Q2 2021 Telus International Cda Inc Earnings Call

July 30, 2021

[music].

Good morning, ladies and gentlemen, and welcome to the Telus International's second quarter of 2021 Investor call. My name is Jonathan and that will be your conference facilities.

Today at this time loans have been placed on mute to avoid background noise. After the speaker's remark. There will remarks, there will be a question and answer period. If you would like to ask a question. During this time. Please press Star then 1 on your telephone keypad, if you'd like to withdraw your question. Please press the pound key.

I'll now turn the call.

Over to your host Jason <unk> Senior director of Investor Relations and Treasurer of Telus International Mr. Meyer you may begin the call.

Thank you Jonathan Good morning, everyone. Thank you for joining us today for Telus International Q2, 2021 Investor call.

Joining us today are Jeff Garrett.

Take the CEO.

But as the Canadian our Chief Financial Officer.

We'll begin the call with some prepared remarks, where Jeff will provide an operational and strategic overview of the quarter followed by the Vanessa will provide some key financial highlights.

We will then open the lines of questions from Prequalified analysts before turning the call back to Jeff.

Whereas the closing remarks.

Before I turn the call over the jazz I would like to direct your attention to slide 2 of the supplementary presentation available for download on this webcast and also available on our web site at Telus International Dot Com slash investors the.

Statements made during this call may be forward looking in nature, including Hong.

Comments, reflecting expectations assumptions or beliefs about future events or performance of that do not relate solely to historical periods.

These forward looking statements are subject to risks and uncertainties, which may cause actual results differ materially from our current projections.

We assume no obligation to update any forward looking statements.

Jackson, Vanessa we will also discuss certain non-GAAP measures that the management team considered to be useful in assessing our company's underlying business performance.

Explanation of these non-GAAP measures and a reconciliation to the comparable GAAP measures can be found in the appendices of today's supplementary presentation, along with the earnings news release and MD&A available.

Peter in terms of Advair.

With the SEC.

I would also like to remind everyone that all financial measures. We are referencing on this call and in our disclosure of U S dollars unless specified otherwise and relate only to Telus International result of measures.

With that I will now pass the call over to our President and CEO, Jeff Jarrett.

Thank you, Jason and good morning, everyone and thank you all for joining us today.

In the second quarter, Telus International delivered a 36% year over year increase in revenue and of 56% year over year increase in adjusted EBITDA, both of which were driven by strong organic growth as well as contributions from our.

On the seats. These exceptional results continue to underscore the successful execution of our strategy to cultivate highly accretive business opportunities and our unrelenting focus on pursuing higher value digital engagements importantly, they also reflect the deep trust our clients place in their partnership with us.

Equally.

Position relative is the environment in which these results were achieved unlike many of our industry peers that struggled a year ago, having to recover from impacts to their businesses stemming from the pandemic. Our company's financial results are building from a position of the relative strength resilience and consistent execution last year, making our growth.

This year all of the more impressive.

Our sales team led by our Chief Commercial Officer Maria Party helped to drive exciting new wins for Telus International in Q2 successfully converting on opportunities with the world's largest technology company by revenue the world's largest E Commerce company, the world's fastest growing social media platform.

Platform and 1 of the world's largest banks just to name a few of.

These are meaningful multi year deals reflective of the accelerating sales traction we're seeing in the market from Telus International.

Indeed, the second quarter concluded a remarkable first half of 2021 for Ti and it's on the strength of our Q2 results.

That we're raising our outlook per year end 2021, as Vanessa will share in more detail later in the call.

And a repeat of last quarter, our tech and games vertical represented the highest year over year percentage of growth amongst our targeted industries. This growth was primarily driven by increased demand from our digital native and tech disruptor clients.

That recognize the value of our differentiated end to end capabilities, including our premium content moderation services and AI data solutions for.

For example, 1 of our multinational tech giant clients partnered with us to train test and scale their voice controlled virtual assistant.

With over 150 million global active users per month. This virtual assistant can schedule appointments among many other useful tasks and due in part to our efforts. It can now understand and perform tasks and more than a dozen new languages, we started with data annotation, including pronunciation checks and validation to teach the advanced.

Speech recognition system. This entailed collecting massive amounts of data by generating thousands of sentence variations, which we then recorded by native speakers before being loaded into the clients' AI system. We also use the voice grammar extensible markup language or XML the contained the set of rules developed by our computational linguists.

To ensure the AI algorithm properly identify the inputs. This was an extremely complex undertaking requiring significant expertise and our specialized technology capabilities, but there was also a very successful project and we continue to collaborate with its clients to evolve their virtual assistant along with other projects across our broader portfolio.

So the end to end clients digital services.

On another tangible example, our digital solutions team is working with 1 of the world's largest providers of agriculture products and services. This client grown rapidly through acquisition and as a result, we're using an inefficient mix of resources, providing employee experience support on an aging platform.

Foley with limited quality assurance and data analytics capabilities. The left many blind spots across the organization Telus International was hired to enable the new end to end employee experience, including our cloud based platform, which modernized interactions with an entire suite of digital solutions, we created a comprehensive.

Of set of digital value added outcomes that include seamless omni channel integration with real time transcription, including sentiment analysis automated workflows enabled through integration with the client service now instance, and dynamic digital analytics dashboards that provides an automated early warning system for technology problem.

Form on the client's environment.

This integrated data first solution enables deep analysis of all of our clients the data to identify areas, where they can reduce support effort through robotic process automation and build and deploy chatbot.

And China automation to answer frequently asked questions and to enable self service.

Another example of our technology in action is the work we performed to help an enterprise customer to develop an AI system that would automatically recognize receipts of invoices from over 20 countries and have them converted into text for further processing at an extremely rapid and efficient manner, we completed the collection and annotation of thousands.

Keith and invoices from different companies globally. The train the client's AI system. This kind of application can be scaled and used by any business for expense management of our company invoicing or anything that requires paper documents of inputs can be automatically translated into digital form for processing by an AI engine and speaking of bot.

Yet another engagement is our support of a leading <unk> company based in Asia in the development of their AI emotion analysis algorithm to help their bots recognize the emotion the sound more human during interactions with customers, while recognizing the emotions. When we converse may seem relatively simple to you on me.

It poses considerable challenges from machine learning models to help our clients AI engine that powers the bought the ability to understand the emotions our team collected and labeled thousands of written question and answer set for emotional intent that was then used to train the clients, but what's even more exciting as this client already has plans to develop future bought iterations.

<unk> that will use voice and facial recognition technology to identify customers' emotions and with our enhanced image and video annotation capabilities as part of our computer vision tool set added to our acquisition of appointment earlier. This month, we are well positioned to win even more business from this client.

Claimants capability.

We also include our proprietary data annotation platform that specializes in 2 D. In 3 D image video and Lidar remote sensing method that uses laser pulses to measure of variable distances, which are in high demand the power evolve and disrupt the world around us in areas such as health care on agriculture applications.

As well as in the creation of smarter of consumer products and services.

1 particular payment client that is very well known in the autonomous vehicle space in Euro is currently leveraging our computer vision capabilities and its vehicles using robotics think pizza or grocery delivery. This application requires an AI system to be able to recognize street.

Ability to traffic patterns driving the rules and the system is also learn to use judgment to avoid risks with people dogs and other objects on the streets.

Our million strong AI community and solutions come in is with the labeling vast amount of image and video data captured from cameras and sensors in order to train the AI system to achieve.

The effective self driving and delivery capabilities and while the autonomous vehicle market is still developing computer vision technology also has applications in more traditional industries such as farming in mining Workers' safety continues to be a top priority on these types of businesses and our AI data solutions have significantly improve.

Their performance for 1 of our clients by creating training data sets of images of safety goggles harnesses vest and other equipment worn properly and improperly cameras located deep inside mines can then be fed into an algorithm that can identify when workers are not following regulations in order to alert leaders.

Time to avoid potentially dangerous situations reduce injuries and minimize costly disruptions in the slate.

Excuse me of delayed payment with its numerous adjacencies to our existing data annotation capabilities added through our acquisition of Lionbridge AI was of natural complement to our ongoing integration of.

The ladder, which has progressed well over the past 7 months. We recently rebranded this division of our business to Telus International AI data solutions and today, we operate 1 of the largest data annotation platform of its kind of globally and are fully prepared to meet the exponential increase in demand for the high quality diverse datasets needed.

Needed to power of todays and Tomorrows AI driven solutions with data collection and labeling typically representing approximately 80 per cent of the work on any given AI project, we are indisputably well positioned on the AI and machine learning value chain.

Finally, another adjacency an opportunity where we've leveraged our AI.

Data annotation capabilities is to further enhance our market leading content moderation services an area that is experiencing tremendous growth with the explosion of user generated content that is increasingly attracting regulatory attention to keep our online world safe and trustworthy.

On very topical example is the work we perform.

We're a leading social media giant the monitor the integrity of their user generated data. For example, currently in the news is the topic of fake data around the effectiveness of COVID-19 vaccines and other health related topics, our team of Annotators evaluate and rates of news and information for relevance accuracy and integrity.

To ensure that users are not provided with false or misleading information. Our team is playing a critical role in helping to make the internet of safer place.

And while content moderation has traditionally been of market more heavily skewed to tech hyper scaler. We're also seeing an increased appetite among clients in the enterprise and mid market segments.

That of growing digital communications platforms to optimize manage and monitor 1 clear application is an online advertising with AI solutions, helping to optimize results and improve the effectiveness of advertising campaigns.

Our annotators provide the critical data that enables companies to place ads.

Most relevant positioning for users and different countries languages and cultures.

I hope. These examples I can share to help shed more light on not only what we do today, but also set the stage for the of Numerable opportunities ahead of us in terms of how we're able to partner with our clients to achieve game changing industry disrupting.

And market, leading brand experiences using AI powered services and solutions was only limits will be our own imagination.

Another feature of our success that I'm very pleased to share that our accomplishments and unique approach to the industry is growing in recognition in the second quarter, we were awarded the AI breakthrough.

The award in the best information of box solution category for the development of our intelligent agent assist chatbot and more recently our company was named the leader on average groups customer experience management services peak matrix for the third consecutive year ranking in the top 3 of our strategic vision and capabilities among.

Of the nearly 40 companies that were included in the evaluation were also among the top 10 on the 2021 average group bps top 50 list of global ranking of the 50 largest third party providers based on their revenues and year over year growth. This year Telus International was the top of rise are on the list climbing an impressive 18.

<unk> positions and we were also ranked number 1 by percentage of revenue growth.

Our caring culture and commitment to ensuring each and every 1 of our more than 56000 team members is able to bring their whole selves to work was also recognized with Telus International named 1 of moguls top 100 workplaces with the best.

The diversity and inclusion of initiatives for 2021.

This list acknowledges the efforts of companies around the world that of implemented practices invested in resources and develop strategies to create more inclusive and diverse work places.

Although I personally have the great pleasure of seeing the excellence displayed by our team day in and day out.

Whether they are building behind the Cork celebrating pride month with the drag contest in the Philippines, leading virtual round tables on gender equality or receiving accolades from our clients around the world for going above and beyond for their customers. These awards and distinctions are of fitting reflection of our team members' passion ingenuity.

<unk> and dedication in everything they do.

And I am extremely proud of all of their collective achievements.

Just before I hand off the Vanessa to take us through our second quarter financial results in more detail I wanted to share a quick update on our team.

Some other companies have highlighted and comments recently, there was an increasing in competitive demand for.

The talent in Q2, but.

