TELUS International(TIXT) - 2022 Q1 - Quarterly Report

Condensed Interim Consolidated Financial Statements (Q1 2022) Statements of Income and Other Comprehensive Income (Loss) Q1 2022 revenue increased to $599 million, with net income surging to $34 million, significantly boosting basic and diluted earnings per share Consolidated Statements of Income (Three months ended March 31, US$ millions) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $599 | $505 | | Operating Expenses | $533 | $470 | | Operating Income | $66 | $35 | | Income Before Income Taxes | $57 | $18 | | Net Income | $34 | $3 | | Comprehensive Income (Loss) | $22 | $(9) | | Basic Earnings Per Share | $0.13 | $0.01 | | Diluted Earnings Per Share | $0.13 | $0.01 | Statements of Financial Position Total assets slightly decreased to $3.618 billion as of March 31, 2022, while total liabilities reduced to $1.927 billion, increasing owners' equity to $1.691 billion Consolidated Statements of Financial Position (As at, US$ millions) | Indicator | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $690 | $627 | | Cash and cash equivalents | $161 | $115 | | Total Non-current Assets | $2,928 | $2,999 | | Goodwill | $1,364 | $1,380 | | Intangible assets, net | $1,117 | $1,158 | | Total Assets | $3,618 | $3,626 | | Total Current Liabilities | $827 | $807 | | Total Non-current Liabilities | $1,100 | $1,164 | | Total Liabilities | $1,927 | $1,971 | | Owners' Equity | $1,691 | $1,655 | | Total Liabilities and Owners' Equity | $3,618 | $3,626 | Statements of Changes in Owners' Equity Owners' equity increased to $1.691 billion by March 31, 2022, driven by net income and share-based compensation, partially offset by other comprehensive loss - Net income contributed +$34 million to owners' equity[7] - Other comprehensive loss resulted in a -$12 million impact on owners' equity[7] - Share-based compensation added +$14 million to owners' equity[7] Changes in Owners' Equity (US$ millions) | Description | Amount | | :--- | :--- | | Balance as at January 1, 2022 | $1,655 | | Net income | $34 | | Other comprehensive loss | $(12) | | Share-based compensation | $14 | | Balance as at March 31, 2022 | $1,691 | Statements of Cash Flows Q1 2022 saw strong operating cash flow of $124 million, leading to a net increase in cash of $46 million and ending cash balance of $161 million Consolidated Statements of Cash Flows (Three months ended March 31, US$ millions) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Cash provided by operating activities | $124 | $36 | | Cash used in investing activities | $(21) | $(14) | | Cash used in financing activities | $(55) | $(54) | | Effect of exchange rate changes | $(2) | $(4) | | Increase (decrease) in cash | $46 | $(36) | | Cash and cash equivalents, beginning of period | $115 | $153 | | Cash and cash equivalents, end of period | $161 | $117 | Notes to Condensed Interim Consolidated Financial Statements General Information and Accounting Policies Q1 2022 unaudited financial statements are prepared under IFRS (IAS 34), noting the company's seasonal business and immaterial impact from upcoming accounting changes Note 1: Condensed interim consolidated financial statements - TELUS International is a digital customer experience innovator, including AI and content moderation, and is a subsidiary of TELUS Corporation[13] - The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB, specifically complying with IAS 34, Interim Financial Reporting[18] - The company's business is seasonal, with revenues typically higher in the third and fourth quarters[17] Capital Structure and Financial Policies The company aims to maintain a flexible capital structure, optimizing cost and availability through monitoring owners' equity, debt, cash, and adhering to credit facility covenants Note 2: Capital structure financial policies - Managed capital includes owners' equity (excluding AOCI), long-term debt (net of hedging instruments), and cash and cash equivalents[24] - Capital structure management may involve issuing new shares or debt, or using operating cash flows to reduce existing debt[25] Consolidated Results of Operations Revenue grew to $599 million, led by Tech and Games, with interest expense decreasing and an effective tax rate of 40.4%, contributing to diluted EPS of $0.13 Note 3: Revenue Revenue by Industry Vertical (Three months ended March 31, in millions) | Vertical | 2022 | 2021 | | :--- | :--- | :--- | | Tech and Games | $280 | $224 | | Communications and Media | $139 | $129 | | eCommerce and FinTech | $77 | $55 | | Banking, Financial Services and Insurance | $35 | $21 | | Travel and Hospitality | $17 | $14 | | Other | $51 | $62 | | Total | $599 | $505 | Revenue by Geographic Region (Three months ended March 31, in millions) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Europe | $234 | $210 | | North America | $140 | $115 | | Asia-Pacific | $141 | $104 | | Central America | $84 | $76 | | Total | $599 | $505 | Note 4: Share-based compensation - As of March 31, 2022, 2,343,529 restricted share units (RSUs and PSUs) were outstanding, with 789,710 new units granted in Q1 2022[27][28] - As of March 31, 2022, 3,028,634 share option awards were outstanding, with a weighted average exercise price of $10.94[33] Note 5: Interest expense Interest Expense Breakdown (Three months ended March 31, in millions) | Component | 2022 | 2021 | | :--- | :--- | :--- | | Interest on long-term debt, excluding lease liabilities | $5 | $9 | | Interest on lease liabilities | $3 | $4 | | Amortization of financing fees and other | $1 | $1 | | Total | $9 | $14 | Note 6: Income taxes - Income tax expense for Q1 2022 was $23 million, resulting in an effective tax rate of 40.4%, compared to $15 million and 81.8% in Q1 2021[36] Note 7: Earnings per share Earnings Per Share Calculation (Three months ended March 31, in millions, except per share data) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Net income for the period | $34 | $3 | | Weighted average number of basic shares | 266 | 257 | | Basic earnings per share | $0.13 | $0.01 | | Weighted average number of diluted shares | 269 | 259 | | Diluted earnings per share | $0.13 | $0.01 | Consolidated Financial Position Key balance sheet accounts include accounts receivable at $424 million, derivative usage for risk hedging, and total long-term debt of $1.097 billion, with compliance to all debt covenants Note 8: Accounts receivable Accounts Receivable Breakdown (US$ millions) | Component | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Accounts receivable – billed | $192 | $213 | | Accounts receivable – unbilled | $193 | $175 | | Other receivables | $40 | $28 | | Allowance for doubtful accounts | $(1) | $(2) | | Total | $424 | $414 | Note 9: Financial instruments - The company uses derivative financial instruments, measured at fair value using Level 2 inputs, to manage exposure to currency risks (Indian rupee, Philippine peso, Euro) and interest rate risks on its credit facility[45][46] Note 10: Property, plant and equipment - The net book value of property, plant, and equipment was $397 million as of March 31, 2022, a decrease from $405 million at December 31, 2021[50] Note 11: Intangible assets and goodwill Intangible Assets and Goodwill (Net Book Value, US$ millions) | Asset | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Customer relationships | $975 | $1,009 | | Crowdsource assets | $101 | $105 | | Software | $26 | $26 | | Brand and other | $15 | $18 | | Total intangible assets | $1,117 | $1,158 | | Goodwill | $1,364 | $1,380 | Note 12: Long-term debt Long-Term Debt (US$ millions) | Component | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Credit facility | $901 | $941 | | Lease liabilities | $204 | $215 | | Deferred debt transaction costs | $(8) | $(8) | | Total Long-term debt | $1,097 | $1,148 | - The credit facility had an effective interest rate of 2.16% as of March 31, 2022, with the company in compliance with all financial covenants, including a Net Debt to EBITDA ratio not exceeding 4.50:1.00[53][55][56] Note 13: Share capital - As of March 31, 2022, issued share capital comprised 200 million Multiple Voting Shares and 66 million Subordinate Voting Shares[58] Contingent Liabilities The company faces potential contingent liabilities from indemnification obligations and legal claims, with no liability recorded as outcomes are uncertain and not reasonably estimable Note 14: Contingent liabilities - The company provides indemnification in certain transactions, with no significant historical payments or recorded liability as of March 31, 2022[59] - The company is party to various legal proceedings and claims, but their ultimate outcome remains inherently uncertain[60] Other Disclosures Significant customer concentration is noted, with three clients each exceeding 10% of revenue, alongside details of related party transactions with TELUS Corporation and other financial breakdowns Note 15: Related party transactions - TELUS Corporation, the ultimate parent, is a significant client, generating $93 million in revenue for TELUS International in Q1 2022[61][63] - Key management personnel were attributed $6 million in share-based compensation expense for Q1 2022[68] Note 16: Additional financial information - The company has significant customer concentration, with its top three clients in Q1 2022 being a leading social media company (17.5% of revenue), TELUS Corporation (15.6%), and Google (11.3%)[69] Changes in Liabilities from Financing Activities (Q1 2022, US$ millions) | Liability | Beginning Balance | Repayments | Non-cash & FX | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Credit facility | $941 | $(40) | $0 | $901 | | Lease liabilities | $215 | $(16) | $5 | $204 | | Total | $1,148 | $(56) | $5 | $1,097 |