TELUS International (Cda) Inc.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good morning ladies and gentlemen and welcome to the TELUS International First Quarter 2021 Investor Call. My name is Jonathan and I will be your conference facilitator today. At this time, all lines have been placed on mute to avoid background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] I would now like to introduce Jason Mayr, Senior Director Investor Relations and Treasurer at TELUS International. Mr. Mayr, you may begin.

[Jason Mayr:]

Thank you, Jonathan. Good morning everyone and thank you for joining us today for TELUS International's Q1 2021 investor call. Joining us today are Jeff Puritt, President and Chief Executive Officer; and Vanessa Kanu, our Chief Financial Officer. We'll begin the call with some prepared remarks where Jeff will provide an operational and strategic overview of the quarter; followed by Vanessa who will provide some key financial highlights and outlook for 2021. We will then open the line up to questions from prequalified analysts before turning the call back to Jeff for his closing remarks. Before I turn the call over to Jeff, I'd like to direct your attention to slide two of the supplementary presentation available for download on this webcast and also available on our website at telusinternational.com/investors. The statements made during this call may be forward-looking in nature including all comments reflecting expectations assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from our current projections. We assume no obligation to update any forward-looking statements. Jeff and Vanessa will also discuss certain non-GAAP financial measures that the management team consider to be useful in assessing our company's underlying business performance. An explanation of these non-GAAP measures and a reconciliation to the comparable GAAP measures can be found in the Appendices of today's supplementary presentation along with the earnings news release and MD&A available on SEDAR and on EDGAR with the SEC. I would also like to remind everyone that all financial measures we are referencing on this call and in our disclosure are in US dollars unless specified otherwise and relate only to TELUS International results and measures. With that, I'll now pass the call over to our President and CEO, Jeff Puritt.

[Jeff Puritt:]