While we remain vigilant in assessing any emerging trends in our key labor markets around the globe Ti continues to be of destination for talent, notably while as expected. Our attrition is higher than this time last year at the height of the pandemic, we have not seen any significant <unk>.

Elevation in our attrition from 2019 pre pandemic levels sequentially. Our attrition in Q2 was consistent with Q1 with a nominal decrease of 10 basis points and for the quarter. The Telus International family of total team member Count grew by 4784.

I was at the end of June about 80% of our global frontline team members continue to work safely from home as we continue to take our science based.

The article approach to safely bringing team members back to the office.

We continue to closely track vaccine availability and rollouts and each of the regions, where we operate.

For the reason why we're permitted to do so we're also working with local governments to supplement their efforts by engaging of credit and health care providers to help vaccinate our team members as well as family members with that let me now pass the call to our Chief Financial Officer, Vanessa Canoe and I'll be back for the Q&A Vanessa over to you.

Thank you, Jeff and good morning, everyone. Thank you for joining us today.

On my overview I will review, our summarized results for the quarter and as Jason mentioned at the start off the call. Some of these items our non-GAAP measure.

You can view a more detail 3 of them.

Our more detailed 3 and 6 of them on financial results, including a reconciliation.

The contract GAAP to non-GAAP measures in the financial statements and MD&A filed earlier this morning.

As Jeff mentioned Q2 was a great quarter with solid revenue and earnings performance.

Revenue increased 36% year over year, and we saw growth across all of our geographic regions and industry vertical.

Okay.

<unk> EBITDA increased 56% year over year, and adjusted diluted earnings per share doubled year over year.

Collecting revenue scale increased mix of higher value and higher margin services and our continued focus on internal efficiency.

Free cash flow was also strong in the quarter up 109%.

The adjusted year over year.

Now, let me get into the details.

Revenues for the quarter were $533 million up 36% driven by continued organic growth and contributions from acquisitions.

For the second quarter in the road this year, our organic growth was 20% achieved through the expansion.

Pension of business with existing clients and new logo wins and primarily on strong demand for our trust and safety and broader digital CX solutions.

Our total revenue growth also include an FX tailwind of approximately 5% compared to the same period in the prior year.

To.

Percentage of results into the perspective, I will echo what Jeff mentioned earlier.

The second quarter growth is even more impressive when compared to the strong consistent execution from the same quarter a year ago, when Telus International International showed resilience in operating and financial performance when the pandemic struck the globe.

In Q.

To put the last year of Telus International grew revenue, both inorganically and organically.

1 year later today, our growth builds from a very strong and solid compare.

In terms of our revenue by geography, we delivered year over year of growth in every single 1 of our regions with very strong growth in Europe.

Again, thanks to high demand for our trust and safety services as well as strong continued growth in North America, and Asia Pacific driven by the client demand I mentioned a moment ago.

From an industry vertical perspective, we saw growth across all key vertical in the second quarter.

Second game was our fastest growth vertical.

The call of 59% year over year with almost 70% of this growth attributed to our Lionbridge AI acquisition or what we've now rebranded as Telus International AI data solutions.

The balance of the growth in tech and games on what organic driven by growth in demand from our digital native and technology disruption clients.

We also saw a meaningful acceleration in revenue from clients in our e-commerce, and finfet vertical with that vertical achieving revenue growth of <unk>.

49% year over year.

Finally, our communications and media.

The vertical grew 11% year over year, while all other industry vertical grew 23 per cent year over.

Across all of our verticals, we are benefiting from the depth and breadth of our diverse service offering as we meet our clients' increasing demand.

Moving on to the operating expenses.

Salaries and benefits expense was $299 million up 28% as the results of the growth and expansion of our business.

And related growth in team member counts.

Our goods and services purchased where 100 female the ending the quarter, an increase of 39% largely due to our acquisition in particular, our AI data solutions crowdsource contractors for which the contract that labor costs are recognized in goods and services.

We continue.

The scale efficiencies in our operating expenses as growth in revenue outpaced the growth in opex, demonstrating the long term operating leverage inherent in our business model.

Moving down to other notable items on the P&L.

<unk> based compensation expense in the second quarter was $19 million, an increase of 9 million.

Just year over year.

The increase was primarily driven by mark to market adjustments on historical cash settled awards due to the increase in our share price.

As a reminder, new awards granted under our 2021 long term incentive plan are now equity settled generally vesting annually over a 4 year period.

Income tax expense in the quarter was $13 million of $3 million from the same quarter last year.

Our effective tax rate increased from 18, 9% of 44, 8%, primarily due to an increase in non deductible items.

[noise] withholding and other taxes and a reduction to the prior year the effective tax rate due to adjustments.

<unk> recognized in that period for income tax of prior period.

A reminder, that our effective tax rate, which is income tax expense of the percentage of accounting net income before tax can vary due to various factors, including but not limited to the jurisdictional mix of earnings in any given period and the tax deductibility of.

Certain expenditure items.

Moving on to our profitability performance, we delivered adjusted EBITDA of 131 million for the quarter posting strong year over year of growth of 56%.

Our adjusted EBITDA margin was 24, 6% up from 21, 5% margin in the Europe and the.

Period.

Adjusted net income for the quarter was 63 million up 142 per cent.

On the per share basis. This translated into adjusted diluted earnings per share for the quarter of 24 up 100% year over year.

Driving this increase the profitability was the impressive.

High quality revenue growth, we have achieved so far this year.

We benefited from our ongoing focus on digital service offerings and pursuing high value engagement driving an accretive client mix, while continuing to improve efficiency in our operations.

Moving on to the balance sheet.

Awesome.

The cash equivalents were 100 of 19 million of at June 30th 2021.

Our total available liquidity grew to approximately $815 million as of the quarter end compared to 285 million at year end.

This includes available borrowings under our revolving credit facility of 696 million.

With our available liquidity, we have created meaningful capacity for potential strategic acquisition.

Bridging our successful M&A playbook for the right opportunities to advance our growth objectives.

Following the sizeable of repayment of debt last corner, we continue to lower our debt levels with the repayments of 50.

And then from cash generated from operations in Q2.

This lowered our net debt to adjusted EBITDA leverage ratio as defined by our credit agreement to 2.3.

As of June 30th up 40 basis point improvement from $2.7 at the end of March.

As we have said previously we view.

The tooth of 3 X range of the good steady state amount of leverage.

As we have significant flexibility to go beyond this range of the right type of strategic acquisition.

In the second quarter, our free cash flow was $71 million up 100 of 9% of the same quarter last year with cash generated by operations.

5 of the increasing 92% driven by strong earnings growth and are relatively modest capital expenditure profile.

Now turning to our team member counts.

As of June 30th 2020..1 we are a strong team of 56171, an increase of 18% year over year.

Yeah.

So on during our last quarter's earnings call that we plan to ramp up hiring during Q2 to meet our clients' strong demand.

Adding a net 4784 team members in the quarter organically was a record for Ti and especially notable in the widely acknowledged challenging labor market of you heard Jeff mentioned earlier.

Our differentiated caring culture of once again provided us with the competitive edge in achieving this record level of hiring.

In addition, with our revenue growth continuing to outpace our team member growth. We are driving continued improvement in our revenue per team member profile.

Now onto our outlook.

Our solid results in Q2, driven by ongoing strong business momentum has positioned us to exceed our prior guidance, which we're now raising to reflect our current outlook.

As mentioned during our last earnings call.

I mentioned during our last earnings call that we expect our coffee strength in Q3 due to the plant annual merit increases.

<unk>, which started in June, but the majority of which will be completed in July.

This is already factored into our guidance figures.

For the full year of 2021, we now expect revenues in the range of $2, 1.7% to about 2.1 billion up from 215 to $2.9 billion, reflecting growth in the range of 37.

Month of 40% over last year.

We now expect adjusted EBITDA in the range of $530.540 million compared with the previous range of 500 on $23 million to $533 million.

This reflects growth of 36% to 38% over last year.

We now expect to deliver adjusted.

Diluted earnings per share in the range of 92 to 97 cents an increase from 90 to 95 previous the guidance reflect growth of 30% to 30, 37% over last year.

In summary, we are extremely pleased with our Q2 performance our.

We're highly encouraged by the continuing the momentum across our <unk>.

We remain confident in our outlook for 2021.

With that we will now open the lines of questions and I would kindly ask that you. Please keep it to 1 question at the time, so that everyone can participate.

Jonathan over to you.

Thank you Ms could do once again, we kindly ask you limit yourself to 1 question.

At the time, you can get back in the queue. As time allows we will pause for a moment compiled the queue.

Our first question comes from the line of Ramsey El itself from Barclay.

Barclays. Your question please.

Hi, guys. Thanks for taking my questions I really appreciate it.

Can you parse out the driver.

<unk> of the guidance raise sort.

Of how much from Q2 outperformance versus the claimant acquisition and also then just sort of tacked on to that what is your expectation for organic growth for the rest of the year. It seems like we could see some acceleration of giving easier comps in the back half, but I wanted to check on about it.

Hi, Ramsey, it's Vanessa here.

Thanks for the question.

So we raised guidance for the full year of 2021 on the base of our you know just on the strength of our performance in Q2 and the momentum that we're seeing.

In the business.

As I said earlier, we're seeing particular strength in trust and safety are seeing particular strength in digital CX offering.

And it really on the back of that that we're raising our guidance today I'm mindful of the fact that there are puts and takes though on the Euro for example.

Assuming in our guidance on the days right.

That was you know today today's rates are lower than the world. When we issued our may guidance. So we've got some fixed there the minute that perspective, but we've got some book there in terms of increasing.

Many of them in our business, but overall, it's got momentum that's driving the increase in our guidance of prepayments as we said in the MD&A, it's not overly material from a financial point of view bad.

Additionally, the great extension of our technical capabilities of you heard Jeff talk about them in his prepared remarks, the planet really have very little to.

We think of monarch with our guidance rates today and it really is coming from again puts and takes being very strong momentum out of the live.

But on an offset from 1 of the euro coming down.

Now for since the first of all of our May guidance.

Got it okay, great. Thanks.

Thank you our next question comes.

On the line of Tien Tsin Huang from Jpmorgan. Your question. Please.

Yeah.

Thank you good morning, because the results the on it.

On the new wins that you've named or.

We listed a lot of the.

The interesting it sounds like large wins any way to give us some sense of order of magnitude.

This quarter's.

Do with them is in relation to what you've seen in the past.

The opportunity for some of these to be some sort of important strategic accounts that kind of a color. Thank you.

Thank you for the good question Tien Tsin of nice to hear your voice again.

Likewise.

I think I'm gonna be struggling with sort of the constraints on disclosure for a little while.

Quarters book, but I Hope you will continue to bear with me.

On the months and quarters ahead, looking forward of being able to provide even more detail.

I think it's fair to say that the the 4 major wins I referenced in my remarks in particular, our absolute potential game changers for US. These are as I said the multiyear.

The longer a very significant the total contract value wins with some significant players in.

In the in our targeted industry verticals and in the fullness of time, hopefully, we'll be able to provide a lot more color on indeed, I think it's not dissimilar from some of our other larger strategic accounts, we're looking forward to.

So of penetrating and radiating across the entirety of the platform in the.

Enabling their own digital transformations with the full suite of capabilities that we have of Ti.

On <unk>.

Generally speaking again as I said I think Q2 saw some really improved momentum and take up directly correlated to we continuing to.

The inverse meaningfully in our sales capability and our marketing capability and it's nice to see our business being rewarded with more take up on an accelerated pace of successful commercial activity as a result.

Glad to hear it thanks.

Thanks, so much.

The Q.

