TELUS International (Cda) Inc. Q1 2023 Earnings Call
Okay.
Yeah.
Good morning, ladies and gentlemen, welcome to the Telus International first quarter 2023, Investor call. My name is Latif 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 one one on your telephone keypad.
If you would like to withdraw your question Press Star one one again.
I would now like to introduce Jason Meyer head of Investor Relations and Treasurer at Telus International Mr. Meyer you may begin the call.
Thank you Latif and good morning, everyone. Thank you for joining us today for Telus International's Q1, 2023 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'll then open the line to 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 website 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 Jacqueline.
Jacqueline Vanessa will also discuss certain non-GAAP measures that the management team considered to be useful in assessing our company's underlying business performance.
An explanation of these non-GAAP measures and a reconciliation to the comparable GAAP measures can be found in the appendices of today's supplementary presentation, along with the earnings news release 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'll now pass the call over to our President and CEO , Jeff Barrett.
Thank you, Jason and good morning, everyone.
To begin I'd like to thank those of you who are able to join us for our inaugural Investor Day in February at the New York Stock Exchange. It was wonderful that finally connected so many of you in person for the first time, a truly appreciated the opportunity to provide a more in depth view of Ti vision strategy and operations and I'm typically able to on these.
Orderly poll for those interested in accessing Investor day webcast recording and presentation materials. They continue to be available on our Investor Relations site.
Let's turn now to our first quarter results. Despite persistent meaningful macroeconomic challenges Telus International delivered solid performance in the first quarter of 2023 with revenue growth of 15% on a consolidated reported basis and 16% in constant currency. We also continued to grow profitably with our adjusted EBITDA.
Increasing a healthy 9% year over year. These solid results are noteworthy given the volatility we continue to see in the broader market exacerbated by factors, including interest rate uncertainty banking sector concerns that inflation, which in turn impact broader economic growth consumer clients.
And customer demand dynamics. Despite these challenges the ti team executed very well in Q1, focusing our collective near term effort on operating as efficiently as possible, while remaining agile as it relates to client demand and while we anticipate that labor market will likely start to ease in the latter part of 2023, we expect.
Supply side conditions will likely remain tight through the balance of Q2.
Worthy of note this past quarter Ti has further diversified our delivery footprint into Africa with an initial focus on meeting immediate demand from existing clients that are looking to grow their support in the region, we're proceeding carefully and thoughtfully starting relatively small in South Africa in Morocco, and in financial term investment to date is not.
Material our longer term goal is to ramp our present more meaningfully in the years ahead and I'm confident that our 18 year track record of successful global expansion will serve us well as we execute upon our plan.
Another exciting milestone with our first quarter with Willow tree as part of RTI family.
Integration efforts are progressing well and we continue to engage in flight cross sell opportunity with new and existing clients.
This includes opportunities with our parents Health Corporation, where for example, we ramp new business in Q1, bringing Willow tree premium digital design and build capabilities to help with tell us its smart home design and engineering initiatives.
Also unlocked cost synergies related to it and procurement savings through improved scale and leveraging of Ti purchasing power.
Gration efforts related to sales incentive plan alignment are helping our joint go to market motion along with sales training and learning sessions.
Aligned our financial close process and are working through our ERP integration. We've also successfully launched our employee share purchase plan, but willow trees U S and Canadian team members, providing an additional opportunity for the Willow tree team to participate in our collective success.
Our sales funnel remains strong and well diversified across key verticals and service offerings. Our global sales team continues to replenish this pool of opportunities working diligently with clients tenured and new light.
Our selection of our new logo wins. This past quarter include U S insurance provider focused on solutions for homeowners and renters are rapidly growing e-commerce platform based in the United States, who specifically approached Telus international for a trusted and experienced offshore outsourcing partner and exciting new sports streaming platform.
In Germany, a pioneer in the American solar power industry, and global Hawk, selling solar generated brand and a leading software platform for digital media measurement and analytic based in the United States.
Similarly, we continue to earn incremental and very business with existing clients, including the world's largest E. Commerce company, an online game platform and game creation system, a cloud based web development service provider and a leading global logistics company in USA Telecommunications company. We also continue to capture more business.
With our parents an anchor client tell US corporation, particularly in supporting Telus Health, a leading global health and Wellbeing Company. This division of pellets provides employee and family preventative health care and wellness solutions, relying upon innovative digital technologies, including AI and client service excellence to improve health outcomes.
You'll note in our disclosure this quarter that we now separate revenue generated from healthcare as a standalone vertical. This is now our fifth largest industry vertical accounting for 6% of our total revenue in Q1 and with year over year growth of 233%, specifically driven by <unk> acquisition of Lifeworks Ti is well.
<unk> is a digital enabler an innovator in the healthcare vertical where our expertise in CX digital transformation and tools powered by AI will play an ever more important role in how we track analyze and act on health data.
Focusing on prevention and wellness not just on treatment and remediation.
In this regard I belief that quality has a massive opportunity to transform our lives for the better and along the same thesis. There is certainly an abundance of current discussion and debate about generative AI applications and it impacts the discourse ranges from labeling.
<unk> to the public to celebrating Gen. AI is an advancement for humanity on par with the adoption of the Internet for what it's worth I own views here are similar to those recently expressed Clinton sungard Jai on 60 minutes somewhere and be optimistic middle I believe two things are certain amidst all the noise first AI driven.
Algorithms must be trained and tested with trusted high quality data, meaning diverse at NEER bias III dataset.
Second humans must remain in the loop to address the ongoing governance and policy aspect of further development.
