TELUS (Cda) Q4, 2024 Earnings Call Transcript (TIXT)

Operator

The conference is now being recorded.

Olena Lobach

Good day.

Welcome to TELUS International (Cda) Inc.'s Q4 2024 Investor Call.

I would like to introduce your speaker, Olena Lobach.

Please go ahead.

Olena Lobach

Thank you, Karl.

Good morning, everyone.

Thank you for joining us today for TELUS International (Cda) Inc.'s fourth quarter 2024 investor call.

Joining on the call will be Jason Magnaville, our acting CEO, COO, and president of customer experience, Shvira Danko, president of digital solutions, and Gopi Chande, our CFO.

We will begin with Gopi providing a brief financial overview and our outlook.

Jason and Tobias will then offer operational and strategic highlights before we open the call for questions.

You can find our cautionary statement and information on non-GAAP measures used during today's call in the earnings release issued this morning and regulatory filings available on SEDAR plus and Edgar.

With that, I will pass the call over to Gopi.

Gopi Chande

Thank you, Olena, and good morning, everyone.

I will speak to the 2024 Q4 and full-year financial results before I review our 2025 outlook.

In the fourth quarter, TELUS International (Cda) Inc. showed stabilization in operations and financial performance.

Revenue of $691 million was up 5% from the previous year and steady year over year.

For the full year, we generated revenue of $2.7 billion, a decline of 1%.

However, delivering year-over-year stabilization in the second half.

Excluding the impact from a leading social media network client, our full-year revenue was comparable to that of last year.

At the same time, we expanded the scope of work with our parent company TELUS with digital solutions as a key driver of growth.

Year-over-year revenues were up 7% in the quarter, and up 17% for the year with TELUS.

Revenue with our second-largest client, Google, reflected a higher prior year comparison base in the fourth quarter, but for the full year, revenue with Google increased by 7% in continued momentum across AI data solution projects.

With our third-largest client, a leading social media network, our full-year revenues were lower.

However, we achieved a 7% year-over-year growth in the fourth quarter.

For the full year, looking at our verticals, our growth in health care was driven by additional services to Pelic Health, while BFSI expansion was reflected in new business with Canadian-based banks and smaller regional financial services firms in North America.

Weakness in e-commerce and fintech is largely due to lower service volumes from certain clients.

Across our geographies in 2024, revenue from the Central America region, which includes Africa for our reporting purposes, partially offset declines from other geographies.

Our adjusted EBITDA margin in the fourth quarter was 42.9%, showing further stabilization in comparison with prior quarters' 14.4%.

We continue to manage nonessential costs very carefully, limiting indirect costs that do not contribute to revenue generation.

In 2024, we achieved $30 million in cost efficiencies as planned after our midyear reset.

We closed the year with a net debt to adjusted EBITDA leverage ratio as per our credit agreement at 3.2 times.

The calculation of the ratio remains negatively impacted by lower adjusted EBITDA on a trailing twelve-month basis even though we continue to pay down our debt.

Informed by our forecast for the first part of 2025, we proactively arranged for a credit agreement amendment that defers the leverage shutdown from 3.75 times to 3.25 times to commence in the first quarter of 2026 instead of the first quarter of 2025.

All of the terms of the credit agreement remain unchanged.

Turning to our outlook for 2025, it is a balanced view of both opportunities and potential risks this year.

At this early point in the year, we believe it is prudent to guide approximately 2% revenue growth on an organic basis.

Our sales funnel reflects the dynamics and volatility we are seeing in the industry with strong early signs of demand across our digital solution service line.

Gopi Chande

Moving on to adjusted EBITDA, we expect approximately $400 million in 2025.

When comparing our adjusted EBITDA to the prior year, it is important to normalize the comparison base by subtracting $60 million of other income from business combination-related provisions spanning from the Willow Tree put revaluation in 2024.

In addition, related to the Willow Tree earn-out renegotiation in 2024, the year-over-year comparison is impacted by higher share-based compensation with the total share-based compensation run rate of approximately $13 million per quarter going forward.

Normalized for these two items, our adjusted EBITDA outlook for 2025 implies a year-over-year decline of approximately 2%.

This reflects some stabilization in our operations and importantly investments to support our return to organic growth.

In 2025, we will continue to invest in our business, particularly to drive further operational efficiencies including programs to further address attrition, workforce management optimization, and growing shared service centers of excellence.

We will also invest in product development and marketing, including the Fuel IX go-to-market program, that should help us capture opportunities for growth and diversification over time.

