Telus Corp

TSX:T

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, everyone. Welcome to the TELUS 2022 Q1 Earnings Conference Call. I would like to introduce your speaker, Mr. Robert Mitchell. Please go ahead.

[Robert Mitchell, executive]

Hello, everyone, and thank you for joining the call today. Our first quarter 2022 results news release, MD&A and financial statements and detailed supplemental investor information were posted on our website this morning at telus.com/investors.

On our call today, we will have remarks by Darren; John Raines, President of our Agriculture business; Doug. In addition for the Q&A portion of our call, we'll be joined by Zainul Mawji, who runs our Consumer business; Jim Senko, who leads our Mobility Solutions business; Navin Arora, who leads our Business Solutions; and Tony Geheran, our Chief Operations Officer.

Briefly on Slide 2. This presentation and answers to questions contain forward-looking statements that are subject to risks and uncertainties and made based on certain assumptions. Accordingly, actual performance could differ from the statements made today, so we ask that you do not place undue reliance upon them. We disclaim any obligation to update forward-looking statements, except as required by law. And we refer you to the risks and assumptions as outlined in our public disclosures, including our first quarter of 2022 MD&A, our annual 2021 MD&A and filings with Securities Commissions in Canada and the U.S.

With that, over to you, Darren.

[Darren Entwistle, executive]

Thanks, Ricardo, and hello, everyone. The TELUS team once again achieved strong operational and financial results in the first quarter of 2022. Our ongoing execution excellence continues to be characterized by this consistent combination of industry-leading and profitable customer growth, yielding strong financial results across the totality of our business.

Industry-leading total mobile and fixed customer growth of 148,000 represented the strongest first quarter on record for our company. This reflects robust demand for our superior bundled offerings and customer service over our world-leading broadband networks. Moreover, our leading customer growth was underpinned by industry-best client loyalty across our T-Mobile and fixed product lines. Notably, again this quarter and for 5 of the last 8 quarters, blended mobile phone, PureFibre internet, Optik TV, Security and voice churn were all below 1%.

Furthermore, since the onset of the pandemic at the beginning of 2020, we've welcomed an industry-leading 1.9 million net new customers. TELUS achieved strong first quarter consolidated revenue and organic EBITDA growth of 6.4% and 7.6%, respectively. Strength in our core telecom operations continues to be complemented by our highly differentiated and potent access mix geared towards high-growth, technology-oriented verticals.

Notably, comparing the first quarter of 2022 with that of 2019 prior to the pandemic, total revenue grew by a leading 22%, while EBITDA grew by 14%. Moreover, since the beginning of 2020 and the pandemic period, TELUS has driven leading cumulative revenue and EBITDA growth of over $4 billion and close to $600 million, respectively.

Let's turn now to take a look at our mobile operating results. TELUS achieved industry-leading customer growth of 92,000 net additions. This included 46,000 connected device net additions as well as 46,000 net new mobile phone customers, a 48% increase over last year and the best Q1 on record since 2010. Notably, this brings the sum total to an industry-leading 1.3 million net new mobile phone subscribers and connected devices achieved since the beginning of 2020 and the onset of the pandemic.

Importantly, our team yet again delivered another quarter of industry-best loyalty results, which, of course, as you all know, is the hallmark of the TELUS organization and our performance culture and customers-first attitude. Blended mobile phone churn was 0.81%, representing an 8 basis point improvement from this time last year, the best Q1 on record and only 1 basis point off our all-time lowest churn ever, clearly something that we need to fix in Q2 coming forward.

Moreover, postpaid mobile phone churn of 0.63% represented a 9 basis point improvement over 2021 and puts us now in our ninth year of postpaid churn below 1% -- well below 1%. This consistently strong performance is backed by our highly engaged team who are passionate about delivering outstanding customer experiences, in combination with superior service offerings and digital capabilities over our world-leading wireless and PureFibre broadband networks. More than ever, Canadians value a fast, reliable connection, and the consistent recognition from independent third-party organizations reinforces the superiority of TELUS' global best networks.

During the quarter, independent U.K.-based Opensignal named TELUS #1 in respect to the fastest 5G download speed in Canada for the third consecutive time. Impressively, Opensignal confirmed that TELUS consistently has, and I quote, "the fastest 5G download speeds of any operator since Opensignal started reporting on the 5G mobile experience in Canada."

In addition, U.S.-based Ookla once again named TELUS, The Fastest Mobile Operator in the first quarter, confirming that TELUS' ranked first in every quarter of Ookla's speed test since Q3 of 2020. Moreover, TELUS placed first in respect to 5G performance for the first time according to Ookla's speed test. TELUS intends to continue extending this global leadership position as we advance the development, coverage and commercialization of our 5G network and its inherent functionalities.

The numerous network awards that our dedicated team has earned, and boy, have they earned it, reinforces TELUS' leadership in terms of offering customers the fastest, most expansive service in Canada across both our wireless and PureFibre networks. And of course, they are integrated.

Furthermore, this recognition of the superiority of TELUS' national broadband networks underscores the value of our significant generational investments in our world-leading network technologies and infrastructure. In addition to sustainable strong performance and alongside our ongoing accelerated broadband expansion program through 2022, our network technologies will drive extensive long-term socioeconomic benefits to all Canadians.

To close on mobile, first quarter ARPU was up 0.6% on a year-over-year basis. This was supported by higher roaming revenues, albeit still distinctly below seasonal prepandemic levels. Notably, mobile phone lifetime revenue of close to $7,000 was up to 44% higher than our major peers. This is reflective of our consistent focus on high-quality customer growth and leading client loyalty.

