Q1 2025 TELUS International (Cda) Inc Earnings Call
The conference is now being recorded.
Speaker Change: Good day, everyone welcome to tell US Digital's Q1 at 2025 volt.
Speaker Change: I would like to introduce your speaker Mr. Linton Little batch. Please go ahead.
Speaker Change: Thank you Carl good morning, everyone. Thank you for joining us today for the <unk> digital first quarter 'twenty 'twenty five investor call joining our call adjacent back then all active E. L. T O O and president of customer experience to be in Bengal, President of digital solution and <unk>, our CFO will be.
Speaker Change: Again with prepared remarks from Jason to be used in coffee and then open the line to your questions at the end Jason will offer his closing remarks for our cautionary statements and further details on certain non-GAAP measures used during today's call. Please refer to the earnings release issued this morning, and regulatory filings available on SEDAR.
Speaker Change: And with that I'll pass the call over to Jason.
Jason: Thank you very much Elena good morning, everyone and thank you for joining us here today.
Jason: In the first quarter of 2025, Telus digital delivered operating and financial results in line with Street expectations. We are also reiterating our full year 2025 outlook.
Jason: Our global service diversification as well as our relationship with <unk> Corporation as an anchor client provide two distinct advantages among many others that offer a certain level of installation and stability in the current environment and set us apart from many of our peers offering importantly, averse to navigate market uncertainty.
Jason: To some extent.
Jason: From a diversification perspective in the first quarter, our team secured wins across many geographies and industry verticals and service lines. For example, we welcomed several new clients, including a global player in it services consulting and business solutions, our Canadian energy marketing and trading company and American manufacturers secure identity.
Jason: <unk> and our Singapore based platform for AI startups and research institutions.
Jason: First suffocation across industry verticals client size location and service solutions.
Jason: We also saw growth with existing clients with our third largest client a leading social media network. We are rebalancing our engagement across geographies and diversifying across service lines. Additionally, in the quarter, we grew with yet another social media clients, particularly in our AI and data solution space and increased our share of business with a European mobile games client.
Jason: As a result of their vendor consolidation efforts in Latin America, where we have a very strong footprint.
Jason: Consistent with our pursuit for greater share of business, we continue to elevate engagement across our client base to drive long term retention as part of this effort. We are deploying AI tools powered by fuel I ask to deliver granular real time insights at the account level. These tools provide real time coaching coverage and effectiveness insights that span.
Jason: Everything from absenteeism and staffing statistics to performance based measures.
Jason: These capabilities along with the plethora that we test with our partner tell us help us bring valuable methods to our clients as we support their customers with respect to next best action higher sales close rates higher sales value per transaction accuracy improvements reduced handle times and better yield rates.
Jason: This proactive fusion of technology in humans also allows us to identify and address performance risks.
Jason: Optimize resource allocation and ensure consistent service excellence ultimately driving superior client satisfaction and sustained growth.
Jason: We remain focused on delivering on our clients' needs challenges and opportunities operationalize, a data driven customer insights through targeted solutions and positioning ourselves as the number one preferred partner.
Now the findings of our recent research and Trust safety and security conducted in partnership with Ryan Strategic Advisory underscore the critical role our trust safety and security solutions play in delivering customer experiences.
Jason: Enterprises are substantially increasing their investment in key areas, such as IV verification fraud detection know your client processes and certain forms of content moderation. This is driven by the financial impacts of fraud regulatory pressures and the need to adapt new technologies.
Jason: Our survey also identify the scaling trust safety and security efforts presents some very unique challenges for enterprises, such as compliance with regulations shortages of technical talent and the complexity of fraud prevention among the top concerns of business leaders today.
Jason: We're well positioned to address our clients' evolving needs. For example, our recent partnership with Samsung allows us to expand our capabilities in end to end identity verification and fraud prevention tools, our ability to combine human expertise with advanced technologies allows us to offer scalable end to end solutions that help enterprises.
Jason: Navigate the complex landscape of trust safety and security and bring the right mix of technology and human expertise.
Jason: We also continue to see growth in AI and data solutions, particularly in our services to support clients large language model development.
Let me give you a few recent examples of our work for one of our clients were working on a training solution for LLM that powers enterprise applications to better understand and interpret images and tables and documents. We're also helping improve the usage of chemical formulas and diagrams and various models for yet another client we are providing that training.
Jason: Dataset solution to improve at stem reasoning and algorithm and for yet one more client a major player in L. L. M development, we're providing a dataset to train the model on complex reasoning challenging L. L M and specific domains and in particular looking to learn from complex crops, where the model my falter, which is a.
Jason: Stephanus development and continuous recalibration.