Thanks Jason. Good morning everyone. It's truly my pleasure to welcome you all to TELUS International's first ever quarterly investor conference call as a public company. I appreciate you taking the time to hear about our company's first quarter results as well as our full year outlook for 2021. Following the successful completion of our IPO in February, TELUS International's strong Q1 performance was marked by continued resilience and underpinned by our diverse end-to-end digital capabilities. Robust double-digit revenue and adjusted EBITDA growth is a testament to our digital strategy and the remarkable commitment of our more than 51,000 highly engaged team members and our 1 million crowd-sourced data annotation experts around the world. Despite the challenges of the ongoing pandemic, our team members remained focused on delivering the best outcomes for our valued clients and their end customers. As the pandemic continues to disrupt our daily lives, companies are seeing an acceleration in the need to embrace digital transformation and also an amplified focus on the importance of quality, security, and service excellence. This increasing demand from businesses across many sectors, especially in the high-growth verticals we serve such as e-commerce, games, and fast-growing technology in particular brings forth unprecedented opportunities for TELUS International given our broad range of digital capabilities. Our unique value proposition defines a new industry category at the intersection of digital IT and digital CX where we're able to design build and deliver next-gen digital solutions that power differentiated customer experiences for our clients and drive value creation for our shareholders. The successful execution of our strategy is evidenced in our first quarter results. Year-over-year TELUS International achieved revenue growth of 57% including 20% organic revenue growth along with strong profitability with adjusted EBITDA increasing 90% year-over-year. This profitability profile affords us meaningful headroom to continue investing in our business to further amplify our capabilities and fuel accelerated revenue growth. Additionally, the outlook we're providing today further showcases our confidence in our company's strong operating momentum and our expectation that this growth will continue. Vanessa will review the details of our full year outlook later on this call. Our Q1 results also reflect our success in growing with our existing clients as well as winning new clients. For example this quarter, we ramped up a fast-growing disruptor in the wellness space, a major e-commerce company, a large financial institution, a new games client, and a disruptive fintech company among many others. We continue to see good momentum in adding new logos across our targeted verticals many of which are leaders in their own sectors. Vanessa will share a more detailed overview of our performance by vertical later on the call. Our consistent focus on partnering with substantial sustainable businesses operating in fast-growing technology forward industries rather than chasing pandemic-driven business that is inherently variable in nature position TELUS International well for continued success. We've also seen a very encouraging trend in our sales funnel with total estimated contract value of well over $2 billion of net new business, which is $400 million higher than this time last year. Winning these significant opportunities would not have been possible without our broad range of digital capabilities and value-add adjacencies such as our trust and safety practice which has achieved tremendous growth in the first quarter. With user-generated content at an all-time high due to our daily lives shifting more and more online, digital services such as content moderation are no longer only in demand by large social media entities and tech hyperscalers. Businesses across all our target verticals are now also seeking support in this regard to safeguard their brand and protect their customers. There's a growing recognition in the market that if a company has an online presence digital trust and safety is now more important than ever. TELUS International is again extremely well-positioned to seize this opportunity by leveraging our scale expertise and thoughtful approach to caring for our global team of moderators who have undertaken the critical role of keeping our online world safe. Yet another exciting adjacency within our diverse digital service offering is our data annotation capability that we added through the acquisition of Lionbridge AI at the end of 2020. As one of only two globally scaled managed training data and data annotation services and platform providers in the world we access a crowd of over one million data annotators that together support the development of AI algorithms for leading technology companies. Through our acquisition of Lionbridge AI, TELUS International has added an important digital capability that we see as a meaningful differentiator versus our peers. With our integration of Lionbridge AI progressing well, we're leveraging our experience and strength in executing on our M&A integration process that has been a hallmark of our successful acquisition track record since our company's inception in 2005. Unlike other data annotation providers, we expect our combination of scale and broader adjacent capabilities will help sustain our continued growth trajectory as AI adoption continues to expand beyond the hyperscaler community into enterprise and mid-market organizations. While we continue to operate in a challenging environment impacted by the pandemic, our focus remains on the physical and mental health and well-being and safety of our team members. We are of course closely monitoring the situation in India and the devastating surge in COVID cases in the country. All of our TELUS International team members in India continue to work from home, as they have been since the initial lockdown occurred on March 18, 2020. And we have several support programs in place, including paid sick leaves, insurance coverage for treatments and additional care programs to help team members during these difficult times. As vaccination programs continue to roll out around the world, we've committed to providing every single member of our team in every country where we operate with access to an approved vaccine at no cost. Across all of our locations globally, as of March 31, we have more than 80% of our team members who continue to work from home and we have comprehensive safety, physical distancing and sanitation measures in place for those who are working in our sites. Worthy of note, our community-based approach to giving continues to make an impact where it's needed most. Our five TELUS International community boards across the globe will provide $500,000 in funding in 2021 to local grassroots charities. Our team members also continue to exemplify our caring culture volunteering on a virtual basis. All of our team member recruitment has long since moved to a virtual process, so that we can continue to provide meaningful employment opportunities in many countries across the globe, something that is especially impactful given the economic toll of the pandemic. Now, over 14 months into the pandemic our personal and professional lives continue to be disrupted and impacted in some form, which makes the ongoing resilience and positive energy of our team members all the more inspirational. Their dedicated efforts have been reflected in the client and industry accolades we continue to receive. In Q1, TELUS International was recognized by leading industry analyst firms, Gartner, Everest Group and Nelson Hall for our content moderation and trust and safety services and our execution and delivery of digital services and solutions. And for the fifth consecutive year, we were named to IAOP's Global 100 List, citing our dedicated efforts to foster innovation and deliver impactful corporate social responsibility programs. With that, let me now pass the call to our Chief Financial Officer, Vanessa Kanu, and then I'll be back to answer your questions. Vanessa, over to you.

[Vanessa Kanu:]

