Q3 2023 TELUS International (Cda) Inc Earnings Call

November 3, 2023

Hmm.

Yeah.

At this time all lines.

Good morning, ladies and gentlemen, and welcome to the Telus International third quarter 2023, Investor call. My name is Jonathan and I will be the 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'd like to ask a question. During this time. Please press star one one.

On your telephone.

If you'd like to remove yourself from the queue simply press star one again.

I would now like to introduce Jason buyer head of Investor Relations and Treasurer at Telus International Mr. Martin You may begin.

Thank you Jonathan Good morning, everyone. Thank you for joining us today for Telus International's Q3, 2023 investor call.

Hosting our call today are Jeff <unk>, President and Chief Executive Officer, and Vanessa <unk>, our Chief Financial Financial Officer.

As usual, we will begin with some prepared remarks, where Jack 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 prequalified analysts before turning the call back to Jeff for his closing remarks.

Before we begin.

Like to direct your attention to slide two of the supplementary presentation available for download on this webcast and also available on our web site at Telus International Dot Com slash investors.

The statements made during this call may be forward looking in nature, including all comments, reflecting expectations assumptions or beliefs about future events or performance that do not relate solely to historical periods.

These forward looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from our current projections, we assume no obligation to update any forward looking statements.

Jacqueline Vanessa will also discuss certain non-GAAP measures that the management team considers 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 plus and Edgar.

I would also like to remind everyone that all financial measures were referencing on this call and in our disclosure in U S dollars unless specified otherwise and relate only to Telus international results and measures.

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

Thank you, Jason and good morning, everyone.

Despite an operating environment that continues to be challenging Telus international delivered third quarter revenue growth of 8% on a consolidated basis.

We made good progress improving our profitability profile relative to the second quarter with our adjusted EBITDA margin, increasing 370 basis points, thanks to our team's focus and diligence and executing upon multiple cost optimization programs across the business.

Last quarter, we work to better balance demand and supply, especially in our European operations, which in turn has contributed to the sequential quarter margin improvement. We delivered has been national will share in more detail shortly.

Currently our sales north.

North of $2 billion.

While sales cycles remain elongated our global sales team continues to acquire new logos. For example, during the third quarter, we won new business with the largest food ordering and delivery company in the U S. A luxury fashion retailer and a well known property and casualty insurance company in the U S within our existing client base, we expand and.

<unk> from a leading Canadian bank.

Largest technology company by revenue are leading ridesharing food delivery provider and the world's leading short form video platform. We also continue to successfully expand volumes with now our second largest client Google.

Moreover, despite the challenging environment our team at Willow tree continues to win new business as well with new client adds in the quarter that included a USD payment processing and information management services provider, an American multinational consumer credit reporting agency, an American multinational financial services Corporation that owns and operates stock exchanges.

And one of North America's top banks, an impressive roster of new clients.

Very encouraged but similarly willow tree also deepened its engagement with several existing clients in the financial services sector and across other verticals, including an American multinational pizza restaurant chain and importantly, with our parent company tell us among our joint wins with Willow tree are one of the world's most trusted providers of mission critical.

Software for legal financial and business professionals as well as the leading innovator in connected enterprise safety technology.

Let me now turn our attention to a topic that is top of mind across our industry the opportunities and impact of generative AI on our business on our operations team and our clients is a key strategic focus of our executive leadership team.

At a broader economic and multi industry level, we believe that the disruptive impact of generative AI will affect most business functions.

The findings of a recent Mckinsey study.

Total percentage of work hours that could theoretically be automated by integrating technologies that exist today is estimated to be 60% to 70% with the.

<unk> of Gen AI adoption pulling forward the potential for technical automation and making it a key strategic consideration with long term implications for virtually all businesses, while digital transformation has been a priority for many businesses for several years now.

Advent of journey, even more emphasis on our clients need to embrace these latest technology backbone in order to unleash efficiencies and design build and deliver enhanced customer experiences or risk being left behind.

Specifically when it comes to CX Center operation. According to Deloitte nearly two thirds of contact centers are delivering disjointed customer experiences across communication channels and 34% of customers. According to the call Center Management Association or most frustrated when passed to another representative during a contact more call.

To address these issues we believe at the time is now again AI to help transform the CX journey.

Bringing meaningful value creation for customers as well as the businesses that serve them.

Ti repositioned our business as the partner of choice to our clients as we bring down the latest tools and strategic thinking the best transform their operations with our assets across CX AI and full digital stock, including military in particular, we're uniquely positioned to be a leader in this next big phase of the transition to digi.

It'll first CFS to that and I Trust, you've all seen our announcement earlier this week, marking the official launch of Yuval IX Telus International's enhanced solution to integrate <unk> into our clients customer experience operations would have been easy to raise earlier this year issuing press releases with one off Gen AI tools.

Single tap blocks, but as Carlos internationally, instead focus on enhancing our existing solutions advanced in the development of incremental capabilities that bring together under one umbrella and end to end offering for clients to address their evolving needs around integrating genii into customer experience operations from ideation to implementation.

<unk> brings together a full spectrum of intelligent experiences across customer digital voice user employee and human interaction.

A robust and comprehensive suite of capabilities that include digital consulting Jenny Jumpstarting accelerated program for clients, New AI, along with data services and analytics as well as web and mobile application development. We believe it is only to this holistic view encompassing all of the internal and external aspects of customer engagement.

But generally our technology can create tangible value for our clients.

Our clients have end to end support around how they should think about AI integrated into their CX operations or enhance already existing capabilities.

Thirdly, our integrated solution addresses the bottleneck many companies face in getting accurate high quality data sets to enable the success of Gen AI capability and accelerates the pace of a proof of concept design to getting a gen AI enabled solution into production.

Critically all of this work is done within a secure environment, where client data is protected and climate and at each step of our engagement is guided by Telus International's humanity in the loop approach with reinforcement learning through human feedback the suppress data inaccuracy and bias in terms of monetization, we're using a solution as a service.

Model with fuel IX being available via an agile hybrid pricing structure with licensing tiers tied to accurately reflect how our clients are leveraging the various capabilities enabled by the platform.

Several of our clients are already benefiting from the fuel IX offering, including our parent company tell us.

As well as Irobot to name, but two are both quoted in our press release from earlier. This week. Additionally, as part of our journey, our Jumpstart program. Our team at Willow tree is working with a leading global financial services firm to create a gen AI customer service chatbot to empower customers with a robust conversational literacy tool I look forward to.

Sharing more details about <unk> and the proliferation of compelling use cases in the quarters ahead.

As we typically about in these calls I'd like to now share some.

There are other examples of our work over the past quarter.

For many years <unk> has engaged with some of the world's largest game publishers developers and platform supporting millions of gamers, one such client a popular gaming platform that enables players to create their own game as well as play other user created gains was experiencing a surge in its player community quickly overwhelmed their existing content moderation.

Systems, revealing insufficient staffing and technology infrastructure, which led to a rise in complaints.

<unk> authentic content and toxicity it turned to Telus international to protect their current global player community and to ensure their safety program was designed to rapidly scale in order to be able to keep pace with the community's future growth.

The way our trust and safety experts identified the need to moderate an array of user generated content both in game and on discord servers as well as within the immersive experiences created by players on the platform. Additionally, given the prevalence of young players on the platform, ensuring adherence to community and government guidelines with Paramount.

What players safety, we deployed a team of content moderators or first responders promptly remove bad actors eliminate violating user generated content and block spam.

More we set up a critical incident investigation process with law enforcement notifications with situations deemed to be high risk.

Our role as a trusted adviser we helped our clients align their players safety program with strategic initiatives, including the addition of new lines of business like voice moderation and moderation related appeals as a result in close partnership with our clients. We've created a dedicated content moderation team for them as well as a comprehensive wellness program at <unk>.

Mentorship program to ease the learning curve for new team members, serving as quiet now grown the team to well over 1000 moderators with the capacity to process more than 11000 tickets per day and up to 20000 moderated items per team member per month.

Over we've achieved impressive results in improving its sustaining operational excellent metrics for this client, including content moderator attendance customer satisfaction and quality assurance, whilst guiding the creation of the policy documents and framework for phishing prevention and information security, which has since been applied across the client's entire vendor network.

Another example, I would like to share with you today, some courtesy of our digital solutions line of business for Ti re imagined and subsequently constructed a sophisticated cloud infrastructure for a successful telecommunications company in the U S.

This large service provider of pay TV in retail wireless services needed to transform their offering after acquiring a mobile virtual network, operator or <unk> in order to offer affordable mobile services to current and potential customers they needed to build the technical infrastructure that would resolve incompatibilities between the acquired operators.

Infrastructure and with our client and vision for the combined entity in the future.

Particular to re imagine their operations and billing support systems, our clients turn to Telus international to lead the configuration of numerous but highly complementary Amazon web services technologies to create a future many operations and billing support infrastructure. The solution was implemented on the AWS cloud platform, providing scalable and flexible hosts.

For the application components, leveraging the AWS toolset to create the infrastructure specifically tailored for our clients' needs. Our Ti team enabled efficient order management and provisioning for the client's operations, ensuring proper sequencing of tasks at facilitating communication with external systems. Other features of our solution included tax fraud.

With monitoring and management of tickets to maintain operational efficiency and reliability as well as enhance data collection and proactive alerts setup, enabling our clients to gain real time insight into the performance of the health of the.

Deploy technology stack, our team's expertise in identifying and implementing the right technology for a client specific need help. This particular telecom provider realized significant end customer improvements, including greater self service functionalities for new plants and multiline accounts, the introduction of new compatibility and enhanced account.

With a 70% reduction in build cycle process time, and a 35% acceleration in time to market for new plant, new devices and activation as well as optimal system uptime and successful completion of goals for key operational processes next.

The next example, I'd like to share today, just from our team at Willow tree and their work to enable a better travel experience for customers a bright line trains, Florida, a new height railroad in the United States.

Operations resumed emerging from pandemic Lockdowns Brightline trains, Florida realized its original digital properties needed to scale with rising passenger demand and planned market expansion.

Willow tree of the digital partner to help get its flagship mobile and web app experiences on the right track.

Willow tree began with a comprehensive omnichannel audit of the existing customer journey from passenger interviews that deep dive with experts in rail travel they've moved rapidly from problem exploration to envisioning, a new travel experience that sold for pain points along the journey.

North Star guiding objective for this engagement with identifying scalable in App revenue opportunities for this client that is creating friction with past purchases and upgrades once the future state customer journey with clearly defined the Willow tree development squad built the next generation of the clients front end web and mobile experiences.

Powered by Adobe experience manager with the Willow tree solution, our clients customers are able to efficiently find and book tickets customize their trip and easily access tickets through a digital wallet. In addition, this consolidated platform unifies customer data to deliver more personalized marketing campaigns that engage customers and <unk>.

