Q2 2024 TELUS International (Cda) Inc Earnings Call
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Operator: The conference is now being recorded. Welcome to the Telus Digital Experiences Q2 2024 Investor Call. I would like to introduce your speaker, Miss Olena Lobach. Please go ahead.
Ms. <unk>: Paul I would like to introduce your speaker Ms. <unk>. Please go ahead.
Olena Lobach: Thank you, Carl. And good morning, everyone. Thank you for joining us today for the Telus Digital Second Quarter 2024 Investor Call. Joining our call today will be Darren Entwistle, Chair of the Telus Digital Board of Directors, along with Jeff Puritt, President and CEO, and Gopi Chande, our Chief Financial Officer. We also have Jason Magdano, Senior Vice President of Customer Service Excellence at Telus, and Tobias Dengel, President of WillowTree. We'll open with Darren, Jason, and Tobias providing brief introductory remarks.
Speaker Change: Thank you Carl and good morning, everyone. Thank you for joining us today for the towers, there's both second quarter 2024, investor call joining our call today will be done as possible share of the towers digital board of directors, along with Jeff Hewitt, President and CEO and <unk>, our Chief Financial Officer.
Olena Lobach: After that, Jeff and Gopi will continue the call with an overview of the results, and Tobias will join them to answer your questions, before we turn the call back to Jeff for his closing remarks. For our cautionary statements and further context on certain non-GAAP measures used during today's call, please refer to the appendices of the earnings release issued this morning and regulatory filings available on CETA Plus and EDGAR. With that, I will now pass the call over to Darren. Thank you, and good morning, everyone.
Speaker Change: We also have Jason Mcdonell senior Vice President of customer service excellence at Telus amphibious Dengel President's overload tree.
Speaker Change: We'll open with Darin Jason onto this provided a brief introductory remarks after that Jeff and Gulf via will continue the call. But then all of the results and the D. S will join them to answer your questions before we turn the call back to Jeff for his closing remarks.
Speaker Change: We're a cautionary statements and further context on certain non-GAAP measures used during today's call. Please refer to the appendices of the earnings release issued this morning, and regulatory filings available on SEDAR and Edgar.
I will now pass the call over to Darren.
Darren: Thank you and good morning, everyone.
Darren Entwistle: I'm participating briefly on our call today, and my role is the Chair of the Board of Telus Digital to announce some important organizational developments. It is with immense gratitude and appreciation for his innumerable contributions to Telus Digital over the past two decades and 24 years as a Telus team member that we announce the retirement of Jeff Puritt, President and CEO of Telus Digital, effective on the 3rd of September. I'd like to take this opportunity to personally thank Jeff for his leadership in shaping our Telus digital business since its inception, from a single delivery center in the Philippines with fewer than 2,000 team members to an integrated global provider of AI, digital, and customer experience services with over 75,000 employees serving more than 650 clients from 32 countries around the world.
Darren: I am participating briefly on our call today.
Darren: My role as the chair of the board of <unk> digital to announce some important organizational developments.
Darren Entwistle: In recognition of Jeff's unwavering commitment to our global team throughout our company's journey following his retirement, Jeff will assume his new role as Executive Vice-Chair of the Board at Telus Digital. Importantly, in this capacity, Jeff will be responsible for our corporate development activities given his expertise and experience in mergers and acquisitions. These efforts will complement and amplify the company's return to profitable growth that we are so committed to seeing and delivering upon.
Darren: As with immense gratitude and appreciation for his innumerable contributions to Telus digital over the past two decades, and 24 years as it tell us Jim remember that we announced the retirement of Jeff <unk>, President and CEO of <unk> digital effective on the third of September.
Darren Entwistle: In his role, Jeff will also support the government and investor relations functions within Telus Digital. Telus Digital's strategy remains solidly rooted in proactively embracing the latest technology to drive excellence in customer service, harnessing the next frontier of digital innovation and AI to enable our talented team members to deliver successful outcomes for our clients and further strengthen Telus Digital's brand leadership in the industry. Consistent with this strategy and our best-in-class commitment to robust succession planning, Jason McDonnell, a 20-year tenured member of the TELUS senior leadership team, will succeed Jeff as CEO of TELUS Digital, as well as take on the operational role of President of TELUS Digital Customer Experience.
Darren Entwistle: Most recently, Jason served as Senior Vice President of Telus Customer Solutions Excellence and President of Telus Smart Security and Home Automation. Jason clearly has a proven track record of bringing the capabilities that Telus has developed to lead in the industry in respect of client care, loyalty, cost efficiency, and digital transformation excellence to all the business verticals that Telus Digital addresses. Additionally, Tobias Dengel, founder and president of WillowTree, will take on the elevated role of president of Telus Digital Solutions.
Speaker Change: I'd like to take this opportunity to personally thank Jeff for his leadership and shaping our <unk> digital business since its inception from.
Darren: From a single delivery center in the Philippines with fewer than 2000 team members to an integrated global provider of AI digital and customer experience services with over 75000 employees, serving more than 650 clients from 32 countries around the world.
Darren Entwistle: Tobias has both the industry-leading expertise and the entrepreneurial drive needed to ensure we continuously deliver best-in-class solutions across our digital, gen AI, and AI modeling business. Both Jason and Tobias will report directly to the Telus Digital Board of Directors. We are clearly eager to see the significant leadership contribution and impact that they will make in returning Telus Digital to material, profitable growth. On this call today, we have both Jason and Tobias joining us for a brief introduction. You can also count on having further opportunities to engage with each of them in the months ahead. And on that note, Jason, let's start with you. Thank you, Darren. Hello everyone.
Speaker Change: The recognition of Jeff's unwavering commitment to our global team throughout our company's journey. Following his retirement, Jeff will assume his new role as executive Vice chair of the board at <unk> digital.
Speaker Change: Fortunately in this capacity, Jeff will be responsible for our corporate development activities, given his expertise and experience in mergers and acquisitions.
Speaker Change: Jeff efforts will complement and amplify the company's return to profitable growth that we are so committed to seeing and delivering upon.
Darren: In his role Jeff will also support the government and Investor relations functions within <unk> digital.
Speaker Change: <unk> digital strategy remains solidly rooted and proactively embracing the latest technology to drive excellence in customer service harnessing. The next frontier of digital innovation and AI to enable our talented team members to deliver successful outcomes for our clients and further strengthen <unk> digit.
Speaker Change: <unk> brand leadership in the industry.
Jason McDonnell: As you are aware, Telus Digital has a tremendous history as a global leader in digital customer experience, carving out a meaningful market position to serve some of the world's most well-known brands and forward-thinking clients. I'm excited to carry the organization forward on the strong foundation of world-leading culture, innovation, and leadership deeply fostered by Jeff and the Telus Digital leadership team. A little about me, since joining Telus, customer service transformation and business growth have been core hallmarks of my experience. As the Senior Vice President of Customer Service Excellence, I led the organization responsible for providing support for millions of Telus customers across mobility and home services.
Jason: Consistent with this strategy and our best in class commitment to robust succession planning, Jason <unk> at 20 year tenured member of the Tellers Senior leadership team will succeed Jeff <unk> CEO of <unk> digital as well as take on the operational role of President <unk> digital customer.
Speaker Change: Our experience.
Jason: Most recently, Jason served as senior Vice President of Telus customer solutions Excellence, and President of <unk>, Smart security and home automation.
Speaker Change: Jason clearly has a proven track record of bringing the capabilities that Telus has developed.
Speaker Change: We in the industry in respective client care.
Speaker Change: Loyalty cost efficiency and digital transformation excellence to all the business verticals that Telus digital addresses.
Speaker Change: Additionally to dangle founder and president of Willow tree will take on the elevated role.
Speaker Change: Incident of tailored digital solutions.
Speaker Change: <unk> has both the industry, leading expertise and the entrepreneurial drive needed to ensure we continuously deliver best in class solution across our digital Gen AI and AI modeling businesses.
Speaker Change: Both Jason and <unk> will report directly to the Telus Digital board of directors.
Speaker Change: We are clearly eager to see the significant leadership contribution and impact that they will make and returning tailored digital to material profitable growth.
Speaker Change: On this call today, we have both Jason and to be joining us for a brief introduction.
Speaker Change: You can also count on having further opportunities to engage with each of them in the months ahead.
Speaker Change: On that note, Jason let's start with you.
Jason: Thank you Darrin Hello, everyone.
Jason: As you are aware tell us digital has a tremendous history as a global leader in digital customer experience carving out a meaningful market position to serve some of the world's most well known brands and forward thinking clients.
Jason: I am excited to carry the organization forward on this strong foundation of World, leading culture innovation and leadership deeply fostered by Jeff and the Telus digital leadership team.
Speaker Change: Little above me since joining tell us customer service transformation and business growth had been core hallmarks of my experience.
Speaker Change: As the senior Vice President of customer service Excellence I led the organization responsible for providing support for millions of Telus customers across mobility and home services.
Jason McDonnell: In this role, and many others, I've worked extensively with the Telus Digital Experience Organization to couple advanced technology with innovative operational methods that drive material business value. I'm pleased to join an organization that shares my passion for growth, customer experience, technology, and transformation, and I look forward to working with our global leadership team to champion meaningful value for our shareholders, our customers, and our global communities, as well as to providing industry-leading, digital-first outcomes backed by exceptional, technology-supported human interactions. Thank you for the opportunity to introduce myself. I look forward to meeting and working with many of you on this call in the near future, including my good colleague, Tobias. Tobias, over to you.
Speaker Change: In this role and many others I've worked extensively with the Telus digital experience organization to a couple of advanced technology with innovative operational methods that drive material business value.
Speaker Change: I am pleased to join an organization that shares my passion for growth customer experience technology and transformation and I look forward to working with our global leadership team to champion meaningful value for our shareholders, our customers and our global communities as well as providing industry leading digital.
Speaker Change: First outcomes backed by exceptional technology supported human interactions.
Temi: Thank you for the opportunity to introduce myself I look forward to meeting and working with many of you on this call in the near future, including my good colleague to me to be us over to you.
Tobias Dengel: Thank you, Jason, and good morning to everyone. Over the years, Telus Digital has defined a new category in its industry right at the intersection of digital IT and digital customer experience. Technology plays a central role in the evolution of our company. I'm very excited to be part of bringing this company to the next frontier of our digital evolution, not least in the area of AI. Our mission is to provide the tools and services that fuel our clients' ability to adopt and maximize the value of AI in order to deliver the best possible customer experience.
Tomas: Thank you, Jason and good morning to everyone.
Speaker Change: Over the years Telus digital has defined a new category and its industry right at the intersection of digital and digital CX with technology, playing a central role in the evolution of our company.
Speaker Change: I'm very excited to be part of bringing this company to the next frontier of our digital evolution not least in the area of AI or.
Speaker Change: Our mission is to provide the tools and services that fuel our clients' ability to adopt and maximize the value of AI in order to deliver the best possible customer experience.
Tobias Dengel: While the promise of AI is real, the implementation of AI in most enterprises has lagged division, driven by a lack of data readiness, a lack of trust, and a lack of control. Our solutions squarely address these core impediments to scaled enterprise adoption.
Speaker Change: While the promise of AI is real the implementation of AI in most enterprises has lag division driven by a lack of data readiness, a lack of trust and a lack of control.
Tomas: Power solutions squarely address these core impediments to scalable enterprise adoption.
Tobias Dengel: Data is foundational to every AI deployment, and our capabilities uniquely position us to partner with our clients to responsibly design, build, implement, deliver, and scale their AI and Gen AI use cases. Our differentiated end-to-end approach across both the data and AI life cycles is a critical factor in helping us to address our clients' major points of friction in order to focus on innovation and growth. Flexibility, control, and trust are the core facets of our AI offering.
Tomas: Data is foundational to every AI deployment, and our capabilities uniquely position us to partner with our clients to responsibly design build implement deliver and scale their AI and G&A I use cases, our differentiated end to end approach across both the data and AI lifestyle.
Tomas: <unk> is a critical factor in helping us to address our clients' major points of friction.
Tomas: To focus on innovation and growth.
Tomas: Flexibility control and truck.
Tomas: Core facets of our AI offerings Trust is a crucial component as confidence in the model performance and responses remain a major impediment for our clients launching Gen AI solutions into production.
Tobias Dengel: Trust is a crucial component as confidence in the model's performance and responses remains a major impediment for our clients launching Gen AI solutions into production, and we aim to be a significant player in providing that solution.
Tomas: We aim to be a significant player providing that solution.
Tobias Dengel: Our ability to test drive real use cases at scale with Telus in the highly regulated industries where they operate, including telecommunications and healthcare, before actually going to other clients is unmatched in our industry. Indeed, our unique partnership with Telus is a meaningful competitive advantage, a proven ground that competitors simply do not enjoy. Rest assured, you'll be hearing more from us on that front as we continue to accelerate our lineup of Gen AI product releases, showcasing our thoughtful and comprehensive approach to advancing our capabilities both for our clients and internally.
Tomas: Our ability to test drive real use cases at scale with palace in the highly regulated industries, where they operate including telecommunications and health care.
Tomas: <unk> actually going to other clients is unmatched in our industry. Indeed, our unique partnership with palace.
Tomas: Meaningful competitive advantage, our proving ground that competitors simply do not enjoy.
Tomas: Rest assured you'll be hearing more from us on that front as we continue to accelerate our lineup of Gen. AI product releases, showcasing a thoughtful and comprehensive approach and advancing our capabilities for our clients and internally.
Tobias Dengel: With that, and with my deepest appreciation for his legacy, his ongoing support of our new leadership team, and his mentorship and partnership over the last 18 months since I joined the firm, let me turn the call over to Jeff. Thank you, Sabia.
Tomas: With that and with my deepest appreciation for his legacy is ongoing support of our new leadership team and his mentorship and partnership over the last 18 months since I've joined the firm, let me turn the call over to Jeff.
Jeff Puritt: Thank you, Jason, and thank you very much indeed for those very generous comments. I'm very pleased for both Jason and Divya to take on their responsibilities, and I'm fully committed to making sure they have a successful start in their new roles. I'm truly honoured to have served as the President and CEO of Telus Digital, and in my new capacity as the Executive Vice-Chair of the Board, I look forward to an exciting future for our business.
Jeff: Thank you. Thank you Jason and thank you very much indeed for those very generous comments Darren I'm very.
Jeff: Very pleased for both Jason and to be has to take on their responsibilities and I'm.
Jeff: Fully committed to making sure they have a successful start in their new rules.
Speaker Change: I am truly honored to have served as the president and CEO of <unk> digital and in my new capacity as the executive Vice Chair of the board I look forward to the exciting future for our business I'd like to thank our board of directors for their continued support of our leadership team as well as the entire Telus digital team for their remarkable passion and dedication.
Jeff Puritt: I'd like to thank our board of directors for their continued support of our leadership team as well as the entire Telus digital team for their remarkable passion and dedication. As part of this transition, on behalf of the board and our management team, I'd also like to sincerely thank Jose Luis Garcia, who has served as the company's chief operating officer since May 2023. We're very grateful indeed for his valuable contributions, and we wish Jose Luis continued success in his future endeavors.
Speaker Change: Part of this transition on behalf of the board and our management team I'd also like to sincerely. Thank Jose Luis Garcia, who has served as the company's Chief operating officer. Since May 2023, we're very grateful indeed for his valuable contributions and we wish Jose Luis continued success.
Tomas: Future endeavors.
Jeff Puritt: So I appreciate that for our audience, this was a lot to digest just in one morning. However, I'll now focus our call back on the quarterly results and the outlook revision we released earlier today. Our results in the second quarter reflect continued pressures on our business from the challenging macroeconomic and operating environment. Our management team, and, of course, I personally fully acknowledge the impact of how our efforts to address the challenges we've experienced since last year and our resulting underperformance have put a tremendous dent into our longer-term track record of delivering sustained profitable growth.
Jeff: So I appreciate for our audiences. This was a lot to digest just in one morning, Oliver I'll now focus our call back on the quarterly results and the outlook Division, we released earlier today.
Jeff: Our results in the second quarter reflected continued pressures on our business from the challenging macroeconomic and operating environment.
Speaker Change: Our management team and of course, I personally fully acknowledge the impact of our efforts to address the challenges we experienced since last year and our resulting underperformance has put a tremendous dent into our longer term track record of delivering sustained profitable growth.
Jeff Puritt: While earlier in the year, we saw solid signs of a demand recovery on the horizon, including a record in new client bookings in the first quarter, the pace of new client bookings slowed in the second quarter, despite continued strength in our sales funnel. Meanwhile, fierce competition on price and restricted client spending persisted.
Tomas: Earlier in the year, we saw solid signs of demand recovery on the horizon, including a record in new client bookings in the first quarter the pace of new client bookings slowed in the second quarter. Despite continued strength in our sales funnel.
Jeff: While fierce competition on price and restricted client spending persisted.
Jeff Puritt: Similar to our peers in now not seeing improvement in the macroeconomic environment, we too no longer expect the magnitude of recovery previously expected for the second half of this year. As a result, our financial outlook for the full year 2024 has been revised to better reflect the current balance of risks and opportunities. Later in this call, Gopi will share much more detail on the outlook and our assumptions, while I want to emphasize that our revised outlook implies stability and incremental improvement in sequential half-year revenue, as well as stabilization and margins aligned with the second quarter when normalized for impacts associated with the willow tree earn out.
Jeff: Similar to our peers in now not seeing improvement in the macroeconomic environment.
Speaker Change: <unk> no longer you expect the magnitude of recovery previously expected for the second half of this year as.
Speaker Change: As a result, our financial outlook for the full year 2024 is revised to better reflect the current balance of risks and opportunities later on this call <unk> will share much more detail on the outlook and our assumptions, while I want to emphasize that our revised outlook implies stability and incremental improvement.
Speaker Change: In the sequential half year revenue as well as stabilization in margins aligned with the second quarter when normalized for impacts associated with the Willow tree earn out.
Jeff Puritt: To turn back to the quarter and share with you some of the positive signs and trends, our AI-related business remains a highlight, with revenue growing 13% in the first half of the year, offering some offset to the headwinds experienced elsewhere. At the same time, our business generated free cash flow as a percentage of revenue at 15%, both in the quarter and the first half of the year.
Speaker Change: It could turn back to the quarter and share with you some of the positive signs and trends our AI related business remains a highlight with revenue growing 13% in the first half of the year offering some offset to the headwinds experienced elsewhere.
Tomas: At the same time, our business yielded free cash flow as a percentage of revenue at 15% both in the quarter and the first half of the year our capacity to generate consistently strong cash flows will continue to support reinvestment into the business.
Jeff Puritt: Our capacity to generate consistently strong cash flows will continue to support reinvestment into the business. Our top two clients, Telus and Google, which collectively accounted for 39% of our total revenue in the first half of the year, continue to provide a meaningful level of support. Our revenue streams with these two clients are diversified and growing, supported by our longstanding relationships with both companies as an enabler of their business success. Overall, however, the positive contributions from our top two clients were not enough to offset the pressures that persisted into the second quarter of 2024, with softer demand volumes across much of our broader client base.
Tomas: Our top two clients tell us and Google, which collectively accounted for 39% of our total revenue in the first half of the year continued to provide a meaningful level of support our revenue streams with these two clients are diversified and growing supported by our long standing relationships with both companies as an enabler of their business success.
Jeff: Overall, however, the positive contributions from our top two clients were not enough to offset the pressures that persisted into the second quarter of 2024 with softer demand volumes across much of our broader client base.
Jeff Puritt: I'd like to spend a few moments sharing my thoughts and observations on our profitability, including the broader trends impacting our performance to date this year and the actions we're pursuing as we seek to return our business to robust, top-line growth and desired sustainable long-term improvement in profitability. Since the second quarter of last year, one of our top three clients reduced spend with us. This not only had a significant impact on our revenue trajectory but also had an unfavorable flow through to our margins.
Tomas: I'd like to spend a few moments sharing my thoughts and observations on our profitability, including the broader trends impacting our performance to date this year and the actions we are pursuing as we seek to return our business to robust top line growth and desired sustainable long term improvement in profitability.
Jeff: Since the second quarter of last year, one of our top three clients reduced spend with us not only had a significant impact on our revenue trajectory, but also had an unfavorable flow through to our margins our efforts to stabilize and return this account to growth, which are now starting to show success now Unfortunately come at the cost of a meaningful margin re rate.
Jeff Puritt: Our efforts to stabilize and return this account to growth, which are now starting to show success, have unfortunately come at the cost of a meaningful margin re-rate for 2024. While we continue to work diligently on optimizing our global operations, with many initiatives already underway, we're equally dissatisfied with the pace of our progress in transforming and reducing our cost structure. In retrospect, we may have underestimated the time it would take to see more meaningful outcomes from our actions.
Tomas: For 2024.
Tomas: While we continue to work diligently on optimizing our global operations with many initiatives already underway, we're equally dissatisfied with the pace of our progress in transforming and reducing our cost structure in retrospect, we may have underestimated the time it would take to see more meaningful outcomes from our actions. These include deploying more automation in.
Jeff Puritt: These include deploying more automation inside our business and across our global footprint, with the sheer scale of our organization introducing complexity and the need for more time to implement our plan. I believe this is a particular area of opportunity for Jason McDonnell to make a meaningful impact, leveraging his proven expertise in transforming customer service operations through cost efficiency and digital innovation. We're also working to decommission legacy tools and systems and migrate to a more Gen-AI enabled environment using the same technologies we're bringing to our clients, like Fuel iX, but for our own internal use. And we're standing up and amplifying right-short centers of excellence with a goal to tap into our established global footprint to optimize and improve the quality of our operations delivery and support function.
Jason Mcdonell: Inside our business and across our global footprint with the sheer scale of our organization introducing complexity and the need for more time to implement our plans I believe this is a particular area of opportunity for Jason Mcdonell to make a meaningful impact leveraging his proven expertise in transforming customer service operations through cost.
Tomas: C and did digital innovation.
Tomas: We're also working to decommission legacy tools and systems and migrate to a more gen. AI enabled environment using the same technologies, we're bringing to our clients like fuel IX, but for our own internal use and we're standing up and amplifying right shored centers of excellence with a goal to tap into our established global footprint to optimize.
Tomas: And improve the quality of our operations delivery and support functions. These are a few examples and we commit to sharing more details with you as we make progress in the remainder of this year and into the future is this is not a one and done set of initiatives, but rather a path to continuous improvement of our operations to make our business even more resilient for the future.
