Executive Summary / Key Takeaways

• TELUS International (TIXT) is strategically positioning itself as an AI-fueled digital experience partner, leveraging proprietary platforms like Fuel iX and Experts Engine to drive innovation and efficiency across customer experience (CX), digital solutions, and AI data solutions.
• The company delivered Q1 2025 results in line with expectations, with revenue growth of 2% year-over-year (3% constant currency) driven by its AI and digital segments, despite a lower adjusted EBITDA margin of 13.4% due to strategic investments.
• TIXT is making significant investments in new capabilities, talent, and strategic partnerships, aiming for $50 million in-year cost savings in 2025 to self-fund growth initiatives and gradually improve margins from Q1 lows.
• Key risks include client concentration, competitive pricing pressures, and macroeconomic volatility, though the company's diversification efforts and anchor client relationship with TELUS Corporation provide a degree of stability.
• A definitive offer from TELUS Corporation to acquire full ownership of TELUS Digital at $4.50 per share, pending shareholder and court approval, signals a potential strategic reintegration aimed at supercharging AI and SaaS transformation across the broader TELUS ecosystem.

The AI-Fueled Digital Frontier: TELUS International's Strategic Core

TELUS International (TIXT) operates at the nexus of digital transformation and customer experience, providing a comprehensive suite of digital solutions and CX services across a global footprint. Founded in 2005 as a subsidiary of TELUS Communications Inc., the company has evolved from primarily serving its parent to becoming a specialized provider of AI-driven solutions, omnichannel support, and IT lifecycle services for a diverse client base spanning technology, healthcare, and e-commerce. Its overarching strategy is to be an end-to-end AI-fueled customer experience partner, leveraging its global service diversification and its unique relationship with TELUS Corporation as an anchor client to navigate dynamic market conditions.

The industry landscape is characterized by a "mad thirst to extract value out of AI" and a significant, foreseeable need for clients to deploy AI to optimize CX cost and quality. This environment has intensified competition, with clients increasingly seeking "more strategic partners" who bring technology thought leadership and strategy. TIXT's foundational strength lies in its ability to combine deep human insights with advanced technologies, a differentiation that is critical in a market where clients expect "more better for less".

Technological Edge: Fueling Efficiency and Innovation

At the heart of TELUS International's competitive strategy is its suite of proprietary AI and digital platforms, designed to deliver tangible, quantifiable benefits to its clients. These technologies are not merely tools but foundational elements that enhance efficiency, drive innovation, and create a distinct competitive moat.

The company's core differentiated technology includes Fuel iX, an enterprise-grade AI engine structured into "Core" for orchestration, integration, and administration, and "Apps" for templated generative AI (GenAI) applications across customer and employee experiences. Fuel iX has demonstrated significant impact, particularly within TELUS Corporation , where it has contributed to a lower cost to serve and a higher average margin per user. The platform is currently supporting over 30 requests for new applications within TELUS, showcasing its versatility and demand. For a mobile games client, the Fuel agent trainer demonstrated an immediate impact, reducing average handle time by over 25% within two weeks of setup. Furthermore, an AI-based backlog prioritization model developed for a global cloud provider is expected to save $10 to $15 million by improving workload management and preventing escalations.

Another key offering is Experts Engine, a fully managed, tech-enabled sourcing solution for GenAI model builders. Launched in December 2023, Experts Engine programmatically matches tasks like data creation, collection, annotation, and validation to over 1 million crowdsourced AI community contributors, ensuring high-quality training datasets for demanding foundation models. This platform eliminates overallocation of expertise to simpler tasks, ensuring the right contributors work on the right tasks at all times, which is crucial for addressing complex and customized dataset requirements.

Complementing these is TI's Fine Tune Studio, part of its broader AI data solutions platform, launched in Q1 2024. This module creates high-quality fine-tuning datasets for large language models (LLMs) and GenAI models in over 100 languages across specialized domains such as STEM disciplines, healthcare, and finance. It incorporates native AI integrations for real-time assessments of plagiarism, tone analysis, and grammar checks, improving output accuracy and user productivity. For an American robotics company developing autonomous delivery vehicles, TIXT's computer vision group has expanded from creating training datasets to fine-tuning LLMs for real-time explainability of autopilot decisions, teaching LLMs based on human driver expertise for complex scenarios. This leverages TIXT's proprietary multimodal annotation and fine-tuning platform, which automates steps using AI-assisted description generation and video labeling.