Our next question comes from the day of Maggie Nolan from William and Blair. Your question. Please.

Hey, this is Ted on for Maggie Thanks for taking our questions. Jeff you mentioned the tight labor market can you maybe talk about what youre seeing in terms of wage inflation.

How does the the crowd sourcing model within the.

Pay the annotation services, maybe protect you against the kind of the tight labor market.

Okay.

So I think it's fair to say that we are not alone in the experiencing wage inflation as a consequence of the increased demand out there for talent that is capable of participating.

In the digital economy.

And I think again, it's not a.

News to any of you that the.

There is a continuing dynamic of rising off the back of pet.

That make quarantine restrictions being lifted.

Of reevaluating, whether or not the job they had before of the job they want going forward, whether or not the work styles.

<unk> is something that they want to return to a traditional office environment and whether or not there's an opportunity to continue the stay at home. So low in totality I think that's what sort of driving some of the pressure on wage inflation that we're seeing thus far as I said, we are fighting to get manageable the need that we actually saw a decrease of 10 basis points quarter over quarter.

In an.

Our attrition levels.

We don't yet read.

We have a interoperability if you will between our full time team members and our crowdsource workers, but that is absolutely 1 of my ambition in terms of evolving our business model, we think theres folks that you'll have participated historically.

Any of the gig economy, we did so not only out of choice all the many do so given their own unique personal circumstances, but sometimes out of necessity on where theres an opportunity to moving to a more traditional full time employment relationship offering those members of our crowd the workforce of the opportunity I think is already bearing fruit and then Conversely.

Story of cookbooks personal circumstances may be such that they want to perhaps take a bit of a step back from full time employment into a more temporary environment. So the interoperability of the million plus crowd community plus are now north of 56000 of full time team members gives us absolutely another arrow in the quiver to try and mitigate some of these labor.

Labor challenges.

But I think it's still admittedly early days in our model for that and hoping in the fullness of time to continue to see more.

Leverage is the consequence of that Optionality.

Makes sense. Thank you.

Thank you. Our next question comes from the line of Matt Cabral from credit.

Your question please.

Yeah. Thank you and good morning, everyone Jeff.

Jeff you talked about this a little bit in your prepared remarks, but wondering if you could just expand a little bit more on the the integration of Lionbridge AI or I guess the Ti as you guys are calling it now and now that you guys are about 6 months and just talk about how it's performing relative.

Sweet initial expectations and then more broadly.

I know you guys bought payment, but it sounded like a little bit more of just the technical expertise type of acquisition. Just curious how we should think about M&A and the cadence of that going forward.

Thanks for the questions, Matt Nice to hear your voice again as well.

So T I AI.

AI data solutions I know, what the multiple of my apology.

<unk> is progressing well in terms of the integration from former ally.

As I think you may have heard me say before I have this perpetual dissatisfaction with the status quo I think we can always go faster and do better and that's part of the business is no exception.

The tiered, but admittedly I think we're doing reasonably well.

Yeah.

Alignment of the form of ally team in its totality into the <unk> family is progressing very very well and.

The playing the same matrix reporting structure, so that we sort of have operations are aligned with the rest.

The of our delivery capability and the enabling units finance HR. It appropriately integrated so that we could be managing the business as part of our overall offering is working well we've already successfully as I alluded to last quarter of made even more progress here successfully cross sold combined.

Shanghai AI data solution to annotation services in conjunction with content moderation services to existing <unk> clients to net new customers. So again I think the of an unambiguous validation that the acquisition of integration thesis wasn't appropriate 1 youre right, claiming because really sort of a.

An accelerant and augmentation of our entities capability, it's really a tool set that in the hands of our annotation community.

The most of them to be the 5.

5 times more productive by essentially empowering them with technology that allows them to more quickly identify.

The image and video content using 2 D and 3 D activity. So we don't think in our in the.

The old World you know early days for Baby Boomers like me of macro that you might used in connection with the.

On application, where instead of hitting turnkey strokes to achieve an outcome you can hit 1 and it's all of the already.

The automatically pre program the next 9 steps in the.

That.

Outcome. So we see the claimant acquisition is again potentially of sign of things to come as we continue to look for areas, where technology in our highly talented team members and make them that much more productive efficient and accurate.

In terms of extending our M&A reach I think you should expect us to continue to be on the lookout for other areas of opportunity both tuck in and perhaps more substantial that will continue to help us achieve our growth ambitions and realize our strategy extend our reach whether it's geographically access deeper broader talent pools.

<unk> access and be closer to existing of new customers and equally importantly, adjacencies in terms of technology enablement to serve customers in the digital economy.

Yeah.

Thank you very much.

Thank you. Our next question comes to mind of Stephanie price from CIBC. Your question. Please.

And then the good morning, Thanks for taking my question.

I was curious about how much of impact protocol I mean can you give them the more color. There. Obviously you had very solid growth in the quarter.

So in terms of more color I guess I would say.

There is a host.

Most of enablement that we see going on here of sort of traditional leveraging our digital capabilities to help them automate to help them identify.

Fraudulent inappropriate activity more easily more quickly to help them the moderate the user community of there.

Please.

It's not just sort of.

Start up.

The fintech businesses that we're working with as I mentioned the <unk>.

<unk> e-commerce platform in the world the sort of also a new and growing client of ours across the variety of parts of their business whether it's.

Assisting in improving client experience.

Technical support and trust and safety.

It's actually pretty exciting to see that level of growth in a part of our business that is certainly 1 of our targeted verticals, but on a relative basis not quite as big yet just a little bit into the double digits I.

Think about 11% of revenue today, so excited to see more and more opportunity there and I think again, it's kind of a key.

Confirmation of our strategy that these capabilities delivered in the way that we do really is resonating with that customer constituency.

Great. Thank you.

The Q.

Our next question comes from the line of Jason Kupferberg from Bank of America on your question. Please.

Hey, this is Kathy on for Jason. Thanks for taking my question just wanted to dig in a little bit deeper on gross margin I think I saw a little bit of debt and an adjusted gross margin quarter over quarter. Just wanted to know what are the dynamics of that but how should we think.

Cadence, but out in the back half of the year and kind of pass on with that to what extent are the wage hike that you mentioned before kind of being able to be passed through to the customers. Instead. Thank you.

Hi.

The nice thing here I think for off on your question.

In terms of gross.

The margins if you look at the sequentially Q.

I think the Q2.

Well I don't think we got into the details of gross margin on the last call. We did talk about our planned hiring ramp.

We are primarily hiring.

Frontline direct team members, who were ramping for second half plenty of engagement. So as we did that ramp during Q2.

1 of the she would have an impact on the Q2 gross margin. So that was very much expected from our perspective, but as you think about second half versus the first half.

Across the gross margin, but also within SG&A, we are gonna see of normalization and that is primarily because of the the the merit adjustments that we talked.

On that dock, calling in on this call. So we do married adjustment the wage increases that you know across on you know on.

All of our different type of countries.

Countries a lot of that some of that happened in June most of that is actually going to happen in July. So as you look at getting to a normalized margin profile are we do think that looking at the full year guidance.

But on the more meaningful just because we do have the you know seasonality so to speak in terms of of the cost profile of merit increases taking effect in the second half versus the first half.

Got it thank you.

Thank you. Our next question comes from the line of Dan Perlin from RBC capital markets.

The question please.

Thanks, and good morning of nice quarter, it's good to hear from everyone. In the question I have is the last quarter. I think you guys talked a little bit about your sales funnel. I think you said it was up over $400 million last quarter to close to maybe 2 billion would be quite quite a bit above that I'm. Just wondering if you have any kind of updated commentary that you can provide.

As you sit here today. Thank you.

Thanks, Dan, Yes, we spent a bit of time talking about whether we want to get into the practice of updating.

On the exact size of the funnel quarter on quarter out.

Where we landed was.

Wanted to just sort of provide a little bit of color here, but not sure theres as much.

Value in that level of specificity I will tell you that the funnel is still very robust north of 2 billion.

We converted a lot of the funnel in Q2 candidly. So the good news is not only did we convert.

Potential portion of those opportunities, but we replenished those converted opportunities with new opportunities and so in totality I would say.

On the funnel continues to give me a high degree of comfort and confidence in our ability to achieve our targeted performance for the year and now obviously given the duration of the sales cycles. Traditionally we're already looking pretty closely into the first quarter first half of next year in there to consider the continuing.

To feel I'm pretty optimistic about the trajectory of the business.

Excellent. Thank you.

Thank you. Our next question comes from the line of Keith Bachman from BMO. Your question. Please.

Hi, Thank you very much of my question relates to the previous 1 and so.

Measure and I wanted to hear a little bit more about the competitive landscape broadly speaking on win rates and then diving down a bit more specifically.

Into the tech and gaming areas.

In terms of your current differentiation.

<unk> given some of the recent M&A and how you see that unfolding in other words your growth rates are pretty impressive in tech and gaming.

I'm trying to understand how sustainable that is particularly from a competitive landscape perspective. Thank you.

Thanks for the question Keith.

So I'm not sure we provide.

And even much granularity in terms of win rates I think we may of shared we're sort of your mid thirties ish.

But it's an inherently subjective number in that I think some folks measure of win.

When there is an opportunity in the funnel now sort of triggering the the calculation as it is the opportunities that are at the 40%.

The probability waiting stage, then converted to a close and that's what you calculated is your conversion win rate is it.

20% qualification is it already of 60%. So I think there is a degree of subjectivity. There again back to my earlier comment I always think we can and should do better, but I think we're doing reasonably well in terms of the competitive dynamic.

Again, I'm not sure I'm seeing anything, particularly unique or new today are different than what we've been experiencing candidly.

From our inception.

Our clients in that sector, but generally are looking not just for value for money, but more importantly are looking for innovation or looking for partnership and collaboration are looking for someone.

On 1 who is going to help them achieve their own ambitions, which more often than not are.

The over index to in the case of games publishers player delight.

Theyre not looking on a throw money away obviously, the as I said, they want value for money, but more focused on on attracting more players of the platform and keeping players playing longer and spending more money on.

On the platform and tech more broadly these are digital natives vs. R. Tech savvy businesses that are themselves exploiting leveraging technology in order to differentiate themselves from their competitors.

Pace of the competition and generally we see the looking for businesses partners that will help them achieve those ambitions. So again.

<unk> not looking to spend money like drunken sailors they want value for money, but over indexing on helping them to grow wallet share grow of lifetime revenue achieve incremental subscribers to their platforms and outpaced their competitors and so long as we can continue to offer the all of those elements of the digital transformation ecosystem.

And I think equally if not more importantly today theres. This lens of people want to do business with people, who want to do business with them. So sort of this strategic partnership buying and selling from 1 another and we're going to market together and then also more and more of a recognition that you're going to be contributing.

Positively to the world to the economy to helping to make People's lives better and so I think that ESG lens is becoming more pronounced as well.

I can tell you participated personally in a number of reviews around the RFP responses, where folks are diving deep into our diversity and inclusion practices.

Meeting what are we doing in order to actually demonstrate we're putting our money where our mouth is around.

Recognizing supporting and celebrating the equality in the workplace.

So to a lot of debate around how we're responding to the pandemic our weeks rushing team members back into the office or we are being thoughtful about whether.

We have mandated Moscow requirements, so on and so forth I think it's it is an exciting interesting complex time.

If your thoughtful sensitive responsive to all of these factors I think you can continue to dwell on indeed, that's what we're experiencing so far.

Alright, many things.

Thank you. Our next question comes from the line of Ashwin true about kind of from Citi. Your question. Please.

Okay.