Jason: We've been successful in diversifying within this service line as evidenced by our growth with two social media networks, while Google as a key client in this service line, our diversification efforts with other clients helps us be well balanced to capture further growth and mitigate typical volume fluctuations that you might see with clients in this rapidly evolving project oriented business.
Jason: We look to continuously progress and upgrade our offerings within AI and data solutions. This area continues to evolve and our leading abilities to mobilize human talent and expertise either onsite or crowdsource, especially for highly nuanced work around Ela training continues to be key.
Jason: While simpler tasks and data annotation, where flows will be increasingly automated current industry trends point to demand for the vast and evolving workforce of experts behind AI development training and maintenance over the next few years and both of these service lines AI and data solutions as well as trust safety and security, we've created focused teams and well.
Jason: We continue to evolve our offerings to ensure we're well positioned to meet and anticipate our clients' needs. We have invested in great New leadership to drive an advance both these service portfolios, creating clear accountability for client growth diversification focus factories and service line evolution now speaking of great leadership with that.
Speaker Change: I'll hand, it over to <unk> to discuss our digital solutions portfolio.
Speaker Change: Thank you, Jason and thank you everyone for joining us.
Speaker Change: In digital solutions similar to other players in our industry. We are closely monitoring client sentiment trends. During this recent period of market volatility.
Speaker Change: At the same time, we're seeing good engagement with clients on their automation and cost efficiency needs. We're encouraged that our positioning as a differentiated provider of end to end customer journey innovation resulted in a year over year revenue growth in digital solutions in the first quarter of this year our.
Speaker Change: Our findings and pilots across some of our largest clients spanning technology E Commerce and financial services have translated into new digital solutions opportunities, while differentiating our customer experience management offerings.
Speaker Change: Importantly, our proof of concept are now translating into customer facing deployment.
Speaker Change: Focusing on the longer term, we believe the demand for transformation of consumer facing digital experiences should provide a solid basis for our future growth for the foreseeable future. We believe there is a significant need from our current and future clients to deploy AI and leverage our global footprint to optimize both the cost and <unk>.
Speaker Change: Quality of their customer experience.
Speaker Change: We also expect to see an acceleration of a demand for AI for software development and have launched our own AI first lean teams offering whereby we are testing significantly smaller development squads operating at a higher velocity. These teams use new approaches to software development powered by AI tooling.
Speaker Change: In addition, we believe we are well positioned for the continued interest in high quality near and offshore development teams.
Speaker Change: In the first quarter, we registered sales wins with new clients brought back a significant previous client and saw meaningful expansions with several existing clients among new clients, we saw growth in healthcare, including a leading global provider of clinical development and patient access solutions as well as in financial services.
Speaker Change: In terms of client expansions and former client returns financial services and in particular banks, coupled with our strong traction in the hospitality sector contributed the majority of our new sales.
Speaker Change: We continue to make progress in the Digitization of customer experience management across our client base with a target of up to 24 CX strategy audits done in 2025, our goal is to position ourselves as a strategic partner with clients, establishing direct reach to the C suite, where cross sell and <unk>.
Speaker Change: Growth opportunities originate.
Speaker Change: <unk> identified three to five actionable follow on threads and expand our relationship and impact with clients.
Speaker Change: Let me share two case studies that demonstrate the value we're delivering to our clients.
Speaker Change: First we developed an AI based backlog prioritization model for our global cloud provider.
Speaker Change: This initiative is expected to save $10 million to $15 million.
Speaker Change: By improving workload management, preventing escalations and ensuring timely case handlers. The success of this project has also led to multiple follow on engagements across the provider's various subsidiaries.
Speaker Change: Second our global payments platform is one of several pilots of our fuel agent trainer with a select cohort aiming for broader adoption across all teams early projections indicated 20% to 50% improvement in speed to proficiency for new hires on specific case types, while also helping prepare agents.
Speaker Change: For upcoming product changes, particularly in handling more complex art skills driven cases.
Speaker Change: While we track various metrics such as customer satisfaction scores net promoter scores average handle time.
Speaker Change: Fundamentally we focus on the value that our CX solutions deliver to clients. This includes metrics such as decline in churn rates and increases in revenues.
Speaker Change: Especially when it comes to investments with a major long term impact on business success or failure, such as the adoption of AI companies have gone through phases of excitement and caution.
Speaker Change: As part of our digital solutions Advisory services, we offer clients, a very cost effective option to start implementing AI at their own pace and scale moving as fast or slow as their strategy requires.
Speaker Change: Absolutely critical is offering our clients optionality to iterate, along the way using a secure reliable tested and continuously improving fuel platform and or third party platforms and portfolios of tools.
Speaker Change: A core part of our strategy is ensuring we are deeply partnered with leading technology providers, including in cloud digital marketing CRM and <unk> among others.