The "so what" for investors is clear: these technological differentiators enable TIXT to offer superior, more efficient, and highly specialized services. This translates into enhanced competitive positioning, the ability to command premiums in differentiated service lines, and the potential for new revenue streams. The company's continuous investment in R&D, such as its work on LLM training solutions for enterprise applications to interpret images, tables, and documents, and improving chemical formula usage, ensures it remains at the forefront of the rapidly evolving AI economy.

Operational Excellence and Strategic Expansion

TELUS International's operational strategy is characterized by a relentless pursuit of efficiency, client diversification, and strategic global expansion. The company's global footprint spans over 32 countries, with recent expansions demonstrating a clear focus on high-growth regions. Operations in Africa, scaled since two small acquisitions in May 2023, have shown remarkable growth, with an 800% increase in team members, a 430% rise in revenue, and a 440% growth in operating EBITDA. This momentum continued with the announcement of a new site in Costa Blanca, Morocco, in November 2023, and the opening of a Dubai office in July 2025, marking its entry into the Middle East, a region rapidly positioning itself as an AI and innovation hub.

Client diversification remains a core pillar. In Q1 2025, TIXT secured new clients including a global IT services player, a Canadian energy marketing and trading company, and a Singapore-based platform for AI startups. The company is also actively rebalancing engagement across geographies and diversifying service lines with its third-largest client (a social media network) and has increased its share of business with a European mobile games client due to vendor consolidation efforts in Latin America. This proactive approach helps mitigate client concentration risk, a historical challenge for the company.

Strategic partnerships are integral to TIXT's growth. Collaborations with Sumsub (May 2025) have expanded its capabilities in end-to-end identity and fraud prevention. An expanded partnership with Zendesk (ZEN) (April 2025), a pioneer in agentic AI-powered service, and go-to-market events with Adobe (ADBE), further enhance its digital solutions portfolio. The acquisition of Gerent, a U.S.-based Salesforce-focused consultancy, in May 2025, further deepens its CX capabilities and agentic AI solutions. These partnerships and acquisitions are designed to bolster TIXT's offerings and position it as a key integrator of best-in-class AI-powered solutions.

The company's commitment to service quality is evident in its improved customer sentiment index, which rose by 20% across its top 55 accounts in Q4 2024. Employee engagement also improved by 200 basis points to 78% in an annual survey, underscoring the importance of its talent development and impact-sourcing programs like Project Sakima in India.

Financial Performance and Liquidity: Investing for Future Growth

TELUS International's recent financial performance reflects a period of strategic investment and adaptation to a challenging macroeconomic environment. In Q1 2025, the company reported revenue of $670 million, an increase of 2% year-over-year, or 3% on a constant currency basis. This growth was primarily driven by its AI and data solutions and digital solutions segments. The company saw growth across the majority of its top five largest clients, with TELUS Corporation , its anchor client, growing revenue by 12% year-over-year in Q1 2025. This relationship provides a unique "anchor of stability and growth". While revenue from Google , the second-largest client, saw a lower year-over-year comparison due to a high 2024 base and typical volume fluctuations, overall AI and data solutions revenue grew due to client diversification. The third-largest client, a leading social media network, also saw year-over-year revenue growth in Q1 2025.

Profitability in Q1 2025, however, saw a dip, with an adjusted EBITDA margin of 13.4%. This decrease was attributed to increases in salaries and benefits and goods and services purchased outpacing revenue growth, an unfavorable comparison to Q1 2024 (which included a material other income from business combination-related provisions), and a higher run rate of share-based compensation. Management has explicitly stated that 2025 is an "investment year," with targeted investments in digital solutions, AI and data solutions, and trust, safety, and security. These investments are intended to be self-funded by targeting indirect costs to maintain relatively stable margins. The Q1 2025 EBITDA margin is expected to be the low point for the year, with the average for 2025 projected to be closer to 15%. A gradual improvement in margins is anticipated beyond 2025, though likely not returning to the "twenties and mid-twenties of years past". The company also expects to deliver $50 million of in-year savings in 2025 from operational transformation and indirect cost reductions.

From a liquidity perspective, the company's net debt to adjusted EBITDA leverage ratio stood at 3.4 times as of March 31, 2025, remaining comfortably under its credit agreement covenant. Free cash flow in Q1 2025 was $41 million, lower than expected due to seasonality and working capital timing. For the full year 2025, free cash flow yield as a percentage of revenue is expected to be up to 10%.

