Q2 2022 Telus Corp Earnings Call
Now north of $2 4 billion.
Identifying new business and cultivating further opportunities with existing clients across our end to end portfolio of capabilities, but a significant portion of which is our differentiated set of new economy services, such as our AI data solutions and premium content moderation services, our AI data services in particular.
<unk> delivered both double digit revenue growth and double digit EBITDA growth year on year, both in the second quarter and year to date, we have not seen a slowdown in demand for our AI services and unlike some of our single threaded peers in this space. We believe our end to end digital capabilities favorably positioned ti to.
Deliver better value for money and enable better outcomes for our clients.
Our ability to meet the ever more complex criteria of demand helped us deliver key client wins during the quarter.
For example, among our new logo wins in Q2, as a leading digital marketplace for sports Entertainment and event tickets, notably this clients had been supported by a competitor of ours, but decided to partner with Ti in order to improve its operational rigor and raise the bar on service quality. We also won a new client in the financial.
<unk> space, a digital platform that enables global money transfers and offers advanced digital wallet solutions as well as one of North America's largest public broadcasters.
Our expertise to support its expansion into new digital channels.
<unk> ability to win incremental business with existing clients in Q2 was equally impressive with numerous deals focused on expanded mandates for our AI data solutions and digital solutions teams. For example, we continued to grow our share of wallet with the world's largest E. Commerce company one of the global leaders in digital media and digital marketing.
<unk> solutions, a global staffing and recruiting company and one of Western Canada's largest bulk transportation carriers as.
As important is winning new and incremental business is successfully retaining clients has become increasingly important against the backdrop of broader macroeconomic challenges. Nowadays many companies are looking to consolidate vendor relationships to maximize the quality of customer experience and engagement, while achieving greater cost effectiveness.
<unk>.
<unk> is often rewarded as a net winner in these scenarios given the scope and quality of our capabilities across the design build deliver continuum, our ability to effortlessly scale across numerous geographies and languages and ultimately due to our carrying culture that ensures our clients are being served by a tenured and non.
<unk> team, who are personally committed to their success.
Let me share with you just a few examples of some of the more exciting projects we've been working on.
The first relates to our work with one of our longstanding technology partners variant a software company focused on customer engagement working alongside another of our long tenured clients and partners, Google tell us international designed and built our cloud infrastructure to enable that varian workforce engagement application suite to run on the Google excuse me.
Google cloud platform or <unk>, providing our clients with a powerful combination of CX tools.
Our clients are looking for efficiency agility scalability and performance when it comes to managing a workforce engagement platform to keep pace with expanding customer expectations, along with a less resource intensive self management of the hardware infrastructure to extend the benefits of the variant workforce engagement platform to our clients.
Telus International work to re imagine our overall CX deployment model to optimize this particular application on GCB after developing and building the meeting excuse me the needed infrastructure in house, we tested the solution and got it certified on DCP in a matter of weeks. We then migrated 30000 users over just one week.
And the enhanced platform is four to five times faster to deploy for clients and it's able to take vast amounts of customer experience information and stored in the cloud. It's also been integrated with Telus International's cloud contact 360 solution or <unk> $3 60 per short a pure cloud Omnichannel contact center platform.
That empowers team members with all the tools needed to improve the customer journey, providing real time easily accessible data to make informed decisions about workforce optimization forecasting needs for specific skill set scheduling and more.
Users continue to report dramatic improvements in performance and quality and the platform enabled both the capital cost avoidance benefit for clients using <unk> hundred 60, along with monthly operating cost savings, notably Telus International was the first to enable the variant workforce engagement application suite at TCP and as a result other brands and.
Tech partners now have a roadmap to do the same with ease.
As a testament to the success of this project in the second quarter of 2020 to Telus International one and the infrastructure category a variant engage 2022 integration challenge for integrating variance GTP based solution with Telus International <unk> hundred 60 solution.
Just one example of how our cloud and platform services as part of our broader Telus International digital solutions offerings.
Accelerate our clients' digital transformation with fully managed multi cloud platforms cloud computing is fast becoming the de facto engine to build next gen technology ecosystems for CX innovation.
Work with clients to solve their cloud adoption challenges by overcoming their concerns around security consumption costs, multi cloud management and integration with non cloud systems.
Loud native technologies become more pervasive, bringing all of the technology processes and services together remains critical we guide our clients' transformation journeys by moving and managing applications for the right cloud platform with the right deployment model, our flexible cloud platforms and comprehensive managed cloud services are designed to support a single.
<unk> or multi cloud deployment to deliver better customer experience and ensure a meaningful return on investment.
In another example, I want to share with you how our Telus International AI data solutions team is working with not for profit organization light of Dawn international or as it's known locally in Indonesia, The ISI Internet channel to high of chart or why ICF for short.
Create job opportunities for displaced people and refugees in southeast Asia.
According to the United Nations in 2021, there were more than 84 million refugees worldwide.
Figure has nearly doubled in the past decade, and unfortunately keeps growing and in most cases. These populations have typically been marginalized when it comes to recruitment opportunities.
Telus International sought out an organization to help us provide access to our global AI community to add data annotators from across Southeast Asia Southeast Asia to incorporate their voices and perspectives to help us deliver more diverse data sets to ultimately create more inclusive AI models to help mitigate bias.