Five revenue opportunities for bright line trains, Florida.

In another example, our team at Willow tree spearheaded the digital transformation of our medical learning library to the release of native iOS and Android apps for a major global Education Company Mcgraw Hill.

The rapid Digitization of education materials Mcgraw Hill Global professional team partnering with Willow tree to fundamentally re imagine how they educate the next generation of medical professionals today, our team and regulatory is supporting Mcgraw Hill professional as they develop the portfolio strategy for their flagship medical education franchise.

With a modern intuitive and flexible digital platform. This includes exploring innovative new ways of servicing a massive library of content across the medical students are resident in attending journey all supported by a common design system kind of shared technical Foundation.

Developed by Willow tree enabled Mcgraw Hill professional to gain critical insights into user behaviors and personas throughout their medical education journey, while leveraging and enhanced learning experience driving engagement with the full portfolio through collaboration and partnership we've helped to make remarkable progress putting content such as audio video textbooks image.

And more students fingertips wherever they go.

Finally, while the broader near term operating environment remains challenging it's been a truly encouraging year for our AI data solutions business, it's always been a dynamic space, but we're seeing good momentum in demand. This year in particular led by the work we do to support market, leading generative AI foundational model builders and we are now on pace to complete.

1 billion tasks in a single year for the first time ever in 2023, thus far we've seen a roughly 1060% increase in generative AI and large language model services with leading use cases, including supervised fine tuning and reinforcement learning from human feedback dataset sourcing.

And data engineering, our workforce solutions are supported by new technology offerings, including experts API, our proprietary platform, which streamlines that optimizes the framework of matching key specialist talent with reinforcement feedback parts. We continue to evolve this suite of offerings across execution model with multiple new.

In facility engagements also now in implementation other high growth areas within our AI portfolio include UX research data sourcing, where we partner with innovative technology customers to evaluate and capture human machine interaction to enhance production development lifecycle and we continue to see remarkable.

<unk> an opportunity in the autonomous vehicle space to support safety use cases, including <unk> and Lidar sensor fusion plus driving data set sourcing across a multitude of scenarios, we've grown our customer base by 30% in 2023 and have continued to expand the number of key partnerships.

Multiple fortune 50 tech companies, including our longtime collaborations with Google and Microsoft. So we continue to support their needs for high quality human annotated datasets across numerous locale and product use cases.

Before I hand, the call over to Vanessa I would like to conclude by acknowledging our global teams continuing achievement as evidenced by several notable awards we received in the third quarter, starting with Telus International being named a leader in the Americas for a fifth consecutive year by Global Research and advisory firm efforts group at its peak matrix for customer experience management.

Additionally, Ti was included on Everest inaugural Global peak matrix assessment following our delivery site expansion that now encompasses five continents. Telus International was also ranked the leader and Nelson Hall as any assessment for content transformation services, specifically within subcategories for cost optimization.

<unk> and revenue generation Similarly, telecom international maintained our strong positioning on constellation researches shortlist for CX operation services again within the global category in recognition of our team's efforts to bring our carrying culture to life science companies selected Telus International as a finalist in its 2020.

Three best workplaces for innovators within the international category and to wrap up this list Telus International was the recipient of three 2023 Gold Stevie Awards for Great employers, which highlighted our leadership development program, our technical training program and specifically the use of digital co workers.

Well as our efficient skills training solution. These awards continue to reflect the illuminate the Ti team global efforts.

Our team members for consistently delivering value for our clients and for the communities, where we live work and serve.

I'll now invite our CFO <unk> <unk>.

Shared details of our financial results and I'll return to answer your question.

Vanessa overview.

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

As usual in my review of the financial results I will refer to some items that are non-GAAP measure.

For a description and reconciliation of our GAAP to non-GAAP measures. Please see our earnings release and regulatory filings from earlier this morning.

In the third quarter Telus International delivered revenues of $663 million up 8% year over year on a reported basis and 6% on a constant currency basis.

The revenue contribution from the military in the quarter was $42 million.

Military revenue increased $6 million or 1%, which included a favorable foreign currency impact of approximately 2% compared with the same quarter of the prior year associated with the weakening U S dollar against the Euro.

Revenues in the quarter continued to be impacted by reduced spending by certain clients.

Meaningfully our revenues were impacted by a reduction in volumes from our third largest client a leading social media company, whose revenue declined in Q3 by 23% year over year.

Excluding the impact of this particular clients our total revenues grew by 13% year over year.

Revenues from our first and second largest clients tell us and Google grew year over year by 23% and 25% respectively.

Looking at our revenue by vertical.

In the second game vertical revenue grew 4% year over year impacted by the volume reduction from the aforementioned leading social media company.

Excluding the impact of this client revenues in the tech and games vertical increased 17% year over year in Q3, reflecting continued growth in AI related revenue from Google and notable growth with other clients, including a highly popular gaming platform that Jack referenced earlier.

Revenues from the E Commerce, and Fintech vertical increased 6% year over year with softer performance in certain things that clients offset by growth delivered by Willow tree in this vertical.

Revenues from the banking financial services and insurance or be emphasized vertical declined 19% year over year, primarily due to lower service volumes from a global financial institution clients, which we mentioned on last quarter's call.

Partially offset by the addition of new clients from our acquisition of military.

Communications and media grew 3% year over year supported by the ongoing digital transformation revenues from telecom operation along with another leading U S telco and new clients added with military partially offsetting softness in certain other accounts.

Speaking of our work for <unk> Corporation revenues in our healthcare vertical increased by more than 200% year over year on strong growth with telehealth.

We expect continued growth in this vertical over time, reflecting yet. Another example of a mutually beneficial relationship with talent.

Finally revenues from all other verticals, which includes travel and hospitality energy and utilities retail and consumer packaged goods amongst others grew 14% year over year.

Turning now to our revenue performance by geography.

Revenues in Europe declined 4% year over year, resulting from surface volume reductions in the region, including most notably the reduction from the aforementioned social media clients.

Revenues in North America grew by 16% year over year as contributions from military health care and other tech and games clients were partially offset by lower volumes it would be at that site.

In Asia Pacific revenues increased by 9% year over year to contributions from tele and other customers within E Commerce, and Fintech and second game is vertical.

Finally, Central America, and other revenues grew 19% year over year from growth in second game and communications and media clients.

<unk> tell us.

Moving onto operating expenses.

Salaries and benefits expense in the third quarter were $403 million, an increase of 16% year over year due to higher team member counts investments in our team members to increase average employee salaries and wages and temporarily disproportionate higher cost of service delivery in certain regions. As you may recall from our last discussion last quarter. He has had a much.

More significant effect beginning in the second quarter of 2023 and principally in Europe.

These increases were partially offset by the positive impact of our cost efficiency efforts executed to date, including decreases in team member counts as we balance supply with demand and adjustments made to variable compensation based on operating performance metrics, which resulted in a sequential quarter over quarter decline in salaries and benefits expense.

Our goods and services purchased for $160 million, an increase of 5% year over year, primarily attributable to the addition of military as well as other higher costs tightly as higher revenue, partially offset by lower dependency on external contractors and in favor of continued development and investments in our own internal capabilities.

Share based compensation in the third quarter was $5 million a decrease of 17% primarily due to a perfect churns of Unvested awards in relation to employee departures.

Largely as a result of our cost reduction efforts.

Physician integration and other charges in the third quarter were $11 million, an increase of $4 million, primarily due to expenses associated with cost efficiency efforts.

Principally in Europe, including staff reductions to address lower service volume from certain clients.

Depreciation and amortization expense was $80 million, an increase of $19 million, primarily due to capital and intangible assets arising from the military as well as other investments made over the prior 12 months.

Interest expense in the third quarter was $38 million, an increase of $28 million, which was primarily due to higher average debt levels arising from Willow tree higher average interest rates and interest accretion recognized on the provisions for written put options associated with the military acquisition.

Our income tax expense decreased by 23 million to $3 million during the quarter effective tax rate decreased from 36% to 25% primarily due to a change in income mix whereby proportionately less income was earned in higher tax jurisdiction and a reduction in certain adjustments in the current two extra income tax of prior period.

Moving on to profitability measures adjusted.

Adjusted EBITDA was $144 million in the third quarter, our year over year decrease of 9% and adjusted EBITDA margin was 21, 7% compared with 25, 7% in the same quarter of the prior year.

Adjusted net income was $58 million and adjusted diluted earnings per share was 21, reflecting decreases of 33% and 34% year over year, respectively.

While our profitability was impacted by cost imbalances arising from reductions in service demand. These pressures were partially offset by cost efficiency efforts, we realized during the quarter, which helped to drive an adjusted EBITDA margin improvement of 370 basis points from last quarter.

As previously announced we rationalized our team member count, particularly in areas, where we had excess capacity, resulting from volume ramp down.

These efforts were accelerated since our last call and the actions completed to date will now generate over $45 million in your savings or $96 million on an annualized basis.

Reflecting in large part these downsizing efforts our team member count decreased to 73045 as of September 30th.

'twenty, three or 5% lower from last quarter.

Turning now to the balance sheet and cash flow at the end of the third quarter cash and cash equivalents were $132 million and available capacity under our credit facility was $435 million.

We generated free cash flow of 159 million in the quarter, primarily due to higher net inflows from working capital, which included higher cash received for services provided to tell us during the quarter.

No our share based compensation payments and lower income taxes paid which were partially offset by lower operating profit.

Our capital expenditures in the quarter were $26 million consistent with the same quarter last year.

Our leverage ratio as of September 30th was chewed up my next which improved from last quarter and remains within our communicated steady state range.

This improvement reflects our focus on ongoing reduction in our debt outstanding.

Now turning to our outlook.

We are reaffirming our full year guidance today.

We continue to expect revenue for full year 2023 in the range of $2 70 to $2 $73 billion now, including 190 to 200 million from Willow Street, representing year over year revenue growth of 9% to 11% on a reported basis and growth of 1% to 2%. Excluding military. This assumes an average exchange rate of one <unk> to $1 eight U S dollars.

In terms of profitability, we continue to expect adjusted EBITDA in the range of 575 to 600 million, which will continue to benefit from the cost efficiency efforts we've discussed.

In addition, we are continuing to reduce discretionary costs continuing to optimize our third party vendor relationship rationalizing our facility footprint, where feasible and maintaining prudence and hiring to manage our staffing in line with near term with the near term demand environment.

And finally, we continue to expect adjusted diluted earnings per share in the range of 90% to 97% for full year 2023.

We believe this outlook remains prudent given the continued macroeconomic uncertainty as well as we remain relentless relentlessly focused on managing what is in our control.

With that let's move on to questions.

Jonathan over to you.

Certainly thank you one moment for our first question and as a reminder, if you have a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue simply press Star. One again. Our first question comes from the line of <unk> <unk> from Barclays. Your question. Please.

