TELUS Corporation (T) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the TELUS conference call. I would like to introduce Robert Mitchell. Please go ahead.

Good morning, everyone, and thank you for joining us on short notice. Earlier this morning, TELUS announced that we have entered into an agreement to acquire LifeWorks, Inc. News release is available on telus.com/investors. On our call today to discuss this exciting development, we will have remarks by TELUS President and CEO, Darren Entwistle. Darren is joining us from Bucharest, Romania, where he's visiting our TELUS International team at the moment. This will be followed by remarks from LifeWorks President and CEO, Stephen Liptrap, and concluding comments by TELUS CFO, Doug French. We will then move to the Q&A session, we will be joined by LifeWorks CFO, Grier Colter, and by Daniel Marks, VP President, Virtual care of TELUS Health. Briefly on Slide 2. Today's discussion will include estimates and other forward-looking statements. These statements speak only as of date and are subject to uncertainties and risks that may cause actual results to differ materially from these forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements and carefully review the disclaimer contained in today's news release with respect to forward-looking statements. The forward-looking statements made during today's call are qualified in their entirety by the information contained in today's news release, presentation deck, and TELUS and Lifeworks and other publicly available filings with securities commissions in Canada and the U.S. With that, let me turn the call over to you, Darren.

Thank you, Robert. Today is another exciting step in our TELUS Health strategy with the announcement of our plans to acquire LifeWorks, a globally leading provider of employee and family total health and wellness as well as benefits, administration and retirement planning. This acquisition undoubtedly will materially strengthen TELUS Health's position as a leading digital health provider. Myself and the team are grateful to LifeWorks Board of Directors and the leadership team, including Stephen, for their partnership and bringing this important agreement to fruition. I look forward to welcoming the talented LifeWorks team as well as the 36 million employees and their family members that they support into our TELUS Health family. Importantly, they're going to be joining an organization that truly cares about empowering every person to live their healthiest life through world-leading technology and data analytics services combined with the caring culture. TELUS was drawn to LifeWorks as an organization that shares and exemplifies our deep commitment to improving health outcomes through better health access and information across the continuum of care. Together, we can dramatically improve the mental health and physiological well-being of our fellow citizens around the world through the faster deployment of next-generation digital health care capabilities. In particular, we believe that the importance of ensuring the health and wellness of employees and their families cannot be overstated, including through remedial and preventative health care solutions within the realm of physical, functional and neurological sciences. We've seen an unprecedented shift in what is required to support employers in addressing the evolving health and well-being needs of employees including a greater focus on supporting mental health. Notably, with increasing competition in the global talent market, employers must seek opportunities to attract, develop and retain top talent. This includes taking a more meaningful role in promoting the mental health and physical well-being of employees and their families. This responsibility has become even more acute as government capacity to fund health care is pressured, and support for mental wellness alone is costing our economy $50 billion annually. Disconcertingly, pandemic-related pressures have also created a Tsunami of burnout and for mental health. Similarly, substance abuse and other negative COVID behaviors are on the rise. We believe that the cost and accountability for making health care, particularly mental health care, more acceptable will increasingly fall to employers in this environment. Given the significant return realized from investing in employee well-being and preventative care, there is little doubt that employers will embrace this challenge. Importantly, employers who offer employees and their families, innovative, digitally enabled health and wellness programs will inevitably experience more effective recruitment and employee retention. They'll experience a healthier employee base leading to reduced absenteeism. They'll experience a stronger corporate culture with higher employee engagement. They'll realized enriched customer and stakeholder interactions. They'll drive improved team member productivity and ultimately and cumulatively stronger investor returns. Employers are increasingly looking for digital-first solutions that are available from wherever an employee may be working, whether they're at the office, in their homes or when they're on the move. By combining the collective skill of our teams and leveraging the exceptional capabilities of TELUS International, we will effectively answer the evolving needs of employers and their team members. Indeed, together, LifeWorks and TELUS Health will create a transformative portfolio of digital-forward health care services and solutions available on a global basis. Notably employers, employees and their families will benefit from leading primary virtual care, comprehensive mental wellness support, an internationally recognized EFAP, a leading-edge virtual pharmacy, digitally enabled remote health monitoring and nationwide preventative-minded health