mix of
new service offerings and, in some cases, under one bundled and/or
discounted monthly rate, along with their existing services; the
success of new products, services and supporting systems, such as
home automation, security and Internet of Things (IoT) services for
internet-connected devices; continued intense competition across
all services among telecommunications companies, cable companies,
other communications companies and over-the-top (OTT) services,
which, among other things, places pressures on current and future
average revenue per subscriber per month (ARPU), cost of
acquisition, cost of retention and churn rates for all services, as
do market conditions, government actions, customer usage patterns,
increased data bucket sizes or flat-rate pricing trends for voice
and data, inclusive rate plans for voice and data and availability
of Wi-Fi networks for data; consolidation, mergers and acquisitions
of industry competitors; subscriber additions, losses and retention
volumes; our ability to obtain and offer content on a timely basis
across multiple devices on mobile and TV platforms at a reasonable
cost as content costs per unit continue to grow; vertical
integration in the broadcasting industry resulting in competitors
owning broadcast content services, and timely and effective
enforcement of related regulatory safeguards; TI’s ability to
compete with professional services companies that offer consulting
services, information technology companies with digital
capabilities, and traditional contact centre and business process
outsourcing companies that are expanding their capabilities to
offer higher-margin and higher-growth digital services; in our
TELUS Health business, our ability to compete with other providers
of employee and family assistance programs, benefits
administration, electronic medical records and pharmacy management
products, claims adjudicators, systems integrators and health
service providers including those that own a vertically integrated
mix of health services delivery, IT solutions and related services,
global providers that could achieve expanded Canadian footprints,
and in the provision of virtual healthcare services, preventative
health services and personal emergency response services; and in
our TELUS Agriculture & Consumer Goods business, our ability to
compete with focused software and IoT competitors.
- Technological substitution including:
reduced utilization and increased commoditization of traditional
fixed voice services (local and long distance) resulting from
impacts of OTT applications and mobile substitution; a declining
overall market for TV services, including as a result of content
piracy and signal theft, a rise in OTT direct-to-consumer video
offerings and virtual multichannel video programming distribution
platforms; the increasing number of households that have only
mobile and/or internet-based telephone services; potential decline
in ARPU as a result of, among other factors, substitution by
messaging and OTT applications; substitution by increasingly
available Wi-Fi services; and disruptive technologies, such as OTT
IP services, including software-defined networks in the business
market, that may displace or cause us to reprice our existing data
services, and self-installed technology solutions.
- Challenges to our ability to deploy
technology including: high subscriber demand for data that
challenges wireless networks and spectrum capacity levels and may
be accompanied by increases in delivery cost; our reliance on
information technology and our ability to streamline our legacy
systems; the roll-out, anticipated benefits and efficiencies, and
the evolution of wireless broadband technologies and systems,
including video distribution platforms and telecommunications
network technologies (broadband initiatives, such as
fibre-to-the-premises (FTTP), wireless small-cell deployment, 5G
wireless and availability of resources and our ability to build out
adequate broadband capacity); our reliance on wireless network
access agreements, which have facilitated our deployment of mobile
technologies; our choice of suppliers and those suppliers’ ability
to maintain and service their product lines, which could affect the
success of upgrades to, and evolution of, technology that we offer;
supplier limitations and concentration and market power for
products such as network equipment, TELUS TV® and mobile handsets;
our expected long-term need to acquire additional spectrum capacity
through future spectrum auctions and from third parties to address
increasing demand for data, and our ability to utilize spectrum we
acquire; deployment and operation of new fixed broadband network
technologies at a reasonable cost and the availability and success
of new products and services to be rolled out using such network
technologies; network reliability and change management; and our
deployment of self-learning tools and automation, which may change
the way we interact with customers.
- Capital expenditure levels and
potential outlays for spectrum licences in auctions or purchases
from third parties affect and are affected by: our broadband
initiatives, including connecting more homes and businesses
directly to fibre; our ongoing deployment of newer mobile
technologies, including wireless small cells to improve coverage
and capacity; investments in network technology required to comply
with laws and regulations relating to the security of cyber
systems, including bans on the products and services of certain
vendors; investments in network resiliency and reliability,
including to address changes in usage resulting from restrictions
imposed in response to the COVID-19 pandemic; the allocation of
resources to acquisitions and future spectrum auctions held by
Innovation, Science and Economic Development Canada (ISED),
including the announcement of a second consultation on the
auctioning of the 3800 MHz spectrum, which the Minister of
Innovation, Science and Industry stated is expected to take place
in 2023, and the millimetre wave spectrum auction, which is
expected to commence in 2024. Our capital expenditure levels could
be impacted if we do not achieve our targeted operational and
financial results or by changes to our regulatory environment.