Thank you I, just havent NASA the ticket from you.

The social media kind of just now become your largest client you mentioned of pretty strong growth.

The growth I think.

Whether we are 40% is that mostly related to content moderation and if that's the case of it sort of reflective of how you see.

Sustainable near term growth in the content moderation market overall and maybe a broader question is if you see data annotation and content moderation offerings.

Integrating.

Hey, Ashwin. Thanks for the question nice to hear your voice as well hope you are keeping safe.

I think it's fair to say that much of that growth is tied to content moderation, but excitingly.

There's more than just that it also.

Also includes data annotation.

And related work. So do I think this growth rate is sustainable I do I guess for a couple of reasons 1 unique to this particular customer just given the size and the opportunity I think as with many of these larger clients. We're excited about.

Essentially partner with them because of how big the opportunity is and the opportunity to continue to extend and radiate across the account sell them more of what we can do with and for them and the other driver here is again as I alluded to in my prepared remarks. This explosion of user generated content I don't think that's going to abate anytime soon and so.

Having to think about the the volume and velocity of content that is being produced and it's not just 1.

Text. It is now mixed content video image text.

And multilingual multi country multi culture I mean the.

Complexity and pay.

Piece of evolution is really quite staggering and so I think this client and candidly all of US are going to continue to have no real both challenge and exciting opportunity to try and keep pace with managing this proliferation of content and it's not just from our trust and safety perspective again as I mentioned earlier, it's also about.

About trying to leverage all of this content in a way that can be monetized more effectively like for example, ensuring that the ads are being placed in front of the right audience to improve the take up or success rate of that placement, so really quite exciting complex ecosystem that extends around sort of core traditional content moderation and again we're.

We're excited about the opportunity to work with this fantastic customer and exploit more of our growing delivery capability to support them.

Okay.

Thank you.

Thanks Ashwin.

Thank you. Our next question comes from line of Richard Tse from National Bank Financial Your question. Please.

Yes. Thank you I'm just curious what proportion of of your overall client base today is using your data on patient services and I guess related are there any differences in the go to market strategy. When it comes to the data on patient segment.

Yeah.

So we.

We haven't yet and I'm not sure we will disclose exactly what proportion of our customers today are using our annotation capability, but.

Just given the relative nascency of that capability.

I don't think it would be surprised the.

Here that it is not the majority of yet.

In terms of the the difference in go to market I mean, I think not surprisingly low data annotation is really the the underpinnings of AI.

And I think we're still in relatively early day in terms of AI proliferation, right. I think obviously the hyperscale are way way out in front as I mentioned earlier.

The enterprise mid market, starting to embrace and adopt AI enabled solutions.

But again I think we're still at the relatively early stages of that and so some of the.

The opportunity to consume to be the beneficiary of the output of annotation capability, which is really sort of the.

Kindling the fuel for machine learning algorithms that are employed by AI to deliver these more accurate predictable scaled outcomes I think there is massive massive upside.

But I think as I said, we're still relatively early days here, but excited about what's coming down the road here.

Okay. Thank you.

Thank you. Our next question comes from the line of steep from Scotia capital. Your question. Please.

Great. Good morning, Jeff just on that last point, maybe could you talk a little bit of boat, what you've seen from non tech clients engaging with regards to seeing some of.

Of the test cases, youre, putting it there on AI and data annotation support how.

How that might be fueling demand. Thanks.

Okay.

So I guess I would just harking back to the examples I referenced in my prepared remarks do you I mean.

At the end of the day.

I read some of the other day that made me smile.

Some of it there arent going to be too many industries in the very near term debt Walt benefit from AI that wont potentially be transformed by AI.

And it's no different to name of food group that won't taste better with Bacon.

There's probably very few left.

If you're a big can sound like I am.

The the AG sector clients that I referenced earlier I think is a really good 1 and it really speaks to the fact that you know here's the arguably.

Ages old.

The industry farming.

That is now able to leverage.

The AI and computer vision technology in particular to improve.

Food production to improve food traceability to really help accelerate and amplify crop yields.

To support arguably 1 of humanity's biggest challenges in terms of in terms of food scarcity as per.

Population growth continues unabated.

<unk>.

[laughter] Fergie.

Forgive me, but I guess I have a difficult time, circumscribed being where or how we might be able to leverage this because I really do think as Hubert.

Equities.

Sorry hang on 1 second.

Sorry about that I have construction going on outside of my front door here of forgive me.

<unk>.

So offline, perhaps we get we can talk more about some more specific.

Applications of examples I'm, sorry, I'm not being more helpful right now, but perhaps I'm not fully appreciate the question, but suffice to say I think there is no. It's not taking gains clients only it's not e-commerce and Fintech on the book.

At Health care for example of the opportunity to embrace AI and computer vision to help with improving diagnostic activity in medical imaging.

Yeah.

Really it is the applications are.

Really limited only by our own our own imagination at this point.

Thank you.

Our next question comes from line of Daniel Chan from TD Securities. Your question. Please.

Hi, good morning.

Image you dive into the content moderation side, you did mention how big uses of tailwind for you. There you see on some recent developments with the new proposed Bill for section 230 in the U S and that's for where the protections for social media platforms from Healthiness of misinformation might go away I'm, just wondering whether any of that comes up in your discussions on whether you think this.

Wanted to an ongoing trend around most of the markets. Thanks.

Yes, as you might imagine at our board in particular, we spend a fair bit of time discussing debating trying to get out in front of this.

I think the reality is we don't know yet for sure of what the implications are but my own bye.

It's going to be us admittedly is.

Thank you respective of changes too.

Section 230, or not I think we anticipate there is going to be of need for the services that we perform for the foreseeable future I think the the likeliest outcome as we.

We see more oversight of higher levels of regulatory intervention in order to continue to address.

The scale of the impact positive or negative debt these platforms.

Afford and we've seen the both the positive and negative outcomes. When these plan.

Platforms are unregulated.

And we think that.

That's an opportunity for us given our expertise experience and scale.

And then really sort of the the ability of <unk>.

Worked closely as a trusted partner and advisor to the platforms that will be the subject of perhaps.

Perhaps more regulation as well as the admittedly to the discharge of our opportunity and responsibility as digital first responders and trying to keep the.

Of the community at large safe.

And it's not just English language is not just the north American environment. This is truly a global issue and having capabilities across multiple.

As we do in.

An experienced familiarity with multiple regulatory regimes and to be able to do this.

Expertly efficiently sustainably at scale again, I think is going to continue to be a critically important valuable capability of resorts in high demand as this regulatory.

The language regime continues to evolve and we've already seen how heterogeneous. It is right it's quite different in 1 jurisdiction to another.

On anticipating the standardization of our harmonization globally necessarily on even if there were to be such an outcome, which would make it easier for everybody. Even then I think we have this unique competitive advantage.

Given our scale advantage in existence and expertise already.

Thank you.

Thank you. Our next question comes from the line of Dave Koning from Baird. Your question. Please.

Yeah, Hey, guys congrats and thank you.

And I guess my Mic.

My question would be since this is really you know your first Q2 as a public company and we're thinking about the rest of the year.

Should should sequentially both quarters be up about the same and kind of weaving into that question is seasonality on lionbridge on Q2, I think in my models may be just a touch light.

You, what I thought and that might just be seasonality like maybe lionbridge ramps more in Q3, and Q4 and so I guess is it just kind of a sequential question on on what to expect.

Hey, Dave the Vanessa here.

Thanks for your question on there is no downside.

And our.

Business that we typically have a stronger second half than we do our first happened and language now.

All of it in that bucket. So we certainly do expect to see sequential sequential improvement there as we do across the entirety of our business.

What I would say the like we don't have we issue guidance.

For the full year, we don't get it down to specific quarters.

But if you take the guidance just given today.

Have you you know what the first half actuals are I think you can derive the second half from that number and if you think about Q3 Q4, you know I think of reasonable approximation would be like of 48.

52 ish.

Split between that between Q3 and Q4. So I think if you were the model it that way that will give you a sense for kind of how the seasonality profile is expected to play out.

Awesome, Yeah, that's super helpful. Thank you.

Thanks, Dave.

The queue. Our next question comes on the line of James Fawcett from Morgan Stanley.

Your question please.

Thanks, a lot and nice chatting with you, Jeff and Vanessa and really good results here on Vanessa mentioned and some of her commentary.

Increase in revenue per employee or per head can you talk a little bit about a little more as to whats driving that and I guess, what a lot.

A lot of US are curious about is as youre looking at the kind of increasing wage level of how much are you being able to pass through versus.

Being able the markup even incrementally Telus is services. Thanks a lot.

Thanks, James that's.

Good to hear from you.

Yes, we are.

Moving up the the food chain sort of speak from the revenue per per team member basis.

The weird in the quarter, we were just under 10 annualize the 40.

And we do we do expect that strength to continue on as I think that's sort of trend that changes every single quarter by a meaningful degree but.

We have the move towards our mid to longer term plan, we expect that metric to watch the continued to increase in 4 off the bat too.

Driving that increasing mix of digital on higher value services.

That's really what's going to drive that for us.

And so I think you can see for of our historical profile are rare.

Revenue growth.

Have always outpaced our team member growth, So I think youre going to continue to see the.

Prospectively in terms of wage increases those are very standard within our industry. We plan for them every single year, we're never surprised by them.

We are sometimes able to pass the cost downs of certain customers, but admittedly we're not.

Start with the couple of thoughts on the certain customers, which is why we have to continue because we have to continue being a relentlessly focused on driving efficiency in our business that'd be bought the Macau, because we can't rest on our laurels and assume that we can pass on those increases in every single instance.

That's not new that's not been the case on for quite some time now and certainly that's.

Just how we manage our business and again, that's just why we continue to drive the the internal efficiency improvement digitization as well, how we ourselves do things. So that we can drive those the cost of interest cost efficiencies.

That's great. Thanks Vanessa.

Thanks Jane.

Thank you our final.

The mission for today's day falling from the line of cash when true Baker from Citi. Your question. Please.

Ashwin you might have your phone on mute.

Sorry about that thanks for the second question I wanted to go back to the.

Final quick true can you just ask does the outlook in PS.

Do you take into account the new contracts you signed that you spoke of.

Who do you consider debt they take time to ramp and primarily affect the future years.

Hey, Ashwin.

Yes, our outlook.

The average does take into consideration of the new contract that we signed but admittedly. If you think about on a ramp you know somebody's win these new wins stockpile that Jeff has referenced when you think of a typical ramp you know we've we've just hired the team members equals procured of training and you start to then generate the revenue. So a lot of those new wins will start.

Looking great much more revenue in 2 of them as we exit 2021 and more flow into 'twenty, 2 'twenty 'twenty, 2 but absolutely yes, they have been taken into consideration and indeed revised guide.

Okay. Thank you.

Thank you.

It does conclude the question and answer session of today's program I'd like to hand the program.

The general back to Mr proof of any further remarks.

Thank you Jonathan and thank you everyone for your questions.

<unk> technology is certainly continuing to evolve rapidly and I am so excited about the leading role Telus International is playing to help our clients not only embraced this change but to thrive.

<unk> permit as well as the continue to stay ahead of their competitors I want to reemphasize my confidence in our team's ability to achieve the updated revenue and profitability goals. We've set for ourselves for full year 2021, Indeed the most.

Mentum, we carried forward from Q1 and through the second quarter makes for an impressive first half of the.

A year and we look forward to continuing to execute on our growth strategy in Q3 and beyond and the interim coming up in August and September of on F&I will be participating at several investor conferences still in a virtual format for now and we look forward to continuing our engage in conversations with investors and analysts. Thank you.

