TELUS Corporation (NYSE:TU) Q1 2024 Earnings Call Transcript

Darren Entwistle: Okay. I’ll hand it over to Doug to talk about the margin expansion. It’s 170 bps, Matt, not 160. And the answer simply to your question about whether it was finished and we’re just seeing the impact of last year or whether it’s still ongoing. It is indeed still ongoing as it relates to our major cost efficiency program. And so far as staff level reductions are concerned, that won’t be complete until the end of July. So, there’s more to come on the efficiency front to support what we’re delivering in terms of EBITDA growth and margin expansion. But Doug can provide some additional color and then Zainul can follow-up and answer the second part of your question or second two parts of your question.

Doug French: Yes. So, you would have seen in our disclosure that we actually had a 4% reduction in our employee benefits cost and that would equate over $50 million in the quarter on its own, which is not complete yet. There will still be more as we complete there, finish the program and continue to drive digitization and efficiencies as the year goes on. We’re also well through the health savings that we’ve talked to, and hitting our health target as Darren highlighted in his previous remarks. And so the combination of the two absolutely gets us on a trajectory that that will be sustainable and will grow as the year goes. We will start to lap a little bit of those savings as you get in the back end of the year, but the margin expansion will hold.

Zainul Mawji: Okay. Thanks for that. I think both your question and Drew’s lead us to kind of want to take away and think about some better leading indicators with respect to whether it’s product intensity revenue growth, customer lifetime value on a prospective basis. So we’ll think about that in terms of what we should take away. On an ad hoc basis, one of the things I can highlight as an example is that our product intensity is now 3.21% on a PureFibre household basis. And that is growing significantly and it will continue to grow not just on the back of the existing products that we have, but the new products that we’re going to be introducing as well. In terms of your question on the split of Internet, I would say that relative to the TPIA side of the business, it’s fairly modest, continues to be modest.

We continue to see and drive growth on the back of our existing PureFibre footprint, which does see some incremental household releases and newcomer as well as new household introduction growth as well. And I think the most critical element to give you some insight into how we’re going to be managing that part of the business, we certainly feel that you need to have a high product intensity and a bundled capability to be successful in a lease network environment. And we are operating under the Acxiom that on an overall basis the return on investment for any bundled household whether it is on a leased network has to be equal to or better what we would achieve in terms of our own build. And that’s delivered on the back again of product intensity, of looking at both mobile and home, of leveraging our differentiated brands so that you’re leveraging the premium aspects of your brand and on the back of cost to serve and churn improvements as well.

But that’s the way we’re looking at making sure that we’re focused on economic value loading and not hollow loading.

Operator: Next question comes from Stephanie Price from CIBC.

Stephanie Price: The prepared remarks mentioned a few times increases in competition on device financing. Just curious about what you’re seeing in the market and how you think about competing in that type of environment?

Darren Entwistle: Doug?

Doug French: So what we’ve seen on that end is a lot of our offerings on device financing. We’ve kept the floor and made sure we held economics, strong economics, where there’s our times through the competitive side where that hasn’t held and the device financing floors have come down, which would then open up lower ARPU customers to a high subsidy and or a long-term financing cost. So, I’d say that intensity is really what we’ve seen throughout in February, was probably as intense as Black Friday was. And that’s where you’ve seen that or even more intense. And that’s what the reference was. And it’s primarily lowering the floor, so that you’re giving more subsidy to lower ARPU customers, which becomes very dilutive the lower you go.

Darren Entwistle: Zainul, do you want to add some color in terms of what we’re doing on brand segmentation and premium?

Zainul Mawji: Absolutely. So Stephanie, I think Doug covered the highlights, but it’s really important to kind of zone in on the two or three levers that impact dilution the most. So one of them is the amount of subsidy. The second one is the rate at which you offer that subsidy on a device because that has a significant flow through impact from your base to step down when it’s an attractive market for devices. And then the third piece actually is to bring it back value. And one of the things we’ve seen relatively stable in the market up until Q1 was the bring it back value, but we saw that increase in competitiveness towards the back end of Q1 as well. So what we’re really focused on is really differentiating our brands so that we are creating a higher value step up on the device financing floor and reducing the level of potential rerate for our customers.