Thank you, Jeff and good morning everyone. Thank you for joining us today. In my overview, I'll provide a recap of our financial performance in the first quarter of 2021, focusing on the key items that we believe are most helpful in assessing the performance of our business. As Jason noted at the start of the call, some of these items are non-GAAP measures. In the first quarter, our revenues were $505 million, up 57% year-over-year, boosted by our acquisitions in 2020. Of note however, organic revenue itself grew by 20%. That growth coming from both new clients added organically and growth to existing clients. This included FX tailwinds of approximately 4% compared to the same period in the prior year. In terms of our revenue by geography, we delivered year-over-year growth in every one of our regions, with our Lionbridge AI acquisition making a significant contribution to our North American revenue stream. We also posted very strong growth in Europe, driven by demand for our trust and safety services in that region, along with continued business growth in Central America and Asia. From an industry vertical perspective, we saw growth across all key verticals in the first quarter with continued strong momentum in our flagship Tech & Games vertical. This vertical, which represented 44% of our total revenues in the first quarter, grew 88% year-over-year, with nearly half of this growth attributed to our Lionbridge AI acquisition. Our Tech & Games clients are themselves enjoying high growth. And with many of us spending an increasing amount of time online, combined with the explosion in the popularity of online games, we are seeing a meaningful tailwind for TI. Our Communications & Media vertical, which represents 26% of total revenues in the quarter, grew 16% year-over-year; while eCommerce & Fintech, which represented 11% of total revenue, grew 53% year-over-year, with the majority of this increase attributed to growth from acquisitions. Moving on to operating expenses. Salaries and benefits expense was $282 million, up 76% or -- $76 million or 37% as a result of business growth. This was an increase in absolute dollars, but lower as a percentage of revenue, as 56% of revenue in Q1 this year compared to 64% of revenue in the same quarter last year, with that decline being primarily due to the recently acquired AI business, which is largely supported by contracted resources for which the expense is recorded in goods and services purchased. Speaking of goods and services purchased. Those costs were $94 million in the quarter, an increase of $46 million or 96%, largely due to our acquisitions and again the AI crowdsourced workforce as I just mentioned, for which the contracted labor costs are recorded in the goods and services line. The balance is attributed to an increase in contracted labor to support our existing digital footprint and enable topline growth. Contract labor represented approximately 17% of our total direct labor costs in the first quarter of 2021, compared to 9% in the same quarter a year ago. On a combined basis, salaries and benefits and goods and services purchase, decreased from 79% of revenue in Q1, 2020 to 74% of revenue in Q1 2021, as the growth in our revenues clearly outpaced the growth in operating expenses. Moving down the P&L, share-based compensation expense in the third quarter was $26 million, an increase of $24 million year-over-year. This increase was primarily due to the required mark-to-market adjustments on previously granted awards, driven by the increase in our share price after our initial public offering. Acquisition integration and other charges in the first quarter of 2021 were $5 million and related to the integration of Lionbridge AI and other items. This compares to $19 million in the prior year, which related primarily to the acquisition of CCC. Depreciation and amortization expense in the quarter increased to $63 million reflecting the incremental amortization of intangible assets recognized in connection with our acquisition and increased depreciation from capital asset additions as we continue to grow our business. Income tax expense in the quarter was $15 million, up $3 million from the same quarter in the previous year. Our effective tax rate increased from 52.5% to 81.8% due to an increase in nondeductible items and withholding and other taxes partially offset by a lower weighted average statutory income tax rate resulting from a change in the income mix amongst jurisdictions. The majority of the nondeductible items in Q1, 2021 were a result of our IPO. Moving on to our profitability performance. We delivered adjusted EBITDA of $129 million for the quarter posting strong year-over-year growth of 90%. Our adjusted EBITDA margin was exceptional at 25.5%. We expect this to begin to normalize starting next quarter, as we anticipate a combination of increased hiring to support and serve our clients through the remainder of the year, along with annual wage increases that we had already planned for Q2 and Q3 of this year. More on adjusted EBITDA expectations when we talk about outlook. Adjusted net income for the quarter was $59 million up 293% year-over-year and adjusted diluted EPS was $0.23 up 229% compared to the same quarter in the prior year. Moving on to the balance sheet. Cash and cash equivalents were $117 million as at March 31, 2021. Our total available liquidity was approximately $768 million as of the quarter end up from $285 million as at December 31, 2020. This includes available borrowings under our revolving credit facility of $651 million up from $132 million as at December 31 2020. We used the IPO proceeds of $493 million and cash generated from operations to pay down $530 million of debt in the first quarter. This allowed us to delever significantly resulting in a March 31 net debt-to-adjusted EBITDA leverage ratio as defined for our credit agreement of 2.7x. This puts us well within our target range of 2x to 3x. Our proven ability to delever quickly and efficiently bolsters our liquidity and capacity to continue executing on our thoughtful M&A strategy. In this regard we will continue to explore opportunities focused on further augmenting our digital capabilities and scale. Free cash flow in the first quarter of 2021 was $18 million compared with $21 million in the same quarter of the prior year. The key drivers of this change were

[Operator:]

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang from JPMorgan. Your question please.

[Tien-Tsin Huang:]

Hey good morning. Congrats on the first public call. Good results here. Just want to ask about sort of the outlook here. And totally appreciate Jeff what you said that TELUS is not seeking short-term pandemic-driven business. But reopenings will likely have some mixed impact on your client base. So has you're thinking changed on how this will impact volume of work in the balance of the year? I'd imagine travel might pick up some of the slack of ecomm for instance, but would love to get your thoughts on this as it's something certainly top of mind for us?

