Form 6-K TELUS International (Cda For: Mar 31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 6-K
 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of May 2021

 

Commission File Number 001-39968

 

TELUS International (Cda) Inc.

(Registrant’s name)

 

Floor 7, 510 West Georgia Street

Vancouver, BC V6B 0M3

Tel.: (604) 695-3455

 

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F x      Form 40-F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

 

 

 

Telus International (Cda) Inc.’s unaudited condensed interim consolidated financial statements for the three months ended March 31, 2021 and 2020 and management’s discussion and analysis of the three months ended March 31, 2021 are attached as exhibits to this Report of Foreign Private Issuer on Form 6-K. 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	TELUS International (Cda) Inc.
Date: May 7, 2021	By:	/s/ Vanessa Kanu
	Name:	Vanessa Kanu
	Title:	Chief Financial Officer

 

 

EXHIBIT

 

Exhibit	Description of Exhibit
99.1	Condensed Interim Consolidated Financial Statements for the Three Months Ended March 31, 2021 and 2020
99.2	Management’s Discussion and Analysis for the Three Months Ended March 31, 2021 and 2020
99.3	Form 52-109F2 Certificate of Interim Filings by CEO (pursuant to Canadian regulations)
99.4	Form 52-109F2 Certificate of Interim Filings by CFO (pursuant to Canadian regulations)

 

 

 

Exhibit 99.1

 

 

 

TELUS International (Cda) Inc.

 

Condensed Interim Consolidated Statements of Income and Other Comprehensive Income (Loss)

(unaudited)

 

				Three months
Periods ended March 31 (US$ millions except earnings per share)		Note		2021				2020
REVENUE		3		$	505			$	322
OPERATING EXPENSES
Salaries and benefits					282				206
Goods and services purchased					94				48
Share-based compensation		4			26				2
Acquisition, integration and other		5			5				19
Depreciation		11			27				21
Amortization of intangible assets		12			36				13
					470				309
OPERATING INCOME					35				13
OTHER (INCOME) EXPENSES
Changes in business combination-related provisions					—				(23	)
Interest expense		6			14				13
Foreign exchange loss					3				—
INCOME BEFORE INCOME TAXES					18				23
Income tax expense		7			15				12
NET INCOME					3				11
OTHER COMPREHENSIVE INCOME (LOSS)
Items that may subsequently be reclassified to income
Change in unrealized fair value of derivatives designated as held-for-hedging					21				(4	)
Exchange differences arising from translation of foreign operations					(33	)			(12	)
					(12	)			(16	)
COMPREHENSIVE LOSS				$	(9	)		$	(5	)
EARNINGS PER SHARE		1(a),8
Basic				$	0.01			$	0.05
Diluted				$	0.01			$	0.05
TOTAL WEIGHTED AVERAGE SHARES OUTSTANDING (millions)
Basic		8			257				209
Diluted		8			259				210

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

 

TELUS International (Cda) Inc.

 

Condensed Interim Consolidated Statements of Financial Position

(unaudited)

 

As at (US$ millions)		Note		March 31, 2021				December 31, 2020
ASSETS
Current assets
Cash and cash equivalents				$	117			$	153
Accounts receivable		9			346				303
Due from affiliated companies		17(a)			49				49
Income and other taxes receivable		7			14				18
Prepaid expenses					40				23
Current derivative assets		10			1				2
					567				548
Non-current assets
Property, plant and equipment, net		11			358				362
Intangible assets, net		12			1,235				1,294
Goodwill		12			1,456				1,487
Deferred income taxes					19				7
Other long-term assets					25				34
					3,093				3,184
Total assets				$	3,660			$	3,732
LIABILITIES AND OWNERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities		18(b)		$	281			$	254
Due to affiliated companies		17(a)			39				31
Income and other taxes payable					82				101
Advance billings and customer deposits					4				8
Current portion of provisions		13			12				17
Current maturities of long-term debt		14			94				92
Current portion of derivative liabilities		10			3				1
					515				504
Non-current liabilities
Provisions		13			17				20
Long-term debt		14			1,137				1,674
Derivative liabilities		10			35				57
Deferred income taxes					344				353
Other long-term liabilities					7				13
					1,540				2,117
Total liabilities					2,055				2,621
Owners’ equity		15			1,605				1,111
Total liabilities and owners’ equity				$	3,660			$	3,732
Contingent liabilities		16

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

 

TELUS International (Cda) Inc.

 

Condensed Interim Consolidated Statements of Changes in Owners’ Equity

(unaudited)

 

(millions)		Note		Number of shares		Share capital			Contributed surplus			Retained earnings (deficit)			Accumulated other comprehensive income (loss)			Total
Balance as at January 1, 2020		1(a)		190		$	284		$	—		$	(54	)	$	15		$	245
Net income				—			—			—			11			—			11
Other comprehensive loss				—			—			—			—			(16	)		(16	)
Class A shares issued		1(a)		15			124			—			—			—			124
Class B shares issued		1(a)		8			68			—			—			—			68
Class C shares issued		1(a)		—			2			—			—			—			2
Class E shares issued		1(a)		7			90			—			—			—			90
Balance as at March 31, 2020		1(a)		220		$	568		$	—		$	(43	)	$	(1	)	$	524
Balance as at January 1, 2021				245		$	989		$	—		$	33		$	89		$	1,111
Net income				—			—			—			3			—			3
Other comprehensive loss				—			—			—			—			(12	)		(12	)
Class A to E shares exchanged or redesignated		15		(245	)		(994	)		—			—			—			(994	)
Multiple Voting Shares redesignated from Class A to D shares		15		236			884			—			—			—			884
Subordinate Voting Shares redesignated from Class C to E shares		15		9			110			—			—			—			110
Multiple Voting Shares converted to Subordinate Voting Shares		15		(22	)		(81	)		—			—			—			(81	)
Subordinate Voting Shares converted from Multiple Voting Shares		15		22			81			—			—			—			81
Subordinate Voting Shares issued in public offering		15		21			525			—			—			—			525
Share issuance costs, net of taxes		15		—			(24	)		—			—			—			(24	)
Share-based compensation		4		—			—			2			—			—			2
Balance as at March 31, 2021				266		$	1,490		$	2		$	36		$	77		$	1,605

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

  

 

TELUS International (Cda) Inc.

 

Condensed Interim Consolidated Statements of Cash Flows

(unaudited)

 

				Three months
Periods ended March 31 (US$ millions)		Note		2021				2020
OPERATING ACTIVITIES
Net income				$	3			$	11
Adjustments:
Depreciation and amortization		11,12			63				34
Interest expense		6			14				13
Income tax expense		7			15				12
Share-based compensation		4			26				2
Changes in business combination-related provisions					—				(23	)
Change in market value of derivatives and other adjustments					29				—
Net change in non-cash operating working capital		18(c)			(53	)			24
Share-based compensation payments		4			(17	)			—
Interest paid					(9	)			(8	)
Income taxes paid, net					(35	)			(31	)
Cash provided by operating activities					36				34
INVESTING ACTIVITIES
Cash payments for capital assets					(14	)			(1	)
Cash payments for acquisitions, net					—				(805	)
Cash used in investing activities					(14	)			(806	)
FINANCING ACTIVITIES
Shares issued		15			525				284
Share issuance costs		15			(32	)			—
Repayment of long-term debt		18(d)			(547	)			(589	)
Long-term debt issued					—				1,145
Cash (used in) provided by financing activities					(54	)			840
Effect of exchange rate changes on cash and cash equivalents					(4	)			—
CASH POSITION
(Decrease) increase in cash and cash equivalents					(36	)			68
Cash and cash equivalents, beginning of period					153				80
Cash and cash equivalents, end of period				$	117			$	148

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

  

 

 

TELUS International (Cda) Inc.

 

Notes to Condensed Interim Consolidated Financial Statements

(unaudited)

 

 

 

1. Condensed interim consolidated financial statements

 

(a)

Basis of presentation

 

The notes presented in our condensed interim consolidated financial statements include only significant events and transactions and are not fully inclusive of all matters normally disclosed in our annual audited financial statements; thus, our interim consolidated financial statements are referred to as condensed. Our financial results may vary from period to period during any fiscal year. The seasonality in our business, and consequently, our financial performance, mirrors that of our clients. Our revenues are typically higher in the third and fourth quarters than in other quarters.

 

These condensed interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2020, and are expressed in United States dollars and follow the same accounting policies and methods of their application as set out in our audited consolidated financial statements for the year ended December 31, 2020, other than as described in the section “Change in presentation” below. The generally accepted accounting principles that we use are International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB). Our condensed interim consolidated financial statements comply with International Accounting Standard 34, Interim Financial Reporting and reflect all adjustments (which are of a normal recurring nature) that are, in our opinion, necessary for a fair statement of the results for the interim periods presented.

 

In connection with our initial public offering (IPO) on February 3, 2021 and related 4.5-for-one share subdivision, we have retrospectively adjusted all per share and number of share amounts presented in these condensed interim consolidated financial statements (see Note 15).

 

These condensed interim consolidated financial statements for the three-month period ended March 31, 2021, were authorized by our Board of Directors for issue on May 6, 2021.

 

 

(b)

Change in presentation

 

In our condensed interim consolidated statements of income and other comprehensive income, we have reclassified certain employee benefits previously included in salaries and benefits to share-based compensation. In addition, we have reclassified certain costs previously included in goods and services purchased to acquisition, integration and other, which are costs that primarily relate to costs incurred in connection with business acquisitions. We believe this presentation provides a more useful presentation of our profit and loss. All amounts presented for comparative periods have been reclassified to conform with current period presentation.

 

(c)	Accounting policy developments

 

i)

Initial application of standards, interpretations and amendments to standards and interpretations

 

In August 2020, the International Accounting Standards Board issued Interest Rate Benchmark Reform—Phase 2, which amends IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases. The amendments are effective for periods beginning on or after January 1, 2021. Interest rate benchmarks such as interbank offer rates (IBORs) play an important role in global financial markets as they index a wide variety of financial products, including derivative financial instruments. Market developments have impacted the reliability of some existing benchmarks and, in this context, the Financial Stability Board has published a report setting out recommendations to reform such benchmarks. The Interest Rate Benchmark Reform—Phase 2 amendments focus on the effects of the interest rate benchmark reform on a company’s financial statements that arise when an interest rate benchmark used to calculate interest is replaced with an alternative benchmark rate; most significantly, there will be no requirement to derecognize or adjust the amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate. The effects of these amendments on our financial performance and disclosure will be dependent upon the facts and circumstances of future changes in the derivative financial instruments we use, if any, and any future changes in interest rate benchmarks, if any, referenced by such derivative financial instruments we use.

 

ii)

Standards, interpretations and amendments to standards and interpretations issued but not yet effective

 

In February 2021, the International Accounting Standards Board issued narrow-scope amendments to IAS 1, Presentation of Financial Statements, IFRS Practice Statement 2, Making Materiality Judgements and IAS 8, Accounting Polices, Changes in Accounting Estimates and Errors. The amendments are effective for annual periods beginning on or after January 1, 2023, although earlier application is permitted. The amendments will require the disclosure of material accounting policy information rather than disclosing significant accounting policies and clarifies how to distinguish changes in accounting policies from changes in accounting estimates. We are currently assessing the impacts of the amended standards, but do not expect that our financial disclosure will be materially affected by the application of the amendments.

 

2. Capital structure financial policies

 

Our objective when managing capital is to maintain a flexible capital structure that optimizes the cost and availability of capital at acceptable risk levels.

 

In the management of capital and in its definition, we include owners’ equity (excluding accumulated other comprehensive income), long-term debt (including long-term credit facilities and any hedging assets or liabilities associated with long-term debt items, net of amounts recognized in accumulated other comprehensive income and excluding lease liabilities) and cash and cash equivalents. We manage capital by monitoring the financial covenants in our credit facility (Note 14).

 

We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of our business. In order to maintain or adjust our capital structure, we may issue new subordinate voting shares, issue new debt with different terms or characteristics which may be used to replace existing debt, or pay down our debt balance with cash flows from operations.

