TELUS International (Cda) Inc. Price & Performance (TIXT)

I will speak to the twenty twenty four Q4 and full year financial before I review our 2025 outlook.

In the fourth quarter, Telesys TELUS stabilization in operations and financial performance Revenue of $691,000,000 was up 5% from the previous year and steady year over year. For the full year, we generated revenue of $2,700,000,000 a decline of percent 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 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% a continued momentum, across AI beta solution projects, With our third largest client, a leading social media network our full year revenues were lower. However, we achieved a 7% For the full year, looking at our verticals, our growth in healthcare was driven by additional services to TELUS Health, while BFSI expansion reflected the 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, This growth area partially offset declines. From other geographies. Our adjusted EBITDA margin in the fourth quarter was 4.9%, showing further stabilization in comparison with prior quarters 14.4%. We continue to manage nonessential costs very carefully limiting indirect costs that don't contribute to revenue generation. In 2024, we achieved $30,000,000 in cost efficiencies as planned after our mid year reset. We closed the year with net debt to adjusted EBITDA leverage ratio as per our credit agreement at 3.2x 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 twenty twenty five, we proactively arranged for a credit agreement amendment that defers the leverage step down from 3.75 times to three point 3.25x to commence in the first quarter of twenty twenty six instead of the first quarter of twenty twenty five. 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's prudent to guide Our sales funnel reflects the dynamics and volatile volatility we're seeing in the industry with strong early signs of demand across our digital solutions service line. We Moving on to adjusted EBITDA, we expect approximately $400,000,000 in 2025 When comparing our adjusted EBITDA to the prior year, it is important to normalize the comparison base by subtracting $60,000,000 of other income from business combination related spanning from the Willow Treat 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 run rate of approximately $13,000,000 per quarter going forward. Normalized for these two items, our adjusted EBITDA outlook for 2025 is five 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'll 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'll 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 $65,000,000 in invest 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 savings initiatives we expect to deliver $50,000,000 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 roll and real estate rationalization third party spend reductions and further optimization of discretionary costs.

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

This assumes a weighted average share count of For 2025, we expect cash taxes in the range of $50 dollars 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 softness of the four and we expect this to be true for Q1 twenty twenty five. We expect Q1 to be the lowest in revenue and adjusted EBITDA as lower than Q4 of twenty twenty four. And it will also be the lowest quarter of the year for EBITDA in 2025, given the upfront nature of investment We expect revenue EBITDA to build up in subsequent While we don't specifically guide on free cash flow, Q4 twenty twenty four was unusually high primarily due to timing of working capital net inflows from a couple large client prepayments. For 2025, we believe it's 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 quarter over quarter In the first half and particularly in Q1, we expect for cash flow to be lower Given softer EBITDA, and normalization in working capital inflows. In setting our outlook for 2025, we've taken a thoughtful, balanced approach, setting realistic With that, I'll pass to you Jason for operational and strategic highlights.

Thank you, Gopi. Good morning, everyone. The key theme Magazine 2024 was reliable results and we intend to using 2025 as a transition and investment year as Gopi has mentioned, positioning us for growth in the future. We're focused on further improvements that optimize our technology team, services and geographic diversity the coming quarters, we'll continue to prioritize four key areas: further evolving our business capabilities, service offerings, tools and processes in particular in the AI space. Delivering positively differentiated service quality by coupling technology and experience developing our TELUS, including augmenting our team with new AI skills and leadership, driving efficiencies and rationalizing our assets and global footprint, to invest in the locations, of highest demand. All of these efforts will support our revenue growth goals. [indiscernible] At the year end, our sales funnel stood at approximately $2,000,000,000 We saw strong growth in our digital solutions pipeline in the last quarter, which Tobias will This reacceleration helped offset slower growth in other service [indiscernible] In the fourth quarter and particularly in December, we expanded relationships with several customer experience clients within our top 10 cohort Overall, in 2024, we expanded our business with one hundred and demonstrating our efforts to diversify beyond our largest accounts and to drive better product diversification.

