Q4 2024 TELUS International (Cda) Inc Earnings Call
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The conference is now being recorded.
Good day. Welcome to TELUS Digital's Q4 2024 Investor Call. I would like to introduce your speaker, Elena Lebac. Please go ahead.
Speaker Change: Thank you, Carl. Good morning, everyone. Thank you for joining us today for the TELUS Digital Fourth Quarter 2024 Investor Call. Joining our call will be Jason Macdonnell, our Acting CEO, TOO, and President of Custom Experience.
Speaker Change: Tobias Dengel, President of Digital Solutions, and Gopi Chande, our CFO. We'll begin with Gopi providing a brief financial overview and our outlook. Jason and Tobias will then offer operational and strategic highlights before we open the call for questions.
Speaker Change: You can find our cautionary statements and information on non-GAP measures used during today's call in the earnings release issued this morning and regulatory filings available on CETA Plus and EDGAR. With that, I will pass the call over to Gopi.
Speaker Change: Thank you, Elena, and good morning, everyone. I will speak to the 2024 Q4 and full-year financial performance before I review our 2025 outlook.
Speaker Change: In the fourth quarter, television shows stabilization in operations and financial performance. Revenue of $691 million was up 5% from the previous year and steady year-over-year.
Speaker Change: For the full year, we generated revenue of $2.7 billion, a decline of 2%, however delivering year-over-year stabilization in the second half. Excluding the impact from a leading social media network client, our full-year revenue was comparable to that of last year.
Speaker Change: At the same time, we expanded scope of work with our parent company, TELUS, with Digital Solutions as a key driver of growth. Year-over-year revenues were up 7% in the quarter and up 17% for the year with TELUS.
Speaker Change: Revenue with our second largest client, Google, reflected a higher prior year comparison base in the fourth quarter, but for the full year, revenue with Google increased by 7% in a continued momentum across AI data solution projects.
Speaker Change: With our third largest client, a leading social media network, our full-year revenues were lower. However, we achieved a 7% year-over-year growth in the fourth quarter.
Speaker Change: For the full year, looking at our verticals, our growth in healthcare was driven by additional services to telehealth, while BFSI expansion reflected new business with community-based banks and smaller regional financial services firms in North America.
Speaker Change: Weakness in e-commerce and FinTech is largely due to lower service volumes from certain clients.
Speaker Change: Across our geographies in 2024, revenue from the Central America region, which includes Africa for our reporting purposes, grew 11 percent. This growth area partially offset deployment from other geographies.
Speaker Change: Our adjusted EBITDA margin in the fourth quarter was 14.9%, showing further stabilization in comparison with prior quarters' 14.4%.
Speaker Change: We continue to manage non-essential costs very carefully, limiting indirect costs that don't contribute to revenue generation.
Speaker Change: In 2024, we achieved $30 million in cost efficiencies, as planned after our mid-year reset.
Speaker Change: We closed the year with net debt to adjusted EBITDA leverage ratio, as per our credit agreement, at 3.2 times. The calculation of the ratio remains negatively impacted by lower adjusted EBITDA on a trailing 12-month basis, even though we continue to pay down our debt.
Speaker Change: Informed by our forecast for the first part of 2025, we proactively arranged for a credit agreement amendment that defers the leveraged shutdown.
Speaker Change: from 3.75 times to 3.25 times to commence in the first quarter of 2026 instead of the first quarter of 2025. All other terms of the credit agreement remain unchanged.
Speaker Change: Turning to our Outlook for 2025, it is a balanced view of both opportunities and potential risks this year.
Speaker Change: At this early point in the year, we believe it's prudent to guide for approximately 2% revenue growth on an organic basis.
Speaker Change: Our sales funnel reflects the dynamics and volatility we're seeing in the industry, with strong early signs of demand across our digital solutions service line.
Speaker Change: Moving on to adjusted EBITDA, we expect approximately $400 million in 2025.
Speaker Change: When comparing our adjusted EBITDA to the prior year, it is important to normalize the comparison base by subtracting $60 million of other income from business combination-related provisions spanning from the Willow Tree Put Revaluation 2024.
Speaker Change: In addition, related to the Willow Tree Urnout renegotiation in 2024, the year-over-year comparison is impacted by higher share-based compensation, with a total share-based compensation run rate of approximately $13 million per quarter going forward.
Speaker Change: Normalized for these two items, our adjusted EBITDA outlook for 2025 implies a year-over-year decline of approximately 2%.
Speaker Change: This reflects some stabilization in our operations and importantly investment to support our return to organic growth.
Speaker Change: In 2025, we'll continue to invest in our business, particularly to drive further operational efficiencies, including programs to further address attrition, workforce management optimization, and growing shared service centers of excellence.
Speaker Change: We'll also invest in product development and marketing, including the Fuel iX Go-To-Market program that should help us capture opportunities for growth and diversification over time.
Speaker Change: Overall, we've set aside approximately $65 million in investment, inclusive of COPEX and CAPEX, to support these priorities in 2025.
Speaker Change: As a percentage of revenue, our baseline annual capital expenditures will remain in the 4-5% range.
Speaker Change: As a result of these investments and additional cost-saving initiatives in 2025, we expect to deliver $50 million of in-year savings.
Speaker Change: Spanning from the transformation of our global operation, reduced attrition, optimized supply planning, and further savings of indirect costs, including non-billable role and real estate rationalization, third-party spend reductions, and further optimization of discretionary costs.