 

 

On February 3, 2021, we completed an initial public offering (IPO) and issued 20,997,375 subordinate voting shares at $25.00 per share. Net cash proceeds were used to repay a portion of outstanding borrowings under our credit agreement (see Notes 14 and 15).

 

3. Revenue

 

We earn revenue pursuant to contracts with our clients, who operate in various industry verticals. The following presents our earned revenue disaggregation by industry vertical for each period ended March 31:

 

		Three months
Periods ended March 31 (millions)		2021				2020
Tech and Games		$	224			$	119
Communications and Media			129				111
eCommerce and FinTech			55				36
Travel and Hospitality			14				14
Healthcare			12				9
Other			71				33
		$	505			$	322

 

We deliver our services from multiple delivery locations across four geographic regions. The following presents our earned revenue disaggregation by geographic region for each period ended March 31:

 

		Three months
Periods ended March 31 (millions)		2021				2020
Europe		$	187			$	120
North America			150				65
Asia-Pacific			94				83
Central America			74				54
		$	505			$	322

 

4. Share-based compensation

 

(a)

Restricted share unit plan

 

Restricted share units

 

We have equity-settled restricted share units (RSUs), cash-settled restricted share units (Phantom RSUs), and cash-settled phantom performance restricted share units (Phantom PSUs). Each RSU, Phantom RSU and Phantom PSU is nominally equal in value to one TELUS International subordinate voting share. All restricted share units granted prior to December 31, 2020 were Phantom RSUs or Phantom PSUs, whereas restricted share units granted in the current quarter were RSUs. The following table presents a summary of the activity related to our restricted share units:

 

		Three months
		Number of units								Weighted average grant-date
Period ended March 31, 2021		Non-vested				Vested				fair value
Outstanding, January 1, 2021			1,383,642				—			$	7.94
Granted			670,292				—				25.00
Forfeited			(14,346	)			—				7.90
Outstanding, March 31, 2021			2,039,588				—			$	13.55

 

 

During the current quarter, we granted 670,292 RSUs which will vest in four equal annual instalments and will be equity-settled. These RSUs are eligible for dividend reinvestment units, if declared and paid by TELUS International, as such the fair value was determined to be equal to the market price of a subordinate voting share of TELUS International on the date of grant of $25.00.

 

As at March 31, 2021, the outstanding restricted share units were comprised of 670,292 RSUs, 730,513 Phantom RSUs, and 638,783 Phantom PSUs.

 

Phantom TELUS Corporation restricted share units (Phantom TELUS Corporation RSU)

 

Each Phantom TELUS Corporation RSU is nominally equal in value to the market price of one TELUS Corporation common share. The following table presents a summary of the activity related to Phantom TELUS Corporation RSU:

 

		Three months
Period ended March 31, 2021		Number of units								Weighted average grant-
Canadian $ denominated		Non-vested				Vested				date fair value
Outstanding, January 1, 2021			156,749				—			$	24.17
Dividends			1,629				—				25.20
Forfeited			(15,050	)			—				24.83
Outstanding, March 31, 2021			143,328				—			$	24.11

 

The Phantom TELUS Corporation RSUs are historic grants made to certain employees. No new grants are expected to be made under this plan.

 

(b)           Share option award plan

 

We have equity-settled share option awards (Share Options), and cash-settled share option awards (Phantom Share Options). Share Options grant the right to the employee recipient to purchase and receive a subordinate voting share of TELUS International for a pre-determined exercise price. Phantom Share Options grant the right to the employee recipient to receive cash equal to the intrinsic value of the share option award, determined as the difference between the market price of a subordinate voting share of TELUS International and the exercise price.

 

Share Options and Phantom Share Options were precluded from being exercised prior to the completion of our IPO or other liquidity event. In connection with our IPO, certain vested Phantom Share Options became exercisable and were exercised in the first quarter of 2021.

 

The following table presents a summary of the activity related to our share option awards:

  

		U.S.$ denominated												Canadian $ denominated
		Number of share option award units								Weighted average				Number of share option award units								Weighted average
Period ended March 31, 2021		Non-vested				Vested				exercise price				Non-vested				Vested				exercise price
Outstanding, January 1, 2021			654,633				3,267,423			$	6.94				—				242,244			$	4.75
Granted			579,949				—				25.00				—				—				—
Exercised for cash			—				(409,036	)			6.06				—				(242,244	)			4.75
Outstanding, March 31, 2021			1,234,582				2,858,387			$	9.59				—				—			$	—
Exercisable, March 31, 2021			—				2,858,387			$	6.95				—				—			$	—

 

The exercise price for options outstanding as at March 31, 2021 ranged from $4.87 to $8.95 for 3,513,020 options with a weighted-average remaining contractual life of 6.5 years, and $25.00 for 579,949 options with a weighted-average remaining contractual life of 9.8 years.

 

 

During the current quarter, we granted 579,949 Share Options which will vest in four equal annual instalments and expire in ten years.

 

During the current quarter, we cash-settled 651,280 Phantom Share Options for $17 million, reflecting the intrinsic value at the date of settlement and a weighted average share price at the date of exercise of $31.17.

 

The weighted average fair value of Share Options granted during the three-month period ended March 31, 2021, and the weighted average assumptions used in the fair value estimation at the time of grant, calculated by using the Black-Scholes model, are as follows:

 

Period ended March 31, 2021		Three months
Share option award fair value (per share option)		$	5.34
Risk free interest rate			0.73	%
Expected lives (years)			6.50
Expected volatility			19.3	%
Dividend yield			—

 

5. Acquisition, integration and other

 

We incur charges that relate to our business acquisitions, including transaction costs and integration activities, which could vary from year to year depending on the volume, nature and complexity of the transactions completed in each fiscal year. We also, from time to time, incur costs associated with streamlining our operations.

 

		Three months
Period ended March 31 (millions)		2021				2020
Acquisition and integration costs		$	2			$	18
Other			3				1
		$	5			$	19

 

6. Interest expense

  

		Three months
Periods ended March 31 (millions)		2021				2020
Interest expense
Interest on long-term debt, excluding lease liabilities		$	9			$	7
Interest on lease liabilities			4				3
Interest on short-term borrowings and other			1				1
Interest accretion on provisions			—				2
		$	14			$	13

 

7. Income taxes

  

		Three months
Periods ended March 31 (millions)		2021				2020
Current income tax expense
For current reporting period		$	21			$	11
Adjustments recognized in the current period for income tax of prior periods			—				(2	)
			21				9
Deferred income tax expense (recovery)
Arising from the origination and reversal of temporary differences			(6	)			1
Adjustments recognized in the current period for income tax of prior periods			—				2
			(6	)			3
		$	15			$	12

 

 

 

Our income tax expense and effective income tax rate differs from that calculated by applying the applicable statutory rates for the following reasons: 

 

		Three months
Periods ended March 31 (millions except percentages)		2021								2020
Income taxes computed at applicable statutory rates		$	4				21.5	%		$	7				27.7	%
Non-deductible items			6								2
Withholding and other taxes			4								2
Losses not recognized			2								2
Other			(1	)							(1	)
Income tax expense		$	15				81.8	%		$	12				52.5	%

 

8. Earnings per share

 

(a)

Basic earnings per share

 

Basic earnings per share is calculated by dividing net income by the total weighted average number of equity shares outstanding during the period.

 

		Three months
Periods ended March 31 (millions except earnings per share)		2021				2020
Net income for the period		$	3			$	11
Weighted average number of equity shares outstanding			257				209
Basic earnings per share		$	0.01			$	0.05

 

(b)	Diluted earnings per share

 

Diluted earnings per share is calculated to give effect to the potential dilutive effect that could occur if additional equity shares were assumed to be issued under securities or instruments that may entitle their holders to obtain equity shares in the future, such as share option awards and restricted share units. The number of additional shares for inclusion in the diluted earnings per share calculation was determined using the treasury stock method.

 

		Three months
Periods ended March 31 (millions except earnings per share)		2021				2020
Net income for the period		$	3			$	11
Weighted average number of equity shares outstanding			257				209
Dilutive effect of share-based compensation			2				1
Weighted average number of diluted equity shares outstanding			259				210
Diluted earnings per share		$	0.01			$	0.05

 

9. Accounts receivable

 

(a)	Accounts receivable

 

As at (millions)		March 31, 2021				December 31, 2020
Accounts receivable – billed		$	170			$	163
Accounts receivable – accrued			145				125
Other receivables			36				20
			351				308
Allowance for doubtful accounts			(5	)			(5	)
Total		$	346			$	303

 

 

The following table presents an analysis of the age of customer accounts receivable. Any late payment charges are levied at a negotiated rate on outstanding non-current customer account balances.

 

As at (millions)		March 31, 2021				December 31, 2020
Customer accounts receivable – billed, net of allowance for doubtful accounts
Less than 30 days past billing date		$	128			$	121
30-60 days past billing date			28				28
61-90 days past billing date			5				7
More than 90 days past billing date			4				2
			165				158
Accounts receivable – accrued			145				125
Other receivables			36				20
Total		$	346			$	303

 

We maintain allowances for lifetime expected credit losses related to doubtful accounts. Current economic conditions (including forward-looking macroeconomic data), historical information (including credit agency reports, if available), reasons for the accounts being past due and line of business from which the customer accounts receivable arose are all considered when determining whether to make allowances for past-due accounts. The same factors are considered when determining whether to write off amounts charged to the allowance for doubtful accounts against the customer accounts receivable. The doubtful accounts expense is calculated on a specific-identification basis for customer accounts receivable over a specific balance threshold and on a statistically derived allowance basis for the remainder. No customer accounts receivable balances are written off directly to bad debt expense.

 

The following table presents a summary of the activity related to our allowance for doubtful accounts:

 

		Three months
Periods ended March 31 (millions)		2021				2020
Balance, beginning of period		$	5			$	2
Additions			—				1
Write-off or recovery			—				(2	)
Balance, end of period		$	5			$	1

 

10. Financial instruments

 

General

 

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and certain provisions approximate their fair values due to the immediate or short-term maturity of these financial instruments. The fair values are determined directly by reference to quoted market prices in active markets.

 

The fair values of the derivative financial instruments we use to manage our exposure to currency risks are estimated based upon quoted market prices in active markets for the same or similar financial instruments or on the current rates offered to us for financial instruments of the same maturity, as well as discounted future cash flows determined using current rates for similar financial instruments subject to similar risks and maturities (such fair value estimates being largely based on the European euro: US$ and Philippine peso: US$ forward exchange rates as at the statement of financial position dates).

 

 

Derivative

 

The derivative financial instruments that we measure at fair value on a recurring basis subsequent to initial recognition are as set out in the following table; all such items use significant other observable inputs (Level 2) for measuring fair value at the reporting date.

 

						March 31, 2021																December 31, 2020
As at (millions)		Designation				Maximum maturity date				Notional amount				Fair value and carrying value				Price or rate				Maximum maturity date				Notional amount				Fair value and carrying value				Price or rate
Current assets1
Derivatives used to manage
Currency risk arising from Philippine peso denominated purchases			HFT2				2021			$	78			$	-				USD:1.00 PHP:48.83				2021			$	68			$	2				USD:1.00 PHP:48.23
Foreign exchange arising from net investment in foreign operation			HFH3				2025			$	5			$	1				USD:1.00 EUR:0.85				-			$	-			$	-				-
Current liabilities1
Derivatives used to manage
Foreign exchange arising from net investment in foreign operation			HFH3				-			$	-			$	-				USD:1.00 EUR:0.85				2025			$	2			$	1				USD:1.00 EUR:0.85
Interest rate risk associated with non-fixed rate credit facility amounts drawn			HFH3				2022			$	5			$	3				2.64	%			-			$	-			$	-				-
Non-current liabilities1
Derivatives used to manage
Foreign exchange arising from net investment in foreign operation			HFH3				2025			$	394			$	33				USD:1.00 EUR:0.85				2025			$	403			$	52				USD:1.00 EUR:0.85
Interest rate risk associated with non-fixed rate credit facility amounts drawn			HFH3				2022			$	95			$	2				2.64	%			2022			$	101			$	5				2.64	%

 

	1	Notional amounts of derivative financial assets and liabilities are not set off.
	2	Foreign currency hedges are designated as held for trading (HFT) upon initial recognition; hedge accounting is not applied.
	3	Designated as held for hedging (HFH) upon initial recognition (cash flow hedging item); hedge accounting is applied. Unless otherwise noted, hedge ratio is 1:1 and is established by assessing the degree of matching between the notional amounts of hedging items and the notional amounts of the associated hedged items.

