Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TELUS International (Cda) Inc (TIXT, Financial) announced the retirement of Jeff Puritt, President and CEO, who will transition to the role of Executive Vice Chair of the Board, focusing on corporate development activities.
- Jason Macdonnell, with a proven track record in customer service transformation, will succeed Jeff Puritt as CEO, bringing extensive experience in digital transformation and operational excellence.
- The company's AI-related business showed strong performance, with revenue growing 13% in the first half of the year.
- TELUS International (Cda) Inc (TIXT) reported free cash flow as a percentage of revenue at 15% for both the quarter and the first half of the year.
- The company continues to see meaningful growth with its top two clients, TELUS and Google, which collectively accounted for 39% of total revenue in the first half of the year.
Negative Points
- TELUS International (Cda) Inc (TIXT) revised its financial outlook for the full year 2024 due to continued pressures from a challenging macroeconomic environment and fierce competition.
- The pace of new client bookings slowed in the second quarter despite a strong sales funnel, impacting overall revenue growth.
- The company experienced softer demand volumes across much of its broader client base, leading to revenue declines.
- Efforts to stabilize and return one of the top three clients to growth have come at the cost of a meaningful margin rerate for 2024.
- Higher attrition and wage inflation, particularly in Europe, have put additional pressure on margins and operating expenses.
Q & A Highlights
Q: Are any of the headwinds at your third largest client coming from them using generative AI to supplant or replace work functions that you had been providing them previously?
A: No, the headwinds are not due to generative AI replacing our work functions. The challenges are more related to cost-cutting measures in Europe, which is a high-cost delivery area for us. We are working on diversifying our support across other service lines to improve revenue and margins. (Jeffrey Puritt, President and CEO)
Q: How do we reconcile the rapid deterioration in revenue outside of the top three clients?
A: The nature of our agreements allows clients to adjust their volumes up or down based on their needs, which has led to rapid declines. We need to better anticipate these fluctuations and find substitutes or new accounts to mitigate the impact. (Jeffrey Puritt, President and CEO)
Q: Is the pricing pressure driven more by competitive actions or cyclical/secular issues?
A: It's a combination of all factors. Clients expect more for less, and competitors are willing to offer lower prices. In the AI space, many competitors focus on revenue growth rather than profitability, which puts additional pressure on us. (Jeffrey Puritt, President and CEO)
Q: Can you walk through the cost efficiency initiatives and the impact of wage inflation?
A: Some initiatives like facility consolidation and vendor renegotiations are already in place. Others, like global workforce management, are taking longer due to regional nuances. Wage inflation is a challenge, and we are working on reducing costs through automation and better client partnerships. (Gopi Chande, CFO)
Q: How should we think about the recovery in margins?
A: We need to focus on winning opportunities and improving our cost efficiency efforts. In the AI space, we are investing in tools to enhance agent productivity, which should improve margins over time. (Jeffrey Puritt, President and CEO; Tobias Dengel, President of WillowTree)
Q: What are your expectations for headcount growth in the back half of the year?
A: Indirect non-billable headcount will remain flat or decline, while billable resources will match revenue growth. We are seeing a slight reduction in North American team count, offset by growth in Central America and Africa. (Gopi Chande, CFO)
Q: What gives you confidence in the AI deployment and recurring revenue from Fuel iX?
A: Our unique ability to test deployments with TELUS and our relationships with potential clients provide confidence. These are recurring revenues, and we will package services around them to create a synergistic offering. (Tobias Dengel, President of WillowTree)
Q: How is your strategy related to M&A evolving?
A: We are focusing on getting our house in order and organic growth. M&A will be more opportunistic and focused on tuck-ins that fill gaps or accelerate our capabilities. (Jeffrey Puritt, President and CEO)
Q: Are there any changes needed on the sales force front to ramp up new client wins?
A: We are not satisfied with our sales performance and have made investments in our sales team and methodology. The sales funnel is robust, and we are hopeful for better conversion in the coming months. (Jeffrey Puritt, President and CEO)
Q: What gives you confidence in the back half uptick?
A: We are seeing a turnaround in WillowTree demand, positive impacts from our PSO investments, and a robust sales funnel. We expect revenue growth and margin stabilization in the second half of the year. (Gopi Chande, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