Jeff Puritt: These are just a few examples, and we commit to sharing more details with you as we make progress in the remainder of this year and into the future, as this is not a one-and-done set of initiatives but rather a path to continuous improvement of our operations to make our business even more resilient for the future. I'm hopeful that we will see better progression over the remainder of this year and that it will yield a more significant improvement in our cost to serve and further optimize our global operations into next year.
Tomas: I'm hopeful that we will see better progression over the remainder of this year and then it will yield a more significant improvement in our cost to serve and further optimize our global operations into next year.
Jeff Puritt: From a broader market perspective, the macroeconomic environment over the past 18 months, in particular, has fueled our clients' expectations of receiving more and better for less, something that will likely persist for all players in our industry. Nevertheless, I continue to believe that we have a much better capacity to solve for this than most with our digital-first mindset and growing capabilities in areas like generative AI.
Tomas: From a broader market perspective, the macroeconomic environment over the past 18 months in particular has fueled our clients expectations are receiving more and better for less something that will likely persist for all players in our industry. Nevertheless, I continue to believe that we have a much better capacity to solve for this than most with our dish.
Tomas: <unk> first mindset and growing capabilities in areas like generative AI as we continue to evolve Telus digital towards a more technology centric and specifically AI fueled business. This fundamental change will also help to future proof our business model in the near term. However, this transition necessitates.
Jeff Puritt: As we continue to evolve Telus Digital towards a more technology-centric and specifically AI-fueled business, this fundamental change will also help to future-proof our business model. In the near term, however, this transition necessitates some cannibalization of our tenured and higher-margin CX work, historically in the mid-20s to mid-30s EBITDA margin range, with still nascent and relatively lower-marg We believe this near-term margin dilutive tradeoff will be resolved as our Gen-AI focused offerings continue to achieve better scale, generating a much improved level of profitability, which will bolster the acceleration of our overall enterprise margin profile. We've already achieved meaningful scale in AI as one of the largest providers of AI data solutions, including data collection, annotation, creation, and validation.
Tomas: Some cannibalization of our tenured and higher margin CX work historically in the mid Twenty's to mid Thirty's EBITDA margin range with still nascent and relatively lower margin AI revenue streams. We believe this near term margin dilutive trade off will be resolved as our journey I focused offerings continued to achieve better scale.
Tomas: Generating a much improved level of profitability, which will bolster the acceleration of our overall enterprise margin profile.
Tomas: We've already achieved meaningful scale in AI is one of the largest providers of AI data solutions, including data collection annotation creation and validation with the strength of our platform, we're able to source very specific talent globally for our clients to tackle the ever more complex datasets used to train and optimized.
Jeff Puritt: With the strength of our platform, we're able to source very specific talent globally for our clients to tackle the ever more complex data sets used to train and optimize Gen AI and other AI models. Our AI-related business currently generates 15% of our overall revenue, or about $200 million year-to-date, and as I mentioned, grew 13% year-over-year in the first half of 2024. As you heard from Tobias just now, data is at the core of AI implementation, and our team provides solutions at scale for clients who need to clean and optimize their vast data sets to train their custom models via RAG, which is Retrieval Augmented Generation, as well as other implementations that enhance the accuracy and reliability of generative AI models.
Speaker Change: <unk> AI and other AI models, our AI related business currently generates 15% approximately of our overall revenue or about $200 million year to date and as I mentioned grew 13% year over year in the first half of 2024.
<unk>: As you heard from <unk> now data is at the core of AI implementation and our team provides solutions at scale for clients, who need to clean and optimize their vast datasets to training their custom models via rag, which is retrieval augmented generation as well as other implementations that enhance the accuracy and reliability.
Speaker Change: <unk> of generative AI models as I've discussed on previous Investor calls fuel IX is our enterprise grade <unk> AI engine that serves as the foundation for us to help clients move their journey, our use cases from pilots to production at scale quickly and safely we expect to start seeing meaningful revenue contributions from fuel.
Jeff Puritt: As I've discussed on previous investor calls, Fuel iX is our enterprise-grade Gen AI engine that serves as the foundation for us to help clients move their Gen AI use cases from pilots to production at scale quickly and safely.
Jeff Puritt: We expect to start seeing meaningful revenue contributions from Fuel iX in 2025. Again, this is an area where Tobias and his team will be instrumental in growing our scale and positioning in the market. Competition in the AI space continues to intensify, with various partnerships being formed to accelerate the transition and market share gains.
Speaker Change: In 2025 again this is an area where it could be it and his team who will be instrumental in growing our scale and positioning in the market <unk>.
<unk>: Competition in the AI space continues to intensify with various partnerships being formed to accelerate the transition and market share gains in our case, we see our AI capabilities increasingly resonating with clients. Despite facing competition from the pure play AI vendors backed by many of the same hyper scaler, we pursue with clients.
Jeff Puritt: In our case, we see our AI capabilities increasingly responding with clients despite facing competition from the pure play AI vendors backed by many of the same hyperscalers we pursue as clients. We're also working directly with AI model developers and collaborating closely with each of the three leading hyperscalers as our Fuel iX capabilities are typically complementary to their offerings. In fact, Fuel iX is both LLM and cloud agnostic, enabling our clients to easily switch between AI models and cloud services as needed to avoid vendor lock-in and future-proof their Gen AI investment.
<unk>: We're also working directly with AI model developers and collaborating closely with each of the three leading hyperscale <unk> as our fuel IX capabilities are typically complementary to their offerings. In fact July acts as both <unk> and cloud agnostic, enabling our clients to easily switch between AI models in cloud services.
Speaker Change: Needed to avoid vendor lock in and future proof their gen. AI investment to date, we've developed customer agent and employee facing bots I'm, particularly proud of our work to help tell US launched the world's first ISO privacy by design certified Gen AI customer support tool powered by fuel IX.
Jeff Puritt: To date, we've developed customer, agent, and employee-facing bots. I'm particularly proud of our work to help Telus launch the world's first ISO Privacy by Design Certified Gen AI customer support tool. Powered by Fuel iX, the chatbot provides customers with secure, fast, and intuitive responses to their queries, providing them with a more convenient and seamless digital experience.
<unk>: The chatbot provides customers with secure fast and intuitive responses to their queries, providing them with a more convenient and seamless digital experience.
Jeff Puritt: Telus' Spock co-pilot, a single point-of-contact IT support bot, also operates on the Fuel iX platform. This GenAI-fueled co-pilot has revolutionized the IT support experience for the company's employees, providing a high-quality self-serve channel that's driving cost savings and instilling a digital-first mindset across the organization. And lastly, on Wednesday of this week, we launched Fuel eX, an enterprise-safe GenAI employee assistant to support productivity, creativity, and research. Fuel eX is the first public launch of an application built on Fuel AI.
Speaker Change: Tell us the Sparks co pilot at a single point of contact support bonds also operates on the fuel IX platform. This journey I fueled copilot has revolutionized the it support experience for the company's employees, providing a high quality self serve channel, that's driving cost savings and instilling a digital first mindset across.
<unk>: The organization and lastly on Wednesday of this week, we launched fuel E X and enterprise States Gen AI employee assistance to support productivity creativity and research fueled <unk> is the first public launch of an application built on fuel IX fuels <unk> is currently in operation at scale within <unk>.
Jeff Puritt: Fuel EX is currently in operation at scale within Telus, where it's used by 35,000 employees. The app provides a single point of entry for employees to access an intuitive interface where they can select from more than 20 large language models from multiple vendors to help them with everyday tasks including knowledge searches, summarization, copywriting, image generation, and code writing. Fueled by our evolving capabilities, in the second quarter of 2024, our WillowTree sales team won GenAI Jumpstart consultancy engagements with one of the largest nonprofit organizations in the world, one of Canada's provincial government departments, and with Telus Agriculture and Consumer Goods.
<unk>: US where its used by 35000 employees.
<unk>: The App provides a single point of entry for employees that access an intuitive interface, where they can select from more than 20 large language models from multiple vendors to help them with everyday tasks, including knowledge searches summarization Copywriting image generation and code writing.
Jeff Puritt: Our team is also actively engaged in exploratory discussions with several other clients. Willowtree also won new clients in the quarter, including Wiley, one of the world's largest publishers and a global leader in research and learning, specifically to modernize their marketing technology stack with a well-known New York business-focused daily publication and with a US-based fitness chain, among other notable new logo wins.
Speaker Change: Fuel by our evolving capabilities in the second quarter of 2024, our Willow tree sales team one Gen AI jumpstarted consultancy engagements with one of the largest nonprofit organizations in the world one of Canada's provincial government departments, and with Telus agriculture and consumer goods. Our team is also actively engaged in exploratory discussions with several.
<unk>: Other clients Willow tree also won new clients in the quarter, including Wiley one of the world's largest publishers and a global leader in research and learning specifically to modernize their marketing technology stack with a well known New York business focused daily publication and with a U S based fitness chain among other notable new logo wins.
Jeff Puritt: Our WillowTree team further expanded their engagement with Inspira Financial, an American financial services company, in addition to winning more business with CIATI, the Center for Energy Advancement through Technology and Innovation, which is a membership-based provider of shared cost R&D, training, and networking services for power industry professionals. The team also expanded its engagements with a large marine boat and propulsion manufacturer, one of the world's largest hospitality brands, and an American financial corporation, among others.
Speaker Change: Our military team further expanded their engagement with inspire our financial and American Financial Services Company. In addition to winning more business with CRT. The center for energy Advancement through technology, and innovation, which is a membership based provider of shared costs R&D training and networking services for power industry professionals. The team also expanded their.
<unk>: <unk> with a large marine boat in propulsion manufacturer one of the world's largest hospitality brands and an American financial Corporation. Among others are global tell US digital sales team also won new clients across several sectors, including health care transportation and consumer packaged goods and we captured further opportunities to expand.
Jeff Puritt: Our global Telus digital sales team also won new clients across several sectors, including healthcare, transportation, and consumer packaged goods. And we captured further opportunities to expand our engagement across our existing client base, not least with our third largest client, a leading social media network, along with North America's leading financial institution, an international online commerce platform, and the largest food delivery platform in the United States, among others. To reiterate, our relationship with Google remains very strong, driven by our AI data solutions division in particular, and we continue to see meaningful growth across diversified work streams within our parent company, Telus Corporation, enabling their successful digital transformation across all areas of their unique business portfolio.
<unk>: Our engagement across our existing client base, not least with our third largest client a leading social media network, along with North American leading financial institution and international online Commerce platform and the largest food delivery platform in the United States among others to reiterate our relationship with Google remains very strong driven by our.
<unk>: AI data solutions Division in particular, and we continue to see meaningful growth across diversified work streams within our parent company Telus Corporation, enabling their successful digital transformation across all areas of their unique business portfolio overall, our sales funnel as of the second quarter and remains approximately 2 billion.
Jeff Puritt: Overall, our sales funnel as of the second quarter end remains approximately $2 billion, with approximately 10% thereof in AI-related opportunities. With that, I'll now invite our CFO, Gopi Chande, to share details of our financial results, and I'll return at the end of the call to answer your questions. Gopi, over to you. Thank you, Jeff. And good morning, everyone.
Speaker Change: With approximately 10% thereof in AI related opportunities with that I'll now invite our CFO <unk> <unk> to share details of our financial results and I'll return at the end of the call to answer your questions there'll be over to you.
<unk> <unk>: Thank you, Jeff and good morning, everyone. Thank you for joining us today.
Gopi Chande: Thank you for joining us today. In my review, I will principally focus on our quarterly results, as most factors that influenced our second quarter had similar impacts on our results for the first half of the year. Telus Digital generated revenue of $652 million in the second quarter of 2024, reflecting an impact from a stabilizing yet still unfavorable year-over-year comparison of revenues with a leading social media network client, along with pressures from a broader and persistently challenging macroeconomic environment, including competitive conditions in our industry.
Speaker Change: My review I will principally focus on our quarterly results as most factors that influenced our second quarter had a similar impact on our results for the first half of the year.
Speaker Change: Tariff, which all generated revenue of 652 level in the second quarter of 2024 with little impact from a stabilized role yet still unfavorable year over year comparison of revenues with a leading social media network client along with pressures from a broader a persistently challenging.
Speaker Change: Economic environment, including competitive conditions in our upholstery.
Gopi Chande: Looking at our key industry verticals, while our revenues in the tech and games and e-commerce and fintech remain soft, our continued growth with other clients, notably Google, helped offset the overall impact. For Google, which remains our second largest client, quarterly revenue grew by 12% year-over-year. Our AI data solutions line of service continues to drive growth with this client. Revenue in the communications and media vertical grew one percent, driven by higher revenue from Telus Corporation, partially offset by softer volumes with certain other telecom clients. Healthcare, Vertical, Group 27%, primarily driven by additional services provided to the healthcare business of Telus. Overall, revenue with TELUS grew by 22% year over year.
Speaker Change: Looking at our key industry verticals, while our revenue from the taxable gains in E Commerce and Fintech remains soft our continued growth with other clients, notably Google helped offset the overall impact.
Speaker Change: With Google, which remains our second largest client quarterly revenue grew by 12% year over year.
Speaker Change: Our overall global solution client service continues to drive growth with plus client.
Speaker Change: Revenue from our communications and media vertical grew 1% driven by higher revenue from Telus Corporation, partially offset by softer volumes with certain other telecom client.
Speaker Change: Healthcare vertical grew 27% primarily driven by additional services provided to the health care business of tower.
Gopi Chande: Our TELUS Digital and WillowTree teams continue to drive meaningful and diversified revenue streams, enabling our parent companies' digital transformation, not least in the area of GenAI implementation, as illustrated in the use cases shared today. Another area of growth was our BSSI vertical, up 5% year over year, driven by certain Canadian banks and smaller regional players in North America. Among key components within the all other industry vertical, which includes clients from various other industries, while we saw unfavorable year-over-year comparisons, notably due to lower revenue in travel and hospitality, this was offset by good growth with clients in energy and utility, as well as retail and consumer packaged goods, which had year-over-year growth of 4% and 18%, respectively.
Speaker Change: Overall revenue with palace grew by 22% year over year, our tariff Costar Willow tree pools continue to drive meaningful the first of five revenue streams.
Speaker Change: Our parent company's digital transformation not least in the area of general implementation are illustrated indigenous cases shared today.
Speaker Change: Another area of great growth with our Si article up 5% year over year, driven by certain smaller banks and smaller regional players in North America.
Speaker Change: Among key components with all other industry vertical which includes clients from various other industries, while we saw unfavorable year over year comparison, notably due to lower revenue and travel and hospitality. This was offset by good growth with clients.
Speaker Change: Kennedy as well as retail or consumer packaged goods, which have year over year growth of four 8% respectively.
Gopi Chande: Looking at our revenue profile by geographies, declines in Europe and North America were partially offset by growth in Central America, South America, and Africa, which grew 12% in the quarter, reflecting expansion with existing clients in communications and media, BFSI, and certain technology clients. Meanwhile, Asia Pacific delivered stable volumes, with revenues increasing by 1%, driven by sustainable volumes from clients who serve in that region, along with incremental growth with new clients. Moving on to operating expenses, salaries and benefits in the quarter were relatively steady year over year at $426 million.
Speaker Change: Let's look at our revenue profile by geographies declines in Europe, and North America were partially offset by growth in Central America, South America Africa, which grew 12% in the quarter reflect the expansion of our footprint.
Speaker Change: Washington Media, the Alpha Phi uncertain technology clients.
Speaker Change: Meanwhile, Asia delivered stable volumes with revenues, increasing by 1% driven by sustainable volumes for clients, who serve offerings, along with incremental growth with new clients.
Speaker Change: Moving onto operating expenses salaries and benefits linked quarter were relatively steady year over year at 426 million wheels.
Gopi Chande: We lowered our average team member count as part of our cost efficiency efforts that began in 2023 to right-size operations. However, these savings were offset by higher training costs due to elevated attrition levels and higher average salaries and wages, the latter driven by fierce competition for talent. Our total team member count was 74,617 at June 30th, a decrease of 3% year over year and consistent with the revenue change. Goods and services purchased in the quarter were $117 million, a decrease of 3% year-over-year, also consistent with the revenue change.
Speaker Change: We lowered our average team member counts as part of our cost efficiency efforts that began in 2023 to right size operations. However, these savings were offset by higher toll call due to elevated attrition levels and higher average salary and wages the latter driven by fierce competition for talent.
<unk>: Our total key member Count was 74600 is that a poll at June 30, a decrease of 3% year over year.
<unk>: With the revenue change.
<unk>: Good food services purchased in the quarter were 117, a decrease of 3% year over year also consistent with the revenue change.
Gopi Chande: Changes in business combination-related provisions generated other income of $31 million in the quarter, arising due to amendments to the terms associated with the Willow Tree Earn Out and related provisions for written options resulting in a reduction in this provision. Our renegotiated agreement with the WillowTree management team is now based on revised performance targets of the combined WillowTree and Telus Digital success. It incentivizes a holistic growth approach across our entire business and drives an even deeper level of further integration.
Speaker Change: Changes in business combination related proposals generated other income of $31 million in the quarter arrival will do that.
Speaker Change: What type of term associated with the Willow tree earn out on to the latest proposals for retinal per capsule with alto rituxan or proposal.
Speaker Change: Our renegotiated agreement with the regulatory management tool is now based on our revised performance targets of the compound relative <unk> and tell us digital success.
Speaker Change: Advisors, a holistic approach across our entire workforce and to offer an even deeper level of further integration. It also includes the center to grow our <unk> offering in particular, where willow tree has deep expertise ownership accountability.
Gopi Chande: It also includes incentives to grow our Fuel IX offering in particular, where WillowTree has deep expertise, ownership, and accountability. You can find more accounting details related to the renegotiated agreement in Note 4 and Note 12 to our financial statements. Share-based compensation in the quarter was $10 million, an increase of $8 million, primarily due to the timing of award grants and associated expense recognition and higher expenses associated with the share-based compensation awards granted in relation to our acquisition.
Speaker Change: You can find more accounting details related to the renegotiated agreement.
Speaker Change: Sure in note 12 to our financial statements.
Speaker Change: Share based compensation in the quarter was $10 million, an increase of $8 million, primarily due to timing of award grants and associated expense recognition and higher expense associated with the share based compensation awards granted in relation to our acquisition.
Gopi Chande: Moving on to profitability, adjusted EBITDA in the quarter was $130 million, an increase of 10% year-over-year, primarily due to other income arising from business combination-related provisions, which were partly offset by a decline in revenue outpacing the decline in operating expenses and higher share-based compensation expense. Adjusted EBITDA margin in the quarter was 19.9%, an improvement of 220 basis points year-over-year. If not for the favorable impact of the business combination-related provisions, our adjusted EBITDA has declined and margin compressed year over year, reflecting lower revenue flow through as well as higher service delivery costs.
Speaker Change: Moving onto profitability adjusted EBITDA in the quarter with 130.
Speaker Change: Increase of 10% year over year, primarily due to other income arising from business combination related provisions, which were partly offset by declining revenue outpacing the decline in operating expenses and higher share based compensation expense.
Speaker Change: Adjusted EBITDA margin in the quarter with 19, 90% an improvement of 220 basis points year over here.
Speaker Change: If not for the favorable impact of the business combination related provision, our adjusted EBITA declined and margins compressed year over year, reflecting lower revenue flow through as well as higher service delivery costs.
Gopi Chande: Some of the more notable pressures include higher attrition and absenteeism in certain regions, notably in Europe, that we are actively working to resolve. Moreover, we are subject to the interest industry-wide in higher cost delivery, particularly due to wage inflation across our footprint. Applicable to both the quarter and half year, we also encourage some upfront training costs and offer some strategic discounts for certain clients, items that put further pressure on margins but are meant to drive revenue growth for those accounts in the longer term. Adjusted diluted EPS in the quarter was 16 cents, consistent with the same quarter of the prior year. We generated free cash flow of $95 million in the quarter, an increase of 44% year-over-year, driven Capital, and Lower Income Taxes Paid, Partially Offset by Lower Operating Expenditures and Higher Capital Expenditures, as a Percentage of Revenue Free Cash Flow was 15%.
Speaker Change: Some of the more notable pressures included higher attrition and absenteeism and certain Rachel notably in Europe that work that we are actively working to resolve Moreover.
Speaker Change: Moreover, we are subject to the interest industry wide higher Pos delivery, particularly due to wage inflation across our footprint.
<unk>: A couple of applicable to both the quarter and half year. We also incurred some upfront training costs and offered some strategic discount for certain items.
<unk>: Items that put us further put further pressure on margin, but our amount to drive revenue growth for those accounts over a longer term.
<unk>: Adjusted diluted EPS in the quarter was 16.
<unk>: Consistent with the same quarter of the prior year.
<unk>: It generated free cash flow of $95 million in the quarter, an increase of 44% year over year, driven by higher net inflows from working.
<unk>: On the capital and lower income taxes paid partially offset by lower operating profit and higher capital expenditures as a percentage of revenue or free cash flow was 15%.
<unk>: Turning to our outlook, while we're not pleased with our results our updated targets reflect three key items.
Gopi Chande: Turning to our outlook, while we're not pleased with our results, our updated targets reflect three key items. First, similar to our peers and overall industry sentiment, we are not seeing any meaningful improvement in the macroeconomic environment. Additionally, now that we're halfway through the year, we no longer assume the magnitude of the broader demand recovery, specifically as it relates to previously assumed upside in the second half of the year.
<unk>: Similar to our peers and overall industry sentiment, we are not full saw improvement in the macro the local macroeconomic environment.
<unk>: Now that we're halfway through the year, we no longer see the magnitude of the broader demand recovery specifically as it relates to previously assumed upside in the second half of the year.
Gopi Chande: Second, we expect margins to stabilize in the second half, aligned with the second quarter when normalized for impacts associated with the Willow Tree earn out, and we will continue to reduce and optimize our indirect costs through travel curtailment, hiring freezes, vendor renegotiation, and a lot. And third, we have reduced the in-year financial benefits from our ongoing efficiency and transformation initiatives to reflect our revised expectations for what can be achieved in 2024. Of the $60 million planned in year savings that we disclosed earlier this year, we now assume half, or approximately $30 million, can be realized in 2024, with one third already implemented and a reasonable assurance of achieving the other two thirds by the end of the year.
<unk>: Second we expect margins to stabilize in the second half aligned with the second quarter when normalized for taxes associated with the voluntary earn out.
<unk>: We'll continue to reduce and optimize our indirect costs with travel curtailment on hiring a single vendor renegotiations and alike.
<unk>: And third we have reduced the financial benefits from our ongoing efficiency and transformation initiatives to reflect our revised expectations for what can be achieved in 2024.