Speaker Change: Each of these technologies plays a critical role in the customer journeys, we orchestrate and are directly adjacent to the human CX experiences we support our clients expect us to be experts in these fields and our partners turn to us for reliable and technology forward implementations for.
Speaker Change: For example in Q1, we expanded our partnership with Zen desk, a pioneer in <unk> AI powered service and held a number of go to market events with Adobe.
Speaker Change: You'll hear more partnership announcements this year as it is part of our strategy to be a key integrator of best in class AI powered solutions available in the market, where they are developed in house at Telus digital or gained through partnerships.
Speaker Change: Yeah.
Speaker Change: Relentless follow up and staying close to our clients is the nature of our business, especially during the current macroeconomic backdrop, you'll see our positioning include a heavy emphasis on helping our clients operate more efficiently and help them find new ways to reduce costs. Similarly to what I've read in some of the research notes from our stock.
Speaker Change: Alice I also believe that long term terrorists may create additional advisory technology development in outsourcing demand as our clan clients may need to adjust their business processes in response to the tariffs or otherwise pursue a strategy of diversifying their exposures.
Speaker Change: As the global tariff policies and economic outlook remains volatile we intend to stay very close to our clients to ensure we are proactive in supporting their needs as the situation evolves.
Speaker Change: With that I'll hand, it over to <unk> for the financial review.
Speaker Change: Thank you to the S and good morning, everyone.
Speaker Change: Our financial results in the first quarter of 2025 were in line with expectations.
Speaker Change: We generated revenue of 670 million, the increase of 2% year over year or 3% on a constant currency basis.
Speaker Change: This reflected growth in AI and data solutions and digital solutions, we saw growth amongst the majority of our top five largest clients in the quarter on both a sequential quarter and year over year basis.
Speaker Change: Our largest client palace remains an acre of stability and growth of key client relationships.
Speaker Change: Across our peer banks, and we believe particularly beneficial during times of broader market uncertainty.
Speaker Change: Revenue with Telus grew 12% year over year, driven by services, we provide and customer experience management and digital solutions.
Speaker Change: With Google the lower year over year revenue comparison is primarily due to a higher 2020 for comparison base.
Speaker Change: Addition to typical volume fluctuations.
Speaker Change: And data solutions I will point out that year over year, our overall revenue in AI and data solutions grew in the quarter as we continue to diversify across more clients.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Revenue with a leading social media client, who remains our third largest client by revenue grew year over year.
Speaker Change: While we expect normal course fluctuations quarter over quarter. We believe overall our relationship is moving in the right direction with our ongoing efforts to diversify this relationship across geographies and service lines.
Speaker Change: Excuse me across our industry verticals I would highlight tackling game being our largest absolute dollar contribution where revenue increased 1% driven by growth with a leading social media and other technology claims partially offset by lower revenue from other client for this vertical.
Speaker Change: Telus continues to drive growth in our communication and media media and healthcare industry verticals, which grew 8% and 2% respectively.
Speaker Change: And while still smaller in absolute dollar contribution revenue in the D. M D F or by industry vertical grew 11%, primarily driven by certain Canadian based bank and smaller regional financial services firms in North America, and a global financial institution clients.
Speaker Change: Among our geographies, we grew in Central America, and Europe, while revenue generated in the Asia Pacific segment, which now also includes Africa with stable year over year results were in line with expected fluctuations in service volume demand from our clients in each of our regions.
Speaker Change: Yeah.
Speaker Change: In the first quarter, our adjusted EBITA margin was 13, 4% with a year over year decrease reflecting several factors.
Speaker Change: The operation component of this was due to increases in salaries and benefits as well as goods and services purchased outpacing revenue growth for the period.
Speaker Change: In addition, as we previously discussed in the first quarter of 2024, our adjusted EBITDA included a material other income line generated from changes and business combination related provisions, meaning an unfavorable year over year comparison for the first half of the current year.
Speaker Change: Also hurt your profitability incorporate the higher run rate of share based compensation.
Speaker Change: Our leverage defined as net debt to adjusted EBITDA leverage ratio as per our credit agreement was $3 four times as of March 31, compared to $3. Two times as of December 31st This remains comfortably under the threshold of our current credit agreement leverage covenant.
Speaker Change: As a reminder earlier in the year, we proactively arranged for our credit agreement Amendment.
Speaker Change: That deferred the leverage step down $3 75 times to $3 two five times to commence in the first quarter of 2026.
Speaker Change: In the first quarter, we generated free cash flow of $41 million as expected. This was lower due to the timing of working capital net inflows from a couple of large clients prepayments received in the previous quarter. In addition to typical seasonality.
Speaker Change: The year over year decline reflected lower profitability and higher capital expenditures.