care centers, all of which collectively can provide well-being support to over 50 million individuals worldwide. Powered by TELUS Health's commitment to elevate outcomes through data-driven care and in potent combination with TELUS International's proven expertise in digital transformation and client service excellence, our health benefit management, collaborative patient record and clinical solutions offer the potential when brought together with LifeWorks, to unlock sustainable value and data-centric preventative and mental health care for both employer and public sector markets across our 115,000 clients globally. Over the course of more than half a century, LifeWorks has established a legacy of success in respect of helping employees proactively manage their health and wellness and that, importantly, of their families. This includes both with their unmatched high-touch and in-person solutions as well as LifeWorks' 15-year focus and investment in leading digital health care capabilities and platforms that are second to none globally. In fact, TELUS has enjoyed a long-standing partnership with LifeWorks including benefiting from their expertise, their team members and the talent that they have in employee health and wellness as a customer of theirs for the past 15 years. At TELUS Health, we have a proven track record of developing rich, digitally native and technologically innovative health care experiences for individuals, patients and practitioners delivered across the health care continuum over our world-leading broadband networks, and our exciting IoT capabilities that we are developing for the health vertical. Combined, LifeWorks and TELUS Health will effectively deliver on our shared goal of providing employers across the globe with simple, convenient, and effective digital primary and data-driven preventative health and wellness solutions for their employees and their families so that they can lead their healthiest and most productive lives. Indeed, our respective teams are exceedingly passionate about the important opportunities inherent in our combined organization. These include benefiting from the tremendous synergies associated with our shared vision of empowering employers with world-leading digital tools and solutions to effectively support the overall health, mental wellness and well-being of their employees and families. It includes leveraging the significant benefits of scale and scope as a combined digital-centric organization with TELUS' world's best broadband network underpinning. They include utilizing our respective international footprint and long-standing relationships, including that of TELUS International, in particular, to extend our reach and drive improved health outcomes for people around the planet. And finally, they include capitalizing and expanding upon TELUS' and LifeWorks' proven leadership and customer service excellence to ensure that our clients receive best-in-class health care support. Importantly, our strategy continues to be guided by our shared and deeply rooted commitment to improving societal outcomes in Canada and on a global basis. Clearly, the scale of a combined LifeWorks, TELUS Health organization backed by the scale of our TELUS International team and their own health vertical represents an unparalleled market opportunity to further differentiate TELUS Health and TELUS Corporation in the hearts and minds of even more employers, employees and their families across Canada and globally. Together, we will offer the most comprehensive suite of employee and family preventative health care, mental health and physical wellness services across our world best networks across our machine-to-machine applications and leveraging our dynamic data insights to drive better health outcomes. Today's announcement allows TELUS to further progress our goal of leveraging the power of technology in action and in combination with our caring culture and the strength of our brand create better health experiences across the entire health and wellness ecosystem. Importantly, the potent combination of LifeWorks and TELUS will represent one of the largest health IT companies globally with over 50 million lives covered by our health care programs. It will represent a leader in helping people proactively manage their health, and that of their families, through more than 140 digitally driven health and wellness services. And we will be a leading global total health and wellness organization with nearly 10,000 talented team members and almost 30,000 independent health practitioners improving health outcomes for over 115,000 customers in more than 160 countries around the world. Moreover, we have an important opportunity to leverage our expansive TELUS and TELUS International footprint, spanning 32 countries as well as a tremendous skill of our 70,000 international team members to further expand the effectiveness, and critically, the efficiency of our health services on a global basis. As leaders in the health care industry, the combined LifeWorks and TELUS Health organization will focus on shaping a health care system for future generations to come, one that benefits employers, benefits employees, their families, and critically, all of our societies. Clearly, there are boundless opportunities before us that generate improved health, wellness, mental health and preventative care outcomes for citizens around the world, leveraging data-driven insights at TELUS International's strong AI capabilities along the way while supporting the positive financial economic and operational strength of our organization. Today represents just the start of our journey together, and we are tremendously excited for all that is yet to come, and what we intend to realize together. On that note, I'm going to turn the call over to Stephen. Stephen, over to you.

