Telus Reports Operational and Financial Results for Fourth Quarter 2020; Announces 2021 Consolidated Financial TargetsWednesday, February 17, 2021
Burnaby, BC, February 17, 2021--(T-Net)--TELUS Corporation today released its unaudited results for the fourth quarter of 2020.
Consolidated operating revenues and other income increased by 5.2 per cent over the same period a year ago to $4.1 billion. Earnings before interest, income taxes, depreciation and amortization (EBITDA) decreased by 2.3 per cent to $1.3 billion while Adjusted EBITDA was down 0.2 per cent.
This decline reflects multiple impacts from the COVID-19 pandemic, declines in wireline legacy voice and legacy data services and higher employee benefits and other costs, including support for business acquisitions. This was partly offset by growth in wireline data service margins resulting from business acquisitions, expanded services and customer growth; growth in our wireless subscriber base; increased organic and inorganic EBITDA contribution from TELUS International; and enhanced cost efficiency programs.
"Throughout 2020, TELUS achieved strong operational and financial results in both wireline and wireless" said Darren Entwistle, President and CEO. "This is a trend the TELUS team has demonstrated over the long-term and, in 2020, realized against the backdrop of an unprecedented operating environment. Our performance in the fourth quarter, and for the full year, was characterized by our hallmark combination of robust, high-quality and profitable customer growth, alongside strong financial results. The quarter concluded another year of industry-leading customer growth, with 777,000 total net customer additions, including an all-time record for annual wireline customer growth of 240,000. Notably, we achieved strong free cash flow for the year, within the range initially targeted in February 2020, and TELUS was the only telecom provider amongst its national peers to report positive EBITDA growth for the year. Our industry-leading customer growth was driven by our team's passion for delivering outstanding customer experiences, which contributed to strong and enhanced client loyalty across our key product lines, including postpaid mobile phone, internet and TV churn all below one per cent in the fourth quarter. Indeed, 2020 represented our seventh consecutive year of industry-leading postpaid wireless churn below one per cent. This performance was backed by our highly engaged team, world-leading wireless and fibre broadband networks, strong digital capabilities, and superior service offerings."
"The efficacy of ongoing investments in our globally leading broadband networks continues to be evidenced by major, independent reports. In 2020, TELUS' wireless network was recognized by UK-based Opensignal as the fastest in the world, and by U.S. -based Ookla as the fastest and most expansive on a national basis; both awards have now been received by TELUS for four consecutive years. In addition, for the second year in a row, Canadian-based Tutela placed TELUS first in respect of quality, latency and download throughput, for our wireless network, nationally. Our wireline broadband network was similarly recognized, with U.S. -based PCMag ranking our PureFibre network as Best for Gaming in 2020, and naming TELUS as the fastest internet service provider on a national basis. At a time when the speed, quality and expansiveness of our networks has become more important than ever, these recognitions are particularly resonant."
Darren further commented, "The TELUS team's ability to consistently drive profitable growth over the long-term, provides us with confidence in delivering on the annual targets for 2021 that we have announced today. This includes expected industry-leading revenue and EBITDA growth of up to 10 and 8 per cent respectively, alongside free cash flow of approximately $1.5 billion. Furthermore, the unparalleled skill, innovation and grit of our team underpins our leading multi-year dividend growth program, now in its eleventh year. Notably, we have returned over $19 billion to shareholders since 2004 through our dividend and share purchase programs, representing $15 per share."
"Last week, TELUS International (TI) achieved a monumental milestone with its successful initial public offering (IPO), establishing a market capitalization of more than $10 billion. In Canada, this accomplishment makes TI's IPO the largest technology IPO in TSX history, with total aggregate proceeds of $1.36 billion. Impressively, as TI embarked upon its next journey as a publicly traded company on both the Toronto and New York Stock Exchanges, TI's market capitalization exceeded the $8 billion market capitalization of TELUS two decades ago when we first embarked on our national growth strategy. This significant value creation reflects TI's steadfast focus on delivering leading customer experiences and strong financial results, in concert with an unparalleled dedication to giving back to their local communities; emulating the parameters of TELUS' own success in growing from a western-based telecommunications company into a globally leading organization. TELUS International has evolved, over the last 15 years, into a digital customer experience innovator that harnesses the power of technology to provide outstanding customer and community experiences on a global basis. With TELUS retaining a controlling interest, and a 55 per cent economic stake, we remain excited for TI's future as it continues to drive better business outcomes and grow value for all stakeholders. This success story reinforces the efficacy of our uniquely diversified and technology-oriented assets, including TELUS Health and TELUS Agriculture. Our integrated and broad portfolio of solutions within these growth verticals, combined with a strong financial growth profile, further enhances the differentiated value we are creating for our investors."
