TELUS International (Cda) Inc. Subordinate Voting Shares

Good morning, ladies and gentlemen. Welcome to the Telus International fourth quarter 2021 investor call. My name is Jonathan. I will be your conference facilitator today. At this time, all lines have been placed on mute to avoid any background noise. After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, please press star, then the number one under your telephone keypad. If you'd like to withdraw your question, please press the pound or hash key. I would now like to introduce Jason Meyer, Senior Director, Investor Relations and Treasurer at TELUS International. Mr. Meyer, you may begin the call.

Thank you, Jonathan. Good morning, everyone. Thank you for joining us today for TELUS International's Q4 2021 Investor Call. Hosting our call today are Jeff Puritt, President and Chief Executive Officer, and Vanessa Canu, our Chief Financial Officer. As usual, we will begin with some prepared remarks, where Jeff will provide an operational and strategic overview of the quarter and highlights for the year, followed by Vanessa, who will provide some key financial highlights. We will then open the line to questions from pre-qualified analysts before turning the call back to Jeff for his closing remarks. Before we begin, 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 slash 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 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 reconciliation to the comparable GAAP measures can be found in the appendices of today's supplementary presentation along with the earnings news release issued this morning. I would also like to remind everyone that all financial measures we're referencing on this call and in our disclosure are in U.S. dollars unless specified otherwise. and relate only to TELUS International results and measures. With that, I will now pass the call over to our President and CEO, Jeff Piratt.

