TELUS International (Cda) Inc. (TIXT) Q2 2021 Earnings Call Transcript

TELUS International (Cda) Inc. (TIXT -1.51%)
Q2 2021 Earnings Call
Jul 30, 2021, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the TELUS International second quarter of 2021 investor call. My name is Jonathan, and I will be your conference facilitator today. [Operator instructions] I will now turn the call over to your host, Jason Mayr, senior director, investor relations, and treasurer at TELUS International. Mr.

Mayr, you may begin the call.

Jason Mayr -- Senior Director, Investor Relations, and Treasurer

Thank you, Jonathan. Good morning, everyone. Thank you for joining us today for TELUS International's Q2 2021 investor call. Joining us today are Jeff Puritt, president and CEO; and Vanessa Kanu, our chief financial officer.

We will begin the call with some prepared remarks, where Jeff will provide an operational and strategic overview of the quarter; followed by Vanessa, who will provide some key financial highlights. We will then open the line to questions from prequalified analysts before turning the call back to Jeff for his closing remarks. Before I turn the call over to Jeff, I would like to direct your attention to Slide 2 of the supplementary presentation available for download on this webcast and also available on our website at telusinternational.com/investors. The statements made during this call may be forward-looking in nature, including all comments reflecting expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods.

These forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from our current projections. We assume no obligation to update any forward-looking statements. Jeff and Vanessa will also discuss certain non-GAAP measures that the management team consider to be useful in assessing our company's underlying business performance. An explanation of these non-GAAP measures and a reconciliation to the comparable GAAP measures can be found in the appendices of today's supplementary presentation, along with the earnings news release and MD&A available on SEDAR and on EDGAR with the SEC.

I would also like to remind everyone that all financial measures we are referencing on this call and in our disclosure are in U.S. dollars, unless specified otherwise, and relate only to TELUS International results and measures. With that, I'll now pass the call over to our President and CEO Jeff Puritt.

Jeff Puritt -- President and Chief Executive Officer

Thank you, Jason. Good morning, everyone, and thank you all for joining us today. In the second quarter, TELUS International delivered a 36% year-over-year increase in revenue and a 56% year-over-year increase in adjusted EBITDA, both of which were driven by strong organic growth, as well as contributions from our acquisitions. These exceptional results continued to underscore the successful execution of our strategy to cultivate highly accretive business opportunities and our unrelenting focus on pursuing higher-value digital engagements.

Importantly, they also reflect the deep cuts that our clients place in their partnership with us. Equally impressive is the environment in which these results were achieved. Unlike many of our industry peers that struggled a year ago, having to recover from impacts to their businesses stemming from the pandemic, our company's financial results are building from a position of relative strength, resilience and consistent execution last year, making our growth this year all the more impressive. Our sales team, led by our Chief Commercial Officer Maria Pardee, helped to drive exciting new wins for TELUS International in Q2, successfully converting on opportunities with the world's largest technology company by revenue, the world's largest e-commerce company, the world's fastest-growing social media platform and one of the world's largest banks, just to name a few.

These are meaningful multiyear deals, reflective of the accelerating sales traction we're seeing in the market for TELUS International. Indeed, the second quarter concluded a remarkable first half of 2021 for TI, and it's on the strength of our Q2 results that we're raising our outlook for year-end 2021, as Vanessa will share in more detail later in the call. In a repeat of last quarter, our Tech & Games vertical represented the highest year-over-year percentage growth among our targeted industries. This growth was primarily driven by increased demand from our digital-native and tech disruptor clients that recognize the value of our differentiated end-to-end capabilities, including our premium content moderation services and AI data solutions.

For example, one of our multinational tech giant clients partnered with us to train, test and scale their voice-controlled virtual assistance. With over 150 million global active users per month, this virtual assistant can schedule appointments among many other useful tasks and due, in part, to our efforts, it can now understand and perform tasks in more than a dozen new languages. We started with data annotation, including pronunciation checks and validation, to teach the advanced speech recognition system. This entailed collecting massive amounts of data by generating thousands of sentence variations, which were then recorded by native speakers before being loaded into the client's AI system.

We also use a voice grammar Extensible Markup Language, or XML, that contains a set of rules developed by our computational linguists to ensure the AI algorithm properly identify the inputs. This was an extremely complex undertaking requiring significant expertise and our specialized technology capabilities. It was also a very successful project, and we continue to collaborate with this client to evolve their virtual assistance, along with other projects across our broader portfolio of end-to-end client digital services. In another tangible example, our digital solutions team is working with one of the world's largest providers of agriculture products and services.

This client has grown rapidly through acquisition, and as a result, was using an inefficient mix of resources, providing employee experience support on an aging platform with limited quality assurance and data analytics capabilities that left many blind spots across their organization. TELUS International was hired to enable a new end-to-end employee experience, including a cloud-based platform which modernized interactions with an entire suite of digital solutions. We created a comprehensive set of digital value-add outcomes that include seamless omnichannel integration with real-time transcription, including sentiment analysis, automated workflows enabled through integration with the client's ServiceNow instance and dynamic digital analytics dashboards that provides an automated early warning system for technology problems in the client's environment. This integrated data-first solution enables deep analysis of all our clients' data to identify areas where they can reduce support effort through robotic process automation and build and deploy chat bots and chat automation to answer frequently asked questions and to enable self-service.

Another example of our technology in action is work we performed to help an enterprise customer to develop an AI system that would automatically recognize receipts and invoices from over 20 countries and have them converted into text for further processing in an extremely rapid and efficient manner. We completed the collection and annotation of thousands of receipts and invoices from different companies globally to train the client's AI system. This kind of application can be scaled and used by any business for expense management or company invoicing or anything that requires paper documents or inputs to be automatically translated into digital form for processing by an AI engine. And speaking of bots, yet another engagement is our support of a leading IT company based in Asia in the development of their AI emotion analysis algorithm to help their bots recognize emotion to sound more human during interactions with customers.