We also added 55 net new clients across diverse industries. Including 13 net new clients in the last quarter alone. Notably, we won customer experience service contracts for two large American retailers to be delivered in India and South Africa locations in high demand, and where we expect further growth. In Africa, in particular, we've seen rapid growth. Since making two small acquisitions in May of twenty twenty three, and establishing our footprint in Africa, we've successfully scaled our operations. We grew the number of team by 800% We generated a 430% increase in revenue and a 440% growth in profitability, measured by our operating EBITDA for those locations. So far, the focus in this region has been on customer experience management for our clients in communications and media, tech and games, e commerce and FinTech.

It remains an important geography for our clients delivery footprint diversification and where we will be working to drive further growth as we expand our facilities. And broaden the service set delivered out of those locations. Among other key wins in the fourth quarter, in AI Data Solutions, we added two new AI research and product companies to support the development of their multimodal large language models. We also won two new clients in the autonomous transportation sector. Over the course of last year, we saw good momentum in AI data solutions which we are working to carry forward into 2025. We are very excited about what we see here. This came on the strength of our global practice and client relationships with several hyperscalers notably Google, but others as well. For example, we further diversified our work with two social media players by adding key AI data solutions project These are existing clients who are investing heavily the LLM development [indiscernible] Now in industry news on Asia based DeepSeq as well as large investor this bode well for demand in AI data solutions and in particular for more evolved LLM tasks and projects. Our services play a key role in supporting LLM training and development and we will need to continue to rapidly advance our capabilities in the LLM [indiscernible] Competitive dynamics among hyperscalers only intensify the need for further investment.

And we are making investments to our services and related tools to remain an integral [indiscernible] of the AI evolution. Rapid news flow, particularly in the technology space, marked the beginning of 2025. We were compelled to provide a public statement in early January to remind the market some important aspects of the content moderation services we provide. Specifically, we aim to be transparent on what changes impact our business. We currently provide a broad spectrum of content moderation services for several clients, including a leading social media network and other social media clients. We don't do third party fact checking which is a very specific term in The U. S. We do provide content moderation, primarily in Europe, specific laws govern moderation. Importantly, we moderate a diversified set of highly critical content. Including what's considered potentially harmful or illegal. The critical and complex nature of this particular content that we moderate is a fundamental aspect of doing business for social networks, and similar content creation platforms intends to have more human in the loop requirements. Now this all being said, the trust, safety and security service sector is changing rapidly as are the requirements and demand for certain geographies.

We may see pressure in this regard we will leverage changing demand to advance and adapt our trust safety and security services and optimize the locations we serve from while continuing to stay nimble as the industry changes. Some changes may require further investment as we advance tools, ship locations establish new footprint and incur transitions costs. This agility is a hallmark of our organization and in fact an important aspect of why companies choose us as a partner and it's one of the reasons why we have a diverse set of services within our portfolio. Now before I turn the call over to Tobias, let me share some quick progress and outline our efforts on key strategic initiatives as We're committed to delivering service quality excellence. We Our goal is to be ranked as the leader across all our client accounts. Achieving this across the board will strengthen our competitive position in terms of price [indiscernible] we're positioning. In customer experience management and content moderation in particular, we expect to see further industry consolidation this year. Our competitive positioning is directly linked to delivering the best customer experience across all BEC's benchmarks and for each client. Where clients choose to consolidate partners, services or substitute legacy support with AI capabilities, We look to be the partner of choice in driving this technology service change and or leverage our relationship with the client to increase product intensity and diversification or grow new locations exiting regions with diminishing demand.

We are deploying targeted improvement plans to enhance our operational performance and yield better customer sentiment and we're seeing early results in this regard. We continuously track what's called a customer sentiment index. It's defined as our customer experience delivery efficacy and how likely a client is to grow with us or to recommend us to other clients. Over the course of the fourth quarter, our customer sentiment index improved by 20% across our top 55 accounts. And we're not stopping there. Going hand in hand with service quality excellence is talent development. In an annual employee survey conducted by Concentrix, our 2025 engagement score improved by 200 basis points to 78 Having joined TELUS Digital, five months ago, I personally commend all of our team members for their unwavering commitment to customer service excellence and continuing engagement, and I want to thank everyone on our global team for their very warm welcome. For our team members, we're prioritizing AI skills, career development, and applying AI for lower value tasks while hiring our hiring strategy for the near term is on AI talent and billable positions to drive revenue growth. In 2025, we'll show further progress in transforming our operation through investments and focus on operational efficiencies and workforce management.