 

 

11. Property, plant and equipment

 

		Owned assets																				Right-of-use lease assets
(millions)		Computer hardware and network assets				Buildings and leasehold improvements				Furniture and equipment				Assets under construction				Total				Buildings				Total
At cost
As at January 1, 2021		$	46			$	95			$	207			$	15			$	363			$	264			$	627
Additions			—				1				5				11				17				10				27
Dispositions, retirements and other			(1	)			—				(1	)			(1	)			(3	)			—				(3	)
Transfers			3				2				4				(9	)			—				—				—
Foreign exchange			(1	)			—				(1	)			—				(2	)			(4	)			(6	)
As at March 31, 2021		$	47			$	98			$	214			$	16			$	375			$	270			$	645
Accumulated depreciation
As at January 1, 2021		$	23			$	32			$	126			$	—			$	181			$	84			$	265
Depreciation			2				3				9				—				14				13				27
Dispositions, retirements and other			—				—				(1	)			—				(1	)			—				(1	)
Foreign exchange			—				(1	)			(1	)			—				(2	)			(2	)			(4	)
As at March 31, 2021		$	25			$	34			$	133			$	—			$	192			$	95			$	287
Net book value
As at December 31, 2020		$	23			$	63			$	81			$	15			$	182			$	180			$	362
As at March 31, 2021		$	22			$	64			$	81			$	16			$	183			$	175			$	358

 

12. Intangible assets and goodwill   

 

(millions)		Customer relationships				Crowdsource assets				Software				Brand and other				Total intangible assets				Goodwill				Total intangible assets and goodwill
At cost
As at January 1, 2021		$	1,223			$	120			$	57			$	39			$	1,439			$	1,487			$	2,926
Additions			—				—				1				—				1				—				1
Foreign exchange			(26	)			—				(1	)			(2	)			(29	)			(31	)			(60	)
As at March 31, 2021		$	1,197			$	120			$	57			$	37			$	1,411			$	1,456			$	2,867
Accumulated amortization
As at January 1, 2021		$	103			$	—			$	32			$	10			$	145			$	—			$	145
Amortization			27				4				2				3				36				—				36
Foreign exchange			(4	)			—				(1	)			—				(5	)			—				(5	)
As at March 31, 2021		$	126			$	4			$	33			$	13			$	176			$	—			$	176
Net book value
As at December 31, 2020		$	1,120			$	120			$	25			$	29			$	1,294			$	1,487			$	2,781
As at March 31, 2021		$	1,071			$	116			$	24			$	24			$	1,235			$	1,456			$	2,691

 

Our goodwill balance as at December 31, 2020 was reduced by $13 million related to a change in the purchase price allocation for our LAI acquisition, with a corresponding adjustment to deferred tax liability.

 

 

13. Provisions

 

(millions)		Employee related				Other				Total
As at January 1, 2021		$	20			$	17			$	37
Additions			3				3				6
Use			(5	)			(9	)			(14	)
As at March 31, 2021		$	18			$	11			$	29
Current			1				11				12
Non-current			17				—				17
As at March 31, 2021		$	18			$	11			$	29

 

14. Long-term debt

 

As at (millions)		March 31, 2021				December 31, 2020
Credit facility		$	1,038			$	1,568
Deferred debt transaction costs			(10	)			(11	)
			1,028				1,557
Lease liabilities			203				209
Long-term debt		$	1,231			$	1,766
Current		$	94			$	92
Non-current			1,137				1,674
Long-term debt		$	1,231			$	1,766

 

(a)	Credit facility

 

As at March 31, 2021, we had a credit facility secured by our assets with a syndicate of financial institutions, expiring on January 28, 2025. The credit facility is comprised of a $620 million and $230 million revolving components and amortizing $600 million and $250 million term loan components. The outstanding revolving components and term loan components had a weighted average interest rate of 2.86% (December 31, 2020 – 2.90%).

 

As at (millions)		March 31, 2021												December 31, 2020
		Revolving component				Term loan component1				Total				Revolving component				Term loan component				Total
Available		$	651			$	N/A			$	651			$	132			$	N/A			$	132
Outstanding
Due to TELUS Corporation		$	25			$	74			$	99			$	65			$	75			$	140
Due to Other			174				765				939				653				775				1,428
		$	199			$	839			$	1,038			$	718			$	850			$	1,568
Total		$	850			$	839			$	1,689			$	850			$	850			$	1,700

 

1

We have entered into a receive-floating interest rate, pay-fixed interest rate exchange agreement that effectively converts our interest obligations on $101 million of the debt to a fixed rate of 2.64% plus applicable margins.

 

The credit facility bears interest at prime rate, U.S. Dollar Base Rate, a bankers’ acceptance rate or London interbank offered rate (LIBOR) (all such terms as used or defined in the credit facility), plus applicable margins. The credit facility contains customary representations, warranties and covenants, including two financial quarter-end ratio tests. Net debt to operating cash flow ratio must not exceed: 5.25:1.00 for each quarter in fiscal 2021; 4.50:1.00 for each quarter in fiscal 2022; and 3.75:1.00 subsequently. The operating cash flow to debt service (interest and scheduled principal repayment) ratio must not be less than 1.50:1.00, all as defined in the credit facility. If an acquisition with an aggregate cash consideration in excess of $60 million occurs in any twelve-month period, the maximum permitted net debt to EBITDA ratio may be increased to 4.50:1.00 and shall return to 3.75:1.00 after eight fiscal quarters.

 

 

 

The term loan components of our credit facility are subject to an amortization schedule which requires that 1.25% of the principal advanced be repaid each quarter of the term of the agreement, with the balance due at maturity and December 22, 2022, for the US$250 million component, respectively.

 

As at March 31, 2021, we were in compliance with all financial covenants, financial ratios and all of the terms and conditions of our credit facility. 

 

(b)	Long-term debt maturities

 

Anticipated requirements to meet long-term debt repayments, calculated upon such long-term debts owing as at March 31, 2021, are as follows:

  

Composite long-term debt denominated in		U.S dollars												European euros				Other currencies
For each fiscal year ending December 31 (millions)		Long-term debt, excluding leases				Leases				Total				Leases				Leases				Total
2021 (remainder of year)		$	32			$	13			$	45			$	10			$	17			$	72
2022			268				17				285				11				17				313
2023			30				16				46				7				16				69
2024			30				7				37				5				13				55
2025			678				6				684				3				7				694
Thereafter			—				8				8				15				15				38
Future cash outflows in respect of composite long-term debt principal repayments			1,038				67				1,105				51				85				1,241
Future cash outflows in respect of associated interest and like carrying costs 1			107				14				121				11				19				151
Undiscounted contractual maturities		$	1,145			$	81			$	1,226			$	62			$	104			$	1,392

 

1

Future cash outflows in respect of associated interest and like carrying costs for amounts drawn under our credit facilities (if any) have been calculated based upon the rates in effect at March 31, 2021.

 

15. Share capital

 

In connection with our IPO on February 3, 2021, TELUS Corporation, our controlling shareholder, exchanged its outstanding Class A, Class C and Class D shares for Class B shares. Each other holder of Class C and Class D shares exchanged their shares for Class E shares. Our Class B shares, which were then only held by TELUS Corporation and Baring Private Equity Asia, a non-controlling shareholder, were redesignated as multiple voting shares and our Class E shares were redesignated as subordinate voting shares. The rights of the holders of our multiple voting shares and subordinate voting shares are substantially identical, except subordinate voting shares have one vote per share and multiple voting shares have 10 votes per share. Concurrent with the redesignations, we eliminated all of our previously outstanding series of Class A, Class C and Class D shares and our authorized Class A and Class B preferred shares. Subsequent to the IPO, our equity shares were comprised only of subordinate voting shares and multiple voting shares.

 

Subsequent to the share redesignations, we also effected a 4.5-for-1 split of each of our outstanding multiple voting shares and subordinate voting shares. In all instances, unless otherwise indicated, the number of equity shares authorized, the number of equity shares outstanding, the number of equity shares reserved, per share amounts and share-based compensation information in our condensed interim consolidated financial statements and accompanying notes have been restated to reflect the impact of the 4.5-for-1 split.

 

In connection with our IPO, we issued 20,997,375 subordinate voting shares at $25.00 per share, for gross proceeds of $525 million and net proceeds of $501 million (net of share issuance costs of $32 million, which include underwriting fees and offering expenses, offset by deferred taxes of $8 million).

 

 

TELUS Corporation and Baring Private Equity Asia also sold 21,552,625 subordinated voting shares in the IPO at the same price, which were issued following the conversion by them of an aggregate 21,552,625 multiple voting shares.

 

Our authorized and issued share capital as at March 31, 2021 is as follows:

 

Authorized

Issued

As at (millions)

March 31, 2021

December 31, 2020

March 31, 2021

December 31, 2020

Preferred Shares

Convertible Redeemable Preferred A Shares

n/a

unlimited

n/a

—

Convertible Redeemable Preferred B Shares

n/a

unlimited

n/a

—

Equity Shares

Class A

n/a

unlimited

n/a

149

Class B, redesignated as Multiple Voting Shares

unlimited

unlimited

214

82

Class C

n/a

unlimited

n/a

4

Class D

n/a

unlimited

n/a

3

Class E, redesignated as Subordinate Voting Shares

unlimited

unlimited

52

7

 

As at March 31, 2021, there were 19 million authorized but unissued subordinate voting shares reserved for issuance under the Long-Term Incentive Plan.

 

16. Contingent liabilities

 

(a)	Indemnification obligations

 

In the normal course of operations, we provide indemnification in conjunction with certain transactions. The terms of these indemnification obligations range in duration. These indemnifications would require us to compensate the indemnified parties for costs incurred as a result of failure to comply with contractual obligations or litigation claims or statutory sanctions or damages that may be suffered by an indemnified party. In some cases, there is no maximum limit on these indemnification obligations. The overall maximum amount of an indemnification obligation will depend on future events and conditions and therefore cannot be reasonably estimated. Where appropriate, an indemnification obligation is recorded as a liability. Other than obligations recorded as liabilities at the time of such transactions, historically we have not made significant payments under these indemnifications. As at March 31, 2021, we had no liability recorded in respect of indemnification obligations (December 31, 2020 - $NIL).

 

(b)	Claims and lawsuits

 

We are party to various legal proceedings and claims that arise in the ordinary course of business. The ultimate outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's estimates of loss, or if any outcome becomes more likely than not and estimable, our results of operations and financial condition could be adversely affected. 

 

 

17. Related party transactions

 

(a)	Transactions with TELUS Corporation

 

General

 

TELUS Corporation produces consolidated financial statements available for public use and is the ultimate parent and controlling party of TELUS International.

 

Recurring transactions

 

TELUS Corporation and its subsidiaries receive customer care, integrated business process outsourcing and information technology outsourcing services from us, and provide services (including people, network, finance, communications, and regulatory) to us.

 

Certain of our employees also participate in TELUS Corporation share-based compensation plans. TELUS Corporation charges these amounts to us at cost, net of hedging effects where applicable.

 

We also participate in defined benefit pension plans that share risks between TELUS Corporation and its subsidiaries. 