While recognizing emotions when we converse may seem relatively simple to you and me, it poses considerable challenges for machine learning models. To help our client's AI engine that powers the bot's ability to understand emotions, our team collected and labeled thousands of written question-and-answer sets for emotional intent that was then used to train the client's bots. What's even more exciting is this client already has plans to develop future bot iterations that will use voice and facial recognition technology to identify customers' emotions. And with our enhanced image and video annotation capabilities as part of our computer vision tool set added to our acquisition appointment earlier this month, we are well-positioned to win even more business from this client.

Playment's capabilities also include a proprietary data annotation platform that specializes in 2D and 3D image, video and LIDAR, a remote sensing method that uses laser pulses to measure variable distances, which are in high demand, to power, evolve and disrupt the world around us in areas such as healthcare and agriculture applications, as well as in the creation of smarter consumer products and services. One particular payment client that is very well known in the autonomous vehicle space in euro is currently leveraging our computer vision capabilities in its vehicles using robotics, think pizza or grocery delivery. This application requires an AI system to be able to recognize street signs, traffic patterns, driving rules. And the system must also learn to use judgment to avoid risks with people, dogs and other objects on the street.

Where our million strong AI community and solutions come in is with labeling vast amount of image and video data captured from cameras and sensors in order to train the AI system to achieve effective self-driving and delivery capabilities. And while the autonomous vehicle market is still developing, computer vision technology also has applications in more traditional industries such as farming and mining. Workers' safety continues to be a top priority in these types of businesses, and our AI data solutions have significantly improved their performance. For one of our clients, by creating training data sets of images of safety goggles, harnesses, vests and other equipment worn properly and improperly, cameras located deep inside mines can then be fed into an algorithm that can identify when workers are not following regulations in order to alert leaders in real time to avoid potentially dangerous situations, reduce injuries and minimize costly disruptions in -- excuse me, delays.

Playment, with its numerous adjacencies to our existing data annotation capabilities added through our acquisition of Lionbridge AI, was a natural complement to our ongoing integration of the latter, which has progressed well over the past seven months. We recently rebranded this division of our business to TELUS International AI Data Solutions. And today, we operate one of the largest data annotation platforms of its kind globally and are fully prepared to meet the exponential increase in demand for the high-quality diverse data sets needed to power today's and tomorrow's AI-driven solutions. With data collection and labeling typically representing approximately 80% of the work on any given AI project, we are indisputably well-positioned on the AI and machine learning value chain.

Finally, another adjacency, an opportunity where we've leveraged our AI data annotation capabilities is to further enhance our market-leading content moderation services, an area that is experiencing tremendous growth with the explosion of user-generated content that is increasingly attracting regulatory attention to keep our online world safe and trustworthy. One very topical example is the work we perform for a leading social media giant to monitor the integrity of their user-generated data. For example, currently in the news is the topic of fake data around the effectiveness of COVID-19 vaccines and other health-related topics. Our team of annotators evaluates and rates news and information for relevance, accuracy and integrity to ensure that users are not provided with false or misleading information.

Our team is playing a critical role in helping to make the Internet a safer place. And while content moderation has traditionally been a market more heavily skewed to tech hyperscalers, we're also seeing an increased appetite among clients in the enterprise and mid-market segments that have growing digital communications platforms to optimize, manage and monitor. One clear application is in online advertising with AI solutions helping to optimize results and improve the effectiveness of advertising campaigns. Our annotators provide the critical data that enables companies to place ads in the most relevant positioning for users in different countries, languages and cultures.

I hope these examples I shared helped shed more light on not only what we do today but also set the stage for the innumerable opportunities ahead of us in terms of how we're able to partner with our clients to achieve game-changing, industry-disrupting and market-leading brand experiences using AI-powered services and solutions, whose only limits will be our own imagination. Another feature of our success that I'm very pleased to share is that our accomplishments and unique approach to the industry is growing in recognition. In the second quarter, we were awarded the AI Breakthrough Award in the Best informational Bot Solution category for the development of our intelligent Agent Assist chatbot. And more recently, our company was named a leader on Everest Group's Customer Experience Management Services PEAK Matrix for the third consecutive year, ranking in the top three for our strategic vision and capabilities among the nearly 40 companies that were included in the evaluation.

We're also among the top 10 on the 2021 Everest Group BPS Top 50 List, a global ranking of the 50 largest third-party providers based on their revenues and year-over-year growth. This year, TELUS International was the top riser on the list, climbing an impressive 18 positions. And we were also ranked No. 1 by percentage of revenue growth.

Our caring culture and commitment to ensuring each and every one of our more than 56,000 team members is able to bring their whole selves to work was also recognized, with TELUS International named one of Mogul's Top 100 Workplaces With The Best Diversity and Inclusion Initiatives for 2021. This list acknowledges the efforts of companies around the world that have implemented practices, invested in resources and developed strategies to create more inclusive and diverse workplaces. Although I personally have a great pleasure of seeing the excellence displayed by our team day in and day out, whether they're building beehives in cork, celebrating Pride Month with a drag contest in the Philippines, leading virtual roundtables on gender equality or receiving accolades from our clients around the world for going above and beyond for their customers, these awards and distinctions are a fitting reflection of our team members' passion, ingenuity and dedication in everything they do. And I am extremely proud of all their collective achievements.

Just before I hand off to Vanessa to take us through our second-quarter financial results in more detail, I wanted to share a quick update on our team. As some other companies have highlighted in comments recently, there was an increasing and competitive demand for talent in Q2. While we remain vigilant in assessing any emerging trends in our key labor markets around the globe, TI continues to be a destination for talent. Notably, while, as expected, our attrition is higher than this time last year at the height of the pandemic, we have not seen any significant elevation in our attrition from 2019 pre-pandemic levels.

Sequentially, our attrition in Q2 was consistent with Q1 with a nominal decrease of 10 basis points. And for the quarter, the TELUS International family total team member count grew by 4,784. As at the end of June, about 80% of our global frontline team members continued to work safely from home as we continue to take a science-based methodical approach to safely bringing team members back to the office. We continue to closely track vaccine availability and rollouts in each of the regions where we operate.

