TELUS International (Cda) Inc. (TIXT) Q3 2021 Earnings Call Transcript

TELUS International (Cda) Inc. (TIXT 1.00%)
Q3 2021 Earnings Call
Nov 05, 2021, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to the TELUS International third quarter 2021 investor call. My name is Jonathan, and I will be your conference facilitator today. [Operator instructions] I would now like to introduce 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 Q3 2021 investor call. Hosting our call today are Jeff Puritt, president and chief executive officer; and Vanessa Kanu, our chief financial officer.

As usual, we will begin with some prepared remarks, which 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'd 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'd also like to remind everyone that all financial measures we're referencing on this call and in our disclosures 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 for joining us today. In the third quarter, TELUS International delivered a solid 30% year-over-year increase in revenue as we continue to win more business with existing and new clients alike. This growth was achieved both organically and with the benefit of contributions from prior acquisitions, particularly related to our AI Data Solutions division.

As Vanessa will outline shortly in more detail, our strong performance this quarter should be considered in the context of our resilient execution in the same period of last year. Indeed, TELUS International is posting impressive growth from an already solid baseline established a year ago as we continue to successfully navigate the operational challenges of the pandemic. While we continue to deliver meaningful revenue growth, we're also achieving exceptional profitability with a 23% year-over-year increase in adjusted EBITDA and an adjusted EBITDA margin of 24.6%. Our deliberate strategy of developing and acquiring higher-value digital capabilities, including premium content moderation and AI services, enable us to design, build, and deliver differentiated digital customer experiences on behalf of our over 600 global clients.

Having strategically focused our investments and resources in key sectors of the digital economy, we continue to derive significant benefits such as revenue diversification as well as growth across each of our target verticals. In addition to our continued strength in tech and games, we're also experiencing increasing traction within e-commerce and fintech. To highlight some of our sales teams' multiyear, multimillion-dollar contract wins this quarter, we welcomed a leading North American financial institution as a new client. We also expanded our scope with Barclays, one of the first clients in our new North Charleston, South Carolina location.

In tech and games, we welcomed a rapidly growing games company, as well as one of the fastest-growing start-ups in the world, focused on event technology. We also had a key win from an existing client in consumer electronics that entails program expansion into a new geography. Notably, we also secured new programs from our largest client by revenue, the world's leading social media network, and an expanded mandate of our AI data solutions team. One of our projects for this client is enabling a more customized and targeted delivery of digital advertising to their different audiences.

This is more critical for brands than ever before given the proliferation of online content available to consumers as well as their heightened expectations to only be served content that is both useful and contextually relevant to them. As a result, brands must have a strategy in place and the right people to execute upon it in order to remain relevant and competitive. Leveraging our industry-leading AI capabilities, TELUS International reviews over 1 million ads per month for this client. Our team recruits, educates, and manages over 4,000 evaluators in more than 10 geographic markets.

With our proprietary people and project management platform, we're able to ensure the diversity and high quality of AI training data for the client's algorithm in order to boost ad relevance on a global scale. Our team also provides custom reporting, which includes detailed statistics about evaluator performance, output quality, and more. Through continuous process improvement, our team of project managers has worked closely with the client to assemble teams of annotators in new markets as well as improve their in-house evaluation tools. The geographic and demographic diversity of our evaluator pool has proven invaluable to our client's AI trading model.

Our over 1 million strong globally scaled AI community enables the delivery of highly personalized region-specific ads, which directly contributes to this client's commercial success. This is also a great example of our approach to combining our AI data solutions with our content moderation expertise at scale to create a powerful and differentiated go-to-market offering. Our highly effective AI solutions provide a digital-first line of identification and help enable a robust content moderation framework for our clients. The AI layer enables our content moderation team members to dedicate their time and judgment on higher-value aspects of the engagement, with clear benefits for both the client and for TELUS International.

Our scale in both areas, amplified through our highly strategic acquisitions, positions us as having one of, if not, the largest data annotation platform globally. In addition to making strategic high-impact acquisitions that complement and build upon our digital capabilities, we also continue to cultivate next-gen digital CX solutions internally through our innovative iLabs team. We established iLabs as a dedicated space where TELUS International innovators, researchers, and visionaries could collaborate and co-innovate to explore emerging customer experience tech that is poised to disrupt the future. Our iLabs team are among our thousands of team members who have completed hundreds of projects tackling unique challenges that we leveraged to accelerate the design and development of customized solutions for our clients that have helped to redefine a human-technology relationship in digital customer experience.

As an example, our iLabs team developed AI and machine learning-based accelerators to automate elements of our customer-facing team members' daily workflows such as simple repetitive tasks, thereby enabling our team members to focus on higher-value and more complex work. We developed an intelligent classification tool that automatically sorts incoming tickets or customer emails into relevant categories based on content and sentiment. This tool also is able to provide a precise and meaningful summary for our team members, making reviews much more time-efficient and effective. We use the same text analytics engine that sorts these inquiries to help our customer-facing team members compose a personalized, grammatically correct response to customer inquiries.

Simultaneously, we also have a team member assistant bot that proactively recommends appropriate solutions for our customer inquiry, drawing from a knowledge database powered by semantic search that's easy to navigate and that, importantly, ensures high accuracy and consistent information that authorized team members can access at any time from anywhere. Not only do we see improvements to key performance indicators that measure quality of service and customer satisfaction, but this technology also results in a more personalized and empathetic customer experience. The work of our iLabs team is a very important part of our ability to stay ahead in the digital transformation landscape as well as helping to anticipate our clients' demand for disruptive solutions. The digital transformation accelerates.