Telus International selected the light of dawn as a partner because of their commitment to creating opportunities for Indonesia and refugees in transit to the country. It's a locally rooted in globally connected organization focused on transforming lives and greater Jakarta through education vocation and community. Our team worked with the light of dawn to.
Our global workforce by engaging with refugees throughout southeast Asia.
Part of the partnership we participated in the organization's recently launched program called Bear surmount, meaning together with a mission of providing life changing vocational experiences are unemployed Indonesian youth and refugees who are without legal rights to employment, while they await resettlement to a new country through this program individuals gain work.
Experience improve their language and digital literacy skills through continuous learning opportunities and are able to become part of a supportive co working community to date <unk> has created opportunities for individuals across seven unique nationalities with a variety of ages backgrounds in languages represented including English Persian in.
<unk> and Arabic. These individuals have quickly expanded and progressed the scope of their work in the AI community for more simple collection and categorization tasks to include more complex image annotation audio and image transcription and categorization and quality assurance work.
I'd also like to provide an example from our trust and safety practice, highlighting how our team helped to optimize the debt collection strategy for a leading utilities provider in the United States.
We've been a trusted CX partner into this client since 2005, and our team's impressive track record, providing exceptional customer care and sales solutions influence. This client's decision over a decade ago to broaden its relationship with Telus International to include debt collection management members.
Members of the Telus International team in Central America had been providing first party collections support on behalf of our clients since 2009 seamlessly resolving billing issues and improving the client's overall customer experience.
All services are delivered in English and key members are responsible for addressing fraud scenarios resolving credit report disputes communicating with customers on overdue accounts performing audits processing refunds handling issues resolution and working with credit bureaus as needed through our engagement leveraging our best practices Telus International was able to <unk>.
They are cost efficient and highly effective technology driven solution for the client the team was able to streamline the collections process by identifying and eliminating rework, which is already generating meaningful savings all the while delivering an enhanced customer experience, which is essential to this clients industry, leading brand reputation and lower customer.
Churn.
Particularly like this example is it clearly illustrates the long tenure diversity of mandates and stickiness of our client relationships our clients see US do good work in one area and reward us with more varied work and other aspects of their operation with our engagement often spanning over many many years as our clients increasingly rely upon our <unk>.
Expertise and advice.
Are some of the most important areas of their business fueling longer term growth.
My final example, today highlight our Telus International digital solutions teams efforts on behalf of a large telecommunications and information technology company.
Excuse me.
Telus International develop a specialized response card, enabling this client's mobile customers to efficiently find information for an effortless customer experience conversational bots are commonly used to facilitate a smooth user experience on mobile devices in order to implement a successful chatbot organizations.
Must first identify the most common inquiries and the chatbot can then serve up this information as pre populated options for the customer to select when the support application is launched ensuring the selection is as clear and as direct as possible improves customer satisfaction, while also reducing our clients contact center volumes through self service.
After assessing our client's specific requirements and their user journey goals, our team utilized our proprietary conversational bot platform intelligence Telus International assistant or.
To establish deep linking along with a customized response card for a better mobile experience deep linking is the process of creating urls shorteners to land to user on specific flows within a chatbot depending.
Depending on their intended use case by offering deep linking experiences the intelligent Telus international assistant not only enables the client's customers to easily access the top searched inquiries from our menu, but it also smoothed over any issues are customer might experience with mobile interface rendering the Telus International development team also.
Created a customized response card that sorts through its trained content when a user asks a question and respond accordingly, if the customer requires further assistance. They can decided to be transferred to a live agent or continue with the chatbot as a result of our work the client has already seen meaningful improvements in the overall mobile user experience.
We created a branded solution customized for the clients theme, which further supported the client's brand equity.
Early in the solutions deployment, the client has already experienced over 70% of its customer calls being routed to the chat board by a deep linking to create seamless interactions that deliver measurable enhancements to customer experience, while simultaneously, reducing their contact center volumes and costs by leveraging our technology driven solution.
Same ITI <unk> platform I. Just described was recently recognized with a 2022 AI breakthrough award, but for an informational bot in the virtual agents and box category. This is the second consecutive year. <unk> has won this industry award that's based on a variety of considerations, including innovation design.
And user experience as well as overall technological advancement also in the quarter, leading industry analyst relations from Everest group named Telus International as a star performer on its 2022 Everest Group Trust and safety content moderation peak matrix, highlighting our market adoption and market share growth and ability to.
They'll along with our enhanced language capabilities and provision of localized services.
Another notable accolade came from the business intelligence group naming Telus International as of 2020 to excellence in customer Service Award winner in the organization of the year category, recognizing our team members superior performance and helping companies better communicate with their customers and provide a differentiated level of customer service our team.
I want a Stevie award for sales and customer service based on our work with Green Tech scale up refurbish our team won in the frontline customer service team of the year category, having supported refurbish and its growth and expansion through the delivery of an exceptional customer experience since 2020.
Additionally, I'm immensely proud of our company for being named one of moguls top 100 companies for diverse representation in 2022, recognizing our leadership in implementing practices investing in resources and tools to hire diverse talent and placing diverse leaders across our organization.
And saving perhaps the best one for lost Telus International was included on the Forbes list of best employers for diversity. In 2022. This was a survey of over 60000 respondents with evaluation based on four different criteria direct recommendations indirect recommendations diversity among top executives and board members.
