Q1 2022 Telus International Cda Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the <unk> International first quarter 2022, Investor call. My name is Jonathan and I will be your conference facilitator today at this time all lines have been placed on mute to avoid background noise. After the Speakers' remarks, there will be a question and answer period, if you would like.
To ask a question. During this time, please press star and then number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.
I'd now like to introduce Jason Miner Senior director Investor Relations.
<unk> at Telus International Mr. Meyer you may begin the call.
Thank you Jonathan Good morning, everyone. Thank you for joining us today for Telus International's Q1, 2022 investor call.
Hosting our call today are Jeff <unk>, President and Chief Executive Officer, and Vanessa <unk>, our Chief Financial Officer.
As usual, we will begin with some prepared remarks, where Jeff will provide an operational and strategic overview of the quarter, followed by Vanessa who will provide some key financial highlights.
We will then open the line for questions from pre qualified analysts before turning the call back to Jeff for his closing remarks.
Before we begin I would like to direct your attention to slide two 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 all comments, reflecting expectations assumptions or beliefs about future events or performance that do not relate solely to historical periods.
These forward looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from our current projections.
We assume no obligation to update any forward looking statements.
Jeff and Vanessa will also discuss certain non-GAAP measures that the management team considered to be useful in assessing our company's underlying business performance.
Explanations 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 issued this morning, and regulatory filings available on SEDAR and Edgar.
I would also like to remind everyone that all financial measures were referencing on this call and in our disclosure are in U S dollars unless specified otherwise and relate only to tell us international results and measures.
With that I will now pass the call over to our President and CEO , Jeff here.
Thank you, Jason and good morning, everyone and thank you for joining us today I.
I am pleased to share that Telus International has started 2022 on a very strong note delivering a robust 19% year over year increase in revenue, 21% on a constant currency basis.
Leading profitability and triple digit cash flow growth also of note. This revenue growth achievement was organic and not flattered by prior M&A such as our claimants acquisition, which was primarily a software platform focused on enhancing our AI computer vision capabilities. Our results are all the more meaningful when you consider our company.
These non trivial scale. Moreover, we also welcomed a record 5800, new team members to our Telus International family in Q1 to meet the acceleration in client demand that we continue to drive on that front, we continue to see exceptional growth in Q1 with clients across our key verticals.
Such as E Commerce, and Fintech in particular, which is continuing to build significant scale growing 40% over last year.
Our flagship Tech and games vertical was once again, the highest contributor in absolute dollars this quarter, representing 47% of our revenues.
The sustained meaningful growth within our tech and games vertical was largely driven by cross selling opportunities realized by our Telus International AI data solutions team.
This success was made possible because of the effective integration of Lionbridge AI and payments that we achieved in 2021 and the focused execution of our purposeful strategy of going to market as one team. These efforts have also manifest that exciting business opportunities that we have successfully secured with new clients.
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In that regard our global sales team worked diligently to win new logos and in the first quarter, we welcomed several new and exciting clients, including a major tech enabled disruptor in the real estate space.
Fast growing Fintech company, and a leading travel portal with Germany.
Equally impressive are the multimillion dollar expansions in scope services and scale with many of our existing valued clients. Among the more notable here are our largest client a leading social media company and our third largest client Google. In addition to the world's largest E Commerce company, a leading north American Fi.
The Intel institution, and a global consumer electronics company to name, but a few.
To help bring our services and technology to life I'd like to take you through a few examples of how we are helping our clients first.
First up tell us is helping our clients develop a well rounded approach to trust and safety as part of its broader customer experience strategy. This case study involves the work we do for a major global ecommerce brand that facilitates consumer to consumer and business to consumer transactions through its website and smartphone application.
Buyers and sellers utilizing their ecommerce platform expect to complete transactions in a safe and secure environment and our customer wants to eliminate or at least mitigate possible fraudulent activity, whilst meeting ever evolving government regulations with an expanding user base and growing number of listings.
Our client was looking to expand fraud prevention measures within its German based operations in particular.
This engagement also included the removal of copyrighted material as well as customer support for our newly implemented payment option. Additionally.
Additionally, the client was looking for a way to mitigate the risks involved with new German tax laws that hold online platform owners responsible for its commercial users tax registration. This.
This was a multifaceted engagement with a need for a holistic approach to trust and safety hundreds of our team members across four of our centers of excellence in Germany support this client with our fraud prevention specialists, who focus on recognizing counterfeit goods identifying the unauthorized scale of copyrighted materials and removing.
Elicit listings when required.
Members also deliver broader CX support for both sellers and buyers utilizing our clients platform, including providing guidance with licensing and educating sellers on jurisdiction specific tax requirements. As I mentioned, we also led this client's project and introducing a new payment method with our team members playing an integral role in edge.
<unk> the client's customers on the benefits of.
Transitioning to the new payment system.
In fact, we were just clients very first outsourcing partner in the payment space. Our team members on this accounts have an average tenure of nine years and its thanks to our teams consistently high quality of service. The Telus International continues to strengthen the relationship with this global client over the past 11 years.
Our next example focuses on our AI powered data solutions and involves a leading artificial intelligence company that serves the national security sector with a focus on robotics. This client's data is primarily used to detect suspicious activity and our team was engaged to assist with annotating object detection and tracking.
Data collected via drones.
<unk> for our client was the poor quality of the original images collected as they were often distorted and required model assistant correction and high precision labeling.