New technologies are becoming ubiquitous faster than ever. Take cloud infrastructure, for example. It was not that long ago that running systems in the cloud was a novelty. Yet today, it represents a key component of most companies' digital transformation journeys.

Another example of a recent win I want to highlight is for a client in the hospitality sector who turned to TELUS International for support with their existing Amazon Web Services cloud environment. Prior to partnering with TI, this client didn't have a managed services provider they felt they could rely upon to optimize their technology solutions. This client needed their technology environment to be secure, scalable, and cost-effective. And because the cloud can be complex, they sought an experienced strategic partner whose reliability freed them up to better focus on their customers.

In this case, our goal was not to implement new technology for the client, but to apply our deep Amazon Web Services expertise in order to introduce efficiencies and added security. So there was both a consultative design element as well as an ongoing managed service relationship. To start, we conducted a thorough review of the client environment security, resulting in the removal of unnecessary access and the introduction of enhanced protocols for data recovery. We then assumed full oversight of their environment with ongoing reviews and regular communication to keep the client well informed of the system's operation.

Our TELUS International team monitors and manages workloads for this client, providing strategic recommendations and optimizing cloud performance, including around-the-clock support for AWS-related requests and issues, patching, backup, infrastructure, and security monitoring and reporting. Digitization not only transforms our commercial world, but also impacts other spheres, including government at all levels. As an example, one of our government clients is working with our digital solutions team on a ServiceNow IT service management deployment project. The project scope was to design, configure and transition this client to a best-in-class digital platform, providing benefits such as workflow automation, standardized processes, and extensive integration capabilities.

With approximately 1,500 administrative and elected officials producing 31,000 requests per year, our client needed a service management solution to address process maturity issues, ad hoc tools, integration challenges, all while improving their service management standards. This focus on service quality was a key priority in this client's digital transformation ambitions that naturally TELUS International was the right partner for them. To meet this ever-increasing demand from our existing and new clients, we have continued to recruit and hire new team members to our TELUS International family. With over 2,300 net new hires in the third quarter, we're faring extremely well in the ongoing challenging global labor market.

Our success in attracting and retaining top talent continues to be driven by the unique and caring culture we've cultivated over many years. Undeniably, our philosophy and proven approach to building and developing our talented global team is directly contributing to our business growth. In our ongoing effort to keep them safe and healthy, we continue to leverage our robust infrastructure and cloud technologies to enable approximately 80% of our global frontline team members to work remotely from their homes. We continue to monitor the environment in each region where we operate, taking a science-based methodical approach to inform when we can safely reopen offices and return our team members to our inspiring workspaces.

Thanks to our team members' relentless efforts and commitment to excellence and innovation, TELUS International continues to be recognized as a global leader across various aspects of our company. This past quarter, we were named one of Fast Company's Best Workplaces for Innovators International for 2021, a prestigious ranking that positions us among the top companies globally that are successfully fostering a culture of innovation and empowering employees to improve processes, create new products, and invent new ways of doing business. Additionally, TELUS International was ranked third overall in the 202 HFS Report and ranking for top digital service providers. HFS is a leading global research consultancy firm, and they assess and rated the world's largest service providers across a series of capabilities, including execution, innovation, and voice of the customer.

Notably, respected lead analyst, Melissa O'Brien, highlighted our steady investment in technology innovation, including an intelligent assistance and automation and the expansion of our new economy services portfolio such as content moderation and AI data solutions. She also cited the value in our unique approach to digital services, which is organized around our design-build-deliver construct and our ability to undertake end-to-end digital CX transformation engagements. And of course, another key driver of our top ranking was our highly skilled and engaged teams who consistently provide the high-quality brand experiences customers demand. As you've heard me say many times before, and I will not tire of repeating it, our team members are the driving force behind TELUS International's success.

And it is extremely rewarding to see their passion for what they do and their significant achievements recognized across our industry and even more broadly among the top global brands. With that, let me now pass the call to our Chief Financial Officer, Vanessa Kanu, to take you through our detailed financial results. And then I look forward to answering your questions. 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 our more detailed three- and nine-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 just summarized, we achieved solid revenue and earnings growth in Q3. Total revenue increased 30% year over year with continued growth across all of our geographic regions and industry verticals. Adjusted EBITDA increased 23% year over year, and adjusted diluted earnings per share was up 13% year over year.

Let me now expand on these components. Revenues for the quarter were 556 million, up 30%, driven by solid momentum in our organic business and contributions from acquisitions. Our organic growth was 58 million or 14%, reflecting increasing demand in services provided to existing and new clients. Prior acquisitions contributed 71 million or 16% of the year-over-year growth in the quarter and related to our acquisition of what is now called TELUS International AI Data Solutions.

Our total revenue growth included FX tailwinds of under 1% when compared to the same period in the prior year. Once again, it is important to put these results into perspective. TELUS International delivered strong performance in Q3 of last year when our business model showed remarkable resilience in financial performance during the pandemic. Our results today builds from that very strong prior year compare.

Looking at revenues by geography. We grew in every single one of our regions, with Asia Pacific posting the highest percentage growth this quarter at 39%, closely followed by Europe at 34%, North America at 29%, and, finally, Central America at 11%. The strong growth across all of our regions was driven by growth in our digital CX solutions, growth in content moderation, growth in digital IT services, and, of course, last but not least, our AI Data Solutions. From an industry vertical perspective, we saw this growth reflected across all of our key verticals.