<unk>: Of the 60 million cloud <unk> that we disclosed earlier this year, we now assume half or approximately $30 million can be realized in 2024 with one third already implemented and a reasonable assurance of achieving other two thirds by the end of the year.
Gopi Chande: With that in mind, we expect our full-year revenue to come in the range of $2.61 to $2.665 billion, implying growth in the second half from the first half of this year. For Adjusted EBITDA, we now expect a full-year range of $465 to $485 million, with margins in the range of 17.8 to 18.1%. On a per share basis, our outlook assumes adjusted diluted EPS in the range of $0.39 to $0.44. We expect our 2024 cash taxes to be in the range of $45 to $55 million.
<unk>: With that in mind, we expect our full year revenue to come in the range of $2 six one to <unk> six 5 billion, implying growth second half followed the first half of this year.
<unk>: For adjusted EBITDA, We now expect our full year range of 465 to 485 million.
<unk>: Margin in the range of $17 eight to 18, 1%.
<unk>: On a per share basis, our outlook with adjusted diluted EPS in a range of 39 to <unk> 44 cents, we expect our 2012 for our cash taxes to be in the range of 45 to $55 level.
Operator: While we don't issue a quarterly outlook, I can share that, on a sequential quarter basis, we expect the fourth quarter to show stronger growth in revenue and further stabilization in margins. Our confidence in delivering on the revised outlook for the full year is supported by a rebound we're seeing in willow tree demand and client engagement. At the same time, our targeted investments in sales and marketing will fuel our ongoing efforts to support growth in certain larger accounts and across our broader client base and our prospective pricing competitiveness.
<unk>: While we don't issue quarterly outlook I can share that on a sequential quarter basis, we expect the fourth quarter will show stronger growth in revenue and further stabilization in margin.
<unk>: Our confidence in delivering on our revised outlook for the full year is supported by a rebound we're seeing in the regulatory demands and client engagement at.
<unk>: At the same time, our targeted investments in sales and marketing will fuel our ongoing efforts to support growth in certain larger accounts and across our broader client base and our prospective pricing competitiveness.
Operator: And overall, we continue to be encouraged by the composition of our sales funnel, with a growing part of AI-related opportunities. Our business continues to generate strong cash flows, not least as supported by our deep relationship with our parent company. Our use of capital will remain focused on paying down our debt and reinvesting in the technology-centric evolution and longer-term growth of Telus Digital. With that, let's move on to questions. I kindly ask you to please keep it to one question at a time so that everyone can participate. I'll call over to you.
<unk>: And overall, we continue to be encouraged by the composition of our sales funnel with a growing part of AI related opportunities.
Speaker Change: Our business continues to generate strong cash flows not least is supported by our deep relationship with our parent company argues of capital will remain focused on paying down our debt and reinvesting into the technology centric evolution and longer term growth of tell us to stop.
Speaker Change: With that let's move on to questions I kindly ask you to please keep it to one question at a time, so that everyone can participate call opportunities.
Speaker Change: Thank you as a reminder, if you'd like to queue up to ask a question. Please press star one if you'd like to withdraw from the question queue. Please press star two.
Jeff Puritt: As a reminder, if you'd like to queue up to ask a question, please press star 1. Our first question is from... Ramsey L. Assal from Barclays, please. Hi, thanks for taking my question. And Jeff, it's been a great pleasure working with you and best of luck in your new role. My question is, are any of the headwinds at your third largest client coming from them using generative AI to supplant or replace work functions that you had been providing them previously?
Speaker Change: Our first question is from Ramsey El <unk> from Barclays. Please go ahead Ramsey.
Speaker Change: Hi, Thanks for taking my question and Jeff It's been a great pleasure working with you and best of luck in your new role.
<unk>:
Speaker Change: My question is are any of the headwinds that your third largest client coming from them using generative AI to supplant or replace work functions that you had been providing them previously or are they getting more efficient and that's led to some of the outcomes that you're seeing.
Jeff Puritt: Are they getting more efficient, and that's led to some of the outcomes that you're seeing? Thanks for the question, Ramsey, and for the kind comments. Indeed, I've enjoyed working with you as well. Hope that'll continue. In a word, no.
Jeff: Thanks for the question Ramsey and for the kind comments, indeed, I've enjoyed working with you as well hope that will continue.
Jeff Puritt: Whilst there's no question that AI continues to enable additional opportunities for moderation activity, the seemingly unending increase in user-generated content continues unabated, and it continues to be about 5% of the total volume that requires human moderation, or digital respondents, as we call it. Our real headwinds historically have been because, as you may remember, as we've talked about many times now, we're Europe-centric only in our support for that client And they've looked for opportunities to reduce their spend in that most expensive delivery area.
Speaker Change: In a word no.
Jeff: Whilst there is no question that AI continues to enable additional opportunities for moderation activity.
Jeff: The seemingly on ending increase in user generated content continues unabated and <unk>.
Jeff: Continues to be about 5% of the total volume that requires human moderation or digital responders as we call it.
<unk>: Our real headwinds historically have been because as you may remember as we've talked about many times now where Europe centric only in our support for that client.
<unk>: When you look for opportunities to reduce their spend in that most expensive delivery area and again thankfully as we noted that we have.
<unk>: Seem to be on the rebound there, but the challenge for US right now is continuing labor centricity is eating into our margins significantly, but excitingly. We're looking forward to now diversifying our support for them across other service lines that in the fullness of time, we believe will both get us back to a more meaningful revenue growth and margin.
Jeff Puritt: And again, thankfully, as we noted, we seem to be on the rebound there. But the challenge for us right now is continuing to be labor-centric is eating into our margins significantly. But excitingly, we're looking forward to now diversifying our support for them across other service lines that, in the fullness of time, we believe will both get us back to more meaningful revenue growth and margin extension. Got it. Thank you very much.
Jeff: Pension.
<unk>: Got it thank you very much thanks Brendan.
Operator: Thanks, Ramsey. All right. Thank you, Ramsey. The next question is from Dan Perlin from RBC Capital.
Speaker Change: Alright, Thank you ramzi.
Speaker Change: The next question is from Dan Perlin from RBC capital markets. Please go ahead Dan.
Dan Perlin: I just wanted to talk about the kind of degradation that you see kind of outside of the top three clients. I know two of the three are doing really well, but it does suggest kind of a double-digit decline in the quarter, and that was similar, if not maybe a little bit better than what we saw in the first quarter. But the deterioration, it seems like it happened so quickly for you guys.
Speaker Change: Thanks.
Speaker Change: I just wanted to talk about the.
Dan Perlin: Kind of degradation that you see kind of outside of the top three clients or no.
Dan Perlin: Two of the three are doing really well, but it does suggest kind of like double digits decline in the quarter and that was similar if not maybe a little bit better than what we saw in the first quarter, but the deterioration it seems like it happened. So quickly if you guys and so how do we kind of reconcile that in terms of the visibility that you guys have what the model.
Jeff Puritt: And so how do we kind of reconcile that in terms of like the visibility that you guys have with the model and how that can't, you know, just kind of change on a dime, which it feels like, you know, this wasn't the first time, but it feels like the magnitude of this change was quite a bit worse. Thanks, Dan. Indeed, you're right.
Speaker Change: And how that can't just kind of change on a dime, which it feels like this wasn't the first time, but it feels like the magnitude of this change was quite a bit worse.
Jeff Puritt: And it has been frustrating to see the volume declines happen on such short notice. You'll recall that the nature of our agreements with our clients provides explicitly that kind of optionality. That's why our clients look to us to sort of provide them with flex opportunities both up and down as their own volume demands increase and wane. It has been a source of frustration for myself and the team that we have not had better notice, if you will, around that kind of fluctuation so that we could be better prepared. Part of this, I think, is a sign of the times.
Dan Perlin: Thanks, Dan Indeed, you are right and it has been frustrating to see the.
Speaker Change: Volume declines have been on such short notice Youll recall that the nature of our agreements with our clients provide explicitly that kind of optionality. That's why our clients look to us to sort of provide them with flex opportunities, both up and down as their own volume demands.
Wayne: Increase and Wayne.
Speaker Change: It has been a source of frustration for myself and the team that we've not had.
<unk>: Better notice if you will around that kind of fluctuation so that we can be better prepared.
<unk>: Part of this I think is a sign of the times again as you've heard from our peers and from ourselves of late.
Jeff Puritt: Again, as you've heard from our peers and from ourselves of late, it's ongoing expectations from clients that we find a way to match their expectations on more or better for less. And our job, which, frankly, I've not managed as well as I should have, is to be out in front of these kinds of adjustments and to do a better job of either preventing the decline or finding substitutes, whether in other areas of those clients' businesses or winning other accounts. And we just need to do better on that front in order to better inoculate ourselves from that kind of variation. Thank you. Tin Huang from J.P.
<unk>: Ongoing expectations from clients that.
<unk>: We find a way to match their expectations on more or better for less.
<unk>: And our job frankly, I have not managed as well as I should others seem to be out in front of these kinds of adjustments and to do a better job on either preventing the decline <unk> finding substitutes whether in other areas of those clients business or winning other accounts and we just need to do better on that front in order to better.
<unk>: Inoculate yourself from that kind of variation.
<unk>: Thank you.
<unk>: Alright.
Dan: Thank you Dan.
Speaker Change: Next question is from.
<unk>: Sidney Huang from JP Morgan apologies. So please go ahead.
Tin Huang: So, please go ahead. Hi Jeff, yeah, no apologies needed. Jeff, we'll definitely miss our interactions here. Grateful to have learned from you. I'll ask another sort of education question, if you don't mind, just thinking about the pricing pressure you described. I'm just curious, is this driven at this stage?
Speaker Change: Okay.
Sidney Huang: Okay, Yeah, no apologies needed, Jeff, we'll definitely miss or Inactions here grateful to learn from you.
Sidney Huang: I'll ask another sort of education question, Joe just thinking about the pricing pressure you described I'm. Just curious is this driven at this stage.
Jeff Puritt: on an incremental basis more by competitive actions in your mind, or is it? A cyclical issue, more so, or a secular one? Good questions as ever, Tianjin. I too will miss our interactions. But hopefully, given my new role, I'll still have the opportunity to spend time learning from you. I think it's all of the above.
Speaker Change: Incremental basis more of a competitive actions in your mind or is it six.
Speaker Change: Recall issue more so.
Speaker Change: Secular one.
Speaker Change: Good questions as ever Tien Tsin, I too will Smith's our interactions, but hopefully given my new role I'll still have the opportunity to spend time learning from you.
Speaker Change: I think it's all of the above candidly I think as I mentioned before there is this pervasive persistent expectation of more and better for less for customers are driving a lot of this.
Jeff Puritt: Candidly, I think, as I mentioned before, there is this pervasive, persistent expectation of more and better for less. So customers are driving a lot of this. But as well, our peers are willing to pitch in at a price point that is considerably lower than what we've seen. And I think, interestingly, one can bifurcate the CX and the AI universe a little bit in terms of the pricing dynamic. On the latter, on the CX front, I think because of the opportunities for technology substitution and enablement, there is this pervasive downward pressure and expectation that, well, with more technology in the solution and less labor, you should be able to deliver more cost effectively.
Speaker Change: But as well our peers are willing to pick up.
Speaker Change: At a price point that is considerably lower than what we've seen and I think interestingly and one can bifurcate the CX and the AI universe, a little bit in terms of the pricing dynamics on the latter on the CX front I think because of the opportunities for technology substitution and enablement. There is this <unk>.
Speaker Change: This downward pressure and expectation with more technology and the solution and less labor you should be able to deliver more cost effectively and indeed, whilst we're making progress on that target has not been as I said in my earlier remarks as quick as we should have been on the AI front remember a lot of our competitors are either private companies or companies that are clearly.
Jeff Puritt: And indeed, whilst we're making progress on that front, it has not been, as I said in my earlier remarks, as quick as we should have been. On the AI front, remember, a lot of our competitors are either private companies or companies that are clearly not targeting the same kind of profitable margin yield as we are. And as a consequence, their focus on price has been considerably less important.
Speaker Change: Targeting the same kind of profitable margin yield as weak and as a consequence their focus on price has been considerably less important they're looking for the land grab and just revenue growth and so it <unk>, an enviable position us well to do we allow for this complete eradication of March.
Jeff Puritt: They're looking for the land grab and just revenue growth. And so it puts us in this unenviable position of, well, do we allow for this complete eradication of margin yield in order to enjoy the revenue upside? Or do we try and find that elusive balance?
Speaker Change: Yields in order to enjoy the revenue upside or do we try and find that elusive balance.
Speaker Change: That's really been the challenge over the last few years.
Jeff Puritt: And that's really been the challenge over the last few years. And I think, as you heard from our comments and reflected in our revised guidance, we're going to have to take it on the chin a little bit in terms of our historical margin profile so that we can enjoy the upside in revenue and then rely upon scale and our own, eating our own gourmet cooking internally, as I said, in order to create the headroom we need to enjoy the margin yield that we've historically benefited from. Thank you. The next question is from Stephanie Price from CIBC. Hi, good morning.
Speaker Change: I think as you heard from our comments and reflected in our revised guidance, we're going to have to take it on the channel a little bit in terms of our historical margin profile. So that we can enjoy the upside in revenue and then rely upon scales and our own eating our own gourmet cuisine internally as I said in order to create a headwind we need to enjoy the margin yield that we've historically benefited from.
Speaker Change: Yes.
Speaker Change: That's good color. Thank you.
Speaker Change: Alright, thank you.
Speaker Change: The next question is from Stephanie price from CIBC. Please go ahead Stephanie.
Stephanie Price: Hi, good morning.
Stephanie Price: I just wanted to touch on the cost efficiency initiative, taking more time to yield meaningful results. Just hoping you could walk through the puts and takes here. Gopi, I think you also mentioned that average salaries are up due to fierce competition for talent. Just curious if that's AI-related or more broad and how that's kind of playing into the cost efficiency initiative. Good morning, Stephanie.
Stephanie Price: I just wanted to touch on that cost efficiency initiatives, taking more time to yield meaningful results just hoping you could walk through the puts and takes here. Okay. I think you also mentioned an average salaries were up due to fierce competition for talent I'm, just curious if that AI.
Speaker Change: AI related or more broad and how that's kind of playing into the cost efficiency initiatives here.
Gopi Chande: Good to hear from you. So, two parts to that question. One, on our cost efficiency program itself, so there are several components to it, some that have taken flight and are going to continue to support Q2, so with regards to some of our facility consolidation, vendor renegotiations, those are in flight. The ones that have taken us slightly longer than expected are ones that we're looking to roll out globally, and with some of the nuances that we have in each of the regions, working through the systems and the processes there is taking a little longer than expected, but will ultimately be rolled out and help support some of the visibility we'll have into our workforce management, And then secondly, as well, moving to provide a more efficient automated service ourselves so that we can reduce the overall cost base and absorb some of that inflation. So it is all related. Certainly, we're looking at how do we reduce our costs and then how do we partner with our customers to reduce overall costs. Aravinda Galappatthige.
Speaker Change: Good morning, Seth take careful so.
Speaker Change: Two parts to that question one on our cost efficiency program itself.
Speaker Change: So there are several components to it some of that has taken on a flight.
Speaker Change: <unk> are going to continue to support <unk>. So with regards to some of our facility consolidation and vendor renegotiations those are in flight.
Speaker Change: The ones that have taken a slightly longer than expected or wireless that we're looking to roll out globally and with some of the nuances that we have in each of the regions working through the systems and the processes. There is taking a little longer than expected, but will ultimately be rolled out and help support.
Speaker Change: The visibility will have little to our workforce management, which will support it.
Speaker Change: <unk> of reporting to our clients on absolute TSM.
Speaker Change: Help us be able to manage attrition. So those are the ones that are a bit Florida rollout, but we expect to come through.
Speaker Change: To your second question definitely certainly wage inflation is something like our peers that we are dealing with.
Speaker Change: We do think that ultimately that is addressed in several different ways that we're attacking one is collaboratively working with our claim.
Speaker Change: Clients are customers that where we deliver those services.
Speaker Change: And then secondly, as while moving to provide a more efficient automated service ourselves. So that we can reduce the overall cost base to absorb some of that inflation. So it is all related certainly we're looking at how do we reduce our cost and then how do we partner with our our customers to reduce overall costs.
Speaker Change: Thank you.
Stephanie: Alright, Thank you Stephanie.
Speaker Change: Next question is from and forgive me if I mispronounce. It every vendor Gallup pad.
Speaker Change: Sheesh I am so sorry. Please go ahead Eric.
Aravinda Galappatthige: Please go ahead, Aravinda. Thank you. Jeff, all the best to you. I enjoyed our time discussing the business over the last year and a half. My question is back to margins.
Eric: Thank you.
Eric: Jeff All the best you have enjoyed discussing at the business over the last year and a half.
Jeff Puritt: Last year, when we had some of these revisions, TI was able to kind of build back its margins back over the 20% level fairly quickly. Um, you know, recognizing that you've already given guidance for fiscal 24, how should we think about the recovery margin? Notwithstanding some of the comments that Gopi made, um, maybe any additional help that would be appropriate. Thanks very much, Aravinda. I, too, have enjoyed our interactions and am looking forward to more, hopefully.
Eric: My question is back to margins.
Speaker Change: Last year when we.
Speaker Change: Had some of these regulations.
Speaker Change: Tio was able to kind of build back its margins.
Eric: Back over the 20% level.
Eric: Really quickly.
Eric:
Speaker Change: Recognizing that you've already given guidance for fiscal 'twenty four how should we think about the recovery in margins.
Speaker Change: Notwithstanding some of the comments that could be made.
Speaker Change: Any additional help there would be appreciated.
Eric: Thanks, very much or Linda I too have enjoyed our interactions looking forward to more hopefully.
Jeff Puritt: I think candidly, the challenge has been that we've had to rely historically on too many one-timers in order to make sure that we were able to continue to meet expectations set for ourselves and for the street with respect to the well above 20% EBITDA zip code. And the challenge has been that, over the last little while, we just keep losing opportunities because of price. And so when both CX and AI opportunities are still quite available, but we're told in the postmortem that we were just too expensive, and the competition was willing to provide a similar solution, we would argue an inferior solution, but nonetheless, more or better for less, as I said before, is the desire out there. We've just decided that we can't keep missing out on opportunities.
Speaker Change: I think candidly the challenge has been that we've had to rely historically on too many one timers in order to may.
Speaker Change: Make sure that we were able to continue to meet expectations set for ourselves and for the street with respect to the <unk>.
Speaker Change: Well above 20% EBITDA ZIP code and the challenge has been.
Speaker Change: Over the last little while we just keep losing opportunities because of price.
Speaker Change: And so when both CX and AI opportunities are still quite.
Speaker Change: Available, but were told in the postmortem that we were just too expensive and the competition were willing to provide a similar solution. We would argue an interior solution, but nonetheless.
Speaker Change: More or better for less as I said before is that the desire out there. We just decided that we can't keep missing out on opportunities. So we're gonna have to intentionally lower expectations in the near term to the levels that are reflected in the guide that you've seen so that we can get back on track for revenue growth and thereafter in the fall.
Jeff Puritt: So we're going to have to intentionally lower expectations in the near term to the levels that are reflected in the guide that you've seen so that we can get back on track for revenue growth. And thereafter, in the fullness of time, as we continue to see better progression on our cost efficiency efforts, that will create the headroom to get our margins back up to where we want them to be, or where we think they could be. I think I'll invite Tobias to comment on the AI front.
Speaker Change: A time as we continue to see better progression on our cost efficiency efforts that will create the headroom to get our margins back up to where we want them to be is where we think they could be.
Speaker Change: I think I'll invite to be is the comment on the AI front, but just as a setup as I mentioned a moment ago right now it's still this land grab period, where again the price competition is quite fierce and so we need to once again focus on winning opportunities getting in the door with these clients and then when we demonstrate.
Tobias Dengel: But just as a set up, as I mentioned a moment ago, right now, it's still this land grab period where, again, the price competition is quite fierce. And so we need to once again focus on winning opportunities and getting in the door with these clients. And then when we demonstrate the capability set that we have, we can then look to expand the margin yield derived from that. But Tobias, why don't I invite you to top up a little bit on our ambitions on the AI margin yield front in fullness?
Speaker Change: The capability set that we have we can then look to expand the margin yield derived from that but to be as one and I invite you to top up a little bit on our ambitions on the AI margin yield front in the fullness of time.
Tobias Dengel: Yeah, thanks, Jeff. So one thing to think about is that, in the popular mind, AI use cases are all around replacing human beings and answering questions. And I think we all know that that's going to take quite a while to get there in terms of risk mitigation, etc., etc. The use of AI in the near term is going to be to enhance the agent experience and agent productivity through tools like translation, tools like summarization, all targeted at more efficiency, reducing average handle time, allowing agents to get information much more quickly, and really this concept of humans in the loop.
Speaker Change: Yeah. Thanks, Jeff So one thing that to.
Jeff: Think about is that.
Speaker Change: In the popular mind.
Speaker Change: The AI use cases are all around replacing human beings and answering the questions that I think we all know that that's going to take quite a while to get there in terms of risk mitigation et cetera et cetera.
Speaker Change: The use of AI in the near term is going to be to enhance the agent experience and the agent productivity through tools like translation tools like summarization all.
Speaker Change: All targeted at more efficiency, reducing average handle time, allowing agents to get information much more quickly.
Speaker Change: And really this concept of humans in the loop, So that's where a big part of our near term still.
Tobias Dengel: So that's where a big part of our near-term fuel IX investment is aimed. And so if we do that right, you should really see some improvement in margins due to the efficiency we can drive in the system. Thank you.
Speaker Change: This investment is aimed at.
Speaker Change: And so if we do that right you should really see some improvement in margins due to the efficiency, we can drive in the system.
Speaker Change: Thank you.
Speaker Change: Alright. Thank you. The next question is from Cathy Chan from Bank of America. Please go ahead Kathy.
Operator: Thank you, and best of luck, Jeff. I really enjoyed working with you. I just wanted to ask a quick question on headcount. So, it looks like it was flat quarter over quarter, and you guys are implementing some hiring freezes, etc. So, I guess, what are you expecting in terms of the back half of the year, in terms of headcount growth there, and, you know, what's the geographical mix of headcount now versus revenue mix, particularly in Europe and the U.S.? Thank you. Thanks, Cassie.
Cathy Chan: Thank you and best of luck, Jeff really enjoyed working with you I just wanted to ask a quick question on head count. So it looks like it was flat quarter over quarter and you guys are implanting income hiring freezes et cetera. So I guess what are you expecting in terms of the back half of the year in terms of head count growth there and what the geographical makeup head count now versus revenue.