<unk> solved this problem by enabling model assisted brightness correction for easier labeling through an algorithm that automatically fixed images for better clarity to support faster and more accurate labeling. We also set up a seamless data pipeline integrations to upload images onto our proprietary labeling platform.
We ran the real time human in the loop labeling processes delivering faster labeling with our high precision <unk> and <unk> tools. We were also able to track productivity real time with custom dashboards that provided robust annotated productivity and performance analytics.
The work in hand encompass the labeling of 150000 <unk> point cloud frames, the creation of <unk> 6 million in Q Boyd and the annotation of 20000 video framed in the span of only six months.
Addition to a timely delivery of the assets, we achieved more than 95% accuracy rate for.
For the three point cloud annotations and cuboid creations in more than 98% accuracy across 90 hours of video content.
Our third client example, illustrates how we effectively bring together our team in AI data solutions and digital solutions for a differentiated 360 degree approach to value creation for our clients.
Higher to the acquisition are now rebranded AI data solutions team had been supporting one of our largest clients a leading technology company with a global media platform delivering exceptional search relevance solutions. In addition to that our digital solutions team played an instrumental role in the development and implementation of a wellness strategy for this client.
Aimed at supporting content evaluated faced with potentially sensitive or difficult content.
Telus International has expertise in managing our own content moderation and AI community talent located across the globe. We developed one of the first global wellness programs for this client incorporating industry best practices tailored to the unique confines of the search relevance program.
First phase of the project introduced a third party wellness support provider, who offered both counseling services and an online platform of resources, both web based and App based to support the mental health and well being of the AI community.
<unk> phase involves targeted support for those who had flagged potential issues during the course of their workday.
This included personalized reminders of support and customized training around the management of difficult content.
A third phase introduced the proprietary resilience training program.
Arming remote content evaluated with the tools to proactively overcome workplace stressors.
Positive results from the program contributed to an overall wellbeing awareness score of 96% and a 98% satisfaction rating for the AI community as a whole and in turn the constant evaluation program delivered strong business outcomes for the clients with exceptional quality scores and consistently impressive month over month attrition metrics.
As you might anticipate Telus international eating our own gourmet cooking as we look to innovate and strides to automate what should be automated in our own operations as well as with and for our clients. One. Such example is our digital seed program pursuant to which we provide every client with access to bots built by Ti that.
Greatly improve our own team members productivity, thereby benefiting both our clients and our own bottom line.
Self service and automation in the area of enterprise data warehousing is another good example, ensuring efficient communication between our operations and corporate teams with continuous data flow to streamline loading and data integration processes, making needed data available quickly for analysis using business intelligence tools.
<unk> ability to innovate and continuously improve our own productivity comes down to our individual team members their desire to take ownership of finding ever better ways to serve customers by using technology and digital tools. Many of which are built right here at Ti <unk> Labs group.
Here too our unique corporate culture plays an important role innovative ideas originate from our diversity inclusion and equity efforts to that end, we have an internal app store that showcases all our homegrown solutions available for team members and also serves as a portal where team members can submit their own app ideas or flag in aerie.
For improvement for in App featured in the virtual store that can be taken into consideration during subsequent app development and broader implementation initiatives.
Our team members' ability and inclination to embrace innovation and technology has served as a critical factor in our successful transition to remote work throughout the prolonged pandemic.
As of March 31.
Ultimately, 70% of our global frontline team members continue working from home.
Along with the rest of the world as we're experiencing slight reopening and the elimination of certain restrictions in mass mandates in many of the regions, where we operate for example in the Philippines, We continue to steadily and successfully transition our team members back to working in our world class facilities with an ongoing focus on ensuring their health and safety.
Enhanced workstation common area sanitation protocols and other measures introduced during the pandemic.
Contrary to some of our peers in the region. We made the purposeful decision to uphold our facilities lease commitments throughout the pandemic our reasoning was threefold.
Firstly, we anticipated that although our pivot to virtual work with successful our team members would likely need physical spaces again, one day back in 2020, we weren't certain if our sites will be used for work repurposed to connect socially or re imagined to create more moments of collaboration innovation alignments and community.
But we knew that we wanted to have the spaces available to explore different opportunities, including hybrid work environments.
Bernie that continues today as we work to refine how we embed flexibility until our environment for our teams now and into the future.
Secondly, we wanted to ensure we maintain maximum flexibility and how we are able to serve the unique and varied needs of our diverse clients. This includes how and where they want to be served and having the ability to rapidly scale. These are significant competitive advantages over our peers without adequate physical space when it comes to expanding our.
An existing client relationships and winning new business.
Thirdly, as a global organization that operates in 28 countries around the world, we're often the largest employer or among the largest in many regions. We recognize our responsibility in that regard and understand that our business decisions can have ripple effects for families communities cities and even broader global environment as such our decisions arent.
Totally based on our needs or cost savings over the short term. They are about the long term sustainable health of the ecosystem in which we operate.
And although <unk> does not have delivery locations or clients in Ukraine, Russia, or Belarus, our entire global family has also been closely monitoring the invasion of Ukraine.
Since the beginning our team has shown incredible support and solidarity from collecting essential goods to volunteering in making donations. Our strength has always been and local community support with hearts and hands coming together close to where help is needed most.
Our regional teams in Bulgaria, Turkey, Finland, Ireland, France, Romania, and other sites across northern Europe organize numerous activities.