[Jeff Puritt:]

Tien-Tsin thanks very much for the question and thanks for your commentary note early this morning. You were up much earlier than I had seen. We anticipate with obviously the exception of India now where we're obviously paying close attention given we've got almost 3000 team members there that the pandemic will continue to abate as vaccine distribution improves and becomes more ubiquitous. Given the heterogeneity of our global topology we've got sort of very different views across the world as to whether or not team members will want to return to traditional office setups whether or not customers will want us to serve them back from traditional brick-and-mortar environment. We're taking sort of a targeted thoughtful measured approach. In terms of demand in totality we continue to see terrific support for the capabilities that we have available. And indeed, I think you're spot on. I'm hearing an expression of revenge travel more and more these days as I think folks are starting to book their holidays. The ride-sharing and home-sharing economy continues to prepare for I think an onslaught of return to pre-pandemic levels and we're excited about what that potentially represents for our business. But we haven't really seen a huge slowdown since the latter half of last year and indeed having successfully positioned ourselves with capabilities around content moderation data annotation and digital enablement, we think we're well positioned to take advantage of what comes next.

[Tien-Tsin Huang:]

Great. Thanks so much.

[Operator:]

Our next question comes from the line of Ramsey El-Assal from Barclays. Your question please.

[Ramsey El-Assal:]

Hi. And thanks for taking my question today. Again, congratulations on your first quarter out of the gate here. I wanted to ask about your M&A strategy and update there. You've delevered quite nicely. I know there's no M&A in guidance, but what's the appetite now to consummate more deals?

[Jeff Puritt:]

Hi, Ramsey. How are you? Thanks for joining. I've joked a lot recently that, I feel like our IPO was sort of getting this fancy red convertible sports car and we're at the starting line of the autobahn and so we want to see how fast this baby can go. But candidly, we're going to continue to be thoughtful and disciplined around when where and how to go shopping. Obviously, we're very pleased with the success of the IPO and the proceeds being used to pay down leverage to create that incremental headroom. So we have that optionality. We have a very robust M&A funnel and the team is working diligently through opportunities that are -- in both outreach and incoming. And you should indeed expect that we're going to be acquisitive prospectively, but you should similarly expect that we're going to do it in the same disciplined fashion that we have done historically to sort of extend our capabilities, fill in gaps where we think we have them, support our customers, our prospective customers where we think they want us to be and to continue to progress our digital evolution thesis and capabilities.

[Ramsey El-Assal:]

Great. Thank you.

[Operator:]

Thank you. Your next question comes from the line of Maggie Nolan from William Blair. Your question, please.

[Maggie Nolan:]

Thank you and congrats from me as well. I wanted to ask if the strong adjusted EBITDA in the quarter was in line with your expectations. And can you elaborate on the impact of the favorable client mix on the margin?

[Vanessa Kanu:]

Good morning, Maggie. It's Vanessa. Thanks for your question. Q1 was a great quarter without a doubt. Obviously, we saw great momentum, increased volumes from both new and existing clients. And all of that translated to the very strong adjusted EBITDA margins that we posted in the quarter. The organic growth was really strong and we haven't found that we've had to discount substantially to get to our growth rate. That being said, as you can see from our previous guidance and our current guidance, we think a more representative full year adjusted EBITDA margin for us is about in that 24% ZIP code. Quarter-by-quarter it may vary slightly. Q1 was obviously very good. But as I mentioned in my earlier remarks, we are going to be increasing the pace of hiring to support our clients through the balance of the year. We already also have annual wage increases planned for our team members. So all of those will come into our cost profile as well again very much part of our plan. So I think 24%-ish which is what we've guided is the right ZIP code to think about adjusted EBITDA on a prospective basis.

[Maggie Nolan:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Jason Kupferberg from Bank of America. Your question, please.

[Unidentified Analyst:]

Hi. This is Kathy [ph] on for Jason. I just wanted to ask a little bit about content moderation just how is it doing relative to your expectations? And obviously with all the new capabilities and the cross-sell opportunities for example from Lionbridge AI what are your expectations for this segment in sort of the near and medium-term? Thanks.

[Jeff Puritt:]

Thanks for the question, Kathy. Please give Jason my regards. I hope he's okay. Content moderation in my view has become an essential tool for operating online. The gravitational pull of social media in the world is just continuing to grow and it's got enormous consequences for businesses. So as I referenced in my remarks earlier, we see continued just meteoric growth and demand around here. And we're excited about the opportunity ahead of us given that we've demonstrated we have the requisite capabilities in terms of the highly trained, highly attuned digital first responders that are supported with an ecosystem that can ensure their success and supported as well by the requisite technology to deliver superior outcomes for our customers. And as -- again as I said, this is not just for the social media platform. This is ubiquitous now. And so we're quite excited about the -- and now in retrospect seemingly prescient approach that we took to expanding our content moderation capabilities.

[Unidentified Analyst:]

Okay. Thanks. And congrats on the quarter, guys.

[Jeff Puritt:]

Thanks very much.

[Operator:]

Thank you. Our next question comes from the line of Keith Bachman from Bank of Montreal. Your question, please.