Thank you, Darren, and good day, everyone. We, too, are very excited about the journey ahead for LifeWorks and TELUS. This is truly a win-win for both of our organizations. The transaction represents an exciting new chapter for LifeWorks. The acquisition advances both LifeWorks and TELUS' strategic plans to create unparalleled leadership in employee wellness. The combination of TELUS Health and LifeWorks really does represent an unmatched opportunity to create a global leader in employer-focused health care, with a differentiator of also having our unmatched high-touch and in-person services. Together, we will accelerate our shared vision of empowering individuals to live their healthiest lives by unifying both organizations' continuums of care through digital-first innovations as well as unmatched and unparalleled high-touch care. There will be many on this call today who may not be familiar with our company. Let me take a few minutes to talk about our focus and our strategic direction to illustrate why this transaction makes a lot of sense. LifeWorks is a world leader in providing digital and in-person solutions that support the total well-being of individuals. Mental, financial, social and physical. We deliver a personalized continuum of care that helps our clients improve the lives of their people, and by doing so, improve their business. It's the idea that by improving a person's life, we improve how they perform at work. We combine technology and deep expertise to deliver results. Our solutions combine the global depth of our in-person expertise, and technologies that make complex solutions simple, accessible and intuitive for people, HR leaders and business leaders. When people need support, we can intervene proactively. When someone is at risk, we can help with recovery and avoid problems in the first place. Every individual has different well-being needs and expectations. We always start with where people are, and work toward their goals by understanding their needs, then providing options for the support they need. We deliver a guided journey for positive total well-being, all toward maximizing organizational productivity. We empower people by supporting their well-being. We're there for people at the most critical moments in their lives. When welcoming a child into a family when buying a house or starting a pension plan. When a partner gets ill during a crisis, and that retirement. We are there when it matters. LifeWorks helps deliver results in the workplace in areas such as engagement, talent retention and productivity. We help to manage health care absence and disability costs. we help organizations adapt to a changing and challenging world. As a global enterprise, we have the reach to support organizations around the world. We take equal pride in having the agility of a start-up with the game-changing solutions for today's digitally connected organizations. Our teams have capabilities for delivering quality and innovation in employee and family assistance, health and wellness, recognition, pension and benefits administration, retirement consulting, actuarial and investment services. Our client base is 25,000 strong, supporting 36 million individuals around the world. In addition to our leading in-person solutions, we have long been investing in our digital capabilities. We have been investing in digital for more than 15 years, where we launched the first app in this space to today where we have the first substance use SaaS solution on a well-being platform. We see an amazing opportunity in the mental health space, where 1 in 3 are at high risk in their mental health, and as high-risk drinking in the workforce has increased fourfold. Beyond that, more people are aware of the need to actively invest in their mental health, and appreciate employers who also invest in their mental health and well-being. Combined with TELUS' long-standing track record of developing rich, digitally native and technologically innovative health care experiences for individuals, patients and practitioners delivered across the health care continuum over world-leading broadband networks, the opportunity to be the world leader in well-being and wellness is very clear, and that is exciting. I'll now talk a bit about the deal and our process. As our news release outlined today, TELUS entered into a definitive agreement to acquire LifeWorks, with our shareholders having the option to receive $33 per share in cash, TELUS shares, or a 50-50 mix of both, subject to proration. With the assistance of our financial and legal advisors, headed by a special committee of our Board of Directors, a thorough evaluation was made of TELUS' proposal, along with a comprehensive process focused on maximizing value for LifeWorks shareholders while taking into consideration the interest of all stakeholders. The transaction with TELUS is an excellent outcome for LifeWorks shareholders, and for our clients, partners, employees and other stakeholders. LifeWorks shareholders will benefit with the value-add of a tax-free rollover option in the shareholder-elect share consideration or mix consideration. In addition, our shareholders will have the option to gain exposure to a broader base of industry-leading businesses and benefit from continued exposure to next-generation health care innovations driven by the skill and expertise of our combined organizations along with benefiting from TELUS' long-standing dividend growth program. We are pleased that this transaction has received the full support of LifeWorks Board of Directors, and has been recommended unanimously. The transaction remains subject to court, regulatory and LifeWorks shareholder approvals, and we anticipate completion on or about the fourth quarter of 2022. I'll end with an important component of the success of both of our organizations, one that we share, and that's our corporate cultures. We are both purpose-driven organizations committed to improving the lives of people around the world. TELUS is driven by a vision to connect all citizens for good, and is a global leader in social capitalism. LifeWorks purpose is to improve lives and improve business with an aspiration to improve the lives of 1 billion people around the world. On all fronts, we are very excited by bringing these 2 companies together for the benefit of our employees, shareholders and all of our stakeholders. I'll now turn it over to Doug.