And diversity engagement indicators. This recognition of our global team's remarkable performance and commitment to our carrying culture is extremely well deserved and I'd like to take this opportunity to once again sincerely. Thank them for ensuring we continue to bring our values to life in everything we do for our clients and for the communities, where we live work.
And raise our families.
As I've often shared before in many ways what I'm most proud of at Telus International is our carrying culture I will take care of our customers one another our communities and the planet is core to how we operate as a company and is consistent with our stated ESG priorities in light of this I'd like to share some highlights of just a few of our.
Telus days of giving activities our signature high impact volunteer events. Among the many held this quarter, we hosted fitness challenges in China, India, and the Philippines, where 4000 team members raised funds for the China Association of Sos Children's villages Setris Environmental Trust in India and World Vision development found.
<unk> in the Philippines, the donations will benefit 13000 children and youth and need and will ensure more than 2000 trees are planted creating urban forests.
On June 4th we celebrated our 10th year anniversary of Telus days of giving an quetzaltenango Guatemala by building the second phase of La Colina Health Center that included two clinics in a warehouse and we painted the entire center.
Since we started the project in 2018, we've had over 250 team members volunteer on the site. In addition to our own direct investment today, the health center benefits more than 25000 people annually, who could not otherwise access care.
And finally before I turn the call over to Vanessa Let me also share our latest returned to office update globally more than 50% of our team members have now successfully transitioned back to working on site. Additionally, around 6% or working in a combined office or remote setup.
Uprising Lee there's a high degree of variability in our return to office profile with some locations like the Philippines now at almost 90% back in the office and others like Ireland at less than 10%.
These different in office profiles are correlated to local legislation customer demand employee preferences and team member safety all of which we seek to balance and optimize as we continue ramping our plans to return more of our team members safely back to our sites around the world. We're doing so while if <unk>.
<unk> being very mindful of evolving developments around new virus variance as we monitor the situation in each region very closely 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 I'll return to answer your questions Vanessa over to you.
Thank you, Jeff and good morning, everyone. Thank you all for joining US today I'll begin with a look at our financial results for the second quarter, and then discuss our business outlook for full year 2022.
As mentioned at the start of this call in my review of financial results I will refer to some items that are non-GAAP measures.
A description and a reconciliation of our GAAP to non-GAAP measures. Please see our earnings release and regulatory filings from earlier this morning.
We had solid second quarter results with 21% revenue growth on a constant currency basis, and an adjusted EBITDA margin of 20, 450%.
We generated robust cash flow with $60 million of free cash flow generated in the quarter.
These results once again illustrates our focus on maintaining a healthy balance of strong top line growth and leading profitability matched with strong free cash flow, which we believe is notable particularly against the backdrop of the current macroeconomic environment.
Let me now expand on the components of our financial performance.
We achieved total revenues of $624 million up 17% year over year on a reported basis or as I mentioned earlier at 21% in constant currency as our reported revenue included an unfavorable foreign currency impact of approximately 4% compared to the year ago period.
Prominently driven by the strengthening U S dollar against the Euro exchange rate.
As Jeff highlighted earlier, we saw very strong growth from AI data services in particular, which along with content moderation are amongst our fastest growing service line.
Looking closer at our revenue by geography, our highest quarterly revenue growth was in Asia Pacific at 42% year over year, followed by 28% growth in North America potential.
Central America grew by 21%.
In Europe , we saw a slight decline of 2% due to the weaker euro relative to the U S. Dollar that I just mentioned.
On a constant currency basis, we continued to see double digit growth in this region.
From an industry vertical perspective, we continue to again see growth across our key vertical.
Our largest vertical second gains grew 18% in Q2 with Telus International AI solutions remaining a key driver.
Our revenue growth and AI is.
He is not only indicative of market growth, but also increasing market share.
And our e-commerce, and Fintech political our revenues were up 26% year over year on shipping by our digital <unk> services.
Banking financial services and insurance, our BSI grew by 117% year over year, driven by continued growth with leading financial institutions in North America and globally.
Our communications and media vertical grew 8% year over year, principally driven by higher revenue from Telus operation Our parent company.
And then finally clients in our travel and hospitality protocol continue on their post pandemic reopening trajectory driving growth of 46% year over year.
I should also note that across all of our protocols to reported revenue growth rates were adversely impacted by unfavorable euro to U S dollar currency movements.
Moving onto operating expenses.
Salaries and benefits expense in the second quarter.
$356 million up 19% due to higher team member accounts to support business growth and higher average employee salaries and wages.
Our goods and services purchased were 118 million in the quarter, an increase of 15% year over year. This increase was primarily attributed to business growth, including the impact of higher crowd contractor costs from the volume expansion, we continue to see in our AI data solutions.
Share based compensation expense in the second quarter was $7 million a decrease of 12, 3% year over year, primarily due to a decrease in our share price types of recent market conditions, which resulted in lower expense on a liability account that award.
Acquisition integration and other charges in the second quarter was $6 million, a decrease of $1 million, primarily due to lower integration costs compared to the same quarter last year.
Our interest expense in the second quarter was $10 million a decline of 17% year over year.