Beyond internal transformation, our client facing business will also continue to evolve. And now, I'll hand it over to Tobias for a brief discussion. On digital solutions.

Thank you, Jason, and thank you Gopi. Good morning, everyone. I'd 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're experiencing a reacceleration in our digital and a solid competitive positioning underscored by our world class Net Promoter Score. This forms the foundation for positioning TELUS Digital's product and services with clients in market conditions that are more favorable than we've 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 common data layer. Exciting examples from the last few months include winning new project 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'm 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. 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 hotels TELUS in the [indiscernible] Now let me turn to how we are generating Wheel Center 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' Tx businesses. And I'm pleased to report that we're 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 EX 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 digital research hub in partnership with the University of Sao Paulo Brazil, This reflects our commitment to foster the next generation of AI researchers and develop advancements in AI fueled CX innovation, which 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 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 and our diversified Canadian sales force. Part of our Fuel roadmap is focused on serving the CX space, and bolstering TELUS Digital'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're 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're 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're looking forward to hear your feedback and address your questions. [indiscernible] The first question is from Stephanie Price from CIBC. Please go ahead, Stephanie.

Good morning. I'm 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?

Thanks, Stephanie. Gopi, why don't you take a shot at that? Perfect. Thanks. Good morning, Stephanie.

So with the revenue guidance of 2%, all start with it is balanced in terms of some of the risks and opportunities we're seeing. So I'll go through what those are. As Tobias mentioned, we are seeing some opportunity on our digital solutions side. We're seeing higher demand in our funnel and backlog. And that gives us confidence in terms of the growth trajectory gross trajectory for the year. Now that's balanced with some of what we're seeing on the CX Trust, Safety and Security side where again there is some volatility there and we're seeing some shifts in dynamic Those are 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 stabilization.

It still very competitive, but we are seeing stabilization. We see that in our margins. 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 the year this early in the year.

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

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're thinking about the range of capabilities that are needed to win these consolidation events and what your win rate has been when you've been looking at these consolidation events within clients?

Sure. When we look at this, obviously, I spoke to the customer experience side of it, especially in the CX space. When there's a consolidation event key factors are obviously the relationship that we've had with the client, how long they've been with us, how diversified they are with us in terms of the the service set So, service 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 [indiscernible] 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's real estate, optimization or the availability of talent, languages, in a particular area. All of those factors come into play. And I would say customer experience relationship and and talent availability are probably some of the bigger drivers.

Thank you.

Thank you. The next question is Puneet Jain from JPMorgan. Please go ahead.

Hi, thanks for taking my question. I wanted to ask like follow-up rather on AI related conversations. Have you had like any client that has transitioned to more automation using AI capability [indiscernible] imply for your revenue or margins on those projects or contracts? Sure. Why don't you take that Tobias and then I can top up Yes. So we talked a lot about deploying our digital solutions capabilities including fuel to our existing CX clients and You just think about that in kind of two ways. One is how do we support agents and make them more [indiscernible] 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's going on in the marketplace, what you're trying to do first and foremost is really improve our clients' experience that they're delivering to their end customers, right? Because trying to answer things quickly via AI that are easy, generally speaking, more 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're significantly elevating the end customer experience, which is the ultimate goal. So I think what we're seeing in the short term is shortening of queues increased levels of customer sat and customer service, [indiscernible] I think a balanced approach on some of the efficiencies that we're gaining on the back end.

Got it. So 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, So all those productivity savings like, do they generally get passed on to clients? And 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 Tesla Yes. I think I can outlet yes, go ahead, Jason.