In countries where we're permitted to do so, we're also working with local governments to supplement their efforts by engaging accredited healthcare providers to help vaccinate our team members, as well as family members. With that, let me now pass the call to our Chief Financial Officer Vanessa Kanu, and I'll be back for the Q&A. Vanessa, over to you.

Vanessa Kanu -- Chief Financial Officer

Thank you, Jeff, and good morning, everyone. Thank you for joining us today. In my overview, I will review our summarized results for the quarter. And as Jason mentioned at the start of the call, some of these items are non-GAAP measures.

You can view a more detailed -- our more detailed three- and six-month financial results, including a reconciliation of our GAAP to non-GAAP measures, in the financial statements and MD&A filed earlier this morning. As Jeff mentioned, Q2 was a great quarter with solid revenue and earnings performance. Revenue increased 36% year over year, and we saw growth across all of our geographic regions and industry verticals. Adjusted EBITDA increased 56% year over year, and adjusted diluted earnings per share doubled year over year, reflecting revenue scale, increased mix of higher-value and higher-margin services and our continued focus on internal efficiencies.

Free cash flow was also strong in the quarter, up 109% year over year. Now let me get into the details. Revenues for the quarter were $533 million, up 36%, driven by continued organic growth and contributions from acquisitions. For the second quarter in a row this year, our organic growth was 20%, achieved through the expansion of business with existing clients and new logo wins and primarily on strong demand for our trust and safety and broader digital CX solution.

Our total revenue growth also included FX tailwind of approximately 5% compared to the same period in the prior year. To put these results into perspective, I will echo what Jeff mentioned earlier. The second-quarter growth is even more impressive when compared to the strong, consistent execution from the same quarter a year ago when TELUS International showed resilience in operating and financial performance when the pandemic struck the globe. In Q2 of last year, TELUS International grew revenue, both inorganically and organically.

One year later today, our growth builds from a very strong and solid compare. In terms of our revenue by geography, we delivered year-over-year growth in every single one of our regions with very strong growth in Europe, again, thanks to high demand for our trust and safety services; as well as strong continued growth in North America and Asia Pacific, driven by the client demand I mentioned a moment ago. From an industry verticals perspective, we saw growth across all key verticals in the second quarter. Tech & Games was our fastest-growth vertical, up 59% year over year, with almost 70% of this growth attributed to our Lionbridge AI acquisition or what we've now rebranded as TELUS International AI Data Solutions.

The balance of the growth in Tech & Games was organic driven by growth in demand from our digital-native and technology disruption clients. We also saw a meaningful acceleration in revenue from clients in our eCommerce & Fintech vertical, with that vertical achieving revenue growth of 49% year over year. Finally, our Communications & Media vertical grew 11% year over year, while all other industry verticals grew 23% year over year. Across all of our verticals, we are benefiting from the depth and breadth of our diverse service offerings as we meet our clients' increasing demand.

Moving on to operating expenses. Salaries and benefits expense was $299 million, up 28% as a result of the growth and expansion of our business and related growth in team member counts. Our goods and services purchased were $103 million in the quarter, an increase of 39%, largely due to our acquisitions, in particular our AI data solutions, crowdsourced contractors for which the contracted labor costs are recognized in goods and services. We continue to see scale efficiencies in our operating expenses as growth in revenues outpaced the growth in opex, demonstrating the long-term operating leverage inherent in our business model.

Moving down to other notable items on the P&L. Share-based compensation expense in the second quarter was $19 million, an increase of $9 million year over year. The increase was primarily driven by mark-to-market adjustments on historical cash-settled awards due to the increase in our share price. As a reminder, new awards granted under our 2021 long-term incentive plan are now equity-settled, generally vesting annually over a four-year period.

Income tax expense in the quarter was $13 million, up $3 million from the same quarter last year. Our effective tax rate increased from 18.9% to 44.8%, primarily due to an increase in nondeductible items, higher withholding and other taxes and a reduction to the prior year's effective tax rate due to adjustments recognized in that period for income tax of prior periods. A reminder that our effective tax rate, which is income tax expense as a percentage of accounting net income before tax, can vary due to various factors, including, but not limited to, the jurisdiction mix of our earnings in any given period and the tax deductibility of certain expenditure items. Moving on to our profitability performance.

We delivered adjusted EBITDA of $131 million for the quarter, posting strong year-over-year growth of 56%. Our adjusted EBITDA margin was 24.6%, up from 21.5% margin in the year-ago period. Adjusted net income for the quarter was $63 million, up 142%. On a per-share basis, it's translated into adjusted diluted earnings per share for the quarter of $0.24, up 100% year over year.

Driving this increase in profitability was the impressive high-quality revenue growth we have achieved so far this year. We benefited from our ongoing focus on digital service offerings and pursuing high-value engagement, driving an accretive client mix while continuing to improve efficiency in our operations. Moving on to the balance sheet. Cash and cash equivalents were $119 million as at June 30, 2021.

Our total available liquidity grew to approximately $815 million as at the quarter end, compared to $285 million at year-end. This includes available borrowings under our revolving credit facility of $696 million. With our available liquidity, we have created meaningful capacity for potential strategic acquisitions, leveraging our successful M&A playbook for the right opportunities to advance our growth objectives. Following the sizable repayments of debt last quarter, we continue to lower our debt levels with the repayment of $55 million from cash generated from operations in Q2.

This lowered our net debt to adjusted EBITDA leverage ratio, as defined for our credit agreement, to 2.3x as of June 30, a 40-basis-point improvement from 2.7x at the end of March. As we have said previously, we view the two to 3x range as a good steady-state amount of leverage as we have significant flexibility to go beyond this range for the right type of strategic acquisition. In the second quarter, our free cash flow was $71 million, up 109% from the same quarter last year with cash generated by operations increasing 92%, driven by strong earnings growth and our relatively modest capital expenditure profile. Now turning to our team member count.