Speaker Change: For the full year 2025, we are reiterating our outlook for revenue growth of approximately 2% on an organic basis.
Speaker Change: Adjusted EBITDA of approximately 400 million and adjusted diluted EPS of approximately 32.
Speaker Change: The additional commentary on the outlook that I provided in February also largely apply in terms of the timing of our investments and cost saving programs.
Speaker Change: With that let's move on to questions I ask you to please keep it to one question at times, so that everyone can participate call over to you.
Speaker Change: Thank you.
Speaker Change: If you'd like to queue up to ask a question at this time. Please press star one on your phone's Keypad press two if you would like to withdraw from the queue again. Please keep to one question at a time. The first question is from.
Speaker Change: Puneet Jain from Jpmorgan. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, Thanks for taking my question and good quarter.
Speaker Change: Wanted to.
Speaker Change: Maybe deeper into battle.
Speaker Change: Like if you can talk about.
Glen Tobias: What's the operating model like Glen Tobias <unk>.
Speaker Change: Indeed.
Speaker Change:
Speaker Change: Hello, everybody.
Speaker Change: Its telephone customer care operations to create AI based solutions for their customers like how do they engage with the let's see.
Speaker Change: Due to.
Speaker Change: The contract economics, whether the pricing model.
Speaker Change: The revenue model on that contract.
Speaker Change: Sure.
Speaker Change: Maybe I'll just I'll start with that and then to be as you can talk about.
Speaker Change: Essentially when we are working with tell us its a fantastic relationship because it gives us an opportunity to explore end to end journeys.
Speaker Change: Across their ecosystem and the diversified business that they have whether it be in health.
Speaker Change: <unk> agriculture and consumer goods.
Speaker Change: Or their core telecom businesses and and so what's really interesting is tell us is constantly on on the search for new efficiencies news ways to drive customer experience.
Speaker Change: And to look at leveraging AI and AI applications and in new way. So what we generally do is.
Speaker Change: Do an audit and identify opportunities in the organization in a specific business or journey.
Speaker Change: That usually and can involve some capital investment by tell us upfront, which provides consolidated consulting services and development services for FERC <unk> organization than.
Speaker Change: And then we also look at everything from how we can generate.
Speaker Change: Recurring service support for that business area.
Speaker Change: And then certainly look at what is it that we can do to create outcome based pricing and value add or both for Telus and for Telus digital so it's sort of a it's a journey that starts from a consultative basis in our exploration and investigation all the way through to the.
Speaker Change: <unk> Mint implementation and then ongoing ongoing management of that particular project.
Speaker Change: <unk>.
Speaker Change: Yeah, I mean I think.
Speaker Change: Much in line with what Jason's, saying this longer term view on the industry right is that there will be more and more managed services kind of arrangements and one of the amazing things.
Speaker Change: Our partnership with tell US allows us to do is test those models.
Speaker Change: And so that's been very exciting and that at the end of the day as the core thesis of.
Speaker Change: These assets under <unk> digital around digital combining with CX.
Speaker Change: In the laboratory for that is really our work with tell us.
Speaker Change: Okay.
Speaker Change: That's great and if we can also comment on like the economics.
Speaker Change: Project <unk>.
Speaker Change: Martin.
Speaker Change: Thank you.
Speaker Change: Sure. So when you look at the economics of those model.
Speaker Change: Just on a time and materials basis.
Speaker Change: The margins would tell us are very strong.
Speaker Change: We have.
Speaker Change: Numerous revenue sources across.
Speaker Change: Dozens of different projects.
Speaker Change: The upfront capital that tell us affords to drive capabilities within their organization as it is a revenue source for us.
Speaker Change: And then certainly the time and materials that we apply to it whether it's on a consultative basis engineering and development basis also generate.
Speaker Change: Strong revenue and margin so.
Speaker Change: That's essentially the model it's everything from.
Speaker Change: Consultation services through to development and implementation project management services.
Speaker Change: And those are at.
Speaker Change: Market competitive or better margins.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Thank you next question mentioned is from Stephanie price from CIBC World markets. Please go ahead Stephanie.
Stephanie Price: Hi, good morning.
Speaker Change: You mentioned growth with your third largest customer the leading social media provider.
Speaker Change: Across geographies and service lines, just curious if you could dig a little bit deeper into what you're seeing there.
Speaker Change: Sure when you when you look at that space, where there is.
Speaker Change: One of the thesis that we had at the outset of this year was to make sure that we started to diversify.
Not only geographies not only clients, but also the services within our client.
Speaker Change: And so those services generally when you're talking about that particular client or where you were talking about that space in general.
Speaker Change: Usually a mix of.
Speaker Change: Trust and safety with moderation services.
Speaker Change: Hi.
Speaker Change: Ada annotation labeling.