 

		2021												2020
Three-month periods ended March 31 (millions)		TELUS Corporation (parent)				Subsidiaries of TELUS Corporation				Total				TELUS Corporation (parent)				Subsidiaries of TELUS Corporation				Total
Transactions with TELUS Corporation and subsidiaries
Revenues from services provided to		$	—			$	82			$	82			$	—			$	72			$	72
Goods and services purchased from			—				(10	)			(10	)			—				(1	)			(1	)
			—				72				72				—				71				71
Receipts from related parties			—				(82	)			(82	)			—				(58	)			(58	)
Payments to related parties			5				—				5				—				—				—
Payments (made) collected by related parties on our behalf			(24	)			21				(3	)			1				(20	)			(19	)
Foreign currency adjustments			—				—				—				—				2				2
Change in balance			(19	)			11				(8	)			1				(5	)			(4	)
Accounts with TELUS Corporation and subsidiaries
Balance, beginning of period			27				(9	)			18				3				1				4
Balance, end of period		$	8			$	2			$	10			$	4			$	(4	)		$	—
Accounts with TELUS Corporation and subsidiaries
Due from affiliated companies		$	8			$	41			$	49			$	4			$	21			$	25
Due to affiliated companies			—				(39	)			(39	)			—				(25	)			(25	)
		$	8				2				10			$	4			$	(4	)		$	—

 

In the consolidated statement of financial position, amounts due from affiliates and amounts due to affiliates are generally due 30 days from billing and are cash-settled on a gross basis.

 

In January 2021, we renewed our master service agreement with TELUS Corporation, which provides for a term of ten years beginning in January 2021 and a minimum annual spend of $200 million, subject to adjustment in accordance with its terms.

 

 

(b)	Transactions with Baring Private Equity Asia

 

General

 

Baring Private Equity Asia exercises significant influence over TELUS International.

 

Recurring transactions

 

As at, and during the three-month period ended March 31, 2021, there were no balances due to or due from, or recurring transactions with, Baring Private Equity Asia (December 31, 2020 – nil). 

 

(c)	Transactions with key management personnel

 

Our key management personnel have the authority and responsibility for overseeing, planning, directing and controlling our activities and consist of our Board of Directors and our Senior Leadership Team.

 

During the three-month period ended March 31, 2021, share-based compensation expense of $16 million was attributable to our key management personnel. We granted 643,292 RSUs and 579,049 Share Options to our key management personnel, with a grant-date fair value of $16 million and $3 million, respectively. Additionally during the current quarter, 516,996 Share Options attributable to our key management personnel were exercised which had an intrinsic value of $14 million at the time of exercise, reflecting a weighted average price at the date of exercise of $31.17.

 

18. Additional financial information

 

(a)	Statements of income and other comprehensive income

 

We have two customers which account for more than 10% of our operating revenues for the three-month periods ended March 31, 2021, and 2020. In the three-month periods ended March 31, 2021, and 2020, TELUS Corporation and its affiliates accounted for 16% and 22%, respectively, of our operating revenue. One arm’s-length party accounted for approximately 16% and 12% of our operating revenues for the three-month periods ended March 31, 2021, and 2020, respectively.

 

(b)	Statements of financial position

   

As at (millions)		March 31, 2021				December 31, 2020
Other long-term assets
Prepaid lease deposits and other		$	22			$	24
Other			3				10
		$	25			$	34
Accounts payable and accrued liabilities
Trade accounts payable		$	28			$	25
Accrued liabilities			85				64
Payroll and other employee-related liabilities			101				103
Share-based compensation liability – current portion			23				13
Other			44				49
		$	281			$	254

 

 

(c)	Statements of cash flows—operating activities and investing activities

 

		Three months
Periods ended March 31 (millions)		2021				2020
Net change in non-cash operating working capital
Accounts receivable		$	(43	)		$	(1	)
Due to and from affiliated companies, net			8				5
Prepaid expenses			(17	)			1
Other long-term assets			9				(1	)
Accounts payable and accrued liabilities			18				32
Income and other taxes receivable and payable, net			(8	)			(1	)
Advance billings and customer deposits			(4	)			(1	)
Provisions			(10	)			(10	)
Other long-term liabilities			(6	)			—
		$	(53	)		$	24
Cash payments for capital assets
Capital asset additions
Capital expenditures
Property, plant and equipment, excluding right-of-use assets		$	(17	)		$	(11	)
Intangible assets			(1	)			(2	)
			(18	)			(13	)
Change in accrued payables related to the purchase of capital assets			4				12
		$	(14	)		$	(1	)

 

(d)	Changes in liabilities arising from financing activities

   

						Statements of cash flows								Non-cash changes
Three-month period ended March 31, 2021 (millions)		Beginning of Period				Issued or received				Redemptions, repayments or payments				Foreign exchange movement				Other				End of period
Long-term debt
Credit facility		$	1,568				—			$	(530	)			—				—			$	1,038
Lease liabilities			209				—				(17	)			(2	)			13				203
Deferred debt transaction costs			(11	)			—				—				—				1				(10	)
		$	1,766				—			$	(547	)			(2	)			14				1,231
						Statements of cash flows								Non-cash changes
Three-month period ended March 31, 2020 (millions)		Beginning of Period				Issued or received				Redemptions, repayments or payments				Foreign exchange movement				Other				End of period
Long-term debt
Credit facility		$	336			$	1,145			$	(437	)		$	—			$	—			$	1,044
Lease liabilities			189				—				(14	)			(1	)			42				216
Deferred debt transaction costs			(4	)			—				—				—				(5	)			(9	)
Other			—				—				(138	)			—				138				—
		$	521			$	1,145			$	(589	)		$	(1	)		$	175			$	1,251

 

 

 

Exhibit 99.2

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

Table of Contents

 

Caution Regarding Forward-Looking Statements	1
Overview of the Business	2
Recent Developments	3
Revenue	3
Factors Affecting Our Performance and Related Trends	5
Results of Operations	8
Non-GAAP Measures	11
Summary of Consolidated Quarterly Results and Trends	14
Related Party Transactions	15
Liquidity and Capital Resources	16
Capital Expenditures	18
Contractual Obligations	18
Off-Balance Sheet Arrangements	19
Quantitative and Qualitative Disclosures about Market Risk	19
Special Note Regarding Forward-Looking Statements	20

 

The following is a discussion of the financial condition and financial performance of TELUS International (Cda) Inc. (TELUS International, TI, or the Company) for the three-months ended March 31, 2021 and is dated May 7, 2021. This discussion and analysis of our financial condition and financial performance should be read in conjunction with the Company’s unaudited condensed interim consolidated financial statements and the related notes thereto for the three-months ended March 31, 2021 and the audited annual consolidated financial statements and the related notes thereto for the year ended December 31, 2020 and the risk factors identified under “Item 3D—Risk Factors” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2020 (Annual Report) filed with the SEC at www.sec.gov/edgar.shtml and on SEDAR at www.sedar.com. This discussion is presented in U.S. dollars, except where otherwise indicated and based on financial information prepared in accordance with generally accepted accounting principles (GAAP). The GAAP that we use are the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), which might differ in material respects from accounting principles generally accepted in other jurisdictions, including the United States.

 

Information contained in this discussion, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. By their nature, forward-looking statements are subject to risks and uncertainties and are based on assumptions, including assumptions about future economic conditions, events and courses of action, many of which we do not control. These assumptions may ultimately prove to have been inaccurate and, as a result, our actual results or events may differ materially from expectations expressed in or implied by the forward-looking statements. You should review the section at the end of this discussion entitled “Special Note Regarding Forward-Looking Statements,” and the section entitled “Risk Factors” of our Annual Report for a discussion of important factors that could cause actual results to differ materially from the results projected, described in or implied by the forward-looking statements contained in the following discussion. In our discussion, we also use certain non-GAAP measures to evaluate our performance, monitor compliance with debt covenants and manage our capital structure. These measures are defined, qualified and reconciled with their nearest GAAP measures in the “Non-GAAP Measures” section below.

 

  

Overview of the Business

 

TELUS International is a leading digital customer experience innovator that designs, builds and delivers next-generation solutions for global and disruptive brands. Our services support the full lifecycle of our clients’ digital transformation journeys and enable them to more quickly embrace next-generation digital technologies to deliver better business outcomes. We work with our clients to shape their digital vision and strategies, design scalable processes and identify opportunities for innovation and growth. We bring to bear expertise in advanced technologies and processes, as well as a deep understanding of the challenges faced by all of our clients, including some of the largest global brands, when engaging with their customers. Over the last 16 years, we have built comprehensive, end-to-end capabilities with a mix of industry and digital technology expertise to support our clients in their customer experience and digital enablement transformations.

 

TELUS International was born out of an intense focus on customer service excellence, continuous improvement and a values-driven culture under the ownership of TELUS Corporation, a leading communications and information technology company in Canada. Since our founding, we have made a number of significant organic investments and acquisitions, with the goal of better serving our growing portfolio of global clients. We have expanded our agile delivery model to access highly qualified talent in multiple geographies, including Asia-Pacific, Central America, Europe and North America, and developed a broader set of complex, digital-centric capabilities.

 

We believe our ability to help clients realize better business outcomes begins with the talented team members we dedicate to supporting our clients because customer experience delivered by empathetic, highly skilled and engaged teams is key to providing a high-quality brand experience. We have a unique and differentiated culture that places people and a shared set of values at the forefront of everything we do. Over the past decade, we have made a series of investments in our people predicated upon the core philosophy that our “caring culture” drives sustainable team member engagement, retention and customer satisfaction.

 

We have expanded our focus across multiple industry verticals, targeting clients who believe exceptional customer experience is critical to their success. Higher growth technology companies, in particular, have embraced our service offerings and quickly become our largest and most important industry vertical. Today, we are a leading digital customer experience (CX) innovator that designs, builds and delivers next-generation solutions for global and disruptive brands. We believe we have a category-defining value proposition with a unique approach to combining both digital transformation and CX capabilities.

 

We have built comprehensive, end-to-end capabilities with a mix of industry and digital technology expertise to support our clients in their customer experience and digital enablement journeys. Our services support the full scope of our clients’ digital transformations and enable clients to more quickly embrace next-generation digital technologies to deliver better business outcomes. We provide strategy and innovation, next-generation technology and IT services, and CX process and delivery solutions to fuel our clients’ growth. Our highly skilled and empathetic team members together with our deep expertise in customer experience processes, next-generation technologies and expertise within our industry verticals are core to our success. We combine these with our ability to discover, analyze and innovate with new digital technologies in our digital centers of excellence to continuously evolve and expand our solutions and services.

 

We have built an agile delivery model with global scale to support next-generation, digitally-led customer experiences. Substantially all of our delivery locations are connected through a carrier-grade infrastructure backed by cloud technologies, enabling globally distributed and virtualized teams. The interconnectedness of our teams and ability to seamlessly shift interactions between physical and digital channels enables us to tailor our delivery strategy to clients’ evolving needs. We have over 51,000 team members located in 50 delivery locations across over 25 countries. Our delivery locations are strategically selected based on a number of factors, including access to diverse, skilled talent, proximity to clients and ability to deliver our services over multiple time zones and in multiple languages. We have established a presence in key global markets, which supply us with qualified, cutting-edge technology talent and have been recognized as an employer of choice in many of these markets. In addition, our Lionbridge AI business utilizes the services of a crowd-sourced provider base that is geographically dispersed across the globe.

 

  

Today, our clients include companies across high-growth verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. Our relationship with TELUS Corporation, our largest client and controlling shareholder, has been instrumental to our success. TELUS Corporation provides significant revenue visibility, stability and growth, as well as strategic partnership with respect to co-innovation within our Communications and Media industry vertical. We have renewed our master services agreement (TELUS MSA), which provides for a term of ten years beginning in January 2021 and a minimum annual spend of $200 million, subject to adjustment in accordance with its terms. For more information, see “Item 7B—Related Party Transactions—Our Relationship with TELUS—Master Services Agreement” in our Annual Report.

 

Recent Developments

 

On February 3, 2021, we completed our initial public offering (IPO) where we issued 20,997,375 subordinate voting shares at $25.00 per share. Net proceeds were used to repay a portion of outstanding borrowings under our credit agreement. As a result of the IPO, our subordinate voting shares are listed for trading on the New York Stock Exchange and the Toronto Stock Exchange.