Let's turn now and take a look at our fixed operating results. TELUS delivered another quarter of industry-best wireline customer growth. We achieved industry-leading first quarter Internet net additions of 30,000, albeit down slightly, due to the modestly higher churn as compared to the very low rate we saw earlier in the pandemic period. Strong security net additions of 26,000 were up 9,000, a 53% increase over the previous year, representing our best first quarter on record, a terrific performance from that team.

And indeed, with respect to security, in March, BrandSpark named TELUS' Smart Home Security as the most trusted alarm service in Canada. Boy, have we come a long way on the security front, and it's potent in and of itself, but it's especially effective within our FFH bundle. This reflects the strength of our industry-best portfolio of products and services, leading customer-centric culture as well as our strong and differentiated social capitalism-backed brand.

We continue to drive healthy growth in TV with net additions of 10,000, which was essentially flat over the prior year. Furthermore, residential voice line losses of 10,000 were steady on a year-over-year basis. Overall, industry-leading total external fixed net additions of 56,000 were up 10% on a year-over-year basis, driven by our unique and highly attractive bundled offers across our superior product portfolio as well as our leading customer loyalty. And those 2 things are great in combination.

Notably, since the beginning of 2020 and the pandemic period, we have welcomed a leading 551,000 fixed customer additions. Indeed, our robust wireline customer growth continues to be enhanced by the significant investments that we're making in our 5G and fiber technologies, including our important accelerated broadband expansion program, and our digital program, which we are embracing across TELUS as it relates to our go-to-market operations and our efficiencies within our back-office operations.

These generational investments will, in concert, fuel enhanced customer growth and operating efficiencies in combination. At the same time, our investments will also drive positive cash flow benefits as we complete our expedited broadband build, largely finish our copper-to-fiber migrations by year-end and continue retiring our remaining copper infrastructure, all the while enjoying strong EBITDA expansion.

Importantly, and I think this is key for investors, we expect our PureFibre network assets that have lifespans of 60 years or more. In addition to significant social and economic benefits for all Canadians, this long-term infrastructure and technology will continue to drive material cash flow for decades to come.

Now let's take a look at TELUS Health. Our team once again drove double-digit year-over-year health services revenue growth whilst continuing to meaningfully scale our health operations. This scaling includes our health care programs covering 22 million lives in Canada, an increase of more than 25% on a year-over-year basis. This scaling includes executing 140 million digital health transactions during the quarter, up 5% over last year. And it includes earning 1.3 million net new virtual health care members in the last 12 months, increasing our membership to 3.3 million, which represents a 65% year-over-year increase.

We continue to leverage our leading position in health care technology solutions to deliver improved health outcomes for employees and citizens alike through access to better health information, which, of course, has never been more critical.

Turning to agriculture. Today, we're introducing expanded disclosure for TELUS Agriculture. Notably, agricultural services revenue was up 37% in the first quarter on a year-over-year basis, driven by our team's ongoing efforts to integrate and grow this unique and differentiated global business. This performance is illustrative of the significant value we are creating as the leading provider of agriculture and consumer goods, technology and data analytics around the world.

Importantly, we're advancing the sector's efficiency and effectiveness and food quality production through data analytics and technology solutions. We are confident that our expanding disclosure further illustrates the value and asset of consequence we are creating in this important area. In just a moment, John Raines is going to have an opportunity to provide further color on this exciting business and its exciting growth prospects.

Let's turn now and take a look at TELUS International. Earlier today, TELUS International announced strong double-digit revenue, EBITDA and free cash flow growth for the first quarter. TI's continued robust results demonstrate its consistent execution, attractive end-to-end digital capabilities and position as a leading partner of choice for premier digital customer experiences and IT services with its enviable list of clients on a global basis.

This highly differentiated offering notably includes content moderation, data annotation and artificial intelligence solutions. And it's great to see the growth coming from TI on a revenue, EBITDA and free cash flow basis when it's organic growth that we're reporting against. Doug is going to have an opportunity to provide further commentary on both our TELUS International and TTech financials shortly.

Importantly, our ongoing investments in technology, infrastructure, data analytics and growth markets enable the continued advancement of our strong operational and financial performance, strengthening our confidence in the robust outlook for our business and the long-term sustainability of our industry-leading dividend growth. Today, we announced for the fourth time, since 2021, the extension of our industry-best dividend growth program. TELUS is again targeting 7% to 10% annual growth for 2023 through 2025, supported by our positive business outlook and accelerating free cash flow growth story. Clearly, we're entering an era where the sources of cash are going to chronically exceed the uses.

Notably, the 7.1% dividend increase we announced today represents the 22nd semiannual increase over the full course of our multiyear dividend growth program, originally introduced at the AGM in May of 2011. Indeed, since 2004 through April of 2022, TELUS has returned more than $21 billion to shareholders, including over $16 billion in dividends, representing more than $15 per share with, of course, the shares having split twice. Further dividend growth and affordability will be supported by a strong EBITDA growth outlook.

Further dividend growth and affordability will be supported by a strong EBITDA growth outlook in our telecom data services portfolio, complemented by significant value creation in our TI, Health and Agriculture businesses. What a differentiated story that is for this organization. It will be both further bolstered by our lower future capital expenditures and our cost-reduction programs. This is consistent with the preliminary guidance we provided for significantly reduced capital investment of $2.5 billion beginning in 2023 and the meaningful resulting free cash flow expansion thereafter.

To close, and from the head and from the heart, I'd like to recognize the tremendous thoughtfulness of the entire TELUS team and the passion with which they give with their hearts and their hands to support communities across the globe. By way of but one example, but certainly an important one, our team has contributed nearly $4 million in donations and in-kind support thus far to assist those impacted by the tragic events in the Ukraine and Eastern Europe.