"In a year like no other, our TELUS team continued to support our communities and each other," Darren expressed. "In this regard, we expanded our TELUS Health for Good program with the launch of seven new mobile health clinics in 2020, and an additional two clinics in January of 2021, bringing our total to 13 clinics nationwide. Throughout 2020, our mobile clinics supported 28,000 patient visits, including administering 12,700 COVID-19 assessments and tests. To further support public healthcare capacity and key health initiatives across Canada, the TELUS Friendly Future Foundation contributed $8.9 million to 597 charitable projects in 2020, including directing $2.4 million in emergency response grants. Overall, our TELUS family contributed $85 million and 1.25 million hours of volunteerism to charitable and community organizations throughout 2020. Our team's leadership in social capitalism was once again recognized on a global basis, with TELUS ranking 54th on the Corporate Knights 2021 Global 100 Most Sustainable Corporations Index for the 9th time. Impressively, TELUS is the highest ranking telco in North America."
Doug French, Executive Vice-president and CFO said, "TELUS' impressive operational and financial results reflect the strength of our differentiated asset mix and our commitment to profitable customer growth. In 2020, we achieved healthy free cash flow growth of 54 per cent, reflective of positive year-over-year EBITDA growth, despite an unprecedented operating environment, and lower capital expenditures as planned."
Doug added, "Importantly, our results are underpinned by a strong balance sheet, which has provided the financial flexibility to pursue our exciting growth strategy, including through the global pandemic period. Clearly, our strategic acquisitions and thoughtful capital investments are paying off, as demonstrated by our consistent financial results and customer growth, and these investments will enhance our profitability and cash flow generation over the long-term. Our generational and superior fibre build is progressing towards completion, providing a solid foundation for the ongoing expansion of our world-leading wireless network with 5G, particularly as key 3500 MHz spectrum becomes available in 2021."
"As evidenced by our consolidated 2021 financial targets announced today, we expect to deliver another year of strong financial and operational results, including continued robust cash flow generation alongside stable strategic capital investments. These financial targets support our leading dividend growth program where we continue to target seven to 10 per cent annual increases through 2022. This builds on our commitment and consistent track record with respect to our transparent dividend growth program over the past decade. With an unrivalled growth profile, we are committed to further advancing our proven strategy, while driving a collective focus on social capitalism, and delivering outstanding value for all TELUS stakeholders - not only in 2021, but for years to come" Doug concluded.
In the quarter, the company added 253,000 new customer additions, up 77,000 over last year, and inclusive of 87,000 mobile phones, 88,000 mobile connected devices, in addition to 44,000 internet, 20,000 TV and 23,000 security customers. This was partly offset by low residential voice losses of 9,000. Our total wireless subscriber base of 10.7 million is up 5.2 per cent over the last twelve months, reflecting a 2.5 per cent increase in our mobile phones subscriber base to approximately 9 million, and a 21 per cent increase to our mobile connected devices subscriber base to approximately 1.8 million. Additionally, our internet connections grew by 7.9 per cent over the last twelve months to surpass 2.1 million customers, our TV subscriber base increased by 4.7 per cent to 1.2 million, and our security customer base expanded by 16 per cent to 707,000.
Free cash flow of $218 million increased by $83 million or 62 per cent over the same period a year ago, largely from lower capital expenditures. Excluding cash taxes, free cash flow of $313 million increased by $104 million or 50 per cent.