Overall, we set aside approximately $65 million in investments inclusive of capex and capex to support these priorities in 2025.

As a percentage of revenue, our baseline annual capital expenditures will remain in the 4% to 5% range.

As a result of these investments and additional cost-saving initiatives in 2025, we expect to deliver $50 million of in-year savings spanning from the transformation of our global operation, reduced attrition, optimized supply planning, and further savings of indirect costs, including non-billable roles and real estate rationalization, third-party spend reductions, and further optimization of discretionary costs.

Gopi Chande

For adjusted diluted EPS, we expect approximately $0.32 in 2025.

This assumes a weighted average share count of approximately 280 million shares.

For 2025, we expect cash taxes in the range of $50 to $60 million.

In terms of seasonality and to help you with quarterly forecasting, we expect the first and second half of the year to be approximately 48-52 for revenue and 45-55 for adjusted EBITDA.

The first quarter of the year is typically our softest of the four, and we expect this to be true for Q1 2025.

We expect Q1 to be the lowest in revenue and adjusted EBITDA and lower than Q4 of 2024.

And it will also be the lowest quarter of the year for EBITDA in 2025, given the upfront nature of the investments we are making.

We expect revenue and EBITDA to build up in subsequent quarters in the second half of the year.

While we do not specifically guide on free cash flow, Q4 2024 was unusually high primarily due to the timing of working capital net inflows from a couple of large client prepayments.

For 2025, we believe it is reasonable to expect free cash flow yield as a percentage of revenue of up to 10% for the full year, but we may see variations.

In the first half and particularly in Q1, we expect free cash flow to be lower given softer EBITDA and a normalization in working capital inflows.

In setting our outlook for 2025, we have taken a thoughtful, balanced approach, setting realistic assumptions this early in the year.

With that, I will pass to you, Jason, for operational and strategic highlights.

Jason Magnaville

Thank you, Gopi.

Good morning, everyone.

The key theme for 2024 was reliable results, and we intend to continue to focus on this using 2025 as a transition and investment year as Gopi has mentioned, positioning us for growth in the future.

We are focused on further improvements that optimize our technology team, services, and geographic diversity.

In the coming quarters, we will continue to prioritize four key areas

Tobias

Thank you, Jason, and thank you Gopi.

Good morning, everyone.

I would like to start by giving you an update on our broader digital solutions business and then touch on our go-to-market strategy around digitization of CX and our bundled offerings.

We are experiencing a reacceleration in our digital solutions business with quarter-over-quarter growth and a solid competitive positioning, underscored by our world-class net promoter score.

This forms the foundation for positioning TELUS International (Cda) Inc.'s products and services with clients in market conditions that are more favorable than we have experienced over the past eighteen months.

Our core position continues to gain traction with our clients.

We are laser-focused on helping our clients evolve the entire end-to-end journey of their customers, from digital marketing and sales to products such as apps and websites, through to AI-supported bot and human support, all underpinned by a common data layer.

Exciting examples from the last few months include winning new projects for National Bank in Southeast Asia, a large win back with a timeshare client for web implementation, and a digital workflow management solution for an existing CX services client.

In addition to closing new sales that provide a healthy lineup for signed deals that are pending for 2025, I am also incredibly proud of the high-quality work we are delivering for our clients, particularly on the Willow Tree side, where we achieved a Q4 net promoter score of 75, maintaining our full-year average above 70 and squarely representing best in class among our various peer sets.

High client satisfaction powers a virtuous flywheel for our future business.

Tobias

Which is what we see in examples like a 50% growth in billings with a major global news publisher, where we are reimagining and rebuilding the mobile app user experience, and the opportunity to compete for a leading digital replatforming project with one of the largest hotel groups in the United States.

Now let me turn to how we are generating wheel synergies between our digital and CX offerings.

A key principle of our strategy has been to drive digitization of both our internal operations and our clients' CX businesses, and I am pleased to report that we are making significant strides in both of these initiatives.

We have strong proof points in the digitization of CX with external customers via both our consulting services, including our CX strategy audits that identify high-value creation opportunities and application of our data science and AI engineering expertise and technology solutions.

To meet demand for our CX strategy engagements, we are growing the team and expanding the offerings to our clients globally.

Encouraged by the increasing number of client opportunities and problem statements we can help address, we recently announced the launch of the TELUS International (Cda) Inc. research hub in partnership with the University of Sao Paulo in Brazil.

This reflects our commitment to foster the next generation of AI researchers and develop advancements in AI-fueled CX innovation while ensuring that AI advancements remain human-centered, ethically designed, and purpose-driven.

