TELUS Reports Strong Operational and Financial Results for Second Quarter 2022, Q2 Net Income up 45% YoYMonday, August 8, 2022
Industry-leading total Mobile and Fixed customer growth of 247,000, up 24,000 over last year and our strongest second quarter on record, driven by higher year-over-year customer growth across our portfolio of leading Mobile and Fixed services
Burnaby, BC, August 8, 2022--(T-Net)--TELUS Corporation today released its unaudited results for the second quarter of 2022. Consolidated operating revenues and other income increased by 7.1 per cent over the same period a year ago to $4.4 billion.
This growth was driven by higher service revenues in their two reportable segments: TELUS technology solutions (TTech) and Digitally-led customer experiences - TELUS International (DLCX).
TTech service revenue growth was driven by higher mobile network revenues, increased internet and data service revenues, growth in agriculture and consumer goods service revenues, and growth in health services revenues.
Increased DLCX revenues resulted from organic growth from both expanded services for existing clients and growth from new clients.
Darren Entwistle, President and CEO, TELUS Communications Inc.
"In the second quarter, the TELUS team once again demonstrated continued execution excellence, characterized by the consistent combination of industry-leading customer growth, resulting in strong operational and financial results across our business," said Darren Entwistle, President and CEO.
"Our robust performance reflects the potency of our globally leading broadband networks and customer-centric culture, which enabled record second quarter total customer additions of 247,000. This included strong mobile phone net additions of 93,000, our best second quarter result since 2011, and industry-leading total fixed net additions of 62,000, an all-time second quarter record for TELUS. Our leading customer growth is underpinned by our consistent, industry-best client loyalty across our mobile and fixed product lines. Notably, again this quarter, blended mobile phone, PureFibre internet, Optik TV, security and voice churn were all below one per cent. Moreover, our industry-leading postpaid mobile phone churn of 0.64 per cent was unchanged over the prior year period, and represents the seventh quarter out of the last 10 below 0.80 per cent."
"Our results are backed by our highly differentiated and powerful asset mix geared towards high-growth, technology-oriented verticals," continued Darren. "Earlier today, TELUS International (TI) once again announced strong double-digit revenue growth, coupled with leading profitability and strong cash flow in the second quarter. TI's continued robust results demonstrate its consistent execution, attractive end-to-end digital capabilities, and position TI as a leading partner of choice for premier digital customer experiences and IT services for its enviable list of clients around the world."
"At TELUS Health, our team drove attractive year-over-year health services revenue growth, while continuing to meaningfully scale our health operations as we improve health outcomes for citizens through access to better health information. This includes our healthcare programs covering more than 22 million lives, an increase of 24 per cent on a year-over-year basis, along with executing 145 million digital health transactions during the quarter, up 6 per cent over last year, and earning 1.4 million new virtual healthcare members in the last 12 months, increasing our virtual healthcare members to 3.6 million, up 64 per cent over the prior year."
"At TELUS Agriculture & Consumer Goods, our team drove agriculture and consumer goods services revenue growth of 40 per cent over the same period last year, as a result of our team's ongoing efforts to integrate and grow this compelling global business. This result is illustrative of the significant value we are creating as the leading provider of agriculture and consumer goods technology solutions around the world, where we are advancing the sector's efficiency and effectiveness, including food quality production and waste reduction, through data analytics."
"Our consistently strong operating and financial performance is buttressed by our highly engaged team who are passionate about delivering superior service offerings and digital capabilities over our world-leading wireless and PureFibre broadband networks," Darren further commented.
"More than ever before, Canadians value fast, reliable connections, and the consistent recognition from a range of independent organizations reinforces the superiority of TELUS' world-leading networks. Notably, in June, TELUS was once again named the fastest internet service provider in Canada by U.S. -based PCMag, for the third consecutive year. In addition, U.S. -based Ookla once again named TELUS the fastest mobile service provider in Canada for the tenth consecutive time. These acknowledgements, alongside the numerous other third-party network awards our skilled and dedicated team has earned, reinforces TELUS' leadership in terms of offering customers the fastest, most expansive and reliable service in Canada across both our wireless and PureFibre networks. Moreover, this recognition of the leadership of TELUS' national broadband networks underscores the value of our significant generational investments in world-leading network technologies, including our ongoing accelerated broadband expansion program through the end of 2022, which will continue to drive extensive socio-economic benefits to Canadians from coast-to-coast."