[Keith Bachman:]

Hi. Thank you. It's Keith Bachman from Bank of Montreal. Vanessa, I wanted to direct this towards you. Your EBITDA margin guidance for 2021 is pretty much in line with how we were thinking about it. I was just wondering if you could comment on the puts and takes that we should be thinking about as we consider our free cash flow expectations whether it be GAAP free cash flow or adjusted free cash flow. But could you just kind of walk through the puts and takes for 2021 free cash flow? The reason I asked the question the reported free cash flow was a little bit different than what we were thinking in the March quarter. And yet EBITDA seems to be tracking nicely. So just if you could just speak to how we should be thinking about that for 2021? Many thanks.

[Vanessa Kanu:]

Thank you. Yes. The EBITDA margins are very much in line as you mentioned. From a free cash flow perspective, our Q1 free cash flow as I mentioned earlier was impacted by some of our higher cash outlays that were primarily triggered by the IPO as well as accrued -- or previously accrued transaction fees for LAI. So that was sort of a onetime cash outflow impact in the quarter. Normally, you'd see that kind of happen over time. As I think about the next three quarters, I think that is actually going to look a lot more like what you've seen from us before. So we've typically said overall free cash flow in the sort of early to mid-teens. And I think that's what you should expect for the next three quarters.

[Keith Bachman:]

Okay. Great. Many thanks. Terrific.

[Vanessa Kanu:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Tim Willi from Wells Fargo. Your question, please.

[Tim Willi:]

Thank you. Good morning and congratulations, Jeff, Vanessa and team. My question sort of I guess builds a little bit upon Tien-Tsin's. But I wanted to ask in terms of winning new business and expanding wallet share with existing customers as people are thinking about the prospect of some of the pandemic surge may be abating a little bit in their business, do you see a change in sort of the conversations around their priorities in that, is there more of a focus emerging about retention and engagements in some of your verticals with the prospect of people maybe not being inside all the time staring at a screen or whatever it is? And so the retention and the engagement becomes a little bit more of a priority versus just help us deal with the surge of growth and onboarding customers and things of that nature. Anything to just sort of think about there around the new business wins and wallet share expansion?

[Jeff Puritt:]

It's a good question, Tim. As you might imagine, there was significant concern regarding engagement throughout the pandemic and that persists given that the vast majority of folks are working at home in a virtualized environment and mental health considerations have weighed even more heavily of late just given the elongated nature of the pandemic. I think retention is always a concern. And whilst our business and as I've read and seen many of our peers enjoyed some improved retention attributes frankly because there was not the same optionality of alternative employment for them to consider. As the pandemic abates, we absolutely anticipate that we'll probably return to pre-pandemic levels around attrition. And so too our customers are thinking about the implications of what happens post-pandemic. Do we really all return back to brick-and-mortar delivery centers? Do most folks stay at home now because we finally crossed the Rubicon and recognized that virtualization is fit for purpose? We can reliably without considerations concerns for privacy, confidentiality, productivity performance still support our customer expectations on a virtualized basis. So this is not new for us. This is kind of the -- this is what we do every day and have done is to be focused on attracting, retaining, inspiring, engaging the most talented workforce. And I think the ebb and flow of pre; post-pandemic dynamics are just part of the challenge.

[Operator:]

Thank you. Our next question comes from the line of Dan Perlin from RBC Capital Markets. Your question please.

[Dan Perlin:]

Great. Good morning, everyone, and congratulations on the first quarter out, really good results here. I had a -- I was maybe going to start with this -- the sales funnel you guys talked about over $2 billion, $400 million up on a year-over-year basis. I was hoping maybe you could talk a little bit about the nature of the business that's inside the funnel and just how we should be thinking about that conversion into revenues over time. I know you mentioned trust and safety as a practice is really strong but any color there would be fantastic? Thank you.

[Jeff Puritt:]

So thanks Dan. As Vanessa shared the growth that we saw in the first quarter was really across all of our targeted verticals. It's very, very exciting for us to see that we were seeing progress across the board. Admittedly travel and hospitality still a little bit of a laggard. But as the earlier comments suggest I think all of us are anticipating that that's going to start to pick up in the latter half of this year assuming we don't see a fourth or fifth wave God forbid. In terms of our funnel, it is similarly reflective of that same dynamic. We're seeing pretty exciting upside potential across all of our targeted verticals. And in terms of the sales effort to go and capture that and the conversion rate with respect to that, I don't know that we've guided specifically to conversion rates. We talked a little bit about being in the first one-third if you will of the ZIP code of conversion but sort of once opportunities in the funnel pass, the 60 percentile probability weighting rate, we're feeling pretty strong, pretty excited about the opportunity to continue to convert that similar or even better rate prospectively. And I'll talk a little bit in my closing remarks about our sales capability in that regard.