As of June 30, 2021, we are a strong team of 56,171, an increase of 18% year over year. We mentioned during our last quarter's earnings call that we plan to ramp up hiring during Q2 to meet our clients' strong demand. Adding a net 4,784 team members in the quarter organically was a record for TI and especially notable in a widely acknowledged challenging labor market, as we heard Jeff mention earlier. Our differentiated caring culture once again provided us with a competitive edge in achieving this record level of hiring.

In addition, with our revenue growth continuing to outpace our team member growth, we are driving continued improvement in our revenue per team member profile. Now on to our outlook. Our solid results in Q2, driven by ongoing strong business momentum, has positioned us to exceed our prior guidance which we are now raising to reflect our current outlook. As mentioned during our last earnings call -- I mentioned during our last earnings call that we expect our cost base to increase in Q3 due to planned annual merit increases, which started in June, but the majority of which will be completed in July.

This is already factored into our guidance figures. For the full-year 2021, we now expect revenues in the range of $2.17 billion to $2.21 billion, up from $2.15 billion to $2.19 billion, reflecting growth in the range of 37% to 40% over last year. We now expect adjusted EBITDA in the range of $530 million to $540 million, compared with the previous range of $523 million to $533 million. This reflects growth of 36% to 38% over last year.

We now expect to deliver adjusted diluted earnings per share in the range of $0.92 to $0.97, an increase from $0.90 to $0.95 previously guided and reflects growth of 30% to 37% over last year. In summary, we are extremely pleased with our Q2 performance, are highly encouraged by the continuing momentum across our business and remain confident in our outlook for 2021. With that, we will now open the line for questions. [Operator instructions] Jonathan, over to you.

Questions & Answers:

Operator

Thank you, Ms. Kanu. [Operator instructions] Our first question comes from the line of Ramsey El-Assal from Barclays. Your question, please.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Hi, guys. Thanks for taking my question. I really appreciate it. Can you parse out the drivers of the guidance raise, sort of how much from Q2 outperformance versus the Playment acquisition? And also then just sort of tacked on to that, what is your expectation for organic growth for the rest of the year? It seems like we could see some acceleration given easier comps in the back half, but I wanted to check in about it.

Vanessa Kanu -- Chief Financial Officer

Hi, Ramsey, it's Vanessa here. Thanks for the question. So we raised guidance for the full-year 2021 on the base of our -- just on the strength of our performance in Q2 and the momentum that we're seeing in the business. As I said earlier, we're seeing particular strength in trust and safety, seeing particular strength in digital CX offering.

And it's really on the back of that that we are raising our guidance today, mindful of the fact that there are puts and takes. So the euro, for example, we're assuming in our guidance today's rate, and that was -- today's rates are lower than they were when we issued our May guidance. So we've got some takes there from an FX perspective, but we've got some puts there in terms of increasing momentum in our business. But overall, it's that momentum that's driving the increase in our guidance.

As for Playment, as we said in the MD&A, it's not overly material from a financial point of view. That acquisition is a great extension of our technical capabilities, as you heard Jeff talk about in his prepared remarks. So Playment really has very little to do with our guidance rates today, and it really is coming from, again, puts and takes being very strong momentum with a little bit of an offset from the euro coming down now versus our May guidance.

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Got it. OK. Great. Thanks.

Operator

Thank you. Our next question comes from the line of Tien-Tsin Huang from J.P. Morgan. Your question, please.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Thank you. Good morning. Good results. The -- on the new wins, you've named or you listed a lot of interesting, sounds like, large wins.

Any way to give us some sense of order of magnitude this quarter's bookings in relation to what you've seen in the past, opportunity for some of these to be some important strategic accounts, that kind of color? Thank you.

Jeff Puritt -- President and Chief Executive Officer

Thanks for the questions, Tien-Tsin. Nice to hear your voice again. 

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Likewise. 

Jeff Puritt -- President and Chief Executive Officer

I think I'm going to be struggling with sort of the constraints on disclosure for a little while longer, but I hope you'll continue to bear with me in the months and quarters ahead, looking forward to being able to provide even more detail. I think it's fair to say that the four major wins I referenced in my remarks, in particular, are absolute potential game changers for us. These are, as I said, multiyear, very significant total contract value wins with some significant players in our targeted industry verticals. And in the fullness of time, hopefully, we'll be able to provide a lot more color.

And indeed, I think it's not dissimilar from some of our other larger strategic accounts. We're looking forward to penetrating and radiating across the entirety of that platform and enabling their own digital transformations with the full suite of capabilities that we have at TI. Generally speaking, again, as I said, I think Q2 saw some really improved momentum and take-up directly correlated to we continuing to invest meaningfully in our sales capability, in our marketing capability. And it's nice to see our business being rewarded with more take-up and an accelerated pace of successful commercial activity as a result.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Glad to hear it. Thanks.

Jeff Puritt -- President and Chief Executive Officer

Thanks so much.

Operator

Thank you. Our next question comes from the line of Maggie Nolan from William and Blair. Your question, please.

Ted Starck-King -- William Blair & Company-- Analyst

Hey, this is Ted on for Maggie. Thanks for taking our questions. Jeff, you mentioned a tight labor market. Can you maybe talk about what you're seeing in terms of wage inflation? And how does the crowdsourcing model within the data annotation services maybe protect you against kind of the tight labor market?

Jeff Puritt -- President and Chief Executive Officer

So I think it's fair to say that we are not alone in experiencing wage inflation as a consequence of the increased demand out there for talent that is capable of participating in the digital economy. And I think, again, it's not news to any of you that there is continuing dynamic arising off the back of pandemic quarantine restrictions being lifted. People are reevaluating whether or not the job they had before is the job they want going forward, whether or not the work styles is something that they want to return to a traditional office environment and whether or not there's an opportunity to continue to stay at all. So in totality, I think that's what's sort of driving some of the pressure and wage inflation that we're seeing.

Thus far, as I said, we're finding it manageable, and we actually saw a decrease of 10 basis points quarter over quarter in our attrition levels. We don't yet really have an interoperability, if you will, between our full-time team members and our crowdsourced workers, but that is absolutely one of my ambitions in terms of evolving our business model. We think there's folks that have participated historically in the gig economy. We didn't so -- not only out of choice, although many do so, given their own unique personal circumstances, but sometimes out of necessity.