"Our acquisition of LifeWorks, announced in June and approved yesterday by Lifeworks' shareholders, will enable us to combine the respective skills and capabilities of LifeWorks and TELUS Health, creating a globally leading, end-to-end, digital-first employee primary and preventative healthcare, mental health and wellness platform covering more than 50 million lives in Canada and beyond. Customers will benefit from our team's steadfast focus on providing exceptional customer experiences over our world-leading broadband networks, our consolidated engineering talent that will incorporate best-in-class data platform technologies to positively impact health outcomes for employees and their families, and our significantly expanded economies of scope and scale. This includes complementing LifeWorks' international relationships with TI's proven expertise in digital transformation and client service excellence, as well as their expansive client base and delivery teams spanning 28 countries, to extend our offerings to customers well beyond Canada. Our combined organizations, guided by a shared set of values, will provide employers with simple, convenient and effective, data-driven primary and preventive care solutions for employees and their families to proactively manage their health and wellness, including their mental health, so that they can lead their healthiest and most productive professional and personal lives. Following LifeWorks' shareholder approval, we remain highly confident in receiving the appropriate regulatory approvals and, in turn, closing this transaction on or about the fourth quarter of 2022, and look forward to welcoming LifeWorks' employees and customers into our TELUS Health family," said Darren.
Doug French, Executive Vice-president and CFO said, "Our second quarter results showcase our consistent execution excellence and leading asset mix across our telecom and technology-oriented verticals. Indeed, these strong financial and operating results are powered by our leading customers first culture along with a longstanding focus on operational efficiency and effectiveness. In that regard, consolidated EBITDA margin expanded by 90 basis points over the same quarter a year ago, or by 70 basis points on an Adjusted EBITDA basis. This margin expansion is driven by higher margins in our two reportable segments, benefitting from our ongoing investments in simplification and digitization which are both enhancing the customer experience, while improving our cost structure on a permanent basis. Furthermore, consolidated Adjusted EBITDA growth in the second quarter of 2022 demonstrated strong sequential growth as we progress as planned towards our annual target of 8 to 10 per cent."
"During the second quarter, we continued to execute against our accelerated capital expenditure program, now in the final year before capital expenditures decline significantly beginning in 2023 to an anticipated annual run-rate of approximately $2.5 billion," commented Doug. "Our capital expenditures were up year-over-year given the increased momentum of the program, and we expect a similar level of investment in the third quarter before it begins to taper off in the fourth quarter as we advance toward the lower run-rate in 2023. We continue to expand our PureFibre network, which now reaches over 2.8 million premises, along with advancing our 5G network coverage to 78 per cent of Canadians, including investments to operationalize our 3500 MHz spectrum holdings. Furthermore, we are making steady progress on our copper-to-fibre migration program, with only approximately 7 per cent of our TV and internet customers within our PureFibre footprint currently serviced by copper, down from 10 per cent at the end of the first quarter of 2022. These investments significantly advance our leading customer experiences and network leadership position as well as enhancing our competitive positioning to drive strong profitable customer growth on a consistent basis. Indeed, since the beginning of 2020, we have added over 2.1 million new mobility and fixed customer connections, supporting our positive outlook for 2022 and beyond. This includes our expectations for continued strong Adjusted EBITDA growth and significant future cash flow expansion beginning in 2023, underpinning our long-standing dividend growth program, with our October quarterly dividend payment up 7.1 per cent on a year-over-year basis."
"As part of our commitment to reduce our carbon footprint, supporting a greener and brighter future, we have entered into virtual power purchase agreements with renewable energy projects that develop solar and wind power facilities in Alberta. These projects became operational as of the second quarter of 2022 and demonstrate our ESG leadership by enabling additional renewable-sourced electricity to the Alberta electricity grid and the renewable energy certificates received will help us achieve our scope 1 and scope 2 science-based greenhouse gas reduction targets along with reaching our goal to be net carbon neutral in our operations by 2030. By participating in renewable energy projects, TELUS is demonstrating what a committed organization can do to transition to a low-carbon future," concluded Doug.