<unk> is well positioned to benefit from the continued proliferation of AI through our meaningful and ongoing investments in this space and to support the emerging ecosystem, including multiple key client with the development of core generative AI dataset and area experiencing extraordinary growth.
Positioned to lead dataset collection creation and collection engaging computational linguists data scraper and data Decontaminating. Our work in this area also includes labeling data for sentiment analysis named entity recognition parts of speech tagging personally identifiable information or <unk>.
Rubbing and identification of deep fake or otherwise not safe for work content for our clients who have already developed an AI model. We lead the work on the validation and evaluation of the output as well as retraining dataset in multiple languages and for experimental type type as part of our.
<unk> AI.
Software Engineering services, we're advising clients contemplating the use of AI based technology, and we're able to design build and deliver bespoke software engineering and data science services, specifically geared for Gen AI application.
On the theme of AI I'd like to share a recent case study regarding an end to end data collection selection and annotation project for advanced driver assistance system more Eas for an Asian multinational electronics company.
The current project involves collecting data from 30 countries covering approximately 25000 kilometers using multiple vehicles provided by our client equipped with the requisite technology for data capture, albeit 32 drivers are onboard each car with one driver of operating the vehicle for data collection, while the other act as a co pilot to tag data.
Following the validation and selection process, we used about 30% of the data collected and annotated for several use cases, covering $2 3 million frames, which is a standard measuring unit of data and computer vision to give you a sense of the revenue scale here a project like this is bill up to approximately $1 million. In addition to finishing up.
This project. We're also in talks at this point for an extension of further myeloid and across even more countries leading to a potential tripling of the project contracted revenue value speaking more broadly our AI team at Ti has been working diligently to expand our end to end AI services from data collection and management to collection and annotation.
We're equipped to address all of our clients' needs and the development of an advanced driver assistance systems, our agnostic approach to managing client data ensures that we're able to work with all data storage mechanism like Azure data disk external hard drive Amazon Web services snow devices and more benefiting from the deep entered.
Prize grade relationship, we enjoy with multiple cloud provider.
In data selection, we use automated and manual data collection of edge case events and detailed analytics of class and attribute distribution for each dataset. When it comes to annotation, we're able to provide full sensor fusion annotation automated labeling and quality control.
<unk> use case I'll highlight involves our trust and safety services, which services are now nearly ubiquitous across all industry verticals for example in travel and hospitality shaped travel that the common expression that while often use lightheartedly makes reference to a very real and critical issue personal safety one of our clients are global.
Company turned to Telus international to reduce incidence of fraud on their travel accommodation platform. Our client is committed to the trust and safety of its customers and on their platform and during their travel and that begins with the fundamental steps to verify the identities of their users and preventing fraud from occurring during their on platform payment process.
Telus International solution addressing both aspects for identity verification when new users joined our client platform, they're required to submit government identification and an additional quota.
International provides the client with a dedicated team responsible for overseeing this important checkpoint as a testament to our strong partnership. This was the first time the client ever outsource this aspect of their operations to a third party vendor we earn their trust during the initial engagement with this client several years back specifically on providing background checks and other.
Crucial verification processes from our Cork, Ireland based center, which subsequently became a center of excellence for our clients fraud prevention efforts for nine years and our partnership with this client.
As scale. This team of originally just six to now hundreds of dedicated specialists supporting this particular program, while sustaining operational excellence and World class tenure.
All payments on our client platform take place online and while this makes payments traceable. It also creates opportunities for cross six months. After we began supporting our clients' anti fraud operation our partnership expanded to deploy team members focused on online scam and payment fraud prevention in particular, our client relies upon ti to prevent and detect.
Chargeback fraud, and unauthorized transaction the two most common forms of payment products over the course of our partnership we've consistently found new ways to strengthen our client fraud prevention framework and our client relies on Telus international to address any issues related to trust and safety on their platform.
The next example comes from our <unk> digital solutions team and illustrates how Telus International managed cloud services helped the client a large telecommunications company with the migration of virtual machines from their on premises data center to Google cloud, leveraging Google cloud migrate for compute and general <unk> to unlock.
New levels of cloud transformation.
International managed cloud services help the client understand googles ecosystem modernize the environment and reduced technical debt by utilizing native Google Cloud services, such as cloud SQL cloud logging and load Balancers for reduced managed operation cost and moved to a no op model. This means complete automation.
Such that the it environment can become so automated an abstracted from the underlying infrastructure that theres no need for a dedicated team have managed software in house. This project required thoughtful methodical timely and non disruptive migration of the clients existing virtual machines or DM and their associated critical workloads.
Telus International team led the planning of the end to end execution strategy of first at the client site.
And our team migrated a 100 Vms or 14 applications within six months with no downtime, while ensuring our clients' infrastructure has dynamic capacity management to meet their demand. This enabled the deployment of new services in hours versus days.
Notably our initial success for this client led to us winning a subsequent contract that migrate an even larger more complex scope of dynamic workflows.
One final example, I'll share with you today provides insight into how our intelligence tell us international assistant platform or ICI, Ey delivers increased efficiency and engagement for our clients.
Personnel, our client is a household name in the innovative world of consumer robotics seeking to scale up to meet increasing consumer demand to do so our plant required increased ongoing training and our solutions that make it easy for team members to find answers to customer questions. Our client already had an established and informative.
But it wasn't easy for frontline team members to find the content that context, they were looking for while actively supporting customers. They.
They needed relevant data retrieval to be quicker and that fit within their workflow our team of automation experts suggest that the implementation of our ITI <unk> platform to empower their CX operation with agent assist.