And where there's an opportunity to move into a more traditional full-time employment relationship, offering those members of our crowd workforce the opportunity, I think, is already bearing fruit. And then conversely, folks' personal circumstances may be such that they want to perhaps take a bit of a step back from full-time employment into a more temporary environment. So the interoperability of that million-plus crowd community, plus our now north of 56,000 full-time team members, gives us absolutely another arrow in the quiver to try and mitigate some of these labor challenges. But I think it's still admittedly early days in our model for that and hoping in the fullness of time to continue to see more leverage as a consequence of that optionality.

Ted Starck-King -- William Blair & Company-- Analyst

Makes sense. Thank you.

Operator

Thank you. Our next question comes from the line of Matt Cabral from Credit Suisse. Your question, please.

Matt Cabral -- Credit Suisse -- Analyst

Yeah. Thank you. Good morning, everyone. Jeff, you talked about this a little bit in your prepared remarks but wondering if you could just expand a little bit more on the integration of Lionbridge AI or I guess, the TIAI as you guys are calling it now.

And now that you guys are about six months in, just talk about how it's performing relative to your initial expectations. And then more broadly, I know you guys bought Playment but sounded like a little bit more of just a technical expertise type of acquisition. Just curious how we should think about M&A and the cadence of that going forward.

Jeff Puritt -- President and Chief Executive Officer

Thanks for the questions, Matt. Nice to hear your voice again as well. So TI AI Data Solutions, I know it's a mouthful, my apology, is progressing well in terms of the integration from former LI. As I think you may have heard me say before, I have this perpetual dissatisfaction with the status quo.

I think we can always go faster and do better, and this part of the business is no exception. But admittedly, I think we're doing reasonably well. The alignment of the former LI team in its totality into the TI family has progressed very, very well and applying the same matrix reporting structure so that we sort of have operations aligned with the rest of our delivery capability and enabling units, finance, HR, IT appropriately integrated so that we could be managing the business as part of our overall offering is working well. We've already successfully, as I alluded to last quarter made even more progress here, successfully cross-sold combined TI AI Data Solutions annotation services in conjunction with content moderation services to existing TI clients to net new customers.

So again, I think, we have an unambiguous validation that the acquisition and integration thesis was an appropriate one. You're right. Playment is really sort of an accelerant and augmentation of our annotation capability. It's really a tool set that, in the hands of our annotation community, enables them to be up to five times more productive by essentially powering them with technology that allows them to more quickly identify image and video content using 2D and 3D activity.

So think in the old world, early days for baby boomers like me, a macro that you might use in connection with an application where, instead of hitting 10 key strokes to achieve an outcome, you can hit one, and it's already automatically preprogrammed the next nine steps in that outcome. So we see the Playment acquisition as, again, potentially a sign of things to come as we continue to look for areas where technology in our highly talented team members' hands makes them that much more productive, efficient and accurate. And then in terms of extending our M&A reach, I think you should expect us to continue to be on the lookout for other areas of opportunity, both tuck-in and perhaps more substantial, that will continue to help us achieve our growth ambitions and realize our strategy; extend our reach, whether it's geographically; access deeper, broader talent pools; access and be closer to existing and new customers; and equally importantly, the adjacencies in terms of technology enablement to serve customers in the digital economy.

Matt Cabral -- Credit Suisse -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from the line of Stephanie Price from CIBC. Your question, please.

Stephanie Price -- CIBC Capital Markets -- Analyst

Good morning. Thanks for taking my questions. I was curious about the eCommerce & Fintech vertical. I wonder if you could give a bit more color there.

Obviously, it had very solid growth in the quarter.

Jeff Puritt -- President and Chief Executive Officer

So in terms of more color, I guess, I would say there's a host of enablement that we see going on here, sort of traditional, leveraging our digital IT capabilities to help them automate, to help them identify fraudulent inappropriate activity more easily, more quickly, to help them to moderate the user community of their capabilities. It's not just sort of start-up fintech businesses that we're working with. As I mentioned, the largest e-commerce platform in the world, sort of also a new and growing client of ours across a variety of parts of their business, whether it's assisting in improving client experience, technical support and trust and safety, it's actually pretty exciting to see that level of growth in a part of our business that is certainly one of our targeted verticals. But on a relative basis, not quite as big yet, just a little bit into the double digits, I think about 11% of revenue today, so excited to see more and more opportunity there.

And I think, again, it's kind of a confirmation of our strategy that these capabilities delivered in the way that we do really is resonating with that customer constituency.

Stephanie Price -- CIBC Capital Markets -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Jason Kupferberg from Bank of America. Your question, please.

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

This is Cathy on for Jason. Thanks for taking my question. Just wanted to dig in a little bit deeper on gross margins. I think I saw a little bit of a dip in adjusted gross margins quarter over quarter.

Just wanted to know what are the dynamics there. How should we think about the cadence for that in the back half of the year? And kind of tacked on with that, to what extent are the wage hikes that you mentioned before kind of being able to be passed through to the customers instead? Thank you.

Vanessa Kanu -- Chief Financial Officer

Hi, Cathy, it's Vanessa here. I think for your question, in terms of gross margins, if you look at it sequentially, Q1 versus Q2, well, I don't think we've got into the details of gross margin. On the last call, we did talk about our planned hiring ramp. And we are primarily hiring frontline direct team members who were ramping for second-half client engagement.

So as we did that ramp during Q2. That did have an impact on the Q2 gross margin. So that was very much expected from our perspective. But as you think about second half versus first half across gross margin but also within SG&A, we are going to see a normalization.

And that is primarily because of the merit adjustments that we talked about on the last call and on this call. So we do merit adjustments, wage increases across all of our different countries, a lot of that -- some of that happened in June. Most of that is actually going to happen in July. So as you look at getting to a normalized margin profile, we do think that looking at the full-year guidance is more meaningful, just because we do have this seasonality, so to speak, in terms of the cost profile, merit increases taking effect in the second half versus the first half.