 

On December 31, 2020, we acquired Lionbridge AI (LAI), the data annotation business of Lionbridge Technologies, Inc., pursuant to the terms of a stock purchase agreement, dated November 6, 2020 for cash consideration of $940 million, subject to post-closing adjustments. On March 2, 2021, we announced the final completion of the acquisition, following the clearance of the acquisition by the Committee of Foreign Investment in the United States. LAI is one of only two globally-scaled, managed AI training data and data annotation services and platform providers in the world.

 

In April 2020, we acquired Managed IT Services business (MITS), a leading provider of managed IT services in Canada, offering a mix of cloud technologies, IT sourcing and managed hosting, from TELUS Corporation, our controlling stockholder, in exchange for share consideration with a value of $49 million.

 

On January 31, 2020, we completed the acquisition of Competence Call Center (CCC), a leading provider of higher-value-added business services with a focus on customer relationship management and content moderation, for cash consideration of $873 million.

 

We have consolidated Lionbridge AI, MITS and CCC in our financial results since the closing of each of the acquisitions.

 

Revenue

 

We earn revenue pursuant to contracts with our clients that generally take the form of a master services agreement (MSA), or other service contracts. MSAs, which are framework agreements with terms generally ranging from three to five years, with the vast majority having a term of three years, are supplemented by statements of work (SOWs) that identify the specific services to be provided and the related pricing for each service. There are a number of factors that impact the pricing of the services identified in each SOW or service contract, including, but not limited to, the nature and scope of services being provided, service levels and, under certain of our MSAs, we are able to share the inflation and foreign exchange risk arising from currency fluctuations. The substantial majority of our revenue is earned pursuant to MSAs or service contracts that are engagements based on per-hour or per-transaction billing models.

 

Most of our contracts, other than with TELUS Corporation, do not commit our clients to a minimum annual spend or to specific volumes of services. Although the contracts we enter into with our clients provide for terms that range from three to five years, the arrangements may be terminated by our clients for convenience with limited notice and without payment of a penalty or termination fee. Additionally, our clients may also delay, postpone, cancel or remove certain of the services we provide without canceling the whole contract. Many of our contracts contain provisions that would require us to pay penalties to our clients and/or provide our clients with the right to terminate the contract if we do not meet pre-agreed service level requirements.

 

 

From period to period, the fluctuation in our revenue is primarily a function of changes in service volumes from existing SOWs, new SOWs with existing clients, MSAs signed with new clients, and the impact of foreign exchange on non-U.S. dollar-denominated contracts.

 

In the three-month periods ended March 31, 2021 and 2020, TELUS Corporation represented 16.2% and 22.4% of our revenue, respectively. For the three-month periods ended March 31, 2021 and 2020, our second largest client, a leading social media company, accounted for 15.7% and 12.3% of our revenue, respectively.

 

We deliver tailored solutions to a variety of industry verticals.

 

The following table sets forth our revenue from our top five industry verticals and other industries based on a percentage of revenue for the periods presented:

 

		Three-Months Ended March 31
(in millions)		2021				2020				$ change				% change
Revenue by Industry Vertical
Tech and Games		$	224			$	119			$	105				88	%
Communications and Media			129				111				18				16	%
eCommerce and FinTech			55				36				19				53	%
Travel and Hospitality			14				14				-				-
Healthcare			12				9				3				33	%
Other1			71				33				38				115	%
Total		$	505			$	322			$	183				57	%

 

1	Includes among others, retail and other financial services; none of the verticals included in this category are individually more than 3% of revenue.

 

In the three-month period ended March 31, 2021, the revenue generated from our Tech and Games industry vertical increased $105 million or 88% to $224 million, and represented 44% of our revenue as compared to 37% of our revenue for the three-month period ended March 31, 2020. This growth is partly attributable to the acquisition of LAI, which has contributed almost 50% of the growth in Tech and Games, with the balance attributable to continued growth within our existing clients and the addition of new clients. The revenue generated from the Communications and Media industry vertical grew $18 million or 16% to $129 million, driven by organic growth in our existing clients. The revenue generated from the eCommerce and FinTech industry vertical has grown $19 million or 53% to $55 million, as compared to $36 million for the three-month period ended March 31, 2020, which was primarily attributable to the addition of full quarter results for our acquisitions in 2020 as well as growth in existing and new clients. Finally, the revenue generated from the Other group increased $38 million or 115% to $71 million, primarily driven by the addition of our acquisitions in 2020 and continued organic growth.

 

We serve our clients, who are primarily domiciled in the United States, Canada and Europe, from multiple delivery locations across four geographic regions. The table below presents the revenue generated in each geographic region, based on delivery location, for the periods presented.

 

		Three-Months Ended March 31
(millions except percentages)		2021				2020				$ change				% change
Revenue by Geographic Region
Europe		$	187			$	120			$	67				56	%
North America			150				65				85				131	%
Asia-Pacific			94				83				11				13	%
Central America			74				54				20				37	%
Total		$	505			$	322			$	183				57	%

 

 

The table below presents the revenue mix based on the location of our clients’ headquarters for the three-months ended March 31, 2021.

 

		Percentage of Service Revenue
Location of Client Headquarters
North America			85	%
Europe			9	%
Asia			6	%

 

We deliver a variety of services to a diverse set of clients active in various verticals from our delivery locations around the world. However, these services are marketed, sold and delivered to clients in an integrated manner in order to provide a unified, seamless sales and delivery experience. Our chief operating decision maker reviews financial information presented on a consolidated basis for the purposes of evaluating financial performance and making resource allocation decisions. Accordingly, we report our results and manage our business as a single operating and reporting segment.

 

Factors Affecting Our Performance and Related Trends

 

A comprehensive list of risk factors that may impact our business performance are described under section “Item 3D-Risk Factors” in our Annual Report. We believe that the key factors affecting our performance and financial performance include:

 

Our Ability to Expand and Retain Existing Client Relationships and Attract New Clients

 

We have a diverse base of clients, including leaders and disruptors across the industry verticals we serve. Through our commitment to customer experience and innovation, we have been able to sustain long-term partnerships with many clients, often expanding our relationship through multiple service offerings that we provide through a number of delivery locations. Apart from TELUS Corporation, the average tenure of our top ten clients is seven years and, on average, we provide to those clients more than 18 programs across our delivery locations.

 

To grow our revenue, we seek to continue to increase the number and scope of service offerings we provide to our existing clients. In addition, our continued revenue growth will depend on our ability to win new clients. We seek to partner with prospective clients that value premium digital IT and customer experience solutions and services.

 

Our ability to maintain and expand relationships with our clients, as well as to attract new clients, will depend on a number of factors, including our ability to maintain: a “customers-first” culture across our organization; our level of innovation, expertise and retention of team member talent; a consistently high level of service experience, as evidenced by, among others measures, the satisfaction ratings that our clients receive from their customers based on the services we provide; the technological advantages we offer; and our positive reputation, as a result of our corporate social responsibility initiatives and otherwise.

 

Our Ability to Attract and Retain Talent

 

As at March 31, 2021, we have over 51,000 team members located across over 25 countries in four geographic regions, servicing clients in almost 50 languages. In addition, our recently-acquired LAI business utilizes the services of a crowd-sourced provider base that is geographically dispersed across the globe.

 

Ensuring that our team members feel valued and engaged is integral to our performance, as our team members enable us to maintain the organizational culture that is one of the key factors which differentiates us from our competitors, and creates a better experience for our clients’ customers, enabling us to retain and enhance our existing client relationships and build new ones. As a result, we make significant investments to attract, select, retain and develop top talent across our product and service offerings. We have devoted, and will continue to devote, substantial resources to creating engaging, inspiring, world-class physical workplaces; recruiting; cultivating talent selection proficiencies and proprietary methods of performance measurement; growing employee engagement including rewards and development; supporting our corporate sustainability initiatives; and acquiring new talent and capabilities to meet our clients’ evolving needs. Our ability to attract and retain team member talent will depend on a number of factors, including our ability to: compete for talent with competitive service providers in the geographies we operate; provide innovative benefits to our team members; retain and integrate talent from our acquisitions; and meet or exceed evolving expectations related to corporate sustainability.

 

 

 

Impact of COVID-19

 

The COVID-19 pandemic, which emerged in the first quarter of 2020, continues to have a pervasive global impact. This has had a significant impact on our estimates regarding the economic environment, including economic growth and industry growth rates, which also form an important part of the assumptions on which we set our expectations. Our persistent focus to date has been on keeping all of our team members safe and healthy, while continuing to serve our clients and support our communities in this critical period.

 

Impact to our financial condition, financial performance and liquidity: We believe the impact of the COVID-19 pandemic on our business, operating results, cash flows and financial condition will be primarily driven by the severity and duration of the pandemic, the pandemic’s impact on the markets where we operate and the global economy, the vaccination progress in the countries where we operate, and the timing, scope and impact of stimulus legislation as well as other federal, state and local governmental responses to the pandemic. Those primary drivers are beyond our knowledge and control. As a result, the full impact the COVID-19 pandemic will have on our business, operating results, cash flows and/or financial condition is unknown. Through the date of this discussion, the impact on our financial condition and financial performance was more significant in the second quarter of 2020 as a result of the temporary site closures enforced across our delivery sites. Although both revenue and net income have been negatively affected by the pandemic, we were able to largely mitigate the negative impact on cash flow by taking steps to strategically contain costs. We are unable to quantify with precision the impact that the COVID-19 pandemic has had on our revenue.

 

Our access to capital has not been materially impacted by the COVID-19 pandemic. In February 2021, we completed our initial public offering and used the net proceeds to repay a portion of our long-term debt. We have not provided additional collateral, guarantees or equity to our lenders and we have not had material changes to our cost of capital due to the COVID-19 pandemic. There is no material uncertainty about our ongoing ability to meet the covenants in our credit agreement and we also do not expect to incur material COVID-19-related contingencies.

 

The COVID-19 pandemic may have an effect on assets and ability to timely account for those assets. We do not expect the COVID-19 pandemic to affect our ability to account for our assets on a timely basis; however, we do expect some delays in the collection of accounts receivables as the COVID-19 pandemic has created financial hardships for some of our clients. In response, we have increased our allowance for doubtful accounts compared to periods prior to the COVID-19 pandemic during the year ended December 31, 2020. For the three-months ended March 31, 2021, our allowance for doubtful accounts has remained stable.

 

Material impairments. There has not been a material unfavorable change to our cash flow projections or key assumptions as a result of the COVID-19 pandemic and there are no other indicators of impairment. We did not recognize any impairment charge for the three-months ended March 31, 2021 based on our recoverability analysis.

 

Impacts to demand of our products and services. The COVID-19 pandemic has presented both challenges and opportunities in maintaining and expanding revenue. Physical distancing protocols related to the COVID-19 pandemic have affected our ability to market our solutions to existing and new clients. We also expect that the pandemic will create opportunities for new services, such as our “Work from Anywhere” offering, as our clients look to refine their in-house business continuity practices and adopt a permanent new operating model. The challenges of the COVID-19 pandemic have also accelerated the digital transformation initiatives of many of our clients, giving us the opportunity to deepen client relationships by providing more of our services to address their evolving digital enablement and customer experience needs. We cannot precisely quantify the impact of such acceleration of digital transformation initiatives due to the COVID-19 pandemic.

 

 

Industry Trends

 

The industry trends affecting us and that may have an impact on our future performance and financial performance include the trends described in “Item 4B—Business Overview—Industry Background” in our Annual Report.

 

Seasonality

 

Our financial results may vary from period to period during any year. The seasonality in our business, and consequently, our financial performance, generally mirrors that of our clients. Our revenues are typically higher in the third and fourth quarters than in other quarters.

 

Foreign Currency Fluctuations

 

While our primary operating currency is the U.S. dollar, we are also party to revenue contracts denominated in the European euro and other currencies and a significant portion of our operating expenses are incurred in currencies other than the U.S. dollar. Movements in the exchange rates between the U.S. dollar and these other currencies have an impact on our financial results. The tables below outline revenue and expenses by currency and the percentage of each of the total revenue and expenses for each period. In January 2021, we amended and restated our TELUS MSA. This agreement stipulates that payments will be denominated in U.S. dollars instead of Canadian dollars (as was the case of the previous agreement), resulting in our exposure to Canadian dollars to decrease going forward.

