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TELUS reports strong results for third quarter 2017

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TELUS reports strong results for third quarter 2017

TELUS reports strong results for third quarter 2017

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov 9, 2017) - (TSX:T)(NYSE:TU) - TELUS Corporation

Consolidated revenue and EBITDA growth of 4.0 per cent and 4.4 per cent respectively

152,000 new wireless, Internet and TELUS TV customer additions, up 41 per cent over last year

Strong wireless loading with 124,000 total net additions, including 115,000 high-valued postpaid additions, up 32 per cent over last year

Customers first focus delivering industry-leading wireless postpaid churn of 0.86 per cent

Wireless blended ARPU growth of 3.0 per cent yielding industry-leading lifetime revenue of $6,540, up 16 per cent over last year

Quarterly dividend increase to $0.5050 per share, up 7.1 per cent for the year

TELUS Corporation's consolidated operating revenue increased by 4.0 per cent to $3.4 billion in the third quarter of 2017, over the same quarter a year ago, reflecting an increase in revenue from our growth services, including wireless and wireline data revenues. Revenues from our growth services represented 89 per cent of our consolidated revenues in the third quarter. Earnings before interest, income taxes, depreciation and amortization (EBITDA) increased by 5.9 per cent to $1.2 billion, while Adjusted EBITDA was up 4.4 per cent due to higher revenue growth and cost savings from ongoing operational efficiency and effectiveness initiatives.

"TELUS reported strong third quarter results as we continue to drive high quality wireless, Internet and TV customer additions, anchored by solid-revenue and EBITDA growth and industry-leading performance for customer service and loyalty," said Darren Entwistle, President and CEO. "Further supporting these results is the TELUS team's consistent execution of our longstanding broadband growth strategy, underpinned by the long-term investments we are making in our generational fibre build which is resulting in TELUS networks being consistently recognized as among the fastest and most reliable in the world. In addition to benefitting our customers and the Canadian economy, our capital investments have been instrumental in the success of our wireless and wireline growth strategy, which has now delivered 28 consecutive quarters of wireless ARPU growth and 20 successive quarters of wireline EBITDA growth."

Mr. Entwistle added, "As a result of these investments and the TELUS team's strong and consistent performance, we are increasing our quarterly dividend for the second time in 2017 to $0.5050 per share. This represents the fourteenth time since 2011 that we have raised our dividend, and reflects the continuation of our successful three year annual dividend growth program targeting between seven and 10 per cent growth from 2017 through to 2019. Our track record of delivering on our industry-leading shareholder-friendly initiatives continues to generate significant value for our shareholders. Notably, TELUS has now returned $14.8 billion to shareholders, including $9.6 billion in dividends, representing $25 per share since 2004."

Doug French, Executive Vice-President and CFO said, "Our teams' ongoing commitment to drive operational excellence, financial discipline and ongoing cost efficiencies continues to support TELUS' financial strength, customer growth, and capital allocation programs focused on delivering long-term value for our customers and investors. Through our approach to consistent and targeted capital investments, we are seeing momentum in the progress and success of our next generation fibre build. We will reach the 50 per cent completion mark in early 2018 and are encouraged by the customer acceptance of these advanced capabilities and the efficiency our teams are achieving in completing this next generation broadband wireless and wireline network. Given this progress, we are estimating our capital expenditures in 2018 to be approximately $2.85 billion, making us well positioned to achieve our target of being free cash flow positive after dividends next year."

In wireless, our network revenue increased by 6.8 per cent to $1.8 billion, reflecting higher ARPU as customers move to higher-rate plans, including Premium Plus, and increased data consumption, continued postpaid subscriber growth, including smartphone adoption and subscribers we acquired from MTS, and higher roaming revenues. In wireline, our data services and equipment revenue increased by 4.1 per cent to $1.1 billion, reflecting increased Internet and enhanced data service revenues from continued high-speed Internet subscriber growth and higher revenue per customer, higher TELUS Health revenues driven by organic growth through additional professional services and support revenue, and through acquisitions, growth in business process outsourcing revenues inclusive of foreign exchange impacts on foreign operations, and an increase in TELUS TV revenues from subscriber growth.

