Prospectus Summary
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our subordinate voting shares, you should read this entire prospectus carefully, including the sections of this prospectus entitled "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Unaudited Pro Forma Condensed Combined Consolidated Financial Information" and our consolidated financial statements and the related notes, and the financial statements and related notes of CCC and Lionbridge AI, contained elsewhere in this prospectus.
Our Company
We are 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 15 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 information technology ("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 almost 50,000 team members located in 50 delivery locations across over 20 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 we have been recognized as an employer of choice in many of these markets.
Today, our clients include over 600 companies across high-growth verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. Our relationship with TELUS, our largest client and controlling shareholder, has been instrumental to our success. TELUS 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 with TELUS (the "TELUS MSA"). The renewed TELUS MSA provides for a new ten-year term commencing in January 2021, and for a minimum annual spend of $200.0 million, subject to adjustment in accordance with its terms. For more information, see "Certain Relationships and Related Party Transactions—Our Relationship with TELUS—Master Services Agreement".
For the years ended December 31, 2019, 2018 and 2017, our service revenues were $1,019.6 million, $834.6 million and $573.2 million, respectively, reflecting a compound annual growth rate of 34% over this period, and our pro forma service revenue for the year ended December 31, 2019, was $1,571.4 million. For the nine months ended September 30, 2020 and 2019, our service revenues were $1,139.3 million and $747.1 million, respectively and our pro forma service revenue for the nine months ended September 30, 2020 and 2019, was $1,350.1 million and $1,154.0 million, respectively. Our net income was $69.0 million, $47.1 million and $43.4 million for the years ended December 31, 2019, 2018 and 2017, respectively, and our pro forma net loss for the year ended December 31, 2019, was $1.6 million. Our net income for the nine months ended September 30, 2020 and 2019, was $81.9 million and $41.7 million, respectively, and our pro forma net income (loss) for the nine months ended September 30, 2020 and 2019, was $78.1 million and $(21.7) million, respectively. Our adjusted net income ("TI Adjusted Net Income") was $82.4 million, $65.4 million and $56.7 million for the years ended December 31, 2019, 2018 and 2017, respectively and our adjusted EBITDA ("TI Adjusted EBITDA") was $225.6 million, $146.7 million and $113.8 million, respectively. For the nine months ended September 30, 2020 and 2019, TI Adjusted Net Income was $94.4 million and $56.6 million, respectively, and TI Adjusted EBITDA for these periods was $262.2 million and $161.9 million, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures" for a reconciliation of TI Adjusted Net Income and TI Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, and see "Unaudited Pro Forma Condensed Combined Consolidated Financial Information" for more information regarding our pro forma financial measures.
Industry Background
Technology, Innovation and Digital Enablement. Technology is transforming the way businesses interact with their customers at an accelerating pace and scale. Across industries, customer experience has become a critically important competitive differentiator. Businesses face pressure to engage with their customers across digital and human channels, and seek to do so by combining technology with authentic human experience.
Empowered and Engaged Customers. The pervasiveness of next-generation technologies, which enables always-on connections, access to information 24/7 and greater variety of choice, has encouraged customer empowerment and raised their expectations. Customers are increasingly choosing experience over product and price. Customer experience has become a key competitive advantage, and it is critical for companies to manage this by partnering with customer service experts to represent their valued brands.
Evolution of Customer Experience. Contact centers have evolved from single-point, voice-based interaction hubs to omnichannel points of customer engagement. Companies increasingly view these omnichannel points of engagement as opportunities to build customer loyalty and increase wallet share. As the quality of these interactions matters even more today, companies need engaged, experienced, empathetic and technology-savvy employees representing their brands in their customer interactions.
Importance of Building Trust and Security. Companies and brands operating in the global digital marketplace need to engender trust in their online offerings in order to provide a feeling of safety that encourages customers to communicate and transact more. Accurate and rapid identification of content that violates the criteria of these offerings is of critical importance as user-generated content continues to grow, and expert human intervention is needed to handle content and customer concerns with the highest complexity. Additionally, fraud, identity theft and asset appropriation have become more pervasive. Companies are looking for solutions to assist in responding to these challenges.