Thank you, Stephen, and good morning. We are very excited by the prospect of TELUS Health and LifeWorks coming together to create a leading and comprehensive technology-driven, end-to-end focused health and wellness platform on a global basis. The transaction is financially and strategically attractive to TELUS, and a natural complement to TELUS Health. Our news release outlined, TELUS has entered into a definitive agreement to acquire LifeWorks for total consideration of approximately $2.3 billion, and the assumption of approximately $600 million in LifeWorks debt. The transaction will be financed with a balance of debt and equity, funding the purchase price with 50% cash and 50% TELUS shares. With over $2.6 billion of available liquidity at the end of the first quarter of 2022, combined with an incremental bank facilities of $1.9 billion, TELUS has more than enough capacity to finance the cash portion of this transaction. Pro forma leverage is not anticipated to increase materially, rising by an estimated $0.16 giving LifeWorks robust cash flow generation and the combined synergy opportunities. Furthermore, our leading dividend program, which was recently extended through 2025, targeting annual growth of 7% to 10% remains in place. We anticipate closing the transaction on or about the fourth quarter of 2022 once we receive the appropriate approvals, and other closing conditions are satisfied. We will assess any impact to our annual GAAP guidance concurrent with the closing of the transaction. This transaction adds significant scale to TELUS Health with a combined annual revenue of approximately $1.6 billion, underpinning continued growth and profitability, along with a customer and geographic diversity, including a significant U.S. presence. The U.S. and other international markets will represent about 30% of our health revenue upon closing of this transaction. In 2021, LifeWorks reported consolidated revenue and adjusted EBITDA of over $1 billion and $195 million, respectively, representing nearly 6% of TELUS' consolidated revenue and 3% of adjusted EBITDA that we reported in 2021. We have identified readily available synergies and anticipate being able to drive significant cross-selling opportunities between our respective organizations, including and leveraging TELUS International's extensive capabilities and client base. These cross-selling synergies, alongside with the related operating expenses, are expected to accelerate once we complete the integration, reaching an annual run rate in excess of over $170 million over the next 3 to 5 years, enhancing our profitability and free cash flow growth. To conclude, we expect to drive strong future growth from our combined TELUS and LifeWorks health -- organizations as a global leader in digital health care provider backed by TELUS' leading customer-centric culture best-in-class customer experiences, global leading wireline and wireless broadband networks and our leading execution excellence. With that, I'll turn it back to Robert for the Q&A.

Thank you, Doug. [indiscernible], can we proceed with questions, please?

[Operator Instructions] First question comes from Jerome Dubreuil from Deja Bank.

Congratulations on the deal, first question on the synergy front, Doug, the $170 million just alluded to, if you can segment this with regards to the cross-selling opportunities and OpEx, what portion is which? Also on the regulatory approval, what are we expecting on that front? Are we expecting maybe a smooth-sailing proceedings or any obstacles you could foresee?