Thank you, Jason. Good morning, everyone, and thank you for joining us today. 2021 was a remarkable year for TELUS International. From our first day of trading on the New York and Toronto stock exchanges, the latter of which still represents the largest tech IPO in Canadian history, To the successful integration of our game changing AI services acquisitions, each one of us across our entire organization brought their very best to deliver on our growth strategy in 2021, despite the challenges of operating during a prolonged global pandemic. As our business continues to evolve, what has remained a constant is our team's unwavering commitment to service excellence for our clients and by extension to their customers. Equally important is our commitment to the care of our team members around the world. After all, it's these highly engaged and talented individuals that breathe life into the innovative solutions we design, build, and deliver for our more than 600 global clients. Our financial results reflect the success of our team's efforts with total revenue of $2.2 billion in 2021. This represents an impressive 39% growth rate versus 2020. Our profitability also remains robust with a 38% year-over-year increase in annual adjusted EBITDA and an annual EBITDA margin of 24.6% in 2021. Given the backdrop of the broader macroeconomic environment, including possible rising interest rates and continued pandemic uncertainty, we believe TI offers an attractive destination for capital and delivers real value to shareholders to our longstanding commitment to profitable growth and focus on cash flow. Our global sales team ended the year on a high note, adding several new marquee clients in Q4 and with a replenished sales funnel, once again comfortably in excess of $2 billion. Some of the exciting brands we welcome to Telus International in the fourth quarter include a top US wireless carrier, a rapidly growing Australian software company, a large manufacturer for the global PC gaming market and pioneer in modern computer graphics, and a leading American software developer for marketing, sales and customer service. We also expanded the scope and breadth of our engagements with many existing clients, including the world's largest e-commerce company, the world's largest technology company, one of the top American cryptocurrency exchange platforms, a digital banking services company, and one of the world's largest consumer electronics companies. These represent high quality, multi-million dollar, longer term growth opportunities with expected revenues ramping up throughout 2022 and beyond. I am so pleased to see that our team's consistent delivery is being rewarded with even more share of wallet from these large global brands, further solidifying our relationships with these valuable clients. I'll now turn to one of my favorite parts of these calls, sharing some specific examples that better illuminate and bring to life how we serve our clients. I'll begin with one of our clients where we started our relationship on the CX support side, but which has since evolved to include other services across our end-to-end design, build, deliver continuum. This particular project involves the enablement of database automation for a leading healthcare app that tracks the subscriber's food intake and exercise habits. Our team is helping to automate the client's nutrition information data by building a bot platform that enhances the search process for retrieving accurate nutritional data values for a variety of food items. We're also embedding an AI-powered categorization of each food item as per our client's predefined food groupings, and we set up automation tools to remove redundant food items from data queues. We also continue to partner with this client on our premium customer care support services, encompassing several regions and languages across our global team member base, meeting this client's increasing demand for high value support as they grow their business. Another engagement that I'll highlight was for a large Western Canadian utility company that required advisory services and support to manage its transition to a modernized Microsoft Exchange platform, and in particular, an upgraded email application. The client was seeking a partner that could ensure the stability and security of their technology infrastructure transformation while augmenting technical support in the process. Our team managed this project end-to-end, transitioning the client's environment to a hybrid of Exchange Online Office 365 and Exchange On-Prem. In total, our team successfully migrated over 13,000 mailboxes while concurrently managing the registration of nearly 6,000 users to mobile solutions, unlocking an enhanced user experience for their team members, all while leveraging Microsoft's modernized technology platform. I'd also like to share some recent examples of our AI-powered solutions in action. One of our clients is the leading flood mapping platform. designed to protect the world's most climate vulnerable communities. The client's in-house machine learning team built complex 2D and 3D semantic segmentation data sets to detect water bodies in urban areas with the satellite imagery collected using multiple sensors like radar and camera and in differing weather conditions. The original images collected by the client lacked consistency due to varying timestamps and included many distortions from sensors detecting water bodies and clouds. Our solution for this client included setting up data pipeline integrations via API connectors with the 2D and 3D sensor outputs uploaded to our proprietary labeling platform. We then provided real-time, human-in-the-loop data labeling, delivering faster and more accurate results with our high-precision 2D and 3D tools. We also ensured there were advanced quality process controls at each step. In total, our team accurately classified 100,000 documents in six months, labeled and transcribed 116,000 fields, and helped automate 80% of the process. As an outcome, our advanced quality control tools and expedient feedback mechanisms ensured 95% accuracy for all data labeling outputs. We're also supporting several AI-focused projects for the world's largest e-commerce company, tapping into our AI community of more than 1 million individuals to collect quality data for our clients to train its AI algorithms. One example involves our collection of ultrasound waves for audio and video data in participating homes across multiple countries. We use highly advanced and confidential hardware and software to capture sound waves in different scenarios. such as the noise from vacuum cleaners, air conditioners, blenders, and different kinds of music or radio, while participants perform common domestic actions like moving around their homes and cooking a meal. This is a very fast-paced project with many moving parts, all managed by our team, from the logistics, sourcing, and training efforts to setup and management of collection spaces, onboarding and training of local teams, data management, and quality assurance. For each country and scope, our team successfully recruits and trains local teams, and once a project starts, nearly every collection session requires a new technical setup, as the type of home, device, and its positioning need to be carefully managed to achieve quality data collection of very specific background noises for the client's database. This is a project that requires extreme attention to detail to ensure we meet the client's requirements for collection and delivery of high-quality data to help power our client's machine learning systems. For another client, one of the world's most popular video-focused social networking services, we transcribe and annotate short audio clips in multiple languages. The client uses our AI data as a critical input to train its transcription algorithms to improve the user experience on its network, to promote transparency and safety as it relates to the network's content, and to mitigate the risk of being banned in certain countries or regions due to content regulations that are continuously evolving. While this client has several partners within its ecosystem, we're particularly proud of the fact that our team continues to set the bar for quality extremely high as we've consistently received feedback that we are this client's top performing partner for this program in terms of quality, productivity, and brand reputation management. As the challenging pandemic environment persists, we continue to enable the vast majority of our team members to work remotely. At the end of 2021, approximately 75% of our global team members continue to work safely and productively from home. For many organizations, the pandemic brought to light the critical importance of building a supportive, resilient workplace with a focus on the wellness and safety of employees. I'm very proud to say that at Telus International, This has always been top of mind since our inception. Over many years, we've developed a unique and thoughtful approach to prioritizing the wellbeing of our team members. Driven by our caring culture, we've benefited from a very early recognition of the nuanced requirements for success in some of the more complex services we choose to provide, particularly in areas such as content moderation. Our unwavering commitment to our team's wellbeing is present in the numerous in-person and virtual programs and services we provide, as well as the amenities available in our sites, such as our fitness facilities and relaxation spaces, and the medical benefits that in many cases extend to our team members' families. Our holistic approach to health and well-being is guided by a global team of mental health and workplace wellness experts that include clinical psychologists and counselors who are employed full-time by our company. These individuals are available for in-person and virtual touchpoints to accommodate those working from home during the pandemic. These health and wellness programs and services, among many others, are available to our over 62,000 team members around the world. From our engineers, to our customer experience specialists, to our content moderators and beyond, we have support in place to help our team members remain healthy, safe, and able to thrive in the careers they choose at TI. We also continuously review and assess our wellbeing programs and evolve our approach. We recently appointed Dr. Lucy Rattree as Global Director of Workplace Wellbeing at TELUS International. Dr. Rattree is a leading chartered psychologist, researcher, and author, and she is a key contributor to ensuring TELUS International continues to keep ahead of our commitment to team members and enables us to arm them with all the tools and support they need to remain successful in their critical roles. Through an annual employee survey conducted by Concentric, a third-party organization with decades of experience in employee engagement, our company's global score in 2021 was over 80%, marking the eighth consecutive year that we are ranked in the top quartile of all organizations of comparable size and global footprint. We see the benefits of an engaged team shine through in the impressive results we've achieved to date, despite the unprecedented conditions we've been operating within since early 2020. I believe this is due to many years of hard work building and fostering our caring culture. On that note, I want to sincerely thank our team members for their enduring commitment to our organization and for their contributions to yet another highly successful year at TELUS International for our customers and for our communities where we live, work and serve. Indeed, harnessing our team's minds, hearts and hands to make a difference on our planet's biggest challenges while partnering with clients who feel the same way is the basis of our environmental social governance approach. At this end, our four ESG priorities at TELUS International are one, hiring, motivating, and promoting our diverse, talented team who exceed customer expectations. For example, currently 48% of TI's workforce are women. with women representing 44% of managers and above 38% of our senior management team and 30% of our board. Two, giving back to our communities by creating a meaningful lasting impact through the efforts of our team members. In fact, since 2007, almost 225,000 TELUS international volunteers have impacted the lives of more than 250,000 people. through TELUS International's corporate social responsibility efforts. Three, supporting a sustainable planet for all, where we continue to see a decline in our company's greenhouse gas emissions and water consumption. And four, adhering to principles of strong corporate governance. TELUS International will continue to be driven by ESG priorities and principles, and I look forward to progressing our holistic and strategic approach in this regard. And lastly, Through the remarkable efforts of our team, we also continue to be recognized by third-party organizations, including just today, Telus International was named a leader on global industry analyst firm Nelson Hall's customer experience operations transformation NEAT report. The assessment evaluated each company's use of design thinking and the application of digital first principles and technologies, among other capabilities, to transform their clients' customer experience. Moreover, In December, TELUS International was named a leader on IDC's worldwide digital customer care services 2021 to 2022 marketscape. Again, external validation of our team's focus on and passion in delighting our clients. With that, I'll now pass the call over to our Chief Financial Officer, Vanessa Canoe, to take you through our financial results. And then, as always, I'll be back on the line to answer your questions. Vanessa, over to you.