 

		Three-Months Ended   March 31
		2021								2020
(millions except percentages)		Revenue				% of total				Revenue				% of total
U.S. dollar		$	287				57	%		$	125				39	%
European euro			188				37	%			120				37	%
Canadian dollar			30				6	%			77				24	%
Total Revenue		$	505				100	%		$	322				100	%

 

		Three-Months Ended March 31
		2021								2020
(millions except percentages)		Expenses				% of total				Expenses				% of total
U.S. dollar		$	218				47	%		$	144				47	%
European euro			95				20	%			66				21	%
Philippines peso			49				10	%			45				15	%
Canadian dollar			47				10	%			16				5	%
Other			61				13	%			38				12	%
Total Operating Expenses		$	470				100	%		$	309				100	%

 

The following table presents information on the average exchange rates between the U.S. dollars and the key currencies to which we have exposure:

 

		Three-Months Ended March 31
		2021				2020
Foreign exchange rates
U.S. dollar to European euro			0.8301				0.9071
U.S. dollar to Philippine peso			48.2975				50.8776
U.S. dollar to Canadian dollar			1.2656				1.3449

 

 

Results of Operations

 

		Three-Months Ended   March 31
(millions, except per share amounts and percentages)		2021				2020				$ change				% change
Revenue		$	505			$	322			$	183				57	%
Operating Expenses
Salaries and benefits			282				206				76				37	%
Goods and services purchased			94				48				46				96	%
Share-based compensation			26				2				24				1,200	%
Acquisition, integration and other			5				19				(14	)			(74	)%
Depreciation			27				21				6				29	%
Amortization of intangible assets			36				13				23				177	%
		$	470			$	309			$	161				52	%
Operating Income		$	35			$	13			$	22				169	%
Changes in business combination-related provisions			-				(23	)			23				(100	)%
Interest expense			14				13				1				8	%
Foreign exchange loss			3				-				3				100	%
Income before Income Taxes			18				23				(5	)			(22	)%
Income taxes			15				12				3				25	%
Net Income		$	3			$	11			$	(8	)			(73	)%
Earnings per Share
Basic Earnings per Share		$	0.01			$	0.05			$	(0.04	)			(80	)%
Diluted Earnings per Share		$	0.01			$	0.05			$	(0.04	)			(80	)%

 

Revenue

 

Revenues are derived primarily from providing digital and customer experience solutions and services to our clients. Revenues consist largely of per-hour or per-transaction billing models and reimbursable expenses, which primarily include travel and entertainment costs that are chargeable to clients. We recognize revenues for each accounting period based on services provided in that period.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Our revenue increased $183 million, or 57%, to $505 million during the three-months ended March 31, 2021. Of this increase, $120 million was attributable to growth generated from our acquisitions during fiscal 2020. The remainder of the revenue increase of $63 million, or 20%, was attributable to $39 million growth from existing customers (excluding TELUS Corporation) and new customers, $10 million related to TELUS Corporation, and $14 million related primarily to favorable foreign currency impact associated with EUR:USD rate as compared to the first quarter of 2020. We are unable to quantify with precision the impact of COVID-19 on our revenue for the three-months ended March 31, 2021. Revenue from our top 10 clients for the three-month period ended March 31, 2021 was 60%, compared to 66% in the comparative three-month period ended March 31, 2020.

 

Salaries and benefits

 

The principal components of salaries and benefits expense include all compensation and benefits (excluding share-based compensation) paid to our front-line and administrative employees, including salaries, benefits and other fringe benefits.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Salaries and benefits increased $76 million, or 37%, to $282 million for the three-months ended March 31, 2021 as a result of business growth. This represented a lower percentage of revenue (56% in Q1 2021 vs. 64% in Q1 2020) due primarily to the recently acquired LAI which is largely supported by contracted resources, for which the expense is recognized in goods and services purchased.

 

 

Goods and services purchased

 

Goods and services purchased include items such as software licensing costs that are required to support our operations, contracted labor costs to supplement our team member base in the digital services portfolio, sales and marketing expenses associated with promoting and selling our services, compliance expenses such as legal and audit fees and business taxes, incremental IT expenditures, bad debt expenses and facility expenses.

 

Our goods and services purchased expenses have increased as we continue to expand our operations via acquisitions and organically. Contract labor represents approximately 17% of the total direct labor costs in the three-month period ended March 31, 2021, compared to 9% in the three-month period ended 2020.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Goods and services purchased increased $46 million, or 96%, to $94 million during the three-months ended March 31, 2021. This was largely due to our acquisitions, in particular LAI’s crowdsourced workforce, for which the contracted labor costs are recognized in goods and services. The balance is attributable to an increase in contracted labor supporting our existing digital footprint.

 

Share-based compensation

 

Share-based compensation relates to restricted share unit awards and share option awards granted to employees. These awards include a combination of liability-accounted awards, which require a mark-to-market revaluation against our share price, and equity-accounted awards.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Share-based compensation increased $24 million to $26 million during the three-months ended March 31, 2021. The increase was primarily due to mark-to-market adjustments on liability-accounted awards due to the increase in our share price after the initial public offering. Additionally, new awards granted under our 2021 Long-Term Incentive Plan are equity-settled and vest annually over a 4-year period (the graded-vesting method) compared to our past awards which vest at the end of the vesting period (the cliff-vesting method) generally over a period up to five years. The graded-vesting method will result in more expense being recognized in the earlier years of the vesting period in comparison to awards subject to the previous cliff-vesting method.

 

Acquisition, integration and other

 

Acquisition, integration and other is comprised primarily of business acquisition transaction costs and integration expenses associated with these acquisitions and other restructuring, which are not reflective of our ongoing operations. These costs are dependent on a number of factors and are generally inconsistent in amount and frequency, as well as significantly impacted by the timing and size of related acquisitions. Additionally, the size, complexity and volume of past acquisitions, which often drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and volume of future transactions.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Acquisition, integration and other decreased $14 million, or 74%, to $5 million during the three-months ended March 31, 2021. The significant costs in the prior comparative quarter primarily related to the acquisition of CCC, compared to current quarter costs primarily related to the integration of LAI.

 

Depreciation and amortization

 

Depreciation and amortization includes depreciation of property, plant and equipment and right-of-use leased assets as well as amortization expense for software and intangible assets recognized in connection with acquisitions. Given our strategy to continuously enhance our service offerings through organic investment and strategic acquisitions, we expect depreciation and amortization will continue to grow.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Depreciation and amortization expense increased $29 million, or 85%, to $63 million for three-months ended March 31, 2021. This was largely due to the incremental amortization recognized in connection with the intangible assets recognized upon the acquisition of LAI and other prior acquisitions.

 

 

Changes in Business Combination-related Provisions

 

Changes in business combination-related provisions reflects non-cash accounting gains recognized on the revaluation or settlement of assets and liabilities during the period.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. During the three-months ended March 31, 2021, no gain was recognized, compared to a gain of $23 million in the prior period, on the provision to acquire the remaining non-controlling interest in Xavient, which was exercised on April 30, 2020.

 

Interest Expense

 

Interest expense includes interest expense on long-term and short-term borrowings, accretion expense recognized on provisions on the balance sheet, and interest expense recognized for our lease liabilities.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. For the three-months ended March 31, 2021, interest expense increased $1 million or 8% compared to the prior period. This was largely due to higher interest expense on our credit facility due to an increase in the weighted average balance outstanding, which was partially offset by lower interest accretion on provisions to acquire the remaining non-controlling interest in subsidiaries as these were fully settled by April 30, 2020.

 

Foreign Exchange

 

Foreign exchange is comprised of gains and losses recognized on certain derivatives, as well as foreign exchange gains and losses recognized on the revaluation and settlement of foreign currency transactions. Please refer to “Item 11—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk” in our Annual Report for a discussion of our hedging programs.

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Foreign exchange loss increased $3 million for the three-months ended March 31, 2021, over the prior comparative period. This was largely due to the loss recognized on non-U.S. denominated assets and liabilities for our U.S. functional currency subsidiaries as a result of the decrease in the CAD:USD and PESO:USD rates. In the comparative period, we had recognized a similar expense of $6 million, which was offset by mark-to-market gains on certain hedging transactions.

 

Income tax expense

 

		Three-Months Ended   March 31
(millions)		2021				2020
Income tax expense		$	15			$	12
Income taxes computed at applicable statutory rates			21.5	%			27.7	%
Effective tax rate (%)			81.8	%			52.5	%

 

Comparison of Three-Months Ended March 31, 2021 and 2020. Income tax expense increased by $3 million for the three-months ended March 31, 2021 and the effective tax rate increased from 52.5% to 81.8%. The increase in the effective tax rate is primarily due to an increase in non-deductible items and withholding and other taxes and partially offset by a decrease in a lower weighted average statutory income tax rate resulting from a change in the income mix amongst the jurisdictions. The majority of the non-deductible items in Q1 2021 are a result of our IPO and are largely non-recurring.

 

 

 

Non-GAAP Measures

 

We regularly monitor certain non-GAAP measures that are used to evaluate our performance and analyze underlying business performance and trends. We use these measures to establish budgets and operational goals, manage our business and evaluate our performance. We also believe that these measures help investors compare our operating performance with our results in prior periods. These non-GAAP financial measures are provided as supplemental information to the financial measures presented in this discussion that are calculated and presented in accordance with GAAP. These non-GAAP measures may not be comparable to GAAP measures and may not be comparable to similarly described non-GAAP measures reported by other companies, including those within our industry. Consequently, our non-GAAP measures should not be evaluated in isolation, but rather, should be considered together with the most directly comparable GAAP measure and our condensed interim consolidated financial statements for the periods presented. The non-GAAP financial measures we present in this discussion should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

 

TI Adjusted Net Income, TI Adjusted Basic Earnings per Share and TI Adjusted Diluted Earnings per Share. We regularly monitor TI Adjusted Net Income, TI Adjusted Basic EPS and TI Adjusted Diluted EPS as they are useful for management and investors to evaluate our operating performance, to better understand our ability to manage operational costs, and to facilitate a period-over-period comparison of our results. We calculate TI Adjusted Net Income by adjusting net income for the period for changes in business combination-related provisions, acquisition, integration and other, share-based compensation, foreign exchange gains or losses and amortization of purchased intangible assets, and the related tax impacts of these adjustments. These items are excluded as we do not believe they are indicative of our ongoing operating performance. TI Adjusted Basic EPS is calculated by dividing TI Adjusted Net Income by the basic total weighted average number of equity shares outstanding during the period. TI Adjusted Diluted EPS is calculated by dividing TI Adjusted Net Income by the diluted total weighted average number of equity shares outstanding during the period.

 

		Three-Months Ended   March 31
(millions, except per share amounts)		2021				2020
Net income		$	3			$	11
Add back (deduct):
Changes in business combination-related provisions1			—				(23	)
Acquisition, integration and other2			5				19
Share-based compensation3			26				2
Foreign exchange loss4			3				—
Amortization of purchased intangible assets5			33				12
Tax effect of the adjustments above			(11	)			(6	)
TI Adjusted Net Income		$	59			$	15
TI Adjusted Basic Earnings Per Share		$	0.23			$	0.07
TI Adjusted Diluted Earnings Per Share		$	0.23			$	0.07

 

1

Changes in business combination-related provisions relate to the revaluation of a written put option liability to acquire the remaining non-controlling interests in a subsidiary that was settled in the second quarter of 2020.

2

Acquisition, integration and other is comprised primarily of business acquisition transaction costs and integration expenses associated with these acquisitions and other restructuring, which are not reflective of our ongoing operations. These costs are dependent on a number of factors and are generally inconsistent in amount and frequency, as well as significantly impacted by the timing and size of related acquisitions. Additionally, the size, complexity and volume of past acquisitions, which often drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and volume of future transactions.

3

Share-based compensation includes the mark-to-market revaluation of liability-accounted share-based awards based on changes in our share price, which do not correspond to the cash outlay in any given reporting period. This revaluation may fluctuate significantly period over period, which can prevent a comparison of our operating results among the periods. In addition, new equity awards granted under our 2021 Long-Term Incentive Plan are equity-settled through treasury shares.

