Q4 2024 TELUS Corp Earnings Call
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 declines 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 close 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: 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.
Speaker Change: with a total share-based compensation run rate of approximately $13 million per quarter going forward.
Speaker Change: Normalized for these two items are 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 OffX 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 operations, 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 $60 to $60 million.
Speaker Change: In terms of seasonality and to help you with quarterly forecasting, we expect the 1st and 2nd half of the year to be approximately $48.52 for revenue and $45.55 for adjusted EBITDA.
Speaker Change: The first part 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 at 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: For 2025, we believe it's reasonable to expect free cash flow yield as a percentage of revenue of up to 10% for the full year, but we may see variations quarter over quarter.
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 inflow.
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: 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: 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: 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: 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.
Jason: 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: In the fourth quarter, and particularly in December, we expanded relationships with several customer experience clients within our top ten cohort.
Tobias: 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: We also added 55 net new clients across diverse industries, including 13 net new clients in the last quarter alone.
Tobias: 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: 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: We generated a 430% increase in revenue and a 440% growth in profitability measured by our operating EBITDA for those locations.
Tobias: 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: 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.
Tobias: 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: Over the course of last year, we saw good momentum in AI data solutions, which we are working to carry forward into 2025.
Tobias: 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: These are existing clients who are investing heavily in the LLM development.
Tobias: 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. 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: 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: Rapid news flow particularly in the technology space marked the beginning of 2025.
Tobias: 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: 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: Importantly, we moderate a diversified set of highly critical content including what's considered potentially harmful or illegal.
Tobias: 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: 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: 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: Some changes may require further investment as we advance tools, shift locations, establish new footprint, and incur transitions costs.
Tobias: 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.
Tobias: Achieving this across the board will pricing, clients heightened expectations, and in new business areas we're positioning.
Tobias: 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 for each client, where clients choose to consolidate partners.
Tobias: 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.
Mitchell, Darren Entwistle, Douglas French Mitchell, Darren Entwistle, Douglas French
Darren Entwistle: 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.
Darren Entwistle: 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.
Darren Entwistle: In 2025, we'll show further progress in transforming our operations through investments and focus on operational efficiencies and workforce management.
Darren Entwistle: Beyond internal transformation, our client-facing business will also continue to evolve.
Darren Entwistle: And now, I'll hand it over to Tobias for a brief discussion on digital solutions.
Tobias: 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: 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.
Our core position continues to gain traction with our clients.
Tobias: 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: 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: 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: 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: 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: and the opportunity to compete for a leading digital replatforming project with one of the largest hotel groups in the United States.
Tobias: Now let me turn to how we are generating real synergies between our digital and CX offerings.
Tobias: 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: We have strong proof points in the digitization of CX with external customers.
Tobias: 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: To meet demand for our CX strategy engagements, we are growing the team and expanding the offerings to our clients globally.
Tobias: 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: 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: 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: 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.
Tobias: 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: For example, our agent co-pilots 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: The ease of use, flexibility, and architecture of our solution made knowledge retrieval faster and more accurate for agents.
Tobias: I hope you notice we're trying to keep our remarks brief today to leave more time for your questions.
Tobias: 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: Our combination of CX expertise and digital solutions positions us well to capitalize on these market trends and technology advancements.
Tobias: With that, we're looking forward to hear your feedback and address your questions.
Powell, over to you.
Powell: 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.
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.
Darren Entwistle: Thanks, Stephanie. Gopi, why don't you take a shot at that?
Gopi: 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.
Gopi: 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.
Gopi: 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.
Gopi: in terms of the growth we see there. From a pricing perspective, we are seeing stabilization. It's still very competitive, but we are seeing stabilization. We see that in our margins.
Gopi: 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.
Gopi: So, a 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.
Speaker Change: 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: When we look at this, obviously I spoke to the customer experience side of it, especially in the CX space. 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. I think the last aspect is
you know, how it fits within our overall strategy.
Speaker Change: as well, because we look for some of these transitions to help us optimize.
our costs, our profitability, and...
Speaker Change: 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.
related conversations.
Speaker Change: apply for your revenue or margins on those projects or contracts.
Speaker Change: Sure, why don't you take that Tobias and then I can top up.