Thank you, Jeff, and good morning, everyone. Thank you for joining us today. As Jason mentioned at the start of the call, some of the items that we'll review this morning are non-GAAP measures. For descriptions and a reconciliation of our GAAP to non-GAAP measures, please see our earnings release from earlier this morning. To echo what Jeff said, 2021 was indeed a great year for TELUS International, with revenue growth of 39% for the full year, reflecting strong contributions from organic business growth and acquisition. Adjusted EBITDA increased 38% and adjusted deleted earnings per share increased 41% year over year. These robust double-digit growth rates are towards the high end of our previously raised outlook and demonstrate consistent execution on our growth strategy. This was in spite of Euro-related foreign exchange headwinds in the second half of the year and in Q4 in particular, headwinds that were not assumed in our original outlook. Let me now expand upon some components of our financial performance in the fourth quarter and full year. Revenues for Q4 were $600 million, up 36% year-over-year. Our organic revenue growth was 15% or 17% in constant currency, as our Q4 results included foreign exchange headwinds of approximately 2% when compared to the same period in the prior year, driven by the euro-to-US dollar exchange rate. This strong organic growth reflects increasing demand for our services provided to new and existing clients alike. Prior acquisitions contributed revenue growth of 21% year-over-year and related to our acquisition of what is now called Telus International AI data solutions. On a full year basis, we delivered a record $2.2 billion in revenue, reflecting growth of 39%, as I mentioned earlier, with organic revenue growth of $268 million, or 17%, we have executed on our strategic goal of targeting sustainable organic revenue growth in the mid to high teens. On a full year basis, the annual organic growth included a favorable foreign exchange impact of approximately 2%. Looking at revenues by geography, in the fourth quarter, revenues grew 49% year-over-year in North America, 39% in Europe, 35% in Asia Pacific, and 12% in Central America. For the full year, we achieved revenue growth of 45% in each of North America and Europe, with Asia Pacific coming in at 35%, while Central America grew at 20%. Again, these are solid results correlated with the increase in client demand for our end-to-end digital solution. From an industry vertical's perspective, we once again saw growth across all key verticals in both the fourth quarter and for the full year. Our largest vertical, Tech and Game, grew 62% year-over-year in the quarter and also in the full year, with Telus International AI data solutions as a key driver of growth in this vertical. We continue to see strong momentum in the e-commerce and FinTech vertical, with revenues up 49% year-over-year in the quarter and 51% on a full-year basis, driven again by strong demand for digital transformation and next-gen solutions in customer experience. Finally, Our communications and media verticals showed healthy growth of 9% for the quarter and 12% for the full year, while all other verticals, including travel and hospitality and healthcare, similarly posted strong double-digit growth year over year. Looking across our verticals, we increased exposure to the higher growth tech and game and e-commerce and FinTech clients, which collectively contributed 58% of total revenue in 2021, compared with 50% in the prior year. So we have not only meaningfully expanded our revenue base, but our growth is more skewed to high-growth digital native clients. Moving on to operating expenses. Salaries and benefits expense in the fourth quarter was $332 million, up 28%, due to the growth in our customer-facing team member base to support increased client demand and higher average employee salaries and wages. For the full year, salaries and benefits increased 29% to $1.22 billion, with the same drivers as for the quarter. Our goods and services purchased were $125 million in the quarter, an increase of $70 million over the same period last year. For the full year, goods and services purchased were $432 million, an increase of $188 million from the prior year. This increase was largely driven by our acquisition, in particular TIAI's crowdsource contractors, which are recognizing goods and services purchased, and higher software recruitment and other administrative costs to support the growth in our business. Share-based compensation expense in the fourth quarter was $9 million compared to $12 million in the prior year. On a full-year basis, share-based compensation expense was $75 million compared to $29 million in the prior year. The increase on a full-year basis was due to the vesting of share-based compensation awards and mark-to-market adjustments on historical cash-tettled awards due to the increase in the share price. Acquisition, integration, and other charges for the fourth quarter were $5 million, a decrease of 80% from the same quarter a year ago, primarily due to transaction costs incurred in the Lionbridge AI acquisition in the fourth quarter of 2020. For the full year, acquisition, integration, and other charges declined by 61% to $23 million, primarily due to lower costs for integration in 2021 compared with the transaction and integration costs incurred in the prior year related to the acquisitions of CCC and Lionbridge AI. This decrease was partially offset by costs associated with the secondary offering of our subordinate voting shares in the third quarter of 2021. Looking at interest expense, in the fourth quarter, our interest expense was $8 million, a decline of 27% year-over-year. And for the full year, interest expense was $44 million, a decline of 4% from the prior year, due primarily to our lower debt balance and lower interest rates triggered by our improved net debt to adjusted EBITDA leverage ratio throughout the year. Income tax expense in the fourth quarter was $21 million, 62% higher compared to the same quarter last year. Our effective tax rate decreased from 38.2% to 36.8%, primarily due to a decrease in non-deductible items that were incurred in the quarter. On a full year basis, our effective tax rate increased from 31.6% to 45.1%, primarily due to an increase in withholding and other taxes and an increase in non-deductible items. portion of the non-deductible