Challenges for Companies. To meet modern customer expectations, companies must provide an experience that is not only personalized and empathetic, but consistent and integrated across omnichannel touchpoints, whether human or digital. To enable this, companies need partners with expertise in advanced analytics, artificial intelligence ("AI") and machine learning techniques to analyze data. In order to deliver this experience, companies need to re-design and re-engineer their processes, which is best executed by customer experience strategy and design consulting, IT services and process experts.
Limitations of Incumbent Services Providers. Delivering best-in-class omnichannel customer experiences requires highly trained professionals working in concert with leading digital technologies. We believe that traditional consulting, digital IT services and customer care and business process outsourcing companies lack the right combination of people, capabilities and technology to help companies address the entire spectrum of designing, building and delivering integrated end-to-end customer experience systems.
Our Market Opportunity
Our solutions and services are relevant across multiple markets including IT services for digital transformation of customer experience systems ("DX") and digital customer experience management ("DCXM"). The worldwide market for DX was estimated by International Data Corporation ("IDC") to have been $147 billion in 2019. The worldwide market for DCXM was estimated by Everest Group to have been $6 billion in 2018. Digital transformation services are estimated by IDC to grow at a compound annual growth rate of 21% from 2019 through 2023. The DCXM market is estimated by Everest Group to grow at a compound annual growth rate of 20%-25% from 2018 through 2021. In addition to DCXM, the Everest Group estimates the content moderation market to have been a $1.5 billion to $2.0 billion market in 2018 and expects it to experience estimated growth of 40%-50% from 2018 through 2021.
Our Approach
We are a leading digital customer experience innovator with a unique team culture and deep expertise in next-generation technologies and processes. We believe that our comprehensive capabilities and go-to-market strategy enable us to address our clients' varied needs in a flexible way that aligns with their objectives. Our focus on customer experience informs our approach to designing, building and delivering customer engagement and digital enablement solutions for our clients. We believe that customer experience delivered by empathetic, highly skilled and engaged teams is key to providing a high-quality brand experience to customers.
Our Competitive Strengths
We have distinguished ourselves by leveraging the following competitive strengths:
Cultural Differentiation. We have a unique and differentiated culture that places people and a shared set of values at the forefront of everything we do. We have carefully cultivated our caring culture over the last 15 years by ensuring alignment with our team members and clients alike. We believe continuously investing in our culture and operating as a socially responsible company builds stronger relationships with our clients and team members, and positively impacts the communities in which we operate.
Diverse Client Base Across Sectors. We partner with a diverse set of disruptive and established clients across our core industry verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. Within some of these industry verticals, we serve clients across several high-growth sub-sectors.
Deep Domain Expertise. We have developed expertise serving clients in our core verticals and sub-sectors, many of which are leading broader technology disruption. By serving clients in these sectors over the course of many years, we have built an understanding of their unique, industry-specific challenges and digital transformation journeys, as well as the solutions and services to address them. For example, within the Communications and Media industry vertical, our client engagements support digital transformation and innovation across our clients' digital stack, operations support system and business support system, modernization and testing and engineering of 5G networks for services such as internet of things ("IoT"). In the Tech and Games industry vertical, we believe we have been at the forefront of helping social networks manage the rapidly expanding volume of user-generated content on their platforms. We use AI/ML-assisted solutions to help clients monitor content for compliance with local policies and regulations. Additionally, we have partnered with several leading Games clients to support the high player growth they have seen over the past several years by deploying player support solutions that are based on our deep understanding of "gamer culture".
Comprehensive, Integrated Capabilities to Enable Digital-First Experiences. We have proactively built a set of integrated capabilities to deliver innovative customer experience solutions for our clients' customers. Our services span design, build and deliver so that we are able to offer clients a complete, transformative, digitally enabled solution, or a discrete solution to address or complement specific aspects of their existing customer experience strategies. We believe that our end-to-end solutions address client needs at all stages of their digital journeys and position us best to address their evolving priorities while expanding wallet share with them over time.