Speaker Change: Particularly in Europe, and the U S. Thank you.
Speaker Change: Yes.
Gopi Chande: So headcount, maybe I'll split that into two. So in terms of our indirect, non-billable headcount, that's one we've continuously been looking at and looking to operate more efficiently. So I would expect to see either flat or declining revenue on that front. And then the remainder of our headcount, as you well know, is related to billable resources. So that will match the revenue uptick that we will expect to see. In terms of the geographical breakdown, I will, Cassie, I'll come back to you on the specifics of the breakdown there.
Kathy: Thanks, Kathy so heads.
Speaker Change: Maybe I'll split that into two so in terms of our own direct non billable head count. That's one we've continuously been looking at and looking to operate more efficiently. So efficiently. So I would expect to see either flat or declining on that front and then the remainder of our head count as you well know.
Speaker Change: Is is related to your available resources, so that will match the revenue uptick that we will expect to see.
Operator: In general, we are seeing a slight reduction in North American team counts and revenue, as I mentioned in my script, offset by increases in Central America and Africa, but I can get you those specific numbers offline. Okay. Good morning, everyone.
Speaker Change: In terms of the geographical breakdown I will ask Kathy I'll come back to you on the specifics of the breakdown there in general we are seeing.
Kathy: Slight reduction in North America.
Kathy: Key accounts revenue as I mentioned in my script offset by increase of Central America, and in Africa, but I'd say that in those specific numbers offline.
Speaker Change: Okay. Thank you.
Kathy: Alright, Thank you Kathy.
DVA: Next question is from DVA going out from Scotiabank. Please go ahead Didier.
Divya Goyal: Jeff, thanks a lot for your partnership. It was a pleasure working with you. I wanted to actually get some more color on the few live discussions that you had.
Didier: Good morning, everyone, Jeff. Thanks, a lot for your partnership with was a pleasure working with you.
Didier: I wanted to actually get some more color on the few lives discussion that you had I wanted to understand what gives you confidence in this AI deployment and what is it.
Jeff Puritt: I wanted to understand what gives you confidence in this AI deployment and what is the, for the lack of a better word, guarantee that these revenues will create a recurring revenue stream. And just to tag on that, you also said there was a meaningful revenue contribution from Fuel IX. So if you could provide some context on that, thank you so much. Thanks very much, Divya.
Speaker Change: But the lack of a better word guarantee that these revenues will create a recurring revenue stream and just to tag on that you also said there was a meaningful revenue contribution from fuel I ask if you could provide some context on that thank you so much.
Tobias Dengel: Once again, perhaps I'll invite Tobias to speak directly to both aspects of your question. Yeah, so first of all, in terms of revenue, I don't think we said that there was a meaningful revenue contribution from PLIX. I'll let Gopi elaborate on that.
Speaker Change: Thanks, very much David once again, perhaps I'll invite to be us to speak directly to both aspects of your question.
DVA: Yes.
Speaker Change: Yeah. So.
Speaker Change: First of all in terms of revenue I don't think we said that there was a meaningful revenue contribution if youll ask I'll, let go be elaborate on that I think much more broadly we had meaningful revenue contributions from our AI services.
Tobias Dengel: I think much more broadly, we have meaningful revenue contributions from our AI services and our traditional data annotation business. But I would say it's early days in the sense that there's a lot of competition, and we are very cognizant of that. But I would say we have a unique ability to work with Telus to really test these deployments. And when we talk to analysts in the, you know, in the tech industry space at places like Gartner, etc., they feel that what we're doing at Telus and with some of our early clients is very unique and provides us with an ability to test in a highly regulated set of industries that very few of our competition have.
DVA: And our traditional data annotation business.
DVA: But I would say it's.
DVA: It's early days in the sense that there's a lot of competition and.
DVA: We are very cognizant cognizant of that but I would say we have a unique ability to work with Telus to really test is deployment and when we talk to analysts and the.
DVA: Tech industry space at places like Gardner et cetera.
DVA: They feel that what we are doing at tell us and with some of our early clients.
DVA: Very unique and provides us with an ability to test.
DVA: Highly regulated set of industries.
DVA: There are a few of our competition has I think the second piece that I would add on is that we have especially in Canada relationship with thousands and tens of thousands of initial potential customers.
Tobias Dengel: I think the second piece that I would add is that we have, especially in Canada, a relationship with thousands and tens of thousands of potential customers that are looking for a Canadian solution that we can provide that is model agnostic and allows those customers to switch models over time in search of the best price and confidence in the results. The final point I would make is that
DVA: That are looking for a Canadian solution that we can provide.
DVA: That model agnostic and allows those customers to switch models over time.
DVA: In search of the best price.
DVA: And confidence in the results.
DVA: The final point I would make is that.
Tobias Dengel: These are recurring revenues, right? So as we add clients to this system, these revenues will grow and accrue over time in much more of a SaaS business model. And we will be packaging services around it. We will be packaging CX around it.
Speaker Change: These are recurring revenues right, so as we add clients.
DVA: Clients to this system and.
DVA: These revenues will grow and accrue over time and much more of a SaaS business model.
Speaker Change: And we will be packaging services around it will be patchy packaging CX around it.
Tobias Dengel: So it's extraordinarily synergistic with the set of services that we already provide to our clients. Thanks, Tobias. Thanks, Jeff. Thank you, Divya.
DVA: So it's extraordinarily synergistic with the set of services that we already provide to our clients.
Jeff: Thanks, Tobey Thanks, Jeff.
Speaker Change: Thank you <unk>.
Operator: The next question is from Keith Bachman. Hi, many thanks for taking the question. I wanted to ask about how your strategy related to M&A may be evolving given all the dynamics in your business. And to be more specific, outside of perhaps some tuck-ins.
DVA: The next question is from Keith Bachman from BMO. Please go ahead Keith.
Keith Bachman: Hi, many thanks for taking the question I wanted to ask about.
Keith Bachman: How your strategy related to M&A may be involved evolving.
Keith Bachman: Given all the dynamics in your business and to be more specific.
Speaker Change: Outside of perhaps some tuck ins.
Keith Bachman: Do you think it's appropriate to tap the brakes on larger deals as you're structurally trying to optimize or improve the operations of the business? And related to that, can you just describe the metric that caused the trigger for the performance payment to Willowtree? And that's it for me.
Speaker Change: Do you think it's appropriate to tap the brakes on larger deals as your structurally.
DVA: <unk>.
Speaker Change: Optimize or improve the operations of the business.
Speaker Change: And related to that is can you. Just describe you said there was a performance payment to Willow tree, what was the metric that caused a trigger of our performance payment to Willow tree and that's it for me many thanks.
Jeff Puritt: Thanks, Keith. Maybe I'll take the first question and I'll invite Gopi to speak to the second. We have always had a fairly well-defined strategy with respect to when and how we leverage M&A to supplement, complement, amplify, and accelerate our business. And it is truly one where we absolutely focus on the core business first and foremost. And M&A is not a strategy.
Speaker Change: Thanks, Keith maybe I'll take the first question and I'll invite copy to speak to the second.
Speaker Change: We have always had a fairly well defined strategy with respect to when and how we leverage M&A to supplement complement and amplify and accelerate.
Speaker Change: Our business and it is truly one where we absolutely focus on the core business first and foremost.
Cody: M&A is not a strategy, it's an enabler an accelerant for the realization of our strategy.
Jeff Puritt: It's an enabler, an accelerant for the realization of our strategy. It has been since the Willowtree deal that we've done a large transaction, and we have indeed, as you've suggested correctly, tapped the brakes in terms of incremental transformative acquisitions as we look to focus on continuing to get our own house in order in terms of organic growth. But you're absolutely right.
Speaker Change: It has been.
Speaker Change: Since the Willow tree deal that we've done a large transaction and we have indeed as you suggested correctly tap to break in terms of incremental transformative acquisitions as we look to focus on continuing to get our own house in order.
Speaker Change: In terms of organic growth.
Speaker Change: Prospectively as we have always done historically I think it's fair to say that you shouldn't expect to be seeing is out there and making blockbuster acquisitions other than on perhaps an opportunistic basis, but for the most part probably focus where there's opportunistic tuck in activity that we think fills a gap.
Speaker Change: Helps us access capability a market that we don't otherwise already access or don't think we can get there fast enough organically, but youre absolutely right. We will continue to focus on getting our house in order and getting the organic growth engine humming.
Jeff Puritt: We will continue to focus on getting our house in order and getting the organic growth engine humming as a conditioned precedent to earn the right to continued meaningful supplementary M&A activity. Gopi, over to you on Erna's question. Thanks. And Keith, to clarify, there wasn't any payment related to the Willowtree earn-out. The amount that went through this quarter was a true up of the provision. So there were two reasons for that.
Speaker Change: As a condition precedent to earn the right for continued meaningful supplementary M&A activity <unk> over to you on.
Speaker Change: Good question.
Speaker Change: Keith to clarify are there wasn't a payment related to the regulatory earn out.
Speaker Change: That went through this quarter was a true up the provision. So there were two reasons for that one every quarter. We look at the forecast has expected from Willow tree.
Gopi Chande: One, every quarter we look at the forecast as expected from Willowtree and true that up. The provision and earn out is working as planned. So as we see a lower forecast than originally expected, that does true up what the ultimate earn out payment is. So that's working as expected.
Speaker Change: True that up the provision and earn out is working as planned so as we see a lower forecast than originally expected that's true up what the ultimate earn out payment in so that's working as expected that was one of the contributing factors and then secondly, as I mentioned, we renegotiated the agreement.
Gopi Chande: And then secondly, as I mentioned, we renegotiated the agreement. And so again, that was factored into rebalancing where our provision is at. We do not expect, currently, that there would be a future adjustment to that provision.
Speaker Change: And so again that was factored into rebalanced pool, where our profession is we.
Speaker Change: We do not expect currently that there would be a huge part future adjustment to that provision I mentioned that renegotiation. There's some good win win opportunities between us and Willow tree. It is based on combined Willow tree and tell US digital performance and we also have the benefit of that.
Gopi Chande: I mentioned that in that renegotiation, there are some good win-win opportunities between us and Willowtree. It is based on combined Willowtree and Telus digital performance. And we also have the benefit of the continued employment of the Willowtree management team. So you will see some increased stock-based compensation associated with that amendment. Hopefully, that clarifies Keith the accounting for this quarter. The next question is from Maggie Nolan from William Blair. Hi everyone, this is Kay Kronstein on behalf of Maggie.
Speaker Change: Continued appointment as the Willow tree management team. So we will see increased stock based compensation associated with that but hopefully that.
Speaker Change: Clarifies Keith the accounting for this quarter.
Keith: Many thanks.
Speaker Change: Alright. Thank you Keith the next question is from Maggie Nolan from William Blair. Please go ahead Maggie.
Keycrom: Hi, everyone. This is key chrome sign on for Maggie.
Operator: Jeff wanted to wish you good luck on behalf of our team in your next chapter. Um, my question is, I understand there are clearly macro impacts, but are there any changes that you guys think need to happen on the sales force front to help ramp up new client wins? Thanks.
Keycrom: My next question you could lock on behalf of our team in your next chapter.
Maggie Nolan: My question is I understand there are clearly macro impacts but are there any changes that you guys think you need to happen on the sales force trying to help.
Speaker Change: Ramp up new client wins.
Jeff Puritt: Yes, we are not satisfied with the success of our sales activity to date. As you recall from previous quarters, we talked about making meaningful incremental investments, both in terms of the scale of our hunting and farming community as well as embracing, adopting, and proliferating the PSO framework and methodology to ensure that we get better bang for the buck, so to speak, from that sales organization. You'll recall also that, and as I referenced again in my prepared remarks this morning, the first quarter of this year was a record for new sales for the team. Unfortunately, that tailed off a little bit in the second quarter.
Keith: Thanks, Jay Good question, yes.
Speaker Change: We are not satisfied with the.
Speaker Change: Success of our sales activity to date, you may recall from previous quarters, we talked about.
Keith: Making meaningful incremental investments both in terms of the scale of our hunting and farming community as well as.
Maggie Nolan: Embracing adopting and proliferating.
Keycrom: So a framework and methodology to ensure that we get better Bang for the Buck so to speak from that sales organization, you'll recall also that and as I referenced again in my prepared remarks. This morning first quarter. This year was a record for new sales for the team Unfortunately that tailed off a little bit in the.
Keith: <unk> quarter, but again as I mentioned, the funnel continues to be very robust and we're hopeful that we can get better conversion, but there's always room for improvement and absolutely Brian Hannon, who leads our sales effort I think has brought a tremendous level of discipline and rigor and really reenergized the team and we're looking forward to.
Jeff Puritt: But again, as I mentioned, the funnel continues to be very robust, and we're hopeful that we can get better conversion, but there's always room for improvement. And absolutely, Brian Hannan, who leads our sales effort, has brought a tremendous level of discipline and rigor and really re-energized the team. And we're looking forward to continued improvement in that performance and trajectory in the weeks and months ahead. Okay, great.
Keith: Two continued improvement in that performance and trajectory in the weeks months ahead.
Keith: Okay, great. Thank you Jack.
Maggie Nolan: Okay.
Speaker Change: Thank you.
Johnson away: The next question is from Johnson away from Guggenheim Partners. Please go ahead.
Operator: Thank you, Jeff. This question is from John... Hey, thanks for the question. I just want to follow up.
Johnson: Hey, Thanks for the question. So just want to follow up what gives you confidence in the back half uptick, but any assumptions or changes in the current backdrop, that's kind of neat.
John: What gives you confidence in the back-half uptick? Are there any assumptions or changes? The current backdrop that, Thanks for the question. I think if I understood it correctly, it was just sort of how do we have faith in the revised outlook? Did I hear that correctly? Okay, perfect.
Speaker Change: Thanks for the question I think if I understood. It correctly. It was just sort of how do we have faith in me.
Speaker Change: Revised outlook did I hear that correctly.
Speaker Change: That's correct.
Gopi Chande: So definitely some time spent understanding the changes macroeconomically. What does give us confidence, I'll start with revenue, is we are seeing a turnaround, as Jeff and I both mentioned, in willow tree demand, positively seeing that now exceeding supply, so working hard on hiring to meet that demand. So that's one factor.
Speaker Change: Okay perfect.
Speaker Change: Definitely some time spent understanding on the changes macroeconomically, what does give us confidence I'll start with revenue as we are seeing at turnarounds as Jeff and I, both mentioned in Willow tree demands.
Speaker Change: Positively seeing that now exceeding supply so we're working hard on hiring.
Speaker Change: Meet that demand. So that's one factor the second wanted to build off of Jeff's comments, just now on our PSL investments and the structure we put in place.
Gopi Chande: The second one to build off of Jeff's comments just now on our PSO investments and the structure we've put in place, that is in full force for Q3 and Q4 and gives us incremental coverage in different geographies and verticals and a more structured focus. So we're expecting good returns from that. Overall, we're really confident in our funnel. You've heard about some of our AI growth opportunities. So that reflects revenue growth in half two compared to half one.
Speaker Change: That is in full force for Q3, and Q4 and gives us incremental coverage in different geographies and verticals in a more structured forecast. So we're expecting good returns from that overall, we're really confident in our funnel you've heard about some of our growth opportunities.
Gopi Chande: We're seeing stabilization, Jeff mentioned on the first question with our third largest client and good growth with our first and second. And then again, good initiatives underway to address some of the attrition we're seeing, wage inflation, etc. So looking for gross margins essentially to stabilize in half two compared to Q2. And then cost transformation, while, as I mentioned, some of the projects are delayed, we do expect to get two thirds of the remaining 30 million of savings in Q3 and Q4. And those are programs that have already kicked off and are in flight. So we've got good certainty around those deliveries. Gotcha. I'll drop back in the queue.
Speaker Change: That reflects revenue growth in half two compared to half one.
Speaker Change: We're seeing stabilization.
Speaker Change: Jeff mentioned off the first question with our third largest client and good growth with our first and second and then again good initiatives underway to address some of the attrition, we're seeing wage inflation et cetera. So I'm looking for gross margin is essentially to stabilize in half two compared to Q.
Speaker Change: Q.
Speaker Change: Cost transformation, while as I mentioned some of the projects are delayed we do expect to get two thirds of the remaining $30 million of singles in Q3, and Q4 and those are programs that are already kicked off and in flight. So we thought the uncertainty around bolus delivery.
Speaker Change: Got you.
Speaker Change: In the queue. Thank you.
Speaker Change: <unk>.
Speaker Change: Thank you.
Operator: Thank you. The next question is from David Koenig from Bexar. Oh, yeah, thank you guys. Um, I guess my question is surrounding just Telus as a client. You know, I know it's like 24% or so revenue, but it hits a much tougher comp in Q4.
Speaker Change: Next question is from David Koning from Baird. Please go ahead David.
David Koning: Alright. Thank you guys I guess my question is surrounding just tell us as a client I know, it's like 24% or so of revenue.
David Koenig: And actually, what happened last Q4 is your total revenue is up $29 million, and your Telus client revenue is also up $29 million sequentially. So I guess my question is, in Q4 of this year, do you get a nice sequential run in Telus again like you did last year? And maybe just discuss a little bit about the dynamics of that contract. Thanks, David. So our current plan assumes that we will be stable with Telus throughout the year. So you are correct.
David Koning: It hits, a much tougher comp in Q4 and actually what happened last Q4 as your total revenue is up $29 million in your palace client revenue was also up $29 million sequentially. So I guess my question is in Q4 of this year do you get a nice sequential run and tell US again like you did last year and maybe just.
Speaker Change: Discuss all the dynamics of that contract.
Speaker Change: Thanks, David So our current plan assumes that we are stable with tell us throughout the year. So AUR correct, we could see an upside in Q4 of last year as we maintained that through the year.
Gopi Chande: We did see an upside in Q4 of last year, and we maintain that through the year. Realistically, what we're seeing is a diversification of the work that we do with Telus. So while we continue our routine CX work and grow into servicing Telus Health as well, the growth this year that we have this year and will sustain is also the digital transformation that Divya has spoken about and Jeff has spoken about. So we're expecting fairly consistent support from Telus on the revenue front without a major pickup in Q4 this year. Gotcha.
Speaker Change: And realistically what we're seeing is that diversification is the work that we do with tell us and while we continue our routine CX work at it.
Speaker Change: <unk> circuit for telehealth as well the growth of me here that we have this year and also store is also the digital transformation work that to be assessed bucket, you and Jeff have stocking too so we're expecting a fairly consistent.
Speaker Change: Support from the telephone on the revenue front without a major pick up in Q4 this year.
Speaker Change: Gotcha. Thank you.
Speaker Change: Alright, thank you.
Speaker Change: No further questions in the queue.
Operator: Thank you. Thank you, Carl. We'll turn the call over to Jeff for his closing remarks. Jeff, over to you. Thank you, Elena. Thank you, Carl.
Speaker Change: Thank you Carl I will turn the call over to Jeff for his closing remarks, Jeff over to you.
Jeff Puritt: And thank you all for your participation today. To reiterate, everyone on our management team and I fully acknowledge that our performance continues to miss expectations, both our own and those of the street. Clearly, we must do better.
Jeff: Thank you Elena Thank you Karl and thank you all for your participation today.
Jeff: To reiterate everyone on our management team and I fully acknowledge that our performance continues to miss expectations, both our own and those of the street clearly we must do better.
Jeff Puritt: While I'm in no way dismissive of the near-term sentiment, I do want to conclude with a comment on the fundamental longer-term drivers of success for this company. The portfolio of capabilities and talents that we've assembled here at Telus Digital is, in my estimation, unparalleled in our industry. Our devoted team members, our brand and reputation built over almost two decades in the industry with our clients and partners, our technology-centric capability and solution set that we've continuously evolved to proactively address industry shifts and clients' needs, our diverse customer base, and our balance sheets, to name but a few.
Speaker Change: No way dismissive of the near term sentiment I do want to conclude with a comment on the fundamental longer term drivers of success for this company.
Speaker Change: The portfolio of capabilities and talent that we've assembled here at Telus digital or in my estimation unparalleled in our industry are devoted team members our brand and reputation built over almost two decades in the industry with our clients and partners are technology centric capability and solution set that we've continuously evolve.
Speaker Change: <unk> to proactively address industry shifts and clients' needs our diverse customer base, our balance sheet to name, but a few.
Jeff: It's on the strength of these assets that I believe we have the opportunity and most certainly a clear need to course, correct on our own and street expectations regarding our growth and profitability profile in the near term due to the myriad of current market challenges and fundamental shifts I've spoken about earlier today, not the least of which is <unk>.
Speaker Change: Precedented ubiquitous price sensitivity that we anticipate will persist in the near term.
Speaker Change: Generative AI fueled disruption brings a more fundamental and long term implications for our entire industry <unk> Digital's continued progress in bringing to market our own Gen. AI solutions should give you confidence that we are actively participating in this market shift and we will emerge as a beneficiary with strong prospects to generate value for.
Speaker Change: Our stakeholders.
Speaker Change: The trials that we've answered all of your questions today, and we will continue our discussions at investor and industry conferences and indirect conversations with many of you Jason to be us and Gobi will host our quarterly investor call that will take place in early November until then thank you all for your continued engagement and goodbye.
Speaker Change: This concludes tellers Digital's Q2, 2024 investor call. Thank you for your participation and have a nice day.
Speaker Change: [music].
Jeff Puritt: It's on the strength of these assets that I believe we have the opportunity and, most certainly, a clear need to course correct on our own and street expectations regarding our growth and profitability profile in the near term, due to the myriad of current market challenges and fundamental shifts I've spoken about earlier today, not the least of which is unprecedented, ubiquitous price sensitivity that we anticipate will persist in the near term. Generative AI fuel disruption brings a more fundamental and Telus Digital's continued progress in bringing to market our own Gen AI solutions should give you confidence that we're actively participating in this market shift and will emerge as a beneficiary with strong prospects to generate value for our stakeholders.
<unk> <unk>: Good day and welcome to the Telus digital experiences Q2, 'twenty 'twenty four investor call I would like to introduce your speaker. Mr. <unk>. Please go ahead.
Jeff Puritt: I trust that we've answered all of your questions today, and we'll continue our discussions at investor and industry conferences and in direct conversations with many of you. Jason, Tobias, and Gopi will host our quarterly investor call that will take place in early November. Until then, thank you all for your continued engagement, and goodbye.
Operator: Welcome to the Telus Digital Experiences Q2 2024 Investor Call. I would like to introduce your speaker, Ms. Olena Lobach. Please go ahead.