Let me briefly touch on Fuel iX.

In 2024, we built and refined this platform and we are now bringing it to clients beyond the TELUS family armed with our insights and our learnings.

Our goal in 2025 is to establish awareness in the marketplace and a better understanding of our capabilities and benefits in particular, when bundling it in with our services and digital solutions, ultimately driving employee productivity and business outcomes.

In the fourth quarter, we closed a sale to a Canadian engineering firm for an initial deployment of Fuel iX and we are excited about the potential to deliver value.

It illustrates the power of working with the TELUS brand and our diversified Canadian sales force.

Part of our Fuel iX roadmap is focused on serving the CX space and bolstering TELUS International (Cda) Inc.'s overall value proposition and differentiation to CX customers.

For example, our agent Copilot deployed for a mobile games client demonstrated immediate impact of reducing average handle time by over 25% with less than two weeks of setup.

The ease of use, flexibility, and architecture of our solution made knowledge retrieval faster and more accurate for agents.

I hope you noticed we are trying to keep our remarks brief today to leave more time for your questions.

Before I turn over the mic to you, I want to reiterate that we are at the forefront of a significant shift in how businesses approach customer experience and digital transformation.

Our combination of CX expertise and digital solutions positions us well to capitalize on these market trends and technology advancements.

With that, we are looking forward to hearing your feedback and addressing your questions.

Over to you.

Operator

Thank you.

For those on the phone, if you would like to ask a question, please press star one on your telephone keypad.

The first question is from Stephanie Price from CIBC.

Please go ahead, Stephanie.

Stephanie Price

Good morning.

Hoping you can dig a little bit more into the 2% revenue growth guidance that you provided.

Curious about the assumptions around pricing in the demand environment that are embedded in the guide.

Gopi Chande

Thanks, Stephanie.

Gopi, why do not you take a shot at that?

Gopi Chande

Perfect.

Thanks.

Good morning, Stephanie.

So with the revenue guidance of 2%, I will start with it is balanced in terms of some of the risks and opportunities we are seeing.

So I will go through what those are.

As Tobias mentioned, we are seeing some opportunity on our digital solution side.

We are seeing higher demand in our funnel and backlog, and that gives us confidence in terms of the growth trajectory for the year.

Now that is balanced with some of what we are seeing on the CX trust, safety, and security side, where, again, there is some volatility there and we are seeing some dynamics in the segment.

Those are expected and ones that we are watching and look to be part of that transformation, but we did also want to be conservative in terms of the growth we see there.

From a pricing perspective, we are seeing a stabilization.

It is still very competitive, but we are seeing stabilization in the fee of our margin.

And on the digital side, again, with some of that demand coming back, we are able to increase our utilization as well as maintain some of that pricing pressure.

So a strong sales funnel, some early demand on the digital solutions side.

So we do think that 2% is a balanced way to approach here this early in the year.

Tobias

And maybe I would just pop up, Stephanie, that some of the cost efficiency and streamlining that we are doing in the organization allows us to be more competitively priced where that is required.

Stephanie Price

Thank you.

And if I could just maybe ask one follow-up.

Just you mentioned consolidation several times in your prepared remarks.

Just curious how you are thinking about the range of capabilities that are needed to win these consolidation events and what your win rate has been when you have been looking at these consolidation events within clients?

Tobias

Sure.

When we look at this, obviously, I spoke to the customer experience side of it, especially in the CX space.

When there is a consolidation event, key factors are obviously the relationship that we have had with the client, how long they have been with us, how diversified they are with us in terms of the service set.

So service diversity is important.

I think the other aspect of it is the customer experience and the history of that customer experience.

So the SLAs that we deliver, and, of course, agility.

Agility matters as well.

So having the geographic diversity that we have sometimes allows us to transition with a client where they have new language or cultural needs.

I think the last aspect is how it fits within our overall strategy as well.

Because we look for some of these transitions to help us optimize our costs, our profitability, and certainly, sometimes our asset or infrastructure investments.

So whether it is real estate optimization or the availability of talent, languages, in a particular area.

All of those factors come into play.

And, you know, I would say customer experience relationship and talent availability are probably some of the bigger drivers.

Stephanie Price

Thank you.

Operator

Thank you.

The next question is from Puneet Jain from JPMorgan.

Please go ahead.

Puneet Jain

Hey.

Thanks for taking my question.

I wanted to ask, like, a follow-up rather on AI-related conversations.