Moreover, our team continues to demonstrate our social purpose and action through our TELUS Days of Giving as we work together to create extraordinary outcomes in the global communities where we live, work and serve as citizens. I remain exceedingly grateful to the entire TELUS team for exemplifying our world leadership in social capitalism as we strive to deliver outstanding results for all of our stakeholders in our pursuit of making the future friendly.

And on that note, over to you, Mr. Raines.

[John Raines, executive]

Thanks very much, Darren, and hello, everyone. It's a privilege to speak with you today. As I approach 6 months leading TELUS Agriculture, my gratitude goes out to Darren and the executive leadership team, our valued customers, and of course, our incredible 1,600 team members around the world for their unwavering support and commitment to excellence over the last 6 months.

TELUS Agriculture is much more than a production agriculture company. Our organization spans the entire food and consumer goods value chain, which in any given year around the world is about a $10 trillion industry; with approximately $2 trillion between the producer and processor; and $8 trillion between the processor and consumer. The food and consumer goods value chain is woefully underdigitized, including a lack of connectivity, and it's certainly not optimized by data, resulting in suboptimized insights and actions.

At TELUS Agriculture, we are the largest independent data insights and digital technology company, providing service across the value chain in the agriculture industry. To further our competitive advantage, we are investing significantly in a digitized platform. Our ADX, or AgDate Exchange, platform will enable us to deliver data insights and execute on data transformation from seeding, prescriptions to food promotions. Further, by combining the strengths of TELUS Agriculture's products and service and TELUS leadership in IoT and 5G, we believe we can deliver even greater value and accelerate business our shared customers in TELUS agriculture and TELUS business.

1/3 of all food produced in the world is lost or wasted each year due to issues in processing, transportation or planning. When food is discarded, all inputs used in producing, processing and transporting is also wasted. The food waste that ends up in our landfills has a significant impact on greenhouse gas emissions. We have a massive opportunity to help the food industry battle against food waste, and more importantly, food and security.

We can help grocers, distributors and consumers reduce perishable waste and improve the safety, quality and sustainability of our food. We are utilizing machine learning to generate more accurate forecast, combined with real-time retail planning and execution. This allows businesses to react in real time to variances in their plans and replenish or slow down stocks to meet real-time customer service levels in an affordable way for producers, retailers and our customers.

TELUS Agriculture has several capabilities that allow us to digitize and optimize activities for our customers at each end of the food value chain. With these anchor assets, we are now uniquely positioned to optimize the supply chain by passing data not only up and down within the verticals we serve, but horizontally across the entire value chain.

For example, our production assets, from our farm management applications to our trade promotions and retail execution capabilities through our Exceedra and Blacksmith acquisitions will anchor the data connections that we intend to connect the producer to the retailer. The formidable power that results from bringing these assets together through the investments in our platform is the unique value proposition that we offer in the market.

As Darren mentioned, we are proud of our 37% year-over-year revenue growth; our penetration into over 50 countries; our prestigious customer list with 9 of the top 10 agricultural companies purchasing services from us. And we're most proud of our talented 1,600 team members globally who are dedicated to empowering the industry with digital technologies and data insights and ultimately creating the best producer-to-consumer outcomes.

We are confident that our revenue growth is illustrative of the significant value we are creating as the leading provider of agriculture technology solutions around the world and further demonstrates the value and asset of consequence that we are creating.

With that, I'll turn the call over to Doug for an update on TELUS Q1 financial results. Doug, over to you.

[Doug French, executive]

Thank you, John, and hello, everyone. Our Q1 results reflect a very good start to the year as we build off our strong and consistent performance over 2020 and 2021. Mobile network revenue improved 4.9% year-over-year or approximately 6% compared to the prepandemic Q1 2019 period. This is reflective of our consistency and resilience through unprecedented times and a clear ongoing focus on high-quality customer growth and excellent customer base management.

We continue to see a steady improvement in roaming revenue with the Q1 amount at circa 80% of prepandemic levels. This ongoing recovery will support ARPU growth as we progress through the year and into 2023. Beyond roaming, we are focused on driving sustainable ARPU improvements by executing on our 5G monetization strategy, including our speed tier plans and the launch of Stream+, a new OTT streaming bundle that gives you new and existing -- or new and existing TELUS customers simplified access to Netflix Premium, Apple TV+ and Discovery+.

It's also important to clarify that when we evolved our new reporting segments in 2021, we no longer include any internal network service and ARPU calculation. As demonstrated again this quarter, we continue to focus on strong and profitable subscriber growth, which includes strengthening our industry-leading churn profile. Through this attractive combination and improving ARPU and leading churn in Q1, our lifetime revenue per customer was up 11% to $7,000. This result is even more impressive considering our product bundling efforts across the mobile and home.

In this regard, we are seeing impressive trends towards greater product intensity. For example, the number of households in our -- with our 4 or more products is up over 11% year-over-year, while households with 5 products is up 38% year-over-year. The strong product intensity trends lead to material increases in customer lifetime value to the greater revenue per household as long -- as well as strong customer loyalty.

Additionally, we continue to make meaningful investments in digitization and simplification to drive down our cost structure while improving the customer experience. Fixed data revenue, which now excludes both agriculture services revenue and health services revenue, grew 5.2% year-over-year. As a reminder, the prior year run rate also included solutions contributions from our divested financial solutions business, representing an impact of our quarterly growth of approximately 1.1%.

Underlying our fixed data growth is a result of our residential Internet growth, which grew an impressive 14% year-over-year as we continue to drive market share gains as well as higher ARPU as customers continue to move to higher speeds and recognize the value of our superior PureFibre and bundled offerings.

On the B2B front, inclusive of both mobile and fixed services, we saw positive trends continue and revenue and EBITDA up on a year-over-year basis. Additionally, our 3 InfoTech businesses, GI Health and Agriculture also showed attractive growth once again. Combined revenue in these 3 areas grew circa 20% year-over-year, reflecting high-growth nature of our unique data-centric asset mix, which, again, sets us apart from our global peers.