Speaker Change: For adjusted diluted EPS, we expect approximately $0.32 for 2025. This assumes a weighted average share count of approximately 280 million shares. For 2025, we expect cash taxes in the range of $50 to $60 million.
Speaker Change: In terms of seasonality, and to help you with quarterly forecasting, we expect the first and second half of the year to be approximately $48.52 for revenue and $45.55 for adjusted EBITDA.
Speaker Change: The first quarter of the year is typically our softest of the four, and we expect this to be true for Q1 2025.
Speaker Change: We expect Q1 to be the lowest in revenue in adjusted EBITDA and lower than Q4 of 2024. And it will also be the lowest quarter of the year for EBITDA in 2025, given the upfront nature of investments we're making.
Speaker Change: We expect revenue EBITDA to build up in subsequent quarters and the second half of the year.
Speaker Change: While we don't specifically guide on free cash flow, Q4 2024 was unusually high primarily due to timing of working capital net inflows from a couple large client prepayments.
Speaker Change: In the first half, and particularly in Q1, we expect free cash flow to be lower, given softer EBITDA, and normalization in working capital inflows.
Speaker Change: In setting our outlook for 2025, we've taken a thoughtful, balanced approach, setting realistic assumptions this early in the year. With that, I'll pass to you, Jason, for operational and strategic highlights.
Jason Macdonnell: Thank you Gopi. Good morning everyone. The key theme exiting 2024 was reliable results and we intend to continue to focus on this while using 2025 as a transition and investment year, as Gopi has mentioned, positioning us for growth in the future.
Jason Macdonnell: We're focused on further improvements that optimize our technology, team, services, and geographic diversity. In the coming quarters, we'll continue to prioritize four key areas.
Jason Macdonnell: further evolving our business capabilities, service offerings, tools, and processes, in particular in the AI space, delivering positively differentiated service quality by coupling technology and customer experience.
Jason Macdonnell: Developing our talent including augmenting our team with new AI industry skills and leadership.
Jason Macdonnell: driving efficiencies and rationalizing our assets and global footprint to invest in the locations of highest demand. All of these efforts will support our revenue growth goals.
Speaker Change: At the year-end, our sales funnel stood at approximately $2 billion. We saw strong growth in our digital solutions pipeline in the last quarter, which Tobias will expand on later. This re-acceleration helped offset slower growth in other service areas.
Tobias Dengel: In the fourth quarter, and particularly in December, we expanded relationships with several customer experience clients within our top 10 cohort.
Tobias Dengel: Overall, in 2024, we expanded our business with 162 existing clients, demonstrating our efforts to diversify beyond our largest accounts and to drive better product diversification.
Tobias Dengel: We also added 55 net new clients across diverse industries, including 13 net new clients in the last quarter alone.
Tobias Dengel: Notably, we won customer experience service contracts for two large American retailers to be delivered in India and South Africa, locations in high demand and where we expect further growth.
Tobias Dengel: In Africa, in particular, we've seen rapid growth. Since making two small acquisitions in May of 2023 and establishing our footprint in Africa, we've successfully scaled our operations. We grew the number of team members by 800%.
Tobias Dengel: We generated a 430% increase in revenue and a 440% growth in profitability measured by our operating EBITDA for those locations.
Tobias Dengel: So far the focus in this region has been on customer experience management for our clients in communications and media, tech and games, e-commerce and fintech.
Tobias Dengel: It remains an important geography for our clients' delivery footprint diversification and where we will be working to drive further growth as we expand our facilities and broaden the service set delivered out of those locations.
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Tobias Dengel: Among other key wins in the fourth quarter, in AI data solutions, we added two new AI research and product companies to support the development of their multimodal large language models. We also won two new clients in the autonomous transportation sector.
Tobias Dengel: Over the course of last year, we saw good momentum in AI data solutions, which we are working to carry forward into 2025.
Tobias Dengel: We are very excited about what we see here. This came on the strength of our global practice and client relationships with several hyperscalers, notably Google, but others as well. For example, we further diversified our work with two social media players by adding key AI data solutions projects.
Tobias Dengel: These are existing clients who are investing heavily in the LLM development.
Tobias Dengel: Now, in industry news on Asia-based DeepSeek, as well as large investment intentions from North American hyperscalers, this bode well for demand in AI data solutions, and in particular for more evolved LLM tasks and projects.
Tobias Dengel: Our services play a key role in supporting LLM training and development, and we will need to continue to rapidly advance our capabilities in the LLM space race.
Tobias Dengel: Competitive dynamics among hyperscalers only intensify the need for further investment and we are making investments to our services and related tools to remain an integral part of the AI evolution.
Tobias Dengel: Rapid news flow, particularly in the technology space, marked the beginning of 2025.
Tobias Dengel: We were compelled to provide a public statement in early January to remind the market of some important aspects of the content moderation services we provide. Specifically, we aim to be transparent on what changes impact our business.
Tobias Dengel: We currently provide a broad spectrum of content moderation services for several clients, including a leading social media network and other social media clients.
Tobias Dengel: We don't do third-party fact-checking, which is a very specific term in the U.S. We do provide content moderation, primarily in Europe, where specific laws govern moderation.
Tobias Dengel: Importantly, we moderate a diversified set of highly critical content including what's considered potentially harmful or illegal.