- Operational performance and business
combination risks including: our reliance on legacy systems and our
ability to implement and support new products and services and
business operations in a timely manner; our ability to manage the
requirements of large enterprise deals; our ability to implement
effective change management for system replacements and upgrades,
process redesigns and business integrations (such as our ability in
a timely manner to successfully complete and integrate acquisitions
into our operations and culture, complete divestitures or establish
partnerships and realize expected strategic benefits, including
those following compliance with any regulatory orders); our ability
to identify and manage new risks inherent in new service offerings
that we may provide, including as a result of acquisitions, which
could result in damage to our brand, our business in the relevant
area or as a whole, and additional exposure to litigation or
regulatory proceedings; and our ability to effectively manage the
growth of our infrastructure and integrate new team members.
- Data protection including risks that
malfunctions or unlawful acts could result in unauthorized access
to, change, loss, or distribution of data, which may compromise the
privacy of individuals and could result in financial loss and harm
to our reputation and brand.
- Security threats including intentional
damage, or unauthorized access or attempted access, to our physical
assets or our IT systems and networks, or those of our customers or
vendors, which could prevent us from providing reliable service or
result in unauthorized access to our information or that of our
customers.
- Ability to successfully implement cost
reduction initiatives and realize planned savings, net of
restructuring and other costs, without losing customer service
focus or negatively affecting business operations. Examples of
these initiatives are: our operating efficiency and effectiveness
program to drive improvements in financial results; business
integrations; business product simplification; business process
automation and outsourcing; offshoring and reorganizations;
procurement initiatives; and real estate rationalization.
- Foreign operations and our ability to
successfully manage operations in foreign jurisdictions, including
managing risks such as currency fluctuations and exposure to
various economic, international trade, political and other risks of
doing business globally. See also TELUS International’s financial
performance which impacts our financial performance.
- Business continuity events including:
our ability to maintain customer service and operate our network in
the event of human error or human-caused threats, such as
cyberattacks and equipment failures that could cause various
degrees of network outages; technical disruptions and
infrastructure breakdowns; supply chain disruptions, delays and
rising costs, including as a result of government restrictions or
trade actions; natural disaster threats; extreme weather events;
epidemics; pandemics (including the ongoing COVID-19 pandemic);
political instability in certain international locations;
information security and privacy breaches, including loss or theft
of data; and the completeness and effectiveness of business
continuity and disaster recovery plans and responses.
- TELUS International’s financial
performance which impacts our financial performance. Factors that
may affect TI’s financial performance are described in TI’s public
filings available on SEDAR and EDGAR and may include: intense
competition from companies offering similar services; attracting
and retaining qualified team members to support its operations;
TI’s ability to grow and maintain profitability if changes in
technology or if client expectations outpace service offerings and
internal tools and processes; TI maintaining its culture as it
grows; effects of economic and geopolitical conditions on its
clients’ businesses and demand for its services; a significant
portion of TI’s revenue being dependent on a limited number of
large clients; continued consolidation in many of the verticals in
which TI offers services could result in the loss of a client;
adverse impacts of the COVID-19 pandemic on TI’s business and
financial results; TI’s business being adversely affected if
certain independent contractors were classified as employees, and
the costs associated with defending, settling or resolving any
future lawsuits (including demands for arbitration) relating to the
independent contractor classification; TI’s ability to successfully
identify, complete, integrate and realize the benefits of
acquisitions and manage associated risks; cyberattacks or
unauthorized disclosure resulting in access to sensitive or
confidential information and data of its clients or their end
customers, which could have a negative impact on its reputation and
client confidence; TI’s business not developing in ways it
currently anticipates due to negative public reaction to offshore
outsourcing, proposed legislation or otherwise; ability to meet
client expectations regarding its content moderation services being
adversely impacted due to factors beyond its control and its
content moderation team members suffering adverse emotional or
cognitive effects in the course of performing their work; and TI’s
short history operating as a separate, publicly traded company.