Tech and games, our largest vertical, was up 46% year over year, With growth attributed to our AI Data Solutions and robust demand across all of our service lines. We continue to see great momentum in our e-commerce and fintech vertical with revenue growth of 56% year over year. Finally, our communications and media vertical showed healthy growth of 11% year over year, while all other verticals, including travel and hospitality and healthcare, similarly posted strong double-digit growth year over year. Moving on to operating expenses.

Salaries and benefits expense was 309 million, up 24% due to growth in our team member base to support increased client demand and higher average employee salaries and wages. Previously, I shared our expectations for our second half cost base to increase due to planned merit increases. These increases have and continue to be an asset and are captured in our full-year outlook. Our goods and services purchased were 110 million in the quarter, an increase of 64%.

This was largely driven by AI Data Solutions and, in particular, the costs related to our crowd-sourced contractors for which the contracted labor costs are recognized in goods and services purchased. The balance of the increase was due to higher software and other costs to support the continued growth and expansion of our business. Moving down to P&L. Share-based compensation expense in the third quarter was 21 million, an increase of 60 million year over year.

The increase was due to the vesting of share compensation awards and mark-to-market adjustments on historical cash-settled awards due to the increase in our share price. Acquisition, integration, and other charges in the third quarter were 6 million, a decrease of 2 million. The current period costs primarily related to the integration of TELUS International AI Data Solutions and the secondary offering of subordinate voting shares that we successfully completed in September while the prior year costs were primarily related to incremental costs incurred in connection with the COVID pandemic as well as integration costs related to the CCC acquisition. Income tax expense in the quarter was 15 million, up 2 million from the same quarter last year.

Our effective tax rate increased from 31.7% to 39.5%, primarily due to an increase in withholding and other taxes and an increase in non-deductible items, partially offset by a reduction to the foreign tax differential. A reminder that our ETR, which is income tax expense as a percentage of accounting net income before tax, can vary due to 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 137 million in the quarter, posting strong year-over-year growth of 23%.

Our adjusted EBITDA margin was 24.6%. Adjusted net income for the quarter was 70 million, up 32% year over year. On a per-share basis, this translated into adjusted diluted earnings per share of $0.26, up 13% year over year. Our strong profitability performance reflects our growing top-line scale, our shift to higher-value and higher-margin business lines, and our ongoing focus on improving efficiencies.

Additionally, as has been our history, we continue to remain relentlessly focused on driving a healthy balance between top-line growth and leading profitability. While the demand environment continues to be very strong, we are making deliberate choices about the types of work that we pursue and deliver, a discipline that is ever more important in these current market dynamics. Looking at our year-to-date results, our year-to-date revenues are up 40% year over year. Adjusted EBITDA is up 51% year over year, and adjusted diluted earnings per share is up 71% year over year.

We are highly pleased with this year-to-date growth and profitability performance. Now moving on to the balance sheet. Cash and cash equivalents were 130 million as of September 30th. Our total available liquidity grew to approximately 828 million, compared to 285 million at year-end.

This includes available capacity under our revolving credit facility of 698 million, up from 132 million at year-end. This amount of liquidity continues to provide us meaningful flexibility and capacity for potential strategic acquisitions to advance our growth objectives at the right site. We continue to reduce our debt in Q3, lowering our net debt to adjusted EBITDA leverage ratio as defined per our credit agreement to 2.2 times as of September 30th. This positions us at the lower end of our communicated steady-state target range of two to three times while we continue to maintain significant flexibility to go beyond this range for the right type of strategic acquisition.

Now turning over to cash flow. Free cash flow, which we define as cash from operations less capital expenditures, was 63 million, in line with 64 million in the prior year. Cash from operations of 86 million were up 2 million from the prior year, reflecting higher net income adjusted for non-cash items, offset in part by higher income tax and share-based compensation payments. Capital expenditures of 23 million were up 3 million from the prior year to support increased capacity and growth across our business.

Capital expenditures as a percentage of revenue was approximately 4.1%, down from 4.7% in the same quarter of the prior year. Now turning to our team member count. In Q3, we continue to manage well through global labor supply pressure. Competition for highly skilled talent has always been fierce and, in many ways, unique by region.

It is a constant feature of our industry more so now than ever. Despite these challenges, and as Jeff mentioned earlier, in the third quarter, we welcomed 2,356 net new team members, bringing our total member counts to 58,527, an increase of 21% year over year, reflecting growth across all of our major geographies to meet increased client demand and business expansion. To echo what Jeff said at the start of the call, we believe our differentiated culture certainly remains a key competitive advantage, allowing us to attract and retain high-quality global talent, especially in the current labor environment. Now on to our outlook.

Following an increase in the full-year guidance that we shared with you on our prior quarterly call, today, we are reaffirming our outlook for strong double-digit growth this year. For the full year 2021, we continue to expect revenues in the range of 2.17 to 2.21 billion, reflecting growth in the range of 37 to 40% over last year. It is worth noting that, compared to our July guidance, the strengthening U.S. dollar against the euro has created a negative FX impact on our top line.

We have absorbed this negative FX impact within our reiterated guidance. For adjusted EBITDA, we expect the range of 530 to $540 million, a growth of 36 to 38% over last year. We expect to deliver adjusted diluted earnings per share in the range of $0.92 to $0.97, which reflects growth of 30% to 37% over last year. With that, we will now open the line for questions.

[Operator instructions] Jonathan, over to you.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Paul Steep from Scotia Capital. Your question, please.