Sure. Thanks, so much for taking my question good morning depots.

Yes.

And Jeff you mentioned, a lengthening of the sales cycle in the press release and I wanted to ask you a couple a couple of things about that I guess, one is is that a comment about signing deals or converting bookings to revenue or both and I guess, if maybe you could also overlay that onto the sort of it seems like because it particularly.

Large headwind coming from the large social media client versus the rest of the business, which is doing.

Better is that comment sort of equally applicable if you remove the impact of the one large social media.

Clients if that makes sense.

So let me start Ramsey and Vanessa can top up as ever with additional detail is needed.

I think it's both.

And it's not an exacerbation of what we discussed last quarter. It's a continuation of those elongated sales cycle and so it's taking longer for deals to be consummated and longer taking longer for deals to come to fruition. So both once we kind of get the.

The notional verbal green light, but getting to end of job in kicking off the engagement as well as just generally the pursuits continued to be elongated.

Indeed, I think your observation is fair and accurate.

We are having I would suggest disproportionately more challenge with respect to one of our customers in particular.

And.

We're hopeful that in the not too distant future things finally start to turnaround, but given the size of the client and this speaks to what we've all been mindful of frankly from our inception as a public company client concentration risk.

It has an outsized impact on our business if I normalize out.

The performance of that account.

Thank you would see considerably healthier growth in totality across the business right. Now so we have our work to do and I can say improving and turning around that situation and we continue to hope to be hopeful that that will indeed occur.

Got it thank you very much.

Okay.

Thank you one moment for our next question.

And.

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

Yeah.

Thank you.

I wanted to ask about.

As visibility into potential cuts additional cuts with that third largest customer and then what are some of the potential catalyst to reinvigorate not not only business with that customer, but the service line in general.

So we continue to work closely with them and as before we.

We are reasonably confident that we have the requisite visibility regarding that.

The volume demand profile for the work.

Think we're taking prudent steps in terms of matching supply.

Labor to support the existing demand profile.

I think one of the sources of turning things around is really leveraging our capability set, particularly as I referred to earlier in the AI space.

I think obviously content moderation in particular has seen an interesting evolution.

As many of our clients, particularly in the social media space look to align more and more AI and ml capabilities as a first line of identification of defense and less and less so on.

Human.

Digital engagement where possible.

And so we hope we believe that once again, we have what the doctors order and in terms of addressing this.

Opportunity in evolution.

But as I said in response to lamps in just a moment ago, we still have some work to do to demonstrate to this client in particular that we can indeed be the right partner for them in that regard and hopefully we'll see progress there in the quarter ahead.

Thank you Jeff.

Thanks Heidi.

Thank you one moment for our next question.

And our next question comes from the line of <unk> from Canaccord Genuity. Your question. Please.

Good morning, Thanks for taking my question.

First of all Jeff I was wondering if you could just delineate between to perhaps some of your larger clients and maybe.

The small to mid are you seeing the same trends you've talked about in terms of sort of Atlanta and sales cycle and.

Maybe taking time to in terms of converting the pipeline is there any kind of delineation between the sectors between size that I think is worth calling out and.

I also wanted to just talk Vanessa given the sort of the substantial free cash flow how should we think about Q4 should with some of that working capital kind of.

Flow out again, just to get a sense of how the year would kind of clothes from a free cash flow conversion of EBITDA perspective.

Thanks.

Thanks, our vendor I think it's fair to say that elongated sales cycles are somewhat pervasive and not exclusive to this one client, but I think it's equally accurate to reference the fact that things are decidedly culpably more challenging with that one client.

In particular.

Whether it's in sort of the Ti core business, if you will at Willow tree.

<unk> seen continued elongation. Despite the fact that our opportunities continue to be plentiful as reflected in the size of our funnel overall and that's equally true for Willow tree Division.

Getting to go.

<unk> to be a bit of a challenge for all of us but as I.

Palpably more so with this one client in particular.

We are encouraged by some of what we're seeing of late around our <unk> portfolio in particular as I referenced in my prepared remarks.

So we will.

We have something better to report in that.

Regarding the next quarter and with that thank you.

When I sort of respond to the second half of my question.

Thanks, Jeff.

Absolutely I think we.

Had a very very strong free cash flow quarter and some of that is is timing.

Having a 24% fee customer as a percentage of revenue is not a typical quarter for us I would look more at the year to date, because Q1 and Q2 were just slightly light and I expect that to normalize as we look at Q4. So on a year to date basis, we are really around sort of the two.

The mid teens and free cash flow as a percentage of revenue and that's what I would expect us to be.

In Q4.

Thank you <unk>.

Thank you one moment for our next question.

Okay.

And our next question comes from the line of.

From Jpmorgan your question please.

Yes.

Hey, Thanks, good morning, glad to see the steady results and Jeff you sound. Good I think the question I had was just on visibility for the top.

Top two accounts.

And any change there or notable callouts and similarly, with Willow tree and some of the wins you mentioned any surprise in the type of work you're seeing or your views on the synergy potential.

Got it for another quarter.

Hey, Tien tsin. Thanks for the question. Indeed, we are very pleased with the double digit starting with a true two growth for clients wanting to tell us and Google and.

We anticipate continued performance in that regard.

For the foreseeable future.

No surprises and particularly with respect to Willow tree client.

So most of the client wins delays have been sort of within their domain expertise in targeted industry verticals.

Disappointingly, obviously the growth trajectory, there not quite where we had expected and hoped to be but again still.

Confident in the longer term thesis.

Willow tree capability as the <unk>.

Front door, if you will to our <unk> offering.

Where I think we're going to prove out the thesis and the value of that investment.

In the next year and beyond.

So.

I'd say, there's always 2020, and I think we will yet prove that.

That capability was a critical strategic addition to our overall service offering.

Thank you.

Thank you one moment for our next question.

Yes.

And our next question comes from the line of Stephanie price from CIBC. Your question. Please.

Good morning.

In terms of AI, the extended service plans with Google and tell us and thank you for the color on the call around the offering as well just curious on what youre seeing in terms of demand outside of your largest customers and what portion of your customer basis is looking at AI work at this point.

Critically that'd be great. Thank you.

So almost everybody is talking to us about AI.

There is a I think not entirely surprising level of curiosity interest excitement.

And correctly trepidation.

About how journey and.

More broadly, we will likely impact their business models and Theyre looking for.

<unk> insight suggestions guidance.

Im cautiously optimistic that we're going to start to really see some meaningful engagement adoption of this offering.

Obviously, I think my own Kool aid some time ago here, Stephanie, but I think we do have something quite unique differentiated because of our experience and expertise in because of the comprehensive nature of the offering where we can engage in a.

<unk> in terms of the consulting advisory basis to really.

Explore together with our customers the art of the possible and how their environment might lend itself favorably to <unk> implementation and adoption to help both their own internal team members exploit that capability as well as to better serve our customers. We can then move to the next phase of that engagement with them and helping to structure their data such that when youre deploying degenerative AIG.

Abilities, youre producing more relevant action.

Actionable.

<unk> rather than just garbage in garbage out we can then again in the next phase of that evolution with them and build the web interface and our mobile application capability, so that both team members and customers alike.

Access on a real time basis to all of that more valuable information that generally they are high is now producing and thats less than or at least having a proprietary platform that gives customers access right now on day, one to a myriad of capabilities in terms of agent assist bot capabilities in language translation capabilities on a real time basis.

And it is essentially Switzerland, if you will in terms of technology agnostic such that if they have a predilection to work with one language translation capability, rather than our proprietary offering <unk>.

<unk> cloud environment, AWS, TCP Azure et cetera, we really are capable of supporting.

Supporting them in any of those environments with any of the plug in API capabilities.

That kind of agnosticism, I think again lends itself favorably to adoption and very excited about the opportunity going forward.

Yes.

Thank you one moment for our next question.

And our next question.

Comes from the line of Richard.

From National Bank financial markets. Your question. Please.

Yes. Thank you Jeff could you talk about sort of any service areas that had been sort of more resilient relative to some of the other ones that are a bit softer and then.

Secondly, I think last quarter, you talked about price competition in the market or pricing and wondering if we can maybe get an update on that please. Thank you.

Thanks, very much richer.

I think unfortunately, the challenges our results by industry service line or a bit skewed because of the concentration profile that we've talked about already.

As I said before if we normalize out for that.

Sure.

I think we're seeing reasonable opportunities for continued growth everywhere, but obviously not surprising TIAA AI service line in particular enjoying.

The biggest bump.

I expect that continue for the reasons, we just discussed.

In terms of pricing dynamic yield.

Yields to me like it's.

Simply a continuation of the same I E.

There is a pervasive persistent pressure around more for less.

And so finding a way to mitigate those challenges even customers that historically were over indexing on quality and we're willing to pay for that quality.

Coming less available if you will that creates the necessity for <unk>.

Service providers like we need to find a way to create the headroom in our service offering.

So that we can.

Sure the demand opportunity at those pressurize price points, but still generate our targeted margin yield and so as you heard Vanessa detail in her prepared remarks earlier, we've undertaken a thoroughly.

Comprehensive.

Optimization effort, it's not just right sizing labor to demand, but also looking to as you've heard me say often in these calls.

Our own Champagne eat our own gourmet cooking, we're deploying AI enabled and automation capability inside Ti to drive down our own cost to serve to create that headwind. When you until we can continue to enjoy our targeted margins I think we've made some progress in terms of.

Enterprise architecture and data access so we can be making better decisions more quickly in terms of how we're allocating resources and serving our customers.

Our team, we're deploying AI in terms of reducing the time and effort.

Need to deploy in building recruiting profiles for hiring and then leveraging guide and try and expedite bringing the right match skills to the required.

We're looking to onboard more quickly more expediently and the list goes on and on we still have a lot more work to do that essentially reduced the proportion of labor that goes into generating every dollar of revenue by exporting these exciting new technologies and capabilities, but pretty optimistic about the progress we made in a reasonably short time.

Would that we'd move faster sooner admittedly, but.

We are on the electronic and the year as I mentioned I think a lot of those efficiency gains.

Collected in the quarter are absolutely sustainable and will continue to amplify it.

Order in year ahead.

That's great. Thank you.

Thank you.

One moment for our next question.

Yeah.

And our next question comes from the line of <unk> <unk> from Scotia Bank. Your question. Please.

Good morning, Jeff in minutes.

Okay.

We've spoken about it briefly but I wanted to get some color on your client diversification efforts and you did provide some.

Context in the press release, this morning, but I'm trying to understand.

How can we expect overtime to see concentration.

Slightly move on from Telus and is there a certain timeline that you have internally to get to reduce that concentration given given its been picking up with willow trees work that youre doing with colors.

And just to add on in General I also wanted to understand how are some of the bunch of discussions going with some of the customers for 2024, and what sort of traction are you seeing there.

Yeah.