Doug, why don't you take that, and I'll pop up as required.

Yes. So on the cross-selling, we're extremely excited on the opportunities for our customer bases. More than 2/3 of the synergies will be the cross-selling and customer experience opportunities. And that will continue to build immediately, but continuing to hit its peak in that 3- to 5-year period as we do the integration. On the regulatory approval, there is very little overlap on the services between our organizations, both in Canada and internationally. So we expect very smooth sailing on that front as our organizations are, call it, a perfect fit from a puzzle perspective.

I think that covers it, Jerome.

[Operator Instructions] And the next question comes from Drew McReynolds from RBC Capital Markets.

Congrats on this. So just -- obviously, very consistent, I think, with what's been mentioned in terms of the journey here for TELUS Health. Could you provide us a little bit of perspective just in terms of this increased scale now of the 2 companies coming together, where does that now kind of fit for you in terms of the scale of this asset versus where you think you need to be? And obviously, that is in context of a journey to ultimately maybe crystallizing TELUS Health in some way, shape or form. And then second, on the international kind of component here, it certainly takes TELUS Health outside of Canada in a more meaningful way. Perhaps, I think we can fully understand the employee health and wellness vertical outside of Canada. And obviously, the synergy with PI. Are there -- do you see other different types of health services that you can also scale and take outside of Canada?

Maybe I'll hit this one on the head. And Stephen, if you want to top up, feel free. Clearly, one of the things that attracted us about this particular opportunity was the opportunity for scale. And we need that within this particular business. When you look at the combined skills and capabilities across TELUS Health, LifeWorks and TELUS International, we become a globally leading IT health care organization. And when you think about the number of lives that we cover in the 50 million zone and 150,000 clients that we can support and progress along the way, these get to be very interesting numbers for us. And our ability to enjoy economies of both scope and scale are tremendously exciting. And we love the scale that we're getting on the product front. The product portfolios of both companies are highly complementary, and highly synergistic and that's deeply attractive. Next, we like the financial strength that this particular combination gives us. There's a lot of organizations that are undertaking digital activities in various verticals around the world. Not a lot of them have both sides and profitability in terms of the economics of their business, and whether it's top line profitable revenue or EBITDA or the cash flow of this organization. We're combining the digital aspirations, the excitement of a well-broadened product portfolio with fantastic economics underpinning that business. And that is, I would say, quite rare. Really like the international component in terms of the geos that we're going to be covering here. And it's exciting because the health challenge that our employers are facing around the world is quite homogenous. So this is not a challenge that's unique to North America. It's one that's confronting every employer on a global basis, and they're in a war for talent. And if we can differentiate positively their ability to attract better talent and retain better talent because of what we can do on the health care front for the employee and their family. That potent, if we can deal up hygiene factors like reducing absenteeism. One day of reduced absenteeism at TELUS Corporation is $13 million of EBITDA. We think that if we can address both the physical and the mental wellness components, we drive higher productivity, better productivity, better execution; better execution, better share price. And lastly, we can speak empirically at TELUS to the extent to which you can give employers better engagement because of the key principles that you're driving on the health and wellness front. They are squared between engagement, and the stock price of the organization has been well proven. And so this platform, I think, is terrific and it's indicative of the path that we blazed before with TELUS International. So we've got the strength on the strategy front, the product front, the client base front, the financial front, so on and so forth. So now it's about driving the execution of this particular combination. It's continuing to see organic growth combined with some tuck-in acquisitions along the way that expand our product set, our capabilities at our talent base and our customer list and then look at what we might do prospectively with the capital markets as we have communicated previously, TI is a good example in terms of what you can expect from this organization in terms of TELUS Health. So I'll saw it off there, Drew, and I'll just give Stephen an opportunity, if you'd like to top up.