For the second quarter, net income of $498 million increased by 45 per cent over the same period last year and Basic earnings per share (EPS) of $0.34 increased by 36 per cent over the same period last year. These increases were driven by the impacts of increased Operating income, including increased earnings before interest, income taxes, depreciation and amortization (EBITDA), as detailed below, partly offset by higher depreciation and amortization; higher income taxes; 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 in the second quarter of 2021 and virtual power purchase agreements unrealized change in forward element in the second quarter of 2022, adjusted net income of $422 million increased by 21 per cent over the same period last year, while adjusted basic EPS of $0.32 was up 23 per cent over the same period last year. Adjusted net income is a non-GAAP financial measure and adjusted basic EPS is a non-GAAP ratio. For further explanation of these measures, see 'Non-GAAP and other specified financial measures' in this news release.
Compared to the same period last year, consolidated EBITDA increased by 9.8 per cent to approximately $1.6 billion and Adjusted EBITDA increased by 8.9 per cent to more than $1.6 billion. This growth reflects: (i) higher mobile network revenues driven by growth in our subscriber base over the past 12 months, in addition to higher mobile phone ARPU; (ii) increased contribution from our DLCX business; and (iii) increased internet and data service revenues driven by a combination of subscriber growth across internet, security, and TV, business acquisitions, higher revenue per customer, and expanded services. These factors were partly offset by: (i) higher employee benefits expense; (ii) higher costs related to the scaling of our digital capabilities, inclusive of increased subscription-based licences; (iii) lower legacy fixed voice and legacy fixed data services revenues; and (iv) bad debt expense returning to pre-pandemic levels driven by macroeconomic pressures compared to the prior period which saw historically low bad debt expense.
In the second quarter, the company added 247,000 net customer additions, up 24,000 over the same period last year, and inclusive of 93,000 mobile phones and 92,000 connected devices, in addition to 34,000 internet, 20,000 security and 15,000 TV customer connections. This was partly offset by residential voice losses of 7,000. Their total TTech subscriber base of 17.3 million is up 6.3 per cent over the last twelve months, reflecting a 4.3 per cent increase in their mobile phones subscriber base to over 9.4 million, and a 15 per cent increase in their connected devices subscriber base to more than 2.2 million. Additionally, their internet connections grew by 6.9 per cent over the last twelve months to over 2.3 million customer connections, their security customer base expanded by 25 per cent to 925,000 customers, including the addition of 75,000 customers from their acquisition of Vivint Smart Home, and our TV subscriber base increased by 4.3 per cent to approximately 1.3 million customers.
In health services, as of the end of the second quarter of 2022, virtual care members were 3.6 million and healthcare lives covered were 22.4 million, up 64 per cent and 24 per cent over the past 12 months, respectively. Digital health transactions in the second quarter of 2022 were 145.4 million, up 6.1 per cent over the second quarter of 2021.
Cash provided by operating activities increased by $6 million in the second quarter of 2022 and free cash flow of $205 million decreased by $5 million compared to the same period a year ago. The decrease in free cash flow was driven by the increase in capital expenditures aligned with our planned accelerated capital investments and cash interest paid, partly offset by higher EBITDA.
Consolidated capital expenditures increased by $141 million in the second quarter of 2022, due to accelerated investments in our 5G network, enhanced product development, and digitization to continue our multi-year increase in system capacity and reliability as announced on March 25, 2021. This was partly offset by reduced spend resulting from efficiencies in our 4G network and completion of some major system modernization and refresh programs in 2021.
On March 25, 2021, the company announced that they intended to accelerate $1.5 billion of capital spending in 2021 and 2022, with up to $750 million of accelerated capital in 2021 and the remainder brought forward into 2022. Accelerated capital invested during the second quarter of 2022 and first six months of 2022 was $265 million and $465 million, respectively.
