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TELUS Reports Operational and Financial Results for First Quarter 2023, Operating Revenue up 16%, But Net Income Declines 45% to $224 Million
Tuesday, May 9, 2023Company Profile | Follow Company
Burnaby, BC, May 9, 2023--(T-Net)--TELUS Corporation today released its unaudited results for the first quarter of 2023. Consolidated operating revenues and other income increased by 16 per cent over the same period a year ago to $5.0 billion.
This growth was driven by higher service revenues in our two reportable segments: TELUS technology solutions (TTech) and Digitally-led customer experiences - TELUS International (DLCX).
TELUS technology solutions (TTech) service revenue increased due to:
(i) growth in health services revenues mainly driven by the company's acquisition of LifeWorks on September 1, 2022;
(ii) higher mobile network revenues attributable to roaming revenue improvements and subscriber growth; and (iii) an increase in fixed data service revenues, resulting from subscriber growth, business acquisitions and higher revenue per internet customer.
These factors were partly offset by lower TV and fixed legacy voice services revenues, primarily due to technological substitution.
Growth in DLCX operating revenues resulted from expanded services for existing clients and growth from new clients, including new clients from the company's acquisition of WillowTree on January 3, 2023, and favourable foreign exchange impacts.
See First Quarter 2023 Operating Highlights within this news release for a discussion on TTech and DLCX results.
Darren Entwistle, President and CEO, TELUS Communications Inc.
"In the first quarter, our TELUS team once again demonstrated our hallmark execution excellence, characterized by the potent combination of leading customer growth and strong financial results," said Darren Entwistle, President and CEO.
Doug French, Executive Vice-president and CFO said, "In the first quarter of 2023, our team achieved strong operational and financial results, building upon our long-standing track record of execution excellence. As we progress towards our consolidated financial targets for 2023, which we reiterated today, we delivered double-digit consolidated operating revenue, Adjusted EBITDA and free cash flow growth."
"These strong results reinforce our positive outlook for the year and are driven by our consistent focus on profitable customer growth over our leading mobile and fixed broadband networks, and supported by our highly differentiated and global asset mix."
For the first quarter, net income of $224 million and Basic earnings per share (EPS) decreased by 45 per cent and 46 per cent, respectively, over the same period last year. These decreases were driven by the impacts from:
(i) higher depreciation and amortization reflecting increases related to capital assets acquired in business acquisitions; growth in capital assets in support of the expansion of our broadband footprint, including our generational investment to connect homes and businesses to TELUS PureFibre and 5G technology coverage; and growth in internet, TV and security subscriber loading;
(ii) higher financing costs primarily from greater long-term debt outstanding; and
(iii) higher restructuring and other costs of $120 million, inclusive of lump sum amounts recorded of $67 million from the ratification of the new collective agreement between the TWU and TELUS. As it relates to EPS, the trends also reflect the effect of a higher number of Common shares outstanding.
When excluding the effects of restructuring and other costs, income tax-related adjustments, other equity (income) losses related to real estate joint ventures, long-term debt prepayment premium and other adjustments (see 'Reconciliation of adjusted Net income' in this news release), adjusted net income of $386 million decreased by 7.0 per cent over the same period last year, while adjusted basic EPS of $0.27 was down 10 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 3.3 per cent to approximately $1.6 billion and Adjusted EBITDA increased by 11 per cent to approximately $1.8 billion. This growth reflects: (i) higher mobile network revenues driven by our roaming recovery and subscriber growth; (ii) increased fixed data services margins; (iii) the EBITDA contribution from our acquisition of LifeWorks on September 1, 2022; and (iv) an increase in our DLCX segment contribution, largely from the acquisition of WillowTree. These factors were partly offset by: (i) higher costs related to business acquisitions, inclusive of a greater number of team members; (ii) higher costs related to the scaling of our digital capabilities, inclusive of increased subscription-based licences and contractor costs; (iii) merit-based compensation increases; and (iv) declining TV and fixed legacy voice margins.
