TELUS Corporation (T:CA) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

TELUS demonstrated strong financial performance with industry-leading free cash flow growth, customer additions, and improved EBITDA margins. The Q&A section highlighted positive future prospects, including CapEx reductions, margin expansions, and significant developments in AI and data centers. While some uncertainties exist, particularly in market pressures and wireline data revenue, the overall sentiment remains positive due to strategic investments and operational efficiencies.

Key Financial Performance

Free Cash Flow Growth Industry-best free cash flow growth of 19% year-over-year, attributed to operational excellence and cost efficiency.

Customer Growth Achieved industry-leading customer growth of 262,000, including 12,000 mobile phone net additions and 229,000 connected device net additions, supported by TELUS' PureFiber and 5G+ broadband networks.

Network Revenue Increased by 1% year-over-year, driven by moderating ARPU decline and positive growth trends.

TELUS Health Revenue and EBITDA Service revenue and adjusted EBITDA grew by 11% year-over-year, supported by strategic investments, product innovation, and cost efficiencies.

TELUS Digital Revenue Revenue grew by 3% in U.S. dollars, with adjusted EBITDA increasing by 2% year-over-year, reflecting operational expense efficiencies.

Net Debt-to-EBITDA Ratio Improved to 3.5x from 3.9x year-over-year, reflecting strong free cash flow generation and deleveraging efforts.

Cash from Operations Generated more than $1 billion in the first quarter, contributing to industry-leading free cash flow.

Fixed Data Service Revenue Increased by 1% year-over-year, driven by residential Internet subscriber growth and higher revenue per customer.

Adjusted EBITDA Margin Expanded by 80 basis points to 44.4%, reflecting cost efficiency programs and synergies from TELUS Digital privatization.

AI-Driven Revenue Growth Achieved 22% year-over-year growth in AI-driven revenue, showcasing momentum in AI strategy.

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Operating Highlights

TELUS Health: Achieved service revenue and adjusted EBITDA growth of 11%, marking the 15th straight quarter of double-digit adjusted EBITDA growth. TELUS Health is now generating over $2 billion in annual revenue and targeting EBITDA of over $400 million in 2026. The business is also generating $200 million of simple free cash flow in 2026.

TELUS Digital: Delivered strong double-digit revenue growth of 22% in Q1 2026. The sovereign AI factory in Rimouski is sold out, and a second facility in Kamloops is coming online soon. TELUS Digital is targeting $2 billion in revenue by 2028.

Customer Growth: Achieved industry-leading customer growth of 262,000, including 12,000 mobile phone net additions and 229,000 connected device net additions, supported by PureFiber and 5G+ broadband networks.

Global Expansion in Health: TELUS Health now covers nearly 170 million lives globally, positioning it as a leader in workforce digital health solutions.

Cost Efficiency: Achieved industry-best free cash flow growth of 19% and annual cash synergies of approximately $150 million to $200 million from TELUS Digital integration.

Operational Excellence: TELUS achieved an industry-low CapEx intensity while maintaining world-leading broadband connectivity. The copper-to-fiber transition is generating substantial real estate opportunities valued at $4 billion.

Strategic Partnerships for TELUS Health: Exploring strategic partnerships to accelerate growth and unlock value, with over 75 inbound inquiries received.

AI and Digital Transformation: TELUS Digital is focusing on AI transformations and customer experience leadership, leveraging its sovereign AI factories and integrated AI solutions.

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Risk or Challenges

Competitive Dynamics: TELUS faces challenges in maintaining its premium brand amidst competitive pricing pressures in the telecom market. The company has had to focus on preserving brand value while responding to aggressive pricing strategies from competitors.

Economic and Market Conditions: TELUS acknowledges the dynamic and ever-changing telecom market, which includes economic uncertainties that could impact revenue growth and operational stability.

Regulatory and Macroeconomic Headwinds: The company has faced significant regulatory and macroeconomic challenges since 2022, which continue to pose risks to its operations and financial performance.

Strategic Execution Risks: TELUS is undergoing strategic initiatives such as asset monetization, AI integration, and health business partnerships. These complex processes carry execution risks, including potential delays or failure to achieve expected synergies and financial outcomes.

Supply Chain and Infrastructure Expansion: The expansion of AI factories and broadband networks requires significant investment and operational efficiency. Any delays or cost overruns in these projects could adversely affect TELUS' financials and strategic goals.

Foreign Exchange Impact: TELUS Digital's revenue was negatively impacted by unfavorable foreign exchange rates, which could continue to affect financial performance if not mitigated.