Very much once again for joining us keep yourselves and your families safe and have a great day. Thanks al.

Thank you, ladies and gentlemen for your participation on today's conference. This does conclude the program you may now disconnect good day.

[music].

Good morning, ladies and gentlemen, and welcome to the Telus International's second quarter of 2021 Investor call. My name is Jonathan the that will be your conference facilitator today at this time on that have been placed on mute to avoid background noise. After the speakers.

Speakers remark there will remarks, there will be a question and answer period, if he would like to ask a question. During this time. Please press Star then 1 on your telephone keypad, if you'd like to withdraw your question. Please press the pound key I will now turn the call over to your host Jason Fire Senior director of Investor Relations and Treasurer of Telus International.

International Mr. Meyer you may begin the call.

Thank you Jonathan Good morning, everyone. Thank you for joining us today for Telus International Q2, 2021 Investor call.

Joining us today are Jeff <unk>, President and C E.

Oh, and then at the Kennedy, our Chief Financial Officer.

We will.

I'll begin the call with some prepared remarks, where Jeff will provide an operational and strategic overview of the quarter followed by the NASDAQ will provide some key financial highlights.

The well then open the lines of questions, who prequalified analysts before turning the call back the Jeff, whereas the closing remarks.

Before I turn the call either the Jack I would like to direct your attention.

The slide 2 of the supplementary presentation available for download on the webcast and also available on our website on Telus International Dotcom slash investors the.

Statements made during this call may be forward looking in nature, including all comments, reflecting expectations assumptions or beliefs about future events or performance that do not.

Not relate solely to historical periods.

These forward looking statements are subject to risks and uncertainties, which may cause actual results differ materially from our current projections.

We assume no obligation to update any forward looking statements.

Jackson, Vanessa will also discuss certain non-GAAP measures that the management team considered to be useful.

In assessing our company's underlying business performance.

I would also like to remind.

Everyone that all financial measures, we are referencing on this call and in our disclosure of U S dollars unless specified otherwise and relate only to Telus international results of the measures.

With that I'll now pass the call over to our President and CEO, Jeff here.

Thank you, Jason and good morning, everyone and thank.

You all for joining us today.

To underscore the successful execution of our strategy to cultivate highly accretive business opportunities and our unrelenting focus on pursuing higher value digital engagements importantly, they also reflect the deep trust our clients place in their partnership with us.

Equally impressive is the environment in which these results were achieved.

Unlike many of our industry peers that struggled a year ago, having to recover from impacts to their businesses stemming from the pandemic. Our company's financial results are building from a position of relative strength resilience and consistent execution last year, making our growth of this year all of the more impressive.

Our sales.

All of team led by our Chief Commercial Officer Maria Party helped to drive exciting new wins for Telus International in Q2 successfully converting on opportunities with the world's largest technology company by revenue the world's largest E Commerce company the.

Worlds fastest growing social media platform and 1 of the world's largest banks just.

The name of few.

These are meaningful multi year deals reflective of the accelerating sales traction we're seeing in the market for Telus International.

Indeed, the second quarter concluded a remarkable first half of 2021 per Ti and it's on the strength of our Q2 results that we're raising our outlook per year end 2021.

As Vanessa will share in more detail later in the call.

And a repeat of last quarter, our tech and games vertical represented the highest year over year percentage growth amongst our targeted industries. This growth was primarily driven by increased demand from our digital native and tech disruptor of clients that recognize the value of our differentiated end.

To end capabilities, including our premium content moderation services and AI data solutions.

For example, 1 of our multinational tech giant clients partnered with us to train test and scale their voice controlled virtual assistant.

With over 150 million global active users per.

Its virtual assistant can schedule appointments among many other useful tasks and due in part to our efforts. It can now understand and perform tasks and more than a dozen new languages, we started with data annotation, including pronunciation checks and validation to teach the advent of speech recognition system. This entailed collecting massive.

On Mount of data by generating thousands of sentence variations, which we then recorded by native speakers before being loaded into the clients' AI system. We also used the voice grammar Extensible markup language, you're XML the contained the set of rules developed by our computational linguistics to ensure the AI algorithm properly identify the inputs.

Most of them. This was an extremely complex undertaking requiring significant expertise and our specialized technology capabilities, but there was also a very successful project and we continue to collaborate with its clients to evolve their virtual assistant along with other projects across our broader portfolio of the end to end clients digital services.

And.

On another tangible example, our digital solutions team is working with 1 of the world's largest providers of agriculture products and services. This client grown rapidly through acquisition and as a result was using an inefficient mix of resources, providing employee experience support on an aging platform with limited quality assurance and data analytics capabilities.

<unk> the left many blind spots across the organization.

Telus International was hired to enable the new end to end employee experience, including our cloud based platform, which modernized interactions with an entire suite of digital solutions. We created a comprehensive set of digital value added outcomes that include.

Its omni channel integration with real time transcription, including sentiment analysis automated workflows enabled through integration with the client service now incidence and dynamic digital analytics dashboards that provides an automated early warning system for technology problems in the client's environment. This integrated data first solution.

Theme of enables deep analysis of all of our clients of data to identify areas, where they can reduce support effort through robotic process automation and build and deploy chatbot.

And Chad automation to answer frequently asked questions until enabled self service.

Another example of our technology in action, it's work we perform.

<unk> can help an enterprise customer to develop an AI system that would automatically recognize receipts of invoices from over 20 countries and have them converted into text for further processing and an extremely rapid and efficient manner. We completed the collection on annotation of thousands of receipts of invoices from different companies globally the train.

Formed Ian's AI system. This kind of application can be scaled and used by any business for expense management of our company invoicing or anything that requires paper documents or inputs can be automatically translated into digital form for processing by an AI engine and speaking of bought yet another engagement is our support of a leading <unk> company.

On the clean Asia in the development of their AI emotion analysis algorithm to help their bots recognize the emotion the sound more human during interactions with customers.

Recognizing the emotions when we converse may seem relatively simple to you and me.

The considerable challenges from machine learning models to help.

Our clients AI engine that powers the bought the ability to understand the emotions. Our team collected on labeled thousands of written question and answer sets for emotional intent that was then used to train the clients, but what's even more exciting as this client already has plans to develop the future bought iterations that will use voice and the facial recognition technology.

<unk> to identify customers' emotions and with our enhanced image and video annotation capabilities as part of our computer vision toolset added through our acquisition of appointment earlier. This month, we are well positioned to win even more business from this client.

Payments capabilities also include a proprietary data annotation.

The platform that specializes in 2 D and 3 D image video and Lidar remote sensing method that uses laser pulses to measure of variable distances, which are in high demand the power evolve and disrupt the world around us and areas such as health care on agricultural applications as well as in the creation of smarter of consumer products and services.

1 particular payment client that is very well known in the autonomous vehicle space in Euro is currently leveraging our computer vision capabilities and its vehicles, using robotics think pizza or grocery delivery.

The application requires an AI system to be able to recognize street signs traffic patterns driving routes and the system was also learn.

The use judgment to avoid risks with people dogs and other objects on the street.

Our million strong AI community and solutions come in is with the labeling vast amount of image and video data captured from cameras and sensors in order to train the AI system to achieve of effective self driving and delivery capabilities and while the.

Economists vehicle market is still developing computer vision technology also has applications in more traditional industries such as farming in mining Workers' safety continues to be a top priority on these types of businesses and our AI data solutions have significantly improve their performance, but 1 of our clients by creating training.

The data sets of images of safety goggles, harnesses vest and other equipment warrant properly and improperly cameras located deep inside mind can then be fed into an algorithm that can identify when workers are not following regulations in order to alert leaders in real time to avoid potentially dangerous situations reducing.

<unk> injuries and minimize costly disruptions in the slate.

Excuse me delays claimant with its numerous adjacencies to our existing data annotation capabilities added through our acquisition of Lionbridge AI was the natural complement to our ongoing integration of the ladder, which has progressed well over the past 7 months, we recently.

Brand of this division of our business to Telus International AI data solutions and today, we operate 1 of the largest data annotation platform of its kind of globally and are fully prepared to meet the exponential increase in demand for the high quality diverse datasets needed to power of todays and tomorrows AI driven solutions.

<unk> with data collection and labeling typically representing approximately 80 per cent of the work on any given AI project, we are indisputably well positioned on the AI and machine learning value chain.

Finally, another adjacency an opportunity where we've leveraged our AI data annotation capabilities is to further enhance our market leading content.

Rent moderation services, an area that is experiencing tremendous growth with the explosion of user generated content that is increasingly attracting regulatory attention to keep our online world safe and trustworthy..1 very topical example is the work we perform for a leading social media giant to monitor the integrity of their user.

As of the data for example, currently in the news is the topic of fake data around the effectiveness of COVID-19 vaccines and other health related topics, our team of Annotators evaluate and rates of news and information for relevance accuracy and integrity to ensure the users are not provided with false or misleading information.

The agenda, our team is playing a critical role in helping to make the internet of safer place.

And while content moderation has traditionally been a market more heavily skewed to tech hyper scaler. We're also seeing an increased appetite among clients in the enterprise and mid market segments that have growing digital communications platforms to optimize manage.

And monitor 1 clear application is an online advertising with AI solutions, helping to optimize results and improve the effectiveness of advertising campaigns.

Our annotators provide the critical data that enables companies to place ads in the most relevant positioning per users in different countries languages.

The cultures I.

I hope. These examples I can share to help shed more light on not only what we do today, but also set the stage for the of Numerable opportunities ahead of us in terms of of how we're able to partner with our clients to achieve game changing industry, disrupting and market leading brand experiences using AI powered services.

<unk> <unk> was only limits will be our own imagination.

Another feature of our success that I am very pleased to share that our accomplishments and unique approach to the industry is growing in recognition in the second quarter. We were awarded the AI Breakthrough award in the best information of box solution category for the development.

And so intelligent agent assist the chatbot and more recently our company was named the leader on Everest group's customer experience management services peak matrix for the third consecutive year ranking in the top 3 per our strategic vision and capabilities. Among the nearly 40 companies that were included in the evaluation.

We're also.

Also among the top 10 on the 2021 average group of bps top 50 list of <unk>.

Global ranking of the 50 largest third party providers based on their revenues and year over year growth. This year Telus International was the top rise are on the list climbing an impressive 18 positions and we were also ranked number 1 by percentage of revenue growth.

Growth are carrying culture and commitment to ensuring each and every 1 of our more than 56000 team members is able to bring their whole selves to work was also recognized with Telus International named 1 of moguls top 100 workplaces with the best diversity and inclusion initiatives for 2021.

This list acknowledges the efforts.

The needs around the world that of implementing practices invested in resources and develop strategies to create more inclusive and diverse workplaces.

Although I personally have the great pleasure of seeing the excellent displayed by our team day in and day out whether they are building behind the Cork celebrating pride month with the drag con.

Of come Philippines, leading virtual round tables on gender equality or receiving accolades from our clients around the world for going above and beyond for their customers. These awards and distinctions are of fitting reflection of our team members' passion ingenuity and dedication in everything they do.

And I am extremely proud of.

And the their collective achievements.

Just before I hand off the Vanessa to take us through our second quarter financial results in more detail I wanted to share a quick update on our team.

Some other companies have highlighted and comments recently, there was an increasing in competitive demand for talent in Q2.

While we remain vigilant in assessing any <unk>.

Emerging trends in our key labor markets around the globe Ti continues to be of destination for talent.

Notably while as expected our attrition is higher than this time last year at the height of the pandemic, we have not seen any significant elevation in our attrition from 2019 pre pandemic levels sequentially.