Paul Steep -- Scotiabank -- Analyst

Great. Good morning. Jeff, just -- we're a year on from the acquisition of Lionbridge. Can we get you to maybe reflect on where you're at in terms of integration of AI into the business and some of the successes that you've had with it and then how we think about maybe further doubling down on either AI or another lead digital service line? Thanks.

Jeff Puritt -- President and Chief Executive Officer

Sure. Thanks for the question, Paul. Nice to hear your voice. We're making really good progress on the integration.

I'm always frustrated, as you've heard me say before. We can go faster and then do better. But here we are approaching month 11, almost the anniversary, as you said, of the acquisition. And I'm seeing very, very exciting realization of the synergy thesis that underpinned why we chose to make that investment in the first place.

Not only is the former LAI, now TI AIDS team, well integrated into the TI team in terms of reporting structure, but back-end integration is almost complete. We had planned for and targeting end of calendar year to wrap all of that up. But excitingly, we have successfully gone to market together, as I mentioned in my comments earlier, in terms of selling combined content moderation and data annotation solutions. And we've seen terrific traction, both selling into former LAI's customer base into TI's incumbent customer base and together winning new customer opportunities.

And that's sort of exactly what we were anticipating. As we look into not just balance of this year, but 2022 and beyond, the appetite, the thirst for these kinds of AI-driven solutions seem near insatiable. And so we're very, very pleased with the almost prescient timing of our investment there. And in terms of what you should expect from us prospectively, not only just made a further investment in July, a bit of a tuck-in in the acquisition of Playment and the computer vision-enabled capabilities that they brought to our AI portfolio.

But prospectively, I think you should expect that we will continue to look for extended capabilities in order to meet the growth opportunity that exists there.

Paul Steep -- Scotiabank -- Analyst

Thank you.

Operator

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

Stephanie Price -- CIBC World Markets -- Analyst

Hi. I just want to talk a little bit about your deliveries footprint. So the company opened its third delivery center in the U.S. in Q3.

Just curious how you see that delivery footprint evolving and whether the pandemic has generated more demand for nearshore operations.

Jeff Puritt -- President and Chief Executive Officer

Hey, Stephanie. Thanks for the question. So there has certainly been sort of yoyo-ing onshore, offshore, nearshore over my 16 years in this industry and interesting pressures that underpin that, whether it's traditional economic cost pressures and/or geopolitical pressures, tax-driven considerations, etc. I think there was certainly recognition at the onset of the quarantine lockdowns off the back of the pandemic that certain jurisdictions simply didn't have the same level of robust infrastructure across the at-home landscape of frontline team members.

And so there was a perception that, in the long run, maybe we need to reduce our footprint, our exposure to those markets as a consequence. I can tell you, for TELUS International, while there was a bit of a scramble, admittedly, in March and April of 2020 to virtualize support and in many cases, we did absolutely need to bolster support, extend the connectivity infrastructure for the at-home ecosystem that we've now 19, 20 months into this with over 80% of our global footprint successfully enabled in an at-home environment, with no diminution in performance, productivity, nor concerns around privacy and confidentiality. So our perspective is that we can continue to successfully deliver for our clients from anywhere and everywhere. But specifically to your question, I think there are still some residual perspective that suggest we probably would prefer to have a little more of our delivery footprint closer to home, so to speak.

But obviously, there are trade-offs when one thinks about those considerations in terms of the operating cost structure, not just labor rates, but certainly that as well as the other operating costs. We think we've got a really good balance today of onshore, nearshore, and offshore. But having said that, there's always room for growth. There continues to be this sort of appetite for more.

And so we certainly have a willingness to meet our customers where they want us to be, whether it's additional U.S. onshore delivery capabilities, more nearshore, and more offshore. I would say the one thing to be cognizant of the TI, we have never pursued a build that then they will come strategy in terms of delivery. We want to be thoughtful and disciplined and respond to it as we extend our footprint.

And when, where, and how we have existing or prospective demand, that's when we'll make the capital investments in order to extend our delivery footprint. So does that mean we're going to have more sites in the U.S. in the mid-to longer term? Perhaps. But I think you should expect that we'll continue to look for areas of opportunity to meet that customer demand and get closer to deeper, broader talent pools as well.

Stephanie Price -- CIBC World Markets -- Analyst

Maybe just a quick follow-up on that. You mentioned the cost structure in the U.S. versus other regions. Can you talk a bit about the pricing environment and whether you can pass those additional costs on to customers?

Jeff Puritt -- President and Chief Executive Officer

Sure. So I wish I could give you a more perhaps satisfactory answer, Stephanie, but the answer, quite candidly, is it depends, depending on the nature of the relationship that we enjoy with our customer, depending on the nature of the services we're providing. There are absolutely some circumstances where we have been successful in encouraging our customers to help us share the burden of wage inflation. In other cases, that just simply hasn't been available to us.

And again, this is not new, although, admittedly, the wage inflation dynamic we're all seeing around the world of late is sort of a heightened level of this dynamic that we've experienced previously. But the job is, has been, will always be, in my view, to find a way to mitigate those inexorable cost pressures, whether it's wage inflation or other cost inflation and eating our own gourmet cooking, drinking our own champagne, as you've heard me say before, bringing automation and process efficiency into our business. Again, that's not new. That has been job one from day one, and we continue to quite effectively mitigate much of the labor inflation impacts in our business through the use of that automation and efficiency discipline.