Thanks, very much the idea in terms of trying to ameliorate the client concentration profile continuing to fixed.

Expand our direct sales capability both.

<unk> in particular, but farmers as well.

We've deployed.

Tell us framework around.

Premier sales organization methodology to try and ensure that we're more disciplined.

Better data driven around how we approach.

Our account planning activities. So that we can make more meaningful accelerated progress around reducing our dependency on just a few large and as I've said in the past.

It's a bit difficult to obviously when youre enjoying.

The patronage of these large clients too.

Want to need so much of the various services we have to offer we don't want to artificially slow down their continued spend.

Because we want to try and improve the overall proportion of distribution of our revenue derived from our customers, but again, increasing the number of feet on the street. If you will in our commercial organization to try and win new clients more quickly.

Not set arbitrary targets in terms of how quickly you have to get from $54, 52% to 50% to 48%.

Revenue concentration from our top 10 clients, but we recognize that.

We were the beneficiaries of the Hyperscale is where we're growing quickly and we were over indexed on them.

Suffer the consequence of late when things turned around the other way and again remind you that we needed to make more progress more quickly on that front.

And just on those 2012.

Sorry, Thank you in terms of 2020 for budget.

Early days still engaging with a number of our clients around those discussions and but we're not ready to guide for 2024, yet but.

As I think you heard something thats in particular in her prepared remarks.

Phil moving with caution and prudence.

Not yet seeing and hearing that people feel like we're towards the bottom of the trough.

Folks are still feeling a bit trepidation theres still some uncertainty regarding when or if interest rates finally stopped being raised and we see some better predictability and.

Stabilization across the planet in terms of the geopolitical issues in particular so.

<unk> optimism regarding 2024 is going to look like for now.

Very helpful. I think we're going to have Q4 is going to be a critical quarter just in terms of.

How our clients are thinking about their budget because.

This is the time in fact that clients are walking on your budget.

And so suggests very points I think when we come back.

In the next quarter, when we start talking about guidance for 2024 and will have a lot more color. There because we would have had more meaningful conversations because every single company right now that the calendar year and company is right now going through their internal budget discussion.

That's very helpful. Thanks, Joe Thanks Vanessa.

Yes.

Thank you one moment for our next question.

Yes.

And our next question comes from the line of Casey Chan from Bank of America. Your question. Please.

Hey, guys. Thanks for taking my question. So I just wanted to make sure that I understood. Your full year outlook correctly. So for <unk>. The full year revenue outlook was taken down by about $15 million.

And.

And FX is a little bit better than expected, hence the unchanged like reported outlook on an organic FX neutral basis as the guide also essentially unchanged and what are some of the underlying factors that's going to drive the implied for Q acceleration itself. Thank you.

Yeah. So Kathy we did trim regulatory down by about $50 million as a bigger percentage of their revenue just given the size of their revenue, but not really.

A big impact on the total $2 seven.

1 billion total company deal. So that obviously plays a slight uptick we saw our organic revenues around that we don't get it down to the decimal place. So that does indeed play a slight uptick in inorganic revenue growth, but where is that coming from I think we've spent a quite a bit of time on this call not sort of talking about where those drivers are coming from.

So it's not that meaningfully different from last quarter. It is a very very slight uptick.

<unk> talked about some stabilization.

What we're seeing in revenue we've talked about the strength that we're seeing in AI, we've talked about when you sort of normalize for that large social media clients. We're seeing pockets of positivity growth. We're seeing we think tech and then certain games clients growing their book of business with us not only year over year, but also sequentially.

Some of the other declines that we've seen with DSI still quite meaningful, but as I look quarter by quarter. It is now starting to stabilize so all of these factors Cassia and of course last but not least we talked about the work we're doing with with tell us.

Other than of course, Google So.

That's what's driving that and that's why we're fairly comfortable reiterating the overall guide even though we do see about $50 million of softness within the Willow tree specific part of the portfolio.

Okay. That's all helpful.

And just I know last quarter, you mentioned that $40 million in the annual cost savings is that still the right number to think about and how much of the optimization in terms of your cost is just head count versus the other discretionary costs that you also had mentioned before thank you.

Yes, so the $40 million is actually now 46.

$45 million that I mentioned in my prepared remarks Castillo the annualized value associated with $96 million as I mentioned in my prepared remarks. So that's the that's an acceleration from what we reported last quarter. It is a combination of not only <unk>.

Count reduction, but also some of the other efforts I mentioned around vendor optimization and facilities footprint etcetera, but if you look at our cost structure. Most of our costs are in fact, S&P salaries and benefits as a result disproportionately that is where we're seeing the overall cost savings that I mentioned.

That's helpful. Thank you.

Thank you.

Thank you one moment for our next question.

Yes.

And our next question comes from the line of Keith Bachman from BMO. Your question. Please.

Hi, many thanks appreciate taking the call I wanted to ask a couple and I will just do it successfully because they are sort of pared.

Yeah.

The degradation of will tree is certainly a bit startling and so.

What do you think what needs to happen to really turn that asset around and then more broadly.

Number two is how do you think about M&A with your leverage ratio of two nine but asset prices, presumably have come down on the sell side.

And so how does that make you think about M&A in this environment.

And the last one just.

To throw in there Vanessa I just wanted to see if there's any directional comments not specific that you want to make about FY 'twenty four you're currently growing about 1% to 2% organically in the street has six to seven or something like that for FY 'twenty four.

Revenue growth and just anything philosophically you want to say, you're directionally about FY 'twenty four.

Thats It from me many thanks.

Thanks Keith.

I'm not sure if it's just a.

Nomenclature, but.

Don't agree with your characterization of the.

Significant deterioration of Willow tree performance I would agree that there has been a deterioration in the outlook for the growth trajectory, but in terms of year over year.

It's pretty.

Pretty much flat.

So I don't think thats deterioration, but I would agree that.

Our expectations are in your growth.

Certainly not being met right now and as I said earlier.

Because the customers that they are serving the customers there was firing conservative Unfortunately, taking a lot longer to get around to making the decision to move forward with the transformation initiatives that <unk> been discussing with Willow tree for quite some time now because so many businesses out there their budgets are being constrained or they are being ready to take a bit of a wait and see approach.

As everybody seems to conserve cash and wait to see what's going to happen in terms of the macro economic and geopolitical landscape.

But as I've said also a moment ago, we continue to be very bullish on the regulatory capabilities and their addition to our portfolio and in the fullness of time I'm confident that will be borne out in terms of M&A I mean, I think it's not surprising that these unfortunate price points, putting our transaction currency our publicly traded shares.

<unk>.

It would be a bit heartbreaking frankly.

And so.

You should expect that we're not likely to be pursuing something that scale in the near term that requires the use of our equity given the dilutive impact that these price points.

Similarly, where we are in terms of volume.

Leverage ratio not again in a big hurry to try and take our leverage outside of our studies comfortable state of two to three times, we're comfortable right now unless there was something quite compelling and irresistible.

<unk> prices have moderated somewhat but attractive assets seem to.

Come with attractive work, perhaps less attractive.

Price points, so we need to be thoughtful about that and again, we've always thought about M&A as you earn the right to go shopping and one of the ways that we are prerequisite is you have to have your organic.

In order.

And I think what we demonstrated in Q3 over Q2, as we've made meaningful progress to getting our house in order. If you will but we have more work to do still and I think.

Other than perhaps some tuck in activity you Shouldnt expect to see significant M&A activity from us until we show that we are back on track in terms of our targeted margin yield.

And organic growth trajectory I want my management team focused on that first and foremost.

The distraction the complexity.

And the risks associated with M&A activity is not something we take lightly but before we embark upon the next one I don't want to get a little bit more.

Continuity and stability on the organic business under our belt.

We're making good progress on the integration of Willow tree, obviously, but we're not quite finished that yet either I'd like to bring that to fruition before.

It's just the team with the next one.

On the 2020 for outlook on both of them.

<unk>.

Respond to the extent that too David.

Sure and maybe I'll just.

I'd see our earlier comment Jeff with respect to military performance clearly not.

Where you would have expected it to be based on our <unk>.

The date of close of the acquisition, but I would agree I think degradation is probably a bit of a strong word and we are seeing softness in that discretionary spending which of course is not only impacting willow tree, but I would suggest it's a fairly common thing we're seeing across our peer set so we're not seeing that willow tree stands out uniquely in that regard we are actually seeing that they are somewhat maintain.

Their own relative to what we're seeing across their peer group.

For 2014.

Yeah.

It's a good question.

<unk>.

We're now planning around 2024.

To start from a revenue perspective.

Now we are thinking about 2020 for revenue.

Very very cautiously.

Perhaps low single digits for now we want to see a bit of stabilization in the current environment to.

<unk> earlier question Q4, right now it's going to be critical in terms of what we hear from clients as they go through their budget cycles. So those conversations are happening in real time.

That's what's going to inform how we think overall about revenue growth for 2024, but I would say as of where we are right. Now we are approaching that with a lot of caution.

And and not at this particular point in time planning for a significant sum, we expect an improvement, but I wouldnt suggest you know going back to our double digit growth at this particular point in time, and then from a cost perspective.

One of the benefits as we have taken out the $96 million of annualized cost as I mentioned earlier.

But as we think about the new year.

Obviously, we're going to see wage pressures we.

We will see things like performance based compensation that came down this year, just given performance metrics, obviously that has to normalize again next year.

So we will see some of those puts and takes I think for right now as we look at margins, where if you look at our guide we're not sort of 'twenty, one 'twenty, 2% range for the full year. My expectation is we should be able to make some modest improvements in that in 2024, Directionally, but obviously, we'll come back with more specifics, particularly as we work with our clients in this critical time.

Finalize their budgets.

Okay, perfect terrific feedback and Jeff I thought your comments on M&A made a ton of sense.

Thanks, Steve.

Maybe one last question and then we'll wrap it up.

Certainly one moment for our final question today.

And our final question for today comes from the line of James Fawcett from Morgan Stanley. Your question. Please.

Great. Thank you so much I wanted to ask quickly to two questions clearly there's been a a <unk>.

A lengthening of sales cycles, Jeff I'm wondering how much of that you attribute to macro which it seems like theres, a lot versus customers potentially evaluating their needs and especially with the changing capabilities.

Tell us is able to deliver especially on using AI et cetera, and just trying to assess what the potential there is and separately on hiring.

How should we think about hiring going forward whether.

Not just on overall head count, but where you maybe need to shift delivery locations to and from et cetera. Thanks.

Thanks James.

Good questions. The first one candidly I'm not sure I can offer you.

A high level of.

Scientific.

Insight on what the balance would be from macro versus Ti evaluation is evaluation specific although I think there are probably some degree of interconnectedness there.

I think the macro is probably the more dominant.

Driver elongated sales cycles right now I, just think businesses almost across every vertical.