Primarily due to lower average debt balances and our credit facility as we have made meaningfully meaningful rather principal repayments against our debt facility over the past year, including in the past quarter.
With rising interest rates, we also saw benefits from our hedging activity from our cross currency interest rate swaps kind of locked in favorable fixed interest rates on a meaningful portion of our debt.
Income tax expense in the second quarter was $21 million compared with $13 million in the same quarter last year.
Our effective tax rate decreased from 44, 8% to 27, 3% primarily due to a decrease in withholding and other taxes a decrease in non deductible items and a decrease in tax differential.
As a reminder, during the first half of 2021, the majority of the nondeductible items.
The results of our IPO and were nonrecurring.
Our adjusted EBITDA was $150 million in the second quarter and year over year increase of 15% keeping by an increase in revenue from both existing and new customers alike, partially offset by higher cost to support business growth as just mentioned.
Adjusted EBITDA margin in the quarter was 24.0% a solid achievement in the current environment with the margin expanding by 30 basis points compared to the prior quarter.
Looking at the year over year differential it was primarily due to higher costs associated with our frontline team members as expected as well as changes in revenue mix.
Adjusted net income for the quarter was 81 million up 29% and on a per share basis. This translated into adjusted diluted earnings per share for the quarter of 39 up 25% year over year.
Moving over to the balance sheet, our balance sheet remains very strong with further improvements during the quarter and our leverage ratio and liquidity position.
Cash and cash equivalents were $123 million as of June 30.
Our total available available liquidity, which comprises cash on hand and available capacity under our revolving credit facility of $788 million grew to $911 million.
With our available liquidity, we continue to have ample capacity to pursue strategic growth opportunities as we have done historically.
We also continue to reduce our leverage lowering our net debt to adjusted EBITDA leverage ratio as defined by our credit agreement to want to try that.
And third yet a further improvement from one eight as of March 31st 2022.
Just a reminder, we continue to see that two to three X zone at a good steady state amount of leverage and continue to have the ability to go beyond this range for the right type of strategic opportunity.
In the second quarter, our free cash flow was $60 million compared to 71 million in the same quarter last year with the decrease primarily due to higher outflows from working capital and cash taxes paid partially offset by higher operating profit.
Our capital expenditures in the quarter.
$9 million, an increase of 4 million year over year, primarily attributed attributed to additional investments in AI solutions, including further development of our community manager platform and related to our state of the art site in <unk>, Ireland, as we announced a couple of weeks ago.
We also continue to invest in our digital services for additional capacity and cloud storage along with other normal course facility related a couple of weeks.
Looking at the first half of 2022, we generated $159 million of free cash flow an increase of 79% from the same period last year with the increase primarily driven by higher operating profit and a decrease in interest and income taxes paid partially offset by higher net working capital outflows.
In the first half of the year, our capital expenditures as a percentage of revenue remained modest at around 4%.
Looking at our team members. We ended the quarter was 69218 global team members, an increase of 23% year over year, reflecting our ability to continue to hire and retain key talent to support our revenue growth.
Now turning to our outlook.
Starting with revenue as.
As a reminder, approximately a third of our full year estimated revenues are denominated in Europe .
As you will recall our initial guidance at the start of the year assumed a euro to U S dollar exchange rate of $1 13.
And in May our outlook assumed $1 eight based on the exchange rate at that time.
As we are today given the continued strengthening of the U S. Dollar we're now assuming $1 two for the second half of 2022.
Given the relative size of our European business. This FX headwind is material not only in relation to our initial guidance at the beginning of the year, but also even when compared to our guidance at the end of just last quarter.
Despite this further deceleration in your however, given our strong performance year to date and the current outlook that we have for the second half we are today again reiterating our guidance anticipating.
Anticipating revenues in the range of two five to $2 $6 billion, reflecting a year over year increase of 16 to 18, 5% on a reported basis and.
20% to 22% on a constant currency basis.
Compared to our constant currency growth range of 19% to 21%.
In our last guidance update and also compared to constant currency growth range of 18% to 20% and our initial beginning of the year guidance.
As a reminder, our outlook does not include the potential impact of material M&A.
We continue to expect adjusted EBITDA margin to be approximately 24% for the year. We also continue to expect to deliver adjusted diluted earnings per share in the range of $1 18 to $1 23, which reflects growth of 18% to 23% from last year.
This assumes a weighted average diluted share count of approximately $270 million in each of the corners.
In terms of quarterly seasonality within the second half of 2022 similar to the prior year, we expect an approximate split of 48% in Q3 and 52% in Q4 for revenue and earnings.
With that let's move on to questions Jonathan over to you.
Certainly.
Once again, we kindly ask that you limit your questions to one at a time you may get back into queue, if you'd like to ask another question.
We will pause for a moment to compile the queue.
One moment for our first question.
And our first question comes from the line of Ramsey El <unk> from Barclays. Your question. Please.
Hi, good morning, and thanks for taking my question.
It sounds like things are going quite well.
Wanted to ask if you could provide just some general thoughts on the demand environment and Theres a lot of headlines about a potential recession on the horizon et cetera, maybe.
Maybe just some color on customer spending patterns and decisioning in particular, whether youre seeing any changes or any any signals in your in your in your day to day.
Thanks for the question Ramsey Nice to hear your voice hope you're well.