items were a result of our ipo earlier in 2021 and we expect them to be non-recurring the change in income mix amongst different jurisdictions resulted in a lower weighted average statutory income tax rate for the year as a reminder our etr which is income tax expense as a percentage of accounting net income before tax can vary period over period due to due to factors including but not limited to the jurisdiction mix of our earnings in any given period, and the tax deductibility of certain expenditure items. Moving on to profitability, in Q4, our adjusted EBITDA was $143 million at the top end of our guidance range, and up 12% from a tough compare in the same quarter in the prior year. On a full year basis, adjusted EBITDA was $540 million, up 38%. Our full year adjusted EBITDA margin of 24.6% was in line with our year, reflecting our consistent profitable revenue growth, strategic business mix-ship, and ongoing technology-driven efficiency gains. Adjusted net income for the quarter was $75 million, up 14%. On a per share basis, this translated into adjusted deleted earnings per share for the quarter of $0.28, which was consistent with the prior year. For the full year, we achieved adjusted net income of $267 million, an increase of 67% year-over-year, and adjusted deleted earnings per share of $1, reflecting growth of 41% from the prior year. Turning over to the balance sheet, we closed the year with a very healthy balance sheet, ample liquidity, and improved leverage. Cash and cash equivalents were $115 million as of December 31st, 2021. Our total available liquidity grew to approximately $831 million meaningfully higher than the $285 million at the prior year end. This also includes available capacity under our revolving credit facilities of $716 million. We continue to maintain meaningful capacity for potential strategic acquisitions at the appropriate time. In the fourth quarter, we continue to reduce our leverage, reducing our net debt to adjusted EBITDA leverage ratio as defined for our credit agreements to 2.1x. an improvement from 2.2x last quarter, and a meaningful improvement from December of last year when we were approximately four times after the acquisition of Lionbridge AI. As an ongoing reminder, we view the 2 to 3x zone as a good steady state amount of leverage, and we do have the flexibility to go beyond this range for the right type of acquisition. Our free cash flow in Q4 was $29 million compared to $70 million in the same quarter last year, and for the full year, free cash flow was $181 million, 4% lower than the prior year, driven by a few factors. First, higher income tax payments in the quarter and in the year, along with higher share based compensation payments from our historically granted cash settled equity award. As a reminder, all of our new awards granted in 2021 and beyond are equity settled and will not impact cash flow. There were also higher outflows from working capital, driven mainly by the increase in receivables that was tied to revenue growth. Finally, capital expenditures also increased in the form of IT investments and site expansions in North and Central America, including our first site outside of Metro Manila in the Philippines to support continuing business growth. Now turning to our team members. In the fourth quarter, we added over 3,600 net new team members to our TELUS International family. The current labor market is indeed more challenging than in 2020. But despite this complexity, in 2021 as a whole, we added nearly 12,000 net new team members, an increase of 23% year over year, bringing our global talented team to over 62,000 strong, supporting our business growth and client ramp across key segments and geography. As you've heard Jeff say, we take pride in our continuing top quartile engagement scores, and our differentiated caring culture clearly enables us to attract and retain high-quality global talents. Now on to our outlook. For 2022, we expect to continue growing at solid double-digit rates for both revenue and profitability. For the full year, we expect revenues in the range of 2.55 to 2.60 billion, reflecting an increase in the range of 16.2% to 18.5% on a reported basis, and 18 to 20% on a constant currency basis. This assumes that the euro, in which over one-third of our revenues are derived, remains at an average exchange rate of $1.13 to the U.S. dollar. For reference, the average exchange rate for the Euro to U.S. dollar in 2021 was $1.18. Also note that consistent with previous practice, our guidance does not include the potential impact of material M&A. We anticipate adjusted EBITDA margin to be approximately 24%, reflecting planned wage increases and continued investments in sales, marketing, and product development to support our organic growth. We expect to deliver adjusted deleted earnings per share in the range of $1.18 to $1.23, which reflects growth of 18% to 23% over last year. This assumes a weighted average deleted share count of approximately $270 million in each of the quarters. While we do not provide quarterly guidance from a seasonality perspective, we expect revenue seasonality of 47% in the first half and 53% in the second half. A reminder that Q1 is typically our lowest seasonal revenue and adjusted end of quarter with volume ramps throughout the year. From a cost perspective, unlike in 2021, where our wage increases largely took effect in July, this year, in response to the current labor market dynamics, our annual wage increases are planned to come into effect earlier in the first half of 2022. Given the typical revenue seasonality with stronger revenue than the second half, coupled with planned investment in our team members and in our business early in the year, we expect adjusted EBITDA margins to be lower in the first half, building up through the second half with a full year average margin of approximately 24%, as I just indicated. As we enter 2022, we look forward to building upon a strong operational foundation established in 2021 and long before. and capitalizing on the momentum that we continue to see throughout the business. We pride ourselves on delivering on our commitments and look forward to another exciting year of growth for TELUS International. With that, we will now open the lines for questions. As usual, I would kindly ask you to please keep it to one question at a time so that everyone can participate. Jonathan, over to you.