But we will continue to look for areas of opportunity to share that inflation with our customers. I mean, interestingly, many of the customers, most of the customers we support, in many cases, are employing the very same labor, the very same skills that we are. And as a consequence here, not only this notional competitive dynamic in that regard, but they are acutely aware of the very same labor wage inflation dynamics that we are. And so it creates a bit of, I don't know, sensitivity, acceptance, and, in many cases, thanks to the strength of our relationship, a willingness to help us underwrite some of that cost inflation because we're in this together prospectively.

Stephanie Price -- CIBC World Markets -- Analyst

Great. Thanks for the color.

Operator

Our next question comes from the line of Ramsey El-Assal from Barclays. Your question, please.

Ramsey El-Assal -- Barclays -- Analyst

Good morning, Jeff and Vanessa. Thanks for taking my question. I wanted to ask about revenue. It came in a bit lower in the quarter than we were anticipating.

Did the quarter play out as you expected it would? Or were there any other incremental headwinds that emerged, I don't know, macro environmental or client-specific or anything like that?

Jeff Puritt -- President and Chief Executive Officer

Hey, Ramsey, a fair question. We're sort of right in the middle of our guidance. And remember, we didn't really guide specifically by quarter, right? We guided for the year given we're still relatively new with this and we want to make sure that we're getting things right. I think it's fair to say -- and I'll invite Vanessa to provide a little bit more color here -- that we could have.

We hope to do slightly better than where we landed on the revenue front, but still very pleased with 30% growth, 14% on a constant currency basis organically. We had to make trade-offs, right? That's part of the job. Every day is balancing growth and profitability. And we're running this business for the long term, not for the first or next quarter.

And so could there have been further upside on the revenue front in the quarter? Certainly. But at some point, one has to decide what's more important mid, near, longer term. And so I'm pleased with the discipline that we demonstrated, the choices we made, the business we pursue, the business opportunities that we turned away in order to ensure that we're continuing to have our eye on the prize longer term. And as I said, balancing those competing considerations is the job, is the challenge, and the opportunity that we have here.

Vanessa, do you want to top up a little bit there?

Vanessa Kanu -- Chief Financial Officer

I think you've covered it well, Jeff. The only thing I would add to your question, Ramsey, in terms of were there any surprises, I would say probably the only other surprise -- or the only surprise was probably from an FX perspective. So as I mentioned earlier in my prepared remarks -- and you guys have seen this in our financials -- so about 36, 37% of our revenues are euro-denominated, and we started to see a softening of the euro shortly after we issued guidance in July. So that would be the negative surprise there.

But as Jeff mentioned, in totality, considering the demand/supply dynamics and everything else and the choices that we're making to pursue profitable long-term business, we're quite pleased with where things landed.

Ramsey El-Assal -- Barclays -- Analyst

Yes. And obviously, still a solid underlying organic growth. And how much of an FX headwind is baked into guidance?

Vanessa Kanu -- Chief Financial Officer

So in fact, in Q4, we are expecting a headwind. For the full year, we'll end up with a tailwind just because we had a tailwind in the first half of the year. So for the full year, we'll end up with a tailwind of about 2.5%. But certainly, in Q4, there is a headwind that offsets what we saw in the first half.

And as I mentioned earlier, the impact of Q3 were, frankly, immaterial.

Ramsey El-Assal -- Barclays -- Analyst

All right. Terrific. Thanks so much for your answers. Very helpful.

Thank you.

Vanessa Kanu -- Chief Financial Officer

Thanks, Ramsey.

Operator

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

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Hey, guys. Good morning. Thanks for all the details. Just on the inflation front, I'll ask it differently on acquisitions, Jeff, is with all these digital assets sort of getting marked up here in the public markets, I'm curious if that changes your thinking or philosophy on M&A.

Has it changed your appetite or the pipeline in any way in terms of the deals you might be looking at?

Jeff Puritt -- President and Chief Executive Officer

Hey, Tien-Tsin, nice to hear your voice as well. Thanks for the question. So again, as I know you've heard me say before, I don't want to overpay ever. Because I think when one overpays for an asset, it immediately leads one to start to do perhaps unnatural things around integration and in order to try and compensate to make up as quickly as one can for having overpaid on the headline purchase price at first instance.

And you're right, there continues to be some very lofty valuation expectations from sellers out there. Having said that, our pipeline for shopping opportunities is as robust as ever, as a consequence, I suspect, of the opportunity that this digital transformation landscape represents. And so my appetite, my ambition to continuing to leverage inorganic growth activity to complement our strong organic growth continues to be as healthy as ever. I think there's lots and lots of opportunities.

There's deals to be had, deals to be made. It just requires, again, part of our heritage at TELUS International, the requisite discipline, creativity, and innovation to identify the right asset at first instance, to secure it in a fashion that doesn't unnecessarily inflate the overall cost to purchase. And that can, indeed, realize our accretive growth and value ambitions in the near to longer term. And you should absolutely expect, as we've telegraphed in the past, we went public in part to have a public transaction currency available to us to support our ambitions in this regard.

You just -- you should count on us to continue to be really thoughtful about how we will leverage that opportunity perspectively.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Appreciate the discipline. Thank you.

Jeff Puritt -- President and Chief Executive Officer

Thank you.

Operator

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

Keith Bachman -- BMO Capital Markets -- Analyst

Hi. Many thanks. I wanted to go back to the labor situation. And perhaps, I'll direct this to you, Vanessa, if I could.