At the segment level, TTech revenue was up 4.2% or 6% when excluding the low-margin mobile equipment revenue, which declined from consumer behavior towards longer upgrade cycles and greater BOYD loading. Meanwhile, TTech adjusted EBITDA grew 5.1% year-over-year or 6% on an organic basis excluding the net dilutive impact of J-curve, M&A and the financial services divestiture.

As Jeff and Vanessa discussed on the TI earnings call earlier today, DLCX continues to drive strong results for the TELUS organization, and the relationship between TI and TELUS remains as strong as ever and continues to grow. DLCX revenue was up 19%, adjusted EBITDA up 25%, and margins improved 120 basis points year-over-year. Importantly, TI reaffirmed its full year guidance, and the team remains on track for another strong year of double-digit growth and attractive margin profile.

Overall, our consolidated revenue grew 6.4% year-over-year or 8.2% when excluding the mobile equipment revenues. Consolidated adjusted EBITDA grew 7% year-over-year or 6 -- 7.6% on an organic basis. We anticipate our growth to continue to grow for the remainder of the year. This growth is going to come from our phone ARPU improvements as we progress through our 5G monetization strategy and roaming recovery; improving B2B trends from scaling our IoT business, driving product intensity nationally; and offering the best digital solutions to businesses of all sizes; ongoing efficiency benefits from multiple programs, including our copper-to-fiber program and ongoing digitization efforts; continued subscriber growth as we expand our broadband coverage and more -- for more communities as our accelerated spend continues on capital, and we continue to drive more product intensity; and lastly, the integration of our M&A activities to drive more efficiency and effectiveness.

Based on these factors, we reaffirmed all of our financial targets for 2022. Consolidated net income was up 21% year-over-year, while adjusted EPS grew 11%. Free cash flow of $415 million in Q1 increased $94 million over last year, largely from higher EBITDA, lower cash taxes, lower handset upgrade volumes and partially offset by our accelerated capital expenditure program.

For 2022, we are currently -- we currently continue to target free cash flow of $1.2 billion, assuming the volumes of upgrades returned in the back half of the year. Our balance sheet also remains very healthy, including total liquidity of over $2.6 billion and a weighted average pretax interest rate of 3.75%, down from 3.8% last year. And we have minimal debt maturities until 2024. Our net debt-to-EBITDA leverage ended the quarter at 3.18x. Notably, excluding the impact of acquiring spectrum licenses, our net debt-to-EBITDA leverage ratio at the end of the quarter would have been 2.7x.

Our defined pension plan is stronger than ever with an average solvency position at the end of the first quarter estimated to be at 118%. Moreover, TELUS has been in a contribution holiday for some of the registered funded defined benefit plan since 2018. While our forecasted employer contributions for 2022 are estimated at $32 million, down almost $20 million over 2021.

Importantly, our healthy balance sheet, positive outlook on our business and attractive free cash flow generation, we extended our long-standing dividend program. We also remain committed to our payout of our dividend payout guideline of 60% to 75% on a prospective basis. Notably, excluding our accelerated capital expenditure programs, our dividend payout ratio at the end of Q1 was 63%, in line with that guideline.

To conclude, our Q1 results reflect our consistent execution and operational excellence to drive sustainable value creation for all stakeholders. I'm confident that we will further extend this proven track record through the remainder of 2022 and into 2023.

Robert, back to you.

[Robert Mitchell, executive]

Thanks, Doug. Nehai, can we proceed with the questions, please?

[Operator]

First question comes from Jerome Dubreuil from Desjardins.

[Jerome Dubreuil, analyst]

First question is on the PureFibre lifespan of 6 year or more. Maybe this was in the filing, but I haven't seen it yet. Is this what's being used currently for the depreciation? And second question is on the health care division. Pretty decent set of KPIs that you have reported, in my view, good to see amid the reopening and definitely clashes with what public valuations have done recently in that sector. Wondering if you expect growth we're seeing in Virtual Care member and overall lives covered to be sustained for a while.

[Doug French, executive]

Okay. On your first question, our depreciation lives for accounting are actually 30 years. So we are more conservative on that front and aligned more with, call it, industry practice. So similar to copper, the amortization life for accounting was much shorter than the actual utilization of that asset.

[Darren Entwistle, executive]

In terms of the health care question, yes, we see significant opportunity to continue to scale that business. We see significant opportunity to scale the business on a direct-to-consumer basis with our MyCare offering, which is doing extremely well. And of course, it fits very well with our home bundle as it relates to our data services right up to security, home automation and the like. Health fits elegantly within that portfolio.

And not only does it have nice attributes in and of itself in terms of serving the health needs of the household, but it helps drive better economics of the bundle in terms of the revenue of our home, but also critically a lower churn rate because we get better stickiness with that service. Huge opportunity on employer-based health care solutions to continue to drive this capability set with our virtual care capabilities and significant upside.

And if you think about all the business relationships that Navin and his team have across Canada, this market penetration is huge. And what I really like about it is that our virtual care capabilities fit within the enterprise market, general business services market, mid-market, right down to the small business market. So the ability to hit all of those sectors, I think, is tantalizing for this organization in terms of upside growth potential.

And then there's also scope economies because it's not just the virtual care capability. We're adding products and applications onto it all the time, including our expansion into the EFAP market, what we're doing with our virtual pharmacy capabilities, where I think there is huge upside within the virtual pharmacy capability set. That would be extremely interesting. And then folding in additional services, synergizing, if you will, our Virtual Care capability with our EMR environment or with our clinical environment. And so I think that's tremendously exciting.