Thank you, Ms. Canu. If you would like to ask a question at this time, please press star then one. And once again, we kindly ask that you limit your questions to one at a time. And get back in the queue if you'd like to ask another question. We will pause one moment while we compile the queue. Our first question comes from the line of Paul Steep from Scotia Capital. Your question, please.

Great morning. Jeff, could you talk a little bit about how the mix of bookings flowed in in terms of the build to other areas of the business, like build and design, and how you've seen maybe those projects sort of roll over and deliver? And then I've got one quick clarification for Vanessa. Thank you.

Thanks for the question, Paul. Nice to hear your voice. You know, I think what we saw through the fourth quarter and what we're anticipating through 2022 is really a continuation of what we saw through the latter half of 2020 and most of 2021. I think a combination of sort of macro dynamics in the marketplace more broadly where folks continue to recognize the critical importance of enabling a virtual relationship with their end users is driving more adoption around automation. And that in conjunction with our Telus International's expanding capability set and more awareness of our extensive capabilities and the quality of that capability is sort of creating more opportunity for TI to be invited in, not just the sort of the traditional deliver element of our framework, but indeed more design and more build opportunities. Candidly, I wish... I wish we got even more of them and we continue to invest meaningfully in our direct sales channel and in marketing efforts and then continuing, of course, to rely on word of mouth to surface more and more of those design and build opportunities. One of the nice current dynamics we're seeing is more and more comprehensive engagements where although we may have started in that deliver dynamic with an existing customer, They are now coming to us more frequently than before for design and or build in connection with their own evolution of their environments. Again, I think a consequence of their recognition of the need to do so and their recognition of TI's ability to be successful in enabling them in that regard. So I'm expecting more and more of that prospectively, and we're going to continue to build our capability to ensure that we can continue to take share in that regard. Great.

A quick clarification, Vanessa, just the assumption baked into the guidance, can you just clarify how you're thinking about, we'll just call it net headcount growth into the current or the upcoming fiscal year relative to last year? Should we be thinking sort of a similar pace as sort of what's baked into the implied guide? Thank you.

Thanks, Paul. So we don't guide on headcount numbers, obviously, but I do think that directionally you're right. We expect to see a similar pace as we saw in 2021. Even though we have had, obviously, macro-wide supply challenges, we've done a really good job through 2021 adding to our team member count, and we certainly expect to continue to do so prospectively into 2022. So I think you should expect a similar pace. And perhaps even slightly more accelerated, as you may have noted, our constant currency revenue growth is also accelerated from 2021. We were about 15% constant currency organic growth in 2021. Our guide is implying 18% to 20% constant currency growth in 2021. So I think you should expect that piece to factor into your thoughts there as well.

Thank you.

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

Yes, it's actually Matt Roswell sitting in for Dan. Following up on that sort of headcount growth question, are you willing to discuss sort of how much pressure, wage costs, and hiring is having on the EBITDA margin in 2022? And somewhat related to that, you mentioned that you're also investing in the sales force and the sales pipeline set. sounded strong. So again, how much sort of incremental investment are you thinking about for 22 and what sort of win rates are you seeing?