We are built for the recession I would suggest the origins of this business works to help parent company tell us at first instance, and since then all of our clients to find ways to do more with less to leverage our scale and scope advantage and expertise.
To help them accomplish what they'd like to on their own, but frankly that don't have the expertise or the scale or scope and in a recession I think thats ever more so over the second quarter of you just read and heard I think we did exceptionally well and continuing to progress our growth strategy focused on both growth and profitability.
Our outlook has Vanessa just reaffirmed continues to be quite robust.
And whilst we're certainly mindful of insensitive to the discourse with respect to recession, some layoffs and.
Volume.
Diminution in connection with some of our customer.
Business environment, thus far we've not been adversely affected at all to the contrary, we continue to see pretty exciting growth opportunities and serving existing and prospective clients and.
And not entirely surprisingly we were around in the slowdown in a number of years ago and then two we were a net.
Gain or if you will off the back of exactly what our value proposition anticipates helped.
Helping our clients to navigate these challenging times relying upon our investments in infrastructure and talent.
<unk> technology.
Yes.
Great very helpful. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Samson hung from Jpmorgan. Your question. Please.
Hey, Thank you good morning, real courage, you that you were able to.
But through the FX and then some.
I just wanted to ask I guess looking ahead to the second half of the year.
In terms of the range on the revenue side that you're laying out the usual question. What gets you to the low end versus the high end how much cushion do you have left to the extent that maybe there are some surprises and Jeff are you seeing maybe a change in your clients' priorities or the types of clients that you're engaging with that provides a hedge.
Against what Ramzi was asking because I know you mentioned that <unk> for example, so just trying to better understand.
The potential range of outcomes in the second half of the year here. Thank you.
Hey, Tien tsin. Thanks for the question nice to hear you as well for ups ill invite Vanessa to respond in detail there.
Thanks, Jeff Good question Tien Tsin.
That we've guided to a range of outcomes that we deem to be feasible for the balance of the year.
I smiled when you mentioned the word cushion I mean, how much cushion there is in the second half guide.
Clearly, we're not going to.
Implicitly raised our guide moments after issuing it by starting to talk about how much cushion, we we've already built into the guidance.
All I will say there Tien tsin is that we do remain fairly optimistic.
As Jeff mentioned, obviously, we are.
In a time, where there's a lot of uncertainty from a macroeconomic perspective lots of headlines around.
Some companies slow down et cetera, but thus far we can seem to be a net beneficiary.
Really strong funnel as you've heard me not injected paired remarks.
Got pretty good visibility as well into the second half so not only visibility in terms of what the opportunities in our funnel, but also just based on the work that we do we're in discussions with clients in terms of planning their projects and priorities for the second half, but we do have some fairly strong visibility at this particular point of course back to you you know things are.
We are in uncertain times I don't think anybody once the project is a perfect visibility at this particular point in time, but based on what we know what we see today, our Freddie we're fairly confident in not in the second half guidance that we put forward.
And in terms of whether we're seeing any changes in the types of clients I mean, I'll invite Jeff Thats, the top up but I don't think we're seeing changes in the type of clients.
Certainly we had some pretty nice new logo wins that you heard Jeff highlighted in his prepared remarks about earlier that fit nicely into our existing vertical. We go after very high quality clients that have the ability to watch me rattled off pretty significantly and so from that perspective, I wouldn't say the types of clients are changing in any meaningful way thus far.
The type of work, we're doing with clients continues to evolve in terms of again you heard some of the examples that Jeff shared in terms of progressing their digital journey. Even further some are in fact looking for cost optimization for looking at rebalancing some of the geographic distribution of work et cetera, but other than that I think I would say you know based on what we're seeing that the type of clients and the type.
But we do falls right within our wheelhouse.
Great. Thank you Vanessa.
Thank you.
Our next question comes from the line of Brian <unk> from Citi. Your question. Please.
Hey, Thanks for taking my question I wanted to touch on M&A.
So it was a reported acquisition offer that you guys made.
The quarter to acquire a public competitor in the AI space.
Not sure if you want to comment on specifically, but more broadly can you discuss how you're thinking about M&A now that you are below your target leverage ratio is there a desire to continue to make large scale acquisitions like you've done in the past or are you more comfortable with tuck in acquisitions.
What exactly would you be looking for any potential targets.
Sure.
Hey, Ryan Thanks for the question on the first part of your question suffice to say.
We decided that it wasn't a prudent per week to proceed with the proposed transaction.
Consequence decided to walk away I don't know that there is much to be gained by.
Dwelling on the details behind that.
On the latter part of your question.
Obviously as our leverage ratio continues to improve that creates more and more headroom for the possibility.
Of M&A activity.
It's always been an enabler of an amplifier of our strategy not the strategy itself and.
And so whilst we're certainly confident in our current capabilities to meet existing and perspective customer demand. We continue to be actively on the lookout for areas of opportunity for Adjacencies for extensions in scale for additional capabilities that we think we can.
Immediately put to good use in serving existing or prospective clients.
And as you've seen over our history, we've not been restricted to either tuck in or more transformational acquisition activity and I think the success in our past in this regard emboldens, our thinking around what we might do in the future, but as ever you should expect us to continue to be.
Disciplined and thoughtful about what we want to buy why when and how.