Speaker Change: 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, there's a lot of things that are going on. And I think that's one of the things that we need to be thinking about is, how do we support agents and make them more efficient and accurate? And then two is, how do we answer direct consumer
Speaker Change: What you're trying to do, first and foremost, is really improve.
our clients.
Speaker Change: 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.
Speaker Change: and I think a balanced approach on some of the efficiencies that we're gaining on the back end.
Got it.
Speaker Change: So the question like what I really wanted to understand was like as you implement some of these AI solutions and as they move into production So all those productivity savings like do they generally get passed on to clients?
Speaker Change: Your revenue share on that contract on that project like contracts by
Speaker Change: 15, 25 percent, assuming there might be some revenue from the solution that you provide as well.
Mitchell. Thank you.
Speaker Change: 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 is fundamental cost takeout early days. One of the reasons for that
on the AI side, is to what Tobias has mentioned.
Speaker Change: 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
Speaker Change: 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.
Speaker Change: The other aspect to consider is that it depends on how the contracts are laid out with the client.
Speaker Change: capacity provided or hourly work provided. Other contracts are outcome-based and you're seeing more and more trends that it's not
Speaker Change: so that the more effective you are and you're leveraging AI and other technologies to handle transactions for customers.
Speaker Change: 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.
Speaker Change: Mitchell. So that's sort of where we're at. If I could add on. Yeah. 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.
Speaker Change: is our clients are looking to see who are their more strategic partners.
Speaker Change: and those strategic partners are going to get more of a share of their CX volume.
Speaker Change: and how strategic you are is, in essence, defined by how much technology, thought leadership, and strategy you're bringing to those clients. 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.
when like 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?
Gopi: Perfect. Thanks, Denise. So, before I touch on efficiencies, I'll talk about some of the investments that are going to drive those efficiencies. It also will inform the timing question that you had. So, our investments fall into the category of sales and marketing, but also in terms of ops transformation. And so, work that we're doing to influence retention, reduce attrition, training with our leaders to support that.
Gopi: Incentives, 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.
Gopi: 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.
Gopi: As a result of that investment, we're expecting to see the 50 million inefficiencies 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.
Mitchell. 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, SAAS 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 Scopey 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.
which allow us to use our workforce more efficiently.
Speaker Change: 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 roadmap, 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.
and Craig. Thank you.
Thank you.
Speaker Change: The next question is from Cassie Chan from Bank of America. Please go ahead, Cassie.
Cassie Chan: Mitchell. 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 going to 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 on a year-over-year basis than the flat in 4Q, so first quarter likely down low single digits and gradual improvement throughout 25, so exiting probably in mid-single-digit growth?
Why don't you take that, Kopi?
Speaker Change: 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 marginally 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 cash scheme related to the rotary foot revaluation, so that
Speaker Change: That's the primary driver year-over-year in Q1 2025 that we're lower.
Speaker Change: And then as we look forward, we do expect every subsequent quarter to increase both in revenue growth and EBITDA growth.
Speaker Change: 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 $60 million in cost savings.
Speaker Change: You know just the timing of that and also are these different from the maybe like 60 million 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
is the CEO.
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: 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: get the most out of the workforce from an efficiency perspective and deliver better and advanced customer experience.
Jason: 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: In AI data operations, as an example, or AI data solutions, there is always advanced work to do in terms of how we source clients, how we manage our expert sourcing or our crowd sourcing.
Jason: The tools that we use to drive quality and productivity in that space to support the large language model development projects that we do.
Jason: that type of investment as well as investment in in pilots and innovation on behalf of our customers in the fuel space, but also digital solution space
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.
Aravinda Galapaghe: 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 Clara-Linda. So in terms of our trust...
Aravinda Galapaghe: 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
Speaker Change: Mitchell, Greetings from Toronto. 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 will very much be on a customer by customer basis.
Mitchell. Thank you.
Yeah.
Speaker Change: Maybe I'll just pop 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
Speaker Change: 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 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. 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.
you know 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 at $100,000 and sometimes they have the potential of contract values in the tens of millions of dollars.
Speaker Change: We feel as though these are areas that we can progress and show 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 one good example.
Speaker Change: Hopefully that gives you a flavor of that of that space a bit more.
Awesome. Thank you. I'll pass the mic.
Thank you.
Speaker Change: The next question is from Divya Goyal from Scotiabank. Please go ahead.