Speaker Change: Search accuracy et cetera, or do we get into things like.
Speaker Change: We get into things like the large language model work that we do and that's very project specific. So these imagine these spreads the large language model development.
Speaker Change: That we would do in that space. So.
Speaker Change: When you're talking about when we talk about multiple services, it's usually some mix thereof.
Speaker Change: Of those of those in the portfolio.
Speaker Change: That's good color and then you mentioned across geographies as well as there been any expansion outside of Europe with that customer.
Speaker Change: Well generally it's been within that most of the expansions have been within Europe on that particular customer, but we.
Speaker Change: We also see some opportunities in Central America and.
Speaker Change: And potentially.
Speaker Change: In Asia Pacific So I would say for the most part it's been in Europe, and when Youre talking about when you're talking about.
Speaker Change: Europe, what's really powerful with our presence in Europe is it the different languages that we have available to us to help participate especially in.
Speaker Change: Data and AI solutions.
Speaker Change: Thanks for the color.
Speaker Change: Yes.
Speaker Change: Thank you. The next question is from Keith Bachman from BMO. Please go ahead Keith.
Speaker Change: Yes, many thanks and good morning to you I wanted to just ask a broader philosophical question that picks up on the last question as you identified.
Speaker Change: Diversification is one of the key objectives, which certainly.
Speaker Change: We would agree with.
Speaker Change: The question is how do you execute.
Speaker Change: Diversification and presumably revenue growth acceleration, while also trying to improve your margins.
Speaker Change: And.
Speaker Change: Your growth remains relatively relative.
Speaker Change: Relatively low in margins.
Speaker Change: Are down year over year, and Theres certainly some reasons for that as you called it out but.
Speaker Change: It's difficult to do both particularly when you're trying to gather new customers and so where do you see the optimization.
Speaker Change: Of growth or margins, but maybe just talk a little more philosophically about how you improve your margins were also trying to execute a diversification in revenue acceleration many thanks.
Speaker Change: Sure.
Speaker Change: I mean, that's the challenge of every business right and when you take a look at how we're doing it we're essentially taking this year as a as an investment year and investment in new capabilities and investment in new talent and.
Speaker Change: In developing our existing talent.
Speaker Change: To be able to scale different.
Speaker Change: What we see as different growth areas within the business. So.
Speaker Change: I think one of the first things we're doing is using this investment here to put targeted investments in the areas that we think will grow the most so whether that's digital solutions or whether that is in our AI and data solution set or a new evolutions of.
Speaker Change: Security and trust.
Speaker Change: Trust and safety in particular, when it comes to new technology partnerships and Youll see us talk more and more about that in the coming weeks.
Speaker Change: So for us, it's about making having the discipline to make those investments how do we make those investments and make sure that they are self funded.
Speaker Change: Targeting indirect cost and we're looking at.
Speaker Change: How do we make sure that we can maintain relatively stable margins through through this investment period.
Speaker Change: Look go after indirect costs make sure we are being very disciplined in our execution of those cost reductions and use some of that to reinvest in new growth areas for the business.
Speaker Change: And then finally.
Speaker Change: Considering the the geographic requirements of our clients the language requirements of our clients.
Speaker Change: It's making targeted expansion.
Speaker Change: And then upgrades in areas in sites location investments.
Speaker Change: That we feel will generate the best return and that clients have indicated a wish to expand and so creating a path of least resistance when it comes to.
Speaker Change: Getting ahead of our clients' needs and you see some of that in this space as well.
Speaker Change: So we're mindful that we have to have a balanced approach we have to earn the right to invest in particular growth areas that we can't just Peter.
Speaker Change: Peanut butter spread that it has to be an optimization formula if you will.
Speaker Change: And we have to be able to make sure we are driving efficiencies to reinvest in our fourth.
Speaker Change: Those investments in the business so.
Speaker Change: Maybe to be a so I'll get you to top up.
Speaker Change: On the digital solution side as well.
Keith Bachman: Yes, Keith.
Keith Bachman: The it's a great question.
Keith Bachman: The I think the way to think about it right is margin in any of our service lines is ultimately based on do you have a differentiated service.
Keith Bachman: And what's the supply and demand picture in that particular service line.
Keith Bachman: So for digital solutions, especially we spend a lot of time thinking about where those areas that are that allow us to be differentiated in those areas you can charge a premium for it.
Keith Bachman: A more commoditized areas, so you'll see.
Keith Bachman: US address that by partnerships like what we've done with and as the partnership the ongoing relationship with Adobe and others and Youre going to see more of that youre going to see a focus on new ways of operating and I think the biggest one is AI first.
Keith Bachman: <unk> supported by a number of platforms, including fuel.
Keith Bachman: And then this focus on digitize CX so that win.