That's great, Darren. Thanks so much. And as Doug said, I think these are puzzle pieces that really fit well together. I think you rarely find such a good fit when we kind of map out the product portfolio and the road maps of where we both need to go in the future. And I think that solution is just so much needed. As Darren said, more than ever before with talent wars, talent shortages and where the world is going from a mental health standpoint. We've seen really strong international and U.S. growth as has TELUS International. I think there's tremendous opportunities between them. And as Darren said, tremendous strengths around the product road maps where we're going and the people. So at the end of the day, I think we're going to be able to significantly differentiate and make a difference in society with our clients, and with our incredible talent between the 2 organizations.

Next question comes from Graham Ryding from TD Securities.

Could you just talk about the process here, whether this is sort of multiple bidders involved or how did this deal come out? Any color on that front?

Stephen, do you want to handle that one?

Sure. More than happy to. And Graham, as you can imagine, we set up a special committee of our Board of Directors, and they went through a process where they really ensure that this made a lot of sense for LifeWorks shareholders. It was a very robust process. And at the end of the day, the special committee was very impressed with what came back, and the fit. That went to the full Board of Directors as we mentioned, that received unanimous support.

Thank you.

And then my other question, if I could. Just could you talk about the technology integration here, how you're thinking about what's involved here on the front end in terms of sort of client portals and apps that you would -- clients would use on the front end and then also on the back end. Does LifeWorks eventually move over on to sort of the TELUS platform? Or how are you thinking about this from a technology perspective?

I think first order of business for us is to get the acquisition consummated. They get the closing conditions met to satisfy the regulatory process in terms of bringing the 2 organizations together. As it relates to the post-acquisition integration whether it's the technology platform, us migrating products onto the LifeWorks platform or vice versa. I think we can talk about that prospectively down the road, answering the immediate challenge of actually getting the deal done. I think it will give us an opportunity down the road to better share what we think the synergies are in both technology, product and on a client basis, and also give some semblance as to what we're doing on the humanistic component in terms of combining the talent from both organizations to get the right resulting company that is set up for success on the strategy front. So I'd ask for you to be patient in terms of what that's going to look like at a specific level in terms of technology, products and people, and allow us to get the near-term challenge of the deal being consummated put behind us.

Next question comes from Tim Casey from BMO.

Yes. Doug, could you walk us through a bit of a picture here on profitability? A combined revenue base of $1.6 billion or so. Looks like LifeWorks does margins around 19%. How should we think about TELUS Health's margins? And what they'd be pro forma? And as a follow-on, do you expect any investment required either OpEx or CapEx to optimize the deal? Like is there -- should we think about J curves? Or is -- do you think you can find these and get into accretion rather quickly?

Doug, you might be on mute.

Yes. I will take that. So when we -- we have not disclosed the combined EBITDA margins, yet. And to Darren's point, once we've closed the deal, we are in the development and call it, initiation of what a PAA plan might look like. We will update our guidance accordingly by the end of the year. But TELUS, the advantage that we see with this combination is both organizations are creating EBITDA. And so as we bring them together, it's going to be an acceleration of that through the synergies I mentioned. And I think we'll leave the margin discussion until after closing and a formal update of our guidance, but it's very positive as you get through the savings that we talked about from cross-sell to OpEx, to CapEx savings that we actually do see as we align platforms. There might be an integration CapEx that we see over the next 2 to 3 years. But in the big scheme of things, it is very, very insignificant as both organizations had a capital platform that was to take us into the future on digitization and leveraging both of those capital buckets will actually get us substantially where we need to go.

Just topping up on that, given what we've traditionally done within the core telecoms area. By contrast, LifeWorks is an organization that has a materially lower CapEx intensity, supporting some of the economics that I was alluding to earlier. And as we strive to deliver annual synergies in the $170 million to $200 million zone against a cost to realize those synergies of about 1/4 of that over a 24-month period. So circa just over $50 million on cost of synergy realization between 2022 and 2024. I like that particular ratio in terms of the amount to achieve the synergies at over $50 million over a 2-year period, striving to realize annual synergies approaching $200 million. And there is no heavy lifting, so to speak, that's required to be able to move forward expeditiously in terms of driving LifeWorks product set through TELUS Health channels and our client base, and then taking TELUS Health digital product set and driving it through the LifeWorks channels and product base. And our opportunity to bring winning digital products to warm customers synergistically between the 2 organizations is very compelling, financially.

