Release Date: November 08, 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) reported stabilization in their performance with sequential quarterly revenue improvement, driven by momentum in AI data solutions and digital solutions.
- The company has successfully expanded its services with existing clients, including Google and a leading social media network, showcasing strong client retention and service diversification.
- TELUS International (Cda) Inc (TIXT) is recognized as a leader in CX services, with accolades from Everest Group and Nelson Hall, highlighting their innovation in AI offerings.
- The company is investing in talent and expanding its sales organization, focusing on AI and digital industry skill sets to capture sales opportunities globally.
- TELUS International (Cda) Inc (TIXT) is leveraging AI to enhance operational efficiency, as demonstrated by a 4.9% reduction in TELUS's technology solutions segment's indirect cost to serve year over year.
Negative Points
- The company faces ongoing price competition in the industry, impacting profitability and requiring strategic pricing and value-added services to maintain competitiveness.
- TELUS International (Cda) Inc (TIXT) reported a year-over-year decline in revenue with a leading social media client, although efforts to diversify services are starting to yield results.
- The company's adjusted EBITDA margin was 14.4% in the third quarter, reflecting higher investments in corporate initiatives and a shift in service mix towards AI, which currently has lower margins than traditional CX services.
- There is a need for ongoing cost efficiency efforts to offset near-term pressures on profitability, with a focus on agile operations and strict limitations on non-essential costs.
- The company anticipates a potential non-cash tax charge related to the recoverability of deferred tax assets, which could impact earnings in the fourth quarter.
Q & A Highlights
Q: Can you provide early guidelines or thoughts on 2025 in terms of top line and margins?
A: Gopi Chande, CFO, mentioned that while it's early to formalize next year's outlook, they expect low single-digit revenue growth in Q4, sequential to Q3. For EBITDA margins, they anticipate similar levels to the second half of this year, with ongoing investments in sales, marketing, and tech-centric initiatives. Free cash flow is expected to remain healthy, above 10%.
Q: What are your first priorities in the current demand environment?
A: Jason Macdonnell, Acting CEO, COO, and President of Customer Experience, emphasized expanding sales capacity and efficacy, focusing on cross-selling digital and AI capabilities alongside CX services. They are also prioritizing investments in AI solutions and data quality to support generative AI models.
Q: When do you expect the tech and gaming vertical to return to positive year-over-year growth?
A: Jason Macdonnell noted solid expectations for future growth in tech and gaming, with diversification of products and services. Gopi Chande added that they are partnering with clients in the gaming sector to transform CX with AI, aiming for stabilization and eventual growth.
Q: What are the margin levers in the business, and is the 18% margin rate a long-term target?
A: Gopi Chande explained that 16-18% is a good range for operating margins, with adjusted EBITDA margins expected around 14-15%. They are focusing on pricing optimization, return on investments, and leveraging AI solutions to improve margins.
Q: Can you elaborate on the EPS guidance for the full year, which implies a potential loss in Q4?
A: Gopi Chande clarified that the guidance reflects a potential non-cash tax charge related to deferred tax assets, not core operations. They expect to land within the annual EPS range of 39 to 44 cents, closer to the lower end.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