Tobias Dengel: The critical and complex nature of this particular content that we moderate is a fundamental aspect of doing business for social networks and similar content creation platforms and tends to have more human-in-the-loop requirements.
Tobias Dengel: Now, this all being said, the trust, safety, and security service sector is changing rapidly as are the requirements and demand for certain geographies.
Tobias Dengel: We may see pressure in this regard even in Europe. We will leverage changing demand to advance and adapt our trust safety and security services and optimize the locations we serve from while continuing to stay nimble as the industry changes.
Tobias Dengel: Some changes may require further investment as we advance tools, shift locations, establish new footprint, and incur transitions costs.
Tobias Dengel: This agility is a hallmark of our organization and in fact an important aspect of why companies choose us as a partner, and it's one of the reasons why we have a diverse set of services within our portfolio.
Speaker Change: Now, before I turn the call over to Tobias, let me share some quick progress and outline our efforts on key strategic initiatives that I outlined earlier. We're committed to delivering service quality excellence. Our goal is to be ranked as the leader across all our client counts.
Speaker Change: Achieving this across the board will strengthen our competitive position in terms of pricing, clients heightened expectations, and in new business areas we're positioning.
Speaker Change: In customer experience management and content moderation in particular, we expect to see further industry consolidation this year. Our competitive positioning is directly linked to delivering the best customer experience across all benchmarks.
and ForEachClient, where clients choose to consolidate partners.
services or substitute legacy support with AI capabilities.
Speaker Change: We look to be the partner of choice in driving this technology service change and or leverage our relationship with the client to increase product intensity and diversification or grow new locations exiting regions with diminishing demand.
Speaker Change: We are deploying targeted improvement plans to enhance our operational performance and yield better customer sentiment, and we're seeing early results in this regard. We continuously track what's called a Customer Sentiment Index. It's defined as our customer experience delivery efficacy.
Speaker Change: And how likely a client is to grow with us or to recommend us to other clients. Over the course of the fourth quarter, our customer sentiment index improved by 20% across our top 55 accounts. And we're not stopping there.
Speaker Change: Going hand-in-hand with service quality excellence is talent development. In an annual employee survey conducted by Concentric, our 2025 engagement score improved by 200 basis points to 78 percent.
Speaker Change: Having joined Telus Digital five months ago, I personally commend all of our team members for their unwavering commitment to customer service excellence and continuing engagement, and I want to thank everyone on our global team for their very warm welcome.
Speaker Change: For our team members, we're prioritizing AI skills, career development, and applying AI for lower-value tasks, while our hiring strategy for the near term is on AI talent and billable positions to drive revenue growth.
Speaker Change: In 2025, we'll show further progress in transforming our operations through investments and focus on operational efficiencies and workforce management.
Speaker Change: Beyond internal transformation, our client facing business will also continue to evolve.
Tobias Dengel: And now, I'll hand it over to Tobias for a brief discussion on digital solutions.
Tobias Dengel: Thank you Jason and thank you Gopi. Good morning everyone. I'd like to start by giving you an update on our broader digital solutions business and then touch on our go-to-market strategy around digitization of CX and our bundled offerings.
Tobias Dengel: We're experiencing a re-acceleration in our digital solutions business with quarter-over-quarter growth and a solid competitive positioning, underscored by our world-class Net Promoter Score.
Tobias Dengel: This forms the foundation for positioning TELUS Digital's products and services with clients in market conditions that are more favorable than we've experienced over the past 18 months.
Our core position continues to gain traction with our clients.
Tobias Dengel: We are laser focused on helping our clients evolve the entire end-to-end journey of their customers.
Tobias Dengel: from digital marketing and sales to products such as apps and websites through to AI-supported bot and human support, all underpinned by a common data layer.
Tobias Dengel: Exciting examples from the last few months include winning new projects for a national bank in Southeast Asia, a large win-back with a timeshare client for web implementation, and a digital workflow management solution for an existing CX services client.
Tobias Dengel: In addition to closing new sales that provide a healthy lineup for signed deals that are pending for 2025, I'm also incredibly proud of the high quality work we're delivering for our clients.
Tobias Dengel: particularly on the Willowtree side, where we achieved a Q4 Net Promoter score of 75, maintaining our full-year average above 70 and squarely representing best-in-class among our various peer sets.
Tobias Dengel: High client satisfaction powers a virtuous flywheel for our future business, which is what we see in examples like a 50% growth in billings with a major global news publisher, where we are reimagining and rebuilding the mobile app user experience.
Tobias Dengel: and the opportunity to compete for a leading digital replatforming project with one of the largest hotel groups in the United States.
Tobias Dengel: Now let me turn to how we are generating real synergies between our digital and CX offerings.
Tobias Dengel: A key principle of our strategy has been to drive digitization of both our internal operations and our clients' TX businesses, and I'm pleased to report that we're making significant strides in both of these initiatives.
Tobias Dengel: We have strong proof points in the digitization of CX with external customers.
Tobias Dengel: via both our consulting services, including our EX strategy audits that identify high-value creation opportunities, and application of our data science and AI engineering expertise and technology solutions.
Tobias Dengel: To meet demand for our CX strategy engagements, we are growing the team and expanding the offerings to our clients globally.
Tobias Dengel: Encouraged by the increasing number of client opportunities and problem statements we can help address, we recently announced the launch of the Telus Digital Research Hub in partnership with the University of Sao Paulo in Brazil.