4

Foreign exchange gains or losses are derived from fluctuations in the market foreign exchange rates relative to our operating currencies, which are generally not reflective of the underlying operations of our business.

5

Purchased intangible assets primarily relate to acquired customer relationships, brand and crowdsource assets. Amortization of these intangible assets are excluded as it is a non-cash expense, and it allows management and investors to evaluate our operating results as if these assets had been developed internally rather than acquired in a business combination. We do not exclude the revenue generated by such purchased intangible assets from our revenues and, as a result, TI Adjusted Net Income includes revenue generated, in part, by such purchased intangible assets.

 

 

TI Adjusted EBITDA. We regularly monitor TI Adjusted EBITDA because this is a key measure regularly used by management to evaluate our business performance. As such, we believe it is useful to investors in understanding and evaluating the performance of our business. This measure excludes from net income items that do not reflect the underlying operations of our business and should not, in our opinion, be considered in a valuation metric, or should not be included in an assessment of our ability to service or incur debt. These items were added back for the same reasons described above in TI Adjusted Net Income. TI Adjusted EBITDA should not be considered an alternative to net income in measuring our performance, and it should not be used as an exclusive measure of cash flow. We believe a net income measure that excludes these items that do not reflect the underlying operations of our business is more reflective of underlying business trends and our operational performance and overall business strategy.

 

		Three-Months Ended March 31
(millions)		2021				2020
Net income		$	3			$	11
Add back (deduct):
Changes in business combination-related provisions1			—				(23	)
Acquisition, integration and other2			5				19
Share-based compensation3			26				2
Foreign exchange loss4			3				—
Depreciation and amortization			63				34
Interest expense			14				13
Income taxes			15				12
TI Adjusted EBITDA		$	129			$	68

 

1

Changes in business combination-related provisions relate to the revaluation of a written put option liability to acquire the remaining non-controlling interests in a subsidiary that was settled in the second quarter of 2020.

2

Acquisition, integration and other is comprised primarily of business acquisition transaction costs and integration expenses associated with these acquisitions and other restructuring, which are not reflective of our ongoing operations. These costs are dependent on a number of factors and are generally inconsistent in amount and frequency, as well as significantly impacted by the timing and size of related acquisitions. Additionally, the size, complexity and volume of past acquisitions, which often drives the magnitude of acquisition-related costs, may not be indicative of the size, complexity and volume of future transactions.

3

Share-based compensation includes the mark-to-market revaluation of liability-accounted share-based awards based on changes in our share price, which do not correspond to the cash outlay in any given reporting period. This revaluation may fluctuate significantly period over period, which can prevent a comparison of our operating results among the periods. In addition, new equity awards granted under our 2021 Long-Term Incentive Plan are equity-settled through treasury shares.

4

Foreign exchange gains or losses are derived from fluctuations in the market foreign exchange rates relative to our operating currencies, which are generally not reflective of the underlying operations of our business.

 

TI Free Cash Flow. We calculate TI Free Cash Flow by adjusting our cash provided by operating activities by deducting capital expenditures. We use TI Free Cash Flow to evaluate and conduct our business because, although it is similar to cash provided by operating activities, we believe it is a more conservative measure of cash flows that better reflects our ongoing operations since capital expenditures are a necessary component of our ongoing operations and our liquidity assessment.

 

		Three-Months Ended March 31
(millions)		2021				2020
Cash provided by operating activities		$	36			$	34
Less: capital expenditures			(18	)			(13	)
TI Free Cash Flow		$	18			$	21

 

 

TI Adjusted Gross Profit and TI Adjusted Gross Profit Margin. TI Adjusted Gross Profit and TI Adjusted Gross Profit Margin are useful measures for management and investors alike to assess how efficiently we are servicing our clients and to be able to evaluate the growth in our cost base, excluding depreciation and amortization, as a percentage of revenue. We calculate TI Adjusted Gross Profit by excluding depreciation and amortization from the nearest GAAP measure, Gross Profit. We exclude depreciation and amortization expense because the timing of the underlying capital expenditures and other investing activities do not correlate directly with the revenue from contracts with clients in a given reporting period. TI Adjusted Gross Profit subtracts from revenue delivery costs including salaries, bonuses, fringe benefits, contractor fees and client-related travel costs for our team members who are assigned to client projects as well as licensing fees, network infrastructure costs and facilities costs required to service our clients. We calculate Gross Profit Margin as gross profit divided by revenue arising from contracts with clients. We calculate TI Adjusted Gross Profit Margin as TI Adjusted Gross Profit divided by revenue arising from contracts with clients.

 

		Three-Months Ended   March 31
(millions, except percentages)		2021				2020
Revenues		$	505			$	322
Less: Operating expenses			(470	)			(309	)
Add back: Indirect and administrative expenses			114				82
Gross profit ($)			149				95
Add back: Depreciation and amortization			63				34
TI Adjusted Gross Profit ($)		$	212			$	129
Gross Profit Margin (%)			29.5	%			29.5	%
TI Adjusted Gross Profit Margin (%)			42.0	%			40.1	%

 

 

Summary of Consolidated Quarterly Results and Trends

 

The following table sets forth our unaudited quarterly statements of operations data for each of the last eight quarters ended March 31, 2021. The information for each of these quarters has been prepared on the same basis as the audited annual financial statements included in our Annual Report and, in the opinion of management, includes all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our audited consolidated financial statements and related notes thereto included in our Annual Report. These quarterly results of operations are not necessarily indicative of our future results of operations that may be expected for any future period.

 

(millions, except per share amounts, percentages, and team member count)		2021 Q1				2020 Q4				2020 Q3				2020 Q2				2020 Q1				2019 Q4				2019 Q3				2019 Q2
REVENUE		$	505			$	442			$	427			$	391			$	322			$	273			$	265			$	251
OPERATING EXPENSES
Salaries and benefits			282				259				249				233				206				161				159				153
Goods and services purchased			94				55				67				74				48				48				44				44
Share-based compensation			26				12				5				10				2				6				2				3
Acquisition, integration and other			5				25				8				7				19				3				3				-
Depreciation			27				27				25				26				21				20				19				17
Amortization of intangible assets			36				23				23				24				13				5				5				5
			470				401				377				374				309				243				232				222
OPERATING INCOME			35				41				50				17				13				30				33				29
OTHER (INCOME) EXPENSES
Changes in business combination-related provisions			-				-				-				(51	)			(23	)			(12	)			-				-
Interest expense			14				11				10				12				13				8				9				10
Foreign exchange loss (gain)			3				(4	)			(1	)			3				-				(1	)			2				(1	)
INCOME BEFORE INCOME TAXES			18				34				41				53				23				35				22				20
Income taxes			15				13				13				10				12				8				7				6
NET INCOME		$	3			$	21			$	28			$	43			$	11			$	27			$	15			$	14
Basic earnings per share		$	0.01			$	0.09			$	0.12			$	0.19			$	0.05			$	0.14			$	0.08			$	0.07
Diluted earnings per share		$	0.01			$	0.09			$	0.12			$	0.19			$	0.05			$	0.14			$	0.08			$	0.07
Other financial information1
TI Adjusted Net Income		$	59			$	66			$	53			$	26			$	15			$	26			$	24			$	18
TI Adjusted Basic Earnings per Share		$	0.23			$	0.27			$	0.23			$	0.12			$	0.07			$	0.14			$	0.13			$	0.09
TI Adjusted Diluted Earnings per Share		$	0.23			$	0.27			$	0.23			$	0.12			$	0.07			$	0.14			$	0.13			$	0.09
TI Adjusted EBITDA		$	129			$	128			$	111			$	84			$	68			$	64			$	62			$	54
Cash provided by operating activities		$	36			$	95			$	84			$	50			$	34			$	49			$	56			$	12
TI Free Cash Flow		$	18			$	70			$	64			$	34			$	21			$	33			$	44			$	(9	)
Gross Profit Margin			29.5	%			33.0	%			33.7	%			30.2	%			29.5	%			34.1	%			34.3	%			33.1	%
TI Adjusted Gross Profit Margin			42.0	%			44.3	%			45.0	%			43.0	%			40.1	%			43.2	%			43.4	%			41.8	%
Team member count			51,387				50,618				48,324				47,660				46,209				38,102				37,184				35,839

 

1

See “—Non-GAAP Measures” above.

 

The trend of quarter-over-quarter increase in consolidated revenue reflects the growth in both our organic customer base, as well as successful scale-up of new customer programs. Increased revenue also includes revenues from business acquisitions, including our acquisition of CCC effective January 31, 2020 and MITS effective April 1, 2020. The acquisition of LAI closed on December 31, 2020 and did not contribute to our revenue growth prior to 2021.

 

The trend of quarter-over-quarter increases in employee benefits expense reflects increases in our team member base as a result of acquisitions and as required to service the growing volumes from our customers and the expansion of our service offerings.

 

 

The trend of quarter-over-quarter increases in goods and services purchased reflects increases in external labor to support the growth in our digital business, increases in our software licensing costs associated with our growing team member base and increase in administrative expenses to support growth in the overall business and business acquisitions.

 

The trend of quarter-over-quarter increases in share-based compensation reflects increases in the value of our equity, and the mark-to-market revaluation of liability-accounted awards.

 

The trend of quarter-over-quarter changes in acquisition, integration and other costs are dependent on a number of factors and are generally inconsistent in amount and frequency, as well as significantly impacted by the timing and size of business acquisitions.

 

The trend of quarter-over-quarter increases in depreciation and amortization reflects increases due to growth in capital assets, which is supporting the expansion of our sites required to service customer demand and growth in intangible assets recognized in connection with business acquisitions.

 

The trend in changes of business combination-related provisions primarily reflects non-cash accounting adjustments recognized on the revaluation or settlement of provisions in connection with an acquisition prior to the quarters presented.

 

The trend of quarter-over-quarter increases in interest expense reflects an increase in long-term debt outstanding, mainly associated with our acquisitions, and increase in lease liabilities for leased assets. Interest expense also includes accretion on provisions for written put options, which have all been exercised by the second quarter of 2020, thereby partially offsetting any increases subsequent to the second quarter of 2020. Subsequent to the IPO, we have paid down a portion of our credit facility balance, as such we expect that interest expense will decrease.

 

The trend in net income reflects the items noted above, as well as the relative mix of income among the geographic areas and the associated tax rates for the countries within those areas and varying amounts of foreign exchange gains or losses. Historically, the trend in basic earnings per share has been impacted by the same trends as net income.

 

Related Party Transactions

 

Recurring Transactions with TELUS Corporation

 

In 2021, we entered into an amended and restated TELUS MSA, which provide for a ten-year master services agreement and we also entered into a ten-year transition and shared services agreement with TELUS Corporation. Revenues earned pursuant to the TELUS MSA are recorded as revenue and fees incurred in connection with the shared services agreement for certain shared services provided to us are recorded as goods and services purchased. The following table summarizes the transactions with TELUS and its subsidiaries:

 

		Three-Months Ended   March 31
(millions)		2021				2020
Revenue		$	82			$	72
Management Fees and Other Services			(10	)			(1	)
Total		$	72			$	71
Amounts Received from TELUS Corporation		$	82			$	58
Amounts Paid to TELUS Corporation		$	5				-

 

Amounts receivable from TELUS Corporation were $49 million and $25 million as at March 31, 2021 and March 31, 2020, respectively, and amounts payable to TELUS Corporation were $39 million and $25 million as at March 31, 2021 and March 31, 2020, respectively.

 

 

 

Liquidity and Capital Resources

 

Capital resources

 

As at March 31, 2021, we had approximately $768 million (December 31, 2020 - $285 million) of available liquidity, comprised of cash and cash equivalents of $117 million (December 31, 2020 - $153 million), and available borrowings under a revolving credit facility of $651 million (December 31, 2020 - $132 million). Our objective when managing capital is to maintain a flexible capital structure that optimizes the cost and availability of capital at acceptable risk levels.