Have you had, like, any client that has transitioned to more automation using AI capabilities?

And what would it imply for your revenue or margins on those projects or contracts?

Tobias

Sure.

Why do not you take that, Tobias, and then I can top up.

Tobias

Yeah.

So we talked a lot about deploying our digital solutions capabilities, including Fuel iX, to our existing CX clients, and you need to think about that in kind of two ways.

One is how do we support agents and make them more efficient and accurate?

And then two is how do we answer direct consumer questions and help our clients do that?

I think in both those scenarios, when you look at what is going on in the marketplace, what you are trying to do, first and foremost, is really improve our clients' experience that they are delivering to their end customers.

Right?

Because you are trying to answer things quickly via AI that, you know, are generally speaking, easier.

And then the more complex questions go to agents, and we need to support those agents with information.

As I mentioned, one example in the prepared remarks, we were able to reduce average handle time by 25%.

What that then means is we can answer calls more quickly.

We can answer the more complex calls with human beings.

And we are significantly elevating the end customer experience, which is the ultimate goal.

So I think what we are seeing in the short term is shortening of queues, increased levels of customer satisfaction and customer service, and I think a balanced approach on some of the efficiencies that we are gaining on the back end.

Puneet Jain

Got it.

So the question, like, what I really wanted to understand was, like, as you implement some of these AI solutions and as they move into production, do all those productivity savings, like, generally get passed on to clients?

And is it fair to assume that, like, your revenue share on that contract on that project, like, contracts by 15-25%, assuming there might be some revenue from the solution that you provide as well?

Tobias

Yeah.

I think I and I will let yeah.

Go ahead, Jason.

Jason Magnaville

Yeah.

I think the way to look at it is right now, first of all, we have early days in terms of the number of implementations that are going on across the industry where there is fundamental, you know, cost takeout early day.

So and one of the reasons for that, yeah, on the AI side is to what Tobias has mentioned is that AI is generally taking care of a lot of the sort of low-hanging fruit on things like call volume as one example.

Or call handling time as another example.

So that actually frees up resources and capacity to go after more complex calls or to address volume that perhaps was being abandoned previously.

So that is one aspect of it.

The other aspect to consider is that it depends on how the contracts are laid out with the client.

So some existing contracts are based on capacity provided or hourly work provided.

Other contracts are outcome-based, and you are seeing more and more trends that it is not at a stage where it is, you know, the 15-25% of contracts yet.

But more and more contracts are looking at do we do outcome-based pricing?

So that the more effective you are and you are leveraging AI and other technologies to handle transactions for customers, that you can split that value.

And how that split happens and what percentages are involved are still, you know, negotiated contract by contract.

So that is sort of what I can provide on that.

Tobias

Yeah.

Jason, I will just add on one point here is and I think this goes to the previous question as well vis-a-vis consolidation.

Is our clients are looking to see who are their more strategic partners.

And those strategic partners are going to get more of a share of their CX volume.

And how strategic you are is in essence defined by how much technology thought leadership and strategy you are bringing to those clients.

And so I think a big part of this is if we are the leaders in those accounts of helping our clients innovate, we are also going to get more share over time.

Puneet Jain

Yeah.

No.

I agree.

And that is a great explanation.

Thanks for that.

And I would also like to dig deeper into this $50 million cost saving that you expect from restructuring efforts.

Can you talk about, like, the timing when those savings will flow in your income statement?

Gopi Chande

Sure.

Gopi, do you want to talk a little bit about the timing on that from a quarterly perspective and maybe we can add a little bit of flavor on what those types of initiatives are?

Gopi Chande

Perfect.

Thanks, Puneet.

So before I touch on that, I will talk about some of the investments that are going to drive those efficiencies, and it also will inform the timing question that you had.

So our investments fall into the category of sales and marketing, but also in terms of ops transformation.

And so work that we are doing to influence retention, reduce attrition, training with our leaders, to support that incentive supply planning automation.

So really improving how we are tracking our scheduling attendance, absence reporting, etcetera.

And then also investing in shared service centers of excellence so that we can be providing our services internally, our back-office services more efficiently.

So that investment started in 2024 and will continue in 2025, and the investment will be primarily focused more in half one than half two.

As a result of that investment, we are expecting to see the $50 million in efficiencies that I mentioned that will be weighted more in half two than half one.

Again, some of the direct relationships you will see from that operation transformation is we are expecting lower attrition, lower penalties where we sometimes have parameters in our contracts depending on how we are able to maintain attendance.