Speaker Change: Jason's in our organization go to clients together, we have a differentiated offering.
Speaker Change: Versus the marketplace and when you can do that you are clients. We will continue to pay a premium and we will continue to be able to drive margins over time.
Speaker Change: Alright, Thanks, Mike.
Speaker Change: Okay. Thanks, I think Obi you had some ideas too.
Obi: Yes, Keith I'll, just double click on a few of the items that <unk> Jason touched on.
Speaker Change: On that tension between revenue and growth. We're also working very closely with existing clients or new clients on where there can be a win win in terms of a benefit for them and the margin improvement for us So Jason touched a bit on <unk> and we can partner with our clients to say where would be optimal to be able to deliver.
Speaker Change: Service levels, what what they need the hours that they need depending on switching or changing the mix of their GL. So that's a constant conversation, we have with our existing customers and new ones.
Speaker Change: The other one is picking up on the earlier question around tell us and moving towards outcome based pricing, which again can be a win win between our customers and ourselves so with Telus in particular, where we're trialing. Some of that it gives tell us predictability around the outcome of what theyre going to be paying what are kind of stuck.
Speaker Change: To get in terms of sales or in terms of first call resolution and what it does for us.
Speaker Change: As on our investment so to the extent, we are working with tell us on very various AI initiatives.
Speaker Change: Tell us expert messaging and we see an improvement in efficiency and we see an improvement in first call resolution.
Speaker Change: <unk> got predictability and we in fact increase our margin for less time put in for the same outcome and so continues to continuing to work with new and existing clients on where we can.
Speaker Change: Both benefit has been really promising.
So far in entellus as our test case with that at all.
Speaker Change: Okay. Many thanks helpful answers appreciate it.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you'd like to queue up to ask a question. Please press star one on your phone's keypad. Please note that the leadership team request you keep to one question at a time. The next question is from Ramsey El <unk> from Barclays. Please go ahead Ramsey.
Hi, This is Ryan on for <unk>, Thanks for taking our question today.
Speaker Change: I wanted to ask on head count it looks like it declined slightly on a sequential basis, how should we think about hiring for the remainder of fiscal 'twenty five or are you comfortable where you are in do you actually see any opportunity to reduce head count in favor of AI. Thank you yes.
Speaker Change: Yes, absolutely, we do see opportunity to reduce head count in favor of AI in the absence of if you keep all things equal the reality is we're seeing.
Speaker Change: Growth in demand.
Speaker Change: In almost all areas of the business, especially when it comes to optimizing geographies. So even if youre downsizing in one in one geo or a client it might be you might be upsizing on another another geo. So we have to be fairly agile and that's one of the it's one of the benefits we bring to our clients was our.
Speaker Change: <unk> to move from area to area to optimize their portfolio on cost, but generally speaking I would say opportunity to see a reduction in total.
Speaker Change: Total workforce size.
Speaker Change: That we would be with AI because a lot of our work now is a human.
Speaker Change: Working in concert with AI that productivity lift gives us gives us opportunity and gives our clients opportunity to have more efficiency and productivity.
Speaker Change: Thank you.
Speaker Change: We track as obviously revenue per per team member cost per team member and we look forward to seeing a progressive improvement in that regard as we move forward.
There is in this time of investment definitely a need though to make some investments in key talent.
Speaker Change: And new capabilities within our organization and bringing in new engineering talent new.
Speaker Change: New large language model expertise et cetera, so as we continue to make those investments there'll be a period of time, where there is overlap, but generally speaking I think it's fair to say that both from AI as well as overall operational efficiencies and methods, we will see a reduction.
Speaker Change: In total fee income.
Speaker Change: That's very helpful. Thank you and congrats on the quarter. Thank you. Thanks for the question.
Speaker Change: Thank you. The next question is from a J.
Speaker Change: <unk> from Canaccord Genuity. Please go ahead.
Speaker Change: Good morning, Thanks for taking my question.
Speaker Change: I was wondering if you can elaborate a little bit on sort of the impact on tariffs on your clients.
Speaker Change: What you referred to in your prepared remarks about.
Speaker Change: But the potential opportunities that most specifically can you sort of talk a little bit about the conversations you're having there with clients is it is it more conceptual at this stage or do you actually is that an ongoing dialogue.
Speaker Change: With respect to the impact of tariffs and secondly.
Speaker Change: Longer term as we or let's say beyond two.
Speaker Change: <unk> 25, as we think about margins.
Speaker Change: Maybe just remind us of the puts and takes there.
Speaker Change: Are you still seeing pricing.
Speaker Change: Price linked competition that can impact your ability to expand margins and maybe some of the other you talked about head count. So maybe just remind us of all the puts and takes there. Thank you.