Thanks for the question, Matt. Please give Dan our regards. I don't know how much I can offer you other than, and I'll invite Vanessa to top up. As you've heard both we discussed on previous earnings calls late last year and candidly the market more broadly, I think we're all trying to find a way to navigate this interesting labor dynamic. Interesting in the sense that it has always been a challenge to attract, retain, engage, and inspire one's fair share of talent. But I think admittedly, in this post-pandemic or near, hopefully, post-pandemic world, the great resignation, as some people are referring to it, folks are seeing a slight evolution, a change in the relative negotiating leverage between employees and employers. And one needs to be sensitive to that. We've seen a little bit of pressure, obviously, reflected in our results here. But we think, as I said in my earlier remarks, that our investment in creating a destination for talent that is not merely providing them with employment opportunities, but career opportunities, has inoculated us to a large extent from some of the challenges around attrition, and wage inflation, but not entirely. So I think what you're seeing reflected in our fourth quarter results and captured in our guidance for 2022 is a belief that that dynamic will persist, certainly for the first half of 2022. And I guess right now, it's anybody's guess at what point that pendulum perhaps swings back, such that perhaps driven off of the decline or extinguishment of government subsidies or otherwise, labor sort of settles into the new normal. We find out what return to office may or may not look like in terms of proportions, how many people just are not willing to come back into a traditional office setting and expectations around wages, working from their home and avoiding commutes, etc., Net-net, we think we've done historically a very good job, certainly better than most in terms of continuing to mitigate the inflationary dynamics of wage inflation, as well as the challenges associated with elevated attrition levels, given the impact on not just the cost to re-recruit, retrain, and wait for those new team members to get to proficiency and higher levels of productivity and profitability, but also the the ongoing challenges of keeping team members engaged and wanting to be part of sort of growing their careers with the business. We'll see how it goes through the balance of the year, but I think we're doing reasonably well there.

I think the only thing I would pop up to that, Jeff, is just as a reminder, I think we can also acknowledge that our adjusted EBITDA margins today and also our guide of, you know, approximately 24% is already amongst the highest in our industry. So I think we can acknowledge that we do have some headroom there relative to many. And to Jeff's point, our outlook for margin assumes that some of these sort of, you know, macro supply-side constraints continue at least, you know, into the first half of 2022. But to address your other, you know, question there, you know, we are continuing to invest in organic growth through sales and marketing. We've talked quite a bit about that, you know, during 2021. We actually do think that we're seeing the payoffs in terms of, you know, you know, an increase in the constant currency organic growth rate, and we will continue making those investments through 2022, and that's been based into our guide as well.

Okay. Thank you very much. Thank you. Our next question comes from the line of Tianxin Yang from J.P. Morgan. Your question, please.

Thank you. Thank you. Good morning. I want to ask just on the revenue growth outlook. It is higher than what you did in 21 here, like you just mentioned, Vanessa, earlier. So what's What's driving the acceleration? Is it more, you know, coming from existing, or is it from the backlog that's converting? And I'm curious about just visibility in general. How does it stand today versus same time last year? Thanks.

Thanks, Jinjin. I guess it's from a number of sources. As we shared in prior calls, we've signed a number of large marquee engagements that are now starting to hit their stride. And even more recently in Q4, as I just alluded to in my prepared remarks, even more so, both net new as well as growth to existing. So I think we feel rather fortunate that things are now sort of firing on all cylinders, a combination of those investments. late in 2020, early in 2021 on the sales and marketing front and materializing in newer, bigger engagements, net new as well as growth to existing. So our optimism, our confidence is fueled by that. And given the nature of these engagements, we have some meaningful visibility through the balance of 2022 and indeed beyond that as well. And then as again, I mentioned earlier, I think The macroeconomic environment where businesses across the entire landscape continue to recognize the criticality of they themselves embracing technology-driven solutions to give them the ability to differentiate against their peers, continue to serve their clients in an online, automated, enabled fashion. in order to stay ahead. I just think right now there's sort of a confluence of events for us that is giving us a high degree of confidence in our ability to deliver against this, you know, accelerated revenue growth profile. You know, it feels a bit candidly frustrating sometimes, Tinjin, when, you know, we're criticized on occasion, like after our third quarter results, where, you know, our revenue miss is nominal, I think ostensibly because of, you know, foreign exchange headwinds, but we do well on EBITDA and outperform. And then when we put up the inverse where we're pretty much right down the fairway on EBITDA and we're anticipating pretty significant acceleration on revenue growth, and yet now we're being not quite as well recognized for sort of fulfilling the audience's expectations. It's a bit of a thankless task, candidly, but I think where we are is in the right space. Agreed.

Thanks, Jeff.

Thanks, Anjan.

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

Hey, this is Ted on from Maggie. Thanks for taking our question. So it looks like North America and Europe grew nicely quarter over quarter. Could you provide color regarding what drove that growth? Was there a particular service line that picked up in those delivery geographies?