And then there are other areas that we are also focused on in terms of role real estate rationalization, looking at our licenses, the SaaS licenses in particular as they hit our OpEx vendor optimization, looking at our contractors' consultants, and any discretionary spend.

That latter category is happening all throughout the year, so that will be an equal distribution, but it will be some of the ops transformations that will gear more towards the second half than the first half.

Jason Magnaville

Thanks, Gopi.

And I would add to that there is a lot of resource strategy and workforce management capabilities that we are employing this year and aim to employ, which allow us to use our workforce more efficiently.

But also to drive optimization on our book-to-bill capabilities or our scheduling capabilities.

And each of those has a very discreet roadmap, if you will, of capability that has to be employed to drive the efficiencies we are looking for.

And then more generally, of course, you can imagine we have a larger list of projects to backstop that $50 million to ensure that, you know, from a risk-adjusted timing-adjusted basis, that we can fulfill the efficiency targets that we have.

So those are just a couple of additional top-ups.

Puneet Jain

Okay.

Thank you.

Operator

Thank you.

The next question is from Cassy Chen from Bank of America.

Please go ahead, Cassy.

Cassy Chen

Thanks for taking my question.

I just wanted to ask a follow-up understanding, you know, the first quarter revenue.

So I know you guys talked about stabilization, and then you mentioned first-quarter revenue growth was probably going to be lower than the fourth quarter.

So just to make sure that I understand it, is it fair to say that Q1 is sequentially lower and lower than the flat year, you know, on a year-over-year basis and flat in Q4.

So first quarter likely down low single digits.

And gradual improvement throughout 2025, so exiting probably in mid-single-digit growth.

Thanks.

Gopi Chande

How do you take that, Gopi?

Gopi Chande

Sure.

Yeah.

Cassy, you nailed it there in terms of what we are expecting.

So Q1, lower than Q4, primarily because of seasonality, from a revenue perspective, and then margin and EBITDA lower because of the investments we are making.

One nuance I will just pull out.

You mentioned we would be lower year over year, and that is true.

Again, in 2024, we did have a nonrecurring, non-cash scheme related to the Willow Tree put revaluation.

So that is the primary driver year over year in Q1 2025 that we are lower.

And then as we look forward, we do expect every subsequent quarter to increase both in revenue growth and EBITDA growth.

With the second half being stronger than the first half both on revenue growth as well as EBITDA because of some of those investments we are making earlier in the year that we expect to get the return in the latter half of the year.

Cassy Chen

Okay.

That is really helpful.

Thanks.

And just a follow-up, I know you guys talked about investment going to be about $65 million for the year.

Then also about, like, $50 million in cost savings.

You know, just the timing of that.

And also, are these different from the maybe, like, $60 million that you guys had talked about before in 2024?

I guess just talk about what specific areas you are making the investments in versus what areas you guys are cost savings in and you know, if you are expecting headcount to grow in 2025 because of all of those things.

Thanks.

Gopi Chande

So I can touch on timing and then can see if you can top up.

So Cassy, in terms of timing on the investments on both sales and marketing, and with our ops transformation slightly more weighted to half one than half two in terms of how we will be making those investments.

I will speak to your question around, are these similar to what we were doing before?

So they really are a continuation.

So there were material investments in our sales team in 2024.

So this is completing out that group and focusing on particular vertices.

And then expanding our marketing.

So whether it be for Fuel iX or particular platforms or products, really, expanding that.

So it will be throughout the year, but with our ops transformation more balanced to the beginning of the year.

And then with the efficiencies, again, an extension of the work that we were doing in 2024.

As I had shared in 2024, that time did not manifest quite as we expected it to.

And so with more precision, we are looking at similar programs coming into 2025.

It will be affecting our labor line.

It will be affecting our, really, every cost element line and our gross margin.

And we do expect that to be throughout the year, but will pick up throughout the year because we need to make some of those investments to garner the benefits.

Jason, anything you want to top up there?

Jason Magnaville

Yeah.

Sure.

When you look at some of the investments I alluded to, around workforce management, for example, that is around making sure we advance our tools and capabilities and how we manage our workforce, get the most out of the workforce from an efficiency perspective, and deliver better and advanced customer experience.

When you look at, you know, the $65 million that we are referring to, that is effectively looking at not only those tools, but also what we are doing in the AI space.

In AI data operations, as an example, or AI data solutions, there is always advanced work to do in terms of how we source clients, how we manage our expert sourcing or our crowdsource team, the tools that we use to drive quality and productivity in that space to support the large language model development projects that we do.