TELUS International’s primary functional and reporting currency is
the U.S. dollar and the contribution to our consolidated results of
positive results in our digitally-led customer experiences – TELUS
International (DLCX) segment may be offset by any strengthening of
the Canadian dollar (our reporting currency) compared to the U.S.
dollar, the European euro, the Philippine peso and other currencies
where TI operates. The price of the subordinate voting shares of TI
(TI Subordinate Voting Shares) may be volatile and is likely to
fluctuate due to a number of factors beyond its control, including
actual or anticipated changes in profitability; general economic,
social or political developments; changes in industry conditions;
changes in governance regulation; inflation; low trading volume;
the general state of the securities markets; and other material
events. TI may choose to publicize targets or provide other
guidance regarding its business and it may not achieve such
targets. Failure to do so could also result in a reduction in the
trading price of the TI Subordinate Voting Shares. A reduction in
the trading price of the TI Subordinate Voting Shares due to these
or other factors could result in a reduction in the fair value of
TI multiple voting shares held by TELUS.
- Human resource matters including:
recruitment, retention and appropriate training in a highly
competitive industry (including retention of team members leading
recent acquisitions in emerging areas of our business), the level
of our employee engagement and impact on engagement or other
aspects of our business or any unresolved collective agreements
including the future outcome of collective bargaining for an
agreement with the Telecommunications Works Union, United
Steelworkers Local 1944 which expired at the end of 2021, our
ability to maintain our unique culture as we grow, the risk that
certain independent contractors in our business could be classified
as employees, unanticipated reaction to our COVID-19 vaccine policy
or the reopening of our administrative offices and the health of
our team.
- Financing and debt requirements
including: our ability to carry out financing activities, refinance
our maturing debt, lower our net debt to EBITDA ratio to our
objective range given the cash demands of spectrum auctions, and/or
our ability to maintain investment grade credit ratings in the
range of BBB+ or the equivalent. Our business plans and growth
could be negatively affected if existing financing is not
sufficient to cover our funding requirements.
- Lower than planned free cash flow could
constrain our ability to invest in operations, reduce leverage or
return capital to shareholders, and could affect our ability to
sustain our dividend growth program through 2025 and any further
dividend growth programs. This program may be affected by factors
such as the competitive environment, fluctuations in the Canadian
economy or the global economy, our earnings and free cash flow, our
levels of capital expenditures and spectrum licence purchases,
acquisitions, the management of our capital structure, regulatory
decisions and developments, and business continuity events.
Quarterly dividend decisions are subject to assessment and
determination by our Board of Directors based on our financial
position and outlook. Common Shares may be purchased under our
normal course issuer bid (NCIB) when and if we consider it
opportunistic, based on our financial position and outlook, and the
market price of our Common Shares. There can be no assurance that
our dividend growth program or our NCIB will be maintained,
unchanged and/or completed.
- Taxation matters including:
interpretation of complex domestic and foreign tax laws by the
relevant tax authorities that may differ from our interpretations;
the timing and character of income and deductions, such as tax
depreciation and operating expenses; tax credits or other
attributes; changes in tax laws, including tax rates; tax expenses
being materially different than anticipated, including the
taxability of income and deductibility of tax attributes or
retroactive application of new legislation; elimination of income
tax deferrals through the use of different tax year-ends for
operating partnerships and corporate partners; and changes to the
interpretation of tax laws, including those resulting from changes
to applicable accounting standards or the adoption of more
aggressive auditing practices by tax authorities, tax reassessments
or adverse court decisions impacting the tax payable by us.
- Litigation and legal matters including:
our ability to successfully respond to investigations and
regulatory proceedings; our ability to defend against existing and
potential claims and lawsuits (including intellectual property
infringement claims and class actions based on consumer claims,
data, privacy or security breaches and secondary market liability),
or to negotiate and exercise indemnity rights or other protections
in respect of such claims and lawsuits; and the complexity of legal
compliance in domestic and foreign jurisdictions, including
compliance with competition, anti-bribery and foreign corrupt
practices laws.