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Dan Perlin from RBC Capital Markets. Your question, please.

Dan Perlin -- RBC Capital Markets -- Analyst

Thanks. And good morning. A nice quarter. The question I have is last quarter, I think you guys talked a little bit about your sales funnel.

I think you said it was up over $400 million last quarter to close to maybe $2 billion, maybe quite a bit above that. I'm just wondering if you have any kind of updated commentary that you could provide as you sit here today. Thank you.

Jeff Puritt -- President and Chief Executive Officer

Thanks, Dan. Yeah. We spent a bit of time talking about whether we want to get into the practice of updating the exact size of the funnel, quarter in and quarter out. And where we landed was, we want to just sort of provide a little bit of color here but not sure there's as much value in that level of specificity.

I will tell you that the funnel is still very robust, north of $2 billion. We converted a lot of the funnel in Q2 candidly. So the good news is not only did we convert a substantial portion of those opportunities, but we replenished those converted opportunities with new opportunities. And so in totality, I would say the funnel continues to give me a high degree of comfort and confidence in our ability to achieve our targeted performance for the year.

And now obviously, given the duration of these sales cycles traditionally, we're already looking pretty closely into first quarter, first half of next year, and there, too, continuing to feel pretty optimistic about the trajectory of the business.

Dan Perlin -- RBC Capital Markets -- Analyst

Excellent. Thank you.

Operator

Thank you. Our next question comes from the line of Keith Bachman from BMO. Your question, please.

Keith Bachman -- BMO Capital Markets -- Analyst

Hi. thank you very much. My question relates to the previous one in some measure, and I wanted to hear a little bit more about the competitive landscape, broadly speaking, win rates. And then diving down a bit more specifically into the tech and gaming areas in terms of your current differentiation and even some of the recent M&A and how you see that unfolding.

In other words, your growth rates are pretty impressive in tech and gaming and trying to understand how sustainable that is, particularly from a competitive landscape perspective. Thank you.

Jeff Puritt -- President and Chief Executive Officer

Thanks for the question, Keith. So I'm not sure we provide that much granularity in terms of win rates. I think we may have shared we're sort of mid-30s-ish. But it's an inherently subjective number, in that I think some folks measure when is an opportunity in the funnel now sort of triggering the calculation.

Is it new opportunities that are at the 40% probability waiting stage then converted to a close, and that's what you calculate as your conversion win rate? Is it 20% qualification? Is it already at 60%? So I think there's a degree of subjectivity there. Again, back to my earlier comments, I always think we can and should do better, but I think we're doing reasonably well. In terms of the competitive dynamic, again, I'm not sure I'm seeing anything particularly unique or new today different than what we've been experiencing candidly from our inception. Our clients in that sector that generally are looking, not just for value for money, but more importantly, are looking for innovation, are looking for partnership and collaboration, are looking for someone who's going to help them achieve their own ambitions, which, more often than not, are over-indexed to, in the case of games publishers, player delight.

They're not looking to throw money away. Obviously, as they said, they want value for money but more focused on attracting more players to the platform and keeping players playing longer and spending more money on the platform. In tech more broadly, these are digital native. These are tech-savvy businesses that are themselves exploiting, leveraging technology in order to differentiate themselves from their competitors and outpace the competition.

And generally, we see they looking for businesses, partners that will help them achieve those ambitions. So again, not looking to spend money like drunken sailors. They want value for money but over-indexing on, helping them to grow wallet share, grow lifetime revenue, achieve incremental subscribers to their platforms and outpace their competitors. And so long as we can continue to offer all of those elements of the digital transformation ecosystem, and I think equally, if not more importantly, today, there's this lens of people want to do business with people who want to do business with them.

So sort of this strategic partnership, buying and selling from one another and/or going to market together. And then also more and more, a recognition that you've got to be contributing positively to the world, to the economy, to helping to make people's lives better. And I think that ESG lens is becoming more pronounced as well. And I can tell you, I've participated personally in a number of reviews around RFP responses where folks are diving deep into our diversity and inclusion practices.

And what are we doing in order to actually demonstrate we're putting our money where our mouth is around recognizing, supporting and celebrating equality in the workplace? So too, a lot of debate around how we're responding to the pandemic. Are we rushing team members back into the office? Are we being thoughtful about whether we have mandated mask requirements, so on and so forth? I think it's an exciting, interesting complex time. But if your thoughtful, sensitive responses to all of these factors, I think you can continue to do well. And indeed, that's what we're experiencing so far.

Keith Bachman -- BMO Capital Markets -- Analyst

All right. Many thanks.

Operator

Thank you. Our next question comes from the line of Ashwin Shirvaikar from Citi. Your question, please.

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. Hi, Jeff. Hi, Vanessa. Good to hear from you.

The social media client has now become your largest client. You mentioned a pretty strong growth. I think it was 40%. Is that mostly related to content moderation? And if that's the case, is it sort of reflective of how you'd see sustainable near-term growth in the content moderation market overall? And maybe a broader question is if you see data annotation and content moderation offerings integrating.

Jeff Puritt -- President and Chief Executive Officer

Hey, Ashwin, thanks for the question. Nice to hear your voice as well. Hope you're keeping safe. I think it's fair to say that much of that growth is tied to content moderation.

But excitingly, there's more than just that. It also includes data annotation and related work. So do I think this growth rate is sustainable? I do, I guess, for a couple of reasons. One, unique to this particular customer, just given the size and the opportunity, I think as with many of these larger clients, we're excited about having successfully partnered with them because of how big the opportunity is and the opportunity to continue to extend and radiate across the account, sell them more of what we can do with them for them.

And the other driver here is, again, as I alluded to in my prepared remarks, this explosion of user-generated content, I don't that's going to abate anytime soon. And so when you think about the volume and velocity of content that is being produced, and it's not just text. It is now mixed content, video, image, text, and multilingual, multicountry, multi-culture, meaning the complexity and pace of evolution is really quite staggering. And so I think this client and candidly, all of us are going to continue to have real both challenge and exciting opportunity to try and keep pace with managing this proliferation of content.