Tobias Dengel: This reflects our commitment to foster the next generation of AI researchers and develop advancements in AI-fueled CX innovation while ensuring that AI advancements remain human-centered, ethically designed, and purpose-driven.
Tobias Dengel: Let me briefly touch on Fuel iX. In 2024, we built and refined this platform, and we're now bringing it to clients beyond the TELUS family, armed with our insights and our learnings.
Tobias Dengel: Our goal in 2025 is to establish awareness in the marketplace and a better understanding of our capabilities and benefits, in particular when bundling it in with our services and digital solutions.
ultimately driving employee productivity and business outcomes.
Tobias Dengel: In the fourth quarter, we closed a sale to a Canadian engineering firm for an initial deployment of Fuel iX, and we are excited about the potential to deliver value. It illustrates the power of working with the TELUS brand and our diversified Canadian sales force.
Tobias Dengel: Part of our PULIX roadmap is focused on serving the CX space and bolstering Telus Digital's overall value proposition and differentiation to CX customers.
Tobias Dengel: For example, our agent copilots deployed for a mobile games client demonstrated immediate impact of reducing average handle time by over 25% with less than two weeks of setup.
Tobias Dengel: The ease of use, flexibility, and architecture of our solution made knowledge retrieval faster and more accurate for agents.
Tobias Dengel: I hope you notice we're trying to keep our remarks brief today to leave more time for your questions.
Tobias Dengel: Before I turn over the mic to you, I want to reiterate that we're at the forefront of a significant shift in how businesses approach customer experience and digital transformation.
Tobias Dengel: Our combination of CX expertise and digital solutions positions us well to capitalize on these market trends and technology advancements.
Tobias Dengel: With that, we're looking forward to hear your feedback and address your questions.
Carl, over to you.
Speaker Change: Thank you. For those on the phone, if you'd like to queue up to ask a question, please press star 1 on your phone's keypad. If you wish to withdraw from the question queue, press star 2. The first question is from Stephanie Price from CIBC. Please go ahead, Stephanie.
Thank you for joining us. Thank you. Thank you.
Stephanie Price: Good morning. I'm hoping you can dig a little bit more into the 2% revenue growth guidance that you provided. Curious about the assumptions around pricing and the demand environment that are embedded in the guide.
Speaker Change: Perfect, thanks. Good morning, Steffi. So with the revenue guidance of 2%, I'll start with it is balanced in terms of some of the risks and opportunities we're seeing. So I'll go through what those are. As Tobias mentioned, we are seeing some opportunity on our digital solutions side. We're seeing higher demand in our funnel and backlog and that gives us confidence in terms of the growth trajectory for the year.
Speaker Change: Now that's balanced with some of what we're seeing on the CX trust safety and security side where again there is some volatility there and we're seeing some shifts in dynamics in the segment.
Speaker Change: Those are expected, and ones that we're watching and look to be part of that transformation, but we did also want to be conservative in terms of the growth we see there.
Speaker Change: From a pricing perspective, we are seeing stabilization. It's still very competitive, but we are seeing stabilization. We see that in our margins.
Speaker Change: And on the digital side, again, with some of that demand coming back, we are able to increase our utilization as well as maintain some of that pricing pressure.
Speaker Change: So, strong sales funnel, some early demand on the digital solutions side, so we do think that 2% is a balanced way to approach the year, this early in the year.
Tobias Dengel: And maybe I would just pop up, Stephanie, that some of the cost efficiency and streamlining that we're doing in the organization allows us to be more competitively priced where that's required.
Speaker Change: Thank you and if I could just maybe ask one follow-up just you mentioned consolidation several times in your prepared remarks just curious how you're thinking about the range of capabilities that are needed to win these consolidation events and what your win rate has been when you've been looking at these consolidation events within clients
Speaker Change: Sure. When we look at this, obviously I spoke to the customer experience side of it, especially in the CX space.
Speaker Change: When there's a consolidation event, key factors are obviously the relationship that we've had with the client, how long they've been with us, how diversified they are with us in terms of the service set, so service diversity is important.
Speaker Change: I think the other aspect of it is the customer experience and the history of that customer experience. So the SLAs that we deliver and of course agility.
Speaker Change: Agility matters as well so having the geographic diversity that we have sometimes allows us to transition with a client where they have new language or cultural demands.
Speaker Change: All of those certainly sometimes are asset or infrastructure investments. So whether it's real estate, you know, optimization, or the availability of talent languages in a particular area.
Speaker Change: All of those factors come into play, and I would say customer experience, relationship, and talent availability are probably some of the bigger drivers.
Thank you.
Speaker Change: Thank you. The next question is from Poonita Jain from J.P. Morgan. Please go ahead.
Speaker Change: Hi, thanks for taking my question. I wanted to ask, like, follow-up rather on AI-related conversations. Have you had, like, any client that has transitioned to more automation using AI capabilities?
Speaker Change: apply for your revenue or margins on those projects or contracts.
Jason Macdonnell: Sure, why don't you take that Tobias and then I can top up.
Tobias Dengel: Yeah, so we talked a lot about deploying our digital solutions capabilities including fuel to our existing CX clients and
Tobias Dengel: You need to think about that in kind of two ways. One is how do we support agents and make them more efficient and accurate? And then two is how do we answer direct consumer questions and help our clients do that? I think in both those scenarios when you look at what's going on in the marketplace
Tobias Dengel: What you're trying to do, first and foremost, is really improve.
our clients.