- Health, safety and the environment
including: lost employee work time resulting from illness or
injury; public concerns related to radio frequency emissions;
environmental issues affecting our business, including
climate-related risk (such as extreme weather events and other
natural hazards), waste and waste recycling, risks relating to fuel
systems on our properties, changing government and public
expectations regarding environmental matters and our responses; and
challenges associated with epidemics or pandemics, including the
COVID-19 pandemic and our response to it, which may add to or
accentuate these factors.
- Economic growth and fluctuations
including: the state of the economy in Canada, which may be
influenced by economic and other developments outside of Canada,
including potential outcomes of yet unknown policies and actions of
foreign governments and the ongoing COVID-19 pandemic, as well as
public and private sector responses to the pandemic; expectations
regarding future interest rates; inflation; unemployment levels;
effects of fluctuating oil prices; effects of low business spending
(such as reducing investments and cost structure); pension
investment returns and factors affecting pension benefit
obligations, funding and solvency discount rates; fluctuations in
exchange rates of the currencies in the regions in which we
operate; sovereign credit ratings and effects on the cost of
borrowing; the impact of tariffs on trade between Canada and the
United States; and global implications of the dynamics of trade
relationships among major world economies.
- Energy use including: our ability to
identify, procure and implement solutions to reduce energy
consumption and adopt cleaner sources of energy; our ability to
identify and make suitable investments in renewable energy,
including in the form of virtual power purchase agreements; our
ability to continue to realize significant absolute reductions in
energy use and the resulting greenhouse gas (GHG) emissions in our
operations (including as a result of programs and initiatives
focused on our buildings and network); and other risks associated
with achieving our goals to achieve carbon neutrality and reduce
our GHG emissions by 2030.
These risks are described in additional detail in Section 9
General trends, outlook and assumptions, and regulatory
developments and proceedings and Section 10 Risks and risk
management in our 2021 annual MD&A. Those descriptions are
incorporated by reference in this cautionary statement but are not
intended to be a complete list of the risks that could affect the
Company.
Many of these factors are beyond our control or outside of our
current expectations or knowledge. Additional risks and
uncertainties that are not currently known to us or that we
currently deem to be immaterial may also have a material adverse
effect on our financial position, financial performance, cash
flows, business or reputation. Except as otherwise indicated in
this document, the forward-looking statements made herein do not
reflect the potential impact of any non-recurring or special items
or any mergers, acquisitions, dispositions or other business
combinations or transactions that may be announced or that may
occur after the date of this document.
Readers are cautioned not to place undue reliance on
forward-looking statements. Forward-looking statements in this
document describe our expectations, and are based on our
assumptions, as at the date of this document and are subject to
change after this date. Except as required by law, we disclaim any
intention or obligation to update or revise any forward-looking
statements.
This cautionary statement qualifies all of the forward-looking
statements in this document.
Non-GAAP and other specified financial
measures
We have issued guidance on and report certain non-GAAP measures
that are used to evaluate the performance of TELUS, as well as to
determine compliance with debt covenants and to manage our capital
structure. As non-GAAP measures generally do not have a
standardized meaning, they may not be comparable to similar
measures presented by other issuers. For certain financial metrics,
there are definitional differences between TELUS and TELUS
International reporting. These differences largely arise from TELUS
International adopting definitions consistent with practice in its
industry. Securities regulations require such measures to be
clearly defined, qualified and reconciled with their nearest GAAP
measure. Certain of the metrics do not have generally accepted
industry definitions.
Adjusted Net income and adjusted basic earnings per
share (EPS): These are non-GAAP measures that do not have
any standardized meaning prescribed by IFRS-IASB and are therefore
unlikely to be comparable to similar measures presented by other
issuers. Adjusted Net income excludes the effects of restructuring
and other costs, income tax-related adjustments, other equity
losses related to real estate joint ventures, long-term debt
prepayment premium and other adjustments (identified in the
following tables). Adjusted basic EPS is calculated as adjusted net
income divided by the basic weighted-average number of Common
Shares outstanding. These measures are used to evaluate performance
at a consolidated level and exclude items that, in management’s
view, may obscure underlying trends in business performance or
items of an unusual nature that do not reflect our ongoing
operations. They should not be considered alternatives to Net
income and basic EPS in measuring TELUS’ performance.