Consolidated capital expenditures of $613 million decreased by 17 per cent or $129 million over the same period a year ago due to the timing of our fibre build activities and efficiencies in our 4G network expenditures. These decreases were partially offset by increased investments in our 5G network, in addition to investments to increase system capacity and reliability. With our ongoing investments, we are advancing wireless speeds and coverage that enabled our 5G network launch, continuing to connect additional homes and businesses directly to our fibre-optic technology, and supporting systems reliability and operational efficiency and effectiveness efforts. Our capital expenditures allowed us to achieve strong internet, TV and security customer growth, and enabled us to deliver greater resiliency, scalability, and efficiency in IT infrastructure and remote work capability in response to the COVID-19 pandemic.
At the end of the quarter, our TELUS PureFibre network covered approximately 2.5 million premises, or approximately 81 per cent of our high-speed broadband footprint, reflecting an increase of approximately 300,000 fibre premises over the last twelve months. Furthermore, at December 31, 2020, our 5G network was available to over 75 communities and covered over 10.5 million Canadians, representing more than 28 per cent of the Canadian population.
For the quarter, net income of $271 million decreased by 29 per cent over the same period last year and Basic earnings per share (EPS) of $0.20 decreased by 33 per cent. These declines reflect increased depreciation and amortization from capital assets growth, including acquisitions; declines in wireline legacy voice and legacy data services; higher non-labour-related restructuring and other costs; multiple impacts from the COVID-19 pandemic, which were partly offset by growth in wireline data service margins, wireless and wireline subscriber base growth, increased EBITDA contribution from TELUS International, and enhanced cost efficiency programs; and, as it relates to EPS, higher shares outstanding.
When excluding the effects of restructuring and other costs, income tax-related adjustments, other equity losses related to real estate joint ventures, and non-controlling interests, adjusted net income of $289 million decreased by 28 per cent compared to the prior year, while adjusted basic EPS of $0.22 was down 31 per cent.
In September 2020, shortly before the beginning of the fourth quarter, Canada's Prime Minister declared that a second wave of COVID-19 was already underway. On December 9, 2020, Health Canada authorized the first COVID-19 vaccine, and, the following week, health authorities began administering the vaccine. On December 26, 2020, Canada's first known case of a coronavirus variant was confirmed. In order to curb the increasing rate of new infections, provinces across the country reinstated varying levels of restrictions to ensure physical distancing. Although much uncertainty remains concerning the magnitude and length of the pandemic, TELUS continues to focus relentlessly on keeping Canadians connected and on ensuring the health, safety and well-being of our team members, customers, and communities. Our Executive Team continues to be guided by advice from our Emergency Management Operating Committee (EMOC) and the TELUS Medical Advisory Council (MAC).
The pandemic has impacted our operations and financial condition and we expect many of these trends to continue well into 2021. We expect that the availability, distribution and effectiveness of COVID-19 vaccinations to the general population will occur by the second half of 2021, which will allow for the gradual re-opening of the global economy and areas where we conduct business. As we navigate through the pandemic, we continue to take various steps to mitigate the negative effects, including pursuing cost savings initiatives and margin accretion opportunities.
As of the end of 2020, following the closures that took place in second quarter, almost all retail stores had reopened, although the reopening remained subject to some restrictions (such as the number of people permitted in our retail stores). While the health emergency has had a negative impact on overall store traffic, our net additions for the fourth quarter of 2020 - across wireless, internet, TV, residential voice, and security - all experienced year-over-year improvements as we continued to evolve our operations and support our customers virtually. We experienced increased utilization of our digital assets in both our wireless and wireline segments, including telus.com and the My TELUS mobile app - for example: to support the purchase of new devices and the addition of new services, and to facilitate customer payments and migrations to electronic billing - making transactions easier for our customers. Entering 2021, we will continue to thoughtfully provide our customers with flexibility in terms of where and how they shop - a strategy enabled by our steadfast focus on providing a seamless customer experience across all sales channels, both in-person and virtually.
With land borders remaining closed and official travel advisories in effect instructing Canadians to avoid all non-essential travel, we continued to experience lower wireless roaming revenue. We expect that reduced roaming revenue will persist for as long as travel remains limited. Additionally, with respect to the small and medium sized businesses (SMBs), we expect that many SMBs will be forced to reduce the scope of their operations and/or shut down, resulting in lower contributions from certain customers.