In the first quarter, the company added 163,000 net customer additions, up 15,000 over the same period last year, and inclusive of 47,000 mobile phones and 58,000 connected devices, in addition to 35,000 internet, 22,000 security and 9,000 TV customer connections.
This was partly offset by residential voice losses of 8,000. The company's total TTech subscriber base of approximately 18.2 million is up 7.3 per cent over the last twelve months, reflecting a 3.8 per cent increase in their mobile phones subscriber base to 9.7 million, and a 22 per cent increase in their connected devices subscriber base to 2.6 million.
Additionally, the company's internet connections grew by 9.4 per cent over the last twelve months to over 2.5 million customer connections, their security customer base expanded by 21 per cent to 1.0 million customers, and their TV subscriber base increased by 4.6 per cent to more than 1.3 million customers. Lastly, their residential voice subscriber base declined slightly by 2.2 per cent to 1.1 million.
In health services, as of the end of the first quarter of 2023, virtual care members were 5.2 million and healthcare lives covered were 67.0 million, up 58 per cent and 45.1 million over the past twelve months, respectively. Digital health transactions in the first quarter of 2023 were 148.9 million, up 6.7 per cent over the first quarter of 2022.
Cash provided by operating activities of $761 million decreased by 33 per cent in the first quarter of 2023 primarily driven by other working capital changes and an increase in interest paid. These factors were partially offset by lower restructuring and other disbursements and growth in EBITDA.
Free cash flow of $535 million increased by 29 per cent compared to the same period a year ago. The increase in free cash flow primarily reflects lower capital expenditures and lower restructuring and other disbursements, partly offset by an increase in cash interest paid. Our definition of free cash flow, for which there is no industry alignment, is unaffected by accounting changes that do not impact cash, such as IFRS 15 and IFRS 16.
Consolidated capital expenditures of $713 million, including $5 million related to real estate development, decreased by 14 per cent in the first quarter of 2023. TTech drove $109 million of this decrease, primarily due to a planned slowdown of fibre and wireless network build, which is consistent with 2023 build targets when compared to our accelerated investments in the first quarter of 2022.Our capital investments have enabled: (i) our internet, TV and security subscriber growth, as well as more premises connected to our fibre network; (ii) increased coverage of our 5G network; (iii) the expansion of our health product offerings and capabilities, including our acquisition of LifeWorks on September 1, 2022, as well as to support business integration; and (iv) enhancement of our product and digital development to increase our system capacity and reliability. By March 31, 2023, our 5G network covered over 30.6 million Canadians, representing approximately 83 per cent of the population.
Consolidated Financial Highlights
C$ millions, except footnotes and unless noted otherwise | Three months ended March 31 |
Per cent | ||||
(unaudited) | 2023 | 2022 | change | |||
Operating revenues (arising from contracts with customers) | 4,925 | 4,256 | 15.7 | |||
Operating revenues and other income | 4,964 | 4,282 | 15.9 | |||
Total operating expenses | 4,365 | 3,555 | 22.8 | |||
Net income | 224 | 404 | (44.6 | ) | ||
Net income attributable to common shares | 217 | 385 | (43.6 | ) | ||
Adjusted net income(1) | 386 | 415 | (7.0 | ) | ||
Basic EPS ($) | 0.15 | 0.28 | (46.4 | ) | ||
Adjusted basic EPS(1) ($) | 0.27 | 0.30 | (10.0 | ) | ||
EBITDA(1) | 1,621 | 1,569 | 3.3 | |||
Adjusted EBITDA(1) | 1,779 | 1,608 | 10.7 | |||
Capital expenditures (excluding spectrum licenses)(2) | 713 | 833 | (14.4 | ) | ||
Cash provided by operating activities | 761 | 1,135 | (33.0 | ) | ||
Free cash flow(1) | 535 | 415 | 28.9 | |||
Total telecom subscriber connections(3) (thousands) | 18,236 | 17,001 | 7.3 | |||