[Dan Perlin:]

Excellent. Thank you.

[Jeff Puritt:]

Thanks Dan.

[Operator:]

Thank you. Our next question comes from the line and of Ashwin Shirvaikar from Citi. Your question please.

[Ashwin Shirvaikar:]

Thank you. And congratulations from me as well on your first public earnings, which are good ones. I wanted to ask about the new logo wins and the expanded relationships that you talked about. Is it possible perhaps to break those out or somehow quantify along the design deliver build axis? Does it lean towards any particular axis, or is it fairly evenly distributed? How should one think of this?

[Jeff Puritt:]

So I'd like to offer more specificity for you Ashwin on this topic in particular. As you might imagine Vanessa and I and the team have spent a fair bit of time talking about when if and how. We thought best to provide the incremental granularity. We want to be as helpful to you as much as possible. But right now we think it's still early days and we prefer to remain a bit higher level, until we get a couple of quarters under our belts as a new public issuer. I think again Vanessa's comments provided you with good guidance. It was fairly balanced a little extraordinary growth on the Tech and Games sector in particular, but admittedly flattered in part by the Lionbridge AI contribution to that given where the predominance of its customer base is located. And in terms of what we're doing for our existing and prospective customers. Again you should expect that we're continuing, obviously, to see a lot more growth opportunities on digital enabled services.

[Ashwin Shirvaikar:]

Understood. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Paul Steep from Scotiabank. Your question please.

[Paul Steep:]

Great, good morning. Congratulations on your first public quarter. Jeff, maybe talk a little bit -- we've talked lots about reopening and other things. But your Internet and social media leaders, they've commented in the last couple of quarters here about increased focus on customer support. So maybe you could weigh in on your views on the opportunity for driving even broader engagement in the tech sector by TI? Thanks.

[Jeff Puritt:]

I'm not sure I fully understand your question Paul. Can I trouble you to perhaps restate it for me?

[Paul Steep:]

Sure. I guess there's been a focus -- lots of focus on the call and people focused on content moderation. I think we've had a couple of your clients and people in the market comment about moving beyond just content moderation moving -- trust being key but moving into other areas of customer support and building that out even further. And I guess I was looking for you to expand on maybe the potential for you to even further deepen those relationships where you've already got engagements?

[Jeff Puritt:]

So for us the obvious near-term adjacency to content moderation is data annotation. So to the extent that we're looking to extend our reach in supporting our customers more effectively, content moderation is more than just identifying and removing objectionable content from the web right? Content moderation is also curating ad content to ensure that it appears proximate to appropriate content that it's served up to the right audience at the right time in the right way. So the way we believe there's more opportunity prospectively to expand and extend our capability supporting customers on the content mod front is through ever more capable data annotation, which is really the underpinning that data that's being used to train those AI algorithms that go into the machine learning that optimize search results that optimize ad placement that ultimately ensure that you don't have bias in your content that is being delivered up to your customer base. So for us, that represents probably the most exciting next horizon for our business. And it's still relatively early days but boy oh boy, we've already seen fantastic synergy realization between ourselves and LAI, whether it's selling more together to share customers and/or winning new customers together because of this really potent one-two punch of content moderation and data annotation.

[Paul Steep:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Stephanie Price from CIBC. Your question please.

[Stephanie Price:]

Good morning and congrats on the results. So my question kind of follows-on Paul's a little bit, around Lionbridge's contribution in the quarter. And how we should think about the integration of that business and the growth you're expecting in that business. Maybe you touched on a little bit of it, but if you could expand a bit.

[Jeff Puritt:]

Hey Stephanie nice to hear your voice. Thanks for the question. As I said, we're pretty excited about the progress to date. I mean, as I think you may recall, I shared previously, perhaps something I inherited from Mr. Entwhistle a perpetual dissatisfaction with the status quo. I always think we can go, farther faster and do better. But early days, and yet really, really pleased with most importantly the integration in terms of cultural alignment and the leadership community across the entirety of the LAI Group. It just feels like a natural fit with the TI family. And the conversations, we're having as I said before, with our shared customers very, very exciting about what's coming next, the wins already with new customers again equally exciting, sort of validating our synergy thesis that underpinned the acquisition strategy, at first instance. But it's still early days. And I'm optimistic to see even better contribution coming from the data annotation part of our business prospectively.