And so when the promotional intensity creeps up, you’re not seeing that re rate materialize when customers see promotions for devices. And then on the flanker side, that’s where you have to look at most of the volume being on bring your own device. But what’s important there is to really think about the right bundles like our Koodo Happy Stack, which offers streaming and Internet and a lower data plan on mobility as a really attractive bundle so that you can curtail some of the switching behavior that would be dominant in that part of the market. So that’s how we’re kind of trying to ensure we differentiate our brand.

Stephanie Price: And one other one for me just on TELUS Health. It looks like revenue was down a bit year-over-year. Just curious about the revenue drivers in the quarter, and how we should think about cross sell at this point from TELUS Health?

Darren Entwistle: Navin, do you want to speak to that one, please?

Navin Arora: Yes, absolutely, Darren. So you’re absolutely right, Stephanie. We were unhappy with where our revenue growth landed in Q1. But our focus on channel expansion, distribution and customer experience excellence investments is notably starting to pay off. So just to give you an example, year-to-date, we’ve driven strong performance delivering about 111% target on our sales bookings, across our health lines of business, and that represents a 17% year-over-year increase in volume of deals and $175 million in total contract value. And then as another example of the momentum we’re building, our pay-vider business unit had its best sales quarter on record. So we’re going to still continue to see some macroeconomic headwinds, but through our aggressive focus on growth and synergies, we actually expect very steady improvement in revenue growth and profitability in the coming quarters.

And with the big parts of our integration of LifeWorks behind us, we actually see a pretty great growth opportunity ahead of us working as one team, one unified culture, one unified set of priorities and really driving some increased sales performance that’s going to drive that revenue growth. So we’re actually expecting strong revenue growth coming in Q2 and beyond. And tied to that, we’re actually seeing some very good success working with TELUS International in terms of not only driving cost savings, but really driving, digital create differentiation in our capabilities are not going to, only help us on the cost side but they’re also going to help create differentiation our capabilities which again, is going to allow us to drive greater revenue opportunities.

And then the last thing I would say is, we have tremendous cross-sell opportunity across TELUS Health and the rest of our B2B, telecom and other assets, and those opportunities are already starting to bear fruit for us. And I see that as a very important developing story, that’s going to give us a competitive advantage going forward and really elevates the conversation with our customers at a strategic level. And that’s going to become more and more part of our growth as we go forward. So, I’ll put that back to you there.

Operator: Next question comes from Sebastiano Petti from JPMorgan.

Sebastiano Petti: Just wanted to follow-up, Doug, on one of your comments towards the end of prepared remarks, just anticipating the improvement in TI and Health and Agriculture as you kind of get into the second half of the year. Is that because you get to easier comps or do you see demonstrable change in demand within those different revenue, within those different business lines? And specifically on TELUS Health, I mean, the guidance that TELUS Health has given, TELUS International, I’m sorry, anticipates sequential declines and then exit rates, sequential exit rates that are again pretty healthy? Again, just trying to underpin or just trying to think about the underlying drivers of demand and what is implied within that and what is giving you confidence in that?

And then just kind of going back to Maher’s question and just thinking about the revenue context within the TTech revenue guidance, what do we need to see within consumer, within health kind of feel more comfortable about that revenue range? Thank you.

Darren Entwistle: Okay. We’ll do a bit of a daisy chain on this Doug. We’ll kick it off briefly then I’ll ask Navin to make the commentary on B2B health, Zainul on consumer health and Jeff as it relates to TI. Doug, why don’t you go ahead?

Doug French: Yes. So just overall, we have confidence from the perspective of we’ve been going through our plans on the funnel as you’ve heard from Navin. As you will hear and you’ll hear from Jeff in a moment on the losses that we had in TI and it’s on a path to recovery based on sales with TELUS, with Google, with others. And confidence in Ag as we talked about on Navin on the funnel in conjunction with the largest sales we’ve had in the last two quarters. So it is all aligned with our projection, it’s all aligned with our guidance. We do believe the contributions are aligned with what we have been suggesting to The Street and our market are our targets for health and TI. There’s nothing abnormal in any of those beyond what we’ve already highlighted.