Tobias Dengel: experience that they're delivering to their end customers, right? Because you're trying to answer things quickly via AI that, you know, are easy, generally speaking, more easier. And then the more complex questions go to agents, and we need to support those agents with information. As I mentioned, one example in the prepared remarks,
Tobias Dengel: We were able to reduce average handle time by 25%. What that then means is we can answer calls more quickly. We can answer the more complex calls with human beings.
Tobias Dengel: and we're significantly elevating the end customer experience, which is the ultimate goal. So I think what we're seeing in the short term is shortening of queues, increased levels of customer sat and customer service.
Tobias Dengel: and I think a balanced approach on some of the efficiencies that we're gaining on the back end.
Got it. So...
Tobias Dengel: 15-25%, assuming there might be some revenue from the solution that you provide as well.
Thank you. Bye.
Yeah, I think, you know, like, yeah, go ahead, Jason.
Tobias Dengel: Yeah, I think the way to look at it is right now, first of all, we have early days in terms of the number of implementations that are going on across the industry, where there's fundamental, you know, cost takeout early days. So, and one of the reasons for that
Tobias Dengel: On the AI side is to what Tobias has mentioned is
Tobias Dengel: is that AI is generally taking care of a lot of the sort of low-hanging fruit on things like call volume as one example or call handling time as another example so that actually frees up
Tobias Dengel: resources and capacity to go after more complex goals or to address volume that perhaps was being abandoned previously.
So that's that's one aspect of it
The other aspect to consider is that
Tobias Dengel: It depends on how the contracts are laid out with the client.
Tobias Dengel: capacity provided, or hourly work provided. Other contracts are outcome-based and you're seeing more and more trends. It's not, you know, it's not at a stage where it's, you know, the 15 to 25 percent of contracts yet, but more and more contracts are looking at how do we do outcome-based pricing.
Tobias Dengel: so that the more effective you are and you're leveraging AI and other technologies to handle transactions for customers.
Tobias Dengel: that you can you can split that that value and how that split happens and what percentages are involved are still you know negotiated contract by contract.
Tobias Dengel: So that's sort of what I could add on. Yeah, Jason, I'll just add on one point here is, and I think this goes to the previous question as well, vis-a-vis consolidation.
Jason Macdonnell: is our clients are looking to see who are their more strategic partners.
Jason Macdonnell: And those strategic partners are going to get more of a share of their CX volume. And how strategic you are is in essence defined by how much technology, thought leadership, and strategy you're bringing to those clients.
Jason Macdonnell: And so I think a big part of this is if we are the leaders in those accounts of helping our clients innovate, we're also going to get more share over time.
Speaker Change: No, I agree. And that's a great explanation. Thanks for that. And I'd also like to dig deeper into this $50 million cost saving that you expect from restructuring efforts. Can you talk about, like, the timing?
When those savings will flow in your income statement?
Speaker Change: Sure. Gopi, do you want to talk a little bit about the timing on that from a quarterly perspective and maybe we can add a little bit of flavor on what those types of initiatives are?
Speaker Change: All the Ecentives committee members from CDC have established a friendship relationship
Speaker Change: supply planning, automation, so really improving how we're tracking our scheduling, attendance, absence reporting, etc. And then also investing in shared service centers of excellence so that we can be providing our services internally, our back office services more efficiently.
Speaker Change: So that investment started in 24 and will continue in 25, and the investment will be primarily focused more in half one than half two.
Speaker Change: As a result of that investment, we're expecting to see the $50 million in efficiencies that I mentioned. That will be weighted more in half-two than half-one. Again, some of the direct relationship you'll see from that operation transformation is we are expecting lower attrition, lower penalties where we sometimes have parameters in our contracts depending on how we're able to maintain attendance.
Thank you. Thank you.
Speaker Change: And then there's other areas that we're also focused on in terms of role, real estate rationalization, looking at our licenses.
Speaker Change: SAAB licenses in particular as they hit our OPEX, vendor optimization, looking at our contractors, consultants, and any discretionary expense. That latter category is happening all throughout the year, so that would be an equal distribution, but it will be some of the OPS transformations that will gear more towards the second half than the first half.
Speaker Change: Thanks Gopi, and I would I would add to that there's a lot of resource strategy and workforce management capabilities that we're employing this year and aim to employ.
Speaker Change: which allow us to use our workforce more efficiently, but also to drive optimization on our book-to-bill capabilities or our scheduling capabilities.
Speaker Change: And each of those has a very discrete road map, if you will, of capability that has to be employed to drive the efficiencies we're looking for.
Speaker Change: And then more generally, of course, you can imagine we have a larger list of projects to backstop.
Speaker Change: that $50 million to ensure that, you know, from a risk-adjusted or a timing-adjusted basis that we can fulfill the efficiency targets that we have. So those are just a couple of additional top-ups.
Okay, thank you.
Speaker Change: Thank you. The next question is from Cassie Chan from Bank of America. Please go ahead, Cassie.
Cassie Chan: Great, thanks for taking my question. I just wanted to ask a follow-up, understanding, you know, the first quarter revenue. So, I know you guys talked about stabilization and then you mentioned first quarter revenue growth was probably gonna be lower than the fourth quarter.
Cassie Chan: So, just to make sure that I understand it, is it fair to say that 1Q is sequentially lower and lower than the flat, you know, on a year-over-year basis than the flat in 4Q? So, first quarter likely down those single digits.