Clearly our attrition in Q2 was consistent with Q1 with a nominal decrease of 10 basis points and for the quarter. The Telus International family of total team member counts grew by 4784.

As at the end of June about 80% of our global frontline.

Team members continue to work safely from home as we continue to take our science based.

<unk> approach to safely bringing team members back to the office.

We continue to closely track vaccine availability and rollouts and each of the regions, where we operate in countries, where we're permitted to do so we're also working with local governments the sub.

Supplement their efforts by engaging of credit and health care providers to help vaccinate our team members as well as family members with that let me now pass the call to our Chief Financial Officer, Vanessa Canoe and I'll be back for the Q&A Vanessa over to you.

Thank you Jack and good morning, everyone. Thank you for joining.

Joining us today.

And my overview I will review, our summarized results for the quarter and as Jason mentioned at the start off the call. Some of these items our non-GAAP measure.

You can view and more detailed 3 of them.

On our more detailed 3 and 6 non financial results, including a reconciliation of our GAAP to non-GAAP measure on the financial statements and MD&A.

Sales earlier this morning.

As Jeff mentioned Q2 was of great quarter with solid revenue and earnings performance.

Revenue increased 36% year over year, and we saw growth across all of our geographic regions and industry vertical.

Adjusted EBITDA increased 56 per cent year over year.

<unk> adjusted diluted earnings per share doubled year over year, reflecting revenue scale increased mix of higher value and higher margin services and our continued focus on internal efficiencies.

Free cash flow was also strong in the quarter up 109% year over year.

Now, let me get into the detail.

And revenues for the quarter were $533 million up 36% driven by continued organic growth and contributions from acquisitions.

For the second quarter in the road this year, our organic growth was 20% of.

The chiefs through the expansion of business with existing clients and new logo wins and primarily.

Strong demand for our trust and safety and broader digital CX solutions.

Our total revenue growth also include an FX tailwind of approximately 5% compared to the same period in the prior year.

Just put these results into the perspective, I will echo what Jeff mentioned earlier.

The second.

Second quarter of growth is even more impressive when compared to the strong consistent execution from the same quarter a year ago, when Telus International International showed resilience in operating and financial performance when the pandemic struck the globe.

In Q2 of last year, Telus International grew revenue, both Inorganically and organically.

On 1 year later today, our growth builds from a very strong and solid compare.

In terms of our revenue by geography, we delivered year over year of growth in every single 1 of our regions with very strong growth in Europe again, thanks to high demand for our trust and safety services as well as strong continued growth.

America, and Asia Pacific driven by the client demands I mentioned a moment ago.

From an industry vertical perspective, we saw growth across all key vertical in the second quarter.

Second game was our fastest growth vertical of 59% year over year with almost 70% of this growth attributed to on.

In north of the breach AI acquisition or what we've now rebranded as Telus International AI data solutions.

The balance of the growth in tech and games on what organic driven by growth in demand from our digital native and technology disruption clients.

We also saw a meaningful acceleration in revenue from clients in our E Commerce.

<unk> and finfet vertical with that vertical achieving revenue growth of 49% year over year.

Finally, our communications and media.

The vertical grew 11% year over year, while all other industry vertical of grew 23 per cent year over year.

Across all of our verticals, we are benefiting from the depth and breadth.

On landmark diverse service offering as we meet our clients' increasing demand.

Moving on the operating expenses.

Salaries and benefits expense was $299 million up 28% as the result of the growth and expansion of our business and related growth in team member counts.

Our.

Net of the services purchased were $103 million in the quarter, an increase of 39% largely due to our acquisition in particular, our AI data solutions crowdsource contractors for which the contract that labor costs are recognized in goods and services.

We continue to see scale efficiencies in our operating expenses as.

Good something revenue outpaced the growth in Opex, demonstrating the long term operating leverage inherent in our business model.

Moving down to other notable items on the P&L share based compensation expense in the second quarter was $19 million, an increase of $9 million year over year.

The increase was primarily driven.

By Mark to market adjustment on historical cash settled awards due to the increase in our share price.

As a reminder, new awards granted under our 2021 long term incentive plan are now equity settled generally vesting annually over a 4 year period.

Income tax expense in the quarter.

<unk> was 13 million of $3 million on the same quarter last year.

Our effective tax rate increased from 18, 9% of 44, 8%, primarily due to an increase in non deductible items.

Higher withholding on other taxes and a reduction to the prior year the effective tax rate due to adjustments recognized in that period for.

For income tax of prior periods.

A reminder, that our effective tax rate, which is income tax expense at the percentage of accounting net income before tax can vary due to various factors, including but not limited to the jurisdiction mix of our earnings in any given period and the tax deductibility of certain expenditure items.

Moving on to our profitability performance, we delivered adjusted EBITDA of $131 million per the quarter posting strong year over year of growth of 56%.

Our adjusted EBITDA margin was 24, 6% up from 21, 5% margin in the Europe and the your uncle period.

Adjusted.

The net income for the quarter was $63 million up 142%.

On the per share basis. This translated into adjusted diluted earnings per share for the quarter of 24.

100% of year over year.

Driving this increase in profitability was the impressive high quality revenue growth, we have achieved so far this year.

We benefited from our ongoing focus on digital service offerings.

In pursuing high value engagement, driving an accretive client mix, while continuing to improve efficiency in our operations.

Moving onto the balance sheet.

Cash and cash equivalents for 100 of $19 million I'd like June 30th 2000.

Uh huh.

Our total available liquidity grew to approximately $815 million as of the quarter end compared to $285 million at yearend.

This includes available borrowing under our revolving credit facility of $696 million.

With our available liquidity, we have created.

8 of meaningful capacity for potential strategic acquisition, leveraging our successful M&A playbook for the right opportunities to advance our growth objectives.

Following the sizeable of repayment of debt last quarter, we continue to lower our debt levels with the repayments of $55 million from cash generated from operations.

In Q2.

This lowered our net debt to adjusted EBITDA leverage ratio as defined by our credit agreement to 2.3 yet.

As of June 30th a 40 basis point improvement of $2.7 at the end of March.

As we have said previously we view the truth of the 3 X range at the good steady.

The state amount of leverage.

As we have significant flexibility to go beyond this range of the right type of strategic acquisition.

In the second quarter, our free cash flow was 71 million up 109% of the same quarter last year with cash generated by operations, increasing 92% driven by strong.

Sales growth and a relatively modest capital expenditure profile.

Now turning to our team member count.

As of June 30th 2021 we are a strong team of 56171, an increase of 18% year over year.

We mentioned during our last quarter's earnings call.

Or do we plan to ramp up hiring during Q2 to meet our clients' strong demand.

Adding a net 4784 team members in the quarter organically was a record for Ti and.

And especially notable in the widely acknowledged challenging labor market as you heard Jeff mentioned earlier.

Our differentiated carrying.

That was again provided us with the competitive edge in achieving this record level of hiring.

In addition, with our revenue growth continuing to outpace our team member growth. We are driving continued improvement in our revenue per team member profile.

Now onto our outlook.

Our solid results in Q2.

The culture of and by ongoing strong business momentum has positioned us to exceed our prior guidance, which we're now raising to reflect our current outlook.

As mentioned during our last earnings call.

I mentioned during the last earnings call that we expect our cost base to increase in Q3 due to planned annual merit increases which started in June but the majority.

Dirty of which will be completed in July.

This is already factored into our guidance figures.

For the full year 2021, we now expect revenue in the range of $2.172, 1 billion up from 215 to $2.9 billion, reflecting growth in the range of 37% of 40% over last year.

We now expect adjusted EBITDA in the range of 530, the $540 million compared with the previous range of $523 million to $533 million.

This reflects growth of 36% to 38% over last year.

We now expect to deliver adjusted diluted earnings per share in the range of <unk> 92 to 90.

7.7 and increase from 90% to 95% previously guided.

<unk> growth of 30% to 30, 37% over last year.

In summary, we are extremely pleased with our Q2 performance on.

Highly encouraged by the continuing the momentum across our business and remain confident in our outlook for 2020.

The 1.

With that we'll now open the lines of questions and I would kindly ask that you. Please keep it to 1 question at the time, so that everyone can participate.

Jonathan over to you.

Thank you Ms could do once again, we kindly ask you limit yourself to 1 question at the time you can get back in the queue as time allows.

Low full pause for a moment compiled the queue.

Our first question comes from the line of Ramsey Elisa from book.

Barclays. Your question please.

Hi, guys. Thanks for taking my questions I really appreciate it.

Can you parse out the drivers of the guidance raise.

Sort of how much free.

The Q2 outperformance versus the claimant acquisition and also then just sort of tacked on to that what is your expectation for organic growth for the rest of the year. It seems like we could see some acceleration of giving easier comps on the back half, but I wanted to check on about it.

Hi, Ramsey of Vanessa here, Thanks for the question.

So we raised.

The guidance for the full year 2021 on the base of our you know just on the strength of our performance in Q2 of the momentum that we're seeing in.

In the business.

As I said earlier, we're seeing particular strength in trust and safety are seeing particular strength in digital CX offering.

And it really on the back of that that we're raising our guidance today.

Mindful of the fact that there are puts and takes though.

The Euro of for example are you know what we're assuming in our guidance on today's rates and that was you know today's today's rates are lower than the world. When we issued our may guidance. So we've got some fix their protected book, but we've got some book there in terms of increasing momentum in our business, but overall it keeps that momentum.

Driving the increase in our guidance of prepayments as we said in the MD&A, it's not overly material from a financial point of view.

The acquisition is a great extension of our technical capabilities as you heard Jeff talk about the.

In his prepared remarks. So then it really has very little to do with our with our guidance rates today and it really is coming from.

Again puts and takes being very strong momentum out of little bit of on an offset from hum on.

The euro coming down now.

Now because of the versus our May guidance.

Got it okay, great. Thanks.

Yes.

Thank you. Our next question comes from the lot of Tien Tsin Huang from Jpmorgan. Your question. Please.

Please. Thank you good morning, good results the.

And on the new wins.

Aimed.

We listed a lot of.

The interesting it sounds like large wins any way to give us some sense of order of magnitude.

This quarter's bookings in relation to what you've seen in the past.

Opportunity for some of these to be some.

Toward the strategic accounts that kind of a color. Thank you.

Turning to the cash question Tien tsin of nice to hear your voice again.

Likewise.

I think I'm gonna be struggling with sort of the the constraints on disclosure for a little while longer but I hope you will continue to bear with me and the <unk>.

Months and quarters ahead of looking forward.

Some of the can provide even more detail.

I think it's fair to say that the the 4 major wins I referenced in my remarks in particular, our absolute potential game changers for US. These are as I said the multiyear view.

Significant the total contract value wins with some significant.

The being layers are in our in our targeted industry verticals and in the fullness of time, hopefully, we'll be able to provide a lot more color and indeed, I think it's not dissimilar from some of our other larger strategic accounts, we're looking forward to penetrating and radiating across the entirety of the platform.

On enabling.

<unk> their own digital transformations with the full suite of capabilities that we have of Ti.

Generally.

Speaking again as I said I think Q2 saw some really improved momentum.

Take up directly correlated to we continuing to.

<unk> meaningfully in our sales capability and our marketing capability and it's nice to see.

Now our business being rewarded with more take up on an accelerated pace of successful commercial activity as a result.

Glad to hear it.

Thanks.

The queue. Our next question comes on line of Maggie Nolan from William Blair. Your question. Please.