And even within the clinical environment, to be able to go to the almost 30,000 doctor relationships that we have across Canada and say, "Here's where you can take a virtual capability and marry it up with the physical interface that you have with your patients, in terms of bringing new services to bear within our existing EMR relationships." So I'm very bullish on these capabilities going forward. And I think there's even opportunities eventually for international expansion on that front as well.

[Operator]

Next question comes from Aravinda Galappatthige from Canaccord.

[Aravinda Galappatthige, analyst]

The first one is on sort of the monetization around 5G on the consumer side. I think, Darren, you talked about that a little bit. As you think about pushing that to the next step, you kicked off sort of the speed tier model, and it seems like some of the others have adopted as well. What are your thoughts on sort of monetizing your investments in 5G on the consumer side? Are you seeing newer ideas in terms of the way you want to sort of set up the pricing, use cases and so forth? So that's the first question.

And then secondly, with respect to TELUS Health, just to kind of push a little bit on that on your comments earlier, is it your intent to sort of move down more like push -- or maybe grow faster on the Virtual Care and connected care side of things? Or do you sort of want to lean more towards the higher-margin HBM, EMR-type segments, especially as you think about a potential spinout down the road as well? I just wanted to get your thoughts on those.

[Darren Entwistle, executive]

Okay. I think what we'll do is we'll kick it off with Jim to talk about 5G monetization and consumer. I'll ask, after Jim Navin, just to have a very short piece on the monetization opportunities of 5G on B2B because I think those 2 bookends are important, and you need to look at 5G monetization holistically. And then I'll close it out in terms of my health ranking.

[Jim Senko, executive]

Thanks for the question. We're excited about 5G monetization and consumer. We implemented 2 core parts of our consumer strategy in Q1. The implementation of speed tier is going to 100 megabits per second in flanker, 250 for 5G and up to 1 gig for 5G plus. And I think what goes hand-in-hand with that is creating compelling reasons for 5G speed tiers and unlimited plans. And to that end, and Doug mentioned this, we launched Stream+ or Uncomp +. It's the first-of-its-kind, over-the-top bundle of Netflix, Apple TV and Discovery. We saw extremely encouraging demand out of the gate. Customer feedback has been very strong and sales rep feedback out of the gate as well as very strong loading. And it also creates more product intensity nationally, including with our Eastern customers, which will drive lower churn. Yes. So we're progressing, and that looks very, very strong.

[Navin Arora, executive]

Yes. Thanks, Jim. I'll just top up a bit on the B2B side. So 5G is a very exciting area of development for us. And as we've said on previous calls, in B2B, 5G is more of a marathon than it is a sprint. To give you a little bit of context, IoT enabled by 5G is a 9-figure business for us, and it's driving double-digit growth for TELUS. And it's a tremendous area of opportunity and an important part of our EBITDA acceleration strategy and allows us to continue to outrun legacy declines in B2B.

So just a few examples. So our immediate focus is on expanding 5G connectivity through various solutions, such as fixed wireless, HSIA, monetizing mobile edge computing, network slicing, private 5G networks, basic connectivity of devices working with OEMs, and both basic and advanced fleet solutions. And then beyond connectivity, we're also building out our ecosystem of integrated IoT and SaaS solutions that address key challenges in specific verticals and horizontals, all once again enabled by our 5G network.

So a couple quick examples on how we're commercializing and monetizing 5G and IoT. So first, in Q1, we signed our largest enterprise deal for a connected worker solution that's really focused on improving employee safety and productivity. And that was one deal for over 1,500 employees. Also this past quarter, we began rolling out new public safety solutions in our Smart City portfolio, so including next-generation 911 and mission-critical Push-To-X solutions, so both first of their kind in Canada, allowing for greater information and accuracy to respond to emergencies.

And then one last example, in agriculture, we're growing our focus on farms and ranches in Canada, building on the momentum of our decisive and farm-at-hand acquisitions to offer a broader set of IoT-enabled solutions and improved connectivity. And actually, I'll do one more in health. We're actually piloting connected ambulance solutions to improve real-time communication and collaboration between paramedics and health providers.

So we're really excited by the quality of the use cases that 5G will provide to really drive that strong commercialization and monetization. And we're quite pleased with the foundation we've built and the growth that we're driving off that foundation.

[Darren Entwistle, executive]

So just to bring it home on the health front, I'll give you 2 cuts at this in terms of how we look at the health business. So on the HBM front, you can look at that as the mature part of our health business. The EMR component, you can look at as foundational and anchor with growth attributes, and the virtual care and virtual care plus is a significant growth engine opportunity. So to use your vernacular, HBM would be value, EMR would be value with growth and DC would be a growth story, Virtual Care Plus in that regard.

The reason for that is the opportunity is so significant on virtual care to be able to hit the consumer market and all of the business market and to do it on an integrated basis with our telecommunications services and all the channels that we have to deliver that and support that. That's a pretty potent opportunity. Also on the virtual care front, the opportunity to keep bolting on additional applications and features and products, some of which I've already have articulated, give us both scale economies and scope economies that are tremendously exciting.

And then the thing about virtual care is that it so easily integrates. So when you've got a Virtual Care relationship, whether it's business or consumer, you've got an easy step to virtual pharmacy and what we want to do to scale that part of our business. It's easy to inculcate the EMR component on that front. As it relates to Virtual Care EAP offerings, it's great to be able to fold in our 16 clinics across Canada in terms of the physicality of those services. And even on a regulatory basis, the need to have both physical clinics combined with Virtual Care is really, truly a way of the future. And you can see that regulatory assistance already in place in certain regions within Canada.