And it's not just from a trust and safety perspective, again, as I mentioned earlier. It's also about trying to leverage all of this content in a way that can be monetized more effectively, like, for example, ensuring that ads are being placed in front of the right audience to improve the take-up or success rate of that placement. So really quite exciting, complex ecosystem that extends around sort of core traditional content moderation. And again, we're excited about the opportunity to work with this fantastic customer and exploit more of our growing delivery capability to support them.

Ashwin Shirvaikar -- Citi -- Analyst

That's good to hear. Thank you.

Jeff Puritt -- President and Chief Executive Officer

Thanks, Ashwin.

Operator

Thank you. Our next question comes from the line of Richard Tse from National Bank Financial. Your question, please.

Richard Tse -- National Bank Financial -- Analyst

Yes. Thank you. I'm just curious, what proportion of your overall client base today is using your data annotation services? And I guess related, are there any differences in the go-to-market strategy when it comes to the data annotation segment?

Jeff Puritt -- President and Chief Executive Officer

So we haven't yet, and I'm not sure we will disclose exactly what proportion of our customers today are using our annotation capability. But just given the relative nascency of that capability, I don't think it would be surprised to hear that it's not the majority yet. In terms of the difference in go-to-market, I mean, I think not surprisingly, data annotation is really the underpinnings of AI. And I think we're still in relatively early days in terms of AI proliferation, right? I think, obviously, the hyperscalers are way, way out in front.

As I mentioned earlier, enterprise and mid-markets starting to embrace and adopt AI-enabled solutions. But again, I think we're still at the relatively early stages of that. And so the opportunity to consume to be the beneficiary of the output of annotation capability, which is really sort of the kindling the fuel for machine learning algorithms that are employed by AI to deliver these more accurate, predictable, scaled outcomes, I think there's massive, massive upside. But I think, as I said, we're still relatively early days here but excited about what's coming down the road here.

Richard Tse -- National Bank Financial -- Analyst

OK. Thank you.

Operator

Thank you. Our next question comes from the line of Paul Steep from Scotia Capital. Your question, please.

Paul Steep -- Scotiabank-- Analyst

Great. Good morning, Jeff. Just on that last point, maybe could you talk a little bit about what you've seen from non-tech clients engaging with regards to seeing some of the test cases you're putting out there on AI and data annotation support and how that might be fueling demand? Thanks.

Jeff Puritt -- President and Chief Executive Officer

So I guess I would just harken back to the examples I referenced in my prepared remarks, Steep. I mean, at the end of the day -- I read something the other day that made me smile. It was, there aren't going to be too many industries in the very near term that won't benefit from AI, that won't potentially be transformed by AI. And it's no different to name a food group that won't taste better with bacon.

Now there's probably very few left if you're a bacon fan like I am. The ag sector client that I referenced earlier, I think, is a really good one. And it really speaks to the fact that here's arguably ages-old industry farming that is now able to leverage AI, computer vision technology, in particular, to improve food production, to improve food traceability, to really help accelerate and amplify crop yields, to support arguably one of humanity's biggest challenges in terms of food scarcity as population growth continues unabated. So forgive me, but I guess I have a difficult time circumscribing where or how we might be able to leverage this because I really do think it's ubiquitous.

Sorry, hang on one second. Sorry about that. I have construction going on outside my front door here. Forgive me.

So off-line, perhaps we can talk more about some more specific applications examples. I'm sorry, I'm not being more helpful right now, but perhaps I'm not fully appreciating the question. But suffice to say, I think there's -- It's not Tech & Games clients only. It's not eCommerce & Fintech only.

I mean look at healthcare, for example, the opportunity to embrace AI and computer vision to help with improving diagnostic activity and medical imaging. Really, it is -- the applications are really limited only by our own imagination at this point.

Paul Steep -- Scotiabank-- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Daniel Chan from TD Securities. Your question, please.

Daniel Chan -- TD Securities -- Analyst

Hi. Good morning. I wanted to dive into the content moderation side. You did mention how fake news is a tailwind for you there.

We've seen some recent developments with a new proposed bill for Section 230 in the U.S., and that's for where the protections for social media platforms from health misinformation might go away. I'm just wondering whether any of that comes up in your discussions and whether you think this is going to be an ongoing trend around most of your markets. Thanks.

Jeff Puritt -- President and Chief Executive Officer

Yeah. As you might imagine at our board, in particular, we spent a fair bit of time discussing, debating, trying to get out in front of this. I think the reality is we don't know yet for sure what the implications are, but my own bias, admittedly, is I think, irrespective of changes to Section 230 or not, I think we anticipate there is going to be a need for the services that we perform for the foreseeable future. I think the likeliest outcome is we see more oversight, higher levels of regulatory intervention in order to continue to address the scale of the impact, positive or negative, that these platforms afford.

And we've seen both the positive and negative outcomes when these platforms are unregulated. And we think that that's an opportunity for us given our expertise, experience and scale and really sort of the ability to work closely as a trusted partner advisor to the platforms that will be the subject of perhaps more regulation, as well as admittedly to discharge our opportunity and responsibility as digital-first responders and trying to keep the community at large safe. And it's not just English language. It's not just the North American environment, right? This is truly a global issue and having capabilities across multiple languages as we do and experienced familiarity with multiple regulatory regimes and to be able to do this expertly, efficiently, sustainably at scale, again, I think is going to continue to be a critically important valuable capability and resource in high demand as this regulatory regime continues to evolve.

And we've already seen how heterogeneous it is, right? It's quite different in one jurisdiction to another, and we're not anticipating standardization or harmonization globally necessarily. And even if there were to be such an outcome, which will make it easier for everybody, even then, I think we have this unique competitive advantage given our scale, advantage and existence and expertise already.

Daniel Chan -- TD Securities -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Dave Koning from Baird. Your question, please.