They are individual acts of kindness support and donations are truly inspiring and epitomize our caring culture.
International has also contributed to various humanitarian relief efforts spread across local charities and programs carefully identified by our European colleagues to make the most direct and meaningful impact. In addition to the generous donations made by our parent company <unk> Corporation, and including the Telus future friendly Foundation tell us.
The board the matching of team donations and customer, giving and in kind donations. The joint supported tell us broader organization amounts to more than $3 5 million Canadian dollars and counting.
On our last quarterly call I shared our environmental social and governance approach and priorities focused on our team members our communities supporting a sustainable planet for all and adhering to strong corporate governance as a follow up to that discussion I want to call out that on April 13th Telus International published hour.
Inaugural annual report with integrated environmental social and governance reporting for the first time as a public company, there's a wealth of information and good context for you to dive deeper into our ESG philosophy and focus area is to be found there.
Finally, before I turn the call.
Excuse me over to Vanessa.
I'd like to highlight just some of the industry recognition to Telus International received in the first quarter.
Our company was ranked the leader in the Nelson Hall, 2022, NDA assessment for CX operations transformation, including across all three of the evaluation subcategories of revenue generation CX improvement and cost optimization. Additionally.
Additionally, we were pleased to be included once again on the IOP Global outsourcing 100 list for the sixth consecutive year. This list reflects the best outsourcing providers across size and growth customer references awards and certification programs for innovation and corporate social responsibility.
And we were named one of moguls top 100 companies for diverse representation in 2022.
This award recognizes companies that are leading the way with respect to investing in resources and tools and implementing practices that support hiring diverse talent and placing diverse leaders throughout the organization. These accolades as in previous quarters were made possible by our passionate and dedicated team members exemplary.
<unk> to one another to our clients and to the many communities, where we operate and I want to take this opportunity to thank them all once again for their extraordinary accomplishments.
Your team with that I'll now invite our chief Financial Officer, Vanessa <unk> to take you through a detailed review of our financial results after which all attuned to answer your questions.
Over to you.
Thank you, Jeff and good morning, everyone. Thank you for joining us today.
I've mentioned that to start off this call in my review of financial results I will refer to some items that are non-GAAP measures.
Descriptions on your reconciliation of our GAAP to non-GAAP measures. Please see our earnings release and regulatory filings from earlier this morning.
To begin I will echo what Jeff said earlier, we are starting 2022 on a very strong note with 21% organic revenue growth on a constant currency basis, while at the same time, maintaining a very strong adjusted EBITDA margin of 23, 7%.
The cash generating ability of our business was also evident this quarter with $99 million of free cash flow at four five fold increase over the same quarter last year.
These results demonstrate our differentiated focus on maintaining a healthy balance of growth and profitability.
Strong cash generation characteristics inherent in our business.
Let me now expand upon the components of our financial performance.
In the first quarter, we achieved revenue of $599 million up 19% year over year on a reported basis or as we've mentioned 21% in constant currency.
Our reported revenues included an unfavorable foreign currency impacts on all of our 2% predominantly driven by the strengthening U S dollar against the Euro exchange rate.
Looking closer at our revenue by geography, our highest quarterly revenue growth.
At 36% year over year growth, followed by 22% growth in North America with higher demand in both geographies driven by some of our top clients, including two new additions to our top 10.
Europe and Central America grew at 11% each the former being the recipient of the aforementioned foreign currency headwinds.
From an industry vertical perspective, we continued to see broad based demand and strong growth in our core verticals comprise our global tech companies and digital Disruptors.
In the first quarter, our largest vertical in tech and games grew 25% with our AI data solutions at the key driver of that organic growth.
We continue to see excellent momentum in e-commerce, and Fintech vertical with revenues up 40% year over year.
Combined our tech and games and E Commerce, and Fintech clients collectively accounted for approximately 60% of our total revenue increasing from approximately 55% in the same quarter last year.
This quarter. We also started to disclose revenue from our clients and our banking financial services and insurance vertical or BSI.
While this vertical is not new to Ti.
The recorded within our critical thinking other.
However by virtue of its current materiality driven by significant growth. It has now been carved out separately.
In Q1, <unk> was our fourth largest vertical by revenue and grew by 67% year over year driven by recent wins from some of the leading financial institution in North America and globally.
Last but not least the communications and media vertical grew 8% year over year, primarily driven by higher revenue from Telus Corporation.
Anthony.
Moving on to operating expenses.
Salaries and benefits expense in the first quarter, but $342 million up 21% due to a higher team member accounts to support business growth and higher average employee salaries and wages.
Our goods and services purchased for $160 million.
Warner and increase of $21 million or 22% from the same quarter last year.
This increase was primarily attributed to business growth, including the impact of higher crowd contractor costs on the volume expansion.
Data solutions.
Share based compensation expense in the first quarter was $7 million, a decline of $19 million or 73% year over year, primarily due to the decrease in our share price during the quarter tied to recent market conditions and the related mark to market adjustments on liability accounted awards.
This was partially offset by the in quarter expense associated with equity accounts in awards.
Acquisition integration and other charges in the first quarter about $4 million a decrease of 20% from the same quarter last year, primarily due to lower integration costs incurred in the current period.
Our interest expense in the first quarter was $9 million a decline of 36% year over year due to lower our weighted average debt balances on our credit facility and we made principal repayments against our long term debt.