That type of investment as well as investment in pilots and innovation on behalf of our customers in the Fuel iX space, but also digital solution space.

Those are other examples of investments that we make that would be part of that.

So hopefully, that gives you a flavor of where we are focusing our dollars as we go forward.

Cassy Chen

Thanks.

Operator

Thank you.

The next question is from Aravinda Galappatthige from Canaccord Genuity.

Please go ahead.

Aravinda Galappatthige

Good morning.

Thanks for taking my questions.

A couple for me.

First of all, maybe for Gopi, just to go back to the guidance.

So, you know, what was sort of, you know, some of the assumptions that were in the guidance with respect to trust and safety.

You know, when you talk about conservatism, I know that, you know, trust and safety has lost roughly 15% of revenues.

Are you, you know, should we assume that you are assuming a fairly meaningful decline there within that 2%?

Or is it just sort of a question of sort of keeping the growth expectations low?

I just wanted a little bit more clarity there.

And then secondly, on the AI data solution side, maybe just the competitive dynamics.

I know that, obviously, any space that is growing the way this one is, you are going to see a lot of new entrants.

Maybe just talk to, like, even in Q4, but, you know, that segment, how much did it grow?

Whatever data you can provide in terms of even though either on a full-year basis or for the quarter itself, that particular segment.

Thank you.

Gopi Chande

Jason, do you want me to take the first?

Jason Magnaville

Yeah.

Why do not you take the first and we can talk about the second?

Gopi Chande

Perfect.

Thanks, Aravinda.

So in terms of our trust and safety and security, so it is there is we have not assumed a decline overall in the sector.

That this sector for us is very much on a customer-by-customer basis.

And so we do work with each customer in terms of optimizing what geos we are working with them, what services we are providing them.

So we have factored in some of the ups and downs that we will see with those customers.

But in general, we are not expecting a material decline.

Part of what we see in the sector is while there is AI that is able to do some of the, let us say, content moderation that we would have done previously with humans, there is also an incredible increase in the volume of work that is to be done.

So we can complexity of the work that we do, the increase in volume largely is offsetting currently the portion that AI is taking over.

Again, it will very much be on a customer-by-customer basis.

Jason Magnaville

Yeah.

Maybe I will just top up on that.

Obviously, this segment from a client concentration perspective can be very lumpy as well.

So, you know, to Gopi's point, there is a lot of ups and downs as we go forward.

On the AI data solution side and in terms of the competitiveness in this space, as you mentioned, there is a lot of investment, and we have seen a lot of news articles, and we have heard from our clients in terms of the competitive intensity, but also just the pace and intensity of this pursuit.

So it is something right now where I think there is a lot of great opportunity.

I think the pie is growing quicker than necessarily the competitors entering the market.

But the thirst for quality, the intensity and pace of the projects, and how quickly they materialize and how fast they need to ramp will be key success factors as we compete in this space.

And we have seen some very exciting projects that have come down in this space.

You know, and I will give you three as an example.

Right?

We have in the science, technology, engineering, and math, dataset space, we have been participating in the development and dataset to enhance STEM-related reasoning for LLMs.

You know, building Q&A pairs across STEM disciplines.

We have seen large-scale VQA dataset work that, you know, involves over 300 makers and reviewers, including subject matter experts in health, medicine, science, business, and engineering.

Math reasoning and instruct projects.

So enhancing LLMs reasoning and structural capabilities through structured data collection.

And instruction fine-tuning, you know, thousands of prompts and responses that have to be managed and transacted.

And we are utilizing trusted contributors and expert validation there.

Over 300 specialists in that are focused on mathematics, as another example.

And these projects have the potential of being anywhere from sometimes they are trial projects that, you know, $100,000, and sometimes they have the potential of, you know, contract values in the tens of millions of dollars.

So it is a very exciting space.

It is incredibly intense in terms of the, you know, when these projects occur.

We sometimes have a week to two weeks to prepare.

And it requires a lot of nimbleness and agility on our part.

But we feel as though these are areas that we can progress and show strong growth in.

And that growth, we are hoping, will offset some of the, you know, some of the headwinds we see in the content moderation space as one good example.

Hopefully, that gives you a flavor of that space a bit more.

Aravinda Galappatthige

Awesome.

Thank you.

I will pass the line.

Operator

Thank you.

The next question is from Divya Goyal from Scotiabank.

Please go ahead.

Divya Goyal

Good morning, everyone.

Jason, I wanted to get a little bit more color on the customer experience segment here at TELUS International (Cda) Inc.