Assistant Chatbot, having trained the technology with the information housed within the client's existing knowledge base boss willing capable of effort with the surfacing the correct information as well as providing tips scripts and reminders.
Intuitive automation platform helped to accelerate workflows and improve resolution rates importantly, our solution brought the necessary visibility to block performance, helping this claim to evaluate analytics and generate operational insights.
<unk> also added value outside of the context of support interaction by reducing the learning curve for new hires at any time team members can look to the Buck for help in navigating company and product information offering every opportunity to solidify their knowledge in preparation for their next customer interaction our solution eliminates team.
Remember involvement in low value processes and provides business intelligence data and insight into frequently asked questions that can be added to the knowledge base with our solution to clients on improvements in average handle time by 28% while their target was only 15% and team member satisfaction was higher by 37% above the.
Target of 35, resulting in Linkedin 10 year for in House team member and reduced ramp training time for the clients growing CX operation. We continue to work together on innovation project for continuous improvement and to drive profitability enhancements.
All of the case studies I just shared today as varied as they are at their core showcase the same foundational element our end to end capabilities brought to life by our key members leveraging cutting edge technology and speaking of our team members at the end of the first quarter Ti with an engaged global team of 76000.
752, full time employees up 13% year over year, including our new Willow tree team members. Moreover, our team features prominently in Ti 2022, sustainability report, which we released last month. This was our first Standalone sustainability report available now on our website and.
Shares, our environmental social and governance priority and forward looking commitments in the report we discussed our dedication through our giving program diversity equity and inclusion and cyber security as well as our commitment to net carbon neutral operations by 2030 at this point, we are working in collaboration with our parent company <unk> Corporation.
To meet science based targets by 2030, including to reduce absolute scope, one and two greenhouse gas emissions by 46% from 2019 base here. We also share our environmental stewardship results, including year over year comparisons are scope, one and two greenhouse gas emissions and water and energy consumption going back to.
2018 in fact greenhouse gas emissions per team member will reduced 41% when compared to 2019 and 2022, our team members volunteered more than 75000 hours to important community projects like planting more than 34000 treat installing 250 ecological stoves and an equal number.
A water filtration system as well as supporting $1 4 million beat with roll of pollinators are essential for our crop at our March 18th our 11th Telus days of giving withheld it yourself, an angle, Guatemala, where more than 400, Telus international volunteered refurbished the equator.
Or a mix of my loyalty tier school facilities and built two classroom.
Last quarter. We also hosted a series of corporate social responsibility that throughout our site, including onsite blood drives in India, The Philippines, and Romania team members also volunteered to help those impacted by earthquakes in Turkey, and Syria tutor children, Todd English and hosted spring cleanup.
Salvador, our team members work with young people from Cooper and opportune at other programs to improve their English skills. So they have better opportunities out there working with us if they qualify starting a university courses or working elsewhere.
We're also making good progress on our commitment to impact sourcing with our effort dedicated to hiring people, who may need special accommodations or assistance for example through our unique impact sourcing programs in India, We launched a new program for our Telus International AI data solutions team in the first quarter of this year and a pilot project that began in late March we are working.
With young women from rural in economically depressed areas to give them the requisite oiltight training and psychological support to be able to work independently and support their families.
Also very pleased to report that for the fifth consecutive year Ti was named one of the Achievers 50, most engaged workplaces and award that recognizes top employer, who display leadership and innovation in employee engagement and for the seventh consecutive year <unk> was recognized by Ihop's Global outsourcing 100.
A ranking of the best outsourcing providers across categories, the size and growth.
<unk> references awards and certification programs for innovation and corporate social responsibility.
I'll now invite our CFO Vanessa <unk> to share a review of our financial results and I'll return to answer your questions as usual anessa over to you.
Thank you Jack good morning, everyone.
Thank you all for joining us today.
In my review of the 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.
In the first quarter, we delivered revenues of $686 million up 15% year over year on a reported basis and 16% in constant currency.
Our organic revenue growth was 5% or 7% in constant currency, excluding the contribution from military.
I will echo, Jeff and saying these are solid results given the challenging macroeconomic environment.
Looking at our revenue by vertical.
As we said on our February call and during our Investor day, when we discuss our 2020 guidance, we expect the softness in revenues from our second largest client a leading social media network.
As well as general softness in the tech and games and E Commerce and Fintech verticals.
However, we did also note at that time that this would be offset by strong growth in other client, including Telecom Corporation and across other vertical.
This was evidenced this quarter as revenue from that leading social media clients was down 18% year over year or 14% in constant currency tied to a reduction in service volumes, primarily deliberate out of our European operations.
This contributed to the tech and games vertical overall growing by 3% year over year in Q1.
As the decline in that particular, social media clients was offset by growth in other technology clients.
And E Commerce, and Fintech, where we also noted that we would see softness revenue in Q1 was steady year over year.
Our E Commerce revenues were strong up year over year, while Fintech revenues declined largely as expected given what is happening at a broader macro level in that space.
Offsetting the softness in these two verticals we saw strength in all other vertical as expected.
Communications and media was solid with revenues, increasing 10% year over year with higher revenue from Telus Corporation, our parent company and anchor clients.
And growth with other telecommunication clients, including those arising from our acquisition of Willow tree.
Banking financial services, and insurance or BSI continues to show strength growing 33% year over year, driven by increases with major North American financial institution, and the addition of the Willow tree roster of clients in this vertical.
Revenue in our health care vertical grew 233%, bringing the vertical into our top five as Jeff mentioned earlier.