As you think about the weighted average wage inflation, what is it currently running? And how is it different from historic norms? In other words, is inflation running for employees about 5% and it's only running at 3%. And Jeff, you mentioned that to work really hard to offset those dynamics. How are you thinking about, not just in the current quarter, the December quarter, but as we look out over the horizon into '22, do you think the labor situation impacts your margins? Or are there enough variables or levers, so to speak, that you can offset the incremental wage inflation that you're currently experiencing? Many thanks.

Vanessa Kanu -- Chief Financial Officer

So thanks for the question. And perhaps, I'll start and then -- it was many-parts questions, some for me, some for Jeff. I'll start and pass it over to Jeff. So we haven't -- we probably -- I don't think we'll disclose, for sensitive reasons, what the overall average wage inflation is.

As you would expect, it does vary by country. The wage inflation in certain countries like U.S. and Canada is a very different number than the wage inflation in a country like India, let's say. So -- but from an overall perspective, we are seeing higher wage inflation in 2021 than we have in the past.

And that's across the board and that's even on a weighted average basis. So you're absolutely right there. As I have mentioned on previous calls, we did actually see that coming into the year. So when we built our initial budget for last year for 2021 and give our additional guidance for 2021, we had already built in increased wage inflation.

So what we're seeing now this year is actually very much in line with what we expected to see. I wouldn't say we're -- we got it perfect in every country. But on the whole, in the aggregate, the weighted average has been within the same ballpark that we had built into our own models for this year, and we're tracking to that. And then maybe I'll quickly touch on next year before passing it on to Jeff for the second part of your question.

We do think that the current dynamic will continue into next year. Will it continue long term beyond that? I think that's up for debate. At some point, things will normalize. At some point, as Jeff mentioned, even as it pertains to our inflation, it's impacting our clients as well.

So we think it's going to -- it will get to a point where things do start to normalize, but we do expect this dynamic to continue into next year. And when we get to our guidance for 2022, we certainly will factor that in because that's not something that was the case when, say, around October, November last year, when we were talking to you guys around longer-term models, so that's definitely something that we'll be building into our models for next year. But as we said already, certain clients we're working with in terms of getting some of the cost passed through to them. And in other cases, we're looking at ways to mitigate that within our own internal operations.

Keith Bachman -- BMO Capital Markets -- Analyst

OK.

Vanessa Kanu -- Chief Financial Officer

Jeff?

Jeff Puritt -- President and Chief Executive Officer

Keith, the only thing I would add in terms of longer term is this has been -- will continue to be the challenge and the opportunity for a technology services provider and finding a way to surface that unique balance of technology and talent to deliver business outcomes of consequence to our customers. So as we continue to evolve the mix of services that we're providing to our clients, there is an area of opportunity for we to mitigate some of the wage inflation implications of the current and prospective market that we anticipate will continue as Vanessa, I think like just highlighted. I've heard some folks say, let's get to March, and then everything is going to normalize. And others think -- who knows when the labor market starts to stabilize, for lack of a better word.

And I'm not sure exactly when this is going to happen, but I do know that it is the ongoing responsibility of our leadership community to find a way to mitigate these inexorable inflationary costs in our business. And so I think talented people have a legitimate expectation of being well rewarded and rewarded more as they become more tenured and capable of contributing more value to the business. It's our responsibility to be able to do that. And so a combination of working with customers that recognize the value of what we're providing to them and are willing to pay appropriately for that.

And then in conjunction with that, leveraging this technology capability to complement, to support these talented team members, to assist them in being more productive, to deliver more value such that, in return, our customers are willing to pay enough to cover the cost inflation in totality and for we to continue to derive sort of a healthy margin. I think there tends to be a preoccupation perhaps in the near term around top-line revenue growth. But I can tell you my personal bias and our heritage from TELUS, revenue is vanity and profit is sanity. And in the fullness of time, we're generating profitable revenues and delivering meaningful free cash flow growth that can ensure that we can service our debt and access the markets appropriately to take advantage of M&A activity to complement our growth, extend our reach so that we have more available to share with our customers over time.

I think that will prove in the near, mid, and long term to be the more prudent, sustainable approach to running the business. Now inflation is here already. I think most people are anticipating that interest rates are going to start to climb in the not-too-distant future. Cost of capital is going to start to change.

And I think those of us that have the requisite discipline and focus on profit and free cash will be rewarded appropriately. So as I said before, finding that elusive balance between top-line revenue growth of consequence -- and I believe we are already there, given the size and scale -- together with focus on profitability and free cash, that is the secret sauce for sustained success, in my view.

Keith Bachman -- BMO Capital Markets -- Analyst

All right. Many thanks, Jeff and Vanessa.

Jeff Puritt -- President and Chief Executive Officer

Thanks, Keith.

Operator

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

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Yeah, thanks. I just wanted to ask a follow-up also on the people front. Just starting with the hiring piece. It sounds like hiring was strong in the quarter.

Can you talk about what kind of experience level the new hires were concentrated in and any other color around the hiring mix? And then anything you can share around voluntary attrition? Where is that going right now directionally? What are you expecting there in the near term?

Jeff Puritt -- President and Chief Executive Officer

Thanks, Jason. So as you know, we have not yet started to provide detailed attrition data, and I'm not sure where we'll land on that for next year. I'll leave it to Vanessa to comment. In terms of the talent level, as Vanessa highlighted, we grew across all aspects of our business, tech and games, e-commerce, and fintech.

