TIXT - TELUS International Reiterates Guidance But Uncertainties Grow

• TELUS International went public in February 2021, raising around $925 million in gross proceeds in an IPO.
• The firm provides customer experience consulting and related technologies to enterprises globally.
• TIXT has produced growth and navigated the pandemic well, but faces uncertainty with a slowing global growth environment.
• I'm on Hold for TIXT until we understand the direction of macroeconomic forces.

A Quick Take On TELUS International

TELUS International ( TIXT ) went public in February 2021, raising approximately $925 million in gross proceeds in an IPO that was priced at $25.00 per share.

The firm provides customer experience consulting and technology solutions to enterprises worldwide.

I'm on Hold for TIXT until we understand the contours of future global growth amid a rising interest rate environment colliding with a slowdown in activity.

TELUS Overview

Vancouver, Canada-based TELUS International was founded as a division of parent firm TELUS Corporation ( TU ) to enable enterprises to maximize their customer engagement and value through its customer experience knowledge and consulting capabilities.

Management is headed by president and CEO Jeffrey Puritt, who has been with the firm since 2016 and previously held leadership positions at parent firm TELUS Corporation.

The company pursues new client relationships with mid-size and large enterprises via a direct sales & marketing model with a consultative approach tailored to each client's unique requirements.

TELUS has over 50,000 employees in dozens of delivery locations in 28 countries.

The firm counts over 600 company clients in the technology, games, communications, media, ecommerce, fintech, healthcare, travel and hospitality industries, among others.

TELUS' Market & Competition

According to a 2020 market research report by Grand View Research, the global customer experience management market is expected to reach $23.6 billion by 2027.

This represents a forecast CAGR of 17.7% from 2020 to 2027.

The main drivers for this expected growth are the continuing transition to digital engagement by enterprises in response to changing customer behavior demanding increased quality, convenience, and speed of service.

Also, the ongoing rise in the use of social media networks and online business is increasing demand for 'contextualized and personalized consumer experience through data management.'

Brands now understand the ability of consumers to share their experiences and potentially affect the brand's reputation for better or worse.

Additionally, companies are choosing cloud-based delivery models for their ease of initial installation and expanding adoption within client firms through 'land and expand' approaches.

Major competitive or other industry participants include:

• Endava ( DAVA )

• EPAM ( EPAM )

• Globant ( GLOB )

• Accenture ( ACN )

• Cognizant ( CTSH )

• Genpact ( G )

• WNS ( WNS )

• 24-7 Intouch

• TaskUs (TASK)

• Teleperformance S.A. ( OTCPK:TLPFF )

• Webhelp

• Appen ( OTC:APPEF )

TELUS' Recent Financial Performance

• Total revenue by quarter has grown steadily until plateauing in its two most recent quarters:

• SG&A expenses as a percentage of total revenue by quarter have remained in the upper 50s percentages:

• Operating income by quarter has risen significantly:

• Earnings per share (Diluted) have followed a similar trajectory as that of operating income:

In the past 12 months, TIXT's stock price has fallen 18.4 percent vs. the U.S. S&P 500 index's drop of around 12.1 percent, as the chart below indicates:

Valuation Metrics For TELUS

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be Cognizant; shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha)

Commentary On TELUS

In its last earnings call (Source - Seeking Alpha ), covering Q1 2022's results, management highlighted the growth it achieved in its primary industry verticals of Tech & Games, eCommerce and FinTech.

CEO Puritt attributed the growth in part to its cross-selling activity via its AI Data Solutions team and the integration of its previous acquisitions of Lionbridge AI and Playment in 2021.

As to its financial results, total revenue grew by 21% on a constant currency basis, with the Asia Pacific region contributing the highest growth rate at 36%, followed by North America at 22%.

Operating expenses rose 21% due to increased headcount and wage inflation, while adjusted EBITDA grew by 10%, driven by increased revenue which was partially offset by the increased operating costs.

For the balance sheet, the firm closed the quarter with $907 million in cash and credit capacity while reducing its net debt to adjusted EBITDA leverage ratio from 2.1x to 1.8x.

Looking ahead, management reiterated its 2022 outlook, with revenue growth guided to a midpoint growth rate of around 17.35% on a reported basis and 20% on an organic constant currency basis.

Regarding valuation, below is an estimated DCF (Discounted Cash Flow) analysis of the firm's projected growth and earnings:

Assuming generous DCF parameters, the firm's shares would be valued at approximately $23.58 versus the current price of $25.78, indicating they are potentially currently fully valued, with the given earnings, growth and discount rate assumptions of the DCF.

The recent purchase of 3 million shares of stock by parent firm TELUS from a shareholder at $22.00 per share provided a nice floor to the stock, so that parent sees value at that price.

But, TIXT appears fully valued at its present stock price, especially given a significant risk of considerable global growth slowdown or outright recession.

So I'm on Hold for TIXT until we understand the contours of future global growth amid a rising interest rate environment colliding with a slowdown in activity.

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