Olena Lobach: Thank you, Carl. And good morning, everyone. Thank you for joining us today for the Telus Digital second quarter 2024 investor call. Joining our call today will be Darren Entwistle, Chair of the Telus Digital Board of Directors, along with Jeff Puritt, President and CEO, and Gopi Chande, our Chief Financial Officer. We also have Jason McDonough, Senior Vice President of Customer Service Excellence at Telus, and Tobias Dengel, President of Reload. We'll open with Darren, Jason, and Thaddeus, providing brief introductory remarks.
Speaker Change: Thank you Carl and good morning, everyone. Thank you for joining us today for the powers. There so second quarter 'twenty 'twenty four investor call joining our call today will be done elsewhere. So share of the TV digital board of directors, along with Jeff Hewitt, President and CEO and <unk>, our Chief Financial Officer.
Also have Jason Mcdonell senior Vice President of customer service excellence that tell us that the best angle President's overload tree well.
Speaker Change: Well open with Darren Jason I'll provide a brief introductory remarks after that Jefferson Gulf via will continue the call. But then all of the results and the V. S will join them to answer your questions before we turn the call back to Jeff for his closing remarks.
A question I statements and further context on certain non-GAAP measures used during today's call. Please refer to the appendices of the earnings release issued this morning, and our regulatory filings available on SEDAR and Edgar with that I will now pass the call over to Darren.
Olena Lobach: After that, Jeff and Gopi will continue the call with an overview of the results, and Thaddeus will join them to answer your questions, before we turn the call back to Jeff for his closing remarks. For a cautionary statement and further context on certain non-GAAP measures used during today's call, please refer to the appendices of the earnings release issued this morning and regulatory filings available on CDAPLAS and EDGAR. With that, I will now pass the call over to Darren. Thank you, and good morning, everyone.
Darren: Thank you and good morning, everyone.
Speaker Change: Participating briefly on our call today in my role as the chair of the board of <unk> digital to announce some important organizational developments.
Darren Entwistle: I'm participating briefly on our call today, and my role is the Chair of the Board of Telus Digital to announce some important organizational developments. It is with immense gratitude and appreciation for his innumerable contributions to Telus Digital over the past two decades and 24 years as a Telus team member that we announce the retirement of Jeff Puritt, President and CEO of Telus Digital, effective on the 3rd of September. I'd like to take this opportunity to personally thank Jeff for his leadership in shaping our Telus digital business since its inception, from a single delivery center in the Philippines with fewer than 2,000 team members to an integrated global provider of AI, digital, and customer experience services with over 75,000 employees serving more than 650 clients from 32 countries around the world.
Darren Entwistle: In recognition of Jeff's unwavering commitment to our global team throughout our company's journey following his retirement, Jeff will assume his new role as Executive Vice-Chair of the Board at Telus Digital. Importantly, in this capacity, Jeff will be responsible for our corporate development activities given his expertise and experience in mergers and acquisitions. These efforts will complement and amplify the company's return to profitable growth that we are so committed to seeing and delivering upon.
Speaker Change: It is with immense gratitude and appreciation for his innumerable contributions to tell us digital over the past two decades, and 24 years as at Telus team member.
Darren Entwistle: In his role, Jeff will also support the government and investor relations functions within Telus Digital. Telus Digital's strategy remains solidly rooted in proactively embracing the latest technology to drive excellence in customer service, harnessing the next frontier of digital innovation and AI to enable our talented team members to deliver successful outcomes for our clients and further strengthen Telus Digital's brand leadership in the industry. Consistent with this strategy and our best-in-class commitment to robust succession planning, Jason McDonnell, a 20-year tenured member of the Telus senior leadership team, will succeed Jeff as CEO of Telus Digital as well as take on the operational role of President, Telus Digital Customer Experience.
Speaker Change: We announced the retirement of Jeff <unk>, President and CEO of <unk> digital effective on the third of September.
Darren Entwistle: Most recently, Jason served as Senior Vice President of Telus Customer Solutions Excellence and President of Telus Smart Security and Home Automation. Jason clearly has a proven track record of bringing the capabilities that Telus has developed to lead in the industry in respect of client care, loyalty, cost efficiency, and digital transformation excellence to all the business verticals that Telus Digital addresses. Additionally, Tobias Dengel, founder and president of WillowTree, will take on the elevated role of president of Telus Digital Solutions.
Speaker Change: I'd like to take this opportunity to personally thank Jeff for his leadership and shaping our Telus digital business since its inception.
Speaker Change: Jeff efforts will complement and amplify the company's return to profitable growth that we are so committed to seeing and delivering upon it.
Speaker Change: In this role Jeff will also support the government and Investor relations functions within Telus digital.
Speaker Change: Telus digital strategy remains solidly rooted and proactively embracing the latest technology to drive excellence in customer service harnessing. The next frontier of digital innovation and AI to enable our talented team members to deliver successful outcomes for our clients and further strengthen <unk> digital.
Speaker Change: Our brand leadership in the industry.
Darren Entwistle: Tobias has both the industry-leading expertise and the entrepreneurial drive needed to ensure we continuously deliver best-in-class solutions across our digital, gen AI, and AI modeling business. Both Jason and Tobias will report directly to the Telus Digital Board of Directors. We are clearly eager to see the significant leadership contribution and impact that they will make in returning Telus Digital to material, profitable growth. On this call today, we have both Jason and Divya joining us for a brief introduction. You can also count on having further opportunities to engage with each of them in the months ahead. And on that note, Jason, let's start with you. Thank you, Darren. Hello everyone.
Jason Mcdonell: Consistent with this strategy and our best in class commitment to robust succession planning, Jason <unk> at 20 year tenured member of the Tellers Senior leadership team will succeed Jeff <unk> CEO of <unk> digital as well as take on the operational role of President <unk> digital customer.
Speaker Change: Her experience.
Speaker Change: Most recently, Jason served as senior Vice President of talent customer solutions Excellence, and President of <unk>, Smart security and home automation.
Speaker Change: Jason clearly has a proven track record of bringing the capability that tell us to develop the <unk>.
Lead in the industry in respective client care.
Speaker Change: Loyalty cost efficiency and digital transformation excellence to all the business verticals that tell us digital addresses.
Speaker Change: Additionally to dangle founder and president of Willow tree will take on the elevated role.
Speaker Change: Didn't tell us digital solutions.
Speaker Change: To be both.
Speaker Change: The industry, leading expertise and the entrepreneurial drive needed to ensure we continuously deliver best in class solution across our digital Gen AI and AI modeling businesses.
Speaker Change: Both Jason and <unk> will report directly to the tell us digital board of directors.
Speaker Change: We are clearly eager to see the significant leadership contribution and impact that they will make and returning tailored digital to material profitable growth.
Speaker Change: On this call today, we have both Jason and to be joining us for a brief introduction.
Speaker Change: You can also count on having further opportunities to engage with each of them in the months ahead.
Speaker Change: On that note, Jason let's start with you.
Jason Mcdonell: Thank you Darrin Hello, everyone.
Jason McDonnell: As you are aware, Telus Digital has a tremendous history as a global leader in digital customer experience, carving out a meaningful market position to serve some of the world's most well-known brands and forward-thinking clients. I'm excited to carry the organization forward on the strong foundation of world-leading culture, innovation, and leadership deeply fostered by Jeff and the Telus Digital Leadership Team. A little about me, since joining Telus, customer service transformation and business growth have been core hallmarks of my experience. As the Senior Vice President of Customer Service Excellence, I led the organization responsible for millions of TELUS customers across mobility and home services.
Jason Mcdonell: You are aware tell us digital has a tremendous history as a global leader in digital customer experience carving out a meaningful market position to serve some of the world's most well known brands and forward thinking clients.
Jason Mcdonell: I am excited to carry the organization forward on this strong foundation of World, leading culture innovation and leadership deeply fostered by Jeff and the tell us digital leadership team.
Speaker Change: A little about me since joining tell us customer service transformation and business growth have been core hallmarks of my experience.
As the senior Vice President of customer service Excellence I led the organization responsible.
Speaker Change: But for millions of Telus customers across mobility and home services.
Jason McDonnell: In this role, and many others, I've worked extensively with the Telus Digital Experience Organization to couple advanced technology with innovative operational methods that drive material business value. I'm pleased to join an organization that shares my passion for growth, customer experience, technology, and transformation, and I look forward to working with our global leadership team to champion meaningful value for our shareholders, our customers, and our global communities, as well as to providing industry-leading, digital-first outcomes backed by exceptional, technology-supported human interaction. Thank you for the opportunity to introduce myself. I look forward to meeting and working with many of you on this call in the near future, including my good colleague, Tobias. Tobias, over to you.
Speaker Change: In this role and many others I've worked extensively with the Telus digital experience organization to couple of advanced technology with innovative operational methods that drive material business value.
Speaker Change: I'm pleased to join an organization that shares my passion for growth customer experience technology and transformation and I look forward to working with our global leadership team to champion meaningful value for our shareholders, our customers and our global communities as well as providing industry leading digital.
Speaker Change: First outcomes backed by exceptional technology supported human interactions.
Timmy: Thank you for the opportunity to introduce myself I look forward to meeting and working with many of you on this call in the near future, including my good colleague to me to be us over to you.
Tobias Dengel: Thank you, Jason, and good morning to everyone. Over the years, Telus Digital has defined a new category in its industry, right at the intersection of digital IT and digital customer experience, with technology playing a central role in the evolution of our company. I'm very excited to be part of bringing this company to the next frontier of our digital evolution, not least in the area of AI. Our mission is to provide the tools and services that fuel our clients' ability to adopt and maximize the value of AI in order to deliver the best possible customer experience.
Timmy: Thank you, Jason and good morning to everyone.
Speaker Change: Over the year tell us digital has defined a new category its industry right at the intersection of digital and digital CX with technology, playing a central role in the evolution of our company.
Very excited to be part of bringing this company to the next frontier of our digital evolution not least in the area of AI.
Speaker Change: <unk> is to provide the tools and services that fuel our clients' ability to adopt and maximize the value of AI in order to deliver the best possible customer experience.
Tobias Dengel: While the promise of AI is real, the implementation of AI in most enterprises has lagged division, driven by a lack of data readiness, a lack of trust, and a lack of control. Our solutions squarely address these core impediments to scaled enterprise adoption.
Speaker Change: The promise of AI is real the implementation of AI in most enterprises has lag division drill.
Speaker Change: Even by a lack of data readiness lack of trust and a lack of control.
Speaker Change: Our solution squarely address these core impediments to scale enterprise adoption.
Tobias Dengel: Data is foundational to every AI deployment, and our capabilities uniquely position us to partner with our clients to responsibly design, build, implement, deliver, and scale their AI and Gen AI use cases. Our differentiated end-to-end approach across both the data and AI life cycles is a critical factor in helping us to address our clients' major points of friction in order to focus on innovation and growth. Flexibility, control, and trust are the core facets of our AI office. Trust is a crucial component, as confidence in the model's performance and responses remains the major impediment for our clients launching Gen AI solutions into production.
Data is foundational to every AI deployment, and our capabilities uniquely position us to partner with our clients to responsibly design build implement deliver and scale. Their AI engine AI use cases, our differentiated end to end approach across both the data and AI.
Speaker Change: Lifecycle is a critical factor in helping us to address our clients' major points of friction you wanted to.
Speaker Change: Our focus on innovation and growth.
Speaker Change: <unk> ability control and trust are the core.
Speaker Change: Core facets of our AI offerings Trust is a crucial component.
Speaker Change: Confidence in the model performance and responses remain a major impediment prior clients launching Gen AI solutions in our production.
Tobias Dengel: And we aim to be a significant player in providing that solution. Our ability to test drive real use cases at scale with Telus in the highly regulated industries where they operate, including telecommunications and healthcare, before actually going to other clients is unmatched in our industry. Indeed, our unique partnership with Telus is a meaningful competitive advantage, a proven ground that competitors simply do not enjoy.
Speaker Change: And we aim to be a significant player in providing that solution.
Speaker Change: Our ability to test drive real use cases at scale with palace in the highly regulated industries, where they operate including telecommunications and health care before actually going to other clients is unmatched in our industry. Indeed, our unique partnership with pellets as a meaningful competitive advantage.
Speaker Change: Our proving ground that competitors that simply do not enjoy rev.
Tobias Dengel: Rest assured, you'll be hearing more from us on that front as we continue to accelerate our lineup of Gen-AI product releases, showcasing our thoughtful and comprehensive approach to advancing our capabilities for our clients and internally. With that, and with my deepest appreciation for his legacy, his ongoing support of our new leadership team, and his mentorship and partnership over the last 18 months since I joined the firm, let me turn the call over to Jeff. Thank you, Sabia.
Speaker Change: Rest assured you'll be hearing more from us on that front as we continue to accelerate our lineup of Gen AI product releases.
Speaker Change: Casing thoughtful and comprehensive approach and advancing our capabilities for our clients and internally.
Speaker Change: With that and with my deepest appreciation for his legacy is ongoing support of our new leadership team and his mentorship and partnership over the last 18 months since I've joined the firm, let me turn the call over to Jeff.
Jeff Puritt: Thank you, Jason. And thank you very much, indeed, for those very generous comments. I am very pleased for both Jason and Tobias to take on their responsibilities, and I am fully committed to making sure they have a successful start in their new roles. I'm truly honoured to have served as the President and CEO of Telus Digital, and in my new capacity as the Executive Vice-Chair of the Board, I look forward to an exciting future for our business.
Jeff: Thank you. Thank you Jason and thank you very much indeed for those very generous comments Darren.
Jeff: Very pleased for both Jason and to be has to take on their responsibilities and I'm.
Jeff: Fully committed to making sure they have a successful start in their new rules.
I am truly honored to have served as the president and CEO of <unk> digital and in my new capacity as the executive Vice Chair of the board I look forward to the exciting future for our business I'd like to thank our board of directors for their continued support of our leadership team as well as the entire Telus digital team for their remarkable passion and dedication.
Jeff Puritt: I'd like to thank our board of directors for their continued support of our leadership team, as well as the entire Telus digital team for their remarkable passion and dedication. As part of this transition, on behalf of the board and our management team, I'd also like to sincerely thank Jose Luis Garcia, who has served as the company's chief operating officer since May 2023. We're very grateful indeed for his valuable contributions, and we wish Jose Luis continued success in his future endeavors.
Speaker Change #100: Part of this transition on behalf of the board and our management team I would also like to sincerely. Thank Jose Luis Garcia, who has served as the company's Chief operating officer. Since May 2023, we're very grateful indeed for his valuable contributions and we wish Jose Luis continued success.
Speaker Change #100: Future endeavors.
Jeff Puritt: So I appreciate that for our audience, this was a lot to digest just in one morning. However, I'll now focus our call back on the quarterly results and the outlook revision we released earlier today. Our results in the second quarter reflect continued pressures on our business from the challenging macroeconomic and operating environment. Our management team, and, of course, I personally fully acknowledge the impact of our efforts to address the challenges we've experienced since last year, and our resulting underperformance has put a tremendous dent into our longer-term track record of delivering sustained profitable growth.
So I appreciate for our audience because there's a lot to digest just in one morning, Oliver I'll now focus our call back on the quarterly results and the outlook Division, we released earlier today.
Speaker Change #100: Our results in the second quarter reflected continued pressures on our business from the challenging macroeconomic and operating environment our.
Speaker Change #101: Our management team and of course, I personally fully acknowledge the impact of our efforts to address the challenges we experienced since last year, and our resulting underperformance, let's put a tremendous dent into our longer term track record of delivering sustained profitable growth.
Jeff Puritt: While earlier in the year, we saw solid signs of a demand recovery on the horizon, including a record in new client bookings in the first quarter, the pace of new client bookings slowed in the second quarter, despite continued strength in our sales funnel. Meanwhile, fierce competition on price and restricted client spending persisted.
Speaker Change #101: While earlier in the year, we saw solid signs of demand recovery on the horizon, including a record in new client bookings in the first quarter.
Speaker Change #101: <unk> of new client bookings slowed in the second quarter. Despite continued strength in our sales funnel.
Speaker Change #101: Meanwhile, fierce competition on price and restricted clients spending persisted.
Jeff Puritt: Similar to our peers in now not seeing improvement in the macroeconomic environment, we too no longer expect the magnitude of recovery previously expected for the second half of this year. As a result, our financial outlook for the full year 2024 has been revised to better reflect the current balance of risks and opportunities. Later in this call, Gopi will share much more detail on the outlook and our assumptions, while I want to emphasize that our revised outlook implies stability and incremental improvement in sequential half-year revenue, as well as stabilization and margins aligned with the second quarter when normalized for impacts associated with the willow tree earn out.
Speaker Change #101: Similar to our peers in now not seeing improvement in the macroeconomic environment, we to no longer expect the magnitude of recovery previously expected for the second half of this year.
Speaker Change #101: In the sequential half year revenue as well as stabilization in margins aligned with the second quarter when normalized for impacts associated with the Willow tree earnings.
Jeff Puritt: To turn back to the quarter and share with you some of the positive signs and trends, our AI-related business remains a highlight, with revenue growing 13% in the first half of the year, offering some offset to the headwinds experienced elsewhere. At the same time, our business generated free cash flow as a percentage of revenue at 15%, both in the quarter and the first half of the year.
Speaker Change #101: It could turn back to the quarter and share with you some of the positive signs and trends our AI related business remains a highlight with revenue growing 13% in the first half of the year offering some offset to the headwinds experienced elsewhere.
Speaker Change #101: At the same time, our business yielded free cash flow as a percentage of revenue at 15% both in the quarter and the first half of the year our capacity.
Jeff Puritt: Our capacity to generate consistently strong cash flows will continue to support reinvestment into the business. Our top two clients, Telus and Google, which collectively accounted for 39% of our total revenue in the first half of the year, continue to provide a meaningful level of support. Our revenue streams with these two clients are diversified and growing, supported by our longstanding relationships with both companies as an enabler of their business success. Overall, however, the positive contributions from our top two clients were not enough to offset the pressures that persisted into the second quarter of 2024, with softer demand volumes across much of our broader client base.
Speaker Change #101: To generate consistently strong cash flows will continue to support reinvestment into the business.
Speaker Change #101: Our top two clients tell us and Google, which collectively accounted for 39% of our total revenue in the first half of the year continued to provide a meaningful level of support.
Speaker Change #101: However, the positive contributions from our top two clients were not enough to offset the pressures that persisted into the second quarter of 2024 with softer demand volumes across much of our broader client base.
Jeff Puritt: I'd like to spend a few moments sharing my thoughts and observations on our profitability, including the broader trends impacting our performance to date this year and the actions we're pursuing as we seek to return our business to robust, top-line growth and desired sustainable long-term improvement in profitability. Since the second quarter of last year, one of our top three clients reduced spend with us, which not only had a significant impact on our revenue trajectory but also had an unfavorable flow through to our margins.
Speaker Change #102: I'd like to spend a few moments sharing my thoughts and observations on our profitability, including the broader trends impacting our performance to date this year and the actions we are pursuing as we seek to return our business to robust topline growth and desired sustainable long term improvement in profitability since.
Speaker Change #102: Since the second quarter of last year, one of our top three clients reduced spend with us not only had a significant impact on our revenue trajectory, but also had an unfavorable flow through to our margins our efforts to stabilize and return this account to growth, which are now starting to show success. Unfortunately come into cost of a meaningful margin re rate.
Jeff Puritt: Our efforts to stabilize and return this account to growth, which are now starting to show success, have unfortunately come at the cost of a meaningful margin re-rate for 2024. While we continue to work diligently on optimizing our global operations, with many initiatives already underway, we're equally dissatisfied with the pace of our progress in transforming and reducing our cost structure. In retrospect, we may have underestimated the time it would take to see more meaningful outcomes from our actions.
Speaker Change #102: For 2024.
Speaker Change #102: We continue to work diligently on optimizing our global operations with many initiatives already underway. We are equally dissatisfied with the pace of our progress in transforming and reducing our cost structure in retrospect, we may have underestimated the time it would take to see more meaningful outcomes from our actions. These include deploying more automation in.
Jeff Puritt: These include deploying more automation inside our business and across our global footprint, with the sheer scale of our organization introducing complexity and the need for more time to implement our plan. I believe this is a particular area of opportunity for Jason McDonnell to make a meaningful impact, leveraging his proven expertise in transforming customer service operations through cost efficiency and digital innovation. We're also working to decommission legacy tools and systems and migrate to a more Gen-AI enabled environment, using the same technologies we're bringing to our clients, like Fuel iX, but for our own internal use. And we're standing up and amplifying right-short centers of excellence with a goal to tap into our established global footprint to optimize and improve the quality of our operations delivery and support function.
Jason Mcdonell: Inside our business and across our global footprint with the sheer scale of our organization introducing complexity and the need for more time to implement our plans I believe this is a particular area of opportunity for Jason Mcdonell to make a meaningful impact leveraging his proven expertise in transforming customer service operations through cost.
Speaker Change #102: <unk> and digital innovation.
Speaker Change #102: We're also working to decommission legacy tools and systems and migrate to a more ginnie AI enabled environment using the same technologies, we're bringing to our clients like fuel IX, but for our own internal use and we're standing up and amplifying right shored centers of excellence with a goal to tap into our established global footprint to optimize.
Speaker Change #102: And improve the quality of our operations delivery and support functions. These are a few examples and we commit to sharing more details with you as we make progress in the remainder of this year and into the future is this is not a one and done set of initiatives, but rather a path to continuous improvement of our operations to make our business even more resilient for the future.
Jeff Puritt: These are just a few examples, and we commit to sharing more details with you as we make progress in the remainder of this year and into the future, as this is not a one-and-done set of initiatives but rather a path to continuous improvement of our operations to make our business even more resilient for the future. I'm hopeful that we will see better progression over the remainder of this year and that it will yield a more significant improvement in our costs to serve and further optimize our global operations into next year.
Speaker Change #102: I'm hopeful that we will see better progression over the remainder of this year and then it will yield a more significant improvement in our cost to serve and further optimize our global operations into next year.
Jeff Puritt: From a broader market perspective, the macroeconomic environment over the past 18 months, in particular, has fueled our clients' expectations of receiving more and better for less, something that will likely persist for all players in our industry. Nevertheless, I continue to believe that we have a much better capacity to solve for this than most with our digital-first mindset and growing capabilities in areas like generative AI.
Speaker Change #102: From a broader market perspective, the macroeconomic environment over the past 18 months in particular has fueled our clients' expectations of receiving more and better for less something that will likely persist for all players in our industry. Nevertheless, I continue to believe that we have a much better capacity to solve for this than most with our dish.