Hey, this is Ted on for Maggie Thanks for taking our questions. Jeff you mentioned the tight labor market can you maybe talk about what youre seeing in terms of wage inflation.

And how does the the crowd sourcing model within the data annotation services, maybe protect you against kind of the tight labor market.

Yeah.

So I think it's fair to say that we are not alone in the experiencing wage inflation as a consequence of the increased demand out there for talent that is capable of participating in the digital economy.

And I think again, it's not.

News to any of you that.

There is a continuing dynamic of rising off the back of pandemic quarantine restrictions being lifted.

People are reevaluating, whether or not they had before of the job they want going forward, whether or not the work styles.

That they want to return to a traditional office environment, and whether or not there's an opportunity to continue the stay at all so.

So in totality I think that's what's sort of driving some of the pressure on wage inflation that we're seeing thus far as I said, we're finding it manageable indeed that we actually saw a decrease of 10 basis points quarter over quarter.

In in our attrition levels.

We don't yet.

Really have a interoperability.

If you will between our full time team members and our crowdsource workers, but that is absolutely 1 of my ambition in terms of evolving our business model. We think there's folks that you'll have participated historically in the gig economy. We did so not only out of choice, although many of them so given their own unique.

Personal circumstances, but sometimes out of necessity on.

Where theres an opportunity to move into a more traditional full time employment relationship offering those members of our crowd workforce of the opportunity I think is already bearing fruit and then Conversely folks personal circumstances may be such that they want to perhaps take a bit of a step back from full time employment into.

Temporary environment. So the interoperability of that million plus crowd community plus are now north of 56000 of full time team members gives us absolutely another arrow in the quiver to try and mitigate some of these labor challenges.

But I think it's still admittedly early days in our model for that and hoping in the fullness.

<unk> went to continue to see more.

Our leverage is the consequence of that Optionality.

Makes sense. Thank you.

The queue. Our next question comes from the line of Matt Cabral from Credit Suisse. Your question. Please.

Yeah. Thank you and good morning, everyone.

Jeff you you're talking.

Lots of talk a little bit in your prepared remarks, but wondering if you could just expand a little bit more on the integration of Lionbridge AI or I guess, the Ti AI as you guys are calling it now now that you guys are about 6 months and just talk about how it's performing relative to your initial expectations and then more broadly I know you guys bought payment, but it sounded.

About the little bit more of just the technical expertise type of acquisition just curious how we should think about M&A and the cadence of that going forward.

Thanks for the questions that I used to hear your voice again as well so T. I AI data solutions I know what the multiple of my apology.

Is is progressing.

Like the lessons of the integration from former ally.

As I think you may have heard me say before I have this perpetual of dissatisfaction with the status quo. I think we can always go faster and better and that's part of the business is no exception, but admittedly I think we're doing reasonably well.

The the alignment of.

Well 1 of our team in its totality into the <unk> family has progressed very very well and Oh.

Applying the same matrix reporting structure, so that we sort of of operations.

Aligned with the rest of our delivery capability and the enabling units finance HR it.

<unk>.

The weighted so that we could be managing the business as part of our overall offering is working well we've already successfully as I alluded to last quarter of made even more progress here successfully cross sold combined.

AIA data solutions, the annotation services in conjunction with content moderation services.

Into the existing Ti clients, 2 net new customers. So again, I think sort of an unambiguous validation that the acquisition of integration thesis wasn't appropriate 1.

Right, claiming because really sort of an.

<unk> and augmentation of our entertainment capability, it's really a true.

<unk> said that in the hands of our education community.

The most of them to be the 5 times more productive by essentially empowering them with technology that allows them to more quickly identify image and video content using 2 D and 3 D activity. So we don't think.

In the old World you know early days for Baby Boomers like me of macro that you might used in connection with the.

On an application, where instead of hitting turnkey strokes to achieve an outcome you can hit 1 and it's all of the already automatically pre program. The next 9 steps in that outcome. So we.

We see the claimant acquisition is again potentially of sign of things to come as we continue to look for areas, where technology in our highly talented team members and make them that much more productive efficient and accurate and then in terms of extending our M&A reach I think you should expect us to continue to be on the lookout.

Or other areas of opportunity both tuck in and perhaps more substantial that will continue to help us achieve our growth ambitions and realize our strategy extend our reach whether it's geographically access deeper broader talent pools access and be closer to existing of new customers and equally importantly adjacencies.

The technology enablement to serve customers in the digital economy.

Thank you very much.

Thank you. Our next question comes to a line of Stephanie price from CIBC. Your question. Please.

Thank you for taking my question.

I was curious about e-commerce.

In terms of impact I'm proud of Colin if you can give them the more color. There. Obviously you had very solid growth in the quarter.

So in terms of more color I guess I would say.

There's a host of enablement that we see going on here sort of traditional leveraging.

How much of the digital capabilities to help them automate to help them identify.

Fraudulent inappropriate activity more easily more quickly to help them the moderate the user community of their capabilities.

It's not just sort of.

Startup.

Fintech businesses that we're working with as I mentioned the.

Largest e-commerce platform in the world the sort of also a new and growing client of ours across the variety of parts of their business whether it's on.

Assisting in improving client experience.

Technical support and.

And trust and safety.

It's actually pretty exciting to see that level of growth.

On a part of our business that is certainly 1 of our targeted verticals, but on a relative basis not quite as big yet just a little bit into the double digits I think about 11% of revenue today, so excited to see more and more opportunity there and I think again, it's kind of a.

Confirmation of our strategy that these capabilities delivered in the way that we do really is resonating with that customer constituency.

Great. Thank you.

The queue. Our next question comes from the line of Jason Kupferberg from Bank of America. Your question. Please.

Hey, this is Kathy on for Jason. Thanks for taking my question just wanted to dig in a little bit deeper on gross margin I mean, I think I saw a little bit of the dip in adjusted gross margin quarter over quarter.

Wanted to know what are the dynamics of that but how should we think about the cadence of that in the back half of the day here and kind of tack on with that.

On the wage hike that you mentioned.

Or kind of being able to the pass through to the customers on that thank you.

Hi.

That's the here I think for off on your question.

In terms of.

The margin if you look at the sequentially Q1 versus Q2.

Well I don't think we got into the details of gross margin on the last call. We did talk about.

Our planned hiring ramp.

And we're primarily hiring front.

Frontline direct you know team members, who were ramping for second half plenty of engagements. So as we did that ramp during Q2 that did have an impact on the Q2 gross margin. So that was very much expected from our perspective.

But as you think about second half versus the first half of them across gross margin, but also within SG&A. We are going to see of normalization and that is primarily because of the the the.

The merit adjustments that we talked about on the last call and on this call. So you know we do merit adjustments the wage increases are.

Our crops.

You know all of our defense out of <unk>.

A lot of that some of that happened in June most of the body is actually going to happen in July. So as you look at you know getting towards normalized the margin profile. We do think that looking at the full year guidance. It is more meaningful just because we do have the you know seasonality sort of speak in terms of of the cost profile.

Merit increases taking effect in the second half versus the first half.

Okay.

Got it thank you.

Thank you. Our next question comes from the line of Dan Perlin from RBC capital markets. Your question. Please.

Thanks, and good morning of nice quarter, it's because of the day ever.

From every 1 of the question I have is last quarter. I think you guys talked a little about the sales funnel I think you said it was up over $400 million last quarter to the close to maybe 2 billion really quite quite a bit above that I'm. Just wondering if you have any kind of updated commentary that you could provide as you sit here today. Thank you.

Thanks, Dan, Yes, we spent a bit of time.

I'm talking about whether we want to get into the practice of updating of.

The exact size of the funnel quarter on in quarter out and.

And where we landed was.

We wanted to just sort of provide a little bit of color here, but not sure theres as much value and cause that level of specificity I will tell you that the funnel is still very robust north of 2 billion.

Yeah.

We converted a lot of the funnel in Q2 and candidly. So the good news is not only did we convert.

Standard portion of those opportunities, but we replenished those converted opportunities with new opportunities and so in totality I would say the funnel continues to give me a high degree of comfort and confidence in our ability to achieve.

Our our targeted performance for the year and now obviously given the duration of the sales cycles. Traditionally we're already looking pretty closely into first quarter of first half of next year on there to consider the continuing to feel pretty optimistic about the trajectory of the business.

Excellent. Thank you.

Thank you. Our next question comes from the line of Keith Bachman from BMO. Your question. Please.

Hi, Thank you very much of my question relates to the previous 1 in some measure and I wanted to hear a little bit more about the competitive landscape.

Broadly speaking on win rates, and then diving down a bit more specifically.

Into the tech and gaming areas.

In terms of your current differentiation and even some of the recent M&A and how you see that unfolding in other words your growth rates are pretty.

Pretty impressive in tech and gaming and trying to understand how sustainable that is particularly from a competitive landscape perspective. Thank you.

Thanks for the question Keith.

So I'm not sure we provide that much granularity in terms of win rates I think we may of shared we're sort of mid 30.

Thirties ish.

But it's an inherently subjective number in that I think some folks measure of win.

When there's an opportunity in the funnel now sort of triggering the the calculation as of the opportunities that are at the 40% probability waiting stage, then converted to a close and that's what you calculated is your conversion win rate is.

The 20% qualification is it already of 60%. So I think there is a degree of subjectivity there.

Then back to my earlier comment I always think we can and should do better, but I think we're doing reasonably well in terms of the competitive dynamic.

I'm not sure I'm seeing anything, particularly unique or new today are different than what.

We have been experiencing candidly.

From our inception.

Our clients in that sector generally are looking not just for value for money, but more importantly are looking for innovation or looking for partnership and collaboration are looking for someone who is going to help them achieve their own ambitions, which more often the knot are over in.

2 in the case of game publishers player delight.

We're not looking of throwing money away obviously, the as I said, they want value for money, but more focused on on attracting more players to the platform of keeping players playing longer and spending more money on the platform and tech more broadly. These are digital natives. These are tech savvy.

Of the businesses that are themselves exploiting leveraging technology in order to differentiate themselves from their competitors and outpace the competition and generally we see day looking for businesses partners that will help them achieve those ambitions. So again not looking to spend money like drunken sailors they want value for money, but over indexing.

On helping them to grow wallet share growth lifetime revenue achieve incremental subscribers to their platform that outpaced their competitors on so long as we can continue to offer all of those elements of the digital transformation ecosystem and I think equally if not more importantly today theres. This lens of people want to do.

Business with people, who want to do business with them, so sort of this strategic partnership buying and selling from 1 another and we're going to market together and then also more and more of a recognition that you gotta be contributing positively to the world to the economy to helping to make People's lives better and I think that.

ESG lens is becoming more pronounced as well and.

I can tell you participate of personally in a number of reviews around the RFP responses, where folks are diving deep into our diversity and inclusion practices and what are we doing in order to actually demonstrate we're putting our money where our mouth is around.

Recognizing supporting and celebrating the equality in the workplace.

Go to a lot of debate around how we're responding to the pandemic our weeks of rushing team members back into the office are being thoughtful about whether we have mandated moscow requirements. So on and so forth I think it's it is an exciting interesting compound.

Complex time, but.

But if your thoughtful sensitive responses to all of these factors I think you can continue to do balance indeed vessel, we're experiencing so far.

Alright, many things.

Thank you. Our next question comes from the line of Ashwin true, but kind of from Citi. Your question. Please.

Thank you I just havent the T.

From you.

The social media kind of now become your largest client you mentioned of pretty strong growth.

The growth I think of this 40% is that mostly related to content moderation and if that's the case.

Is it sort of reflective of how you see.