In TELUS Health, the company says it continues to see increased demand for their virtual care solutions, with accelerated adoption of both Akira by TELUS Health and Babylon by TELUS Health. The company is also seeing increased demand for Home Health Monitoring solutions and our LivingWell Companion™ by TELUS Health, enabling Canadians to access 24/7 emergency support.
Their virtual care offerings were augmented by the fourth-quarter acquisition of EQ Care. In addition, certain TELUS Health Care Centres, which re-opened in July, remained open for in-clinic services, while also providing virtual consultations. However, due to restrictions in place to protect patients during the pandemic, the clinics are still unable to offer their full suite of core services.
TELUS International was impacted by temporary operating restrictions of certain delivery centres, however its ability to quickly enable team members to work and support customers from home and in other modified work locations has helped to mitigate these impacts. Certain TELUS International clients also continue to experience challenges, in particular those clients in travel and hospitality-related businesses; however, the decline in business from these clients was offset by increases in business from clients in the games, media and ecommerce food delivery industries. While some delivery centres have begun to welcome back more team members, TELUS International is planning for the majority of its team to make a gradual return to its centres provided it has been deemed safe to do so by local government and health authorities, in addition to guidance from the TELUS MAC and its own best practices.
In the second half of 2020, cash receipts steadily recovered from earlier declines experienced in the second quarter of 2020. We believe government assistance programs designed to support individuals and businesses, as well as the resumption of collections activities, were key contributing factors to the improvement in cash receipts in the second half of the year.
In addition to the financial impacts described above, the company says it continued to take various steps to support our community during these challenging times. As the global leader in social capitalism, TELUS made a $20 million commitment to help build public healthcare capacity and support vulnerable communities through the COVID-19 pandemic and beyond.
Below are select highlights of the steps the company says it is taking through this commitment:
For further discussion on the effect of the COVID-19 pandemic on the environment in which we operate, refer to Section 1.2 The environment in which we operate in our 2020 annual Management's discussion and analysis (MD&A).
Consolidated Financial Highlights
|C$ millions, except footnotes and unless noted otherwise||Three months ended
|Operating revenues and Other income||4,060||3,858||5.2|
|Operating expenses before depreciation and amortization||2,724||2,490||9.4|
|Adjusted net income(1)||289||400||(27.8)|
|Net income attributable to common shares||260||368||(29.3)|
|Basic EPS(3) ($)||0.20||0.30||(33.3)|
|Adjusted basic EPS(1)(3) ($)||0.22||0.32||(31.3)|
|Free cash flow(1)||218||135||61.5|
|Total subscriber connections(5) (thousands)||15,972||15,166||5.3|
|(1)||EBITDA, Adjusted EBITDA, Adjusted net income, Adjusted basic EPS and Free cash flow are non-GAAP measures and do not have any standardized meaning prescribed by IFRS-IASB. For further definitions and explanations of these measures, see 'Non-GAAP and other financial measures' in this news release.|
|(2)||Adjusted EBITDA for the fourth quarters of 2020 and 2019 excludes restructuring and other costs of $71 million and $40 million respectively, and other equity losses related to real estate joint ventures of $2 million and $5 million respectively.|
|(3)||On March 17, 2020, TELUS shareholders received one additional share for each share owned on the record date of March 13, 2020. All information pertaining to shares outstanding and per-share amounts in this news release for periods before March 17, 2020, reflects retrospective treatment of the two-for-one share split.|
|(4)||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 in our 2020 annual consolidated financial statements for further information.|
|(5)||The sum of active mobile phone subscribers, mobile 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. December 31, 2019 security subscriber connections have been increased to include approximately 490,000 subscribers related to our acquisition of ADT Security Services Canada, Inc. (ADT Canada) (acquired on November 5, 2019). During the third quarter of 2020, we adjusted cumulative subscriber connections to add approximately 31,000 security subscribers as a result of a business acquisition. For additional information on our subscriber definitions, see Section 11.2 Operating indicators in our 2020 annual MD&A.|
Fourth Quarter 2020 Operating Highlights
As noted in Section 1.2 of our 2020 annual MD&A, the COVID-19 pandemic, which emerged in the first quarter of 2020, continued to have a pervasive global impact throughout the balance of 2020. The nature of the pandemic and the uncertainty of its magnitude, length and the time to recovery are not currently able to be estimated. 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.