And so the skills continue to be -- this is a university graduate level. This is technology-savvy folks that are capable of contributing meaningfully to the digital economy. And so these are expensive resources for the most part. And as we've just now discussed, and as you're hearing, reading, seeing across our peer group, they are in high demand everywhere because there are just such a recognition of the criticality of digital transformation, virtualization, automation.

So we have to continue to fish in the same pond with all the rest of these folks. And as I mentioned in my earlier comments, I believe the reason why we're continuing to attract our fair share of that talent to this platform is because of our unique and caring culture, being a destination of choice for talent based on respectful workplace and inspiring workspaces and benefits programs that are focused not just on the team members, but their families, including their parents. The list goes on and on and on. I think what we saw this quarter in terms of attrition, just directionally, not surprisingly, certainly higher than this time last year, still in the zenith of the pandemic, not meaningfully higher than this time in 2019, which I think is a good sign, because of the fact that -- I think most would agree -- that the labor market is certainly more competitive this time 2021 than it was this time in 2019.

So that we're not hugely inflated on attrition in that two year-over-year profile is, again, a source of comfort for my leadership team and I. But the reality is this is not going to get easier. This is going to get harder every day. And so again, it's the responsibility we have is to continue to find ways to mitigate those challenges.

It's not just attracting our fair share of talent to the platform at first instance. As you say, on attrition, it's retaining them and finding a way to retain them that doesn't break the bank. Because you start inflating your cost structure on a one-time basis, and then there's a bit of a potential floodgate argument. And so again, that's the challenge, just to balance those dynamics in the fullness of time.

So we continue to attract and retain and engage the right talent at the right levels and continue to deliver on our promises to our shareholders and stakeholders alike in terms of growth and profitability.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Thanks, Jeff, appreciate that.

Jeff Puritt -- President and Chief Executive Officer

My pleasure.

Operator

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

Richard Tse -- National Bank Financial -- Analyst

Yeah, thanks. Just on these inflation questions, I have a kind of a longer-term view. Like you've made these acquisitions. As you look out, let's say, two, three years from now, how many points do you think you can pick up from, let's say, deploying technology to sort of augment the workforce?

Jeff Puritt -- President and Chief Executive Officer

Wow. Good question, Richard. I mean, based on history, I think it's fair to say that there's several hundred bps of efficiency that are available to us through automation and process efficiency. I mean we've had -- every single year of our existence, we set targets for ourselves in terms of efficiency gains, savings, productivity improvements.

And it is the collective responsibility of the leadership community across TELUS International to realize those efficiencies. So it's not just our operations team that have to go and find ways to do more with less, but our HR team similarly sold. So for example, the start of the quarantine orders in the pandemic, we were able to successfully virtualize our recruiting process 100%. So literally, in less than 120 hours, we can go from reviewing receipt of a resume to onboarding that individual, like in less than three days.

And this is a scaled process that is hyper, hyper efficient. And now off the back of we employing our own AI to do the first line of evaluation on these hundreds of thousands of unsolicited resumes that we receive, it meaningfully improves our cost structure and our ability to get to the right talent, match to the right skill set requirements for the customer we want to serve. So finance is equally responsible for helping to do efficiency projects, the leveraging tools, and technology. There is no part of our business that is immune from these go-gets.

And so prospectively, again, whether it's these AI-informed capabilities or automation, more broadly, I mean, we probably have as many bots deployed inside TELUS International as we have on behalf of our customers. New joiners, when they join, are no longer responded to in terms of their inquiries. How do I register for my benefits? When will my first payroll run be? That's all automated now for us. It meaningfully improves the pace and progress, productivity and mitigates the cost of historically having to address those issues manually.

Going forward, I think we will continue to be looking for that same level of cost takeout, if you will, in order to be able to mitigate these traditional other labor inflation impacts.

Richard Tse -- National Bank Financial -- Analyst

Ok. Great. Thank you.

Jeff Puritt -- President and Chief Executive Officer

My pleasure.

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. Can you talk to the mix of business in the pipeline, whether you're seeing more content moderation, data annotation on customer experience, especially with the changing market backdrop with increasing criticism of social networks. And maybe as a follow-on, what is the impact on margins as that pipeline mix converts to revenue? Thank you.

Jeff Puritt -- President and Chief Executive Officer

Thanks, Dan. So we are absolutely seeing continued strong demand for content moderation, in particular. And I think not surprisingly, right? I mean -- I forget the last statistic I saw. It's like 2.5 quintillion bytes of data being produced daily around the world now.

And so content moderation is, as you previously heard me say before, not just for our social media clients and moderating objectionable content, right? Content moderation is anything and everything on the web in terms of helping to ensure a more predictable, reliable transaction between buyer and seller. And so today, we are already seeing fantastic growth in our content moderation practice. Prospectively, our expectation is that will continue certainly for the next two, three years and longer still. I think the news that talks about the potentially evolving regulatory landscape is only a net positive for us.

Because that increased complexity means not just the social media giants but everybody needs to have a higher level of sensitivity to the demand, the expectation that our politicians, our regulators, our communities have of how these platforms, how these ecosystems operate safely, predictably, reliably. And that means they need to work with experts like us that have both the experience, expertise and scale, and global footprint to be able to support those ever-changing, demanding complex requirements. So again, I think -- the good news we were as prescient as we were when we decided to double-click on content moderation. We were already at it for several years, but 1,000 team members or so at a time and not nearly as scaled as we want it and need it to be.