In the quarter, we attracted 152,000 new wireless, high-speed Internet and TELUS TV customers, up 44,000 over the same quarter a year ago. The higher net additions included 124,000 wireless customers, including 115,000 postpaid net additions, 19,000 high-speed Internet subscribers, and 9,000 TELUS TV customers. Our total wireless subscriber base of 8.8 million is up 3.7 per cent from a year ago, reflecting a 5.4 per cent increase in our postpaid subscriber base to 7.9 million. Our high-speed Internet connections have increased 5.6 per cent to 1.7 million over the last twelve months, while our TELUS TV subscriber base of 1.1 million is higher by 3.9 per cent.

For the quarter, net income of $370 million and basic earnings per share (EPS) of $0.62 increased by 4.2 per cent and 5.1 per cent respectively, while adjusted net income and adjusted basic EPS increased by 2.1 per cent and 1.5 per cent respectively.

Free cash flow of $215 million in the third quarter increased by $117 million over the same quarter a year ago due primarily to lower cash taxes paid.

CONSOLIDATED FINANCIAL HIGHLIGHTS

C$ and in millions, except per share amounts Three months ended

September 30
Per cent
(unaudited) 2017 2016 change
Operating revenues 3,366 3,238 4.0
Operating expenses before depreciation and amortization 2,170 2,107 3.0
EBITDA(1) 1,196 1,131 5.9
Adjusted EBITDA(1)(2) 1,232 1,181 4.4
Net income 370 355 4.2
Adjusted net income(3) 391 383 2.1
Net income attributable to common shares 367 348 5.5
Basic EPS 0.62 0.59 5.1
Adjusted basic EPS(3) 0.66 0.65 1.5
Capital expenditures 821 787 4.3
Free cash flow(4) 215 98 119.4
Total subscriber connections(5) 12.942 12.577 2.9
(1) EBITDA is a non-GAAP measure and does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure used to evaluate performance. For further definition and explanation of this measure, see Section 11.1 in the accompanying 2017 third quarter Management's discussion and analysis.
(2) Adjusted EBITDA is defined in this news release as excluding 1) restructuring and other costs of $36 million and $60 million from the third quarter of 2017 and 2016 respectively; and 2) net gains and equity income of $10 million in the third quarter of 2016 related to real estate joint venture developments.
(3) Adjusted net income and adjusted basic EPS are non-GAAP measures and do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding from net income attributable to common shares and basic EPS (after income taxes), 1) restructuring and other costs from both periods; 2) net gains and equity income in the third quarter of 2016 related to real estate joint venture developments; and 3) favourable income tax-related adjustments in both periods. For further analysis of adjusted net income and adjusted basic EPS, see Section 1.3 in the accompanying 2017 third quarter Management's discussion and analysis.
(4) Free cash flow is a non-GAAP measure and does not have any standardized meaning prescribed by IFRS-IASB. For further definition and explanation of this measure, see Section 11.1 in the accompanying 2017 third quarter Management's discussion and analysis.
(5) The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV® subscribers measured at the end of the respective periods based on information in billing and other systems. In relation to an acquisition and a divestiture that were both undertaken during the first quarter of 2017, January 1, 2017 residential NALs, high-speed Internet and TELUS TV subscriber balances were increased by a net 1,000, 6,000 and 5,000 respectively. Effective April 1, 2017, postpaid subscribers, total subscribers and associated operating statistics (gross additions, net additions, ARPU and churn) have been adjusted to include an estimated migration of 85,000 MTS subscribers in the opening subscriber balances. Cumulative subscriber connections also include an April 1, 2017 adjustment to remove approximately 19,000 prepaid and 25,000 postpaid subscriptions from the respective subscriber bases, primarily due to our national CDMA network shutdown.
This news release contains statements about financial and operating performance of TELUS (the Company) and future events that are forward looking, including with respect to the Company's 2017 annual guidance, preliminary 2018 capital expenditure targets, free cash flow targets, cash tax assumptions, future dividend increases and share purchases. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, the forward-looking statements in this news release should be read together with the cautionary note in the accompanying 2017 third quarter Management's discussion and analysis. Forward-looking statements in this news release are made based on the assumptions (including assumptions regarding both the 2017 annual guidance and preliminary 2018 capital expenditure and free cash flow targets, semi-annual dividend increases through 2019, and our ability or intention to purchase shares under any normal course issuer bid (NCIB) including our 2018 NCIB), and subject to the qualifications and risk factors referred to in the accompanying Management's discussion and analysis for the third quarter of 2017, in the 2016 annual Management's discussion and analysis, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance.