Our nervous or are concerned about what the future may hold and as a consequence, they are taking a more cautious wait and see approach to committing to large.

Multimillion dollar transformation engagement.

And the conversations across the board, but particularly highlighted in our military engagement I think are emblematic of what we're hearing and seeing which is everybody seems to recognize that they can't do nothing indefinitely.

They see the.

Necessity of engaging deploying exciting technological enablers, so that they can drive cost out of their service requirements and can delight their customers. They can facilitate self serve to their customers, which is a growing pervasive dynamic out there and few businesses are fully capable of meeting.

There are customers, where when and how they want so they all seem to recognize they've got to get there, but they're just not been given the green light to <unk>.

Deploy capital as quickly as they would like but it's amazing how often we're hearing just not now, but we definitely know that this has to come and so we're hopeful that early next year.

Starting to see that that situation change.

In terms of how much of that is Ti well no again.

Then we need to do more obviously on the marketing front on the awareness front on helping these.

Listing and prospective customers to recognize that there really is something here at ti that they can exploit and leverage to positive effect and to help them through this.

Complicated, but exciting transformation journey.

Obviously, we need to double down on our efforts to create more awareness and confidence.

In the customer ecosystem, so that they work more with Ti.

More quickly on the ship on hiring.

We're not seeing anything other than Europe, being particularly challenging environment for us right now.

Fortunately, our Europe experiences.

Proportionately change admittedly because of our over indexing on serving that one client and that one service line if I normalize for that it's not like things are rosy terrific in Europe for US right now, but I think we would be hearing a lot differently than we do on our experience around right sizing, our labor force and working.

To grow I think could be different.

But in totality I think what this whole AI revolution is representing us.

As I've talked about for quite some time now simple predictable repeatable human assisted engagements are being displaced by technology by automation by AI enablement and that means humans in duluth needs to be.

More sophisticated more well trained more capable of interim operating with technology and AI enabled technologies in particular and Thats sort of the labor force that we're looking to continue to grow and Excitingly I don't think that Theres a monopoly. There I think there is tremendous opportunities across Asia, and Latin America, and Europe, and North America.

To access that talent.

And despite these challenges I think tell us international they've done a really good job of differentiating itself as an employer of choice a destination for talent.

As demand from our customers returns in growth I think we're going to do.

Disproportionately better job than most and attracting that particular skill set and talent pool to support that growth opportunity.

Great. Thanks for the commentary there Jeff.

Thank you I appreciate the questions.

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

Thanks, Jonathan and thank you all for your questions today as always while we look forward to making further progress in the quarters ahead and throughout next year. Our intent for this call is to provide you with a balanced view of the near term conditions. We continue to operate through an insight into the longer term fundamentals of our business.

A diverse array of end to end capabilities as illustrated today by the <unk>.

Specific examples I've shared from Gen AI adoption in CSM to our content moderation expertise with entrust and safety to digital transformation projects led by our digital solutions team and finally, some of the exciting work underway at our AI data solutions line of service.

Since our company's inception, we've been committed to driving value for our clients by helping them grow revenue take costs and risks out of their business and serve and exceed the expectations of their customers more effectively by evolving advancing and enhancing our capabilities to incorporate leading edge technology when it comes to the <unk> impact.

<unk> in particular in many ways fuel IX is a culmination of our significant efforts over the years to carve out a role for Telus International as a provider of a complete end to end CX journey fueled by the latest technology and enabled by our engaged global team a lot has been said about the impact of <unk>.

Our industry and more broadly on supply while the hype is starting to settle the focus is now on detailed use cases feasibility of implementation and specific monetization approaches and I'm hopeful that you. All know we this call with a better understanding of <unk> strengths in this area and thoughtful.

<unk> is an end to end CX partner for clients on that note then thats, what I look forward to connecting with many of you in person at upcoming Investor conferences or will meet again in our next quarterly investor call that will take place in February with the holiday season fast approaching I wish you all safe and joyous and of the year. Thank you once again for your time and attention.

Today mobile.

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

Yes.

[music].

SAR one one on your telephone if you'd like to remove yourself from the queue simply press star one again.

I would now like to introduce Jason Niemeyer head of Investor Relations and Treasurer at Telus International Mr. Meyer you may begin.

Thank you Jonathan Good morning, everyone. Thank you for joining us today for Telus International's Q3, 2023 investor call hosting.

Hosting our call today are Jeff <unk>, President and Chief Executive Officer, and Vanessa <unk>, our Chief Financial 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 will provide some key financial highlights. We'll then open the line to questions from prequalified analysts before turning the call back to Jeff for his closing remarks.

Before we begin.

Like to direct your attention to slide two of the supplementary presentation available for download on this webcast and also available on our web site at Telus International Dot Com slash investors.

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.

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

<unk> 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 plus and Edgar.

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

Despite an operating environment that continues to be challenging Telus international delivered third quarter revenue growth of 8% on a consolidated basis.

Last quarter, we work to better balance demand and supply, especially in our European operations, which in turn has contributed to the sequential quarter margin improvement we delivered at the national share in more detail shortly.

Currently our sales funnel is still north of $2 billion and while sales cycles remain elongated our global sales team continues to acquire new logos. For example, during the third quarter, we won new business with the largest food ordering and delivery company in the U S. A luxury fashion retailer and a well known property and casualty ensure.

<unk> company in the U S within our existing client base, we expanded engagements with the leading Canadian bank the world's largest technology company by revenue are leading ridesharing food delivery provider and the world's leading short form video platform. We also continue to successfully expand volumes with now our second largest client Google.

Moreover, despite the challenging environment our team at Willow tree continues to win new business as well with new client adds in the quarter that included a U S based payment processing and information management services provider, an American multinational consumer credit reporting agency American multinational financial services Corporation that owns and operates stock exchanges.

And one of North America's top banks, an impressive roster of new clients that were very encouraged but similarly <unk> also deepened its engagement with several existing clients in the financial services sector and across other vertical including an American multinational pizza restaurant chain and importantly, with our parent company tell us.

Among our joint wins with Willow tree are one of the world's most trusted providers of mission critical software for legal financial and business professionals as well as the leading innovator in connected enterprise safety technology.

At a broader economic and multi industry level, we believe that the disruptive impact of generative AI will affect most business functions.

Finding that a recent mckinsey study the total percentage of work hours that could theoretically be automated by integrating technology that exists today is estimated to be 60% to 70% with the acceleration of Gen. AI adoption pulling forward the potential for technical automation and making it a key strategic consideration with long term implications.

Occasions for virtually all businesses, while digital transformation has been a priority for many businesses for several years now the advent of <unk>, even more emphasis on our client need to embrace these latest technology advancement in order to unleash efficiencies and design build and deliver enhanced customer experiences.

Or risk being left behind.

Typically when it.

Centre operation According to Deloitte nearly two thirds of contact centers are delivering disjointed customer experiences across communication channels and 34% of customers. According to the call Center Management Association or most frustrated when past two another representative during a contact more call to address these issues we.

Believe at the time is now again AI to help transform the CX journey operating meaningful value creation for customers as well as the businesses that serve them in a ti we positioned our business as the partner of choice to our clients.

Bringing down the latest tools and strategic thinking the best transform their operations with our assets across CX, AI and full digital stock, including military in particular, we're uniquely positioned to be a leader in this next big phase of the transition to digital first CX to that and I Trust, you've all seen our announcement earlier this.

Weak, marking the official launch of Telus.

National is enhanced solution to integrate <unk> into our clients customer experience operations.

Would have been easy to raise earlier this year issuing press releases with one off Jim AI tools and single talk what's the Telus International we instead focused on enhancing our existing solutions advancing the development of incremental capabilities that bring together under one umbrella and end to end offering for clients to address their evolving needs around.

Getting genii into customer experience operations from ideation to implementation.

<unk> brings together a full spectrum of intelligent experiences across customer digital voice user employee and human interaction.

Robust and comprehensive suite of capabilities that include digital consulting Jenny Jumpstarting week accelerated program for clients, New AI, along with data services and analytics as well as web and mobile application development. We believe it is only to this holistic view and processing all of the internal and external aspects of the customer engagement.

That journey, our technology can create tangible value for our clients with fuel IX our clients of end to end support around how they should think about AI integrated into their CX operations or enhance already existing capabilities importantly, our integrated solution addresses the bottleneck many companies face in getting accurate.

High quality data sets to enable the success of Gen AI capability and accelerates the pace of a proof of concept design to getting a gen. AI enabled solution into production critically all of this work is done within a secure environment, where client data is protected and climate and at each step of our engagement is guided by Telus International team.

Amenity in the loop approach with reinforcement learning through human feedback to suppress data in accuracies and bias in terms of monetization, we're using a solution as a service model with fuel IX being available via an agile hybrid pricing structure with licensing tiers tied to accurately reflect how our clients are levered.

The various capabilities enabled by the platform.

Several of our clients are already benefiting from the fuel IX offering, including our parent company tell us as well as Irobot to name, but two who are both quoted in our press release from earlier. This week. Additionally, as part of our journey, our Jumpstart program. Our team at Willow tree is working with a leading global financial services firm to create a journey.

Customer service chatbot to empower customers with a robust conversational literacy tool I look forward to sharing more details about <unk> and the proliferation of compelling use cases in the quarters ahead.

As we typically about on these calls I'd like to now share some of our other examples of our work over the past quarter.

Systems, revealing insufficient staffing and technology infrastructure, which led to a rise in complaint scans authentic content and toxicity in terms of Telus international to protect their current global player community and to ensure their safety program was designed to rapidly scale in order to be able to keep pace with the community.

Future growth by the way our trust and safety experts identified the need to moderate an array of user generated content both in game and on discord servers as well as within the immersive experiences created by players on the platform. Additionally, given the prevalence of young players on the platform ensuring adherence the community and government.

Guidelines with Paramount for player safety, we deployed a team of content moderators or first responders.

They remove bad actors eliminate violating user generated content and block spam.

More we set up a critical incident investigation process with law enforcement notifications with situations deemed to be high risk.

Mentorship program to ease the learning curve for new team members, serving this client now grown the team to well over a thousand moderators with the capacity to process more than 11000 tickets per day and up to 20000 moderated items per team member per month. Moreover, we've achieved impressive results in improving its sustaining operational excellent metrics for this.

Client, including contact moderator attendance customer satisfaction and quality assurance, whilst guiding the creation of the policy documents and framework for phishing prevention and information security, which has since been applied across the client's entire vendor network.

Infrastructure and with our client and vision for the combined entity in the future.

Particular to re imagine their operations and billing support systems, our clients turn to Telus international to lead the configuration of numerous but highly complementary Amazon web services technologies to create a future many operations and billing support infrastructure solution was implemented on the AWS cloud platform, providing scalable and flexible host.