Speaker Change: Sure maybe <unk> you could take the tariff question and <unk>.
Speaker Change: Margins in head count to me.
Speaker Change: Yes.
Speaker Change: 100% so on tariffs.
Speaker Change: The way, we're thinking about it and the way our clients are thinking about it for most of them is that their first order impacts and then their second order impact.
Speaker Change: First order impacts are obviously the impacts of the tariffs directly and then the second order impacts are.
Is there an economic impact are we going into a recession et cetera.
Speaker Change: I think that's well publicized what what the risk is there.
Speaker Change: On the first order impacts most of our clients. When you look at the industries that we operate in are not directly impacted.
Speaker Change: Vis vis a tariff coming in on a good that theyre selling into from one country or another country, where they are impacted for.
Speaker Change: For example in financial services as how that flows through to the financial services industry.
Speaker Change: And that's where we're spending a lot of time with our clients looking at second and third order impacts.
Speaker Change: Of tariffs and how we can help them.
Address those through changes in their operations et cetera et cetera.
Speaker Change: I think the.
Speaker Change: Other opportunity for us and we hit it in our in our remarks is.
Speaker Change: If there is a slowdown in the economy and we've already seen this that folks are thinking about this is the primary objective of many of their investments becomes cost reduction.
Speaker Change: And you go on technology investments you go through cycles of investing in growth and investing in cost reduction and we are in a cost reduction first environment for most of our clients and youll see that positioning and our marketing materials et cetera that it's heavily about efficiency and heavily about cost reduction using AI using <unk>.
Speaker Change: <unk> diversification all the strategies, we have improving.
Speaker Change: How we use technology for CX, how we use technology for trust and safety.
Speaker Change: And Thats really the stance, we're taking and I think thats resonating very heavily with our clients because there <unk>.
Speaker Change: Conservative with their investments right now than perhaps they were 24 months ago Duffy I'll hand, it over to you for the second half.
Speaker Change: To be honest.
Speaker Change: Good morning, Linda So with regards to margin I'll start first with your pricing.
Speaker Change: <unk>.
Speaker Change: Still seeing a competitive environment still seen complexity in terms of servicing our clients, but we are seeing stability compared to what we saw earlier last year.
Speaker Change: We're hyper focused on our performance and ensuring that we're in the top two if not first with all of our customers and focusing on introducing technology, and bringing innovation and AI to our customers.
Speaker Change: So that we are their partner in transformation. So overall I would say, we're seeing stability there, but it's still a competitive environment.
Speaker Change: Then if we look at the rest of the margin profile. So Q1 in particular.
Speaker Change: New to be our low point, so coming in at just $13 for an EBITDA margin. Our average for the year is expected to be closer to 15% and we are on track. So what the differences youre going to see through the year. We spoke earlier in the year about making investments to Ajay spoke about this year being a year of investment.
Speaker Change: $67 million between Opex and Capex in particular investments some of those are ongoing but some of those are foundational in terms of some of the investments we're making in platforms and some of the growth we have in our sales and marketing team. Some of the technology investments, we're making and then we have an efficiency profile that is.
Speaker Change: Tacked onto those investments and we are very rigorous in terms of who owns those what it does.
Speaker Change: Liberty has to be an agile as well in terms of if we're not getting the return we expected to pivot and try other pilots to ensure that we do ultimately get that $50 million inefficiencies that that we're expecting so that gives us confidence in terms of the trajectory is the increase of our margins as we go through the year and then.
Speaker Change: As we look forward sort of in the early to tell in terms of where we end up but we're absolutely planning for a gradual.
Speaker Change: Increasing that margin so as I mentioned some of those investments are foundational. So those will not repeat other ones. We are going to have to continue to invest in the transformation of our business and technology.
Speaker Change: Those will continue but overarching I think you can expect from us a gradual improvement in the margins likely not back to the <unk> in mid two thousands of years past, but an improvement from what you saw or what we're forecasting for this year.
Speaker Change: Okay. That's helpful and good to hear thank you.
Speaker Change: Thanks.
Speaker Change: The next question is from Cathy Chan from Bank of America. Please go ahead Kathy.
Speaker Change: Thanks for taking my question just wanted to ask for your revenue outlook that you guys, obviously reiterated it.
Speaker Change: A pretty strong fourth quarter. So just wanted to ask are there any changes to FX expectations for the full year are you still assuming that kind of the macro remains relatively stable relative to the first quarter and are there are you adjusting any of your expectation for our performance on your top client.
Speaker Change: Just given the strength that you've kind of talked about that you've seen in the first quarter. So far thank you.
Speaker Change: Thanks for the question coffee do you want to take that.
Speaker Change: Sure Good morning Kathy.
Speaker Change: So overarching we.