And now we are thousands and thousands more of digital first responders in our community. And I think, for the foreseeable future, for the next several years, at least, AI is not going to displace those humans in the loop, right? It's certainly a copilot. It's a critical first line of identification for content and ensuring that we can identify and place content proximate to other content that meets advertisers' expectations, for example, but there is nuance and context and complexity in that, that ultimately will require, in my view, for the foreseeable future a very, very sizable complement of highly skilled human beings to ensure the intended outcome of these ecosystems.

Vanessa Kanu -- Chief Financial Officer

And then, Dan, just to touch on your question around how that impacts margin in terms of these dynamics that we're seeing, content moderation is a high-margin business for us. It's actually one of our highest-margin service line. So it will impact. So the fact that we're seeing growth in content moderation, not only in our current revenue, but in the pipeline, should be margin-accretive perspectively.

Now obviously, that has to be balanced against many other dynamics, some of which we've already touched on, on this call. But certainly, the increase in content moderation is margin-accretive. AI, I've talked in the past about that being a fairly low-overhead business, just in terms of the crowd-sourced model. So as that business grows, we should actually see a lot of operating leverage as well.

So again, that shift in the mix should continue to be margin-accretive, which will help to somewhat absorb the impact of some of the other dynamics that we spent a lot of the call talking about it already.

Daniel Chan -- TD Securities -- Analyst

Thank you.

Vanessa Kanu -- Chief Financial Officer

Thanks, Dan.

Operator

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

Maggie Nolan -- William Blair -- Analyst

Hi. Thank you. I wanted to ask about your clients' number four through 10 and the momentum that you have there, the dynamics in the last couple of quarters and then the momentum into 2022. And then any important contract renewals coming up at the end of the year here in the near term that we should be thinking about?

Vanessa Kanu -- Chief Financial Officer

So, Maggie, it's Vanessa. Hope you're doing well. In terms of clients, so we do disclose clients one to three, and you've seen those numbers in our financials. In terms of clients four to 10, good performance during the quarter.

So obviously, not every single client is going to hit your expectation. But as a whole, those clients performed very, very well. I'm just thinking about whether I'm actually permitted to say some of the names. I'm looking at my IR team.

But one of the -- another very large social network organization, not the largest, but one of the very -- the other very large one, is, in fact, in our -- on our top client list and has performed tremendously well. And that is also a content moderation service and now also doing data annotation work for that client. Another client that when you travel and you stay and you use their system, again, another very, very fast grower, doing quite well for us. We've also talked about the largest e-commerce company on the planet also is in that four to 10 bucket, again, continues to perform very, very well.

So feeling really good about clients number four through 10. In terms of any major renewals coming up next year, I would say nothing of note, Maggie. We've talked in the past about our revenue retention rates and our client retention rate. And those have been historically very, very high.

So we're not foreseeing any issues from a renewals perspective next year.

Maggie Nolan -- William Blair -- Analyst

Thanks, Vanessa. Congrats to all.

Vanessa Kanu -- Chief Financial Officer

Thank you.

Operator

Thank you. And we have time for one more question. Our final question for today comes from the line of David Koning from Baird. Your question, please.

David Koning -- Baird -- Analyst

Yes. A nice job. And I guess, my first question, just when we look at guidance, I think, sequentially, Q4 at the midpoint is up something like seven or 8%, which is pretty good sequential growth. Is there anything different in your business now with Lionbridge or anything else that's kind of allowing pretty fast sequential growth seasonally in Q4?

Vanessa Kanu -- Chief Financial Officer

Hey, Dave, it's Vanessa here. Yeah, I mean we've got -- we typically do have better seasonality in Q4, but you're absolutely right. We're 7% sequential growth. 7% to 8% sequential growth is fairly strong.

I think that really demonstrates some of the momentum that Jeff spoke to earlier. Some of these accounts do take several weeks to ramp up. So I think what you're seeing in Q4 in terms of that level of sequential growth is -- some of it is seasonality, but most of it is also just the account ramps that we're working through. Some of those big names that we mentioned earlier, like Barclays and others that we've named publicly, are in fact ramping.

And that's contributing to the sequential growth that you're seeing there.

Operator

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

Jeff Puritt -- President and Chief Executive Officer

Thanks, Jonathan, and thank you, everyone, for your questions. In closing, growth, innovation, and value creation remain at the core of TELUS International's success. And I could not be more excited about the trajectory we're on. The key takeaway of this quarter for me was our ability to not only grow but to also maintain our strong profitability profile amid a challenging global labor supply environment, and this was not by accident.

Our culture and premium services ensure that we're delivering real value for our very successful, high-growth, digitally focused clients. And that is clearly bearing fruit in our own ability to consistently execute on our profitable growth plan. We focus on complex mission-critical projects. We rely on best-in-class technology to power everything we do, and we are keenly focused on efficiency, including technology innovation and automation, within our own business operations.

All of this was showcased once again in the results we shared with you today. With our next quarterly update taking place in early 2022, I want to take this opportunity to wish you and your families a safe and festive holiday season that will soon be passed upon us. And in the meantime, Vanessa and I look forward to meeting with many of our shareholders at our investor events planned for the remainder of this year. Thank you for joining us today, and take care.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

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

Jeff Puritt -- President and Chief Executive Officer

Vanessa Kanu -- Chief Financial Officer

Paul Steep -- Scotiabank -- Analyst

Stephanie Price -- CIBC World Markets -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Richard Tse -- National Bank Financial -- Analyst

Daniel Chan -- TD Securities -- Analyst

Maggie Nolan -- William Blair -- Analyst

David Koning -- Baird -- Analyst

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