Hi, Chad. It's Vanessa. Thanks for the question. We did see, as I kind of mentioned in my remarks, you know, the growth that we saw was across pretty much all verticals. If we're looking at North American Europe specifically, you know, a large number of our clients in those particular geographies or that we start from those geographies are, in fact, in the tech and games and e-commerce and fintech spaces. So I think you do see some of that reflected. And then in terms of, you know, sort of key, you know, service lines that drove that growth, You know, we're seeing continuing very healthy better-than-market organic growth in the content moderation space. We're also seeing increased organic growth as well in our digital CX services. And so I think it is more broad-based than one particular thing, but as we look at those specific regions, those would be the key drivers.

All right, great. Thank you very much.

Thanks, Ed.

Thank you. Our next question comes from the line of Ashwin Srivanka from Citi. Your question, please.

Hi, it's Ryan Potter on from Ashwin. Thanks for taking my question. Looking at your AI data solutions business, it seemed to improve and kind of accelerate through 2021. So I was wondering if there are any significant factors to call out that's driving this acceleration? And also, how much of this improvement is being driven by the cross-sell along with content moderation?

Thanks, Ryan. Good question. We haven't provided that much sub-segmented detailed disclosure on this. That may change in the fullness of time, but just sort of high level, indeed, the latter half of the year, we saw continued acceleration in terms of the performance of that portfolio for us, and I think it's a consequence of a number of factors, not just obviously macro customer demand, but also admittedly inside TELUS International, we finally are getting better aligned and progressed on the integration front so that we could really bring a more compelling, integrated, synergized customer offering across both our AI content moderation and digital IT capabilities. And so the customers that we'd inherited through the AI acquisitions in particular, both former LAI and Playment, I think recognizing and embracing the enhanced value that TI could deliver to them, excuse me, as a consequence of this more progress integrated offering, I think was finally starting to take hold and improved performance, and through 2022 and beyond, we're excited about the continued acceleration and adoption of those combined capabilities.

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

Hi. Good morning. just wanted to touch on customer dynamics here. So a large social media firm reported a drop in daily users this quarter. Just curious if you could talk a bit of a potential read through to TI from potential slower growth at clients and remind us how you incorporate client growth into the guidance.

Thanks very much, Stephanie. I mean, I guess a couple of things worth noting. The first is TI is a value driving partner for that social media client. We provide I think unique solutions that are really critically important to their continued growth and success. And we do it more effectively and with higher efficiency than if they were to do it themselves in-house. And given that we're stack ranked regularly to their other partners, and we outperform those other third parties as well, we just don't anticipate to be on the cost-cutting end of things to the extent that they decide that in order to address that macro situation, that's the route we want to take. To the contrary, I think that represents incremental upside for us. The other thing I think worth noting there is the related market commentary about those challenges also reference the elevated level of competition and possible market share user-based shifts. away from their base to their competitors and their competitors are also our clients. And so I think that just sort of reinforces the benefit of our well-diversified client base and having a number of these platforms in our top 10 client roster and serving some of these highest, not just high growth tech companies. So we're feeling reasonably comfortable that notwithstanding those challenges, there's still continued upside opportunity for TI.

Great. Thank you.

Thank you. Our next question comes from the line of Ramsey Alessal from Barclays. Your question, please.

Hi. Thanks for taking my question this morning. I wanted to ask about the M&A environment. I know your balance sheet is at a point now where you have some nice dry powder to consummate deals. I'm just wondering whether the environment now with kind of tech valuations having really come in, has that kind of opened the aperture or increased the sort of opportunity set for you? What are you seeing out there at this point?

Thanks, Ramzi. That's a great question. And as I think you know, I've been sort of chomping at the bit to see if we can't progress this thesis in our growth strategy area. for some time now. I mean, the primary driver of accessing the public markets at first instance was to have a transaction currency to amplify and accelerate our progress in that regard. I don't know that the call it the rotation in valuation is what's driving my excitement and enthusiasm around this. I think the opportunities are probably as robust today as they were three months ago, six months ago. But indeed, I'm parsimonious. I'm desirous of not overpaying. And we've had to be disciplined, as we've always been, in terms of what assets we thought were worth acquiring. I think historically one has seen if one overpays at first instance, one then just naturally pursues, I think, unfortunate dysfunctional efforts around synergy realization to try and compensate for the overpayment on the purchase price at first instance, and then it's a disaster all the way around. So I'm encouraged by what I'm seeing in terms of perhaps a slightly more rational valuation environment for potential assets that we might pursue. And again, as Vanessa mentioned in her prepared remarks, we do believe that we are well positioned given, as you say, the dry powder levels that we are currently experiencing. So when, if the right opportunity comes along, and that's not just the consequence of the purchase price, it's also obviously a consequence of the capability that this asset will enable for us, the transaction structure, the integration roadmap. I think you should absolutely expect us to see us exploiting our opportunities in that regard. Got it. Okay. Thanks so much.

Thank you. Our next question comes from the line of Richard Tse from National Bank Financial. Your question, please.