Health care now accounts for 6% perpetual revenue in Q1.
Again this growth was enabled in large part by additional services provided to the healthcare business unit of Terex Corporation.
And then finally revenue from all other verticals, which include travel and hospitality retail and consumer packaged goods amongst others.
An increase of 48% year over year.
Across all of our verticals to reported revenue growth rates were negatively impacted by unfavorable euro to U S dollar currency movements year over year.
Looking further at revenue by geography, the geographic performance was impacted by the same forces at the vertical performance just described.
Our European region delivered a meaningful volume of services to our second largest client and other fintech clients.
The aforementioned softness in those vertical groups resulted in our European revenues being down 8% year over year or 6% in constant currency.
Revenues in North America, However grew by 50% year over year, driven by contributions from military and growth in the health care vertical attributed to our support of Telus health.
We also achieved strong growth in Central America, with revenues, increasing 26% year over year with broad based growth across industry verticals, including second game and communications and media.
While in Asia Pacific revenue grew a solid 10% year over year also with gains across all verticals.
Moving onto operating expenses.
Salaries and benefits expense in the first quarter was $428 million up 25% year over year.
The increase was due to higher team member accounts to support our business growth, including those arising from our traditional military combined with investments in our team members to increased salaries and wages compared to the prior year.
At the same time with the higher cost of service delivery in Europe doing parts of the lead time to implement ramp downs and other costs were an additional activity, resulting from the aforementioned volume reductions in Europe .
Salaries and benefits as a percentage of revenue increased to 62% from Q1 2023 compared to 57% in the prior year.
Our goods and services purchased for $103 million in the quarter, a decrease of 10% year over year with lower dependency on external contractors in favor of continued development and investment in internal capability to reduction of certain sales taxes based on recent successful collection experience amongst other factors, which were partially offset by additional.
Costs from the additional military.
Share based compensation expense in the first quarter was $14 million, an increase of 7 million year over year, primarily attributed to equity accounts and awards, which unlike liability under the warrants are not subject to mark to market adjustments based on changes in the share price.
During the same quarter of the prior year share based compensation benefited from a lower average share price, which resulted in a downward mark to market adjustments on liability account that awards.
Acquisition integration and other charges in the first quarter were $60 million, an increase of $12 million, primarily due to our reorganization program initiated in the current quarter related to our European operations as well as transaction and integration costs associated with our acquisition of Willow tree.
Depreciation and amortization expense was $79 million, an increase of $14 million, primarily due to capital and intangible assets acquired as part of military as well as our own organic investments over the prior 12 months, which were partially offset by the lower average euro to U S. Dollar exchange rates on assets held in our European subsidiaries, where the functional currency is.
The euro.
Interest expense in the first quarter was $33 million, an increase of $24 million, which was primarily due to the upsizing and related borrowings on our credit facility to fund our acquisition of military higher lease liability balance sheet as we grow our team member base year over year and expanded our footprint and higher average interest rates compared to the prior year.
In the first quarter. We also recorded an income tax expense and income tax recovery of $2 million compared with an income tax expense of $23 billion in the same quarter last year and our effective tax rate decreased from 44% in the prior year to a negative 16, 7% primarily due to a change in the foreign tax differential.
Including a favorable income tax settlement, resulting from the conclusion of a tax authority audit.
These items were partially offset by an increase in withholding and other taxes in the quarter.
Our adjusted EBITDA was 165 million in the quarter and year over year increase of 9%.
Adjusted EBITDA margin in the quarter was 22, 6% compared with 22, 7% in the same quarter last year due largely to changes in our revenue mix across industry verticals and geographic locations and clients higher salaries and benefit costs compared with the prior year and higher service delivery costs in Europe .
Adjusted net income for the quarter was $76 million up 10% year over year on a per share basis. This translated into adjusted diluted earnings per share for the corner of 'twenty.
Up 8% year over year.
Now turning to the balance sheet and cash flow.
Our balance sheet remains strong with couple of $142 million and available capacity under our credit agreement, our credit facility rather of $325 million.
We generated free cash flow of $65 million compared to $104 million in the prior year. The differential due primarily to higher net outflows from working capital arising from our acquisition of Willow tree, including payments for transaction costs incurred to acquire the company.
Excluding these transaction costs free cash flow would have been.
$101 million, a decrease of 3% compared to the same quarter last year.
Our capital expenditures in the quarter were $15 million or 2% as a percentage of revenue and lower than usual level and largely due to project timing.
We expect to increase capital expenditures in future quarters with the overall full year capital intensity similar to historical levels.
Following the close of the military acquisition. This January our leverage as defined as per our credit agreement stood that chewed up my next during the first quarter, we decreased <unk> eight acts as of March 31st with debt repayments coming from cash generated from operations.
We continue to expect that our strong cash flow profile.
Enable us to repay debt throughout the year as we progressed towards the end the lower end of our Q3 <unk> leverage ratio target.
Now turning to our outlook, we are reiterating our outlook for continued robust double digit profitable growth in 2023.
Our revenue outlook remains in the range of $2 97 to $3 1 billion, which represents revenue growth of 23% to 22, 8% on a reported basis and includes the contribution from the military in the range of $2 $55 million to $260 million.
Excluding regulatory we expect organic growth of 10% to 12% for the year.
For adjusted EBITDA, We continue to expect a range of $705 million to $725 million or 16% to 19% growth year over year.
EBITDA margins of $23, 7% to $23, 9% this.
This includes Willow Street, adjusted EBITDA margins of approximately 20% of revenue.