Speaker Change #102: <unk> first mindset and growing capabilities in areas like generative AI as we continue to evolve tell us digital towards a more technology centric and specifically AI fueled business. This fundamental change will also help to future proof our business model in the near term. However, this transition necessitates.
Jeff Puritt: As we continue to evolve Telus Digital towards a more technology-centric and specifically AI-fueled business, this fundamental change will also help to future-proof our business model. In the near term, however, this transition necessitates some cannibalization of our tenured and higher-margin CX work, historically in the mid-20s to mid-30s EBITDA margin range, with still nascent and relatively lower-marg We believe this near-term margin-dilutive tradeoff will be resolved as our Gen-AI focused offerings continue to achieve better scale, generating a much improved level of profitability, which will bolster the acceleration of our overall enterprise margin profile.
Speaker Change #102: Some cannibalization of our tenured and higher margin CX work historically in the mid Twenty's to mid Thirty's EBITDA margin range is still nascent and relatively lower margin AI revenue streams. We believe this near term margin dilutive trade off will be resolved as our journey I focused offerings continued to achieve better scale.
Speaker Change #102: Generating a much improved level of profitability, which will bolster the acceleration of our overall enterprise margin profile.
Jeff Puritt: We've already achieved meaningful scale in AI as one of the largest providers of AI data solutions, including data collection, annotation, creation, and validation. Moreover, with the strength of our platform, we're able to source very specific talent globally for our clients to tackle the ever more complex data sets used to train and optimize Gen AI and other AI models. Our AI-related business currently generates 15% to 20% of our overall revenue, or about $200 million year-to-date, and as I mentioned, grew 13% year-over-year in the first half of 2024.
We've already achieved meaningful scale in AI is one of the largest providers of AI data solutions, including data collection annotation creation and validation with the strength of our platform, we're able to source very specific talent globally for our clients to tackle the ever more complex datasets used to train and optimize.
Speaker Change #103: <unk> AI and other AI models, our AI related business currently generates 15% approximately of our overall revenue or about $200 million year to date and as I mentioned grew 13% year over year in the first half of 2024.
Jeff Puritt: As you've heard from Tobias just now, data is at the core of AI implementation, and our team provides solutions at scale for clients who need to clean and optimize their vast data sets to train their custom models via RAG, which is Retrieval Augmented Generation, as well as other implementations that enhance the accuracy and reliability of generative AI models. As I've discussed on previous investor calls, Fuel iX is our enterprise-grade Gen AI engine that serves as a foundation for us to help clients move their Gen AI use cases from pilots to production at scale quickly and safely.
Speaker Change #104: As you heard from today is just now data is at the core of AI implementation and our team provides solutions at scale for clients, who need to clean and optimize their vast datasets to training their custom models by a rag, which is retrieval augment to generation as well as other implementations that enhanced the accuracy and reliability.
Speaker Change #104: <unk> of generative AI models.
Speaker Change #105: I've discussed on previous Investor calls fuel IX is our enterprise grade <unk> AI engine that serves as the foundation for us to help clients move their journey I use cases from pilots to production at scale quickly and safely we expect to start seeing meaningful revenue contributions from fuel IX in 2025.
Jeff Puritt: We expect to start seeing meaningful revenue contributions from Fuel iX in 2025. Again, this is an area where Tobias and his team will be instrumental in growing our scale and positioning in the market. Competition in the AI space continues to intensify, with various partnerships being formed to accelerate the transition and market share gains.
Speaker Change #105: Competition in the AI space continues to intensify with various partnerships being formed to accelerate the transition and market share gains in our case, we see our AI capabilities increasingly resonating with clients. Despite facing competition from the pure play AI vendors backed by many of the same hyper scaler, we pursue with clients.
Jeff Puritt: In our case, we see our AI capabilities increasingly responding with clients, despite facing competition from the pure play AI vendors backed by many of the same hyperscalers we pursue as clients. We're also working directly with AI model developers and collaborating closely with each of the three leading hyperscalers as our Fuel iX capabilities are typically complementary to their offerings. In fact, Fuel iX is both LLM and cloud agnostic, enabling our clients to easily switch between AI models and cloud services as needed to avoid vendor lock-in and future-proof their Gen AI investment.
Speaker Change #105: We're also working directly with AI model developers and collaborating closely with each of the three leading hyperscale is our fuel IX capabilities are typically complementary to their offerings. In fact, <unk> is both LLS and cloud agnostic, enabling our clients to easily switch between AI models in cloud services.
Jeff Puritt: To date, we've developed customer, agent, and employee-facing bots. I'm particularly proud of our work to help Telus launch the world's first ISO Privacy by Design certified Gen AI customer support tool. Powered by Fuel iX, the chatbot provides customers with secure, fast, and intuitive responses to their queries, providing them with a more convenient and seamless digital experience.
Speaker Change #105: The chatbot provides customers with secure fast and intuitive responses to their queries, providing them with a more convenient and seamless digital experience.
Jeff Puritt: Telus' Spock co-pilot, a single point-of-contact IT support bot, also operates on the Fuel iX platform. This GenAI-fueled co-pilot has revolutionized the IT support experience for the company's employees, providing a high-quality, self-serve channel that's driving cost savings and instilling a digital-first mindset across the organization. And lastly, on Wednesday of this week, we launched Fuel eX, an enterprise-safe GenAI employee assistant to support productivity, creativity, and research. Fuel eX is the first public launch of an application built on Fuel AI.
Speaker Change #106: Tell us the Sparks co pilot a single point of contact support but also operates on the fuel IX platform. This journey I fueled copilot has revolutionized the it support experience for the company's employees, providing a high quality self serve channel, that's driving cost savings and instilling a digital first mindset across.
Speaker Change #107: The organization and lastly on Wednesday of this week, we launched fuel E X and enterprise States Gen AI employee assistant to support productivity creativity and research <unk> is the first public launch of an application built on fuel IX fuels <unk> is currently in operation at scale within <unk>.
Jeff Puritt: Fuel EX is currently in operation at scale within Telus, where it's used by 35,000 employees. The app provides a single point of entry for employees to access an intuitive interface where they can select from more than 20 large language models from multiple vendors to help them with everyday tasks including knowledge searches, summarization, copywriting, image generation, and code writing. Fueled by our evolving capabilities, in the second quarter of 2024, our WillowTree sales team won Gen-AI Jumpstart consultancy engagements with one of the largest non-profit organizations in the world, one of Canada's provincial government departments, and with Telus Agriculture and Consumer Goods.
Speaker Change #107: US where its used by 35000 employees.
Speaker Change #107: The App provides a single point of entry for employees to access an intuitive interface, where they can select from more than 20 large language models from multiple vendors to help them with everyday tasks, including knowledge searches summarization Copywriting image generation and code rating.
Jeff Puritt: Our team is also actively engaged in exploratory discussions with several other clients. Willowtree also won new clients in the quarter, including Wiley, one of the world's largest publishers and a global leader in research and learning, specifically to modernize their marketing technology stack with a well-known New York business-focused daily publication and with a US-based fitness chain, among other notable new logo wins.
Speaker Change #108: We also won new clients in the quarter, including Wiley one of the world's largest publishers and a global leader in research and learning specifically to modernize their marketing technology stack with a well known New York business focused daily publication and when the USDA fitness chain among other notable new logo wins.
Jeff Puritt: Our Willowtree team further expanded their engagement with Inspira Financial, an American financial services company, in addition to winning more business with CIATI, the Center for Energy Advancement through Technology and Innovation, which is a membership-based provider of shared cost R&D, training, and networking services for power industry professionals. The team also expanded its engagements with a large marine boat and propulsion manufacturer, one of the world's largest hospitality brands, and an American financial corporation, among others.
Speaker Change #108: Our military team further extended their engagement with inspire a financial and American financial Services Company. In addition to winning more business with CRC. The center for energy Advancement through technology, and innovation, which is a membership based provider of shared costs R&D training and networking services for power industry professionals. The team also expanded their <unk>.
Speaker Change #108: <unk> with a large marine boat in propulsion manufacturer one of the world's largest hospitality brands and an American financial Corporation. Among others are global tell US digital sales team also won new clients across several sectors, including health care transportation and consumer packaged goods and we captured further opportunities to expand.
Jeff Puritt: Our global Telus digital sales team also won new clients across several sectors, including healthcare, transportation, and consumer packaged goods. And we captured further opportunities to expand our engagement across our existing client base, not least with our third largest client, a leading social media network, along with North America's leading financial institution, an international online commerce platform, and the largest food delivery platform in the United States, among others. To reiterate, our relationship with Google remains very strong, driven by our AI data solutions division in particular, and we continue to see meaningful growth across diversified work streams within our parent company, Telus Corporation, enabling their successful digital transformation across all areas of their unique business portfolio.
Speaker Change #108: Our engagement across our existing client base now at least with our third largest client a leading social media network, along with North America's leading financial institution and international online Commerce platform and the largest food delivery platform in the United States among others to reiterate our relationship with Google remains very strong driven by our.
Speaker Change #108: AI data solutions Division in particular, and we continue to see meaningful growth across diversified work streams within our parent company tell US corporation, enabling their successful digital transformation across all areas of their unique business portfolio overall, our sales funnel as of the second quarter and remains approximately 2 billion.
Jeff Puritt: Overall, our sales funnel as of the second quarter end remains approximately $2 billion, with approximately 10% thereof in AI related opportunities. With that, I'll now invite our CFO, Gopi Chande, to share details of our financial results, and I'll return at the end of the call to answer your questions. Gopi, over to you. Thank you, Jeff. And good morning, everyone.
Colby: With approximately 10% thereof in AI related opportunities with that I'll now invite our CFO <unk> <unk> to share details of our financial results and I'll return at the end of the call to answer your questions Colby over to you.
Colby: Thank you, Jeff and good morning, everyone and thank you for joining us today.
Gopi Chande: Thank you for joining us today. In my review, I will principally focus on our quarterly results, as most factors that influenced our second quarter had similar impacts on our results for the first half of the year. Telus Digital generated revenue of $652 million in the second quarter of 2024, reflecting an impact from a stabilizing, yet still unfavorable, year-over-year comparison of revenues with a leading social media network client, along with pressures from a broader and persistently challenging macroeconomic environment, including competitive conditions in our industry.
In My review I will principally focus on our quarterly results as most factors that influenced our second quarter had a similar impact on our results for the first half of the year.
Speaker Change #110: Tariff, which all generated revenue of 652 level in the second quarter of total so far with <unk>.
Speaker Change #110: The impact from our stabilized pool, yet still unfavorable year over year comparison of revenues with a leading social media network clients, along with pressures from a broader ecosystem.
Speaker Change #110: Looking at our key industry verticals, while our revenue from the technical teams and ecommerce fulfilled tackling asos are continued growth with other clients, notably Google helped offset the overall impact.
Gopi Chande: Looking at our key industry verticals, while our revenues in the tech and games and e-commerce and fintech remain soft, our continued growth with other clients, notably Google, helped offset the overall impact. For Google, which remains our second largest client, quarterly revenue grew by 12% year-over-year. Our AI data solutions line service continues to drive growth with this client. Revenue in the communications and media vertical grew 1%, driven by higher revenue from Telus Corporation, partially offset by softer volumes with certain other telecom clients. The Healthcare vertical grew 27%, primarily driven by additional services provided to the healthcare business of Telus. Overall, revenue with Telus grew by 22% year-over-year.
Speaker Change #110: With Google, which remains our second largest client quarterly revenue grew by 12% year over year, our all our data solution client service continues to drive growth with those clients.
Speaker Change #110: Revenue from our communications and media vertical grew 1% driven by higher revenue for <unk> Corporation, partially offset by softer volumes with certain other telecom client.
Speaker Change #110: Healthcare vertical grew 27% primarily driven by additional services provided to the health care business.
Speaker Change #110: Overall revenue with pellets grew by 22% year over year our policy.
Gopi Chande: Our Telus Digital and WillowTree teams continue to drive meaningful and diversified revenue streams, enabling our parent companies' digital transformation, not least in the area of Gen AI implementation, as illustrated in the use cases shared today. Another area of growth was our BFSI vertical, up 5% year-over-year, driven by certain Canadian banks and smaller regional players in North America. Among key components within the all-other industry vertical, which includes clients from various other industries, while we saw unfavorable year-over-year comparisons, notably due to lower revenue in travel and hospitality, this was offset by good growth with clients in energy and utility, as well as retail and consumer packaged goods, which had year-over-year growth of 4% and 18%, respectively.
Speaker Change #110: <unk> continue to drive meaningful <unk> revenue streams, and enabling our parent company's digital transformation not lease area.
Speaker Change #111: The limitation as illustrated in his case to share today.
Speaker Change #111: Another area of great growth with our Si article up 5% year over year, driven by certain little Bulks and smaller regional players in North America.
Speaker Change #111: Among key components with all other illustrate protocol, which includes clients from various other industries, while we saw unfavorable year over year comparison, notably due to lower revenue and travel and hospitality. This was offset by good growth with clients to any of the Kennedy as well.
Retail consumer packaged goods, which have year over year growth of 4%.
Speaker Change #111: Percent respectively.
Gopi Chande: Looking at our revenue profile by geographies, declines in Europe and North America were partially offset by growth in Central America, South America, and Africa, which grew 12% in the quarter, reflecting expansion with existing clients in communications and media, BFSI, and certain technology clients. Meanwhile, Asia Pacific delivered stable volumes, with revenues increasing by 1%, driven by sustainable volumes for clients who serve in that region, along with incremental growth with new clients. Moving on to operating expenses, salaries and benefits in the quarter were relatively steady year over year at $400 to $26 million.
Looking at our revenue profile by geographies declines in Europe, and North America were partially offset by growth in Central America, South America Africa, which grew 12% quarter, reflecting expansion with existing client communications and media CFO Sai certain technology.
Speaker Change #111: Clients.
Speaker Change #111: Now Asia Pacific delivered stable volumes with revenues, increasing by 1% driven by sustainable volumes for clients who serve.
Speaker Change #111: Along with incremental growth with new clients.
Speaker Change #111: Moving onto operating expenses salaries and benefit fourth quarter were relatively stable year over year at 426 million.
Gopi Chande: We lowered our average team member count as part of our cost efficiency efforts that began in 2023 to right-size operations. However, these savings were offset by higher training costs due to elevated attrition levels and higher average salaries and wages, the latter driven by fierce competition for talent. Our total team member count was 74,617 at June 30th, a decrease of 3% year over year and consistent with the revenue change. Goods and services purchased in the quarter were $117 million, a decrease of 3% year-over-year, also consistent with the revenue change.
Speaker Change #111: We lowered our average team member accounts as part of our cost efficiency efforts.
Speaker Change #111: In 2012 to rightsize operations. However, these savings were offset by higher toll call.
Speaker Change #111: Attrition levels and higher average salary and wages the latter driven.
Speaker Change #111: Driven by fierce competition for talent.
Speaker Change #111: Our total member Count was 74617 at June 30, a decrease of 3% year over year and consistent with the revenue change.
Speaker Change #111: Good food services purchased in the quarter were 117, a decrease of 3% year over year also consistent.
Speaker Change #111: With the revenue change.
Gopi Chande: Changes in business combination-related provisions generated other income of $31 million in the quarter, arising due to amendments to the terms associated with the willow tree earn-out and related provisions for written options resulting in a reduction in this provision. Our renegotiated agreement with the WillowTree management team is now based on revised performance targets of the combined WillowTree and Telus Digital success. It incentivizes a holistic growth approach across our entire business and drives an even deeper level of further integration.
Speaker Change #111: Changes in business combination related purposes sure generated other income of 30.
Speaker Change #111: $31 million for the quarter.
Speaker Change #112: I will do that.
Speaker Change #113: The terms associated with the Willow tree earn out payment related provisions for Upsells with Rituxan proposals.
Speaker Change #113: We negotiated with the regulatory models.
Speaker Change #113: It is now.
Speaker Change #113: This performance targets compound relative <unk> and tell us digital success.
Speaker Change #113: Incentive offers a holistic approach across our entire business and to offer an even deeper level of further integration.
Gopi Chande: It also includes incentives to grow our Fuel IX offering in particular, where WillowTree has deep expertise, ownership, and accountability. You can find more accounting details related to the renegotiated agreement in Note 4 and Note 12 to our financial statements. Share-based compensation in the quarter was $10 million, an increase of $8 million, primarily due to the timing of award grants and associated expense recognition and higher expenses associated with the share-based compensation awards granted in relation to our acquisition.
Speaker Change #113: It also includes incentives to grow our fuel IX offering in particular, where willow tree has deep expertise ownership and accountability.
Speaker Change #113: You can find more accounting details related to the renegotiated agreement.
Speaker Change #113: For <unk> to our financial statements.
Speaker Change #113: Share based compensation in the quarter was $10 million, an increase of <unk> <unk>.
Speaker Change #113: Primarily due to timing of award grants and associated expense recognition and higher expense associated with the share based compensation awards granted in relation to our acquisition.
Gopi Chande: Moving on to profitability, adjusted EBITDA in the quarter was 130 million, an increase of 10% year over year, primarily due to other income arising from business combination related provisions, which were partly offset by a decline in revenue, outpacing the decline in operating expenses, and higher share-based compensation expense. Adjusted EBITDA margin in the quarter was 19.9%, an improvement of 220 basis points year-over-year. It's not for the favorable impact of the business combination related provisions, adjusted EBITDA declined and margin compressed year over year, reflecting lower revenue flow through as well as higher service delivery costs.
Speaker Change #113: Moving on to profitability adjusted EBITDA for the quarter was 130.
Speaker Change #113: It's a 10% year over year, primarily due to other income arising from business combination related provisions, which were partly offset by a decline in revenue outpacing the decline in operating expenses and higher share based compensation expense.
Adjusted EBITDA margin in the quarter was 19, 90% an improvement of 220 basis points year over year.
Speaker Change #114: If not for the favorable impact of the business combination related provision, our adjusted EBITDA declined and margin compressed year over year, reflecting lower revenue flow through as well as higher service delivery costs.
Gopi Chande: Some of the more notable pressures included higher attrition and absenteeism in certain regions, notably in Europe, that we are actively working to resolve. Moreover, we are subject to the industry's interest in higher cost delivery, particularly due to wage inflation across our footprint. Applicable to both a quarter and a half year, we also encourage some upfront training costs and offer some strategic discounts for certain clients, items that push us further, put further pressure on margins, but are meant to drive revenue growth for those accounts in the longer term. Adjusted diluted EPS in the quarter was $0.16, consistent with the same quarter of the prior year.
Speaker Change #114: Some of the more notable pressures included higher attrition and absenteeism and certain regions, notably in Europe that were that we are actively working to resolve.
Speaker Change #114: Moreover, we are subject to the interest industry wide higher cost delivery, particularly due to wage inflation across our footprint.
Speaker Change #114: A quick applicable to both the quarter and half year, we also incurred some upfront training costs and offer some strategic discounts for certain items.
Speaker Change #114: Items that put us further put further pressure on margins, but our amount to drive revenue growth for those accounts in the longer term.
Speaker Change #114: Adjusted diluted EPS in the quarter was 16.
Speaker Change #114: Consistent with the same quarter of the prior year.
Gopi Chande: We generated free cash flow of $95 million in the quarter, an increase of 44% year-over-year, driven by higher net inflows from working capital and lower income taxes paid, partially offset by lower operating costs and higher capital expenditures, as a percentage of revenue free cash flow. Turning to our outlook, while we're not pleased with our results, our updated targets reflect three key items. First, similar to our peers and overall industry sentiment, we are not seeing any meaningful improvement in the macroeconomic environment.
Speaker Change #114: Generated free cash flow was $95 million in the quarter, an increase of 44% year over year, driven by higher net inflows from working capital and lower income taxes paid partially offset by lower operating profit and higher capital expenditures as a percentage of revenue free cash flow was 15%.
Speaker Change #114: Turning to our outlook, while we're not pleased with our results our updated targets reflect three key items.
Speaker Change #114: Similar to our peers and overall industry sentiment, we are not full some improvement in the macro backdrop.
Gopi Chande: Now that we're halfway through the year, we no longer assume the magnitude of the broader demand recovery specifically as it relates to previously assumed upside in the second half of the year. Second, we expect margins to stabilize in the second half, aligned with the second quarter when normalized for impacts associated with the Lilletree earnouts, and we will continue to reduce and optimize our indirect costs through travel curtailment, hiring freezes, vendor renegotiation, and a lot more.
Speaker Change #114: Now that we're halfway through the year, we no longer see the magnitude of the broader demand recovery specifically as it relates to previously assumed upside to the second half of the year.
Speaker Change #114: Second we expect margins to stabilize in the second half alignment with the second quarter when normalized for some tax associated with the <unk> earn out.
Gopi Chande: And third, we have reduced the in-year financial benefits from our ongoing efficiency and transformation initiatives to reflect our revised expectations for what can be achieved in 2024. Of the $60 million planned in-year savings that we disclosed earlier this year, we now assume half, or approximately $30 million, can be realized in 2024, with one-third already implemented and a reasonable assurance of achieving the other two-thirds by the end of the year. With that in mind, we expect our full-year revenue to come in the range of $2.61 to $2.665 billion, implying growth in the second half from the first half of this year.
And third we have reduced the financial benefits from our ongoing efficiency transformation initiatives to reflect our revised expectations for what can be achieved in 2024.
Speaker Change #114: Of the <unk> that we disclosed earlier this year, we now assume half or approximately $30 million can be realized in 2024 with one third already implemented and a reasonable assurance of a change in the other two thirds by the end of the year.
Gopi Chande: For Justity Bida, we now expect a full year range of $465 to $485 million, with margins in the range of 17.8 to 18.1%. On a per share basis, our outlook assumes adjusted diluted DPS in the range of $0.39 to $0.44. We expect our 2024 cash taxes to be in the range of $45 to $55 million.
Speaker Change #114: For adjusted EBITDA, We now expect our full year range of 465 to 485.
Speaker Change #114: Margin in the range of $17 to 18, 1%.
Speaker Change #114: On a per share basis, our outlook assumes adjusted diluted EPS in a range of 39 to 44 weeks.
Speaker Change #114: We expect our 2012, our cash taxes to be in the range of 45 to $55.
Gopi Chande: While we don't issue a quarterly outlook, I can share that, on a sequential quarter basis, we expect the fourth quarter to show stronger growth in revenue and further stabilization in margins. Our confidence in delivering on the revised outlook for the full year is supported by the rebound we're seeing in willow tree demand and client engagement. At the same time, our targeted investments in sales and marketing will fuel our ongoing efforts to support growth in certain larger accounts and across our broader client base and our prospective pricing competitiveness.