This spend has enabled: (i) acceleration of premises to be connected to our fibre network; (ii) acceleration of our copper-to-fibre migration program; (iii) expansion of our fibre build to a number of additional communities, including many rural and Indigenous communities; (iv) advancement of our 5G network build, which covered approximately 78 per cent of the Canadian population at June 30, 2022; and (v) progress with the implementation of our digital strategy, and enhancement of products that will bolster both long-term revenue growth and operating expense efficiency.
At June 30, 2022, our TELUS PureFibre network covered more than 2.8 million premises, up from approximately 2.6 million premises at the end of the second quarter of 2021. Furthermore, as at June 30, 2022, approximately 7 per cent of our TV and internet customers within our PureFibre footprint are serviced by copper, down from 10 per cent at March 31, 2022. The remaining TV and internet customers serviced by copper within our PureFibre footprint are expected to be substantially migrated to TELUS PureFibre by the end of 2022.
Consolidated Financial Highlights
|C$ millions, except footnotes and unless noted otherwise||Three months ended
|Operating revenues (arising from contracts with customers)||4,373||4,109||6.4|
|Operating revenues and other income||4,401||4,111||7.1|
|Total operating expenses||3,639||3,453||5.4|
|Net income attributable to common shares||468||335||39.7|
|Adjusted net income(1)||422||348||21.3|
|Basic EPS ($)||0.34||0.25||36.0|
|Adjusted basic EPS(1) ($)||0.32||0.26||23.1|
|Capital expenditures (excluding spectrum licenses)(2)||1,054||913||15.4|
|Cash provided by operating activities||1,250||1,244||0.5|
|Free cash flow(1)||205||210||(2.4||)|
|Total telecom subscriber connections(3) (thousands)||17,323||16,295||6.3|
|(1)||These are non-GAAP and other specified financial measures, which do not have standardized meanings under IFRS-IASB and might not be comparable to those used by other issuers. For further definitions and explanations of these measures, see 'Non-GAAP and other specified financial measures' in this news release.|
|(2)||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 of the interim consolidated financial statements for further information.|
|(3)||The sum of active mobile phone subscribers, 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. Effective January 1, 2022 on a prospective basis, following an in-depth review of our definition of a subscriber, we adjusted our connected devices subscriber base to remove 34,000 subscribers within a legacy reporting system. During the second quarter of 2022, we adjusted our cumulative security subscriber connections to add approximately 75,000 subscribers as a result of a business acquisition.|
Second Quarter 2022 Operating Highlights
As noted in Section 1.2 of our second quarter 2022 Management's Discussion and Analysis (MD&A), the COVID-19 pandemic, which emerged in the first quarter of 2020, continued to have a global impact into 2022. We expect the pandemic to continue to affect our operations until at least 2023. Whether this occurs will depend on both domestic and international factors, such as rates of vaccinations, including booster doses, as well as the potential proliferation of COVID-19 variants of concern. 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. Our results discussed below are compared to the equivalent period in 2021, unless otherwise indicated.
TELUS technology solutions (TTech)
Mobile products and services
Fixed products and services
Agriculture and consumer goods services
Digitally-led customer experiences - TELUS International (DLCX)
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:
The TELUS Board of Directors declared a quarterly dividend of $0.3386 per share on the issued and outstanding Common Shares of the Company payable on October 3, 2022 to holders of record at the close of business on September 9, 2022. This quarterly dividend reflects an increase of 7.1 per cent from the $0.3162 per share dividend declared one year earlier.
TELUS (TSX: T, NYSE: TU) is a dynamic, world-leading communications technology company with $17 billion in annual revenue and 17 million customer connections spanning wireless, data, IP, voice, television, entertainment, video, and security. Our social purpose is to leverage our global-leading technology and compassion to drive social change and 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. The numerous, sustained accolades TELUS has earned over the years from independent, industry-leading network insight firms showcase the strength and speed of TELUS' global-leading networks, 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 & Consumer Goods is a global technology provider of innovative data insights and digital solutions, creating a unified, trusted and sustainable value chain. TELUS International (TSX and NYSE: TIXT) is a leading digital customer experience innovator that designs, builds, and delivers next-generation solutions, including AI and content moderation, for global and disruptive brands across high-growth industry verticals, including tech and games, communications and media and eCommerce and fintech. TELUS and TELUS International operate in 28 countries around the world.