Income tax expense in the first quarter was $23 million compared with 15 million in the same quarter last year.
At the same time, our effective tax rate decreased from 81, 8% to 44% primarily due to a decrease in non deductible items and a decrease in withholding and other taxes as a percentage of net income before tax.
To remind you during the first half of 2021, the majority of the nondeductible items were a result of our IPO and as such were nonrecurring.
Our adjusted EBITDA was 142 million in the first quarter a year over year increase of 10% driven by an increase in revenue from existing and new customers, partially offset by higher cost to support business growth as just mentioned.
Adjusted EBITDA margins in the quarter was 22, 7%.
While down from an abnormally high compared to the same period last year with a solid achievement given the current environment.
Adjusted net income for the quarter was $69 million up 17% and on a per share basis. Adjusted net earnings per share of <unk> 26 up 13% year over year.
Moving over to the balance our balance sheet remains strong.
With further improvements during the quarter and our leverage ratio and liquidity position.
Cash and cash equivalents were $161 million as at March 31st.
Our total available liquidity, which comprises available capacity under our revolving credit facility of $746 million and our cash on hand grew to $907 million 800, I said $1 million at the end of the previous quarter.
With our available liquidity, we continue to have ample capacity to pursue strategic growth opportunities as we have done historically.
We also continued to reduce our leverage in Q1, lowering our net debt to adjusted EBITDA leverage ratio as defined by our credit agreement to one eight as of March 31 down from two onex last quarter.
As a reminder, we do continue to view the <unk> zone as a good healthy steady state amount of leverage and continues to have the ability to go beyond this range, but the right type of strategic acquisition.
Our free cash flows in the quarter were $99 million compared to $18 million in the same quarter last year, driven by higher operating profit a decrease in interest and cash taxes paid and inflows from working capital compared to an outflow in the prior comparative period.
The working capital inflow was influenced positively by the timing of certain outflows are expected in Q1, but will now occur in Q2.
This was partially offset by an increase in capital expenditures to support continued business growth primarily attributed to additional investments we made in Asia Pacific Central America and Europe .
Moving on to our team members in the first quarter. We added approximately 5800, new team members, bringing our talented global team to almost 60000 in achieving yet another record and the highest quarterly addition to team members.
On a year over year basis. This reflects a 32% increase all achieved two organic hiring.
While labor market, certainly we've been competitive and we continue to demonstrate our ability to support growth keeping pace with strong client demand.
Now turning to our outlook.
It is with confidence that we are reiterating our strong outlook for 2022.
We continue to revenues in the range of five 5% to $2 61 billion, reflecting a year over year increase in the range of 16, 2% to 85% on a reported basis and 19% to 21% organic constant currency basis.
Given the recent depreciation of the euro relative to the U S. Dollar our outlook now assumes an average euro to U S dollar exchange rate of one <unk>.
But look which was based on an average exchange rate of $1 three.
Even with these currency headwinds, we are able to reiterate our guidance are reflection of the strong underlying performance of our core business.
Of note given our current business mix every one cent change in the euro to U S. Dollar exchange rate impacts on our reported revenues by approximately $8 million on an annualized basis.
We continue to expect adjusted EBITDA margins to be approximately 24% for the full year.
And we continue to expect adjusted diluted earnings per share in the range of $1 18 to $1 23, which reflects growth of 18% to 23% over last year.
This assumes a weighted average diluted share counts of approximately $270 million in each of the quarters.
I would also like to remind you of certain seasonality pattern that should come in handy and modeling quarterly cadence.
We continue to expect revenue seasonality up 47% in the first half and 53% in the second half of 2022.
The first half of the year is typically our lowest seasonal revenue and adjusted EBITDA period with volumes potentially ramp up throughout the year.
Also as a reminder, from a cost perspective, unlike in 2021, where our wage increases largely took effect in the third quarter. This year, our annual wage increases were planned to come into effect during the first half of 2022.
In fact, our wage increase cycle already commenced in some geographies during Q1 with other geographies coming in so that's primarily during Q2.
Given the typical revenue seasonality with stronger revenues in the second half coupled with planned investments in our people and in our business early in the year.
Adjusted EBITDA margins to be lowering the first half of the year building up through the second half for the full year average margin of approximately 24% as I just mentioned.
Finally, our effective tax rate is also subject to seasonality being higher in the first half of the year and lower in the second half.
For the full year 2022, we expect our effective tax rate to be between 28% to 72%, reflecting potential jurisdictional mix of earnings.
With that let's move on to questions.
Jonathan overseas.
Thank you Ms. <unk> once again, if you have a question at this time. Please press Star then one.
We ask that you. Please kindly limit yourself to one question at a time you may get back into queue, if you'd like to ask another question, we'll pause for a moment, while we compile the queue.
Our first question comes from the line of Tianjin Wong from Jpmorgan. Your question. Please.
Hi, good morning.
Really solid results guys because.
Adverse FX overcoming that I think is a big deal I wanted to ask I think Jeff I know I'm getting a lot of questions around recession readiness of the business.
Especially as it pertains to your existing clients, namely.
Namely in areas, where there's some concern in the market right with E Comm and Fintech in Tech in general So I'm just curious if youre seeing any of that and how might give us the same store growth or ability to up so.
Et cetera would be impacted if things do get a little bit slower like the market seems to be suggesting.
Hey, Tien Tsin nice to hear your voice. Thanks for the question I appreciate your ongoing support.