We expect adjusted diluted earnings per share in the range of $1 $24 25, which assumes weighted average diluted share counts of approximately $277 million in each of the quarters.
And finally for the full year.
Yes, that's right that the tax rate to remain in the range of 24% to 28%, reflecting the recovery in Q1, but also our expectation that the jurisdictional mix of our earnings.
Overall, we remain cautiously optimistic as we exit the first quarter and we feel confidence that <unk> remains well positioned to continue executing with resilience and growing the business profitably in 2023.
With that let's move on to questions.
I can we ask you to please keep it to one question at a time, so that everyone can participate.
Over to you.
Thank you Ms <unk> as a reminder to ask a question you will need to press star one one on your telephone.
Once again, we kindly ask you to limit your questions to one at a time and get back in the queue. If you would like to ask another question.
We will pause for a moment to compile the queue.
Yeah.
Our first question.
It comes from the line of Keith Bachman of BMO. Your question. Please.
Yes.
Thanks, I was hoping you could talk a.
A little bit more about Europe , if you could I know you talked about the volumes.
We are under duress, but.
How do you see this.
Unfolding in terms of why does it get better and when do you think the cadence.
It is getting better and if I could just.
Rapid a broader AI question into that as you talked about.
Solution, but I'm, just wondering a little bit here the description of how it is enabling boss.
Is it just.
How do you think generative AI would lend itself either to help are hurting because on the surface. It just sounds like that same functionality could be driven biogenerative AI solution, but maybe just if I could.
Couple those two together thank you very much.
So I think they're different but indeed might be overlapping implications of the two questions. Keith. Thank you frankly, we could spend hours talking about generative.
Indeed, I'm happy to do it is an exciting field of opportunity and no doubt there are challenges associated with it as well on the first part of your question.
Europe continues to be a challenge for us has been as I articulated in particular, and we are cautiously optimistic that with some stabilization in terms of wage inflation.
With continued optimization of our customer engagements there.
We're looking forward to returning to profitable growth in the region.
And I think we're not alone in continuing to.
Aspire to some stabilization, particularly given the cascading effects from the ongoing invasion of the Ukraine.
<unk>.
I guess, the jury's still out frankly on how soon that happens but as.
As I said.
We're looking forward to the back half of the year with a better performance out of that part of our business in terms of the generative AI.
There is obvious puts and takes here and there has already been non trivial disintermediation or displacement of let's call them less complex lower value human assisted interactions through traditional automation and bought displacement where generative AI is it.
Game changer already is really just the accelerated pace of displacement to potentially.
But this is as I said at our Investor Day for example, and frankly, even our previous earnings call. This is not net new for us. Although obviously these chat GPT announcements in November and March where we're game changers in terms of I think the broader public awareness and understanding of just how progressed that capability.
Has become.
For us we.
We think it's a net positive we were already leveraging automation RPI in box to support simple predictable repeatable interactions with our clients and inside Ti as we look to drive more efficient process.
Activity in with combat mitigate inexorable wage and expense inflation.
There are nonetheless, though I have a dozen almost 11 concerns and some are back with some more micro.
Some get more attention already around generative that.
Surely you heard the expression hallucination I think thats emblematic of the industry when when generative AI is producing candidly straight up false results.
And across the landscape, but exacerbated more so than domains like health care and financial services, none of us can afford to have hallucinations being the output of the degenerative AI market. Both in terms of providing the requisite reliability certainty predictability in connection with.
Those transactions, so I think it's going to be a while still before everyone. In this industry gets displaced by degenerative AI candidly I believe that that is not the future I just don't see that dystopian outcome I think for sure there's going to be a move to more complex activities that required humans.
Luke and not just in supporting the proliferation that production the creation of ever more sophisticated complex generative AI models, but theres going to be a whole bunch of stuff in terms of supporting human beings and users degenerative AI cannot will not get too and.
And that's where we have been focused historically.
I'm grateful that we got out in front of this and we will continue to progress that evolution. So that we still have a meaningful role to play in the ecosystem and supporting our clients delivering exceptional client experiences to their end user community.
Thank you Jeff.
My pleasure thanks for the question.
Have you upward I'm curious offline, let's talk some more of our agenda.
Fascinating field for us.
Thank you our next question.
Comes from the line of chassis Chen of Bank of America. Your question. Please chassis.
Hi, Thanks for taking the question. So first I just wanted to ask I guess, you guys still have your unchanged, 10% to 12% organic revenue growth for the full year. It does imply a bit of an acceleration from the <unk> levels of about 7% I guess, what do you think is going to be driving that is there anything more specific you can give around assumptions around macro that may have changed.
<unk> or any updates in terms of like growth from your top clients or anything that that you feel confident that we'll drive that thank you.
Yes, Youll recall from my prepared comments chassis the funnel here at Ti continues to be very robust.
Filled with both large and medium sized opportunities.
The decision, making process has continued to be elongated.
Dynamic that we've been commenting on as have our peers over the last six to nine months.
And we are cautiously optimistic based on those conversations with our clients existing and perspective that they will finally get to finalizing formalizing those decisions and moving forward in.
Giving us the green light to get going on many of those opportunities that are in the funnel right now.
Fairly progressed level.
I think thats.
A byproduct of consequence of all of US we on both the supply and our customers on the demand side of the ledger looking more broadly.
Dealing not just hoping.
That we're going to see some stabilization with respect to ongoing inflation interest rates.
And sort of a better macro environment with some improved levels of certainty in terms of how the future will continue to unfold and so I don't think any.
Any of our customers can wait indefinitely in order to get going on some of these now long delayed pause transformation initiatives.