Yes. 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's fundamental cost takeout early days. So and one of the reasons for that on the AI side is to what Tobias has mentioned is is that AI is generally taken 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 So that's 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 are based on capacity provided or hourly hourly work provided, other contracts are outcome based and you're seeing more and more trends that it's not it's not at a stage where it's the 15% to 25% of of contracts yet. But more and more contracts are looking at how do we do outcome based outcome based pricing?

So that the more effective you are and you 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 negotiated contract by contract. So that's sort of where I would add on.

Yes. Yes. Jason, I'll 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're 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're also going to get more share over time.

No, I agree. And that's great explanation. Thanks for that. And I'd also like to dig deeper into this $50,000,000 cost saving that you expect from restructuring efforts. Can you talk about like the timing like those savings will flow in your income statement?

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.

Perfect. Thanks, Pete. So, I'll before I touch on efficiencies, I'll talk about some of the investments that are going to drive those efficiencies. 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 the work that we're doing to influence retention, reduce attrition training with our leaders to support that incentive supply planning automation, so really improving how we're 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're expecting to see the $50,000,000 inefficiencies that I mentioned That will be weighted more in half two than half one. Again, some of the direct relationship you'll 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're able to maintain attendance.

And then there's other areas that we're also focused on in terms of role real estate rationalization, looking at our license SaaS licenses in particular as they hit our OpEx vendor optimization, looking at our contractor 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.

Thanks, Gopi. And I would add to that. There's a lot of resource strategy and workforce management capabilities that we're 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 discrete roadmap, if you will, of capability that has to be employed to drive the efficiencies we're looking for. And then more generally, of course, you can imagine we have a a larger list of projects, the backstop that $50,000,000 to ensure that from a risk adjusted or a timing adjusted basis, that we can fulfill the the efficiency targets that we have. So those are just a couple of additional top ups.

Okay. Thank you. Thank you. The next question is from Cassie Chan from Bank of America.

Please go ahead, Cassy.

I just wanted to ask a follow-up understanding the first quarter revenue. So 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 1Q is sequentially lower and lower than the flat year on a year over year basis and a flat in 4Q. So first quarter likely down low single digits.

Gradual improvement throughout 25%, so exiting probably in mid single digit growth. Why don't you take that, Kopi?

Sure. Yes. Cassie, you nailed it there in terms of what we're 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're making. One nuance I'll pull out, you mentioned we would be lower year over year and that is true. Again, in 2024, we did have a non recurring non cash scheme related to the Royal Tree foot revaluation. So that's the primary driver over year in Q1 twenty twenty five that were 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're making earlier in the year that we expect to get the return the latter half of the year.

Okay. That's really helpful. Thanks. And just a follow-up.

I know you guys talked about investments going to be about $65,000,000 and for the year.

Then also about like a $16,000,000 in cost savings. Just the timing of that? And also are these different from the maybe like $60,000,000 that you guys had talked about before in '24? I guess just talk about what specific areas you're making the investment [indiscernible] what areas you guys are cost savings in?

And if you're expecting headcount to grow in 2025 because of all of those things? Thanks. [indiscernible] you can top up. So caffeine 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'll 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 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 '24, that timing didn't manifest quite as we expected it to. And so with more precision, we're 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 top up there? Yes, sure. When you look at some of the investments I alluded to, around workforce management, for example, that's around making sure we advance our tools and capabilities and how we manage our workforce, get the most out of the work from an efficiency perspective and deliver better and advanced customer experience.

When you look at the $60,000,000 that $65,000,000 that we're referring to, That is effectively looking at not only those tools, but also what we're 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 crowd sourcing. 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 in pilots and innovation on behalf of our customers in the fuel space, but also digital solutions space.

Those are other examples of investments that we make that would be part of that. [indiscernible] hopefully that gives you a flavor of where we're focusing our dollar as we go forward.

Thanks.

Thank you.