In this press release and over the past few minutes here, we have been discussing the CX sector, and I noticed you have also guided for targeted improvement plans across the call center or the CX customer experience sector.

Could you talk to us a little bit more or elaborate on the broader experience or customer engagement sentiment across the global enterprises and your clients that you are seeing and the reasons for these targeted improvement plans here?

Thank you.

Jason Magnaville

Sure.

You know, as I mentioned, we have seen, especially in the fourth quarter and with the implementation of a probably, a renewed or I would call it, revitalized focus on customer experience.

Great improvement on especially our top 55 clients, but even more broadly.

And when we are talking about customer experience, it is everything from, you know, the subtleties of making sure that we are engaging customers in the way, in the format that our clients are looking for, demonstrating empathy, and we are getting first call resolution and efficient handle times.

When it comes to the treatment of customers.

I think the other thing that we are seeing is there is a heightened expectation as well as a pronounced opportunity to bring in technology capabilities into customer experience that help improve it.

Whether it is more effective ways for customers to deal with some of the simpler tasks or questions, technical support, or care that they need.

That is where Fuel iX comes in.

And then it has been a brilliant tool in that regard.

Or whether it is making sure that we have the right scheduling time of day, peak demand interval matching.

That is required for these clients.

So it is really taking what I think has been a hallmark of our organization for many, many years, which is delivering great customer experience in the language, culture, timeliness that our clients are looking for.

And then going beyond that and saying, okay.

How do we deploy new methods, new processes, new technology that is available today and enhance those experiences?

So in general, I think our clients are very happy and satisfied with us.

I think we have had pockets of where we needed to revitalize and modernize how we deliver on behalf of our clients and to do that proactively without them asking.

And then, certainly, you know, reinvigorating our thirst to be number one in the competitive set.

Right?

So making sure that we are not satisfied with being in the top five or top three but actually advancing and using the full breadth of our culture, our capabilities, and our technology to get that number one position.

So that is what I have been referencing as we go through.

Divya Goyal

And then just one more follow-up here.

You talked about two large wins in the retail customers in America.

Could you talk to us whether those wins were taking market share from one of your existing competitors, or are these net new businesses from these retailers?

And along with that, I will also try to get some color on any potential impact of this tariff discussion on TELUS International (Cda) Inc.'s business given your clients might get impacted despite TI not getting directly impacted.

That will be all for me.

Jason Magnaville

Okay.

On the retailers, I mean, obviously, they do not necessarily always share with us where they demand and extra work is coming from.

Sometimes it is new.

And in this case, some of the work is just net new opportunity for them and for us.

So I will not necessarily speak to whether it pulls demand from a particular client or competitor.

On the tariff side, yes.

We do not really provide US services to the US from Canada.

So it is less of an impact on us there.

Difficult to speak to, you know, what it will do to our clients.

Our clients are so varied in so many industries of different sizes.

It is certainly we are not, you know, we do not play a very large role in terms of the impacts on tariffs and how those get implemented at this point in their current form.

So it is difficult to say on how it will impact demand.

But, certainly, what we have seen is we serve customers globally from a multitude of locations and regions, certainly over 32 countries around the world.

So for the most part, I think we are relatively well insulated at this point.

Divya Goyal

Thank you.

Operator

Thank you.

The next question is from Margaret Nolan from William Blair.

Please go ahead.

Margaret Nolan

Thank you.

Based on how you are structuring the cost programs and thinking about the investments, do you intend to continue this into 2026, or is the intention to largely complete these efforts in 2025 and drive margins back up from there?

Jason Magnaville

We intend to continue always looking at cost efficiency and margin improvement opportunities, that is going to be very much a natural habit and posture of our organization.

And we will continue to build a new set of programs for 2026 as well.

The quantum of that and, you know, the magnitude of that is, you know, at this point would be premature to speak to.

But you can certainly expect that that will be our posture always.

To improve margin, to improve cost efficiency, to look at our indirect costs, and always hone and refine those.

And to leverage some of the technology capabilities that we have and continue to leverage some of the process innovation that we, you know, we incubate within the broader TELUS organization, our parent company.

We have an amazing sandbox there that drives very hard on doing the same within their organization.

And we bring that same thirst and posture to TELUS International (Cda) Inc. as well.

Margaret Nolan

Thank you.

And on the early strong signs of demand you noted, particularly for digital, it sounded like.

Can you elaborate on what some of those signs are if there is any pattern in terms of clients and markets or verticals, geography, solutions, etcetera?