The market continues to be what I would call a target rich environment for potential M&A activity.
But first and foremost I think not entirely dissimilar from what you see and how we run the business organically I E. A focus on discipline and <unk>.
<unk> growth <unk>, you should expect that same discipline in how we approach potential M&A activity.
Great. Thank you.
Yes.
Thank you and our next question comes from the line of Stephanie price from CIBC. Your question. Please.
Good morning.
They've done the submission has been an area of strength and a competitor and data annotation recently pre announced some weaker results. This week I'm curious if you could talk a bit about what youre seeing in the competitive environment in the data solution side and whether she is winning share there.
Yes, well, obviously we are.
We too read with interest are our competitors.
Update their experience candidly is decidedly dissimilar from our own as I shared in my comments earlier and as Vanessa further illuminated our data annotation business continues to perform exceptionally well with double digit growth in revenue and EBITDA for the quarter and year to date.
And our outlook for balance of year continues to be to be equally robust.
I'm not sure I can.
Comment on what's behind what they're seeing and why they were commenting the way. They were obviously I don't have perfect visibility too.
Their own particular circumstances.
But it would seem to me that when we're growing at 40% year over year, one of two potential things is occurring and it could be both.
We are growing with the continued market growth and or were taking meaningful share from them.
In either case I think it's good news for us.
Alright, thanks for the color.
Thank you and our next question comes from the line of Maggie Nolan from William Blair. Your question. Please.
Good morning. This is Jesse on for Maggie I had a follow up question.
So the M&A topic. So you guys mentioned higher contractor costs in the quarter. So how are you sourcing these contractors in the AI business and could you potentially leverage M&A to.
Gain access to more crowd sourced and alternators.
Thanks, Jessie I knew right away when I heard your voice you weren't Maggie you have sort of a much deeper sound to you than she does.
<unk>.
We obviously use a.
Multitude of direct channels web based and otherwise social media in order to.
Surface crowdsource worker opportunities.
And as you can imagine just given the size of that community.
It is a prolific channel that we leverage on a constant basis.
Acquisition activity theoretically could amplify and extend our reach in that regard.
<unk>.
We thought a little bit about it and candidly I'm not sure that that's.
The way to address the desire the need to continue to amplify the size of that community given there isn't.
Shaw media in order to.
Surface crowdsource worker opportunities.
And as you can imagine just given the size of that community.
It is a prolific channel that we leverage on a constant basis.
Acquisition activity theoretically could amplify and extend our reach in that regard.
We thought a little bit about it and candidly who had them for working with someone else and vice versa. So so long as our talent acquisition recruiting team continues to be.
Active and engaged I think theoretically we could reach everybody.
And the very people that might be part of the community that is being sourced by an acquisition candidate. They are already theoretically available to US, yes, we might be able to get them a little bit more quickly more easily through the acquisition, but I'm not sure that would be the <unk>.
And Mary consideration at all with respect to the value we might see in a potential acquisition. It would have to be something significantly more substantive than that.
Before why that would be the kind of acquisition, we would be looking at.
Understood. Thank you for taking my question.
My pleasure nice to hear your voice.
Thank you and our next question comes from the line of Daniel Chan from TD Securities. Your question. Please.
Good morning, guys and congrats on the strong quarter.
So tell us is acquiring life works just wondering how involved you'll be supporting it and maybe as a follow on to that how much of a sales effort is it.
To get that business or is it pretty much free growth without much sales expenses associated with it. Thank you.
Thanks, very much Daniel.
Well I certainly am hopeful that we're going to be very actively engaged in supporting life works assuming tell us is successful in completing that transaction as I think you know, it's signed but not yet closed.
And so upon closing assuming that does indeed occur we will absolutely be looking for areas of opportunity for collaboration not dissimilar from the support we've been providing to tell us.
Core communications business as well as Telus health Telus <unk> Tec.
I think there is a multitude of areas of opportunity for enablement, leveraging our core competencies around digital transformation and exceptional client or in their acute patient experiences.
<unk>.
The latter part of your question that made me smile only because over the last 17 years I can tell you that I think theres perhaps.
Surprising misunderstanding regarding the dynamic between tell us with Pi in many ways I'd often lamented they tell us is the most difficult client for Telus international to win and or support they are discerning. They are demanding it has no day at the beach is more like DJ at Normandy Beach, sometimes I joke that we have to work hard.
To win that business, we compete every day with all of the usual suspects and tell US is by no means giving Telus International a hall pass.
A free run of winning business, we have to compete in Rfps, often we have to demonstrate value for money. We have to demonstrate that we have the requisite experience and expertise and we don't get to automatically assume once we've wanted that we get to keep it there too they hold us to the very same standards of performance and quality and value.
They do all of their other supplier vendor partners and tell US procurement. These guys and gals are experts at what they do and we have.
Renegotiations on our statements of work each and every time to ensure that Telus continues to derive the value would expect from the relationship from Ti and so I would anticipate assuming lifeworks gets acquired and there is opportunities for wheat to enable them that that dynamic will be no different than that which I just outlined.
That's very helpful color. Thank you very much.
My pleasure thanks for the question.
Thank you and our next question comes from the line of Keith Bachman from BMO. Your question. Please.
Hi, Good morning, everybody I wanted to ask a clarification and then a question which is distinctly different from asking two questions.