Third Quarter 2017 Operating Highlights

TELUS wireless

  • Wireless network revenues increased by $115 million or 6.8 per cent year-over-year to $1.8 billion. This growth was driven by growth in the subscriber base, including subscribers we acquired from MTS, a larger proportion of higher-rate two-year plans in the revenue mix, including Premium Plus plans launched in June 2016, increased adoption of larger data buckets or topping up of data buckets, a more favourable postpaid subscriber mix, a higher smartphone mix, and higher roaming revenues.
  • Blended ARPU was higher by 3.0 per cent to $68.67. This represents our twenty-eighth consecutive quarter of year-over-year growth and was driven by network revenue growth as described above.
  • Monthly postpaid subscriber churn declined by 8 basis points year-over-year to 0.86 per cent. The improvement reflects our focus on executing customers first initiatives and retention programs. Blended monthly churn declined by 13 basis points to 1.05 per cent reflecting improvements in both postpaid and prepaid churn rates, as well as an increase in the mix of postpaid versus prepaid subscribers.
  • Wireless net additions of 124,000 increased by 44,000 over the prior year. Postpaid net additions of 115,000 were higher year-over-year by 28,000 due to higher gross additions, reflecting our success of targeted promotions and marketing efforts focused on higher-value postpaid and smartphone loading, and lower churn. Prepaid net additions totaled 9,000 due to improvements in our prepaid churn rate.
  • EBITDA increased by $29 million or 3.9 per cent while Adjusted EBITDA of $812 million increased by $39 million or 5.1 per cent over last year, reflecting higher network revenue partly offset by increased costs of acquiring and retaining customers, increased network operating expenses, higher administrative costs and increased external labour.
  • Wireless capital expenditures decreased by 20 per cent over the same period a year ago as we incurred costs in the third quarter of 2016 to upgrade our radio access network in Ontario and Quebec, which was completed in the second quarter of 2017.

TELUS wireline

  • External wireline revenues increased by $12 million or 0.8 per cent to $1.4 billion. This growth was generated primarily by higher data services revenue and partly offset by continued declines in legacy voice services.
  • Data services and equipment revenues increased by $42 million or 4.1 per cent, due to increased Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, increased TELUS Health revenues driven by organic growth through additional professional services and support revenue, and through acquisitions, growth in business process outsourcing services inclusive of foreign exchange impacts on foreign operations, and higher TELUS TV revenues from continued subscriber growth and certain rate increases.
  • High-speed Internet net additions of 19,000 increased by 5,000 over the same quarter a year ago due to the ongoing expansion of our high-speed broadband footprint, including fibre to the premises, and the success of recently launched innovative product offerings.
  • Total TELUS TV net additions of 9,000 were lower by 5,000 over the same quarter a year ago, as a result of lower gross additions and satellite-TV subscriber losses due to slower subscriber growth for paid TV services reflecting heightened competitive intensity, including from over-the-top services, and a high rate of market penetration for TV services. These factors were partly offset by the ongoing expansion of our addressable high-speed Internet and Optik TV footprint, connecting more homes and businesses directly to fibre and bundling of these services together.
  • Residential network access lines (NALs) declined by 20,000 in the quarter, an improvement of 5,000 over the same quarter a year ago. Residential NAL losses continue to
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