Non-GAAP and other specified 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. For certain financial metrics, there are definitional differences between TELUS and TELUS International reporting. These differences largely arise from TELUS International adopting definitions consistent with practice in its industry. 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 are non-GAAP measures that do not have any standardized meaning prescribed by IFRS-IASB and are therefore unlikely to be comparable to similar measures presented by other issuers. Adjusted Net income excludes the effects of restructuring and other costs, income tax-related adjustments, other equity losses related to real estate joint ventures, long-term debt prepayment premium and other adjustments (identified in the following tables). Adjusted basic EPS is calculated as adjusted net income divided by the basic weighted-average number of Common Shares outstanding. These measures are used to evaluate performance at a consolidated level and exclude items that, in management's view, may obscure underlying trends in business performance or items of an unusual nature that do not reflect our ongoing operations. They should not be considered alternatives to Net income and basic EPS in measuring TELUS' performance.
Reconciliation of adjusted net income
|Three months ended
|C$ and in millions||2022||2021|
|Net income attributable to Common Shares||468||335|
|Add (deduct) amounts of net of amount attributable to non-controlling interests:|
|Restructuring and other costs||27||34|
|Tax effects of restructuring and other costs||(8||)||(8||)|
|Income tax-related adjustments||(6||)||(14||)|
|Other equity losses related to real estate joint ventures||—||1|
|Virtual power purchase agreements unrealized change in forward element||(80||)||—|
|Tax effect of virtual power purchase agreements unrealized change in forward element||21||—|
|Adjusted Net income||422||348|
Reconciliation of adjusted basic EPS
|Three months ended
|Add (deduct) amounts of net of amount attributable to non-controlling interests:|
|Restructuring and other costs, per share||0.02||0.03|
|Tax effect of restructuring and other costs, per share||—||(0.01||)|
|Income tax-related adjustments, per share||—||(0.01||)|
|Virtual power purchase agreements unrealized change in forward element, per share||(0.06||)||—|
|Tax effect of virtual power purchase agreements unrealized change in forward element, per share||0.02||—|
|Adjusted basic EPS||0.32||0.26|
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 as 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.
|EBITDA and Adjusted EBITDA reconciliations|
|Three-month periods ended June 30 (C$ millions)||2022||2021||2022||2021||2022||2021|
|Amortization of intangible assets||252||221||43||45||295||266|
|Add restructuring and other costs included in EBITDA||19||29||10||9||29||38|
|EBITDA - excluding restructuring and other costs||1,436||1,352||186||137||1,622||1,489|
|Other equity losses related to real estate joint ventures||—||1||—||—||—||1|
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 as an alternative to the measures in the condensed interim 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 condensed interim 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 standards 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||2022||2021|
|Restructuring and other costs, net of disbursements||8||(2||)|
|Effects of contract asset, acquisition and fulfilment (IFRS 15 impact) and TELUS Easy Payment device financing||49||33|
|Effects of lease principal (IFRS 16 impact)||(125||)||(124||)|
|Items from the condensed interim consolidated statements of cash flows:|
|Share-based compensation, net||42||52|
|Net employee defined benefit plans expense||25||30|
|Employer contributions to employee defined benefit plans||(8||)||(12||)|
|Capital expenditures (excluding spectrum licences)1||(1,054||)||(913||)|
|Free cash flow before income taxes||335||343|
|Income taxes paid, net of refunds||(130||)||(133||)|
|Free cash flow||205||210|
|Free cash flow reconciliation with Cash provided by operating activities|
|Three months ended
|C$ and in millions||2022||2021|
|Free cash flow||205||210|
|Capital expenditures (excluding spectrum licences)1||1,054||913|
|Effects of lease principal and leases accounted for as finance leases prior to adoption of IFRS 16||125||124|
|Individually immaterial items included in Net income neither providing nor using cash||(134||)||(3||)|
|Cash provided by operating activities||1,250||1,244|
(1) Refer to Note 31 of the interim consolidated financial statements (1) Refer to Note 31 of the interim consolidated financial statements
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.
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