Speaker Change: And it's an overused term, but we're having to stay pretty agile in terms of our forecasting for the year. So I'll start with FX, we started to see some stabilization between argue our U S and Canadian dollar is now we're expecting that that likely continues through the year, we're watching the euro and in U S dollar fluctuation.
Speaker Change: Again currently a little bit in our favor as we go through Q2, but again expecting overall stability.
Speaker Change: So that is the foundation as we're looking through the year as we are expecting continuing fluctuations, but overall stability. There are puts and takes in our model and that's how we rebuilt our plan for this year, which is we're expecting some wins were also expecting some enhanced so we've built some space.
Speaker Change: To be able to take those puts and takes we've seen that come through Q1 going into Q2.
Speaker Change: And so we're cautiously optimistic as we look through the rest of the year barring material changes in the macroeconomic environment.
Speaker Change: We're confident in reiterating our outlook for the year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our final question comes from Mizuho Securities.
Speaker Change: Jonathan Please go ahead Joel.
Joel: Hi, Good morning, Thanks for taking my question just as a follow up.
Joel: In the period as question you have maintained your guidance.
Joel: If I can just maybe indicate if there is ballpark any change to your <unk> business assumption going forward in 2025, basically if there had been an acceleration in the business tell us for 2025 or or as a whole the business should perform as expected.
Colby: Go ahead Colby.
Colby: Updates to room. So as mentioned we saw strength with tell us in Q1, and we expect to continue to see that strength, we just referred to.
Colby: The pipeline of projects that we have on the go with talent and that we have ready, we prioritize where we can drive maximum efficiency for them and we can deliver value and get return on style and that pipeline is strong. So we expect to continue to see.
Colby: Consistent work with tell us throughout the year and as we mentioned earlier and tied to the previous question in this time.
Colby: Some change and volatility it is really nice to have the stability and anchor of Telus and the diversity of work with you with him. So it isn't just any one given project, but across multiple of their business units. So not just.
Colby: In their consumer business, but across business across health across agriculture, and so a lot of opportunity. There. So we expect to see consistent.
Colby: <unk> worked with them throughout the year.
Speaker Change: Yes, and maybe I can just paint a.
Colby: A larger picture here too.
Colby: What's really exciting about the partnership between tell us and tell US digital is when you look at the economy and how we're tackling it we're really taking a mid to long term view and building end to end capabilities that allow us to participate contribute and extract value from the AI economy.
Colby: So if you look at Telus is investments in AI data sovereignty.
Colby: And making sure that.
Speaker Change: S countries can.
Colby: And enterprises can keep data is safe and well managed and then you look at their leadership in.
Colby: Privacy and policy around AI, and what they've been able to establish there not only on a Canadian basis, but on a global basis in terms of shaping informing how AI is used in for the safety and benefit of both business and communities.
Colby: And then going along the value chain to how.
Colby: How <unk> digital participates.
Colby: And creating applications that democratize, AI like fuel and making sure that those applications than our tried and tested and in a living lab across multiple functional dimensions.
Colby: Tell us itself, but also our other customers and then moving from there to scale ability and scaling them at an enterprise level and improving out how those those use cases can really generate critical value.
And then going beyond that and taking a lot of those instances and experiences and shaping and informing how large language models are used.
Colby: And everything from the.
Colby: The accuracy of those models, all the way straight through to developing new reasoning capabilities.
Colby: New applications new expertise.
Colby: For large language models I mean, it really is quite a cohesive ecosystem.
Colby: AI economy participation and contribution.
Colby: And that's the that's the view, we're taking we're leveraging the fulsome.
Capabilities of both tell us and tell us digital and bringing to bear our strategy that has both midterm and long term sustainability and and there is a masters two.
Colby: Correct value out of AI, right, now and we understand that and obviously want to participate in that.
Colby: But ultimately underlying it all is a very cohesive strategy from end to end in a highly valuable partnership.
Colby: Great. Thank you I appreciate it.
Colby: Thank you there are no further questions.
Carl: Thank you Carl and I will turn the call back to Jason for his closing remarks.
Carl: Thank you everyone for joining us today, our next week on May 15th Telus digital virtually host our annual general meeting of shareholders and they would have all received instructions on how to join the meeting for those of you attending the CIBC innovation and technology conference in Toronto, and a couple of weeks.
Carl: Our great leaders to be us and <unk> will be there to represent <unk> digital and I Hope you all have the opportunity to connect in person and then lastly, our next quarterly Investor call will take place in early August and until then I wish you all a very good summer. Thank you for your participation today and for your great questions.
Carl: And goodbye.
Carl: Thank you.
Speaker Change: This concludes Telus Digital's Q1, 2025 investor call. Thank you for your participation and.
Carl: Have a nice day.
Carl: Okay.