Thank you.

Tobias

Yeah.

So maybe I will jump in on the digital solution side.

I think we are seeing it primarily in North America.

But also to some extent in Europe.

And across industries, I think financial services has always been an important part of our portfolio that is coming back quite strongly.

Health care continues to grow with investments.

Everything related to hospitality, including quick-serve restaurants, is showing a lot of progress.

I think, you know, there at some point in retrospect, there may have been a pull forward of spend that happened as part of COVID and then a brief pause, and now everyone is coming back.

And I think the, you know, what is driving that, the catalyst is AI, is that most of their customer relationship via the app, via bots, etcetera, has to be transitioned to be AI and voice-driven.

So I think we are seeing over, you know, and expect this to continue into 2026 and 2027 a meaningful reinvestment in digital experiences.

Margaret Nolan

Thank you.

Operator

Thank you.

Today's final question is from Suthan Sukumar from Stifel.

Please go ahead.

Suthan Sukumar

Good morning, and thank you for taking my questions.

Wanted to touch on the new business pipeline first.

What would you highlight as being some of the surprising areas of strength and what would you call out as some of the pockets where you are seeing demand weakness persist?

Jason Magnaville

Sure.

Maybe I will touch on a few, and then I will pass it over to Tobias to talk about this funnel.

You know, the strength aspects on the digital solution side and Tobias will speak to these in a moment.

That has been really nice to see.

It is nice to see a bit of a rebound, and that after a really tough 2024.

As I have been highlighting all along, AI data operations and data solutions and the LLM space.

Both training and development in that space.

Very exciting for us and certainly an area that we want to continue to scale and invest in.

In terms of, you know, in terms of headwinds, I think it is reasonable to expect, and I think the entire analyst community is very well versed in this, to see that content moderation is changing.

Trust, safety, and security, more broadly, I think are some good opportunities because we do have a lot of clients that continue to need, you know, contact moderation, but also, you know, if they are looking at fraud prevention and detection, and other capabilities that we bring to bear.

So that has been fantastic.

And then outside of just, you know, service-based opportunities, I think there are geographic-based opportunities for us.

To optimize our geographic presence both exiting areas that we think have either run their course or that both ourselves and our partners feel are less relevant or can be substituted in other areas more optimally.

But also as I spoke about Africa and India, there are some fantastic geographic expansion opportunities to really leverage the growth and momentum that we are seeing in those countries.

So that is also a place that we are going to be concentrating and investing in.

And continuing to look more broadly even beyond the 32 countries we have today.

Being very opportunistic on where we can expand.

Latin America continues to be a place of growth that we need to consider.

Asia is another place that, you know, another large geographic region where there is opportunity.

So we will continue to be very opportunistic as we move forward in this regard.

Tobias, maybe you want to touch on the digital.

Tobias

Sure.

I will just pop up a little bit.

On the digital solution side, as I mentioned, where the demand is coming from, I would say that the expectation of clients is still that they want to optimize their costs.

Right?

This is different than 2021-2022 where the market was a little less cost-conscious and more outcomes-conscious.

Now it is a balance of the two.

And so in terms of delivering great engineering and software products, you kind of have two options.

You have to automate using AI a lot of the services you are providing to clients, and you have to geographically optimize, which is something we are focused on both of those with Fuel iX being a prime tool for automation, but on the geographic optimization, we recently announced our partnership with Brazil.

There is a growing demand for nearshore, especially in AI consulting.

Given the cost that clients have with North American talent.

And we continue to rapidly expand our Central American and our Indian capabilities to provide our clients with a global footprint in terms of software design and development.

So I think that trend, it is a balance of how you put those assets together for any given client.

But with that, Jason, I will hand it back to you to bring us home.

Jason Magnaville

Okay.

Thank you.

Before we conclude, I would like to extend a warm welcome to Andrea Clayton who joined TELUS International (Cda) Inc. as our new chief human resources officer.

Andrea brings an impressive 25 years of HR experience to our team.

Her extensive background in HR strategy and complex strategic initiatives across various Fortune 500 companies will be invaluable as we continue to grow and evolve.

As we move forward, I want to reaffirm our unwavering commitment to delivering on the expectations we have set.

Our team remains focused on executing our strategy and driving our return to growth.

We look forward to sharing more updates on our progress during our next quarterly investor call in May.

Thank you all for your continued engagement, and have a great day.

Operator

This concludes the TELUS International (Cda) Inc.'s Q4 2024 Investor Call.

Thank you for your participation.

Have a nice day.