Q3 2026 TELUS Earnings Conference Call - TELUS CORP

Explicit Guidance:

• FY2026 Reaffirmed: Service revenue flat to -2% YoY; Adjusted EBITDA -2% to -4% YoY; Capital expenditures (CapEx) approx. $2.6B; Free cash flow (FCF) approx. $1.8B.
• FY2028 Leverage Target: Net debt/Adjusted EBITDA leverage ratio of 3.0x or lower by end of 2028.
• Dividend: Sustainable quarterly dividend of $0.1875 per share; dividend payout ratio reset to sustainable level; dilutive discount on Dividend Reinvestment Plan (DRIP) terminated (low uptake noted).
• Cost Savings Program: Target of $900M in annualized cash savings exiting 2028, split roughly 50/50 between OpEx and CapEx efficiencies; requires approx. $150M upfront investment to unlock benefits (details to be provided in Feb 2027 guidance).
• Structural Savings: ~$250M in structural cash savings (predominantly CapEx) from winding down unprofitable initiatives, with full run-rate benefit expected beginning 2027.
• FCF Projection: Expect improved free cash flow growth in 2027 and beyond as efficiency gains materialize and CapEx intensity decreases.

Business-Segment Outlook:

• Telecom (T-TECH): Forecast low single-digit growth (top and bottom line) through 2027–2028; driven by stable mobility franchise (churn at record lows: 1.01% blended, <0.9% post-pain) and fiber build-out in Ontario, Quebec, and Western Canada.
• Consumer Internet: Pivot to fiber-built communities only; home security and TV offerings shifted to capital-light models to improve ROIC; net additions expected to remain low as company prioritizes margins over subsidized volume.
• TELUS Digital: Projected to see revenue decline of 11% in Q3 2026; strategic pivot to exclude TELUS Digital elements from future AI infrastructure revenue targets, refocusing on core infrastructure.
• Global Platform Businesses: Target 20% of the $900M savings; focus on deepening customer relationships via higher-margin services, tighter pricing, and overhead reduction.
• AI Infrastructure Revenue: Pipeline exceeds $1B contract value; projected cumulative revenue of ~$500M over the next three years (approx. 2027–2029) with healthy margins, dependent on supply chain and market factors.

Market and Competitive Outlook:

• Demand Trends: Strong demand for data center capacity and AI infrastructure in Canada (currently 1% of global compute vs. 5% EU, 80%+ US/China); expecting boom in infrastructure spending driven by government tax incentives.
• Pricing & Mix: Discipline on pricing and subsidies; shift toward higher-value post-paid plans and premium brands; ARPU stabilized year-over-year.
• Competitive Positioning: Pure fiber network (3.8M homes/businesses) viewed as the "gold standard" and primary defense against cable/satellite; maintaining control of assets while pursuing equity monetization.
• Share Shifts: Continued focus on retaining high-value customers and reducing churn rather than aggressive price-based acquisition; mobile net additions expected to remain modest.

Macro / Industry Outlook:

• Canada Market: Belief that Canada requires significant data center build-out to meet domestic AI sovereignty and compute demands.
• Regulatory/Tax: Anticipation of increased B2B and public sector infrastructure spending following government "mega tax deduction" announcements.
• Sovereignty: Commitment to Canadian data residency ("Canadian data stays in Canada") as a foundational competitive advantage for AI infrastructure.
• Supply Chain: Acknowledged risk to AI infrastructure margins dependent on global supply chain conditions.

Strategic Initiatives:

• Asset Monetization: Active monetization of non-core assets (specifically Telus Health and Agri) to fund debt paydown; one health asset at advanced stage, another to activate "this month."
• Fiber Equitization: Exploring a strategic partnership to unlock equity value from pure fiber network (similar to Telus Towers/Terion model) while retaining operational control; targeting 1M+ homes in Ontario/Quebec for expansion post-monitization.
• AI Infrastructure Build:
  • Connectivity: Connecting external data center operators to grid via fiber (high-margin, long-term transport deals).
  • Sovereign Compute: Expanding existing sites (Rimouski, Kamloops, central offices) to 38MW of secured power by end of 2028; rolling out GPU-as-a-Service and wholesale solutions.
  • Powered Shells: Exploring partnerships for data center shells with secured power; not included in current $500M revenue estimate, potential future announcement.
• AI Automation: Deployment of "Agentic AI" and self-serve tools to reduce customer contact friction and field force calls; simplification of rate plans and product portfolios.

Risks and Headwinds to Outlook:

• Market Conditions: AI infrastructure revenue realization dependent on supply chain conditions and third-party market factors.
• Execution Risk: $900M savings target contingent on successful execution of operational discipline, restructure, and process changes (upfront investment required).
• Asset Monetization Uncertainty: Value realization from fiber equitization and non-core asset sales is "early stage"; deal structures and timing not yet finalized.
• Regulatory/Tax Sensitivity: Infrastructure spend projections tied to specific government tax policies.
• Refraining from Acquisition: Moratorium on acquisitions remains in place.

Management Tone on the Future:

• Confidence: "Moving with clarity, urgency, and purpose"; confidence that actions will translate to improved revenue, margins, and cash flow in 2027+.
• Discipline: Emphasis on "profitable growth" and "capital efficiency" over volume; intentional pivot to "sustainable" returns.
• Control: Reiterated commitment to maintaining control of the fiber network (unlike Terion tower deal which was wholesale-focused).
• Transparency: Management commits to providing specific details on the split of investments and savings (OpEx/CapEx) in February 2027 guidance.
• Sentiment: Positive on AI/Infra opportunity but cautious on Telus Digital's previous targets (refined narrative focuses on core domestic infrastructure).

Miscellaneous:

• Q3 FY2026 Results: Consolidated service revenue $4.5B (-1% YoY); Adjusted EBITDA $1.8B (-5% YoY); Adjusted EPS $0.16 (-24% YoY); FCF $396M (-35% YoY).
• Impairment: Non-cash goodwill impairment of $800M recorded for Telus Health due to updated growth expectations; does not change commitment to the business but signals valuation reality in monetization process.
• Liquidity: Total available liquidity of $3B; Net debt/EBITDA leverage at 3.6x (Sep 30, 2026), up from 3.5x YoY.
• Leadership: New leadership team (Victor Dodik, Gopi Shande) has completed comprehensive business assessment and initiated restructure.
• Investment Grade: Full commitment to maintaining investment-grade credit profile.