TELUS Corp (TU) Q1 2025 Earnings: Balancing Growth with Leverage Risks

The first quarter of 2025 brought both triumph and turbulence for TELUS Corp (TU), Canada’s telecom giant. The company reported record customer additions and robust expansion in its health-tech arm, TELUS Health, yet faced headwinds from declining mobile revenue and elevated leverage. This article dissects the earnings call’s key insights, weighing the promise of strategic initiatives against lingering risks.

Record Customer Growth: A Testament to Strategic Execution

TELUS’s customer momentum was undeniable. The company added 218,000 net customers in Q1, a historic high for the first quarter, driven by 168,000 mobile net additions and 50,000 fixed-line gains. The surge in connected devices (148,000 net adds) highlighted the growing demand for IoT solutions in sectors like agriculture and healthcare. Meanwhile, TELUS Health’s revenue jumped 12%, with EBITDA soaring 30%, as the segment now serves 76.5 million global lives after acquiring Workplace Options.

Ask Aime: What's the outlook for TELUS Health after their record customer additions?

Financial Fortitude and Strategic Priorities

The earnings call underscored two critical priorities: deleveraging and capitalizing on TELUS Health’s potential.
- Debt Management: TELUS’s net debt/EBITDA ratio stood at 3.9x, above its 3x target by 2027. Management emphasized asset monetization ($66 million in proceeds in Q1) and reduced capital expenditures (down 19% year-over-year) to reduce leverage.
- Dividend Discipline: A 7% dividend hike was announced, with a 3%-8% annual growth target from 2026 onward, contingent on EBITDA growth and deleveraging progress.

TELUS Health’s global ambitions are equally ambitious. The segment’s $500 million Workplace Options acquisition expanded its reach into employee wellness programs, adding 160 million lives globally. Executives highlighted synergies from prior deals, including $376 million annualized savings from the LifeWorks acquisition, as a blueprint for future growth.

Challenges and Risks: A Cloud Over the Horizon

Despite the positives, TELUS faces significant hurdles:
1. Mobile Revenue Decline: Mobile ARPU fell 3.7%, pressured by cutthroat pricing and lost roaming revenue. CFO Doug French admitted weak wireless service performance, vowing to address it through AI-driven revenue management and better bundling strategies.
2. Leverage Concerns: Elevated debt remains a double-edged sword. While hybrid debt securities (raising $1.6 billion) improved equity ratios, the DRIP discount (which dilutes shareholders until 2027) could deter investors.
3. Execution Risks: Scaling IoT and health-tech solutions is no small feat. TELUS’s reliance on TELUS International (TIXT) as an anchor client adds complexity, given TIXT’s limited standalone financial disclosures.

AI as the Catalyst for Efficiency

TELUS’s pivot to AI is central to its strategy. The company is deploying machine learning to optimize customer service, streamline operations (e.g., agent training), and refine revenue management. This shift could alleviate some margin pressures, though results remain unproven at scale.

Conclusion: A Company at a Tipping Point

TELUS’s Q1 results paint a company in transition. On one hand, its customer growth and health-tech expansion are undeniable positives, with $48 million in free cash flow and a 22% year-over-year increase signaling operational resilience. On the other, the 3.9x leverage ratio and mobile ARPU decline underscore vulnerabilities.

Investors must weigh two critical questions:
1. Can TELUS deleverage sufficiently by 2027 without compromising growth?
2. Will TELUS Health’s monetization potential offset mobile headwinds?

If TELUS can reduce debt to target levels and stabilize wireless revenue, its 3%-8% dividend growth trajectory becomes credible. However, failure to address leverage risks could pressure its stock, currently trading at $35.50, a 12-month low.

In the near term, TELUS’s narrative hinges on execution—both in managing its balance sheet and leveraging AI to revitalize core businesses. For now, the company remains a high-reward, high-risk bet for investors willing to ride out its transformation.