Thank you. The next question is from Aravinda Galatapugay from Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. A couple from me. First of all, maybe for Gopi, just to go back to the guidance, so you know what was sort of some of the assumptions that were in the guidance? With respect to Trust and Safety, when you talk about conservatism, I know that Trust and Safety is rough 15% of revenues. Are you should be a 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 Solutions side, maybe just the competitive dynamics. I know that obviously any space that's growing the way this one is, you're going to see a lot of new entrants Maybe just talk to like even in Q4, but that segment basis basis or for the quarter itself, that that particular segment Jason, do you want to take the first?

Yes, why don't you take the first and we can talk about the second?

Perfect. Thanks, Arvindra. 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're working with them, what services we're 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 this sector is while there is AI that is able to do some of the, let's say, content moderation that we would have done previously with humans, there's also an incredible increase in the amount the volume of work that is to be done. So the complexity of the work that we do, the increase in volume largely is offsetting currently the portion that AI is taking over. Again, we'll very much be on a customer by customer basis as we look at the segment.

Maybe I'll just top up on that. Obviously, this segment from a client concentration perspective can be very lumpy as well. Well. So to Gopi's point, there's a lot of upside and downside in this segment. So I think we expect it to be pretty frothy as we go forward.

On the AI data solution side and in terms of the competitiveness in this space, As you mentioned, there's a lot of investment and we've seen a lot of news articles and we've heard from our clients in terms of the competitive intensity, but also just the pace and intensity of this pursuit. So it's something right now where I think it's a it's a there's 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. Materialize and how fast they need to ramp will be key success factors as we compete in this space. And we've seen some very very exciting projects that have come down in this space. I'll give you three as an example. Right? We in the science, technology, engineering and map data set space. We've been participating in the development of data set to enhance stem related reasoning for LLMs. Building Q and A pairs across STEM disciplines We've seen large scale VQA data set work that 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 thousands of prompts and responses that have to be managed and transacted And we're utilizing trusted contributors and expert validation there Over 300 specialists in that are focused on mathematics. As another example. And these projects have potential of being anywhere from sometimes they are [indiscernible] $100,000 and sometimes they have the potential of contract values in the tens of millions of dollars. So it's a very exciting space It's incredibly intense in terms of the 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. We feel as though these are areas that we can progress and show strong growth in.

And that growth we're hoping will offset some of the some of the headwinds we see in the COMO space as one good example. Hopefully that gives you a flavor of that space a bit more.

Awesome. Thank you. I'll pass the line.

Thank you. Next question is from Divya Goyal from Scotiabank. Please go ahead.

Good morning, everyone. Jason, I wanted to get a little bit more color on the customer experience segment here at TELUS Digital. In this press release and over the past like minutes here, we've been discussing about the CX sector and I noticed you have also guided for targeted improvement plans across the cost center or to CX customer experience sector. Could you talk to us a little bit more or elaborate on the broader customer experience or customer engagement sentiment across the global enterprises and your clients that you're seeing and the reasons for these targeted improvement plans here?

Thank you.

Sure. As I mentioned, we've seen especially in the fourth quarter and with the implementation of 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're talking about customer experience, it's everything the subtleties of making sure that we are engaging customers in the way and the format that that our clients are looking for demonstrating empathy and we are getting first call resolution and efficient handle times.

When it comes to treatment of customers. I think the other thing that we're seeing is there's a heightened expectation as well as a pronounced opportunity [indiscernible] bring in technology capabilities into customer experience that help [indiscernible] Whether it's more effective ways for customers to deal with some of the simpler tasks or questions technical support or care that they need. That's where fuel comes in and it's been a brilliant tool in that regard. Or whether it's making sure that we have the right scheduling time of day, peak demand interval matching. That's required for these clients. So it's 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 process new technology that is available today and enhance those experience. So in general, I think our clients are very happy and satisfied with us. I think we've had pockets of where we've needed to revitalize and modernize. How we deliver on behalf of our clients and to do that proactively without them asking.

And then certainly, reinvigorating our thirst to be number one in the competitive set. Right? So making sure that we're 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's that's what I've been referencing as we go through.

That's helpful.