[Operator:]

Thank you. Our next question comes from the line of Daniel Chan from TD Securities. Your question please.

[Daniel Chan:]

Oh, hi. Good morning and congratulations on the good first quarter. So now that you're a public company, I'm just wondering if you've seen any changes in your discussions with existing customers, any interest from new customers and maybe even your ability to attract talent to your team?

[Jeff Puritt:]

Good question, Dan. Excuse me. I'm not sure I've had any conversations with a customer existing and perspective where we talked, specifically about our new public issuer status, beyond just the niceties at the time of the IPO which was obviously appreciated. But we are absolutely seeing appetite from existing customers to go bigger with us. I think not surprisingly, as we expected, there are obvious correlations, between being a public issuer and vendor risk consideration. And I think customers not surprisingly, just have a higher level of confidence given higher levels of visibility. And expectations around scale and ability to answer for warranties for service delivery so on and so forth. And equally not surprising, but no less appreciated, we are a destination of choice for talent. And again, we're pleased and grateful for that. But a great example of that would be our Chief Commercial Officer, who joined us just barely two months ago. And although, it was not long before the IPO, I'm sure Vanessa will confess that, it was the near-term likelihood of an IPO that attracted her in part to joining the TELUS International family as well. So we're excited about what that represented for us. And prospectively, what that will continue to mean, in terms of we being a more attractive destination both for talent and for customers.

[Daniel Chan:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Matt Cabral from Credit Suisse. Your question please.

[Matt Cabral:]

Yeah. Thank you and good morning everyone. So Jeff, you just mentioned the hire of the Chief Commercial Officer in March. I'm wondering, if you could talk a little bit more about your ambitions with Maria now part of the team. And maybe just speak to your go-to-market approach more broadly as you continue to target new logos going forward? And just how we should think about the investment needed to support growth in presumably some sales reps going forward, relative to just the strong EBITDA profile that you guys have been operating at historically?

[Jeff Puritt:]

Matt, thanks very much for joining. Good question. You may recall we talked a bit about this during the IPO roadshow as well. And we absolutely recognize that, there is both an opportunity and a need for me to continue to amplify our direct sales capability as well as to augment that with a more robust sales channel strategy. One of the reasons why Maria was so attractive to me in this role is, her really exciting experience her pedigree and credentials, around growing and scaling sales organization of consequence, particularly selling digital solutions. And we have already both, before and in the short-time since Maria joined, started to materially increase our investment in feet on the street on sales hunters, sales farmers, solutioning support, inside sales support. This is sort of a continuing effort on our part to recognize that, we need to meet our growth expectations and the word-of-mouth dynamic that we've relied upon historically, just insufficiently scale to achieve that. But I think prospectively, the plan we have because of as you correctly point out the solid margin profile we enjoy, creates that headroom to ensure that we can appropriately invest even more in our sales engine without adversely affecting the overall profitability profile that we forecast.

[Matt Cabral:]

Thank you.

[Vanessa Kanu:]

And I would only add there Matt that, the guidance that we provided does already capture, the sales and marketing investments that Jeff is talking to. So that's already in the numbers that we've provided.

[Matt Cabral:]

Perfect. Thank you both.

[Operator:]

Thank you. Our next question comes from the line of Dave Koning from Baird. Your question please.

[Dave Koning:]

Oh yeah. Hey thanks guys. And maybe, I could just ask, you've done such a good job. When you make an acquisition you seem to grow it so well. And I guess, I was wondering, Lionbridge specifically, maybe how fast is that growing right now? How fast is it grows in Q1? And I guess I realize you haven't fully, ran it yet right? You've just done the acquisition. But how do you expect that to grow once you take it over? And like what do you do to make these acquisitions better? How fast do you think Lionbridge can grow kind of in the future?

[Jeff Puritt:]

So we haven't guided specifically around Lionbridge, nor did we around CCC. I mean part of the investment thesis for us is we integrate these businesses into the mothership if you will as quickly as we can. Because we think customers prefer to have a single point of contact, rather than having to deal with disparate divisions of a business. Because of the adjacencies as I said before around the Lionbridge annotation offering with our content moderation offering, we think it's that much more obvious that it ought to be integrated more quickly. And one of the obvious byproducts of effective expedited integration is it becomes more and more difficult to really identify, what are the parameters of the old business versus the new business. And again, as I referenced earlier, we're already realizing meaningful revenue synergies as a consequence of buying and integrating that business into the whole. We are selling successfully together joint account planning to serve our existing shared customers and winning new ones together. Again, as I mentioned earlier, I'm pleased with the progress to date but we can do better and we will do better in terms of continuing to amplify the growth trajectory of that capability prospectively in-year, if not in the years ahead.