<unk> for the application components, leveraging the AWS toolset to create the infrastructure specifically tailored for our clients' needs. Our Ti team enabled efficient order management and provisioning for the client's operations, ensuring proper sequencing of tasks at facilitating communication with external systems. Other features of our solution included task.

The deploy technology stack, our team's expertise in identifying and implementing the right technology for a client specific need help. This particular telecom provider realize significant end customer improvements, including greater self service functionalities for new plants and multiline accounts, the introduction of new compatibility and enhanced account.

He has been with a 70% reduction in build cycle process time, and a 35% acceleration in time to market for new plant, new devices and activation as well as optimal system uptime and successful completion of goals for key operational processes.

The example, I'd like to share today from our team at Willow tree and their work to enable a better travel experience for customers a bright line trains, Florida, a new height railroad in the United States.

As operations resumed emerging from pandemic Lockdowns Brightline trains, Florida realized its original digital properties needed to scale with rising passenger demand and planned market expansion. They chose Willow tree is the digital partner to help get its flagship mobile and web app experiences on the right track.

Willow tree began with a comprehensive omnichannel audit of the existing customer journey from passenger interviews that deep dive with experts in rail travel they moved rapidly from problem exploration to envisioning, a new travel experience that sold for pain points along the journey.

Judy is north star guiding objective for this engagement with identifying scalable in App revenue opportunities for this client that is creating frictionless pass the purchases and upgrades once the future state customer journey with clearly defined the Willow tree development squad built the next generation of the clients front end web and mobile experiences.

Drive revenue opportunities for bright line trains, Florida.

For example, our team at Willow tree spearheaded the digital transformation of our medical learning library to the release of native iOS and Android apps for a major global Education Company Mcgraw Hill.

With the rapid Digitization of education materials Mcgraw Hill Global professional team partnering with Willow tree, the fundamentally re imagine how they educate the next generation of medical professionals today, our team and regulatory is supporting Mcgraw Hill professional as they develop the portfolio strategy for their flagship medical education franchise.

Developed by military enabled Mcgraw Hill professional to gain critical insights into user behavior and personas throughout their medical education journey, while leveraging and enhanced learning experience driving engagement with the full portfolio through collaboration and partnership we'd hope to make remarkable progress putting content such as audio video textbooks image.

Is it more students fingertips wherever they go.

Finally, while the broader near term operating environment remains challenging it's been a truly encouraging year for our AI data solutions business.

<unk> always been a dynamic space, but we're seeing good momentum in demand. This year in particular led by the work we do to support market, leading generative AI foundational model builders and we are now on pace to complete 1 billion tasks in a single year for the first time ever in 2023, thus far we've seen a roughly 1060 <unk>.

<unk> increase in generative AI and large language model services with leading use cases, including supervised fine tuning and reinforcement learning from human feedback dataset sourcing and data engineering, our workforce solutions are supported by new technology offerings, including experts API our proprietary platform.

Streamlines it optimizes the framework of matching key specialist talent with reinforcement feedback parts. We continue to evolve this suite of offerings across execution models with multiple new in facility engagements also now in implementation other high growth areas within our Ti AI portfolio include <unk>.

Research data sourcing, where we partner with innovative technology customers to evaluate and capture human machine interaction to enhance production development lifecycle, and we continue to see remarkable diversification and opportunity in the autonomous vehicle space to support safety use cases, including <unk> and Lidar sensor fusion.

What's driving dataset sourcing across a multitude of scenarios.

We've grown our customer base by 30% in 2023 and have continued to expand the number of key partnerships across multiple fortune 50 tech companies, including our longtime collaborations with Google and Microsoft where we continue to support their needs for high quality human annotated datasets across numerous locale and.

Product use cases.

Before I hand, the call over to Vanessa I would like to conclude by acknowledging our global teams continuing achievement as evidenced by several notable awards we received in the third quarter, starting with Telus International being named a leader in the Americas for a fifth consecutive year by Global Research and advisory firm efforts group. It is peak matrix for customer experience management.

<unk> and revenue generation Similarly, Telus international maintained our strong positioning on constellation researches shortlist for CX operation services again within the global category in recognition of our team's efforts to bring our caring culture to life Science company selected Telus International as a finalist in its 2020.

Well as our efficient skills training solution. These awards continue to reflect the illuminate the Ti team global efforts.

Our team members for consistently delivering value for our clients and for the communities, where we live work and serve with that I'll now invite our CFO Vanessa continue to share details of our financial results and I'll return to answer your question.

The announcer overview.

Thank you, Jeff and good morning, everyone.

You all for joining us today.

As usual in my review of the financial results I will refer to some items that are non-GAAP measure.

And for a description and reconciliation of our GAAP to non-GAAP measures. Please see our earnings release and regulatory filings from earlier this morning.

In the third quarter Telus International delivered revenues of $663 million up 8% year over year on a reported basis and 6% on a constant currency basis.

Revenue contribution from the military in the quarter was $42 million.

Putting military our revenue increased $6 million or 1%, which included a favorable foreign currency impact of approximately 2% compared with the same quarter of the prior year associated with the weakening U S dollar against the Euro.

Revenues in the quarter continued to be impacted by reduced spending by certain clients.

Most meaningfully our revenues were impacted by a reduction in volumes from our third largest client a leading social media company, whose revenue declined in Q3 by 23% year over year.

Excluding the impact of this particular client our total revenue grew by 13% year over year.

Revenues from our first and second largest clients tell us and Google grew year over year by 23, and 25% respectively.

Looking at our revenue by vertical.

Second given political revenues grew 4% year over year impacted by the volume reduction from the aforementioned leading social media company.

Excluding the impact of this client revenues in the tech and games vertical increased 17% year over year in Q3, reflecting continued growth in AI related revenues from Google and notable growth with other clients, including a highly popular gaming platform that Jack referenced earlier.

Revenues from the e-commerce in Finfet vertical increased 6% year over year with softer performance in certain fintech clients offset by growth delivered by Willow tree in this vertical.

Revenues from the banking financial services, and insurance or BSI vertical declined 19% year over year, primarily due to lower service volumes from a global financial institution clients, which we mentioned on last quarter's call.

Partially offset by the addition of new clients.

The addition of military.

Sticking up our work with <unk> Corporation revenues in our healthcare vertical increased by more than 200% year over year on strong growth with Telus health.

We expect continued growth in this vertical over time, reflecting yet. Another example of a mutually beneficial relationship with talent.

Finally revenues from all other verticals, which includes travel and hospitality energy and utilities retail and consumer packaged goods amongst others grew 14% year over year.

Turning now to our revenue performance by geography.

And Europe declined 4% year over year, resulting from surface volume reductions in the region, including most notably the reduction from the aforementioned social media clients.

Revenues in North America grew by 16% year over year as contributions from military health care and other second game clients were partially offset by lower volumes can be episodic.

In Asia Pacific revenues increased by 9% year over year to contributions from tele and other customers within E Commerce, and Fintech and second game is vertical.

Finally, Central America, and other revenues grew 19% year over year from growth in second game, and communications and media clients, including tell us.

Moving onto operating expenses.

Significant effect beginning in the second quarter of 2023 and principally in Europe.

Share based compensation in the third quarter was $5 million a decrease of 17% primarily due to a perfect churns of Unvested award in relation to employee departures.

Largely as a result of our cost reduction effort acquisition integration and other charges in the third quarter were $11 million, an increase of $4 million, primarily due to expenses associated with cost efficiency efforts.

Principally in Europe, including staff reductions to address lower service volume from certain clients.

Depreciation and amortization expense of $80 million, an increase of $19 million, primarily due to capital and intangible assets arising from the military as well as other investments made over the prior 12 months.

Our income tax expense decreased by 23 million to $3 million during the quarter effective tax rate decreased from 36% to 25% primarily due to a change in income mix whereby proportionately less income was earned in higher tax jurisdictions and a reduction in certain adjustments in the current two extra income tax with prior periods.

Moving on to profitability measures adjusted.

Adjusted EBITDA was $144 million in the third quarter, our year over year decrease of 9%.

Adjusted EBITDA margin was 21, 7% compared with 25, 7% in the same quarter of the prior year.

Adjusted net income was $58 million and adjusted diluted earnings per share was 21, reflecting decreases of 33% and 34% year over year, respectively.

As previously announced we rationalize our team member count, particularly in areas, where we had excess capacity, resulting from volume ramp down.

These efforts were accelerated since our last call and the actions completed to date will now generate over $45 million up in your savings or $96 million on an annualized basis.

Reflecting in large part these downsizing efforts our team member count decreased to 73045 as of September 30th.

'twenty, three or 5% lower from last quarter.

Turning now to the balance sheet and cash flow at the end of the third quarter cash and cash equivalents were $132 million and available capacity under our credit facility was $435 million.

Lower share based compensation payments and lower income taxes paid which were partially offset by lower operating profit.

Our capital expenditures in the quarter were $26 million consistent with the same quarter last year.

Our leverage ratio as of September 30th was chewed up my next which improved from last quarter and remains within our communicated steady state range.

This improvement reflects our focus on ongoing reduction in our debt outstanding.

Now turning to our outlook.

We are reaffirming our full year guidance today.

In terms of profitability, we continue to expect adjusted EBITDA in the range of 575 to 600 million, which will continue to benefit from the cost efficiency efforts we've discussed.

And finally, we continue to expect adjusted diluted earnings per share in the range of 90% to 97% for full year 2023.

We believe this outlook remains prudent given the continued macroeconomic uncertainty as well as we remain relentless relentlessly.

We're letting the fleet focused on managing what is in our control.

With that let's move on to questions.

Jonathan over to you.

Thank you one moment for our first question and as a reminder, if you have a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue simply press Star. One again. Our first question comes from the line of <unk> <unk> from Barclays. Your question. Please.

Sure. Thanks, so much for taking my question good morning depots.

Vanessa and or Jeff you mentioned, a lengthening of the sales cycle in the press release and I wanted to ask you a couple a couple of things about that I guess, one is is that a comment about signing deals or converting bookings to revenue or both and I guess, if maybe you could also overlay that onto the sort of.

It seems like because it particularly large headwind coming from the large social media client versus the rest of the business which is doing.

Better is that comment sort of equally applicable if you remove the impact of the one large social media.

Clients if that makes sense.

So let me start Ramsey and Vanessa can top up ever with additional detail is needed.

I think it's both.

The notional verbal green light, but getting to end of job and kicking off the engagement as well as just generally the pursuits continued to be elongated.

Indeed, I think your observation is fair and accurate.

We are having I would suggest disproportionately more challenge with respect to one of our customers in particular.

And.

It has an outsized impact on our business if I normalize out.

The performance of that account.

Thank you would see considerably healthier growth in totality across the business right. Now so we have our work to do and as I say, improving and turning around that situation and we continue to be hopeful that that will indeed occur.

Got it thank you very much.

Okay.

Thank you one moment for our next question.

And.