So it's it's.
Direct consequence of those conversations and drove a broader look at the macro environment that is the underpinning of our <unk>.
Optimism regarding the improved growth rates in the back half of the year.
That's helpful. And then just wanted to touch a little bit about head count as well because I think you mentioned it a bit in your prepared remarks, you guys saw some pretty strong growth in head count I know something that was for military once that relatively in line with your expectations and I know you talked about a little bit of heightened it that's going to continue through Q2 easing in the second half just kind of.
Help us translate what that means in terms of what you're expecting in terms of head count growth for the full year, that's baked into your guidance. Thanks.
Yeah. The team member growth that we saw was really both willow tree and the health care projects that we're taking on not exclusively but principally.
And indeed.
Consistent with both mining and but that's his prepared remarks, we do see continued challenges both in terms of.
We haven't seen a meaningful moderation in wage inflation yet.
Nor in <unk>.
Access <unk> retention of talent, obviously, the the headlines in terms of the onshore environment in terms of.
Tech sector layoffs in particular.
Our non trivial, but thats not really the Fisher.
Fishing pool, if you will that's not where we're ramped.
Wrapping up most of our team members most of our incremental team member growth.
Outside of North America.
And youre not hearing and seeing much for nearly as much about sort of the downsizing. If you were going on there.
I think youll see a continued moderation of team member growth inside Ti through the back half of the year consistent with supporting the growth rates that we forecasted as well.
I think a reflection of the continued mix in services from which we derive our revenues that will continue to be ever more technology centric and somewhat less labor centric.
This is going to be a business that will always be in.
Employing a significant number of talented human beings, but I think you should expect the mix shift to continue to progress and evolve overtime.
Yes.
Thanks, guys.
Thank you Kevin.
Thank you.
Yeah.
Our next question.
Comes from the line of Ramsey El <unk> of Barclays. Your question. Please Ramsey.
Alright, Thanks for taking my question. This morning, I hope, you're both well I wanted to ask about the sort of divergent performance in Europe versus the U S of course ex Willow tree I'm curious if that was more just due to mix, meaning Europe just over indexes in the more pressured tech verticals or is there a difference in sort of the math.
Crow pressure more broad based macro pressure that youre seeing in Europe versus the U S.
Hey, Ramsey nice to hear your voice football as well thanks.
It's both but if.
If I had.
The impact of the two I would say, it's probably more endogenous than less exogenous I think the mix of both services and customers that we've supported historically out of Europe .
Has been more susceptible to some of the challenges that we're hearing and seeing in the macro and so it's having a disproportionately adverse impact on our business there.
Although the macro as I discussed in my response to an earlier question it continues to be challenging as well.
But candidly if I had to sort of map eyeball it by call. It 60 40 endogenous exogenous.
Interesting alright, thank you.
Thank you.
Our next question.
Comes from the line.
Of Arab Linda Galipeau <unk> of Canaccord Genuity your question. Please.
Okay.
Thanks for taking my question.
I wanted to talk a little bit about.
Jeff in your prepared remarks, you talked about.
Increased business from your existing clientele.
Can you talk to the trends youre seeing in terms of vendor consolidation in this current sort of macro backdrop is that is that a tailwind that you that you foresee going forward. Thanks.
It has historically been so Linda and we have indeed experienced then enjoy the benefit of some of that admittedly I had expected to see more of it more quickly.
And I've not seen as much of it as yet.
But I continue to be.
Optimistic and I am expecting again based in part on conversations with existing clients that that dynamic will continue a pace and perhaps even accelerate over the next three to six months.
As.
So does that uncertainty hopefully begins to wane and customers move forward with some of these now.
Delayed decision, making projects et cetera.
The partners with whom they choose to move forward that will likely be.
An ever smaller community and there'll be looking for.
So a single points of contact if you will those of US that we can provide a wider spectrum of support rather than just niche onesie twosies capabilities.
We should be the beneficiaries of a disproportionate share of the.
Return to.
Transformation projects at scale in.
In the back half of this year and longer term.
Thanks, Jeff I'll leave it there.
Thank you thanks, everyone.
Thank you.
Our next question.
Comes from the line of Jensen Huang of J P. Morgan.
Your line is open.
Great. Thank you so much good morning, guys.
Just want to ask on visibility.
Versus 90 days ago, especially on the large client.
<unk> sounds like it's doing quite well.
And same with PFS strong this quarter, but have you seen any.
Notable impact from all the turmoil and the stresses in the banking system.
Hey, Tien tsin nice to hear your voice as well.
Question endeavor.
We don't have any exposure to the smaller regional banks thankfully. So we haven't seen any adverse effects there. Although obviously the market has more broadly.
I suspect not.
One in anticipating that we not T and does that dynamic unfolding.
But thus far we've been reasonably inoculated from it and prospectively, we anticipate that continuing.
The larger EFI community that make up our customer base just seem to have figured this out a little bit better I guess or just better capitalized and.
They continue to be a source of meaningful growth for us.
And I guess it speaks to the kind.
Let's call it prescience of our strategy at first instance in terms of the diversification of the domains, we selected where we've developed expertise and customer relationships and it really has been off the back of having successfully served some of those larger.
Entities that were winning more business and.
Growing along with them as they have been able to better prepare themselves for these challenging times prospectively and.
As you correctly point out Telus continues to be just a wonderful symbiotic part for Telus International in terms of we continuing to be a source of.
Accelerated transformation for them and they are meaningful source of continued growth for us not just in the core telecom platform, but now in their health care business as well.
