Q3 2026 TELUS Earnings Conference Call - TELUS CORP

Financial Performance:

• Consolidated service revenue of $4.5 billion declined 1% YoY; core T-TECH revenue rose 1% YoY while TELUS Digital fell 11% YoY.
• Consolidated adjusted EBITDA declined 5% YoY to $1.8 billion, primarily due to weaker TELUS Digital results and $78 million in one-time items from the prior year.
• TELUS Health reported a non-cash goodwill impairment of $800 million, resulting in a basic EPS of -$0.42; adjusted EPS was $0.16, down from $0.24.
• Operating cash flow was $1.5 billion (flat YoY); free cash flow dropped 35% YoY to $396 million due to lower EBITDA and higher CapEx.
• Net debt to adjusted EBITDA leverage ratio stood at 3.6x as of September 30, 2026, up from 3.5x previously, driven by higher debt and lower EBITDA.
• Available liquidity remains at $3 billion; dividend maintained at $0.1875 per share quarterly with a reset payout ratio.

Guidance and Future Outlook:

• Full-year 2026 guidance reaffirmed: service revenue flat to -2%, adjusted EBITDA -2% to -4%, CapEx ~$2.6 billion, and free cash flow ~$1.8 billion.
• Target net debt/EBITDA leverage ratio of ≤3.0x by end of 2028, supported by asset monetization and cost savings.
• AI infrastructure business projects $500 million in cumulative revenue over the next three years with healthy margins.
• Announced a multi-year efficiency program targeting $900 million in annualized cash savings by end of 2028, requiring ~$150 million in upfront investment.
• Full-year 2027 outlook and further transformation progress updates to be provided in February 2027.

Business Segments and Product Lines:

• T-TECH (Core Telecom): Mobile net additions of 84,000 with churn improved to 1.01% (lowest in 3 years); fixed data revenue up 2% driven by fiber expansion and security/automation.
• TELUS Digital: Revenue declined 11% due to hyperscale client volume ramp-downs; focus shifting to higher-margin services and operational efficiency.
• TELUS Health: Service revenue up 2% YoY despite impairment; prioritizing monetization of non-core assets (one asset at advanced stage) and portfolio optimization.
• AI & Infrastructure: Leveraging pure fiber network (3.8M homes) and data centers (Rimouski, Kamloops) to offer GPU-as-a-service and sovereign AI compute; 38 MW of power secured for expansion through 2028.
• Strategic Pivots: Consumer internet refocused on fiber communities; home security and TV moved to capital-light models; unprofitable initiatives wound down.

Market and Competitive Landscape:

• Canada represents ~1% of global compute, creating significant demand for domestic AI infrastructure; EU and US/China hold larger shares, highlighting a domestic capacity gap.
• Competitive advantage derived from owning pure fiber network, data centers, and sovereign data residency capabilities.
• Pipeline of over $1 billion in total contract value across digital infrastructure business; focus on connecting third-party data centers to fiber grid and building sovereign AI capabilities.
• Market trends indicate a shift toward profitable growth over subsidized volume, with disciplined pricing and reduced promotional intensity compared to peers.

Risks and Challenges:

• Asset Monetization Risks: Execution risk on selling non-core assets (Health, Ag, Consumer Goods) and potential delays in securing fair value.
• Capital Intensity: Balancing AI infrastructure CapEx growth with debt reduction targets and maintaining investment-grade credit profile.
• Regulatory & Sovereignty: Must maintain strict control over fiber assets (unlike the Telus Towers/Terion deal) and ensure Canadian data sovereignty.
• Operational Transformation: Delivering the $900 million savings target requires significant cultural and process changes; $150 million investment required to achieve savings.

Management Commentary and Tone:

• Tone is highly confident, focused, and urgent, emphasizing a "strategic pivot to profitable growth."
• Management highlighted a "seasoned leadership team" driving a bottoms-up efficiency review rather than a top-down benchmark exercise.
• Commitment to maintaining control of fiber assets and prioritizing organic growth in high-return areas over speculative acquisitions.
• Explicitly stated that the $900 million savings program and asset monetization are foundational to deleveraging and funding future growth.

Analyst Questions and Answers:

• Revenue Growth Sources: Management expects low-single-digit growth in core telecom driven by mobility strength, fiber expansion, and B2B AI infrastructure; AI revenue target refined to $500M (cumulative) from previous higher global projections.
• Savings Breakdown: The $900M target is ~50% CapEx and ~50% EBITDA (OpEx) related, with 80% of savings coming from T-TECH; $150M investment needed to unlock these savings.
• Fiber Monetization: No specific structure or valuation multiples disclosed; discussions are early stage but "encouraging," with a firm commitment to retaining control and avoiding a pure wholesale model like the tower deal.
• Health Impairment: The $800M non-cash charge reflects updated growth expectations and valuation perspectives; does not signal abandonment of the sector but rather a step in the monetization process.
• Wireless Metrics: Strong net additions driven by improved churn (not price aggression); equipment margins impacted by lower renewal volumes due to disciplined subsidy and promotion strategies.

Other Key Points:

• Termination of dilutive dividend reinvestment plan (DRIP) discount and moratorium on acquisitions implemented to strengthen financial foundation.
• 38 MW of power secured for data center expansion with GPU payback periods estimated under two years.
• Focus on "sovereign" AI infrastructure to meet Canadian government and business needs for data residency.
• Restructuring expenses expected to decrease in 2027; current program focuses more on process changes than one-time severance costs.
• Management confirmed no immediate plans to eliminate DRIP discounts.