Competitive Standing and Market Dynamics

TELUS International occupies a competitive position in the CX and digital services market, distinguishing itself through specialized, AI-driven offerings and its unique affiliation with TELUS Corporation . While larger competitors like Cognizant , Wipro , Teleperformance , and Concentrix (CNXC) offer broader IT and CX services, TIXT excels in niche, high-value areas.

TIXT's proprietary AI and digital platforms, such as Fuel iX, provide a significant edge in efficiency and innovation. For instance, its agent Copilot's ability to reduce average handle time by over 25% quickly demonstrates a tangible performance advantage over more generalized CX providers. While Cognizant's (CTSH) larger scale may offer stronger market positioning in global contracts and potentially lower operating costs through economies of scale, TIXT's specialized UX/UI design for emerging sectors and deep expertise in AI-driven CX can lead to faster innovation cycles. Similarly, against Wipro (WIT), TIXT's focus on end-to-end CX solutions and user-centric design could foster stronger customer loyalty. TIXT's AI and big data analytics capabilities provide significantly greater efficiency in complex customer interactions compared to Teleperformance's (TLPFY) strengths in basic support services.

The competitive pricing environment remains "fierce," with clients consistently expecting "more better for less". TIXT's ongoing cost efficiency programs and technological advancements enable it to offer competitive pricing while maintaining profitability. The company's leadership in AI data solutions is recognized, being the only provider ranked in the top two for both IDC's MarketScape for Worldwide Data Labeling Software 2023 and Everest Group's Peak Matrix for Data Annotation and Labeling Solutions for AI and machine learning. This "unmatched leadership" underscores its technological moat in a rapidly expanding market where the "pie is growing quicker than necessarily the competitors entering the market".

Industry trends, such as the shift to a "cost reduction first environment" during economic slowdowns, play into TIXT's strategy of emphasizing efficiency through AI and global diversity. The company's ability to combine human expertise with advanced technologies for trust, safety, and security solutions also addresses critical enterprise needs driven by regulatory pressures and fraud detection.

Outlook and Risks: Balancing Growth and Strategic Reintegration

TELUS International has reiterated its full-year 2025 outlook, projecting approximately 2% organic revenue growth, adjusted EBITDA of $400 million, and adjusted diluted EPS of $0.32. This outlook is underpinned by assumptions of foreign exchange stability, continued growth with TELUS and Google , and stabilization with its third-largest social media client. The company anticipates a stronger second half of 2025, as upfront investments in the first half begin to yield returns.

Despite this positive outlook, several risks warrant attention. Client concentration remains a concern, particularly given past experiences with a large social media client. TIXT is actively mitigating this through increased sales and marketing investments and diversification across service lines and geographies. While technology disruption from AI displacing certain tasks is a general industry risk, TIXT's management has not observed clients like Google (GOOGL) reducing spend due to AI displacement; rather, TIXT has even gained new work in areas like the MAPS program. Macroeconomic volatility, including global tariff policies, poses a risk, though TIXT aims to proactively support clients in adjusting business processes and diversifying exposures. The competitive pricing environment is expected to remain intense, requiring continuous focus on operational efficiencies and differentiated offerings.

A significant near-term development is the definitive offer from TELUS Corporation to acquire full ownership of TELUS Digital for US$4.50 per share. This proposed transaction, which received an interim order from the Supreme Court of British Columbia on September 18, 2025, and is subject to shareholder and court approval, aims for closer operational integration to "supercharge AI and SaaS transformation" across the broader TELUS ecosystem. This strategic reintegration could fundamentally alter TIXT's ownership structure and operational autonomy, while potentially enhancing its long-term growth trajectory within a larger, more integrated entity.

Conclusion

TELUS International stands at a pivotal juncture, demonstrating resilience and strategic foresight in a rapidly evolving digital landscape. Its core investment thesis is firmly rooted in its technological leadership in AI-fueled customer experience and digital solutions, underpinned by proprietary platforms that deliver measurable efficiency and innovation. The company's commitment to operational excellence, client diversification, and strategic global expansion positions it for sustained growth, even as it navigates a competitive and volatile macroeconomic environment.

While the reiterated 2025 guidance reflects a period of strategic investment impacting near-term margins, the anticipated improvements in the latter half of the year and beyond signal a clear path towards enhanced profitability. The potential privatization by TELUS Corporation (TU) introduces a new dimension, promising deeper integration and accelerated AI transformation, which could unlock significant synergies and reinforce TIXT's competitive advantages within a broader ecosystem. Investors should closely monitor the progress of this strategic reintegration and the continued execution of TIXT's AI-centric growth initiatives, as these factors will be crucial in shaping its future value proposition.