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:
TELUS sets 2021 consolidated financial targets
TELUS' consolidated financial targets for 2021 are guided by a number of long-term financial objectives, policies and guidelines, which are detailed in Section 4.3 of the 2020 annual MD&A.
In 2021, TELUS plans to continue generating positive financial outcomes and strong customer growth. Increasing customer demand for reliable access and fast data services is expected to support continued customer growth. This growth is supported by our strategic investments in advanced broadband technologies, including our PureFibre service and the ongoing roll-out of 5G. Supporting our growth profile in 2021 are our unique and diversified growth assets: TELUS International, inclusive of the recently closed acquisition of Lionbridge AI; TELUS Health, including growing demand for digital health services and virtual care; and the recent launch of TELUS Agriculture, which is using technology to drive better food outcomes. Our growth profile is also underpinned by a team member culture focused on delivering customer service excellence and our ongoing focus on operational effectiveness.
In 2021, we expect the COVID-19 pandemic to continue to have significant impacts on our business, primarily in the first half of the year, attributed to economic factors such as continued travel advisories and border restrictions, decreasing business and consumer travel continuing to impact our roaming revenues and subsequent business lockdowns, and/or reduced scope of operations impacting our TELUS Health Care Centers. We expect that the availability, distribution and effectiveness of COVID-19 vaccinations to the general population will occur by the second half of 2021, which will allow for the gradual re-opening of the global economy and areas where we conduct business. We expect that the COVID-19 pandemic impacts in 2021 will be similar to 2020. Our assumptions for 2021 are set out in Section 9.3 TELUS assumptions for 2021 in the 2020 annual MD&A.
|Revenues and other income||15,463||8 to 10 per cent|
|Adjusted EBITDA(1)||5,701||6 to 8 per cent|
|Free cash flow(2)||1,435||Approximately 1,500|
|Capital expenditures(3)||2,775||Approximately 2,750|
|(1)||Adjusted EBITDA excludes the following: restructuring and other costs, and other equity losses related to real estate joint ventures, as well as retirement of a provision arising from business acquisition-related written put options within TELUS International. In 2021, total restructuring and others costs are expected to be approximately $150 million, as compared to $259 million in 2020.|
|(2)||Before dividends paid.|
|(3)||Excludes expenditures for spectrum licences.|
The preceding disclosure respecting TELUS' 2021 financial targets is forward-looking information and is fully qualified by the 'Caution regarding forward-looking statements' in the 2020 annual MD&A filed on the date hereof on SEDAR, especially Section 10 Risks and Risk Management thereof which is hereby incorporated by reference, and is based on management's expectations and assumptions as set out in Section 9.3 TELUS assumptions for 2021 in the 2020 annual MD&A.
The TELUS Board of Directors has declared a quarterly dividend of $0.3112 per share on the issued and outstanding Common Shares of the Company payable on April 1, 2021 to holders of record at the close of business on March 11, 2021. This first quarter dividend for 2021 reflects an increase of 6.8 per cent from the $0.29125 per share dividend declared one year earlier.
TELUS International closes its Initial Public Offering
On February 5, 2021 TELUS Corporation (TELUS) and its subsidiary, TELUS International (Cda) Inc. (TELUS International), announced the closing of the upsized TELUS International initial public offering (IPO) of 42.55 million subordinate voting shares at a price of US$25.00 per share, which includes 5.55 million subordinate voting shares purchased upon the full exercise of the underwriters' over-allotment option to purchase additional subordinate voting shares from TELUS and Baring Private Equity Asia (Baring), the selling shareholders. The offering generated aggregate gross proceeds to TELUS International, TELUS and Baring of U.S. $1.06 billion (CAD$1.36 billion), including the exercise of the over-allotment option in full. The net proceeds to TELUS International totaled approximately US$490 million (CAD$627 million), which are expected to be used to repay outstanding borrowings under its revolving credit facilities. TELUS International will not receive any proceeds from the subordinate voting shares sold by the selling shareholders. The subordinate voting shares began trading on the New York Stock Exchange and the Toronto Stock Exchange on February 3, 2021 under the ticker "TIXT."