Speaker Change #114: While we don't issue quarterly outlook I can share that on a sequential quarter basis, we expect the fourth quarter will show stronger growth in revenue and further stabilization in margins.
Speaker Change #114: Our confidence in delivering on our revised outlook for the full year supported by a rebound we're seeing in the regulatory demands and client engagement.
Speaker Change #114: At the same time, our targeted investments in sales and marketing will fuel our ongoing effort efforts to support growth at certain larger accounts and across our broader client base and our prospective pricing competitiveness.
Gopi Chande: And overall, we continue to be encouraged by the composition of our sales funnel, with a growing part of AI-related opportunities. Our business continues to generate strong cash flows, not least as supported by our deep relationship with our parent company. Our use of capital will remain focused on paying down our debt and reinvesting in the technology-centric evolution and longer-term growth of Telus Digital. With that, let's move on to questions. I kindly ask you to please keep it to one question at a time so that everyone can participate. Carl, over to you.
Speaker Change #114: And overall, we continue to be encouraged by the composition of our sales funnel with a growing part of AI related opportunities.
Speaker Change #114: Our business continues to generate strong cash flows not least is supported by our deep relationship with our parent company. Our use of capital will remain focused on paying down our debt and reinvesting into the technology centric evolution and longer term growth of <unk>.
Speaker Change #115: With that let's move on to questions I kindly ask you to please keep it to one question at a time, so that everyone can participate call corporate yields.
Speaker Change #116: Thank you as a reminder, if you'd like to queue up to ask a question. Please press star one if you would like to withdraw from the question queue. Please press star two our first question is from Ramsey El <unk> from Barclays. Please go ahead Ramsey.
Operator: As a reminder, if you'd like to queue up to ask a question, please press star 1. If you'd like to withdraw from the question queue, please press star 2. Ramsey L. Assal from Barclays, please.
Ramsey L. Assal: Hi, thanks for taking my question, and Jeff, it's been a great pleasure working with you, and best of luck in your new role. My question is, are any of the headwinds at your third-largest client coming from them using generative AI to supplant or replace work functions that you had been providing them previously? Are they getting more efficient, and that's led to some of the outcomes that you're seeing? Thanks for the question, Ramsey, and for the kind comments. Indeed, I've enjoyed working with you as well. I hope that'll continue. In a word, no.
Speaker Change #117: Hi, Thanks for taking my question and Jeff It's been a great pleasure working with you and best of luck in your new role.
Speaker Change #116: Yeah.
Speaker Change #118: My question is are.
Speaker Change #119: Any of the headwinds that your third largest client coming from them using generative AI to supplant or replace work functions that you had been providing them previously or are they getting more efficient and thats led to some of the outcomes that you're seeing.
Jeff Puritt: While there's no question that AI continues to enable additional opportunities for moderation activity, the seemingly unending increase in user-generated content continues unabated. And, you know, it continues to be about 5% of the total volume that requires human moderation or digital respondents, as we call it. Our real headwinds historically have been because, as you may remember, as we've talked about many times now, we're Europe-centric only in our support for that client.
Speaker Change #120: Thanks for the question Ramsey and for the kind comments, indeed, I've enjoyed working with you as well that will continue.
Speaker Change #121: In a word no.
Speaker Change #121: There's no question that AI continues to enable additional opportunities for moderation activity.
The seemingly on ending increase in user generated content continues unabated and it continues to be about 5% of the total volume that requires human moderation or digital responders as we call it.
Jeff Puritt: And they looked for opportunities to reduce their spend in that most expensive delivery area. And again, thankfully, as we noted, we seem to be on the rebound there. But the challenge for us right now is continuing to be labor-centric is, you know, eating into our margins significantly, but excitingly, we're looking forward to now diversifying our support for them across other service lines that, in the fullness of time, we believe will both get us back to more meaningful revenue growth and margin extension. Thank you very much.
Speaker Change #122: Europe centric only in our support for that client.
Speaker Change #123: When you look for opportunities to reduce their spend in that most expensive delivery area and again thankfully as we noted we seem to be on the rebound there, but the challenge for US right. Now is continuing labor centricity is eating into our margins significantly, but excitingly, we're looking forward to.
Speaker Change #123: Now diversifying our support for them across other service lines.
Speaker Change #123: In the fullness of time, we believe will get us back to a more meaningful revenue growth and margin expansion.
Speaker Change #123: Got it thank you very much thanks Randy.
Operator: Thanks, Ramsey. All right. Thank you, Ramsey. The next question is from Dan Perlin from RBC Capital.
Ramzi: Alright, Thank you ramzi.
Ramzi: The next question is from Dan Perlin from RBC capital markets. Please go ahead Dan.
Dan Perlin: I just wanted to talk about the kind of degradation that you see kind of outside of the top three clients. I know two of the three are doing really well, but it does suggest kind of a double-digit decline in the quarter. And that was similar, if not, maybe a little bit better than what we saw in the first quarter.
Ramzi: Thanks.
Dan Perlin: I just wanted to talk about the.
Dan Perlin: Kind of degradation that you see kind of outside of the top three clients.
Speaker Change #125: And two of the three are doing really well, but.
Speaker Change #126: It does suggest kind of like double digits decline in the quarter and that was similar if not maybe a little bit better than what we saw in the first quarter, but the deterioration it seems like it happened. So quickly if you guys and so how do we kind of reconcile that in terms of the visibility that you guys have what the model.
Jeff Puritt: But the deterioration, it seems like it happens so quickly for you guys. And so how do we kind of reconcile that in terms of like the visibility that you guys have with the model, and how that can't, you know, just kind of change on a dime, which it feels like, you know, this wasn't the first time, but it feels like the magnitude of this change was quite a bit worse.
Speaker Change #127: And how that can't just kind of change on a dime, which it feels like this wasn't the first time, but it feels like the magnitude of this change was quite a bit worse.
Jeff Puritt: Thanks, Dan. Indeed, you're right, and it has been frustrating to see the volume declines happen on such short notice. You'll recall that the nature of our agreements with our clients provides explicitly that kind of optionality.
Dan Perlin: Thanks, Dan.
Speaker Change #128: Indeed, you are right and it has been frustrating to see the.
Speaker Change #129: Volume declines happen on such short notice Youll recall that the nature of our agreements with our clients provide explicitly that kind of optionality. That's why our clients look to us to provide them with flex opportunities, both up and down as their own volume demands.
Jeff Puritt: That's why our clients look to us to sort of provide them with flex opportunities both up and down as their own volume demands increase and wane. It has been a source of frustration for myself and the team that we've not had better notice, if you will, around that kind of fluctuation so that we could be better prepared. Part of this, I think, is a sign of the times.
Speaker Change #129: Kris and Wayne.
Speaker Change #129: It has been a source of frustration for myself and the team that we've not had.
Better notice if you will around that kind of fluctuation so that we can be better prepared.
Speaker Change #129: Part of this I think is a sign of the times again as you've heard from our peers and from ourselves of late.
Jeff Puritt: Again, as you've heard from our peers and from ourselves of late, it's ongoing expectations from clients that we find a way to match their expectations on more or better for less. And our job, which, frankly, I've not managed as well as I should have, is to be out in front of these kinds of adjustments and to do a better job of either preventing the decline or finding substitutes, whether in other areas of those clients' businesses or winning other accounts. And we just need to do better on that front in order to better inoculate ourselves from that kind of variation. Thank you. Tin Huang from J.P.
Speaker Change #129: Ongoing expectations from clients that.
Speaker Change #129: We find a way to match their expectations on more or better for less.
Speaker Change #129: And our job that frankly, I have not managed as well as I should have is to be out in front of these kinds of adjustments and to do a better job on either preventing the decline <unk> finding substitutes whether in other areas of those clients business or winning other accounts and we just need to do better on that front in order to better.
Innoculate yourselves from that kind of variation.
Speaker Change #129: Thank you.
Speaker Change #129: Alright.
Dan Perlin: Thank you Dan.
Speaker Change #131: Next question is from.
Speaker Change #131: Sidney Huang from JP Morgan apologies. So please go ahead.
Tin Huang: So, please go ahead. Hi Jeff, no apologies needed. Jeff, we'll definitely miss our interactions here. Grateful to have learned from you. I'll ask another sort of education question, if you don't mind. Just thinking about the pricing pressure you described, I'm just curious. Is this driven at this stage?
Speaker Change #131: Okay.
Sidney Huang: Okay, Yeah, no apologies needed, Jeff, we'll definitely miss or Inactions here grateful to learn from you.
Sidney Huang: I'll ask another sort of education question. If you don't mind, just thinking about the pricing pressure you described I'm. Just curious is this driven at this stage.
Jeff Puritt: on an incremental basis more by competitive actions in your mind, or is it? A cyclical issue, more so, or a secular one. Good questions as ever, Tianjin.
Sidney Huang: On the incremental basis more of a competitive actions in your mind or is it.
Speaker Change #132: Cyclical issue more so or a secular one.
Jeff Puritt: I, too, will miss our interactions. But hopefully, given my new role, I'll still have the opportunity to spend time learning from you. I think it's all of the above, candidly.
Speaker Change #132: Good questions as ever Tien Tsin, I too will miss our interactions, but hopefully given my new role I'll still have the opportunity to spend time learning from you.
Jeff Puritt: I think, as I mentioned before, there is this pervasive, persistent expectation of more and better for less. And customers are driving a lot of this. But as well, our peers are willing to pitch in at a price point that is considerably lower than what we've seen. And I think, interestingly, one can bifurcate the CX and the AI universe a little bit in terms of the pricing dynamic. On the latter, on the CX front, I think because of the opportunities for technology substitution and enablement, there is this pervasive downward pressure and expectation that, well, with more technology in the solution and less labor, you should be able to deliver more cost effectively.
Speaker Change #133: I think it's all of the above candidly I think as I mentioned before there is this pervasive persistent expectation of more and better for less so customers are driving a lot of this.
Speaker Change #133: But as well our peers are willing to pick up.
Speaker Change #133: At a price point that is considerably lower than what we've seen and I think interestingly and one can bifurcate the CX and the AI universe, a little bit in terms of the pricing dynamics on the latter on the CX front I think because of the opportunities for technology substitution and enablement. There is this <unk>.
Speaker Change #133: It's a downward pressure and expectation with more technology and the solution and less labor you should be able to deliver more cost effectively and indeed, whilst we're making progress on that front. It has not been as I said in my earlier remarks as quick as we should have been on the AI front remember a lot of our competitors are either private companies or companies that are clearly.
Jeff Puritt: And indeed, whilst we're making progress on that front, it has not been, as I said in my earlier remarks, as quick as we should have been. On the AI front, remember, a lot of our competitors are either private companies or companies that are clearly not targeting the same kind of profitable margin yield as we are. And as a consequence, their focus on price has been considerably less important.
Speaker Change #133: Targeting the same kind of profitable margin yield as weak and as a consequence their focus on price has been considerably less importantly, theyre looking for the land grab and just revenue growth and so.
Jeff Puritt: They're looking for the land grab and just revenue growth. And so it's put us in this unenviable position of, well, do we allow for this complete eradication of margin yield in order to enjoy the revenue upside? Or do we try and find that elusive balance?
Speaker Change #133: And enviable position us well to do we allow for this complete eradication of margin yield in order to enjoy the revenue upside or do we try and find that elusive balance and that's really been the challenge over the last few years and I think as you heard from our comments and reflected in our revised guidance.
Jeff Puritt: And that's really been the challenge over the last few years. And I think, as you heard from our comments and as reflected in our revised guidance, we're going to have to take it on the chin a little bit in terms of our historical margin profile so that we can enjoy the upside in revenue and then rely upon scale and our own, eating our own gourmet cooking internally, as I said, in order to create the headroom we need to enjoy the margin yield that we've historically benefited from. Thank you. The next question is from Stephanie Price from CIBC; please go ahead. Hi, good morning.
Speaker Change #133: We're going to have to take it on the channel a little bit in terms of our historical margin profile. So that we can enjoy the upside in revenue and then rely upon scales and our own eating our own gourmet cooking internally as I said in order to create the headwind we need to enjoy the margin yield that we've historically benefited from.
Speaker Change #134: That's good color. Thank you.
Speaker Change #135: Alright, thank you.
Stephanie Price: I just want to touch on the cost efficiency initiatives taking more time to yield meaningful results. Just hoping you can walk through the puts and takes here. Gopi, I think you also mentioned that average salaries are up due to fierce competition for talent. Just curious if that's AI-related or more broad and how that's kind of playing into the cost efficiency initiatives. Good morning, Stephanie. It's good to hear from you.
Speaker Change #136: The next question is from Stephanie price from CIBC. Please go ahead Stephanie.
Stephanie Price: Hi, good morning.
Stephanie Price: I just wanted to touch on the cost efficiency initiatives, taking more time to yield meaningful results just hoping you could walk through the puts and takes here there'll be I think you also mentioned that average salaries were up due to fierce competition for talent.
Speaker Change #137: Just curious if that.
Speaker Change #138: AI related or more broad and how that's kind of playing into that cost efficiency initiatives here.
Gopi Chande: So, there are two parts to that question, one on our cost efficiency program itself. So there are several components to it, some that have taken flight and are going to continue to support Q2. So with regard to some of our facility consolidation and vendor renegotiations, those are in flight. The ones that have taken us slightly longer than expected are ones that we're looking to roll out globally, and with some of the nuances that we have in each of the regions, working through the systems and the processes there is taking a little longer than expected, but will ultimately be rolled out and help support some of the visibility we'll have into our workforce management So those are the ones that are a bit slower to roll out, but we expect them to come through. To your second question, Stephanie, certainly wage inflation is something like our peers that we are dealing with.
Speaker Change #139: Good morning, <unk> so.
Speaker Change #140: Two part question one on our cost efficiency program itself.
Speaker Change #141: So there are several components to it some of that has taken.
Speaker Change #142: Flight and are going to continue to support <unk>. So with regards to some of our facility consolidation and vendor renegotiations those are in flight.
Speaker Change #142: The ones that have taken a slightly longer than expected or wireless that we're looking globally and with some of the nuances that we have in each of the regions.
Also through the systems and the processes there is taking a little longer than expected, but will ultimately be rolled out will help support some of the visibility will have little to our workforce management, which will support in terms of reporting to our clients on absolute TSM.
Speaker Change #142: And it will help us be able to manage attrition. So those are the ones that are a bit Florida rollout, but we expect to come through.
To your second question definitely certainly wage inflation is something like our peers that we are dealing with.
Gopi Chande: And we do think that, ultimately, that is addressed in several different ways that we're attacking. One is collaboratively working with our clients, our customers, in terms of where we deliver those services. And secondly, as well, moving to provide a more efficient automated service ourselves so that we can reduce the overall cost base and absorb some of that inflation. So it is all related. Certainly, we're looking at how we can reduce our costs and then how we can partner with our customers to reduce overall costs. Aravinda Galappatthige
Speaker Change #142: And we do think that ultimately that is addressed several different ways that we're attacking one is collaboratively working with our.
Speaker Change #142: Clients or customers in terms of where we deliver those services.
Speaker Change #142: And then secondly, as while moving to provide a more efficient automated service ourselves. So that we can reduce the overall cost base to absorb some of that deflation. So it is all related certainly we're looking at how do we reduce our cost and then how do we partner with our customers to reduce overall costs.
Speaker Change #143: Thank you.
Stephanie Price: Alright, Thank you Stephanie.
Speaker Change #144: Next question is from and forgive me if I mispronounce. It every vendor Gallup pad test Ashish I am so sorry, if this question every time.
Aravinda Galappatthige: Please quit, Aravinda. Thank you. Jeff, all the best to you. I've enjoyed our time discussing the business over the last year and a half. Now, my question is back to margins.
Speaker Change #144: Thank you.
Speaker Change #144: Jeff All the best you have enjoyed time.
Speaker Change #145: Discussing at the business over the last year and a half.
Jeff Puritt: Last year, when we had some of these revisions, TI was able to build back its margins back over the 20% level fairly quickly. Um, you know, recognizing that you've already given guidance for fiscal 24, how should we think about the recovery margin? Notwithstanding some of the comments that Gopi made, maybe any additional help that would be appropriate. Thanks very much, Aravinda. I, too, have enjoyed our interactions.
ashish: My question is.
Speaker Change #147: Back to margins.
ashish: Last year when we.
ashish: Had some of these regulations.
ashish: <unk> was able to kind of build back as margins.
ashish: Over the 20% level.
ashish: Fairly quickly.
ashish:
Speaker Change #148: Recognizing that you already given guidance for fiscal 'twenty, how should we think about the recovery in margins.
Speaker Change #148: Notwithstanding some of the comments that could be made.
Speaker Change #148: Thanks, very much or Linda I too have enjoyed our interactions looking forward to more hopefully.
Jeff Puritt: Looking forward to more, hopefully. I think candidly, the challenge has been that we've had to rely historically on too many one-timers in order to make sure that we were able to continue to meet expectations set for ourselves and for the street with respect to the well above 20% EBITDA zip code. And the challenge has been, you know, over the last little while, we just keep losing opportunities because of price.
Speaker Change #150: I think candidly the challenge has been that we've had to rely historically on too many one timers in order to make.
Speaker Change #150: Make sure that we were able to continue to meet expectations set for ourselves and for the street with respect to the.
Speaker Change #150: Well above 20% EBITDA ZIP code and the challenge has been.
Speaker Change #151: Over the last little while we just keep losing opportunities because of price.
Jeff Puritt: And so when both CX and AI opportunities are still quite available, but we're told in the postmortem that we were just too expensive in the competition, we're willing to provide a similar solution, we would argue an inferior solution, but nonetheless, more or better for less, as I said before, is that the desire out there. We just decided that we couldn't keep missing out on opportunities. So we're going to have to intentionally lower expectations in the near term to the levels that are reflected in the guide that you've seen so that we can get back on track for revenue growth.
Speaker Change #151: And so when both CX and AI opportunities are still quite.
Speaker Change #151: Available, but were told in the postmortem that we were just too expensive and the competition were willing to provide a similar solution. We would argue an interior solution, but nonetheless.
Speaker Change #151: More or better for less as I said before is the desire out there. We just decided that we can't keep missing out on opportunities. So we're going to have to intentionally lower expectations in the near term to the levels that are reflected in the guide that you've seen so that we can get back on track for revenue growth and thereafter in the fall.
Jeff Puritt: And thereafter, in the fullness of time, as we continue to see better progression on our cost efficiency efforts, that will create the headroom to get our margins back up to where we want them to be, or where we think they could be. I think I'll invite Tobias to comment on the AI front.
Speaker Change #151: A time as we continue to see better progression on our cost efficiency efforts that will create the headroom to get our margins back up to where we want them to be is where we think they could be.
Speaker Change #152: I think I'll invite to be is the comment on the AI front, but just as a setup as I mentioned a moment ago right now it's still this land grab period, where again the price competition is quite fierce and so we need to once again focus on winning opportunities getting in the door with these clients and then when we demonstrate.
Tobias Dengel: But just as a set up, as I mentioned a moment ago, right now, it's still this land grab period where, again, the price competition is quite fierce. And so we need to once again focus on winning opportunities and getting in the door with these clients. And then when we demonstrate the capability set that we have, we can then look to expand the margin yield derived from that. But Tobias, why don't I invite you to top up a little bit on our ambitions on the AI margin yield front in the fullness of time?
Speaker Change #153: The capability set that we have we can then look to expand the margin yield derived from that but to be as why don't I invite you to top up a little bit on our ambitions on the AI margin yield front in the fullness of time.
Tobias Dengel: Yeah, thanks, Jeff. So one thing to think about is that, in the popular mind, AI use cases are all around replacing human beings and answering questions. And I think we all know that it's going to take quite a while to get there in terms of risk mitigation, et cetera, et cetera. The use of AI in the near term is going to be to enhance the agent experience and agent productivity through tools like translation and summarization, all targeted at increasing efficiency, reducing average handle time, allowing agents to get information much more quickly, and really this concept of humans in the loop.
Speaker Change #153: Yeah. Thanks, Jeff So one thing that to think about is that.
Speaker Change #154: In the popular mind.
Speaker Change #155: The AI use cases are all around replacing human beings and answering the questions that I think we all know that that's going to take quite a while to get there in terms of risk mitigation et cetera et cetera.
The use of AI in the near term is going to be to enhance the agent experience and the agent productivity through tools like translation tools like summarization alter.
Speaker Change #155: All targeted at more efficiency, reducing average handle time, allowing agents to get information much more quickly.
Tobias Dengel: So that's where a big part of our near-term fuel X investment is aimed. And so if we do that right, you should really see some improvement in margins due to the efficiency we can drive in the system. Thank you.
Speaker Change #155: Is aimed at.
Speaker Change #156: And so if we do that right you should really see some improvement in margins due to the efficiency, we can drive in the system.
Speaker Change #157: Thank you.
Speaker Change #157: Alright. Thank you. The next question is from Cathy Chan from Bank of America. Please go ahead Kathy.
Operator: Thank you and best of luck, Jeff. I really enjoyed working with you. I just wanted to ask a quick question on headcount. So it looks like it was flat quarter over quarter, and you guys are implementing some hiring freezes, etc. So I guess what are you expecting in terms of the back half of the year in terms of headcount growth there? And you know, what's the geographical mix of headcount now versus revenue mix, particularly in Europe and the US? Thank you. Thanks, Cassie.
Cathy Chan: Thank you and best of luck, Jeff really enjoyed working with you I just wanted to ask a quick question on head count. So it looks like it was flat quarter over quarter and you guys are implanting some hiring freezes et cetera. So I guess what are you expecting in terms of the back half of the year in terms of head count growth there and what's the geographical makeup head count now versus revenue may.
Speaker Change #158: Particularly in Europe, and the U S.
Cathy Chan: Yes.
Gopi Chande: So headcount, maybe I'll split that into two. So in terms of our indirect, non-billable headcount, that's one we've continuously been looking at and looking to operate more efficiently. So I would expect to see either flat or declining revenue on that front. And then the remainder of our headcount, as you well know, is related to billable resources. So that will match the revenue uptick that we will expect to see. In terms of the geographical breakdown, I will, Cassie, I'll come back to you on the specifics of the breakdown there.
Kathy: Thanks, Kathy so heads.
Maybe I'll split that into two so in terms of our direct non billable head count that's why we've continuously been looking at and looking to operate more efficiently. So efficiently. So I would expect to see either flat or declining on that front and then the remainder of our head count as you well know.