We're not yet seeing any meaningful softness in demand from our existing customers at all to the contrary, we continue to see significant upside in continued growth.
I think the nature of what we do how we do what we do and for whom we do it is that entirely recession proof, but I think we really are a go to enabler and partner for our customers to help them manage through challenging economic times right, helping them to do.
More with less that's kind of our expertise if you will right leveraging the combination of talent and technology to drive better business outcomes.
So as we have seen candidly long before pandemic influenced.
Macroeconomic dynamics. This is what we do we help businesses leverage our expertise our investments in scale to help them navigate those challenges more effectively more cost efficiently with with better business outcomes, helping to ensure that when they have the belt tightened in there.
Our own operations it doesn't necessarily adversely affect their ability to continue to delight their customers. So I don't doubt that we're going to see some potential volatility, but the net effect. We anticipate we will continue to be positive for us.
And the only caveat I would make sure Tien tsin as well is I think there again is where our protocols.
Our balance sheet verticals is also helpful.
As you can see we do serve a variety of clients across all vertical.
And that has started to help us certainly as Jeff just mentioned during the pandemic when certain verticals where it declined.
Verticals grew so that has an inherent protection.
Protection as well in terms of Ti's overall revenue trajectory.
Makes sense. Thank you both.
Thank you. Our next question comes from the line Thats definitely price from CIBC. Your question. Please.
Good morning.
Thompson very solid hiring in the quarter just wondering if you could talk a little bit about the hiring environment any wage inflation and how the wage environment really has shifted.
There has been any change.
Thanks, Stephanie nice to hear from you as well thanks for the question.
I think what we're seeing is a continuation of the very same dynamics that we've been experiencing over the last three quarters at least frankly.
And as I'm sure, you've seen and heard and read from our peers.
Around the globe and technology services the competition for talent continues to be fierce as ever.
Simply seems to be not nearly enough capable folks available to address the opportunities that the demand environment continues to present.
So it's challenging always has been I anticipate frankly, the competition for talent will always be challenging.
Our responsibility as well.
Stewards of Telus International assets is to find a way to navigate those challenges. So I think our team continues to do a a remarkably effective job of.
<unk>.
Gauging and retaining a disproportionate share of that talent pool, but this is by no means a one and done and we can hardly afford to be complacent.
Continues to evolve and change and get more difficult but.
One of the really exciting things that we're already.
Looking to leverage and build upon is our own as I said before you're drinking our own champagne eating our own gourmet cooking, leveraging our unique culture and bringing it to life through technology enabled capabilities and we're launching later this month.
Meta versus centric recruiting ecosystem.
Does it builds on our virtual recruiting capability that we were leveraging and relying upon over the last two years, we never actually bringing a single new team member into an office through the recruiting process. We received their resumes we interview them.
Validate their credentials and capabilities and assess their fit for the organization all remotely and now we're going be able to do that even more excitingly through a virtualized environment.
In the meta versus where again online this time applicants and we get to bring to life our own unique personalities our own unique characteristics through avatars that meet and interact in the meta versus.
Again trying to ensure there isn't sort of.
Sticker shock of Misalignment, if you will in terms of the candidates expectations of what working at Ti might might entail and might be like and we similarly have an opportunity to better assess and evaluate those characteristics personality traits for better alignment for the longer term given the time effort and expense that goes into.
The recruiting, particularly at the scale that we're operating now.
Keeping these folks for a sustained period of time is just so important the impact it has on their capability. Their they are competent their ability to continue to delight our customers, we want to keep them for as long as possible. So spending more time, finding technology enabled methods of evaluating the likelihood of that sustained.
Relationship becomes more important than ever and very excited about how that's going to assist us in continuing to mitigate these challenges in part and ensure that we can continue to disproportionately win in this competition for talent.
Great. Thank you.
Thanks, Stephanie.
Thank you. Our next question comes from the line of Dan Perlin from RBC capital markets. Your question. Please.
Thanks, Good morning, and really fantastic results certainly appreciate that on a Friday.
But that's all I wanted to touch base with you on.
What kind of the characterization of guidance you know you said with confidence.
Obviously, youre kind of planting the flag there so.
I was hoping you could maybe talk through outside of obviously the good performance in the first quarter. What gives you so much confidence for the remainder of the year what would be some of the puts and takes that we need to be mindful of maybe outside of just macro.
Sure.
And.
Is there anything that we need to be thinking about that would derail. It from the investment perspective, you also called out into some of those geographies. Thank you.
Thank you Dan.
Great question, we are confident in our in our reiterated guidance in 2022, despite the negative impact of currency and I did give you a sense for how much that impacts our revenue and that's a pretty significant depreciation from where we started the year. So it is a fairly material impact to our revenues, but we're holding guidance.
So what is giving us that confidence clearly the strong start to that for the year is a big part of it but frankly the funnel.
<unk> continues to be very very strong.
Pretty exciting funnel, we're very bullish.
Converting from that funnel pretty healthily.
Good pace. We've also had some significant recent wins some of them you heard Jeff Bob highlighted.
In his script. So those are all going to generate revenues largely in the second half of the year. We also have some large client ramp.
So that's also giving us confidence in our ability to convert those wins.
Turning those ramps into revenue in the second half.
And also last but not least I mean, the fact that we added a net 5800 team members in the quarter. These team members were pre hire so to speak because a lot of the revenue from those team members. In fact will come as these client program continues to ramp. So there certainly are part of the client planning process, but we've got the team members. We've got the supply and certainly we've got the.