Great. Thanks.
Alright.
<unk>.
Thank you.
You.
Our next question.
Comes from the line of Jesse Wilson Oh.
William Blair Your question please Jesse.
Alright, Thank you and good morning. This is jesse on for Maggie.
I appreciate the color on two of your largest accounts could you round out the basis with what Youre seeing at Google.
And maybe the 4% to 10 bucket as well.
Yes.
So on the Google front, we were.
We're actually seeing continued growth.
Across the entire platform and given the both the tenure and.
Multiplicity of services that we provide to them it's been.
Encouraging to see continued progression across multiple areas and given whats happened more broadly with the hyper scaler and they not being immune from some of the.
The challenges that I, just alluded to earlier that they continue to be a source of growth for us is heartening and encouraging.
We're pretty excited about.
The areas of continued opportunity.
Particularly around generally they are.
In terms of four to 10, perhaps Paul impose upon my colleagues and that sort of provides us a little bit of incremental color there for you.
Sure.
You know, we don't guide by client, so I'm not going to get into a lot of detail there, but as Jeff mentioned that kind of look at the top 10 accounts, we've talked a lot about the number one clients tell us the number two clients that social media company and in our.
Cautious optimism with the number to be client Google as we look beyond from say client number for the client number Ken we're actually optimistic there as well when we look at our Q1 results as I mentioned in my remarks, particularly as you look at second games.
That that vertical overall actually grew year over year. When you look at the magnitude of the decline in the number two clients actually says a lot. It actually tells you. If you do the math at the other clients in that vertical in Q1 actually grill, rather help them.
And so once you isolate the impact of that.
Two clients, we're seeing some pretty good growth across all the other clients not only in the second game this vertical but across the overall top 10 group.
Ceiling again reasonably comfortable that we'll see that dynamic play out through the rest of the year.
Understood. Thank you.
Thanks Jesse.
Thank you.
Our next question.
Comes from the line of Stephanie price of CIBC.
Question. Please Stephanie.
Good morning, I'm, hoping you can talk a little bit about the current competitive intensity and how you see the environment changing post the recent consolidation in the space and maybe related how do you think about the M&A market here and whether it's yeah I was involved in bidding on any of the recent deal.
Hey, Stephanie as ever things for the.
Interesting challenging questions.
Competitive intensity.
Think as you know given the size and fragmented nature of our industry continues to be quite high.
And I think it's fair to say that in this environment as customers continue to be ever more focused on efficiency and cost savings.
It is making for an even more challenging environment.
Our value proposition as you well know is I would suggest decidedly differentiated from our peers and avoiding the your mess for less concept and when the competition are willing to take on low or no margin opportunities.
It becomes that much more challenging to persuade and existing or prospective customer who is facing their own financial challenge Susan.
<unk> regarding future uncertainty to continue to recognize the overall value proposition and total cost of ownership.
Construct that we rely upon rather than just.
Cheap and cheerful.
So I would suggest that intensity has continued and perhaps even.
Intensified and we have to continue to be better and we have to continue to be refined and our approach and our thinking and demonstrate the disproportionate value that.
Customers derived from working with Ti and that we have a differentiated set of services.
Many most of our competitors do not again gives us an opportunity to mitigate or inoculate against that that dynamic in part in terms of the M&A landscape.
I know you know we tend to avoid talking about deals that we havent done even deals that we might have done.
That there is consolidation going on in our industry and to a much larger ones recently in the headlines doesn't come as a surprise to me at all I think this is an industry that has been in need of consolidation. If you will reflective of growing customer appetite.
Or as I alluded to earlier, a single point of contact and so continuing to grow and scale one platform.
Whether it's extending the service line and or the geographic reach.
I anticipate we will see even more of that in the months and years ahead.
I guess.
Our case, though.
We're looking to continue to focus on our differentiated approach to our service offerings, rather than just continuing to scale up.
In legacy services.
That have been in my view.
Inferior margin attributes.
And not an awful lot of upside in my view in that regard our focus has always been on profitable revenue not just revenue.
And I think you should expect that we will continue to demonstrate that discipline in terms of M&A activity prospectively as well.
Thank you so much.
Thanks, Susan.
Thank you.
Our next question.
Comes from the line of Ryan Potter of Citi. Your.
Your line is open Ryan.
Hey, Thanks for taking my question I wanted to follow up on the expansion into Africa could.
Could you discuss the opportunity that you think after represents from a delivery standpoint, I guess what types of initial clients verticals services. When you kind of envision <unk> being delivered from there initially.
And then just I guess more broadly how important do you guys view geographic expansion whats your priority list.
Hey, Ryan Thanks for the question.
So I mean, it's a bit ironic for me personally given as you may or may not know I grew up in Africa that we havent been there yet it's been a bit of a gap personally in terms of recognizing the opportunity that that content represents the continent represents in terms of growth.
<unk> and we're obviously not first new or alone in recognizing the potential that that market represents both from a supply and demand perspective.
Many of our existing clients as well as perspective have been inviting us to consider expanding our delivery capabilities there to continue to serve them.
They our customers look to be closer to their end user community in those markets.
Express a desire to have our quality of service.
<unk> them to continue to delight their end user community there.
And frankly I've been.
Slow off the Mark Frank Lee and cautious.
And supporting our expansion there.
Now is when we decided it made sense with.
A meaningful backlog of demand from existing and prospective customers. So that it's not a build it and they will come dynamic, but rather as a result of that.
Our investments in both South Africa and Morocco.
We'll have existing and prospective customers being served out of those locations immediately.