Kathy: Is it related to available resources, so that will match the revenue uptick that we will expect to see.
Gopi Chande: In general, we are seeing a slight reduction in North American team count and revenue, as I mentioned in my script, offset by increases in Central America and Africa, but I can get you those specific numbers offline. Okay, thank you. All right. Thank you, Cassie. The next question is from Divya Goyal. Good morning, everyone.
Kathy: And the truth of the geographical breakdown I will ask Kathy I'll come back to you on the specifics of the breakdown there in general we are seeing.
Kathy: Slight reduction in North America.
Kathy: Key accounts revenue as I mentioned in my script offset by increase of Central America, and Africa, but I can get you those specific numbers offline.
Speaker Change #159: Okay. Thank you.
Kathy: Alright, Thank you Kathy.
Divya Goyal: Jeff, thanks a lot for your partnership. It was a pleasure working with you. I wanted to actually get some more color on the few lives discussion that you had.
Kathy: Good morning, everyone, Jeff. Thanks, a lot for your partnership with was a pleasure working with you.
Speaker Change #160: I wanted to actually get some more color on the few likes discussion that you had I wanted to understand what gives you confidence in this AI deployment and what is it.
Jeff Puritt: I wanted to understand what gives you confidence in this AI deployment and what is the, for the lack of a better word, guarantee that these revenues will create a recurring revenue stream. And just to add to that, you also said there was a meaningful revenue contribution from Fuel IX, so if you could provide some context on that. Thank you so much.
Speaker Change #161: But the lack of a better word guarantee that these revenues will create a recurring revenue stream and just to tag on that you also said there was a meaningful revenue contribution from fuel IX. So if you could provide some context on that thank you so much.
Tobias Dengel: Thanks very much, Divya. Once again, perhaps I'll invite Tobias to speak directly to both aspects of your question.
Speaker Change #162: Thanks, very much David once again, perhaps I'll invite to be us to speak directly to both aspects of your question.
Speaker Change #161: Yes.
Tobias Dengel: Yeah, so first of all, in terms of revenue, I don't think we said that there was a meaningful revenue contribution from PLIX. I'll let Gopi elaborate on that. I think, much more broadly, we had meaningful revenue contributions from our AI services and our traditional data annotation business. But I would say, it's early days in the sense that there's a lot of competition, and we are very cognizant of that.
Speaker Change #163: Yeah. So.
Speaker Change #164: First of all in terms of revenue I don't think we said that there was a meaningful revenue contribution if youll ask I'll, let go be elaborate on that I think much more broadly we had meaningful revenue contributions from our AI services.
Speaker Change #164: And traditional data annotation business.
Speaker Change #164: But I would say.
Speaker Change #164: It's early days in the sense that there's a lot of competition and we.
Speaker Change #164: We are very cognizant cognizant of that but I would say we have a unique ability to work with Telus to really test is deployment and when we talk to analysts and the.
Tobias Dengel: But I would say we have a unique ability to work with Telus to really test these deployments. And when we talk to analysts in the, you know, tech industry space at places like Gartner, etc., they feel that what we are doing at Telus and with some of our early clients is very unique and provides us with an ability to test in a highly regulated set of industries that very few of our competition can do.
Speaker Change #164: In the tech industry space at places like Gardner et cetera.
Speaker Change #164: They feel that what we are doing at Telus and with some of our early clients.
Speaker Change #164: Very unique and provides us with an ability to test.
Speaker Change #164: Kylie regulated set of industries.
Speaker Change #164: There are a few of our competition have I think the second piece that I would add on is that we have.
Tobias Dengel: I think the second piece that I would add is that we have, especially in Canada, a relationship with thousands and tens of thousands of potential customers that are looking for a Canadian solution that we can provide that is model agnostic and allows those customers to switch models over time in search of the best price and confidence in the results. The final point I would make is that
Especially in Canada relationship with.
Speaker Change #164: And tens of thousands of initial potential customers.
Speaker Change #164: That are looking for a Canadian solution that we can provide.
Speaker Change #164: That is model agnostic and allows those customers to switch models over time.
Speaker Change #164: In search of the best price.
Speaker Change #164: And confidence in the results.
Speaker Change #164: The final point I would make is that.
Tobias Dengel: These are recurring revenues, right? So as we add clients to this system, these revenues will grow and accrue over time in much more of a SaaS business model. And we will be packaging services around it. We will be packaging CX around it.
Speaker Change #165: These are recurring revenues right so as we add.
Speaker Change #165: Clients to this system.
Speaker Change #165: These revenues will grow and accrue over time and much more of a SaaS business model.
Speaker Change #166: We will be packaging services around it will be patchy packaging CX around it.
Tobias Dengel: So it's extraordinarily synergistic with the set of services that we already provide to our clients. Thanks, Tobias. Thanks, Jeff. Thank you, Divya.
Speaker Change #166: So it's extraordinarily synergistic with the set of services that we already provide to our clients.
Tobey: Thanks, Tobey Thanks, Jeff.
Speaker Change #168: Thank you <unk>.
Operator: The next question is from Keith Bachman. Hi, many thanks for taking the question. I wanted to ask you how your strategy related to M&A may be evolving given all the dynamics in your business. And to be more specific, outside of perhaps some tuck-ins. Do you think it's appropriate to tap the brakes on larger deals as you're structurally trying to optimize or improve the operations of the business? And related to that is, can you just describe? You said there was a performance payment to Willowtree. What was the metric that caused a trigger of a performance payment to Willowtree? And that's it for me. Thanks, Keith. Maybe I'll take the first question.
Speaker Change #168: The next question is from Keith Bachman from BMO. Please go ahead Keith.
Keith Bachman: Hi, many thanks for taking the question I wanted to ask about.
Keith Bachman: How your strategy related to M&A may be involved evolving.
Given all the dynamics in your business seem to be more specific.
Speaker Change #169: Outside of perhaps some tuck ins.
Speaker Change #170: Do you think it's appropriate to tap the brakes on larger deals as your structurally.
Speaker Change #169: <unk>.
Speaker Change #171: Optimizing our improve the operations of the business.
Speaker Change #172: And related to that is can you. Just describe you said there was a performance payment to Willow tree, what was the metric that caused a trigger of a performance payment to willow tree and Thats. It for me many thanks.
Keith Bachman: I'll invite Gopi to speak to the second person. We have always had a fairly well-defined strategy with respect to when and how we leverage M&A to supplement, complement, amplify, and accelerate our business. And it is truly one where we absolutely focus on the core business first and foremost, and M&A is not a strategy; it's an enabler, an accelerant for the realization of our strategy. It has been, you know, since the Willowtree deal that we've done a large transaction, and we have indeed, as you suggested correctly, tapped the brakes in terms of incremental transformative acquisitions as we look to focus on continuing to get our own house in order in terms of organic growth.
Speaker Change #172: Thanks, Keith maybe I'll take the first question and I'll invite you to speak to the second.
Keith Bachman: We have always had a fairly well defined strategy with respect to when and how we leverage M&A too.
Keith Bachman: Supplement complement and amplify and accelerate.
Keith Bachman: Our business and it is truly one where we absolutely focus on the core business first and foremost.
Keith Bachman: M&A is not a strategy, it's an enabler an accelerant for the realization of our strategy.
Keith Bachman: It has been.
Keith Bachman: Since the Willow tree deal that we've done a large transaction and we have indeed as you suggested correctly tough to break in terms of incremental transformative acquisitions as we look to focus on continuing to get our own house in order.
Keith Bachman: Prospectively, as we have always done historically, I think it's fair to say that you shouldn't expect to be seeing us out there making blockbuster acquisitions other than on perhaps an opportunistic basis, but for the most part, probably focus on where there's opportunistic tuck-in activity that we think fills a gap, helps us access a capability, a market that we don't otherwise already But you're absolutely right; we will continue to focus on getting our house in order and getting the organic growth engine humming as a conditioned precedent to earn the right to continued meaningful supplementary M&A activity.
Keith Bachman: In terms of organic growth <unk>.
Keith Bachman: Prospectively as we have always done historically I think it's fair to say that you shouldn't expect to be seeing is out there and making blockbuster acquisitions.
Keith Bachman: Other than on perhaps an opportunistic basis, but for the most part probably focus where there's opportunistic tuck in activity that we think fills a gap helps us access capability a market that we don't otherwise already access or don't think we can get there fast enough organically, but youre absolutely right. We will continue to focus on <unk>.
Keith Bachman: Getting our house in order and getting the organic growth engine humming.
Speaker Change #173: As a condition precedent to earn the right for continued meaningful supplementary M&A activity <unk> over to you.
Keith Bachman: Gopi, over to you on Erna's question. Thanks. And Keith, to clarify, there wasn't a payment related to the willow tree earn out. The amount that went through this quarter was a true up of the provision. So there were two reasons for that.
Keith Bachman: Question.
Keith Bachman: Keith to clarify there wasn't a payment related to the regulatory earn out the amount that went through this quarter with a true up the provision. So there were two reasons for that one every quarter. We look at the forecast has expected from Willow tree.
Jeff Puritt: One, every quarter we look at the forecast as expected from willow tree and true that up. The provision and earn out is working as planned. So as we see a lower forecast than originally expected, that does true up what the ultimate earn out payment is. So that's working as expected.
Keith Bachman: <unk> the.
Speaker Change #174: <unk> an earn out is working as planned so as we see a lower forecast than originally expected that's true up what the ultimate earn out payment is so thats working as expected that was one of the contributing factors and then secondly, as I mentioned, we renegotiated the agreement and so again that was factored.
Gopi Chande: And then secondly, as I mentioned, we renegotiated the agreement. And so again, that was factored into rebalancing where our provision is at. We do not expect, currently, that there would be a future adjustment to that provision.
Speaker Change #174: It is a rebalancing where our position is we.
Speaker Change #174: We do not expect that there would be a huge future adjustment to that provision I mentioned that renegotiation.
Gopi Chande: I mentioned that in that renegotiation, there are some good win-win opportunities between us and willow tree. It is based on combined willow tree and Telus digital performance. And we also have the benefit of the continued employment of the willow tree management team. So you will see some increased stock-based compensation associated with that amendment. Hopefully, that clarifies Keith the accounting from this quarter, many things. The next question is from Maggie Nolan from William Blair. Hi everyone, this is Kate Kronstein on behalf of Maggie.
Speaker Change #175: Good win win opportunities between us and Willow tree. It is based on combined Willow tree and tell US digital performance and we also have the benefit of that continued appointment as the Willow tree management team. So you will see increased stock based compensation associated with that amendment hopefully that Claire.
Speaker Change #174: <unk> keeps the accounting for this quarter.
Many thanks.
Speaker Change #176: Alright, Thank you Keith.
Speaker Change #177: The next question is from Maggie Nolan from William Blair. Please go ahead Maggie.
Speaker Change #177: Hi, everyone. This is Keith from sign on for Maggie.
Operator: Jeff wanted to wish you good luck on behalf of our team in your next chapter. Um, my question is, I understand there are clearly macro impacts, but are there any changes that you guys think need to happen on the sales force front to help ramp up new client wins? Thanks, Kay.
Speaker Change #178: Just wanted to wish you good luck on behalf of our team in your next chapter.
Maggie Nolan: My question is I understand there are clearly macro impacts but are there any changes that you guys think you need to happen on the sales force front hub.
Speaker Change #179: Ram BOP new client wins.
Jeff Puritt: Yes, we are not satisfied with the success of our sales activity to date. As you recall from previous quarters, we talked about making meaningful incremental investments, both in terms of the scale of our hunting and farming community, as well as embracing, adopting, and proliferating the PSO framework and methodology to ensure that we get better bang for the buck, so to speak, from that sales organization. You'll recall also that, and as I referenced again in my prepared remarks this morning, the first quarter this year was a record for new sales for the team. Unfortunately, that tailed off a little bit in the second quarter.
Speaker Change #179: Thanks, Jay Good question, yes.
Speaker Change #180: We are not satisfied with the <unk>.
Speaker Change #181: Success of our sales activity to date, you may recall from previous quarters, we talked about.
Make it meaningful incremental investments both in terms of the scale of our hunting and farming community as well as.
Speaker Change #181: Embraceor adopting and proliferating <unk>.
<unk> framework and methodology to ensure that we get better Bang for the Buck so to speak from that sales organization Youll recall also that and as I referenced again in my prepared remarks. This morning.
Speaker Change #182: First quarter. This year was a record for new sales for the team Unfortunately that tailed off a little bit in the second quarter, but again as I mentioned the funnel continues to be very robust and we're hopeful that we can get better conversion, but there is always room for improvement in absolutely.
Jeff Puritt: But again, as I mentioned, the funnel continues to be very robust, and we're hopeful that we can get better conversion. But there's always room for improvement. And absolutely, Brian Hannan, who leads our sales effort, has brought a tremendous level of discipline and rigor and really re-energized the team. And, you know, we're looking forward to continued improvement in that performance and trajectory in the weeks and months ahead. Okay, great.
Speaker Change #183: Ryan Hannon, who leads our sales effort I think has brought a tremendous level of discipline and rigor and really reenergized. The team and we're looking forward to continued improvement in that performance and trajectory in the weeks months ahead.
Speaker Change #184: Okay, great. Thank you Jeff.
Keith Bachman: Thanks Keith.
Speaker Change #185: Thank you.
Operator: Thank you, Jeff. This question is from John... Hey, thanks for the question. I just want to follow up. What gives you confidence in the back half uptick? Are there any assumptions or changes? The current backdrop that.
Speaker Change #186: The next question is from Johnson away from Guggenheim Partners. Please go ahead.
Johnson away: Hey, Thanks for the question. So just wanted to follow up what gives you confidence in the back half uptick, but any assumptions or changes in the current backdrop, that's kind of an EBIT.
John: Thanks for the question. I think if I understood it correctly, it was just sort of, how do we have faith in the revised outlook? Did I hear that correctly?
Speaker Change #187: Thanks for the question I think if I understood. It correctly was just sort of how do we have seasonally.
Speaker Change #188: The revised outlook did I hear that correctly.
Speaker Change #189: That's correct.
Gopi Chande: Okay, perfect. So definitely some time spent understanding the changes macroeconomically. What does give us confidence, I'll start with revenue, is we are seeing a turnaround, as Jeff and I both mentioned, in willow tree demand, positively seeing that now exceeding supply. So we are working hard on hiring to meet that demand. So that's one factor.
Okay perfect.
Speaker Change #190: Definitely some time spent understanding on the changes macroeconomically, what does give us confidence I'll start with revenue as we are seeing at turnarounds as Jeff and I, both mentioned in Willow tree demand.
<unk>.
Speaker Change #190: Positively seeing that now exceeding supply so we're working hard on hiring.
Speaker Change #190: Meet that demand. So that's one factor the second one to build off of Jeffs comments, just now on our PSL investments on the structure, we've put in place that.
Gopi Chande: The second one to build off of Jeff's comments just now on our PSO investment and the structure we've put in place, that is in full force for Q3 and Q4 and gives us incremental coverage in different geographies and verticals and a more structured focus. So we're expecting good returns from that. Overall, we're really confident in our funnel. You've heard about some of our AI growth opportunities. So that reflects revenue growth in half two compared to half one.
That is in full force for Q3, and Q4 and success.
Jeff: Dental coverage in different geographies and verticals in a more structured forecast. So we're expecting good returns from that overall, we're really confident in our funnel you've heard about some of our and growth opportunities.
Speaker Change #191: That reflects revenue growth in <unk>.
Speaker Change #191: Half two compared to half one.
Gopi Chande: We're seeing stabilization, Jeff mentioned on the first question with our third largest client and good growth with our first and second. And then again, good initiatives underway to address some of the attrition we're seeing, wage inflation, etc. So looking for gross margins, essentially to stabilize in half two compared to Q2. And then cost transformation. While, as I mentioned, some of the projects are delayed, we do expect to get two-thirds of the remaining $30 million of savings in Q3 and Q4. And those are programs that have already kicked off and are in flight.
Speaker Change #192: We're seeing stabilization.
Speaker Change #192: Jeff mentioned off the first question with our third largest client had a good growth with our first second and then again good.
Jeff: Initiatives underway to address some of the attrition, we're seeing wage inflation et cetera. So looking for gross margin is essentially to stabilize in half two compared to Q2.
Jeff: And then cost transformation, while as I mentioned some of the projects are delayed we do expect to get two thirds of the remaining $30 million of singles in Q3, and Q4 and those are programs that are already kicked off and in flight. So we thought that certain key around those deliveries.
Operator: So we've got good certainty around those deliveries. Gotcha. I'll drop back in the queue.
Got you.
Speaker Change #193: In the queue. Thank you.
Jeff: Okay.
Jeff: Thank you.
David Koning: Thank you. This question is from David Koning from Bexar. Oh, yeah, thank you guys. Um, I guess my question is surrounding just Telus as a client. You know, I know it's like 24% or so revenue, but it hits a much tougher comp in Q4.
The next question is from David Koning from Baird. Please go ahead David.
David Koning: Alright, Thank you guys.
David Koning: I guess my question is surrounding just tell us as a client I know, it's like 24% or so of revenue.
Gopi Chande: And actually, what happened last Q4 is your total revenue is up $29 million, and your Telus client revenue is also up $29 million sequentially. So I guess my question is, in Q4 of this year, do you get a nice sequential run in Telus again like you did last year? And maybe just discuss a little bit the dynamics of that contract.
David Koning: It hits, a much tougher comp in Q4 and actually what happened last Q4 as your total revenue was up $29 million in your tell US client revenue is also up $29 million sequentially. So I guess my question is in Q4 of this year do you get a nice sequential run and tell US again like you did last year and maybe.
Speaker Change #194: Discussing the dynamics of that contract.
Operator: Thanks, David. So our current plan assumes that we are stable with Telus throughout the year. So you are correct, we did see an upside in Q4 of last year, and we maintain that through the year.
Speaker Change #195: Thanks, David So our current plan assumes that we are stable with tell us throughout the year. So AUR correct, we could see an upside in Q4 of last year as we maintained that through the year.
Gopi Chande: Realistically, what we're seeing is a diversification of the work that we do with Telus. So while we continue our routine CX work and grow into servicing Telus Health as well, the growth this year that we have this year and will sustain is also the digital transformation work that Divya has spoken about and Jeff has spoken about. So we're expecting fairly consistent support from Telus on the revenue front without a major pickup in Q4 this year. Gotcha.
Speaker Change #195: And realistically what we're seeing is this diversification is the work that we do with tell us and while we continue our routine CX work.
Speaker Change #196: <unk> services.
Speaker Change #196: <unk> health as well.
Speaker Change #196: With me here that we have this year and it will sustain.
Speaker Change #197: <unk> is also the digital transformation work that to be assessed stocking Chilean Jeff has stuff there too so we're expecting a fairly.
Speaker Change #196: System.
Speaker Change #198: Support from the tell us on the revenue front without a major pick up in Q4 of this year.
Speaker Change #199: Gotcha. Thank you.
Speaker Change #200: Alright. Thank you there are no further questions in the queue.
Gopi Chande: Thank you. Thank you, Carl. We'll turn the call over to Jeff for his closing remarks. Thank you, Elena. Thank you, Carl.
Carl: Thank you Carl.
Speaker Change #200: I'll turn the call over to Jeff for his closing remarks, Jeff over to you.
Jeff Puritt: And thank you all for your participation today. To reiterate, everyone on our management team and I fully acknowledge that our performance continues to miss expectations, both our own and those of the street. Clearly, we must do better.
Jeff: Thank you Elena Thank you Karl and thank you all for your participation today.
Jeff: To reiterate everyone on our management team and I fully acknowledge that our performance continues to meet expectations, both our own and those of the street clearly we must do better.
Jeff Puritt: While I'm in no way dismissive of the near-term sentiment, I do want to conclude with a comment on the fundamental longer-term drivers of success for this company. The portfolio of capabilities and talents that we've assembled here at Telus Digital is, in my estimation, unparalleled in our industry. Our devoted team members, our brand and reputation built over almost two decades in the industry with our clients and partners, our technology-centric capability and solution set that we've continuously evolved to proactively address industry shifts and clients' needs, our diverse customer base, and our balance sheets, to name but a few.
Jeff: No way dismissive of the near term sentiment I do want to conclude with a comment on the fundamental longer term drivers of success for this company.
Jeff: The portfolio of capabilities and talent that we've assembled here at Telus digital or in my estimation unparalleled in our industry are devoted team members our brand and reputation built over almost two decades in the industry with our clients and partners are technology centric capability and solution set that we've continuously evolve.
Jeff: <unk> to proactively address industry shifts and clients' needs our diverse customer base, our balance sheet to name, but a few.
Jeff Puritt: It's on the strength of these assets that I believe we have the opportunity and, most certainly, a clear need to course correct on our own and street expectations regarding our growth and profitability profile in the near term due to the myriad of current market challenges and fundamental shifts I've spoken about earlier today, not the least of which is unprecedented, ubiquitous price sensitivity that we anticipate will persist in the near term. Generative AI fuel disruption brings a more fundamental and long-term implication for our entire industry.
Jeff: It's on the strength of these assets that I believe we have the opportunity and most certainly a clear need to course, correct on our own and street expectations regarding our growth and profitability profile in the near term due to the myriad of current market challenges and fundamental shifts I've spoken about earlier today, not the least of which is <unk>.
Jeff: Precedented ubiquitous price sensitivity that we anticipate will persist in the near term.
Jeff: Generally the AI fueled disruption brings a more fundamental and long term implications for our entire industry <unk> Digital's continued progress in bringing to market our own Gen. AI solutions should give you confidence that we are actively participating in this market shift and we will emerge as a beneficiary with strong prospects to generate value for.
Jeff Puritt: Telus Digital's continued progress in bringing to market our own Gen AI solutions should give you confidence that we're actively participating in this market shift and will emerge as a beneficiary with strong prospects to generate value for our stakeholders. I trust that we've answered all of your questions today, and we'll continue our discussions at investor and industry conferences and in direct conversations with many of you. Jason, Tobias, and Gopi will host our quarterly investor call that will take place in early November. Until then, thank you all for your continued engagement, and goodbye.
Jeff: For our stakeholders.
Jeff: We've answered all of your questions today, and we will continue our discussions at investor and industry conferences and in direct conversations with many of you Jason to be as in <unk>, We will host our quarterly investor call that will take place in early November until then thank you all for your continued engagement and goodbye.
Speaker Change #202: This concludes tells Digital's Q2, 2024 investor call. Thank you for your participation and have a nice day.