Reconciliation of adjusted net income
|
|
Three months ended September 30 |
|
C$ and in millions |
2022 |
2021 |
|
Net income attributable to Common Shares |
514 |
345 |
| Add (deduct) amounts of net of
amount attributable to non-controlling interests: |
|
|
|
Restructuring and other costs |
73 |
58 |
|
Tax effect of restructuring and other costs |
(18) |
(14) |
|
Income tax-related
adjustments |
13 |
(5) |
|
Virtual power purchase agreements unrealized change in forward
element |
(151) |
— |
|
Tax effect of virtual power purchase agreements unrealized change
in forward element |
40 |
— |
|
Long-term debt prepayment premium |
— |
10 |
|
Tax effect of long-term debt prepayment premium |
— |
(2) |
|
Adjusted Net income |
471 |
392 |
Reconciliation of adjusted basic EPS
|
|
Three months ended September 30 |
|
C$ |
2022 |
2021 |
|
Basic EPS |
0.37 |
0.25 |
| Add (deduct) amounts of net of
amount attributable to non-controlling interests: |
|
|
|
Restructuring and other costs, per share |
0.05 |
0.04 |
|
Tax effect of restructuring and other costs, per share |
(0.01) |
(0.01) |
|
Income tax-related adjustments, per share |
0.01 |
— |
|
Virtual power purchase agreements unrealized change in forward
element, per share |
(0.11) |
— |
|
Tax effect of Virtual power purchase agreements unrealized change
in forward element, per share |
0.03 |
— |
|
Long-term debt prepayment premium, after income taxes, per
share |
— |
0.01 |
|
Adjusted basic EPS |
0.34 |
0.29 |
EBITDA (earnings before interest, income taxes,
depreciation and amortization): We have issued guidance on and
report EBITDA because it is a key measure used to evaluate
performance at a consolidated level. EBITDA is commonly reported
and widely used by investors and lending institutions as an
indicator of a company’s operating performance and ability to incur
and service debt, and as a valuation metric. EBITDA should not be
considered as an alternative to Net income in measuring TELUS’
performance, nor should it be used as a measure of cash flow.
EBITDA as calculated by TELUS is equivalent to Operating revenues
and other income less the total of Goods and services purchased
expense and Employee benefits expense.
We also calculate Adjusted EBITDA to exclude
items of an unusual nature that do not reflect our ongoing
operations and should not, in our opinion, be considered in a
long-term valuation metric or should not be included in an
assessment of our ability to service or incur debt.
|
EBITDA and Adjusted EBITDA reconciliations |
|
|
TTech |
DLCX |
Total |
|
Three-month periods ended Sept 30 (C$ millions) |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|
Net income |
|
|
|
|
551 |
358 |
| Financing costs |
|
|
|
|
34 |
194 |
| Income
taxes |
|
|
|
|
211 |
140 |
|
EBIT |
688 |
630 |
108 |
62 |
796 |
692 |
| Depreciation |
511 |
494 |
39 |
36 |
550 |
530 |
|
Amortization of intangible assets |
258 |
231 |
42 |
43 |
300 |
274 |
|
EBITDA |
1,457 |
1,355 |
189 |
141 |
1,646 |
1,496 |
| Add
restructuring and other costs included in EBITDA |
67 |
55 |
11 |
8 |
78 |
63 |
|
EBITDA – excluding restructuring and other
costsandAdjusted EBITDA |
1,524 |
1,410 |
200 |
149 |
1,724 |
1,559 |
Free cash flow: We report this measure as a
supplementary indicator of our operating performance, and there is
no generally accepted industry definition of free cash flow. It
should not be considered as an alternative to the measures in the
condensed interim consolidated statements of cash flows. Free cash
flow excludes certain working capital changes (such as trade
receivables and trade payables), proceeds from divested assets and
other sources and uses of cash, as found in the condensed interim
consolidated statements of cash flows. It provides an indication of
how much cash generated by operations is available after capital
expenditures (excluding purchases of spectrum licences) that may be
used to, among other things, pay dividends, repay debt, purchase
shares or make other investments. We exclude impacts of accounting
standards that do not impact cash, such as IFRS 15 and IFRS 16.