And so we can start to build from a base of consequence.
We also recognize that there's an ever growing talent pool. There, it's not just unique language skills, but also technology skills.
As those.
Regions continue to invest in education and training.
To facilitate their citizenry participating in the digital economy, prospectively, and so having a presence there and giving us access to that deeper broader growing talent pool.
It was important for us.
So longer term, we would anticipate as we've done everywhere else we've extended our reach.
We will start to scale meaningfully across our entire service line in supporting both existing and prospective customers more broadly in terms of geographic expansion I think what I. Just described with what you should expect prospectively, we have never leverage the build it they will come model for expansion.
We have always only expanded into new geographies.
Either through acquisition in there.
With existing customers that were being supported and accessing existing talent pools that we're already engaged in employed by the business, we acquired and or when we had existing prospective customer demand that we could count on to immediately support the capital investment required to extend our geographic reach and you should expect that that will continue to guide.
Additional expansion.
As we look to continue to meet that opportunity.
Great to hear thanks.
Thanks Ryan.
Thank you.
Our next question.
Comes from the line of Vivien.
So you're all of Scotiabank your.
Your line is open.
Thank you so much hello, everyone I just wanted to ask a question on the Willow tree.
How if you guys keep Vanessa if you could provide us the exact willow tree revenue for this quarter and how was the growth for the company military revenue growth specifically on a year over year basis, and how do you think.
That would translate in.
In the in the guidance that you provided for the year I appreciate it. Thank you.
Yeah, So we actually disclosed the military revenues and the.
6K that was filed this morning, it was $57 million for the quarter, we didn't disclose the year over year growth because that's a pro forma metric, we didnt report them last year, but that actually is in the high <unk>.
And how that translates from a full year perspective, if you kind of look at our guide consistent with what we said at the Investor Day that would also put them about 30% year over year growth.
At the midpoint of our guidance.
And you think there is the pipeline looks strong enough that they would be in a position to meet that guidance.
So their pipeline is actually quite strong and remember we also talked a lot at the Investor day about cross selling upsell revenue opportunities.
You may recall.
Both Jeff and <unk> talked about shovel ready projects that were on the go our priority in Q1 has been very much around.
Gration, but not only from a back office integration perspective, but frankly, our go to market integration.
So there is a lot of activity going on right now with military MTI pitching to clients. So we're feeling pretty good about our pipeline again, that's as of today.
Nobody has a crystal ball, but their guidance that we previously shared is that is what we're reiterating today.
That's helpful. Thank you.
Thank you.
Our next question comes from the line.
Matthew Roswell Alvaro.
RBC your question please Matthew.
Yes, it's Matt <unk> on for Dan Perlin, He says Hello.
To kind of beat a dead horse, but talking about your second largest client first Vanessa could you get the revenue numbers again and then.
Yes, the question would be.
What is the volume doing at that client.
Because you were shifting from onshore to offshore, which obviously has a revenue impact so are you.
Are you seeing kind of a greater than expected volume drops.
Yeah.
So the revenue in the quarter again. This is can be derived from our filing is worth approximately.
$86 million and as I mentioned was down 18%.
Actually stable quarter by quarter, but down about 18% from <unk>.
Last Q1, 14% at par so we actually did have a very strong.
Q1 marked here with this particular client is some very serious projects you had on the Gulf, but like I said a bit more stable on a sequential basis, but.
Big reduction year over year.
But we did also talk about an expectation of softness with this particular client so.
<unk> in Q1 wasn't terribly surprising to US again, he had been in discussions with them around planning for the year et cetera. So we had already sort of built that into our guidance.
And really I don't I don't think thats really that much more not to actuate, China frankly, I think we had expected that would have would have a soft performance with its clients.
We did also expect that based on strength in other enterprise customer groups, especially as well with Atlas Corporation that largely offset that and that's what we saw in Q1.
If I could sneak in just a quick modeling question, how should we think about interest expense for the rest of the year $33 million this quarter sort of a good run rate.
Yes, I think that's a reasonable run rate.
Thank you very much.
Thanks.
Thank you due to the time allocated for questions I would like to turn the call back to Mr. <unk>.
After <unk> remarks, Mr. Pierre the line is yours.
Thank you Latif.
Got it.
As you've heard me say before in times of macroeconomic uncertainty I believe that it is imperative that we focus on factors within our control.
This means that our priority remains operating all aspects of our business with the utmost efficiency, we continue to leverage automation and AI and we're incorporating generative AI into many of our existing platforms such as our in house bought applications internal communication translation drafting job profiles in English.
A few it also means remaining agile in order to meet client demand at full speed when conditions start to improve and this includes our ongoing integration of willow trees into the business, which further enhances our differentiated end to end value proposition in the marketplace and last but certainly not least it means continuing to operate our business guided by our values and our culture.
This includes strengthening the sustainability of the environment and social structures in the regions, where we operate through funding volunteer activities impact sourcing community employment programs, expanding and enhancing our learning and development offerings for our team members and their families promoting diversity and inclusivity for the benefit of.
Ti and our clients.
And supporting the creation of responsible AI and.
Digital spaces.
As a reminder, before we wrap up Telus International's annual general meeting of shareholders will take place virtually next week on May 12, our shareholders have already received instructions on how to cast their vote ahead of time, while has joined the meeting while everyone else can certainly join US guests all the details on how to join are available on our Investor Relations website.
Thank you all for your time and engagement today with you all again soon bye bye now.
The conference call has ended you may now disconnect.
Yeah.
[music].
Yes.
[music].
[music].
[music].
[music].