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

Yeah.

Thank you.

I wanted to ask about.

Visibility into potential cuts additional cuts with that third largest customer and then what are some of the potential catalysts to reinvigorate not not only business with that customer, but the service line in general.

So we continue to work closely with them.

Before we.

We are reasonably confident that we have the requisite visibility regarding.

The volume demand profile for the work.

Think we're taking prudent steps in terms of matching supply.

Labor to support the existing demand profile.

I think one of the sources turning things around is really leveraging our capability set particularly.

Referred to earlier in the AI space.

I think obviously content moderation in particular.

And an interesting evolution.

Many of our clients, particularly in the social media space look to rely more and more on AI and ml capabilities as a first line of identification of defense and less and less so.

<unk>.

Human.

Digital engagement where possible.

And so we hope we believe that once again, we have what the doctors order in terms of addressing this.

<unk> and evolution.

But as I said in response to lamps in just a moment ago, we still have some work to do that.

Demonstrate to this client in particular that we can indeed be the right partner for them in that regard and hopefully we'll see progress there in the quarter ahead.

Thank you Jeff.

Thanks Ivy.

Thank you one moment for our next question.

And our next question comes from the line of <unk> <unk> from Canaccord Genuity. Your question. Please.

Good morning, Thanks for taking my question.

First of all Jeff I was wondering if you could just delineate.

Between to perhaps some of your larger clients and maybe.

Sort of the small to mid are you seeing the same trends you've talked about in terms of sort of Atlanta and sales cycle and.

Maybe taking time to in terms of converting the pipeline is there any kind of delineation between the sectors between size that I think is worth calling out and.

I also wanted to just for Vanessa given the sort of the substantial free cash flow how should we think about Q4 should with some of that working capital kind of.

Flow out again, just to get a sense of how the year would kind of clothes from a free cash flow conversion of EBITDA perspective.

Thanks.

In particular.

Whether it's in sort of the core business, if you will at Willow tree.

<unk> seen continued elongation. Despite the fact that our opportunities continue to be plentiful as reflected in the size of our funnel overall and that's equally true for Willow tree Division.

Getting to go.

<unk> to be a bit of a challenge for all of us, but as I can.

Palpably more so with this one client in particular.

We are encouraged by some of what we're seeing of late around our <unk> portfolio in particular as I referenced in my prepared remarks.

So we will.

We have something better to report in that regard in the next quarter.

All of them, but you've been a sort of respond to the second half of my question.

Thanks, Jeff and I have been absolutely I think the we had a very very strong free cash flow quarter and some of that is is timing.

Having a 24% free customers as a percentage of revenue is not a typical quarter for us I would look more at the year to date, because Q1 and Q2 were just slightly light and I expect that to normalize as we look at Q4. So on a year to date basis were really around sort of.

Close to mid teens and free cash flow as a percentage of revenue and Thats, what I would expect us to be in.

In Q4.

Thank you <unk>.

Thank you one moment for our next question.

Yeah.

And our next question comes from the line of kitchen.

<unk> from Jpmorgan your question please.

Yes.

Hey, Thanks, good morning, glad to see the steady results and Jeff you sound. Good I think the question I had was just on visibility for the top.

Top two accounts.

And any change there or notable callouts and similarly, with Willow tree and some of the wins you mentioned.

Any surprise in the type of work, you're seeing or your views on the synergy potential.

Find it for another quarter.

Hey, Tien tsin. Thanks for the question. Indeed, we are very pleased with the double digit starting with a true two growth for clients wanting to tell us and Google and <unk>.

<unk> continued performance in that regard.

For the foreseeable future.

No surprises and particularly with respect to the Willow tree client.

Most of the client wins delays have been sort of within their domain expertise in targeted industry verticals.

Disappointingly, obviously the growth trajectory, there not quite where we had expected and hoped to be but again still confident in the longer term thesis.

Willow tree capability as the front door, if you will to our <unk> offering.

Is where I think we're going to prove out the thesis and the value of that investment.

In the next year and beyond.

Well I'd say, there's always 2020, and I think we will yet prove that.

That capability was a critical strategic addition to our overall service offering.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Stephanie price from CIBC. Your question. Please.

Good morning.

In terms of AI, the extended service plans with Google Intel Us and thank you for the color on the call around the offering as well just curious on what youre seeing in terms of demand outside of your largest customers and what portion of your customer basis is looking at AI work at this point.

And it's critical that would be great. Thank you.

So almost everybody is talking to us about AI.

There is a I think not entirely surprising level of curiosity interest excitement.

And correctly trepidation.

About how journey in particular more broadly.

Likely to impact their business models and Theyre looking for insight suggestions guidance.

Im cautiously optimistic that we're going to start to really see some meaningful engagement adoption.

This offering.

Obviously, I think my own Kool aid some time ago here, Stephanie, but I think we do have something quite unique differentiator.

Cause of our experience and expertise in because of the comprehensive nature of the offering where we can engage in a.

<unk> in terms of the consulting advisory basis to really.

Abilities youre producing more relevant.

Actionable takeaways rather than just garbage in garbage out. We can then again here in the next phase of that evolution with them and build the web interface and our mobile application capability, so that both team members and customers alike.

Access on a real time basis to all of that more valuable information that generally they are high is now producing and last but not least having a proprietary platform that gives customers access right now on day, one to a myriad of capabilities in terms of agent assist bot capabilities in language translation capabilities on a real time basis.

And it is essentially Switzerland, if you will in terms of technology agnostic such that if they have a predilection to work with one language translation capabilities, rather than our proprietary offering <unk>.

Cloud environment, AWS, <unk> Azure et cetera, we really are capable of supporting them in any of those environments with any of the plug in CPI capabilities.

That kind of agnosticism, I think again lends itself favorably to adoption and very excited about the opportunity going forward.

Yes.

Thank you one moment for our next question.

And our next question.

From the line of Richard <unk> from National Bank Financial markets. Your question. Please yes. Thank you Jeff could you talk about sort of any service areas that had been sort of more resilient.

To some of the other ones that are a bit softer and then.

Secondly, I think last quarter, you talked about price competition in the market or pricing.

Wonder if we can maybe get an update on that too. Please thank you.

Thanks, very much Richard.

I think unfortunately, the challenges our results by industry service line or a bit skewed because of the concentration profile that we've talked about already as I said before if we normalize out for that.

I think we're seeing.

<unk> opportunities for continued growth everywhere, but obviously not surprising TIAA AI service line in particular are enjoying.

The biggest bump.

And how you expect that continue for the reasons, we just discussed.

<unk>.

In terms of pricing dynamic.

Yields to me like it's shipped.

Simply a continuation of the same I E.

There is a pervasive persistent pressure around more for less.

And so finding a way to mitigate those challenges even customers that historically were over indexing on quality and we're willing to pay for that quality.

That's becoming less available if you will creates the necessity for.

Service providers like we need to find a way to create the headroom in our service offering.

So that we can.

Capture the demand opportunity at those pressurize price points, but still generate our targeted margin yields and so as you heard Vanessa detail in her prepared remarks earlier, we've undertaken a thoroughly.

Comprehensive.

Optimization effort that is not just right sizing labor to demand, but also looking to as you've heard me say often in these calls.

Think of our own Champagne gourmet cooking, we're deploying AI enabled and automation capabilities deep inside Ti to drive down our own cost to serve to create that headwind we need so we can now.

<unk> to enjoy our targeted margins I think we've made some progress in terms of our enterprise architecture and data access. So we can be making better decisions more quickly in terms of how we're allocating resources and serving our customers.

HR team, we're deploying AI in terms of reducing the time and effort that we need to deploy in building recruiting profiles for hiring and then leveraging guidance trying to expedite bringing the right match skills to the required.

We're looking to onboard more quickly more expediently and the list goes on and on we still have a lot more work to do that essentially reduced the proportion of labor that goes into generating every dollar of revenue by exploiting these exciting new technologies and capabilities, but pretty optimistic about the progress we made in a reasonably short time.

We've moved faster sooner admittedly, but.

We are on the electronic indeed, as I mentioned I think a lot of those efficiency gains that were reflected in the quarter are absolutely sustainable and will continue to amplify.

Order in year ahead.

That's great. Thank you.

Thank you.

One moment for our next question.

And our next question comes from the line of <unk> <unk> from Scotiabank. Your question. Please.

Good morning, gentlemen.

We've spoken about it briefly but I wanted to get some color on your client diversification efforts and you did provide some.

Context in the press release, this morning, but I'm trying to understand.

How can we expect overtime to see concentration.

Slightly move on from tell us and is there a certain timeline that you have internally to get to reduce that concentration given given its been picking up with willow trees work that youre doing with colors.

And just to add on in General I also wanted to understand how are some of the budget discussions going with some of the customers for 2024, and what sort of traction are you seeing there.

Thanks, very much give you in terms of trying to ameliorate the client concentration profile.

Continuing to.

Expand our direct sales capability both.

Hunters in particular, but farmers as well.

We've deployed.

A tell us framework around pre.

Premier sales organization methodology to try and ensure that we're more disciplined.

Better data driven around how we approach.

Our account planning activities. So that we can make more meaningful accelerated progress around reducing our dependency on just a few large and as I've said in the past.

It's a bit difficult to obviously when youre enjoying the <unk>.

What percentage of these large clients to <unk>.

Want to need so much of the various services we have to offer we don't want to artificially slow down their continued spend just because we want to try and improve the overall proportion of distribution of our revenue derived from our customers, but again, increasing the number of feet on the street. If you will in our commercial organization to try and win new clients more quickly.

We've not set arbitrary targets in terms of how quickly you have to get from $54, 52% to 50% to 48%.

Revenue concentration from our top 10 clients, but we recognize that.

We were the beneficiaries of the Hyperscale is where we're growing quickly and we were over indexed on them and suffered the consequence of late when things turnaround went away and I would remind you that we needed to make more progress more quickly on that front.

And just on those 2012.

Sorry, Thank you in terms of 2020 for budget.

Early days still engaging with a number of our clients around those discussions and so we're not ready to guide for 2024, yet but.

I think you heard something thats in particular in her prepared remarks, we're still moving with caution and prudence.

We're not yet seeing and hearing that people feel like we're towards the bottom of the trough.

I think folks are still feeling a bit trepidation theres still some uncertainty regarding when or if interest rates finally stopped being raised and we see some better predictability.

Stabilization across the planet in terms of geopolitical issues in particular, so cautious optimism regarding 2024 is going to look like for now.

That's very helpful. I think we're going to have Q4 is going to be a critical quarter just in terms of.

Our clients are thinking about their budget because.

This is the time in fact that clients are walking on your budget.

And so suggests very point I think when we come back.

In the next quarter when we start talking about guidance for 2024, we will have a lot more color there because we would've had more meaningful conversations because every single company right now about the calendar year and company is right now going through their internal budget discussion.