Can I just confirm that $170 million to $200 million, is that EBITDA or revenue?

So that is the annual amount at a monetary level related to our total synergies that we're looking to realize, and that's an annual number. And the realization of that annual number has a 3- to 5-year time horizon on it. The $55 million -- $50 million plus is related to cost of bringing those synergies to fruition through 2024, cash number.

Next question comes from Matthew Griffiths from Bank of America.

I just was curious, you have expanded your kind of suite of capabilities in TELUS Health. At this stage, I know there's work to be done on combining them and cross-selling. But are there any capabilities you feel are missing that would be kind of the target of a future tuck-in? Or do you feel as though the suite of capabilities is fulsome, and will be what you go forward with as you continue to build scale and work towards the eventual kind of TELUS International outcome of the IPO? And then secondly, if I could, is there any light you could shed on the revenue model for LifeWorks whether -- how the revenue generation relates to either lives covered or contracts signed or the suite of capabilities, how that enhances the revenue generation? Just any kind of details on that would just be helpful if you could, please?

Stephen, why don't you take the second question first, if you will, or you and Grier combined?

That's great, Darren. Thanks. Yes, the majority of our business at LifeWorks is per employee per month. And we've got that 96% recurring revenue. So a very solid base that we built from, and then we add on new wins every year to that, which really relates to our growth at the end of the day. But the vast majority would be per employee to per month.

In terms of tuck-in opportunities that we still see in this space that we think are interesting. There's more opportunities still to be driven on the preventative front, but I think are quite exciting, and lend themselves potently to the digital thesis. There's more capabilities that we're looking to bring to market in respect of mental health. And these developments are both organic and inorganic in terms of the capability set. There is a big opportunity on geo expansion. So we don't have all products across all markets, and that's an organic activity that's not trivial. There's opportunities to do better on distribution strength and our channels to market, to support the overall product thesis. So those are the areas that we're interested in. There's more to be done as it relates to specialization, whether it relates to a demographic, whether it relates to a gender ethnicity. There's lots that we can do in terms of specialization activity, age-related capabilities that would be particularly interesting with the grain of our society. So that specialization push is also something that's front of mind for us. But I think the thing that would strike anyone looking at this combined organization, all of those increments in terms of capabilities are on top of what is today from the get-go, a world-leading product set. We're approaching 150 services within that particular space. And so when you look at the existing capability right now, it's differentiated from the competition. It's hunting well on the customer base. And the appetite for these capabilities based out of employer to employee necessity is growing at an incredible rate, and it's doing that on a global basis. So it's 1 heck of a foundation for us to consider both organic and inorganic expansion opportunities.

Next question comes from David Joyce from Barclays.

A couple more questions, please. I was just wondering if there's a margin differential among the product mix of the 2 different entities, currently. And also I was wondering if this is going to be presented as a new segment for reporting purposes upon closing. And then finally, also on the CapEx front, are there going to be particular countries or regions where you're going to be focusing on the investment after integration is basically complete.

Doug, do you want to take that, and I can top up on some of the topology comments?

Yes. So the first one on margin. TELUS' margin set is different. We have such a end-to-end suite of products that the margins are different depending on the product set. And so from an average perspective, as we talked about, we will put more formal direction to that upon closing and our guidance, either adjustment or 2023 guidance depending on the closing date, and we'll give you more insights to that. But it does vary significantly within the TELUS portfolio from our HBM services to our virtual care services as an example. On the segment side, no determination has been made yet. It's very much an accounting definition. So as we get through the closing and corporate structure, and how we run the business into the future, we will make the assessment of the segment at that time as well, and we'll be clear when we do the -- upon closing at the end of the year when that happens.