[Dave Koning:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of James Faucette from Morgan Stanley. Your question, please.

[James Faucette:]

Hey, good morning, Jeff and Vanessa, thanks a lot for all the color and commentary. I wanted to ask just on – and Jeff, you've alluded to it a couple of times in terms of the ebbs and flows that we've seen over the pandemic. With the most recent surge, how is that impacting if at all delivery? And are you going to have to do some things to move around where delivery is being sourced from to try to manage that? And is that likely to cause any disruption or other things that we should be aware of? Thanks a lot.

[Jeff Puritt:]

Hey, James, thanks for the question. So I don't think we're going to have to do anything unnatural prospectively. Obviously, at the outset of the pandemic, as we scrambled to virtualize, our frontline team members in particular, we had some challenges initially, particularly for frontline team members that were living in areas that were challenged in terms of infrastructure, connectivity, power, et cetera. And six weeks or so into it, I think we did a remarkably effective job of stabilizing that. And we've been operating effectively like that for 14 months. Prospectively, I think our only real area of concern right now is India. And I think all of us are on tenterhooks hoping for the best, but recognizing there is unfortunately some potentially catastrophic implications, if things don't get brought under control quickly. For us fortunately, A, as I said, before we're sub-3,000 team members in total in India. Every one of them has been successfully working productively and safely from their homes and we're hopeful that they can continue to do that. And whilst obviously hope is not a plan, we are already aggressively, proactively ensuring that we have the ability to provide meaningful redundancy and business continuity support for all of our customers that are today being served by the circa 3,000 team members from India. And we're reasonably confident in our footprint and delivery capability to ensure that continuity prospectively.

[James Faucette:]

Good. Good to hear. Thanks.

[Jeff Puritt:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Ashwin Shirvaikar, a follow-up from Citi. Your question, please.

[Ashwin Shirvaikar:]

Hi. Sorry, I had a second question, so I jumped back in the queue. I hope you don't mind. This one is directed to Vanessa. Would you mind sharing what your expectation is for the cadence of growth and margins through the year as we look out?

[Vanessa Kanu:]

So I suspect you're asking for some kind of quarterly breakdown. So we're not at this time – we've provided guidance for the full year. We're not guiding quarter-by-quarter at this time Ashwin. We think the full year guidance is a good place to start. We've obviously had a tremendous start to the year and we're very bullish for what the next three quarters have in store for us. The full year view is also consistent with the disclosure practice of our parent company, TELUS Corporation, so we want to honor that as well. So I don't think I'm going to get more granular in terms of breaking down the full year quarter-by-quarter. We already have Q1. I think, we can talk about potential seasonality but I think if you kind of look at the year, our thought is probably 47% to 48% in the first half, the balance in the second half. And that's probably as far as I will venture.

[Ashwin Shirvaikar:]

Was that for top line or bottom line? Sorry.

[Vanessa Kanu:]

For top line.

[Ashwin Shirvaikar:]

Okay. Thank you.

[Operator:]

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mr. Puritt for any further remarks.

[Jeff Puritt:]

Thanks very much Jonathan and thank you everyone for your questions. In closing, I'd just like to reiterate that, I believe the resiliency and success of our business model is due in large part to the diversity of our digital capabilities and to the unparalleled commitment and creativity of our team members. Our revenue growth continues to benefit from the tailwinds of accelerating digital transformation more broadly and also as a result of our efforts to expand our sales and marketing capability, as I just mentioned. In this regard, we recently announced that Maria Pardee joined TELUS International, as our Chief Commercial Officer. Maria brings a wealth of experience in leading commercial sales growth and digital transformation and we're so very excited to have her onboard. And her presence and impact is already palpable. Our attractive client mix residing in some of the highest growth industries, notably Tech & Games and our position as a mission-critical partner to these clients will continue to differentiate our diverse digital service offerings. We've proven once again to be able to delever quickly and efficiently, ensuring we have the flexibility to increase debt for the right type of acquisition to enable further growth, enhance our offerings and amplify our double-digit organic revenue growth and profitability. Once more thank you all for joining us today. Our Board of Directors and I look forward to hosting you at our Annual General Meeting of Shareholders taking place virtually on May 27. Additionally, Vanessa and I look forward to meeting many of our shareholder at several upcoming investor conferences. These events of course are also being held virtually for the near-term. And lastly, we very much look forward to hosting you all once again on our next quarterly results call at the end of July. In the interim, please keep yourselves and your family safe. Thank you and goodbye all.

[Operator:]

The conference call has ended. Thank you. You may now disconnect.