Deals not only in the existing implementation and execution phase, but also in the funnel and all of those things give us confidence in our ability to want to reiterate our guidance.
That's a great roadmap. Thank you.
Thank you. Thank you. Our next question comes from the line of Richard <unk> from National Bank Financial Your question. Please yes.
Yes.
The hiring I was wondering if you could maybe sort of help us understand the specific inputs that go into coming up with the number of people you kind of plan to hire over the next quarter or six months trying to get a bit of insight there.
Well, it's arguably as much art as it is science Richard I would suggest obviously, we work as diligently as we can to identify.
As early as possible what the requirements are to staff engagement.
We want to be.
Nimble in that maintaining a flexible bench, so that when sales successfully converts and opportunity.
We're in a position to ramp more quickly rather than.
Only starting to recruit after the contract is signed.
But there is obviously a balance there you can't carry surplus labor.
At an infinite level, given the financial implications, so we try and maintain that flexible bench across.
The globe and in most if not all of our geographies, we try and maintain sort of some activity amongst them, even if theyre not working on billable programs at a particular moment supporting our <unk> labs innovation group.
Ongoing training and accreditation so that when we're finally in a position to put them to work they hit the ground running.
<unk> as possible and then through the.
Relationship building contracting process with customer engagements, both net new and growth through existing our solutions team are spending a great deal of time and effort assessing exactly.
The caliber quality and scale of resources required to bring those engagements to fruition.
And then working throughout the ramp period to stay connected to their requirements as possible in many cases.
Depending on the circumstance, we will enter into what we call an early start letter arrangement with our customers. So even though we haven't completed the formal final contracting of the MSA <unk>, we'll get going on ramping and implementing.
Implementing getting to.
Proficiency in production as quickly as possible to meet client expectations, because once they make a decision there and patient to get going.
But as I said, it really is as much art.
Is there a science to this and once again I think it speaks to the importance of having a partner with both expertise experience at scale to be able to meet those requirements. Because you can make a big mistake on your hiring expectations that are too much or too little and the implications to the customer experience can be significant and financially can be near catastrophic. So.
Again, I think it's important to be working with an experienced partner in that regard.
Okay. Thank you for the context I appreciate it.
Pleasure.
Our next question comes from the line of Ashwin <unk> from Citi. Your question. Please.
Hey, this is Ryan <unk> from Citi and thanks for taking the questions.
I can touch based on the situation in the Philippines, given the regulatory I'm starting to office mandate. There could you remind us the percent of head count that you have there and the potential impact do you believe you could see from US like do you believe could lead to potentially increased attrition. There is gabon employees are unwilling to office or.
Or if they are willing return to office potentially increased travel costs earlier than expected and also is there any kind of tax rate obligation from us.
So maybe I'll take the first two parts of your question Ryan I'll invite Vanessa will speak to the last.
Yes.
I'm, obviously concerned about the Philippines government.
And DIR is seemingly competing considerations right now im not sure that.
We've heard.
The last of their pronouncements on how they want our industry to address some of their own local economic ambitions and challenges around sort of kick starting their local economy supporting their commercial.
Our real estate.
Lobby groups perspectives on utilizing capacity.
We obviously want to first and foremost be sensitive to the safety in.
Ambitions expectations of our team members and obviously they have to be managed hand in glove with the very same expectations and needs of our customers.
And I think.
It would be.
Unlikely for anyone to have a crystal ball right now and to know definitively.
Customer wants to be served from a traditional in center delivery model and every team member wants to continue working from home I think we've already seen in the sort of early days of quarantine restrictions being lifted whether it's the Philippines or elsewhere. There is a high degree of heterogeneity across that land.
Scape and it's a fluid situation, so just because a customer Andrew or a team member that expresses our view today of back to the office or stay at home indefinitely doesn't mean that the next day. They don't change their views, particularly around customers that we have seen significant swings over the last many months in terms of their applications.
<unk> expectations for how their supplier delivery partners serve them, whether virtually in totality indefinitely or not.
And so what we've decided is we're going to work as diligently as we can to try and thread. The needle. So we have expanded a great deal of time effort and expense in innovation around a hybrid workstyle, what we call our core combined onsite and remote delivery capabilities.
From work styles perspective, we are supremely confident that we can effectively support any and all of our customers in either on site or in a virtual environment at scale and then on a case by case basis, we're going to meet both customer and team member requirements and then in the Philippines in particular.
Our intention is to be compliant with the local law of the land as we have been everywhere, we operate and to the extent that we have some challenges around the timing of returning to office at the levels that ultimately <unk> ultimately determined by the data they want.
I'll deal those up when and as they occur it is not obvious to me yet that is resolved thats between the two of them, but for now our expectation is that we will continue to be compliant and meet those thresholds and to the extent that there are implications around a potential.
Attrition for the.
Won't return to the office I think there's a number of potential alternatives and creative solutions to address and ameliorate those concerns to the extent that we have customers that.
Are less comfortable being served perpetually on a virtual basis I think again there are alternatives available and this is going to be an ongoing assessment.
And again I think it's it's helpful that we have so much capability resiliency in our ecosystem, particularly driven by our technology and talent that we can sort of balance those competing considerations.
But thats anyone's just top up on the tax issue.