And also on the teleworking side of things, if you think about our B2B2E strategy and what Tony is building on 5G and fiber to the extent to which the working topology post the pandemic is going to be different than what it was before, with more people working from home to be able to deliver our health solutions into the home environment or virtualized health solutions into the home environment is another fantastic attribute of what we're doing. And so there's just so many angles on the growth frontier. I think I would say, yes, we have a bias to that particular product line.

[Operator]

Next question comes from David Joyce from Barclays Capital.

[David Joyce, analyst]

Two questions, please. First, I was wondering how we should think about the cadence of subscriber net addition trends this year, granted that we're now kind of lapping some of the COVID impacts. You still had very new stronger-than-expected net adds in the first quarter, but there was a deceleration. So I'm just wondering what sort of seasonality we should be thinking about this year.

And then separately, I know on your footprint, your focus in the immediate term is to migrate off of copper. But what could the expansion possibilities be in edge-outs beyond your current footprint that would economically make sense, either funded on your own or with various government programs?

[Darren Entwistle, executive]

Great. Thanks for the question. Much appreciate it. I'll ask Jim and Zainul to comment on the net adds front prospectively in terms of what they're seeing. And then Tony can talk about where we're going on the technology front, both the growth-related technology and decommissioning the legacy.

[Jim Senko, executive]

Thanks. I mean we achieved another quarter of outstanding performance, driven by maintaining focus on sustainable and high-quality loading and some of the drivers behind that. We're having a lot of success with our mobile and home playbook. We are getting better and better at targeted marketing and channel programs.

We tend to be maybe a little bit more countercyclical in our loading, getting loading during low -- high -- low-stim periods versus high-stim periods, which is all very encouraging. And when you look at the competitive environment, I would characterize Q1 as stable, disciplined. And there were some regression in flanker, but overall, a pretty normal cable cut environment. And we're seeing traffic returning to our stores, which is good.

But the really interesting thing is we're also seeing growth in digital. So the progress and the gains that we've made on digital are carrying through even with our stores accelerating. And so we feel really bullish about the subscriber loading and feel very good about where it's going.

[Zainul Mawji, executive]

On the fixed side, it's Zainul, I'll top up. I think what we're seeing is some monthly sort of churn impacts on things like moving and a higher degree of mobility, with respect to some of our customers in the wireline side. But our focus is always been on expansion and acceleration of our PureFibre footprint, driving penetration and on product intensity. And so to contribute to Jim's comment on the mobile and home front, we're seeing a great opportunity to continue expanding our mobile and home base as well as product intensity beyond that.

In Q1, you saw a very strong performance on smart home security, and we will continue to drive product intensity through that vehicle as well as continue to scale our health offerings in the B2C space. And it's the contribution of all of those activities as well as the continued desire for customers who want to get the capacity, speed, reliability of PureFibre that we feel is a very sustainable trend into the longer term.

So I think we'll see some mild sort of differences in churn behavior on a month-to-month basis. But from a sustainable standpoint, we feel very confident in our plan and confident in the product intensity focus that we have.

[Tony Geheran, executive]

Thanks, Zainul. David, one other thing I think that's important to understand from the TELUS approach is we've been very successful at working with federal and provincial government to put our capital to work with subsidy dollars from the government to build efficiently, on time, to budget with better committed achievement on outcomes, these remote and rural communities. We've had 100% success rate over the last 1.5 years of achieving all of the subsidy allocations that we've submitted and bid on. And that in part is part of our success story in terms of how we execute on the deliverable.

Additionally, when we look at the opportunity to expand to adjacent areas, our existing fiber footprint, quite often with the population growth, we can see new opportunities that weren't present a few years ago that allow us to extend that fiber footprint. And with the new technology of 5G fixed wireless, we are able to look at effective alternate solutions, which I might add would be hastened, if there was smarter public policy on spectrum. But we could actually deploy and get solutions to those remote rural communities on a much faster basis.

But collectively, we're really excited by the opportunity our current footprint represents to continue to build out. And if you look at our current penetration of built properties to active subscribers, you can see it's nearly 50%. And if you think about the time it takes to build into a newbuild footprint to get penetration, that would give you an indicator of where we are on more mature markets. And that really is a future opportunity for us to really continue that success and drive great customer growth on a continued basis.

[Operator]

[Operator Instructions] And the next question comes from Stephanie Price from CIBC.

[Stephanie Price, analyst]

I have 2 questions as well. The first would be just a -- congratulations on the new disclosures on the [ Ag ] business and also on the growth in the business this quarter. Hoping you could talk a little bit about the growth drivers in ag today and also how you see about the trajectory of that business going forward.

And then my second question would be on churn. So Q1 churn number was obviously very impressive. Gross adds imply improving healthy market activity. Just curious how we should think about the drivers of the churn rate today and going forward as the 5G upgrade cycle picks up.

[Darren Entwistle, executive]

Thanks, Stephanie. John, why don't you talk to the growth drivers and the potential for the asset of consequence on the ag front.

[John Raines, executive]

Absolutely. Thanks for the questions. So one of the first place I'll start is with food, beverage and consumer goods. We're the third largest in the world as we think about food promotion and demand fulfillment. Our technology and insights is really leading a tremendous amount of growth in that area. And not only does that fuel our year-over-year growth, but it also creates an opportunity to then feed information back across horizontally to the food value chain in terms of supply planning, demand planning, demand forecasting, creating tremendous value, more predictive analytics, more prospective value than we have today or have seen in the past in that supply chain.

If you go to the other end, our growth also extends into ag retail as well as ag manufacturing, where we're helping fill demand for growers on the products that they buy through retail from manufacturers as well as fulfilling agronomy-based services like seed scripting and fertility scripting. So these are both big areas of growth. And then the key for us is our ADX platform and the way we're building out technology to really build in between those 2 and feed information so we can effectuate that $10 trillion industry.