So that's on [laughter] Vanessa on the the margin guide that you're giving for the year Youre, keeping 24, but I actually think you're raising margins because youre absorbing FX within that so I just wanted to try if you could just clarify how much FX you're absorbing in your operating.
To understand how much your net net effectively raising the EBITDA margin.
The question, Jeff I wanted to pose to you is if you think about the cost side of the equation I just wanted to get a perspective on how that's actually transitioning as you look at it through the year and the variables would include attrition and wage.
Labor rates.
Just wanted to try to understand as you see the economy behind us weakening a little bit are those wage inflation staying the same getting better getting worse, just a little bit of comments on how you see both attrition and.
Wage inflation unfolding over the balance of the calendar year. Many thanks.
Thanks, very much Keith you must be a recovering lawyer.
Across life.
Thanks, and good for you.
So why don't you take the first half and on the I'll take the second.
Thanks, Jeff Keith Thanks.
For your question for the first part of your question.
Look when we look at currency movement, starting the year at $1 13 on the Euro and now at $1. Two that's an almost 10% swing within the same year.
And frankly had it not been for these currency movements Telus International would have been raising guidance.
All right and that's what we wanted to make sure that folks to walk away with the real key takeaway here, which is strong operational execution.
From a margin perspective, we do have puts and takes there while we do have the <unk>.
Currency adverse effects of the euro, which actually pretty significant even against EBITDA. We have other currency movements that helps protect us on the cost side. For example, we haven't been up an appreciation of the peso. It doesn't absorb believes the implications of the declining euro, but again back to strong operational execution, which is really what's allowing us to like to reiterate.
Both the revenue and be at the margin percentage guide in terms of the actual basis points impact honestly had it not been for FX I think we would be raising our margin guidance by probably at least 20 to 30 basis points.
If not more so.
The goal here, but strong operational execution, she wants to help combat visa.
That movement.
Okay perfect.
Thanks, Vanessa so our assumptions for the back half Keith are not entirely dissimilar from what we set out at the beginning of the year.
Obviously, a number of puts and takes as we read about because I referenced earlier in my response I think it was contingent question about recessionary.
<unk>.
Attrition continues to obviously be a challenge where we enter all of our peers.
And whilst we are by no means immune from the implications of this continued.
Tight labor market in terms of accessing at scale the requisite talented folks to help us on these technology enabled transformational work and services we provide.
As I've said many times in the past I really do think we continue to be knock you laid it in part because of our unique and caring culture because of how we approach it.
Claimant more broadly.
For the back half of the year, we're not anticipating any.
Further difficulties.
We think it's going to kind of continue a pace I think there is some reason for potential optimism ironically in the sense that when you start to read a little bit about potential layoffs and some softening in the marketplace, maybe that means the labor market might open up a little bit for us.
There is some cause for potential optimism there the reality is.
Most of our hiring is not happening in those markets, where we're reading about these layoffs. So to the extent that we're looking to access talent, it's not where youre hearing about the lay offs necessarily so I'm not anticipating all of a sudden.
Challenges around recruitment and retention are going to somehow move in an inverse correlation to what we saw in the first half I think it's going to continue to be.
<unk> not insurmountable as we've demonstrated given where you know north of 7000, new hires in the first half.
In terms of overall inflation, there too I think what we saw in the first half we anticipate will likely continue in the second half and as I mentioned earlier as did Vanessa clients I think youre going to continue to become perhaps or in more.
<unk> full.
Concentrated around efficiency value for money, ensuring that the partnerships. They have four support are really delivering the ROI that they expect but thats always been the case and that is how we positioned our business and our service offerings. Our value proposition was designed to address exactly those concerns so.
As I said before I think we're going to see a not dissimilar back half from the front half subject only to as you've heard from Vanessa before.
Quasi seasonality, where the back half tends to be a little bit more robust for us.
Terms of growth.
The front half.
Okay got it many thanks team.
Thank you.
Thank you. Our next question comes from the line of Jeff Cantwell from Wells Fargo. Your question. Please.
Great. Thanks, so much and congrats on the results.
I wanted to ask all three of them right upfront if you don't mind.
The first is.
Can you tell us a little bit more about e-commerce, and Fintech, 26% growth this quarter.
We should get a little more color on what's working out there in the market with gosh, I would love to hear a little bit more about that.
Second one is just kind of a similar can you could you talk a little bit about the competitive environment, just give us a sense of what you're targeting and maybe getting a little easier for you.
As you progress over the last 12 months or so.
And then third your earlier question about profitability I'm, just curious if you can give us a sense longer term.
How youre thinking about profitability for the company.
Given all the moving parts with inflation and wage inflation and obviously using a lot happening on the top line for you as well. So just wanted to get a sense of where youre thinking.
Current thinking is on that as well.
Thank you.
Thanks, Jeff I'm not sure if we have other questions in the queue. So im a little bit reticent to answer all three but I'll triangle stock. So that we leave enough time, if there are more I think there might be.
I'll take them in inverse order on the profitability front as you may have heard many times in the past and again now.
Continued evolution in the service mix of our business that we believe is a source of margin expansion.
Scale is continued leveraging of our own secret sauce around automation and process excellence and efficiency that we think will continue to contribute not only to mitigating the.