Yes, Ryan just mentioned that the transition is ongoing not only amongst ourselves, but many of the other operators are some of the other operators I might say.
In the Philippines.
There is still a lot of uncertainty around the definition of those regulations cannot themselves and the corresponding implications.
I think there'll be more clarity over that over the next several weeks to several months, but as we looked at our guidance Ryan We certainly did consider.
The positives and the negatives we've talked a bit about the negatives on the downside from FX, we've looked at potentially what impact we might have with the Philippines, but we've also looked at other potential positive as well so that's that.
I would say factored into our guidance at.
At this point in time, so I don't expect any materially.
Any materially different impact, but again the situation is fluid and there has not been a lot of clarity from the government that they will continue to evolve. So we are watching it.
Anything changing materially certainly will provide an update then.
Got it thanks for the color.
Thank you. Our next question comes from the line of Ramsey El <unk> from Barclays. Your question. Please.
Hi, good morning, and thanks for taking my question.
I wanted to ask about pricing power our margin performance was just great in the quarter and I think you called out pricing is one of the drivers.
Sure.
One is sort of a background question, how our pricing increase is actually implemented any agreements do you have leeway throughout the contract you just pass along higher higher labor costs and I guess the second part of the question is how sustainable do you think the sort of pricing power in the businesses do you think clients will reach a level, where they get pushed backwards just to add to the wharf.
Talent is such that they really don't have a lot of options.
Hey, Ramsey nice to hear your voice hope everybody is safe at home.
We got CPI in Cola clauses in many of our customer agreements either at the MSA and or the SFW level.
The nature of those clauses as you might expect anticipate the opportunity to revisit.
Whats happening in the environment at the time to reset pricing.
Commensurate with it.
Inflation or deflation in CPI and Colo so either at the end of.
Fixed period, the end of the year at the end of the term or otherwise we don't have those clauses and every single customer contract frankly, I'd be surprised if any of our peers have them in every single one of their contracts.
But they are in several many and wherever possible we are availing ourselves of those provisions.
And sometimes as I said the provisions allow us to go as soon as there is a published report.
That speaks to change inflation, if you will in connection with cost of living increases or consumer price index inflation.
And whether there is explicit provision in the agreement and or.
So the public pronouncement around that none of our clients are.
Ignorant to the wage inflation dynamics it is.
Ubiquitous everywhere as you've heard me say before.
We often compete with our customers.
Employ the same talent in many respects. So they are intimately familiar with the challenges that we're all facing and we're all in this together and so our sales and our operations team are in regular contact with our customers around not just the fulfillment of their delivery expectations, but around sort of the sustainability of the <unk>.
<unk> chip and so we have been quite proactive in speaking with all of our customers as frequently as we can as we need to in order to get them to help us address the burden and overcome it in terms of the wage inflation.
Given that our value proposition that first instance has never been your mess for less we're fortunate that our customers tend to be working with us because they look to us for service delivery excellence.
And theyre, not nickel and Diming us to get the lowest possible price and they recognize that.
They want us to continue to deliver great service, we need to be generating a profit. So we can reinvest in ensuring we attract and retain talent invest in technology and tools and so on and so forth. So there really is a more.
Collaborative symbiotic dynamic that underpins most of our customer relationships in the first place that lend themselves favorably to more.
Progressive collaborative discussions around how we mutually mitigate the wage inflation implications that are as I said before ubiquitous.
There is not a finite.
Amount of resiliency and the price at some point I think it becomes prohibitively expensive, perhaps for certain services, but so far as you've seen I think we've done a remarkable job of mitigating these wage inflation pressures and sharing that burden with our clients through pricing increases certainly pricing new contracts.
To reflect this new wage regime, as well as revisiting existing contracts as well through renewals or adjustments.
Yes.
Yes.
That's very helpful. Thanks, so much.
My pleasure thanks for the question.
Thank you. Our next question comes from the line of Daniel Chan from TD Securities. Your question. Please.
Hi, good morning.
It seems like you guys have continued to gain wallet share at some of your larger customers to what extent are your conversations driven by customers looking to consolidate vendors that they look to reduce costs like that usually comes with higher volumes and what's your opportunity to be the beneficiary of that thank you.
Yes, I mean, it's it's been interesting over the last 510 years I guess.
To see some of our larger clients first look too.
Add new suppliers to their vendor ecosystem to try and mitigate or.
So build out some additional resiliency in their supply ecosystem and then the <unk>.
Pendulum swings the other way more recently and they realize that they are probably.
Adding more risk spending more money, taking more time by having to manage.
A bigger ecosystem of vendors suppliers, where we've seen consolidation.
We thankfully have indeed been the net beneficiary of incremental business opportunities and it has always come down to one thing and Thats service quality.
Rarely have we seen customers say to us well.
The reason why we're going to give you more volume is because you're our cheapest provider. Indeed, we are rarely if ever our customers' cheapest provider, but we are more often not always the best provider in terms of meeting or exceeding service delivery metrics relative to our peer groups in their supplier ecosystem and when it comes down to sort of culling the herd for them as they.
Look to simplify their supply chain.
More often than auto the net beneficiaries because were delivering better value for money by delivering better service.
And that continues to be sort of at the core of our value proposition to our clients and we hope that that will continue if and when these clients recognize that.
Having two three suppliers.
Patient to ensure the requisite competitive intensity and pricing accessing innovation.
The recovery business continuity backups, if you will but you don't need 510 2030 partners.