And then just one more follow-up here is 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 exact existing competitors? Or are these net new businesses from these retailers? And along with that, I'll also try to get some color on any potential impact of this tariff discussion on TELUS Digital's business given your clients might get impacted despite TI not getting direct That will be all for me.

Okay. On the retailers I mean, obviously, they don't necessarily always share with us.

Where they demand and extra work is coming from sometimes it's new. And in this case, some of the work is just net new opportunity. For them and for us. So I won't necessarily speak to whether it [indiscernible] [indiscernible] [indiscernible] particular client or competitor. On the tariff side, yes. So we don't really provide U. S. Services to The U. S. From Canada So it's less of an impact on us there. Difficult to speak to what it will do to our clients. Our clients are so varied in so many industries of different sizes.

It's certainly we're not we don't play a very large role in terms of the impacts on tariffs and how those get implemented at this point in their current So difficult to say on how it will impact demand. But certainly, what we've seen is we serve customers globally from a multitude of of locations and regions, certainly over 32 countries around the world. So for the most part, I think we're we're relatively well insulated at this point.

Thank you.

Thank you.

The next question is from Maggie Nolan from William Blair. Please go ahead.

Thank you.

Based on how you're 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 drives margins back up from there.

We intend to continue always looking at cost efficiency and margin improvement opportunities that is going to be a a 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 the magnitude of that is 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 to continue to leverage some of the process innovation that we we 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 that same thirst and posture to TELUS Digital as well.

Thank you. And on the early strong signs of demand, you noted particularly for for digital, it sounded like Can you elaborate on what some of those signs are if there's any pattern in terms of clients and markets or verticals, geography solutions, etcetera?

Yes. So maybe I'll jump in on the digital solution side. I think we're 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's coming back quite strongly. Healthcare continues to grow with with investments. Everything related to hospitality, including click serve restaurants is showing a lot of progress. I think at some point in retrospect, there may have been a pull forward of spend that happened as part of COVID and then it a brief pause and now everyone's coming back And I think what's 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're seeing over and expect us to continue into 2026 and 2027 a meaningful reinvestment in digital experiences.

Thank you.

Thank you. Today's final question is from Suthan Sukumar from Stifel. Please go ahead. Good morning and thank you for taking my questions. I wanted to touch on the new business pipeline first. What would you highlight as being some of the surprising areas of strength? And and what would you call it as some of the pockets where you're seeing demand weakness persist? Sure. Maybe I'll touch on a few and then I'll pass it over to Tobias.

To talk about this funnel. The strength aspects on the digital solution side and and Tobias will speak to these in a moment. That's That's been really nice to see. It's nice to see a bit of a rebound. And in that after a really tough 2024. As I 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 headwinds, I think it's reasonable to expect and I think entire analyst community is very well versed in this see that content moderation is changing. Trust, safety and security more broadly, I think are some good opportunities. Continue to need contact moderation, but also they are looking at fraud prevention and detection and other other capabilities that we bring to bear. So that's been fantastic. And then outside of just service based opportunities I think there's 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 less relevant or can be substituted in other areas more optimally.

But also as I spoke about Africa and India, there's some fantastic geographic expansion opportunities to to really leverage the growth and momentum that we're seeing in those countries. So that's also a place of that we're going to be concentrating and investing on. 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 that we need to consider. Asia is another place that another large geographic region where there's opportunity. So we'll continue to be very opportunistic as we move forward in this regard. Tobias, maybe you want to [indiscernible] 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 it was the market was a little less cost conscious and more outcomes conscious. Now it's 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're providing to clients and you have to geographically optimize, which is something we're focused on both of those with fuel 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 an AI consulting given the costs that clients have with North American TELUS.

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's a balance of how you put those assets together for any given client. With that, Jason, I'll hand it back to you to bring us home.

Okay.

Thank you. Before we conclude, I'd like to extend a warm welcome to Andrea Clayton who joined TELUS Digital as our new Chief Human Resources Officer Andrea brings an impressive twenty five 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've set our team remains focused on executing our strategy and driving our 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.

This concludes the TELUS Digital's Q4 twenty twenty four Investor Call. Have a nice day.