Healthcare lives covered(4) (millions) | 67.0 | 21.9 | n/m |
Notations used in the table above: n/m - not meaningful. | |
(1) | These are non-GAAP and other specified financial 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. Consequently, capital expenditures 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. 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. Effective January 1, 2023, on a prospective basis, we adjusted our mobile phone and connected device subscriber bases to remove 50,000 subscribers and add 82,000 subscribers, respectively, due to a review of our subscriber bases. Effective January 1, 2023, on a prospective basis, we adjusted our internet subscriber base to add 70,000 subscribers as a result of business acquisitions. |
(4) | During the third quarter of 2022, we added 36.9 million healthcare lives covered as a result of the LifeWorks acquisition. |
First Quarter 2023 Operating Highlights
TELUS technology solutions (TTech)
Mobile products and services
Fixed products and services
Health services
Agriculture and consumer goods services
Digitally-led customer experiences - TELUS International (DLCX)
Corporate Highlights
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:
Dividend Declaration
The TELUS Board of Directors declared a quarterly dividend of $0.3636 per share on the issued and outstanding Common Shares of the Company payable on July 4, 2023 to holders of record at the close of business on June 9, 2023. This quarterly dividend reflects an increase of 7.4 per cent from the $0.3386 per share dividend declared one year earlier and consistent with our multi-year dividend growth program.
Investing in Social Impact
Global Social Capitalism awards and recognition
About TELUS
TELUS (TSX: T, NYSE: TU) is a dynamic, world-leading communications technology company with $18 billion in annual revenue and 18 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.
Operating in 31 countries around the world, 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 strategic industry verticals, including tech and games, communications and media, eCommerce and fintech, banking, financial services and insurance, healthcare, and others.
TELUS Health is a global healthcare leader, which provides employee and family primary and preventative healthcare and wellness solutions. Our TELUS team, along with our 100,000 health professionals, are leveraging the combination of TELUS' strong digital and data analytics capabilities with our unsurpassed client service to dramatically improve remedial, preventative and mental health outcomes covering 67 million lives, and growing, around the world. As the largest provider of digital solutions and digital insights of its kind, TELUS Agriculture & Consumer Goods enables efficient and sustainable production from seed to store, helping improve the safety and quality of food and other goods in a way that is traceable to end consumers.
Driven by our determination and vision to connect all citizens for good, our deeply meaningful and enduring philosophy to give where we live has inspired TELUS and our team to contribute $1.5 billion, including 2 million days of service since 2000. This unprecedented generosity and unparalleled volunteerism have made TELUS the most giving company in the world. Together, let's make the future friendly.
Reconciliation of adjusted Net income
Three months ended March 31 |
||||
C$ and in millions | 2023 |
2022 |
||
Net income attributable to Common Shares | 217 | 385 | ||
Add (deduct) amounts of net of amount attributable to non-controlling interests: | ||||
Restructuring and other costs | 149 | 37 | ||
Tax effects of restructuring and other costs | (32 | ) | (8 | ) |
Real estate rationalization-related restructuring impairments | 52 | 1 | ||
Tax effect of real estate rationalization-related restructuring impairments | (14 | ) | — | |
Income tax-related adjustments | 1 | — | ||
Other equity income related to real estate joint ventures | (1 | ) | — | |
Virtual power purchase agreements unrealized change in forward element | 19 | — | ||