 

In the management of capital and in its definition, we include owners’ equity (excluding accumulated other comprehensive income), long-term debt (including long-term credit facilities and any hedging assets or liabilities associated with long-term debt items, net of amounts recognized in accumulated other comprehensive income) and cash and cash equivalents. We manage capital by monitoring the financial covenants prescribed in our credit facility. For additional information, see (Note 16(b) in the notes to the audited consolidated financial statements as at and for the year ended December 31, 2020 included in our Annual Report).

 

We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of our business. In order to maintain or adjust our capital structure, we may issue new subordinate voting shares, issue new debt with different terms or characteristics which may be used to replace existing debt, or pay down our debt balance with cash flows from operations. We believe that our financial objectives are supportive of our long-term strategy.

 

We monitor capital utilizing the financial covenants prescribed in our credit facility. As at March 31, 2021, we were in compliance with all of our covenants including net debt to EBITDA ratio of less than 5.25:1.00.

 

The following table presents a summary of our cash flows and ending cash balances for the three-month periods ended March 31, 2021 and 2020.

 

		Three- Months Ended  March 31
(millions)		2021				2020
Cash provided by operating activities		$	36			$	34
Cash used in investing activities			(14	)			(806	)
Cash (used in) provided by financing activities			(54	)			840
Effect of exchange rate changes on cash			(4	)			-
(Decrease) increase in cash position during the period		$	(36	)		$	68
Cash and cash equivalents, beginning of period		$	153			$	80
Cash and cash equivalents, end of period		$	117			$	148

 

Operating activities 

 

Comparison of Three-Months Ended March 31, 2021 and 2020. We generated cash from operating activities of $36 million in the three-month period ended March 31, 2021, up $2 million from the comparative period. This increase is primarily attributable to an increase in net income adjusted for non-cash items due to growth in our organic business as well as the income generated from new acquisitions in 2020 and 2021, which was offset in part by higher taxes paid and lower working capital due to timing of payments and collections. In addition, during the three-months ended March 31, 2021, we paid $17 million to settle certain liability-accounted share-based compensation awards that became exercisable as a result of our IPO.

 

Investing activities

 

Comparison of Three-Months Ended March 31, 2021 and 2020. For the three-month period ended March 31, 2021 we invested $14 million into the business, a decrease of $792 million compared to $806 million in the comparative period. The decrease was primarily due to the acquisition of CCC in the first quarter of 2020.

 

 

Financing activities

 

Comparison of Three-Months Ended March 31, 2021 and 2020. For the three-month period ended March 31, 2021, we used $54 million of cash associated with financing activities compared to a cash inflow of $840 million in the comparative period. The change was primarily due to $1,145 million of long-term debt issued in the first quarter of 2020.

 

In connection with our initial public offering on February 3, 2021, we received gross proceeds of $525 million, reduced by share issuance costs of $32 million. On February 5, 2021, we used the net proceeds from our initial public offering to repay a portion of the outstanding balance under the revolving component of our credit facility.

 

Future Capital Requirements

 

We believe that our existing cash and cash equivalents combined with our expected cash flow from operations and liquidity available under our credit facilities will be sufficient to meet our projected operating and capital expenditure requirements for at least the next 12 months and we possess the financial flexibility to execute our strategic objectives, including the ability to make acquisitions and strategic investments in the foreseeable future. Our ability to generate cash, however, is subject to our performance, general economic conditions, industry trends and other factors. To the extent that existing cash and cash equivalents and operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through equity or debt financing. If we raise funds through the issuance of additional debt, we may be subject to additional contractual restrictions on our business. There is no assurance that we would be able to raise additional funds on favorable terms or at all. See “Item 3B—Risk Factors—Risks Related to Our Business—We may need to raise additional funds to pursue our growth strategy or continue our operations, and we may be unable to raise capital when needed or on acceptable terms, which could lead us to be unable to expand our business” in our Annual Report.

 

Net debt and adjusted EBITDA, both as per our credit agreement, are used to calculate our leverage ratio debt covenant (Net Debt to Adjusted EBITDA Leverage Ratio), as presented below. We seek to maintain a Net Debt to Adjusted EBITDA Leverage Ratio in the range of 2-3x. As of March 31, 2021, our Net Debt to Adjusted EBITDA Leverage Ratio was 2.7x. We may deviate from our target Net Debt to Adjusted EBITDA Leverage Ratio to pursue acquisitions and other strategic opportunities that may require us to borrow additional funds and, additionally, our ability to maintain this targeted ratio depends on our ability to continue to grow our business, general economic conditions, industry trends and other factors.

 

The following table presents a reconciliation of our Net Debt to Adjusted EBITDA Leverage Ratio for the three-months ended March 31, 2021, compared to December 31, 2020.

 

As at (millions except for ratio)		March 31, 2021				December 31, 2020
Outstanding credit facility		$	1,038			$	1,568
Contingent facility utilization			7				7
Net derivative			37				56
Cash balance1			(100	)			(100	)
Net Debt as per credit agreement		$	982			$	1,531
TI Adjusted EBITDA2		$	129			$	391
Adjustments to annualize TI Adjusted EBITDA and other adjustments as per credit agreement		$	241			$	(20	)
Net Debt to Adjusted EBITDA Leverage Ratio as per credit agreement			2.7				4.1

 

1

Maximum cash balances of $100.0 million is used for the period ended March 31, 2021 in accordance with the credit agreement.

2

TI Adjusted EBITDA is a non-GAAP financial measure, see section “—Non-GAAP Financial Measures” for more information.

 

 

Capital Expenditures

 

		Three-Months Ended   March 31
(millions)		2021				2020
Capital expenditures		$	18			$	13

 

Comparison of Three-Months Ended March 31, 2021 and 2020.

 

Capital expenditures increased by $5 million, or 38%, to $18 million for the quarter ended March 31, 2021. Approximately $2 million of the increase is due to the upgrade of existing infrastructure of the business we acquired from CCC and MITS. The remaining increase is primarily attributable to additional investment in capital expenditures required in Central America to service new client growth.

 

Contractual Obligations

 

Our principal sources of liquidity are cash generated from operations, our available credit facility, and to a lesser extent, our cash and cash equivalents. For the three-months ended March 31, 2021, our cash provided by operations was $36 million, and was a positive cash inflow for the reporting period. As of March 31, 2021, the amount of our credit facility available was $651 million. We also had cash and cash equivalents balance of $117 million as of March 31, 2021.

 

Our primary uses of liquidity are cash used in our normal business operations such as employee compensation expense, goods and services purchases, and working capital requirements. In addition, we are required to meet the payment obligations under our credit facility and lease agreements. We expect that our cash flow from operations and our available cash and cash equivalents (including the revolving component of our credit facility) will be sufficient to meet our ongoing cash flow needs and operating requirements. The expected maturities of our undiscounted financial liabilities, excluding long-term-debt, do not differ significantly from the contractual maturities, other than as noted below. With respect to long-term-debt maturities, we repaid a portion of our credit facility on February 5, 2021, using the net proceeds from our initial public offering. The contractual maturities of our undiscounted financial liabilities, as at March 31, 2021 including interest thereon (where applicable), are as set out in the following table:

 

			Non-derivative																Derivative
											Composite long-term debt								Currency swap agreement amounts to be exchanged
For each fiscal year ending December 31, (millions)			Non- interest bearing financial liabilities				Due to affiliated companies				Long-term debt, excluding leases				Leases				(Receive)				Pay				Interest rate swap agreement				Total
2021 (balance of year)			$	293			$	39			$	62			$	50			$	(103	)		$	102			$	2			$	445
2022				24				—				293				55				(26	)			25				2				373
2023				—				—				51				47				(28	)			25				—				95
2024				—				—				50				30				(30	)			25				—				75
2025				—				—				688				20				(351	)			482				—				839
Thereafter				—				—				—				45				—				—				—				45
Total			$	317			$	39			$	1,145			$	247			$	(539	)		$	659			$	4			$	1,872

 

 

Off-Balance Sheet Arrangements

 

We do not have any material obligations under guarantee contracts or other contractual arrangements other than as disclosed in Note 18 “Contingent Liabilities” in the notes to our audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report. We have not entered into any transactions with unconsolidated entities where we have financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us, or engages in leasing, hedging, or research and development services with us.

 

Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

Amounts drawn on our long-term debt facilities expose us to changes in interest rates. Holding other variables constant, including the total amount of outstanding indebtedness, a 25-basis-point increase in interest rates on our variable-rate debt would cause an estimated increase in interest expense of approximately $3 million per year, based on the amounts outstanding at March 31, 2021.

 

Foreign Currency Risk

 

Our consolidated financial statements are reported in U.S. dollars but our international operating model exposes us to foreign currency exchange rate changes that could impact the translation of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. The European euro is the foreign currency to which we currently have the largest exposure. The sensitivity analysis of our exposure to foreign currency risk at the reporting date has been determined based upon a hypothetical change taking place at the relevant statement of financial position date. The European euro, Canadian dollar and Philippine peso denominated balances as at the statement of financial position dates have been used in the calculations below.

 

		Net income								Other comprehensive income								Comprehensive income
Three-month ended March 31, 2021 (millions)		2021				2020				2021				2020				2021				2020
Reasonably possible changes in market risks
10% change in US$: European euro exchange rate
United States Dollar appreciates		$	-			$	-			$	11			$	10			$	11			$	10
United States Dollar depreciates		$	-			$	-			$	(11	)		$	(10	)		$	(11	)		$	(10	)
10% change in US$: Cdn.$ exchange rate
United States Dollar appreciates		$	(1	)		$	-			$	-			$	-			$	(1	)		$	-
United States Dollar depreciates		$	1			$	-			$	-			$	-			$	1			$	-
10% change in US$: Peso exchange rate
United States Dollar appreciates		$	(1	)		$	(1	)		$	-			$	-			$	(1	)		$	(1	)
United States Dollar depreciates		$	1			$	1			$	-			$	-			$	1			$	1

 

We therefore face exchange rate risk through fluctuations in relative currency prices, which are unpredictable and costly to hedge. Appreciation of foreign currencies against the United States dollar will increase our cost of doing business and could adversely affect our business, financial condition or financial performance. Our foreign exchange risk management includes the use of swaps to manage the currency risk associated with European euro denominated, as well as foreign currency forward contracts to fix the exchange rates on short-term Philippine peso denominated transactions and commitments.

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This discussion contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, result of operations and financial condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "aim", "anticipate", "assume", "believe", "contemplate", "continue", "could", "due", "estimate", "expect", "goal", "intend", "may", "objective", "plan", "predict", "potential", "positioned", "seek", "should", "target", "will", "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements are based on our current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management's beliefs and assumptions, and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those factors listed under “Risk Factors” in our Annual Report for the year ended December 31, 2020, filed with the SEC on EDGAR and on SEDAR.

 

 

Exhibit 99.3

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM FILINGS

 

FULL CERTIFICATE

 

TELUS International (Cda) Inc.

 

I, Jeffrey Puritt, Chief Executive Officer of TELUS International (Cda) Inc., certify the following:

 

1.

Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of TELUS International (Cda) Inc. (the "issuer") for the interim period ended March 31, 2021.

 

2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.

Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.

 

5.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

 

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

 

5.1

Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2

N/A.

 

5.3

N/A

 

6.

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on January 1, 2021 and ended on March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

 

Date: May 7, 2021.

 

 

/s/ Jeffrey Puritt
Jeffrey Puritt
President and Chief Executive Officer

 

Exhibit 99.4

 

FORM 52-109F2

 

CERTIFICATION OF INTERIM FILINGS

 

FULL CERTIFICATE

 

TELUS International (Cda) Inc.

 

I, Vanessa Kanu, Chief Financial Officer of TELUS International (Cda) Inc., certify the following:

 

1.

Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of TELUS International (Cda) Inc. (the "issuer") for the interim period ended March 31, 2021.

 

2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

 

3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.

Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.

 

5.

Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings

 

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

 

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

 

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

 

5.1

Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2

N/A.

 

5.3

N/A

 

6.

Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on January 1, 2021 and ended on March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

 

 

Date: May 7, 2021.

 

 

/s/ Vanessa Kanu
Vanessa Kanu
Chief Financial Officer