Yes, thank you. Whenever you talk about your ability to pass on wage inflation and the prices, is there like a six-month lag, a 12-month lag? And is it fair to say that any sort of compression in margins is really temporary when you think about it in that context?

Thanks, Richard. I think you may recall we sort of addressed the same question last quarter as well. It's a bit of a mixed bag. We don't have sort of a comprehensive COLA language in all of our customer engagement such that we can indeed be fully inoculated from these wage inflation dynamics. But we do absolutely have a disciplined approach across the business, not new post-pandemic, but frankly since our inception and part of our TELUS heritage to be focusing on profitable growth and on engagements that, you know, are perceived by both our client and we as high value. So we have been, you know, aggressively, actively, you know, looking for areas of opportunity to indeed share the challenges of this labor inflation with our customers. And, you know, that will be a continuing effort indefinitely. And as I said before, this is not new, you know, post pandemic, this has always been our approach to try and mitigate the inexorable challenges around wage inflation and, uh, cost inflation that always sort of challenge margin yield. And I think our history has demonstrated, you know, we've been laser focused on margin yield, not just growth, but profitable growth. So you should expect us to continue to do that. And in as many cases as possible, we'll indeed look to share those challenges with our customers. I think prospectively, We'll see if there's going to be a change to the landscape. I think we're going to be in good shape here. I really do. Do I think this comes to an end? I'm not sure. But like I said, this has always been, when you're in technology services, you've got to find ways to mitigate these challenges. And forgive me, I think you had a second part to your question, and I just have lost it.

No, I was sort of related to that in that whether you would think the impact of those inflationary pressures are kind of temporary and that the margins would be tapped, not backed, but I think you kind of answered it.

Yeah, I mean, the only thing I would add to that is, remember, one of the other things that we're focused on is the mix of the services that we're providing. So we're working towards an outcome, and this, again, is a journey, not a destination, where the nature of the work we provide to our customers is is more complex, more high value, and it too will carry some margin expansion attributes that we can also rely upon to mitigate the wage inflation, margin dilution implications of our business. And again, that's not new. This has been what we've been working towards for many, many years, and I think that's going to be ongoing as well.

Great. Thanks, Jeff. Appreciate it. Pleasure. Thank you. Our next question comes to the line of Keith Bachman from BMO. Your question, please.

Many thanks, and good morning, Jeff and Vanessa. I wanted to ask about the growth for CY22. Indeed, I would echo a comment previously. It seems like a fairly impressive growth outlook. How do you think about the growth algorithm between new logos contributing to that growth versus upsell from existing customers and Is there any way, I would assume, the vast majority from existing customers, but if you could just define that a little bit. And then, Vanessa, if I could just sneak a clarification in on the growth outlook. How much is organic? I assume that we've anniversaried most of the deals, but how much is organic in terms of the overall growth? growth because I think claimant came in July 22. So maybe a little bit of help there. But if you could just clarify, many thanks.

Thanks, Keith. So maybe I'll just start with the first part of your question, which is, you know, how much of the growth is coming from, you know, new logos versus, you know, goes to existing. So typically, in any given year, new clients contribute, you know, say less than 15% of revenue for that year. And that's to be expected because typically with new client acquisitions or new client additions, what tends to happen is they start small and then they expand over a period of time. And so the real growth in any given year tends to be from the expansion of clients that were won in the previous year or, you know, the previous year. few quarters. So the revenue contribution from those new clients' acquisitions builds up over time. So as a result of that, the way we look at things internally in terms of new logos versus growth to existing, the vast majority of our growth in any given year is growth to existing. However, as we continue with the new client wins, those ultimately become existing clients that continue to expand from a revenue growth perspective. And then the second part of your question with respect to The outlook, it's all organic, Keith. So AI has now lapsed into one year. So that's definitely within our organic growth metrics. Playment was an immaterial acquisition, as you know. That was a technology-based acquisition. The financials were immaterial. So that has really not much to do with the guide. The guide is really more around the strong organic growth. And AI is a big part of that as we continue to ramp that business. I think somebody noted earlier the strong performance in Q4. We also saw that as well in Q3, and we expect that momentum to continue.

Yeah, that's terrific. I thought it was mostly organic, but thanks for the clarification. It's certainly a positive outlook. Many thanks.

Thank you, Keith.

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

Thanks, Jonathan, and thank you everyone for your questions. In closing, 2021 was a transformational year for TELUS International, and I could not be more proud of our highly engaged team for their passion, focus, and unwavering commitment to service excellence. The outlook we shared today reflects the momentum from 2021 and our confidence into this year, and we are so excited to embrace the challenges and opportunities ahead. We look forward to connecting with you all at our next quarterly update taking place in May. And before that, we hope to see you during conferences Vanessa and I plan to attend, perhaps unfortunately still in a virtual format for just a little bit longer now. Thank you all for joining us today. Please keep yourselves and your families safe. Bye-bye.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.