Cassie Chan: and gradual improvement throughout 25, so exiting probably in mid-single-digit growth. Thanks.
I need to take that, Gopi.
Gopi Chande: Sure. Yeah, Cassie, you nailed it there in terms of what we're expecting. So Q1 lower than Q4, primarily because of seasonality from a revenue perspective, and then margin and EBITDA lower because of the investments we're making. One nuance I'll just pull out, you mentioned we would be lower year over year, and that is true. Again, in 2024, we did have a non-recurring, non-cash scheme related to the rotary foot revaluation. So that's the
primary driver year-over-year in Q1 2025 that were lower.
Gopi Chande: And then as we look forward, we do expect every subsequent quarter to increase both in revenue growth and EBITDA growth.
Gopi Chande: with the second half being stronger than the first half both on revenue growth as well as EBITDA because of some of those investments we're making earlier in the year that we expect to get the return in the latter half of the year.
Speaker Change: Okay, that's really helpful. Thanks. And just to follow up, I know you guys talked about investments going to be about $65 million for the year, and then also about like $50 million in cost savings.
Speaker Change: You know just the timing of that and also are these different from the maybe like 60 million that you guys had talked about before in 24 I guess just talk about what specific areas you're making the investments in versus what areas you guys are cost savings in and You know if you're expecting headcount to grow in 2025 because of all of those things. Thanks
Speaker Change: And that's material investment, in our sales team, in 2024. So this is competing out to that group and focusing on particular vertices, and then expanding our marketing. So whether it be for FuelIX, or particular platforms, or products, really expanding that so it will be throughout the year, but with our Ops Transformation, more balance to the beginning of the year.
Speaker Change: And then with the efficiencies, again, an extension of the work that we were doing in 2024, as I had shared in 2024, that timing didn't manifest quite as we expected it to. And so with more precision, we're looking at similar programs coming into 2025. It will be affecting our labor line, it'll be affecting our really every cost element line and our gross margin. And we do expect that to be throughout the year, but
Speaker Change: will pick up throughout the year because we need to make some of those investments to garner the benefits.
Jason, anything you want to talk about there?
Jason Macdonnell: Yeah, sure. When you look at some of the investments I alluded to around workforce management, for example, that's around making sure we advance our tools and capabilities and how we manage our workforce.
Jason Macdonnell: get the most out of the workforce from an efficiency perspective and deliver better and advanced customer experience.
Jason Macdonnell: When you look at the $65 million that we're referring to, that is effectively looking at not only those tools but also what we're doing in the AI space.
Jason Macdonnell: There is always advanced work to do in terms of how we source.
Jason Macdonnell: clients, how we manage our expert sourcing or our crowd sourcing, the tools that we use to drive quality and and productivity in that space to support the large language model development projects that we do.
Jason Macdonnell: that type of investment, as well as investment in pilots and innovation on behalf of our customers in the fuel space, but also digital solutions space.
Jason Macdonnell: Those are other examples of investments that we make that would be part of that. So hopefully that gives you a flavor of where we're focusing our dollars as we go forward.
Thanks.
Thank you.
Speaker Change: Thank you. The next question is from Aravinda Galapaghe from Canaccord Genuity. Please go ahead.
Aravinda Galapaghe: Good morning. Thanks for taking my questions. A couple for me. First of all, maybe for Gopi, just to go back to the guidance.
so you know what was sort of
Aravinda Galapaghe: Or is it just sort of a question of sort of keeping the growth expectations low? I just wanted a little bit more clarity there. And then secondly on the AI data solution side
Aravinda Galapaghe: Maybe just the competitive dynamics. I know that obviously any space that's growing the way this one is, you're going to see a lot of new entrants. Maybe just talk to, like, even in Q4, you know, that segment.
Aravinda Galapaghe: How much did it grow, whatever data you can provide in terms of either on a full year basis or for the quarter itself, that particular segment. Thank you.
Jason Macdonnell: Jason, do you want me to take the first? Yeah, why don't you take the first and we can talk about the second.
Perfect. Thanks, Saravinda. So, in terms of our trust...
Jason Macdonnell: and safety and security. So it is there is we have not assumed a decline overall in the sector that this sector for us is very much on a customer by customer basis. And so we do work with each customer in terms of optimizing what geos we're working with them, what services we're providing them. So we have factored in some of the ups and downs that we will see with those customers. But in general, we are not expecting a
Jason Macdonnell: material decline. Part of what we see in this sector is while there is AI that is able to do some of the let's say content moderation that we would have done previously with humans, there's also an incredible increase in the amount, the volume of work that is to be done. So the complexity of the work that we do, the increase in volume, largely is offsetting currently the portion that AI is taking over. Again, we'll very much be on a customer by customer.
Customer Basis as we look at this segment.
Ta-ra.
Gopi Chande: Maybe I'll just top up on on that, obviously this segment from a client concentration perspective can be very lumpy as well. So, you know, to Gopi's point.
Gopi Chande: There's a lot of upside and downside in this segment, so I think we expect it to be pretty frothy as we go forward. On the AI data solution side, in terms of the competitiveness in this space,
Speaker Change: As you mentioned, there's a lot of investment and we've seen a lot of news articles and we've heard from our clients in terms of the competitive intensity, but also just the pace and intensity of this pursuit.
Speaker Change: but the thirst for quality, the intensity and pace of the projects and how quickly they materialize.
Speaker Change: materialize and how fast they need to ramp will be key success factors as we as we compete.