Dave Koning -- Robert W. Baird -- Analyst

Yeah. Hey, guys. Congrats, and thank you. And I guess my question would be, since this is really your first Q2 as a public company and we're thinking about the rest of the year, should sequentially both quarters be up about the same? And kind of weaving into that question is seasonality in Lionbridge.

Q2, I think, in my model is maybe just a touch light relative to what I thought, and that might just be seasonality, like maybe Lionbridge ramps more in Q3 and Q4. And so I guess this is just kind of a sequential question on what to expect.

Vanessa Kanu -- Chief Financial Officer

Hey, Dave, it's Vanessa here. Thanks for your question. There is, no doubt, some seasonality in our business. We typically have a stronger second half than we do a first half.

And Lionbridge, now TIAI, similarly falls within that bucket. So we certainly do expect to see sequential improvement there as we do across the entirety of our business. What I would say, though, is we don't -- we issued guidance for the full year. We don't get it down to specific quarters.

But if you take the guidance just given today, we have -- you know what the first-half actuals are. I think you can derive the second half from that number. And as we think about Q3, Q4, I think a reasonable approximation would be like a 48-52-ish split between Q3 and Q4. So I think if you were to model it that way, that will give you a sense for kind of how the seasonality profile is expected to play out.

Dave Koning -- Robert W. Baird -- Analyst

Awesome. Yeah, that's super helpful. Thank you.

Vanessa Kanu -- Chief Financial Officer

Thanks, Dave.

Operator

Thank you. Our next question comes from the line of James Faucette from Morgan Stanley. Your question, please.

James Faucette -- Morgan Stanley -- Analyst

Thanks a lot, and nice chatting with you, Jeff and Vanessa, and really good results here. Vanessa mentioned in some of her commentary increase in revenue per employer per head. Can you talk a little bit about a little more as to what's driving that? And I guess what a lot of us are curious about is, as you're looking at the kind of increasing wage levels, how much are you being able to pass through versus being able to mark up even incrementally TELUS' services? Thanks a lot.

Vanessa Kanu -- Chief Financial Officer

Thanks, James. Good to hear from you. Yes. We are, in fact, moving up the food chain, so to speak, from a revenue per team member basis.

So we're -- in the quarter, we were just under 10%, annualized at 40%, and we do expect that trend to continue. As I think that's not a trend that changes every single quarter by a meaningful degree. But certainly, as we move toward our mid- to longer-term plans, we expect that metric to continue to increase. And for us, it's back to driving that increasing mix of digital, higher-value services.

That's really what's going to drive that for us. And so I think -- and as you can see from our historical profile, our revenue growth has always outpaced our team member growth. I think you're going to continue to see this prospectively. In terms of wage increases, those are very standard within our industry.

We plan for them every single year. We're never surprised by them. We are sometimes able to pass those costs on to certain customers. But admittedly, we're not always able to pass those costs on to certain customers, which is why we have to continue being as relentlessly focused on driving efficiency in our business as we possibly can because we can't rest on our laurels and assume that we can pass on those increases in every single instance.

I will say that's not new. That's been the case for quite some time now. And certainly, that's just how we manage our business. And again, that's just why we continue to drive the internal efficiency improvement, digitization, as well as how we ourselves do things so that we can drive those cost efficiencies.

James Faucette -- Morgan Stanley -- Analyst

That's great. Thanks, Vanessa.

Vanessa Kanu -- Chief Financial Officer

Thanks, James.

Operator

Thank you. Our final question for today is a follow-up from the line of Ashwin Shirvaikar from Citi. Your question, please.

Ashwin Shirvaikar -- Citi -- Analyst

Thanks for the second question. I wanted to go back to the outlook and just ask, does the outlook increase already taken to account the new contract you signed that you spoke of? Or would you consider that they take time to ramp and primarily affect future years?

Vanessa Kanu -- Chief Financial Officer

Hey, Ashwin. Yes, our outlook increase does take into consideration the new contracts that we've signed. But admittedly, if you think about on a ramp, some of these wins -- these new wins that Jeff has referenced, when you think of a typical ramp, we've just hired the team members. You go through a period of training, and you start to then generate the revenue.

So a lot of those new wins will start to generate much more revenue into -- as we exit 2021 and more so into 2022. But absolutely, yes, they have been taken into consideration in the revised guide.

Ashwin Shirvaikar -- Citi -- Analyst

OK. Thank you.

Vanessa Kanu -- Chief Financial Officer

Thank you.

Operator

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mr. Puritt for any further remarks.

Jeff Puritt -- President and Chief Executive Officer

Thank you, Jonathan, and thank you, everyone, for your questions. In closing, technology is certainly continuing to evolve rapidly, and I am so excited about the leading role TELUS International is playing to help our clients, not only embrace this change, but to thrive from it, as well as to continue to stay ahead of their competitors. I want to reemphasize my confidence in our team's ability to achieve the updated revenue and profitability goals we've set for ourselves for full-year 2021. Indeed, the momentum we carried forward from Q1 and through the second quarter makes for an impressive first half of the year, and we look forward to continuing to execute on our growth strategy in Q3 and beyond.

In the interim coming up in August and September, Vanessa and I will be participating at several investor conferences, still in a virtual format for now, and we look forward to continuing our engaging conversations with investors and analysts. Thank you very much once again for joining us. Keep yourselves and your family safe, and have a great day. Thanks all.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Jason Mayr -- Senior Director, Investor Relations, and Treasurer

Jeff Puritt -- President and Chief Executive Officer

Vanessa Kanu -- Chief Financial Officer

Ramsey El-Assal -- Barclays Investment Bank -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Ted Starck-King -- William Blair & Company-- Analyst

Matt Cabral -- Credit Suisse -- Analyst

Stephanie Price -- CIBC Capital Markets -- Analyst

Unknown speaker -- Bank of America Merrill Lynch -- Analyst

Dan Perlin -- RBC Capital Markets -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

Richard Tse -- National Bank Financial -- Analyst

Paul Steep -- Scotiabank-- Analyst

Daniel Chan -- TD Securities -- Analyst

Dave Koning -- Robert W. Baird -- Analyst

James Faucette -- Morgan Stanley -- Analyst

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