Inflationary effects of wages and overall expenses.
Operating these businesses, but will actually give us expanded margin yields in the fullness of time.
On the competition front I wish I could tell you that I think things are getting easier.
I think they are this is a this is an industry that is not for amateurs. There is a high degree of complexity and so many moving parts. If there was anything that was getting easier I guess it would be as we continued to grow in scale and certainly post accessing the public markets.
We are no longer.
A well kept secret.
Certainly would appreciate even more visibility and awareness of our existence of our expertise of our capabilities. So that we got invited to even more opportunities whether by RFP RFID or otherwise.
We can always do better there, but we certainly get more add backs. If you will than we used to when we were smaller and before we were public. So in that regard I think the competitive environment is improving but still challenging.
Thank you.
Ongoing consolidation in the high level of fragmentation in our competitive landscape also.
A dynamic we continue to be quite mindful of and not to the extent that those ebbs and flows represent risks threats and opportunities. We continue to navigate them as effectively as we can and then lastly on the E Commerce and Fintech front.
I think there too we just continue to see ongoing opportunity I think that's a.
Our vertical that continues to be just filled with creative exciting innovative business models and capabilities and I think as we continue to build more and more.
<unk> and build a reputation for being a terrific partner to support enable amplify the success of those businesses and their platforms, whether it's through subscriber growth.
Protecting the integrity of their environments, ensuring the quality of the transactions that they and their customers enjoy on their platforms. We see continued upside opportunity for the foreseeable future.
Okay. That's great color. Thanks, so much and congrats on the results.
Thanks, very much Jeff.
Thank you and our final question for today comes from the line of Casey Chan from Bank of America.
Hey, guys. This is Kathy on for Jason Colbert bag. So I'll be quick one is just a follow up so like I know everyone's been talking about you know like wage inflation or anything is there any updates on your end on kind of like the ability to pass on those potential price increases to your customers is there any update that you kind of baked in in your.
Kind of full year top line guidance and then a quick modeling related one are there any updates on like below the line items like interest expense tax rate for the back half that that is kind of baked into your full year outlook. Thanks guys.
Thanks, very much Kathy I'll invite Vanessa to take the second half of your question second, but just briefly on the on the first one.
Oh, My goodness I, just had a seniors moment and I forgot. The first question remind me again guess yeah no problem. So the ability to pass on price increases.
Just some guidance for Europe .
The top line.
Sorry, sorry, thank you.
I have to be excused here I had not much sleep last night I became six.
630, this morning, and I'd been up all night waiting for the the update from my kids so in any event.
I think if you look at our margin profile for year to date in the second quarter.
That answers most of the question right. There it has been surprising in some ways candidly disappointing to me to read some of the narrative out there about passing on price increases wage increases to customers, whether we have cost of allowing living allowances or CPI provisions in every single.
One of our customer contracts I think the reality is we've done a reasonably good job of ensuring that as often as we can we are able to share some of the burden of these wage inflation dynamics with our customers and we are so so pleased and grateful that we've got customers partners, who are willing to work with us in some cases of course.
So it's predicated on these covenants in the contracts that we have in place that allow us to do that in many other cases, it's it's not explicitly because of contract language, but it's because as I say the strength of the relationship that we're able to go back to them off cycle. If you will not when they're sort of a natural.
Incision point on an expiration or renewal date of an MSA or NSO W. Again to work with them, but in totality. We continue to be pleased with the progress given the continued profitability profile of the business and for back half of the year, given Vanessa sharing as we expect to not just <unk>.
Maintain guidance, but that means we're going to absorb continued FX impact again, I think that in inherently implies that it's not just where pricing new work at new rates, but we're also able to try and mitigate some of those challenges with existing or older contracted work as well.
And then but that's what you want to talk about.
Below the line matters, yeah. So to answer the second half of your question Coffey from an interest expense perspective, I would expect a phenomenal change up in terms of second half versus first half.
ETR, we have previously guided full year range of 20% to 30% and I think you can do the math in terms of where we landed in the.
The first half to get you know, where we're going to go into the second half.
We do have seasonality, they're right, where the ETR stepped down in each corner.
So Q4 will in fact be our lowest if you model to that 20% to 30% and make sure you split your Q3 Q4 Q4 to the low end the only variability there.
You already know is obviously that assumes a certain jurisdictional mix of earnings. So we might have a small deal you said there, but I think you can go with those assumptions you should be okay.
Great. Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. <unk> for any further remarks.
Thanks, Jonathan and thank you all for your questions.
Closing I would like to reiterate our beliefs that Telus international is well positioned to not only continue to execute through current macro headwinds, but to thrive along the way our deep expertise best in class digital capabilities and global scale directly translate into fundamental sustainable.
Drivers of our profitable growth strategy.
We've been through many business cycles throughout our 17 year history, and this experience reinforces our confidence in our own ability to continue to navigate these challenging times and to execute upon our growth objectives. We're staying focused on what we can control delivering <unk>.
Exceptional service and value for money as we help our clients to continue to maximize their customer experience outcomes, whilst concurrently achieving greater cost effectiveness.
And Thats and I look forward to connecting with many of you face to face at upcoming conferences and investor events in August and September and we hope to see you at our next quarterly call in early November . Thank you again for joining us today and.
As we help our clients to continue aisle.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.