Good morning, everyone.
Mitchell.
Speaker Change: 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 both 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're 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 the subtleties of making sure that we are engaging customers in the way in the format that that our clients are looking for, we're demonstrating empathy, and we are getting first call resolution and and
Speaker Change: efficient handle times when it comes to the treatment of customers.
Speaker Change: I think the other thing that we're seeing is there's a heightened expectation as well as a pronounced opportunity.
Speaker Change: to bring in technology capabilities into customer experience that help improve it, whether it's more effective ways for customers to deal with some of the simpler tasks or questions.
Speaker Change: technical support or care that they need. That's where fuel comes in and it's it's been a it's been a brilliant tool in that regard.
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: So, it's really taking what I think has been a hallmark of our organization for many, many years, which is...
Speaker Change: Delivering great customer experience in the language, culture, timeliness that our clients are looking for. And then going beyond that and saying, okay, how do we deploy a new method, new process?
Mitchell, 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 of 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,
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.
That's what I've been referencing as we go through.
Speaker Change: Mitchell. 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.
Speaker Change: on Telus Digital's business, given your clients might get impacted despite TI not getting directly impacted. And that will be all for me.
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.
On the tariff side, yes, we don't really provide
Speaker Change: US services to the US from Canada, so it's less of an impact on us there. Difficult to speak to, you know, what it will do to our clients. Our clients are so varied.
it's certainly we're not
You know, we don't play a very large...
Speaker Change: role in terms of the impacts on tariffs and how those get implemented at this point in their current form.
Speaker Change: So it's difficult to say 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.
Thank you.
Speaker Change: The next question is from Maggie Nolan from William Blair. Please go ahead.
Speaker Change: Thank you. 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: We intend to continue always looking at cost efficiency and margin improvement opportunities. That is going to be a...
very much a natural habit and posture of our organization.
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 cost efficiency, to look at our indirect costs and always hone and refine those.
Speaker Change: We incubate within the broader TELUS organization, our parent company. We have an amazing sandbox there.
Speaker Change: that drives very hard on doing the same within their organization and we bring 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, etc. 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: and I think the, you know, what's driving that, the catalyst is AI, is that
Speaker Change: Most of their customer relationship via the app, via bots, etc., has to be transitioned to be AI and voice-driven. So I think we're seeing...
Speaker Change: over, you know, and expect this 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?
Speaker Change: Sure, maybe I'll touch on a few and then I'll pass it over to Tobias.
to talk about this funnel.
Speaker Change: The strength aspects on the digital solution side, and Tobias will speak to these in a moment.
Speaker Change: That's been really nice to see. It's nice to see a bit of a rebound in that after a really tough 2024.
Speaker Change: in terms of, you know, in terms of the headwinds I think.
Speaker Change: It's reasonable to expect, and I think the entire analyst community is very well-versed in this.
see that content moderation is changing.
Speaker Change: trust safety and security more broadly I think are some good opportunities because we do have a lot of clients that continue to need you know content moderation but also
Speaker Change: 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
to optimize our geographic presence.
Speaker Change: 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.
Speaker Change: but also as I spoke about Africa and India there's some
Speaker Change: 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 and continuing to look more broadly even beyond the 32 countries we have today.
being very opportunistic on where we can expand.
Speaker Change: Latin America continues to be a place of growth that that we we need to consider. Asia is another place that you know another you know geographic large geographic region where there's there's opportunity.
Speaker Change: So we'll continue to be very opportunistic as we move forward in this regard. Tobias, maybe you want to touch on the digital. Sure, I'll just pop up a little bit. On the digital solution side, as I mentioned, where the demand is coming from,
Tobias: But different than 21-22, where it was the market was a little less cost conscious and more outcomes conscious. Now, it's a balance of the two.
And so, in terms of delivering grade...
Tobias: 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: something where we're focused on both of those with with fuel being a prime tool for automation, but
on the geographic optimization.
Tobias: We recently announced our partnership with Brazil. There is a growing demand for near shore, especially on AI consulting
given the cost that clients have with North American talent.
Tobias: and we continue to rapidly expand our Central American and our Indian capabilities to
provide our clients with a global footprint in terms of
Tobias: Software Design and Development. So I think 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: 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.
Jason: 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.
Jason: 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.