TELUS International (Cda) Inc.
(TIXT-N, TIXT-T) US$19.60 | C$26.78
Q1/23 First Take: In-line Results, Despite Macro Challenges
Event
TELUS International released Q1/23 results. Conference Call: 10:30 a.m. ET; Registration link. Impact: SLIGHTLY POSITIVE
Results in-line against tough macro. Revenue of $686mm was up 15% y/y, or 16% in cc, helped by the WillowTree (WT) acquisition. Revenue was in-line with consensus estimates. Ex-WT, the company grew 5% y/y, or 7% y/y in cc. EBITDA of $155mm was also in-line with consensus. EBITDA margin contracted to 22.6%, down from 23.7% y/y, and 24.9% q/q due to changes in revenue mix across industry verticals and geographies, increases in higher salaries and benefits costs, and higher service delivery costs in Europe. The guidance suggests that margins will improve. EPS of $0.28 was above expectations of $0.24 (TD)/ $0.25 (consensus). We believe delivering an in-line quarter and reiterating full-year guidance in this challenging macro environment will be viewed positively by the Street.
The company added 3,610 employees in the quarter to end it with 76,752 employees. The addition of WT contributed an estimated 1/3 of the headcount additions.
Integrating WT. The focus for TI remains on integrating WT, which includes cross- selling across the organizations and deleveraging the balance sheet. The company continued to grow headcount as new initiatives continued despite a tough macro, and the company reported continued additions of new clients.
F2023 guidance left unchanged. Revenue guidance remains unchanged at $2,970mm-$3,030mm, implying 21.6% y/y growth at the midpoint. EBITDA guidance also remains at $705mm-$725mm, which implies margins of 23.8%, implying margin improvement as WT gets integrated and from operating leverage. Given the 22.6% margin this quarter, we infer that the company expects margin expansion throughout the year attributable to the integration of WT. TI's margin was 24.9% last quarter, which did not include WT.
Net debt/EBITDA ratio of 2.8x, down from 2.9x q/q. This is in-line with the company's targeted 2-3x leverage. FCF was $65mm, compared to $104mm y/y due to a one-time increase in cash outflows from WT acquisition costs. Ex-WT, FCF was $101mm, down 3% y/y. Alongside the integration of WT, the company is prioritizing debt repayment.