Speaker Change: in this space and and we've seen some very very exciting projects that have come down in this space.
Speaker Change: I'll give you three as an example, right? In the science, technology, engineering, and math data set space, we've been participating in the development of data set to enhance STEM-related reasoning for LLMs.
building Q&A pairs across STEM disciplines.
We've seen large-scale VQA data set.
Speaker Change: work that, you know, involves over 300 makers and reviewers, including subject matter experts in health, medicine, science.
Speaker Change: Business and Engineering, Math, Reasoning and Instruct Projects, so Enhancing LLM's Reasoning and Structural Capabilities through Structured Data Collection and Instruction Fine Tuning.
Speaker Change: you know thousands of prompts and responses that have to be managed and transacted.
and we're utilizing trusted contributors and expert validation there.
over 300 specialists that are focused on mathematics.
Speaker Change: as another example. And these projects have potential of being anywhere from sometimes they are trial projects that you know $100,000 and sometimes they have the potential of you know contract values in the tens of millions of dollars.
Speaker Change: So it's a very exciting space. It's incredibly intense in terms of the, you know, when these projects occur. We sometimes have a week to two weeks to prepare.
Speaker Change: and it requires a lot of nimbleness and agility on our part.
Speaker Change: We feel as though these are areas that we can progress and show.
Speaker Change: strong growth in and that growth we're hoping will offset some of the you know some of the headwinds we see in the in the Como space as as one good example.
Speaker Change: Hopefully that gives you a flavor of that of that space a bit more.
Awesome. Thank you. I'll pause the line.
Thank you.
Speaker Change: The next question is from Divya Goyal from Scotiabank. Please go ahead.
Good morning, everyone.
Divya Goyal: Jason, I wanted to get a little bit more color on the customer experience segment here at Dallas Digital. In this press release and over the past few minutes here, we've been discussing about the CX sector and I noticed
Speaker Change: You have also guided for targeted improvement plans across the call center or the CX customer experience sector.
Speaker Change: Could you talk to us a little bit more or elaborate on the broader customer experience or customer engagement sentiment across the global enterprises and your clients that you are seeing and the reasons for these targeted improvement plans here? Thank you.
Speaker Change: Sure, you know as I mentioned we we've seen especially in the fourth quarter and with the implementation of a
Speaker Change: probably a renewed or I would call it revitalized focus on customer experience. Great improvement on especially our top 55 clients, but even more broadly.
Speaker Change: And when we're talking about customer experience, it's everything from, you know, the subtleties of making sure that we are engaging customers in the way, in the format that our clients are looking for, we're demonstrating empathy, and we are getting first call resolution and
Speaker Change: efficient handle times when it comes to the treatment of customers.
Thank you for joining us. Have a great week. Bye-bye.
Speaker Change: Bring in technology capabilities into customer experience that help help improve it whether it's
Speaker Change: more effective ways for customers to deal with some of the simpler tasks or questions.
Speaker Change: or whether it's making sure that we have the right scheduling time of day, peak demand interval matching that's required for these clients.
Speaker Change: Delivering great customer experience in the language, culture, timeliness that our clients are looking for.
Speaker Change: and and then going beyond that and saying okay how do we how do we deploy new method, new process
new technology that is available today.
Speaker Change: and enhance those experiences. So, in general, I think our clients are very happy and satisfied with us. I think we've had pockets where we've needed to revitalize and modernize how we deliver on behalf of our clients and to do that proactively without them asking.
And then, certainly,
You know, reinvigorating our thirst to be number one.
Speaker Change: in the competitive set, right? So making sure that we're not satisfied with being in the top five or top three, but actually advancing and using the full breadth of our culture, our capabilities, and our technology to get that number one position. So that's what I've been referencing as we go through.
Speaker Change: That's helpful and then just one more follow-up here is you talked about two large wins in the retail customers in
Speaker Change: America, could you talk to us whether those wins were taking market share from one of your existing competitors?
Speaker Change: or are these net new businesses from these retailers? And along with that, I'll also try to get some color on any potential impact of this tariff discussion on TELUS Digital's business, given your clients might get impacted, despite TI not getting directly impacted. And that will be all for me. Thank you.
Speaker Change: Okay, on the retailers, I mean obviously they don't necessarily always share with us.
Speaker Change: where they demand and and extra work is coming from. Sometimes it's it's new and in this case some of the some of the work is just that new new opportunity for them and for us.
Speaker Change: So I won't necessarily speak to whether it pulls demand from a particular client or competitor.
On the tariff side, yes, we don't really provide
Speaker Change: You know, U.S. services to the U.S. from Canada, so it's less of an impact on us there. Difficult to... Difficult to speak to, you know, what it will do to our clients. Our clients are so varied in so many industries of different sizes.
Speaker Change: It's certainly we're not, you know, we don't play a very large role in terms of the impacts on on tariffs and how those get implemented at this point in their current form.
Speaker Change: So it's difficult to say on on how it will impact demand but certainly what we've seen is
Speaker Change: We serve customers globally from a multitude of locations and regions, certainly over 32 countries around the world. So for the most part, I think we're relatively well insulated at this point.
Thank you.
Speaker Change: Thank you. The next question is from Maggie Nolan from William Blair. Please go ahead.
Thank you.
Speaker Change: Based on how you're structuring the cost programs and thinking about the investments, do you intend to continue this into 2026, or is the intention to largely complete these efforts in 2025 and drive margins back up from there?