That's very helpful. Thanks, Joe Thanks Vanessa.

Yes.

Thank you one moment for our next question.

Yeah.

And our next question comes from the line of Casey Chan from Bank of America. Your question. Please.

And.

FX is a little bit better than expected, hence the unchanged like reported outlook on an organic FX neutral basis as the guide also essentially unchanged.

What are some of the underlying factors that's going to drive the implied for Q acceleration itself. Thank you.

Yeah. So Kathy we did trim regulatory down by about $50 million, if a bigger percentage of their revenue just given the size of their revenue, but not really.

A big impact on the total 2007.

Billion total company deal. So that obviously plays a slight uptick we saw our organic revenues rounded we don't get it down to the decimal place so that doesn't seem to imply a slight uptick in inorganic revenue growth, but where is that coming from I think we've spent a quite a bit of time on this call sort of talking about where those drivers are coming from.

So it's not that meaningfully different from last quarter. It is a very very slight uptick.

<unk> talked about some stabilization.

What we're seeing in revenue we've talked about the strength that we're seeing in AI, we've talked about when you sort of normalize for that large social media clients, we're seeing pockets of positivity growth. We couldnt, we see check and then certain games clients growing their book of business with us not only year over year, but also sequentially.

Some of the other declines that we've seen with DSI still quite meaningful, but as I look quarter by quarter. It is now starting to stabilize so all of these factors our coffee and of course last but not least we talked about the work we're doing with with tell us.

Other than of course, Google So.

Okay. That's all helpful.

And just I know last quarter, you mentioned the $40 million in annual cost savings is that still the right number to think about and how much of the optimization in terms of your cost is just head count versus the other discretionary costs that you also had mentioned before thank you.

Yes, so the 40 million is actually now 46.

$35 million that I mentioned in my prepared remarks Castillo the annualized value of those savings of $96 million as I mentioned in my prepared remarks. So that's the that's an acceleration from what we reported last quarter. It is a combination of not only.

Headcount reductions, but also some of the other efforts I mentioned around vendor optimization and facilities footprint et cetera, but if you look at our cost structure. Most of our costs are in fact, S&P salaries and benefits throughout the results disproportionately that is where we're seeing the overall cost savings that I mentioned.

That's helpful. Thank you.

Thank you. Thank you one moment for our next question.

Okay.

And our next question comes from the line of Keith Bachman from BMO. Your question. Please.

Hi, many thanks appreciate taking the call I wanted to ask a couple and I will just do it successfully because theyre sort of pared.

The degradation of will tree is certainly a bit startling and so.

What do you think what needs to happen to really turn that asset around and then more broadly.

Number two is how do you think about M&A with your leverage ratio of two nine but asset prices, presumably have come down on the sell side.

And so how does that make you think about M&A in this environment.

And the last one just.

Revenue growth and just anything philosophically you want to say are directionally about FY 'twenty four.

Thats It from me many thanks.

Thanks Keith.

I'm not sure if it's just.

Nomenclature, but.

Don't agree with your characterization of the.

Significant deterioration of Willow tree performance I would agree that there's been a deterioration in the outlook for the growth trajectory, but in terms of year over year.

It's pretty.

Pretty much flat.

So I don't think thats deterioration, but I would agree that our expectations are in your growth.

Not being met right now and as I said earlier.

As everybody seems to conserve cash and wait to see what's going to happen in terms of the macro economic and geopolitical landscape.

<unk>.

It would be a bit heartbreaking frankly.

So I think you should expect.

Specs that we're not likely to be pursuing something that scale in the near term that requires the use of our equity given the dilutive impact of these price points.

Similarly, where we are in terms of volume.

Leverage ratio not again in a big hurry to try and take our leverage outside of our steady comfortable state of two to three times, we're comfortable right now unless there was something quite compelling and irresistible when youre right prices have moderated somewhat but attractive assets seem to.

Come with attractive work, perhaps less attractive.

Price points, so we need to be thoughtful about that and again, we've always thought about M&A as you earn the right to go charter on one of the ways Thats normally the prerequisite is you have to have your organic.

In order.

And I think what we demonstrated in Q3 over Q2, as we've made meaningful progress to getting our house in order. If you will but we have more work to do still and I think.

Other than perhaps some tuck in activity you Shouldnt expect to see significant M&A activity from us until we show that we are back on track in terms of our targeted margin yield.

And organic growth trajectory I want my management team focused on that first and foremost.

The distraction the complexity.

And the risks associated with M&A activity, it's not something we take lightly but before we embark upon the next one I don't want to get a little bit more.

Continuity and stability on the organic business under our belt.

We're making good progress on the integration of Willow tree, obviously, but not quite finished that yet either I'd like to bring that to fruition before.

It's just the team with the next one.

On the 2024 outlook ill invite Vanessa.

Respond to the extent that achievable.

Sure and maybe I'll just.

I'd see our earlier comment Jeff with respect to military performance clearly not.

Where you would have expected it to be based on our <unk>.

Date of close of the acquisition, but I would agree I think degradation is probably a bit of a strong word and we are seeing softness in that discretionary spending which of course is not only about the willow tree, but I would suggest it's a fairly common thing we're seeing across the peer set.

Not seeing that Willow tree stands out uniquely in that regard we are actually seeing that they are somewhat maintaining their own relative to what we're seeing across their peer group.

For 2014.

Yes.

It's a good question.

And that's where we're now planning around 2024.

Start from a revenue perspective.

Now, where we're thinking about 2020 for revenue.

Very very cautiously.

Perhaps low single digits for now we want to see a bit of stabilization in the current environment to <unk> earlier question Q4, right now it's going to be critical in terms of what we hear from clients as they go through their budget cycles. So those conversations are happening in real time. So that's what's going to inform how we think overall about revenue growth for <unk>.

24, but I would say is look where we are right now we are approaching that with a lot of caution.

One of the benefits as we have taken out the $96 million of annualized cost as I mentioned earlier.

But as we think about the new year.

Obviously, we're going to see wage pressures we.

We will see things like performance based compensation that came down this year, just given performance metrics, obviously that has to normalize again next year.

So we will see some of those puts and takes I think for right now as we look at margin, whereas if you look at our guide we're not sort of 'twenty, one 'twenty, 2% range for the full year. My expectation is we should be able to make some modest improvement in that in 2024, Directionally, but obviously, we'll come back with more specifics, particularly as we work with our clients in this critical time.

Finalize their budgets.

Okay, perfect terrific feedback and Jeff I thought your comments on M&A made a ton of sense.

Thanks, Steve.

Jonathan maybe one last question then we'll wrap it up.

Certainly one moment for our final question today.

And our final question for today comes from the line of James Fawcett from Morgan Stanley. Your question. Please.

Great. Thank you so much I wanted to ask quickly two questions clearly theres been a.

Lengthening of sales cycles, Jeff Im wondering how much of that you attribute to macro which it seems like theres, a lot versus customers potentially evaluating their needs and especially with the changing.

Abilities.

Telus is able to deliver especially on using AI et cetera, and just trying to assess what the potential there is.

And separately on hiring how.

How should we think about hiring going forward whether.

Not just on overall head count, but where you maybe need to shift delivery locations to and from et cetera. Thanks.

Thanks James.

Good questions. The first one candidly I'm not sure I can offer you.

A high level of.

Scientific.

Insight on what the balance would be from macro versus Ti evaluations evaluation specific although I think there are probably some degree of interconnectedness there.

I think the macro is probably the more dominant.

Driver.

Elongated sales cycles right now I just think businesses.

Across every vertical.

Our nervous or are concerned about what the future may hold and as a consequence, they are taking a more cautious wait and see.

<unk> to committing to large.

Multimillion dollar transformation engagement.

And the conversations across the board, but particularly highlighted military engagement I think are emblematic of what we're hearing and seeing which is everybody seems to recognize that they can't do nothing indefinitely.

<unk>.

Necessity of engaging the coin exciting technological enablers, so that they can drive costs out of their service requirements and can delight their customers. They can facilitate self serve to their customers, which is a growing pervasive dynamic out there and few businesses are fully capable of <unk>.

Beating their customers, where when and how they want so they all seem to recognize they've got to get there, but they're just not been given the green light.

To deploy capital as quickly as they would like but it's amazing how often we're hearing just not now, but we definitely know that this has to come and so we're hopeful that early next year, we start to see that that situation change.

In terms of how much of that is Ti well again, we need to do more obviously on the marketing front on the awareness front on helping these.

Existing and prospective customers to recognize that there really is something.

Here at Ti that they can exploit and leverage to positive effect and to help them through this.

Complicated, but exciting transformation journey.

Obviously, we need to double down on our efforts to create more awareness and confidence in the customer ecosystem. So that they work more with Ti.

Quickly on the ship on hiring.

Okay.

We're not seeing anything other than Europe, being particularly challenging environment for us right now and unfortunately, our Europe experiences disproportionate change admittedly because of our over indexing on serving that one client and that one service line by normalized out for that.

Like things are rosy terrific in Europe for US right now, but I think we would be hearing a lot differently than we do on our experience around right sizing our labor force and looking to grow I think could be different.

But in totality I think what this whole AI revolution is representing us.

As I've talked about for quite some time now simple predictable repeatable human assisted engagement.

Our being displaced by technology by automation by AI enablement and that means humans in the loop needs to be.

More sophisticated more well trained more capable of interim operating where technology and AI enabled technologies in particular and Thats sort of the labor force and we're looking to continue to grow and Excitingly I don't think that Theres a monopoly. There I think there is tremendous opportunities across Asia, and Latin America, and Europe, and North America.

To access that talent.

Despite these challenges I think tell us international has done a really good job of differentiating itself as an employer of choice a destination for talent.

As demand from our customers it turns and grows I think we're going to do.

Disproportionately better job than most and attracting that particular skill set and talent pool to support that growth opportunity.

Great. Thanks for the commentary there Jeff.

Thank you I appreciate the questions.

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

A diverse array of end to end capabilities as illustrated today by the specific examples I've shared from Gen. AI adoption in CSM to our content moderation expertise with entrust and safety to digital transformation projects led by our digital solutions team and finally, some of the exciting work underway in our AI data solutions.

Line of service.

<unk> in particular in many ways <unk> is a culmination of our significant efforts over the years to carve out a role for Telus International as a provider of a complete end to end CX journey fueled by the latest technology and enabled by our engaged global team a lot has been said about the impact of <unk>.

<unk> is an end to end CX partner for clients on that note then thats, what I look forward to connecting with many of you in person at upcoming Investor conferences or will meet again in our next quarterly investor call that will take place in February with the holiday season fast approaching I wish you all safe and joyous ended the year. Thank you once again for your time and attention.

Today mobile.

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

Q3 2023 TELUS International (Cda) Inc Earnings Call

Request a DemoDemo

TIXT

TELUS International

Earnings