Customer Retention and Revenue Growth: The company is focusing on bundling services to reduce churn and increase revenue per household. However, failure to effectively execute this strategy could impact customer retention and revenue growth.

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Guidance & Outlook

Revenue Growth: TELUS Health is targeting EBITDA of over $400 million in 2026 and more than $200 million of simple free cash flow in 2026. TELUS Digital and TELUS Business Solutions aim for a revenue target of approximately $2 billion by 2028, driven by AI capabilities.

Free Cash Flow: TELUS projects free cash flow of approximately $2.45 billion in 2026, with a minimum 10% compounded annual growth rate through 2028.

Capital Expenditures: Capital expenditures are expected to moderate, with an industry-leading CapEx intensity ratio trending from 12% towards approximately 10%.

Debt Reduction: TELUS aims to achieve a net debt-to-EBITDA leverage ratio of 3.3x or lower by the end of 2026 and 3.0x or better by the end of 2027.

Asset Monetization: TELUS plans to monetize $7 billion of assets, including real estate and copper assets, with 77% of the PureFiber build being self-funded by these monetizations.

AI and Digital Expansion: TELUS Digital is expanding its AI capabilities, targeting double-digit revenue growth and leveraging its sovereign AI factories to meet market demand. The Rimouski AI factory is sold out, and a second facility in Kamloops will come online soon.

Market Trends: TELUS anticipates stabilization in competitive dynamics and a gradual retrenchment from aggressive pricing in the industry.

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Shareholder Return Plan

Dividend Maintenance: TELUS continues to maintain its dividend at the current level.

DRIP Discount Reduction: In the first quarter, TELUS reduced its DRIP (Dividend Reinvestment Plan) discount to 1.75% from 2%. Further reductions are planned through 2026 and into 2027, with the full removal taking effect by the end of 2027.

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Key Q&A

Q:Is there potential for lower CapEx down the road?

A:Yes, TELUS aims to reduce CapEx intensity from 12% to 10%, driven by completed heavy lifts like fiber builds and spectrum auctions, and leveraging AI and asset portfolio developments. This reduction, combined with an improving EBITDA profile, is expected to enhance free cash flow.

Q:Are TTech margins expected to expand gradually over the next 2-4 years?

A:Yes, TELUS expects gradual margin expansion due to synergies from AI, TELUS Digital, and efficiencies like shutting down copper areas and 3G networks. Data center rollouts and real estate monetization will also contribute to margin improvements.

Q:What is the timeline for the $4 billion real estate monetization?

A:The monetization will occur over the next 2-5 years, with some upfront opportunities providing lump sums and the rest being smoothed out over time.

Q:How does TELUS Digital enable TELUS' AI strategy?

A:TELUS Digital supports operational efficiency through global team optimization and AI deployment. AI enhances customer interactions, improves metrics like first call resolution and customer satisfaction, and supports TELUS' internal and external operations. TELUS Digital also collaborates with other TELUS units to drive revenue and cost synergies.

Q:What is TELUS' position on consolidated service revenue and adjusted EBITDA range?

A:TELUS is currently trending towards the mid-to-lower end of the range due to market pressures but hopes to mitigate these and improve performance.

Q:Can TELUS operate with a wireless capital intensity similar to peers like Bell?

A:Yes, TELUS expects to operate in a similar range, with wireless being a significant part of its business. Fiber-to-the-home requires minimal maintenance CapEx, contributing to overall efficiency.

Q:Why is wireline data revenue growth less than 1% this quarter?

A:Wireline data revenue growth was impacted by low data center revenue in Q1 and enterprise repricing. However, TELUS expects improvements as data center contributions increase and business data trends positively in the latter half of the year.

Q:What is the significance of the upcoming data center announcement?

A:The announcement is significant, developmental, and involves collaboration with a public entity. Further details will be revealed soon.

Q:What are the key inflection points for achieving TELUS' guidance targets?

A:Key inflection points include improvements in business data, organic health, data center contributions, and TELUS Digital's AI growth. Market intensity in wireless poses the highest risk to achieving targets.

Q:What parameters should be monitored for TELUS' dividend sustainability and deleveraging goals?

A:Key parameters include progress on deleveraging, free cash flow growth, monetization strategy, business performance, and clarity on capital allocation. TELUS has made significant progress on deleveraging and aims for 10% compounded free cash flow growth through 2028.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the upcoming data center announcement, only describing it as significant, developmental, and involving a public entity. Further clarity was deferred to a future announcement.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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