TELUS (TSX: T, NYSE: TU) is a dynamic, world-leading communications technology company with $16 billion in annual revenue and 16 million customer connections spanning wireless, data, IP, voice, television, entertainment, video, and security. We leverage our global-leading technology and compassion to 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. In 2020, TELUS was recognized as having the fastest wireless network in the world, 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. TELUS Health is Canada's leader in digital health technology, improving access to health and wellness services and revolutionizing the flow of health information across the continuum of care. TELUS Agriculture provides innovative digital solutions throughout the agriculture value chain, supporting better food outcomes from improved agri-business data insights and processes. TELUS International (TSX and NYSE: TIXT) is a leading digital customer experience innovator that delivers next-generation AI and content management solutions for global brands across the technology and games, ecommerce and FinTech, communications and media, healthcare, travel and hospitality sectors. TELUS and TELUS International operate in 25+ countries around the world.
Driven by our passionate social purpose 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 $820 million and 1.6 million days of service since 2000. This unprecedented generosity and unparalleled volunteerism have made TELUS the most giving company in the world.
For more information about TELUS, please visit telus.com
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, 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 consolidated financial targets, outlook, updates, our multi-year dividend growth program and our plans and expectations regarding the impact of the COVID-19 pandemic and responses to it. 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 our expectations expressed in or implied by the forward-looking statements.
Our general outlook and assumptions for 2021 are presented in Section 9 General trends, outlook and assumptions, and regulatory developments and proceedings in our 2020 annual MD&A. Our key assumptions for 2021 include the following:
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:
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 2020 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 TELUS.
Many of these factors are beyond our control or our current expectations or knowledge. Additional risks and uncertainties 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. The forward-looking statements in this news release are presented for the purpose of assisting our investors and others in understanding certain key elements of our expected 2021 financial results as well as our objectives, strategic priorities and business outlook. Such information may not be appropriate for other purposes.
This cautionary statement qualifies all of the forward-looking statements in this document.
Non-GAAP and other 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. 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: These measures are used to evaluate performance at a consolidated level and exclude items that, in management's view, may obscure the underlying trends in business performance. These measures should not be considered alternatives to Net income and basic earnings per share in measuring TELUS' performance.
Reconciliation of adjusted net income
|Three months ended
|C$ and in millions||2020||2019||Change|
|Net income attributable to Common Shares||260||368||(108)|
|Restructuring and other costs, after income taxes||50||29||21|
|Income tax-related adjustments||(23 )||(2)||(21)|
|Other equity losses related to real estate joint ventures||2||5||(3)|
|Adjusted Net income||289||400||(111)|
Reconciliation of adjusted basic EPS
|Three months ended
|Restructuring and other costs, after income taxes, per share||0.04||0.02||0.02|
|Income tax-related adjustments, per share||(0.02 )||—||(0.02)|
|Adjusted basic EPS||0.22||0.32||(0.10)|
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 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.
|Three months ended
|C$ and in millions||2020||2019|
|Amortization of intangible assets||250||178|
|Add restructuring and other costs included in EBITDA||71||40|
|EBITDA - excluding restructuring and other costs||1,407||1,408|
|Add other equity losses related to real estate joint ventures||2||5|
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 an alternative to the measures in the 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 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 changes 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
|C$ and in millions||2020||2019|
|Deduct non-cash gains from the sale of property, plant and equipment||(1 )||(8)|
|Restructuring and other costs, net of disbursements||14||(1)|
|Effects of contract asset, acquisition and fulfilment (IFRS 15 impact) and TELUS Easy Payment device financing||(112 )||(140)|
|Effects of lease principal (IFRS 16 impact)||(110 )||(119)|
|Leases formerly accounted for as finance leases (IFRS 16 impact)||16||69|
|Items from the condensed interim consolidated statements of cash flows:|
|Share-based compensation, net||(62 )||(55)|
|Net employee defined benefit plans expense||25||19|
|Employer contributions to employee defined benefit plans||(14 )||(2)|
|Interest paid||(169 )||(180)|
|Capital expenditures (excluding spectrum licences)1||(613 )||(742)|
|Free cash flow before income taxes||313||209|
|Income taxes paid, net of refunds||(95 )||(74)|
|Free cash flow||218||135|
(1) Refer to Note 31 of the consolidated financial statements for further information.
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