You know sustainable near term growth in the content moderation market overall and maybe a broader question is if you see data annotation and content moderation offerings integrating.

Hey, Ashwin. Thanks for the question nice to hear your voice.

This as well I hope you are keeping safe.

I think it's fair to say that much of that growth is tied to content moderation, but excitingly.

There's more than just that it also includes data annotation and related work. So do I think this growth.

The rate is sustainable I do I guess for a couple of reasons 1 unique to this particular customer just given the size and the opportunity.

I think as with many of these larger client we're excited about having successfully partnering with them because of how big the opportunity is and the opportunity to continue to extend.

Weighted across the account sell them more of what we can do with and for them and the other driver here is again as I alluded to in my prepared remarks. This explosion of user generated content I don't think that's going to abate anytime soon and so if you think about the the volume and velocity of content that is being produced and it's not.

And rates.

Text. It is now mixed content video image text.

And multilingual multi country multi culture, I mean, the complexity and pace of evolution is really quite staggering and so I think this client.

Jon candidly all of US are going to continue to have no real both challenge and exciting opportunity to try and keep pace with managing this proliferation of content and it's not just from our trust and safety perspective again as I mentioned earlier. It's also about trying to leverage all of this content in a way that can be monetize more effectively like for example, insuring.

During the ads are being placed in front of the right audience to improve the take up or success rate of that placement, so really quite exciting complex ecosystem that extends around sort of core traditional content moderation and again, we're excited about the opportunity to work with this fantastic customer and exploit more of our growing.

Delivery capability to support them.

Okay.

Thank you.

Thanks Ashwin.

Thank you. Our next question comes from the line no Richard Tse from National Bank Financial your question. Please.

Yes. Thank you I'm just curious what proportion of of your overall client base today is.

The using your data on in patient services and I guess related are there any differences in the go to market strategy. When it comes to the data annotation segment.

Yeah.

So we haven't yet and I'm not sure.

We'll disclose exactly what proportion.

1 of our customers today are using our annotation capability, but on.

Just given the relative nascency of that capability.

Think of it would be surprised to hear that it's not the majority of yet.

In terms of the difference in go to market I mean I think.

Not surprisingly the data annotation is really the the underpinnings of AI and I think we're still in relatively early day in terms of AI proliferation, right. I think obviously the hyper scaler are way way out in front as I mentioned earlier enterprise and mid market starting to embrace and adopt AI enabled solutions.

But again I think we're still at the relatively early stages of that and so some of the.

On the opportunity to consume to be the beneficiary of the output of annotation capability, which is really sort of the.

The kindling the fuel for machine learning algorithms that are employed by AIG.

AI to deliver these more accurate predictable scaled outcomes I think there is massive massive upside.

But I think of as I said, we're still relatively early days here, but excited about what's coming down the road here.

Okay. Thank you.

Thank you our next question.

Comes from the line of steep from Scotia capital Your question. Please.

Great. Good morning, Jeff just on that last point, maybe could you talk a little bit about what you've seen from non tech clients engaging with regards to seeing some of the test cases, youre, putting out there on AI and data annotation support.

How's.

How that might be fueling demand. Thanks.

Yeah.

So I guess I would just harking back to the examples I referenced in my prepared remarks do you I mean.

At the end of the day.

I read some of the other day that they're made me smile.

Some.

There arent going to be too many industries in the very near term debt benefit from AI that wont potentially be transformed by AI.

No different to name of food group that won't taste better with Bacon.

Now there is probably very few left if.

If you're a bank and family.

I am.

The debt.

The AG sector client that I referenced earlier I think is a really good 1 and it really speaks to the fact that here's the arguably.

Ages old industry farming.

That is now able to leverage.

AI computer vision technology in particular to improve food.

Food production to improve food traceability to really help accelerate and amplify crop yields.

To support arguably 1 of humanity's biggest challenges in terms of.

In terms of food scarcity.

As population growth continues unabated.

No.

Forgive me, but I guess I have a difficult time, circumscribed being where or how we might be able to leverage this because I really do think it's ubiquitous.

Sorry hang on 1 second.

Sorry about that I have construction going on outside of my front door here forgive me.

So offline, perhaps we get we can talk more about some more specific applications of examples I'm, sorry, I'm not being more helpful. Right now, but perhaps I'm not fully appreciating the question, but suffice to say I think there is no it's not taking gains clients only it's not e-commerce.

Commerce and Fintech on the I mean.

Look at Health care for example of the opportunity to embrace AI and computer vision.

With improving diagnostic activity in medical imaging.

Really it is the applications are.

Really limited only by our own our own imagination at this point.

Thank you.

Our next question comes from line of Daniel Chan from TD Securities. Your question. Please hi.

Hi, Good morning, I wanted to dive into the content moderation side, you did mentioned how big uses of tailwind for you. There. It seems the recent developments with the new proposed Bill for section 230 in the U S and that's for the protections for social media.

Media platforms from helping us the misinformation might go away I'm, just wondering whether any of that comes up in your discussions on whether you think this is going to be an ongoing trend around most of the markets. Thanks.

Yeah as you might imagine at our board in particular, we spent a fair bit of time discussing debating trying to get out in front of.

Of this.

I think the reality is we don't know yet for sure of what the implications are but my own bias admittedly is the.

Thank you respective of changes too.

On section 230, or not I think we anticipate there is going.

Going to be of need for the services that we perform for the foreseeable future I think the.

The likeliest outcome as we see more oversight of higher levels of the regulatory intervention in order to continue to address.

The scale of the impact positive or negative.

These platforms.

Ford and we've seen the both the positive and negative outcomes. When these platforms are unregulated.

And we think that.

That's an opportunity for us given our expertise experience and scale.

And then really sort of the.

The ability of more closely as a trusted partner and advisor to the platforms that will be the subject of perhaps more regulation as well as admittedly to the discharge of our opportunity and responsibility as the digital first responders and trying to keep.

The community at large safe.

And it's not just.

<unk> English language, it's not just the North American environment. This is truly a global issue and having capabilities across multiple languages as we do.

An experienced familiarity with multiple regulatory regimes and to be able to do this.

Expertly efficiently sustainably at scale again I.

It's going to continue to be a critically important valuable capability of resorts in high demand as this regulatory regime continues to evolve and we've already seen how heterogeneous the news right, it's quite different in 1 jurisdiction to another.

We're not anticipating standardization of our harmonization globally necessarily even.

If there were to be such an outcome, which will make it easier for everybody. Even then I think we have the unique competitive advantage given our scale advantage in existence and expertise already.

Thank you.

Thank you. Our next question comes from the line of Dave Koning from Baird. Your.

I think of please.

Yeah, Hey, guys congrats and thank you.

And I guess my my question would be since this is really your first Q2 as a public company and we're thinking about the rest of the year.

Should should the sequentially both quarters to be up about the same.

And kind of weaving into that question is seasonality on lionbridge on Q.

Q2, I think in my models, maybe just a touch light relative to what I thought and that might just be seasonality like maybe lionbridge ramps more in Q3, and Q4 and so I guess is it just kind of a sequential question on on what to expect.

Hey, Dave didn't have enough of here.

Thanks for your question on there is no doubts on some seasonality in our business that we typically have a stronger second half than we do our first happened and language now CIA I spent a lot of deposits in that bucket. So we certainly do expect to see sequential sequential improvement there.

As we do across the entirety of our business.

What I would say the life, we don't tell we issued guidance for the full year, we don't get it down to specific quarters.

But if you take the guidance just given today.

Have you you know what the first half actuals are I think you can derive the second half from that number and if you think about.

Q4, you know I think of reasonable approximation would be like of 48.

52 ish.

Between the between Q3 and Q4, so I think if you were the model it that way that would give you a sense for kind of how the seasonality profile is expected to play out.

Awesome, Yeah, that's super helpful. Thank you.

Thanks, Dave.

Thank you. Our next question comes on the line of James Fawcett from Morgan Stanley. Your question. Please.

Thanks, a lot and nice chatting with you, Jeff and Vanessa and really good results here on <unk>.

As I mentioned in some of her commentary the increase in revenue per employee or per head.

Can you talk a little bit about a little more as to whats driving that and I guess, what a lot of us are curious about is <unk>.

As youre looking at the kind of increasing wage level of how much are you being able to pass through versus.

Being able the markup, even incrementally Telus as services.

Services, Thanks, a lot.

Thanks, James that's the.

The here from you, yes, we are in fact.

Moving up the food chain, so to speak from the revenue per per team member basis.

So were you know in the quarter were just under 10 annualize the 40.

And we do well.

Do expect that strength to continue I think you know that's not a trend that changes every single quarter by a meaningful degree, but certainly as we move towards the mid to longer term plan, we expect that metric to watch the continued to increase and for up the back to.

Driving that increase the mix of digital higher value services.

So that's really what's going to drive that for us.

And so I think you know and you can see for of our historical profile or our revenue growth.

Have always outpaced our team member growth I think youre going to continue to see the.

Prospectively in terms of wage increases those are very standard within our industry. We plan for them every single year whenever.

That's by them.

Sometimes it was the parcel of cross sells with certain customers, but admittedly, we're not always able to pass on cost on certain customers, which is why we have to continue.

The continue being a relentlessly focused on driving efficiency in our business that'd be bought them you can't because we can't rest on our laurels and assume that we can pass on those increases.

As of Friday of every single instance.

Most of that's not new that's not been the case on for quite some time now and certainly that's just how we manage our business.

And again, that's just while we continue to drive the the internal efficiency improvement digitization as well of how we ourselves do things. So that we can drive those the cost of interest cost efficiencies.

That's great. Thanks Vanessa.

Thanks Jane.

Thank you.

Final question for today as a follow on from the line of Ashwin true Baker from Citi. Your question. Please.

Ashwin you might have your phone on mute.

Sorry about that.

Thanks for the second question I wanted to go back to the the outlook and just ask does the outlook the increase already taken into account the new contracts you signed that you spoke of.

Do you consider that they take time to the amp in primarily the affect future years.

Hey, Ashwin, yes, all of our outlook increase does take into consideration on the new contract that we signed the but admittedly. If you think about on a ramp you know somebody's when there's new wind stockpile that Jeff has referenced when you think of a typical ramp you know we've we've just hired the team members you go through a period of training and you start to then generate.

You're right the revenue so a lot of those new wins will start to generate much more revenue and 2 of them you know as we exit 2021 and more flow into 'twenty, 2 'twenty 'twenty, 2 but absolutely yes, they have been taken into consideration and indeed revised guide.

Okay. Thank you.

Thank you.

This does.

Does conclude the question and answer session of today's program I'd like to hand, the program back to Mr proof for any further remarks.

Thank you Jonathan and thank you everyone for your questions.

Closing technology is certainly continuing to evolve rapidly and I am so excited about the leading role Telus International is playing to help our.

Of our clients not only embraced this change but to thrive from it as well as the continued to stay ahead of their competitors I want to reemphasize my confidence in our team's ability to achieve the updated revenue and profitability goals. We've set for ourselves for full year 2021, Indeed, the momentum we carried forward from Q1 and.

Through the second quarter makes for an impressive first half of the year and we look forward to continuing to execute on our growth strategy in Q3 and beyond and the interim coming up in August and September of on F&I will be participating at several investor conferences still in a virtual format for now and we look forward to continuing our engage in conversations.

<unk> with investors and analysts. Thank you very much once again for joining us keep yourselves and your families safe and have a great day. Thanks Paul.

Thank you, ladies and gentlemen for your participation on today's conference. This does conclude the program you may now disconnect good day.

Q2 2021 Telus International Cda Inc Earnings Call

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