Free cash flow may be supplemented from time to time by proceeds
from divested assets or financing activities.
|
Free cash flow calculation |
|
|
Three months ended September 30 |
|
C$ and in millions |
2022 |
2021 |
|
EBITDA |
1,646 |
1,496 |
| Restructuring and other costs,
net of disbursements |
4 |
21 |
| Effects of contract asset,
acquisition and fulfilment (IFRS 15 impact) and TELUS Easy Payment
device financing |
(37) |
(13) |
| Effects of lease principal
(IFRS 16 impact) |
(118) |
(124) |
| Items from the condensed
interim consolidated statements of cash flows: |
|
|
|
Share-based compensation, net |
30 |
36 |
|
Net employee defined benefit plans expense |
24 |
30 |
|
Employer contributions to employee defined benefit plans |
(9) |
(10) |
|
Interest paid |
(203) |
(192) |
|
Interest received |
10 |
12 |
| Capital expenditures
(excluding spectrum licences)1 |
(925) |
(991) |
|
Free cash flow before income taxes |
422 |
265 |
| Income taxes paid, net of
refunds |
(91) |
(62) |
|
Free cash flow |
331 |
203 |
|
Free cash flow reconciliation with Cash provided by
operating activities |
|
|
Three months endedSeptember 30 |
|
C$ and in millions |
2022 |
2021 |
|
Free cash flow |
331 |
203 |
|
Add (deduct): |
|
|
|
Capital expenditures (excluding spectrum licences)1 |
925 |
991 |
|
Effects of lease principal and leases accounted for as finance
leases prior to adoption of IFRS 16 |
118 |
124 |
|
Individually immaterial items included in Net income neither
providing nor using cash |
(74) |
(9) |
|
Cash provided by operating activities |
1,300 |
1309 |
|
(1) |
Refer to Note 31 of the interim consolidated financial statements
for further information. |
Mobile phone average revenue per subscriber per month
(ARPU) is calculated as network revenue derived from
monthly service plan, roaming and usage charges; divided by the
average number of mobile phone subscribers on the network during
the period, and is expressed as a rate per month.
About TELUS TELUS (TSX: T, NYSE: TU) is a
dynamic, world-leading communications technology company with $17
billion in annual revenue and 17 million customer connections
spanning wireless, data, IP, voice, television, entertainment,
video, and security. Our social purpose is to leverage our
global-leading technology and compassion to drive social change and
enable remarkable human outcomes. Our longstanding commitment to
putting our customers first fuels every aspect of our business,
making us a distinct leader in customer service excellence and
loyalty. The numerous, sustained accolades TELUS has earned over
the years from independent, industry-leading network insight firms
showcase the strength and speed of TELUS’ global-leading networks,
reinforcing our commitment to provide Canadians with access to
superior technology that connects us to the people, resources and
information that make our lives better.
Operating in 28 countries around the world, TELUS International
(TSX and NYSE: TIXT) is a leading digital customer experience
innovator that designs, builds, and delivers next-generation
solutions, including AI and content moderation, for global and
disruptive brands across high-growth industry verticals, including
tech and games, communications and media and eCommerce and
fintech.
TELUS Health is a global healthcare company, which provides
employee and family preventative healthcare and wellness solutions.
Our TELUS team, along with our 100,000 health professionals, are
leveraging the combination of TELUS’ strong digital and data
analytics capabilities with our unsurpassed client service to
dramatically improve remedial, preventative and mental health
outcomes covering over 60 million lives, and growing, around the
world. As the largest provider of digital solutions and digital
insights of its kind, TELUS Agriculture & Consumer Goods
enables efficient and sustainable production from seed to store,
helping improve the safety and quality of food and other goods in a
way that is traceable to end consumers.
Driven by our determination and vision to connect all citizens
for good, our deeply meaningful and enduring philosophy to give
where we live has inspired TELUS, our team members and retirees to
contribute more than $900 million, in cash, in-kind contributions,
time and programs, and 1.8 million days of service since 2000. This
unprecedented generosity and unparalleled volunteerism have made
TELUS the most giving company in the world. Together, let’s make
the future friendly.
For more information about TELUS, please visit telus.com, follow
us @TELUSNews on Twitter and @Darren_Entwistle on Instagram.
Investor RelationsRobert Mitchell (647)
837-1606ir@telus.com
Media RelationsSteve Beisswanger(514) 865-2787
Steve.Beisswanger@telus.com
Telus International CDA (TSX:TIXT)
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