And I think when you when you narrow it down to that I think you want to be focusing on quality and value for money and I think we performed exceptionally well through that lens.
Yes.
Thank you. Our next question comes from the line of Keith Bachman from BMO. Your question. Please.
Hi, Thank you very much clarification and a question, but I was just wondering.
If you could.
Clarify how much.
Thanks, Ed.
At current spot how much is that impacting.
EBITDA dollars, because implicitly I think youre actually raising.
Both revenues and EBITDA, because youre, keeping the same range and yet FX is a negative headwind. So to me, it's a sign of encouragement that youre actually.
Raising I'm just wondering if you could call out what the EBITDA impact of FX just a broader question for you is I wanted to go back to the economic cycles, if I if I could.
And we've looked at other pure play.
PPO companies, which are little bit different business model, but there is a clear correlation if you go back over say the last 15 years to economic cycles and PPO growth.
And I wanted to try to understand you said previously the one of the earlier questions that you.
Great recession proof, but resistant resistance and I wanted to try to understand a little bit more about that view is it because you think.
The volumes and the pricing will both be steady or do you think youll gain perhaps incremental share with your customers. If in fact, there is weaker volumes at the customer level <unk> pricing implications, just hoping you could flesh that out a little bit more.
So thanks for the question Keith I'll start with your first observation, which is absolutely spot on.
And Thats precisely what it is so we kept our.
Sure.
Guide.
Reiterate it but obviously, we are absorbing the currency headwinds and the results.
Faster constant currency organic growth than that and what's part.
Guidance.
Did not disclose the EBITDA impact, but you can probably see.
Is that when you look at our currency because we actually have more revenue in euros and cost.
So it's actually EBITDA dilutive.
I did quantify was that for every <unk> <unk> movement in the euro will lose about $8 million on an annualized basis.
Flow through impact to EBITDA on that basis, it's roughly $2 $5 million. So.
Sort of do the math on that.
That means so yes, we are explicitly breathing.
Guide on EBITDA as well.
It's all built into our maintaining the 24% overall.
Terrific helpful.
And on the second half of your question Keith.
What we've seen historically and what we would anticipate prospectively as to the the answer I just provided a moment ago. So if our customers are experiencing.
Deterioration in the demand for their own products and services from their customers and so their need for.
Much support from partners deteriorates.
The triage that we've seen them generally undertake doesn't start with firing their most expensive partner <unk> their best providing partner it starts with firing or reducing volume what their worst performing partners and or shedding their own captive capabilities.
Because those tend and variables to be the most expensive channel that they maintain and often not their most effective channel.
And so what we would anticipate as we may or may not get any pricing elasticity, there may well be.
Some volume deterioration at a macro level for the customer, but we will be the net beneficiary once more because they are more likely than not to consolidate amongst that vendor community and we anticipate we will be included in that consolidation, we will make the cut so to speak and then whatever lesser volume they have to support they will be bringing those to us.
Once again, we expect to be a net beneficiary of that dynamic.
Understood share gain story, okay terrific. Many thanks.
Thanks Keith.
And we have time for one more question, which comes from the line of Maggie Nolan from William Blair. Your question. Please.
Hi, Thank you nice quarter can.
Can you talk a little bit more about the magnitude of cross selling opportunities that you think lay ahead for <unk>. I know you gave an example of talking games on the call.
Are there particular solution areas that are becoming dominant or outsized growth drivers like AI data or safety or something else. Thank you.
Thanks for the question Maggie.
Yes.
I wish we had more time and in fact, if I can impose upon you maybe we can address this more fulsome Lee offline.
But the combination of our.
AI capabilities with our digital IP with our content moderation.
Boy, Oh Boy, Oh boy it has been so exciting.
Just in the last six months in the last three months in particular and what we're already we're looking at doing together with those capabilities and some of our existing and prospective clients.
So the continued proliferation of.
Excuse me AI, enabling some pretty exciting.
Functionality right.
Digital commerce, thats, improving the customer experience in BFS side document verification customer interactions in real time.
For social media, such as content moderation, but it's duration in the AG sector, it's crop monitoring and soil assessment.
In health and medical it's research, it's parsing scores have accumulated an unstructured datasets like the the application the opportunity for better deploying proliferating our capabilities and the combination of these has really been why I think we're we're stealing share and we're growing.
So quickly in that space.
Once again I am feeling like we were.
Fortunate and prescient in making the investments that we did at the time that we did in Lionbridge unemployment and I think you should expect to see even more expansion. There just given the applications for this capability seem right now and some of the near limitless.
Thank you.
Thanks Maggie.
Thank you. This is all the time, we have for questions. Today I will now turn the program back to Mr period, just appear at the line is yours.
Thanks, very much Jonathan and thank you all for your questions today, although the the.
The macroeconomic backdrop in which we operate remains complex with inflation concerns rising interest rates continued global uncertainty around COVID-19 and evolving geopolitical risks Telus international continues to be very well positioned for topline growth with leading margins and a very robust.
Cash flow profile.
This makes our company stand out as an especially attractive destination for capital for growth oriented and value focused investors. During this time of broad market volatility.
As always I look forward to connecting with many of you at upcoming conferences and investor events, such as our AGM on Friday may 20th and if not that Telus International's next quarterly call in August with that I wish you all a great summer and keep yourselves and your family safe. Thank you once again for joining us today.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Sure.
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