In terms of topology, clearly for us, we've got a wide footprint now when you look at the number of countries involved. From a waiting or prioritization perspective, clearly, lots of opportunity for us within North America. Lots of opportunity in the U.K. and on the continent, and very interesting opportunities within the Commonwealth topology, including Australia. And so we'll be looking to leverage those along the way. But there'll be a strong focus also within the immediate opportunity within the Canadian market on digital expansion. When you look at the fact that LifeWorks has a relationship with 3/4 of the TSX 60, and you think about our B2B heritage at both TELUS Health and TELUS, that opportunity is pretty exciting. And when you think about what we can do to support the digital health applications, because of our broadband capabilities, both fiber and 5G, but also what we're doing on the IoT applications, that's tremendously exciting. And then trying to push our products down market. So expanding beyond some concentration on the enterprise front, and looking at material opportunities in mid-market and small business to complement what we're already doing on direct-to-consumer. That's pretty exciting. And Stephen made a comment at the end of the opening commentary around SaaS capabilities. And the exciting thing about this product portfolio is when you've got intellectual property and product differentiation at a SaaS level, your ability to export that capability on an international context. It's very exciting, both in terms of speed to market and the associated economics. But TELUS also has channel relationships in many of these markets, either -- whether it's telco-to-telco in terms of pursuing franchising and licensing opportunities for our digital health solution or TELUS International and the capabilities that they would bring to bear, and the fact that they've got their own health verticals. So we are spoiled for choice from an opportunity set, and we're going to work our way through the immediate prioritization of that, but it should support the type of speed to growth that I know we're all aspiring to.

All right. Congratulations.

Thanks.

Last question comes from Vince Valentini from TD Securities.

I want to try to clarify a couple of things on the synergies. So Doug, you had mentioned over 2/3 of the $170 million, I think that's the public number. Darren has been mentioning $200 million, but we used the $170 million. Over 2/3 of that being revenue synergies over 5 years. That would be about $120 million. So I just want to clarify, that would mean about $500 million to $600 million of incremental revenue at 20% to 25% margin is what you're talking about. Is that correct?

Sorry. Not quite.

Yes.

Not quite. Some of the cross-sell will actually be in our telecom services as well as we're putting leveraging the customer base as we highlighted earlier. So some of those benefits will actually be at a margin level on our wireline, wireless services concurrently. So it will be a different mix than what you suggested, Vince, but directionally correct.

And the cost synergies within that, Vince, right? So [indiscernible] question purely on the revenue generation front. There's also cost synergies that are not attributable for us to realize as well. And despite my age, my memory is still fairly good. I said approaching $200 million or $170 million to $200 million. And I will be disappointed if we're not approaching $200 million within that 3- to 5-year time frame. So that's the goal that will be set for management.

Yes. No, I Understand the aspiration versus the target you put in the press release, that's totally clear. The other question I was going to ask on the cost synergies. So yes, you back out the 2/3 of its revenue that leaves you with about $50 million. So 2-pronged question on that. One, is that still as long as a 3- to 5-year time frame to achieve? Or can some of that $50 million in cost savings potentially come within the first couple of years? And secondly, is that also, I guess, is a mix of -- some of that is on the TELUS telecom side and some of it is just simply expanding the margins of the LifeWorks operations?

So the answer is the latter. It can come earlier. And then the second part of the claims answer is yes.

Okay. That's clear enough.

Vince, are you clear with that? So -- it is the latter. It can come quicker. And yes, in terms of your supposition that you were postulating.

Perfect. The last little clarification I have then, and I'll leave it up, it's been a good long call. Is the $50 million in cost you mentioned over the next 2 years to get at the synergies, is that mostly OpEx or a healthy mix of OpEx and CapEx?

I think we'll draw the line on that one, Vince, and we'll get back to you, and it won't be long before you hear from us again. And you can poke at the delineation between OpEx and CapEx at that point.

Thank you, Vince, and thank you, everyone, for joining us this morning. Please feel free to reach out to the IR team with any follow-ups, and take care, everyone.

This concludes the TELUS conference call. Thank you for your participation, and have a nice day.