[Darren Entwistle, executive]

In terms of churn, I don't think the recipe here is a well-kept secret. So I'll just highlight, Stephanie, the components because this really is a huge part of the TELUS story on a global basis.

So I'll start, given we're a technology company. With technology, when you consistently have the best broadband networks in the world, and we do, that makes a huge difference to customers from the speed components and latency considerations but also expansiveness, reach and the robustness of the service from a reliability point of view. And we are always in the top 3 year in and year out on a global basis, in terms of network quality excellence across both wireless and wireline.

Secondly, we've been a customers first organization now for 14 straight years. It is the consistency of that focus and the application of the execution across the totality of this organization that's made that difference. We provide the best customer service of any telco on the planet, and it's completely embedded in the etiology and the culture of this organization. It's our people that make the difference. Our higher levels of engagement directly scientifically translate into better customer service outcomes, which translates into not just lower churn but their propensity to buy additional services from us, which leads me to the next point.

We are an organization that launched the first strategic imperative back in 2000. This is now 22 years old, which is to offer integrated solutions across our wireline and wireless operations that differentiate us from the competition. In a word, we are bundlers, bundlers of quality products, where it's not just the product in and of itself, but how those products coexist and how they are interoperable to create that stickiness and that value proposition that we deliver for the clients. And we are very good at doing that from product development to channel delivery in terms of our bundling thesis.

Number four, we eat our own gourmet cooking. So you hear John talking about data analytics. You hear our health strategy in terms of the data analytics. Well, we do data analytics when it comes to customer service. And there's no one that's better than us at predictive churn models and responses and the like. So we do the math, and that guides our actions because they're scientific, and those actions are more efficient and effective as a result.

Next, we don't just put customers first. We put communities first. We are the world leader in social capitalism. That drives a higher level of engagement and performance mentality within our culture because we have a higher calling. We have a better intimate, more emotional connectivity with our communities. And people know that when they give their business to TELUS, because of our social purpose thesis, that money is going to come back into their community and be put to work in terms of better health outcomes, better educational outcomes, better educational -- or environmental outcomes.

And also passionately, we're bridging geographic device. So there's not one growth on the digital front within the urban construct, but digital extends from urban to rural. And we're also bridging digital device on the socioeconomic front so that we don't have a society of haves and have not. Everyone gets a chance to realize their full potential because we arm them with the technology to do exactly that.

And when you have that level of affinity and intimacy with the community across all those various components, people want to stay with us. They want to do business with us because at the end of the day, they get the why of the TELUS organization, not just what we do but why we do it. And if excellence isn't a nonrecurring event, it's something that you need to demonstrate year in and year out. Look at the longevity of our performance as it relates to world-leading churn. It's 9 years now where we've been sub-1%. People never thought that we would get blended churn below 1%, only postpaid.

And look at what we've done, not just on longevity, but do a horizontal cross-section, where 5 of the last 8 quarters, we've been below 1% on mobile, on Internet, on TV, on security and on voice services. So we've done it from new growth services to anchor services to legacy services, all below 1%. To me, that speaks to the consistency. But those aforementioned parameters are the reason why we deliver that result. And I think it portends well for our positioning in the future and the comment that Jim made and Zainul made in terms of our ability to continue to grow at the net adds level. And also, as it relates to value because the people that are sticky clients with us are high-value clients.

[Operator]

Next question comes from Vince Valentini from TD Securities.

[Vince Valentini, analyst]

Two questions on mobile ARPU. First, a bit of a clarification. You talked a couple of times about the Stream+ offering. Just want to make sure it's clear. If somebody starts paying you for Netflix and other streaming services through their TELUS phone connection, you're going to count that as mobile service ARPU?

[Jim Senko, executive]

I'll take it?

[Darren Entwistle, executive]

Yes. Yes. Go ahead, Jim.

[Jim Senko, executive]

Okay. So we are reallocated to actually home solutions. So it's not impacting ARPU. I think the thing that is driving ARPU from Stream+ is the connection to our speed tiers. And so what we're seeing with Stream+ customers are they're taking our 5G plus plans. And that's exactly what we want because this is driving that escalator ladder up to bigger data bucket, unlimited plans with higher speed profiles. And in our first 2 weeks, that's exactly what we're seeing, and the take-up of demand is double what we had expected out of the gate. So we're very excited about that.

And you know, Vince, there are a few things on ARPU that I would like to say. One, we realized nearly 6% revenue growth versus Q1 2019. We've had 4 straight quarters of year-over-year revenue growth. Our Q1 exit ARPU growth from March was 1.7%, and we're seeing that carrying into Q2. So we're feeling very bullish about that.

Rate plan value step-up is up across activations, renewals and rate plan changes, all up year-over-year and month-over-month. And we're seeing steady recovery on roaming, and the price increases that have been implemented on roaming are starting to flow through in Q2. And we're seeing the early success from speed tiers and Stream+. So when we look prospectively, we're feeling very good about where this is going.

[Darren Entwistle, executive]

IoT operations.

[Jim Senko, executive]

Yes.

[Vince Valentini, analyst]

Yes. That's why I thought you would have reported, just -- was just confusing the way I presented at first. The other question goes directly to what you were just saying. I totally understand the 2-year growth comparisons that your peers had much bigger drops early on in the pandemic, so they may be having just easier comps and bouncing back. So you're very valid in playing that out. But I'm looking at the absolute dollar of ARPU. And to be honest, I'm confused because I know you guys are focused on quality loading.

If I look at Q1 last year, your blended ARPU of [ $56 ] $0.50 to $0.90 higher than for the other 2 national carriers. And now this year in Q1, you're sort of that much lower than the other 2. So there's been a big swing just on the absolute dollar ARPU, forgetting about the 1-year or 2-year growth percentages. Is there something weird going on here? The timing of when IFRS 15 hits or something to do with the prepaid-postpaid mix or something else? I'm not sure why the absolute dollar ARPU with TELUS would not be lower.