Tax effect of virtual power purchase agreements unrealized change in forward element | (5 | ) | — | |
Adjusted Net income | 386 | 415 |
Reconciliation of adjusted basic EPS
Three months ended March 31 |
||||
C$ | 2023 |
2022 |
||
Basic EPS | 0.15 | 0.28 | ||
Add (deduct) amounts of net of amount attributable to non-controlling interests: | ||||
Restructuring and other costs, per share | 0.10 | 0.03 | ||
Tax effect of restructuring and other costs, per share | (0.02 | ) | (0.01 | ) |
Real estate rationalization-related restructuring impairments, per share | 0.04 | — | ||
Tax effect of real estate rationalization-related restructuring impairments, per share | (0.01 | ) | — | |
Virtual power purchase agreements unrealized change in forward element, per share | 0.01 | — | ||
Adjusted basic EPS | 0.27 | 0.30 |
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 | ||||||||||||
TTech | DLCX | Total | ||||||||||
Three-months ended March 31 (C$ millions) | 2023 |
2022 | 2023 |
2022 | 2023 |
2022 | ||||||
Net income | 224 | 404 | ||||||||||
Financing costs | 320 | 179 | ||||||||||
Income taxes | 55 | 144 | ||||||||||
EBIT | 536 | 641 | 63 | 86 | 599 | 727 | ||||||
Depreciation | 597 | 514 | 43 | 37 | 640 | 551 | ||||||
Amortization of intangible assets | 320 | 245 | 62 | 46 | 382 | 291 | ||||||
EBITDA | 1,453 | 1,400 | 168 | 169 | 1,621 | 1,569 | ||||||
Add restructuring and other costs included in EBITDA | 141 | 35 | 18 | 4 | 159 | 39 | ||||||
EBITDA - excluding restructuring and other costs | 1,594 | 1,435 | 186 | 173 | 1,780 | 1,608 | ||||||
Other equity income related to real estate joint ventures | (1 | ) | — | — | — | (1 | ) | — | ||||
Adjusted EBITDA | 1,593 | 1,435 | 186 | 173 | 1,779 | 1,608 |
Adjusted EBITDA less capital expenditures is calculated for our reportable segments, as it represents a simple cash flow view that may be more comparable to other issuers.
Adjusted EBITDA less capital expenditures reconciliations |
||||||||||||
TTech | DLCX | Total | ||||||||||
Three-months ended March 31 (C$ millions) | 2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
||||||
Adjusted EBITDA | 1,593 | 1,435 | 186 | 173 | 1,779 | 1,608 | ||||||
Capital expenditures | (693 | ) | (802 | ) | (20 | ) | (31 | ) | (713 | ) | (833 | ) |
Adjusted EBITDA less capital expenditures | 900 | 633 | 166 | 142 | 1,066 | 775 |
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 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 March 31 |
||||
C$ and in millions | 2023 | 2022 | ||
EBITDA | 1,621 | 1,569 | ||
Restructuring and other costs, net of disbursements | 85 | (25 | ) | |
Effects of contract asset, acquisition and fulfilment (IFRS 15 impact) and TELUS Easy Payment® device financing | 32 | 78 | ||
Effects of lease principal (IFRS 16 impact) | (130 | ) | (123 | ) |
Items from the condensed interim consolidated statements of cash flows: | ||||
Share-based compensation, net | 43 | 26 | ||
Net employee defined benefit plans expense | 15 | 27 | ||
Employer contributions to employee defined benefit plans | (9 | ) | (17 | ) |
Interest paid | (286 | ) | (180 | ) |
Interest received | 4 | 1 | ||
Capital expenditures1 | (713 | ) | (833 | ) |
Free cash flow before income taxes | 662 | 523 | ||
Income taxes paid, net of refunds | (127 | ) | (108 | ) |
Free cash flow | 535 | 415 |
Free cash flow reconciliation with Cash provided by operating activities | ||||
Three months ended March 31 |
||||
C$ and in millions | 2023 | 2022 | ||
Free cash flow | 535 | 415 | ||
Add (deduct): | ||||
Capital expenditures1 | 713 | 833 | ||
Effects of lease principal and leases accounted for as finance leases prior to adoption of IFRS 16 | 130 | 123 | ||
Individually immaterial items included in Net income neither providing nor using cash | (617 | ) | (236 | ) |
Cash provided by operating activities | 761 | 1,135 |
(1) Refer to Note 31 of the interim consolidated financial statements (1) Refer to Note 31 of the interim consolidated financial statements
Forward-looking 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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