Speaker Change: and we will continue to build a new set of programs for 2026 as well. The quantum of that and the magnitude of that at this point would be premature to speak to.
Speaker Change: But you can certainly expect that that will be our posture always to improve margin, to improve.
Speaker Change: cost efficiency to look at our indirect costs and always hone and refine those.
Speaker Change: and to leverage some of the technology capabilities that we have and to continue to leverage some of the process innovation that we
Speaker Change: You know, we incubate within the broader TELUS organization, our parent company. We have an amazing sandbox there that drives very hard on doing the same within their organization.
Speaker Change: and we bring that that same thirst and posture to TELUS Digital as well.
Speaker Change: Thank you. And on the early strong signs of demand you noted, particularly for digital it sounded like, can you elaborate on what some of those signs are, if there's any pattern in terms of clients?
and Mark at Vertical Geography Solutions, et cetera. Thank you.
Speaker Change: Yeah so maybe I'll jump in on the digital solution side. I think we're seeing it primarily in North America but also to some extent in Europe.
and across industries, I think financial services.
Speaker Change: has always been an important part of our portfolio that's coming back quite strongly. Healthcare continues to grow with investments. Everything related to hospitality, including quick serve restaurants, is showing a lot of
progress. I think, you know, they're
Speaker Change: At some point in retrospect, there may have been a pull forward of spend that happened as part of COVID and then a brief pause and now everyone's coming back.
Speaker Change: relationship via the app via bots etc it has to be transitioned to be AI and voice driven so I think we're seeing over you know and expect us to continue into 26 and 27 a meaningful reinvestment in digital experiences
Thank you.
Speaker Change: Thank you. Today's final question is from Suthan Sukumar from Stifel. Please go ahead.
Suthan Sukumar: Good morning and thank you for taking my questions. I wanted to touch on the new business pipeline first. What would you highlight as being some of the surprising areas of strength and what would you call it as some of the pockets where you're seeing demand weakness persist?
Tobias Dengel: Sure, maybe I'll touch on a few and then I'll pass it over to Tobias.
to talk about this funnel.
Tobias Dengel: The strength aspects on the digital solution side, and Tobias will speak to these in a moment,
Tobias Dengel: That's been really nice to see. It's nice to see a bit of a rebound in that after a really tough 2024.
Tobias Dengel: been highlighting all along at AI data operations and data solutions and the LLM space.
Tobias Dengel: both training and development in that space. Very exciting for us and certainly an area that we want to continue to scale and invest in.
Tobias Dengel: In terms of, you know, in terms of headwinds, I think...
Tobias Dengel: It's reasonable to expect, and I think the entire analyst community is very well versed in this,
see that content moderation is changing.
Tobias Dengel: They are looking at fraud prevention and detection and other capabilities that we bring to bear. So that's been fantastic. And then outside of just...
You know service-based
opportunities. I think there's geographic-based opportunities for us.
to optimize our geographic presence.
Tobias Dengel: both exiting areas that we think of either run their course or that both ourselves and our partners feel are less relevant or can be substituted in other areas more optimally.
Tobias Dengel: But also, as I spoke about Africa and India, there's some fantastic geographic expansion opportunities to really leverage the growth and momentum that we're seeing in those countries. So that's also a place that we're going to be concentrating and investing on.
Tobias Dengel: and continue to look more broadly even beyond the 32 countries we have today.
Tobias Dengel: being very opportunistic on where we can expand. Latin America continues to be a place of growth that we need to consider. Asia is another place, another large geographic region where there's opportunity.
Tobias Dengel: So we'll continue to be very opportunistic as we move forward in this regard.
Tobias Dengel: Tobias, maybe you want to touch on that a little. Sure, I'll just pop up a little bit. On the digital solution side, as I mentioned, where the demand is coming from, I would say that the expectation of clients is still that they want to optimize their costs, right?
Tobias Dengel: different than 21-22 where it was, the market was a little less.
Tobias Dengel: cost-conscious and more outcomes-conscious, now it's a balance of the two.
Tobias Dengel: And so, in terms of delivering great engineering and software products, you kind of have two options. You have to automate using AI a lot of the services you're providing to clients, and you have to geographically optimize, which is...
Tobias Dengel: We're focused on both of those, with fuel being a prime tool for automation, but on the geographic optimization.
Tobias Dengel: We recently announced our partnership with Brazil. There is a growing demand for nearshore, especially in AI consulting.
given the cost that clients have with North American talent.
Tobias Dengel: And we continue to rapidly expand our Central American and our Indian capabilities to provide our clients with a global footprint in terms of
Jason Macdonnell: software design and development. So I think that that that trend it's a balance of how you put those assets together for any given client. But with that Jason I'll hand it back to you to bring us home.
Jason Macdonnell: Okay. Thank you. Before we conclude, I'd like to extend a warm welcome to Andrea Clayton, who joined TELUS Digital as our new Chief Human Resources Officer.
Speaker Change: Andrea brings an impressive 25 years of HR experience to our team. Her extensive background in HR strategy and complex strategic initiatives across various Fortune 500 companies will be invaluable as we continue to grow and evolve.
Speaker Change: We look forward to sharing more updates on our progress during our next quarterly investor call in May. Thank you all for your continued engagement and have a great day.
Speaker Change: This concludes the Telus Digitals Q4 2024 investor call. Thank you for your participation. Have a nice day.