[Doug French, executive]

Yes. So I'll start, Jim, and then you can top on the one. So 2 things that come to play is, one, there's mix issues between, obviously, organization and others on the prepaid mix versus postpaid. When we changed our segmentation in 2022, intercompany revenue also is now eliminated. So you have 0 intercompany in ARPU within our organization. And then there is -- and Jim can highlight the promotional activity and how IFRS 15 flown through. Why don't you take that part, Jim?

[Jim Senko, executive]

Yes. I mean a couple of things. One, I think there's an equipment margin dynamic that is -- that kind of clouds the comparatives. And that drives an amortization impact that could be a few dollars, actually. So that's one aspect of it.

And Vince, look, ARPU is also not the only metric we're focused on. Revenue flow-through to EBITDA and lifetime value are also critical. And when -- and we're really happy with what's happening on both of those measures. Channel, digital, simplicity programs have driven significant cost reductions for us. And some hard examples, our digital and direct transactions are up 104% versus 2019. We've taken out 20% of all of our mobility calls, which have been offloaded from our call centers, and yet our service levels have improved and our physical channel loading is increasing.

And then when you look at lifetime value, as Darren had mentioned before, we're up to 45% higher on lifetime value than our major national peers and our industry-leading mobile postpaid churn of 0.63%. I don't think you're going to find better results than that. And that's coming from bundling, and it's coming from our focus on high-value customers. And so when you take those 3 metrics together, they're driving like really good revenue to EBITDA flow-through outcomes for us. And I think that's where the money is, and that's a great outcome for us.

[Doug French, executive]

And Vince, to Jim's point on the IFRS 15 amortization. The sooner you move to more, call it, disciplined on subsidy, the sooner you're off at amortization period. So the fact that we were early in the stage of being more upticks on our rate plans and more high-value loading, the amortization impact will be different as that 2-year runway comes to an end.

[Operator]

Last question comes from Drew McReynolds from RBC Capital Markets.

[Drew McReynolds, analyst]

Two for me. Maybe starting with you, Doug, just to level set expectations here. I think we all knew out of the gate here relative to your full year guidance where you're going to get a lower year-over-year growth rate slightly. Just wondering how that -- at the moment, you see that kind of building through 2022 in terms of cadence. And then secondly, and no need to drill down too much on this. But obviously, front and center in this kind of market and an environment are inflation and then kind of cyclicality or recession. And I think a lot of us on this call haven't really seen TELUS Ag or TELUS Health or TI go through much of any of that. So just at the high level, it would appear these assets are -- certainly should prove resilient for a number of reasons, but just wanted to get some high-level thoughts there.

[Doug French, executive]

Yes. So on trajectory, we expect continuous improvement as we go throughout the year on our overall progression on EBITDA growth. When you think through the ARPU initiatives that we just talked about, we think about the continuation of copper-to-fiber migrations and the loading trajectory that we had, the biz margin improvement as the year progresses and then Ag and Health margins as we integrate and grow those portfolios, all of them are on the upward trajectory as we look forward. So I'd say it's going to be steady throughout the year, and you're going to see that progression on a quarter-over-quarter basis.

From Jeff's call this morning on the TI call, Jeff had a very good answer, too. I recommend you listen to the recession side of TI. When you think through what TI has to offer, they're actually enabling organizations even such as TELUS during a recession period with digitization, with team members that actually help them significantly through a recession. So the customers they have and the diversity they've built within their organization actually lends very well to be an enabler and helping organizations through that period. And yes, it's not quite recession-proof, but the diversity as well as the enablement definitely gives them a leg up on an opportunity front.

Darren, do you want to take...

[Darren Entwistle, executive]

No. I think that's well said, Doug, in terms of Ag and Health. I don't think any is inflation-proof, but I think these are resilient businesses for us given the essential service nature of these businesses and how people behave within the digital economy and digital society. So the necessity on help and necessity on food, I think, gives us a strong level of resiliency.

The other thing that I think John Raines would say, when your data analytics thesis is driving better efficiency within the sectors that you are seeking to serve, that played very well during an inflationary period. The other thing that I think is interesting about TELUS is that we have such a diversity of our asset mix from what we're doing within our core telecoms portfolio on data services and how we're evolving that, to what we're doing on TI, Health, Ag and the like. I think that level of diversification gives us a better backbone of resiliency, whether it's inflation or supply chain pressures that we're dealing up simultaneously.

And then you have to respond proactively. And I don't think very many organizations have managed exogenous events over the past 22 years better than what we've done. Whether it's equity market meltdowns or credit crunches or regulatory decisions or inflationary periods, we seem to navigate that turbulence very well, and I think that's down to the quality of the team.

And then we have a pretty resilient strategy here. So I think we're the most progressed in terms of our digital capability set. That can really help us when we are experiencing wage pressures from inflation to drive that digital thesis. We have the benefit of being able to access labor arbitrage at TI. So yes, we've got pressure. They've got pressure. But to the extent to which we can use the TI asset to support, buttress the economics of TELUS Corporation, I think all the better.

And then we got to keep being more and more efficient all the time and make some difficult decisions as it relates to cost-reduction programs. But I can tell you one thing, as an organization that really centers on the thesis of bundling, if you are a product intensity-centric, I think you'll do better during an inflationary period. You'll experience bumps, but you'll manage them better along the way.

[Robert Mitchell, executive]

Thanks, Drew, and thank you, everyone, for joining us today. Please feel free to reach out to the IR team with any follow-ups. And take care, everyone.

[Operator]

This concludes the TELUS 2022 Q1 Earnings Conference Call. Thank you for your participation, and have a nice day.