Best-In-Class Technology and Processes. We rely on best-in-class technology to power everything we do. By virtue of our TELUS pedigree, we have built our business with a deep understanding of the importance of technological reliability and availability, fueling our "always-on" carrier-grade network infrastructure. This infrastructure is augmented by our next-generation private and public cloud-based architecture, which enables our complete suite of integrated digital services and enables us to be agile, efficient and scalable.
Globally Scaled and Agile Delivery Model. Over several years we have built a differentiated global delivery model enabled by next-generation technology with the scale and agility needed to best serve our clients. The sophistication, agility and scale of our delivery capabilities enable us to tailor our delivery strategy and respond quickly to shifting client demand as well as idiosyncratic events by pivoting client solutions across multiple regions, time zones and channels. For example, during the COVID-19 pandemic, we were able to continuously serve our clients' needs despite the mandatory closure of many facilities.
Proven Leadership Team. We have a proven leadership team with a successful track record of executing our strategic vision, driving growth across our business, integrating acquisitions both operationally and culturally and maintaining our unique culture. Our leaders not only possess significant and diverse skills and experience, but are committed to leading by example and living our values.
Our Growth Strategy
We are dedicated to building on our current capabilities in digital transformation and customer experience management by deploying the following growth strategies:
Expand Our Current and Potential Services with Existing Clients. We seek to deepen existing client relationships by providing our clients with more of our existing services, as well as developing new adjacent services to address their evolving digital enablement and customer experience needs.
Establish Relationships with New Clients. We target potential clients that value customer experience as a brand differentiator. We prioritize potential clients that are experiencing significant growth and require a partner capable of evolving with them.
Leverage Technology and Process to Drive Continuous Improvement. We strive to continuously optimize the overall efficiency of our organization, enhance operating leverage and margins and better serve our clients by investing in best-in-class technologies.
Enhance Core Capabilities with Strategic Acquisitions. We seek out acquisition opportunities that expand the breadth of our service offerings, enhance the depth of our digital IT capabilities and accelerate our presence in attractive industry verticals, while maintaining alignment with our culture.
Recent Developments
Acquisition of Lionbridge AI
On December 31, 2020, we completed the acquisition of Lionbridge AI, 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 $939.0 million, subject to post-closing adjustments.
Lionbridge AI is a market-leading global provider of crowd-based training data through various service offerings and the use of a proprietary annotation solution used in the development of artificial intelligence algorithms to power machine learning. Data annotation is the process of labeling data needed to train AI systems. Lionbridge AI annotates data in text, images, videos, and audio in more than 300 languages and dialects for some of North America's largest technology companies in social media, search, retail and mobile. Lionbridge AI has developed a proprietary data annotation solution of tools and processes that is used in combination with a flexible, crowdsourced community of over one million annotators, linguists and specialists across different languages, demographics and other characteristics across six continents. Lionbridge AI's solutions help improve data functionality and deliver secure, compliant, scalable and high-quality solutions for its clients. Lionbridge AI is headquartered in Waltham, Massachusetts.
In connection with the acquisition, we, along with Lionbridge AI, submitted a declaration filing with the Committee on Foreign Investment in the United States ("CFIUS"). At the end of its 30-day assessment of the declaration filing, CFIUS requested that we file a joint voluntary notice pursuant to Section 721 of the Defense Production Act, which triggered an additional 45-day review period. CFIUS advised us that the additional review is not directed specifically at our acquisition of Lionbridge AI, but is focused on certain commercial relationships TELUS has with certain foreign network infrastructure vendors. We have submitted the requested joint notice filing and provided additional information requested by CFIUS staff. Based on our discussions with CFIUS staff, we determined we could close the acquisition of Lionbridge AI before the expiry of the 45-day period. The statutory review period for the joint voluntary notice expires in February 2021. While we expect that CFIUS will complete its review of the joint voluntary notice and clear our acquisition of Lionbridge AI without condition, CFIUS may request that we and TELUS make assurances regarding our use in the United States of certain network infrastructure equipment sold by foreign entities. TELUS International does not believe assurances of this nature, if requested, or other conditions that could be imposed by CFIUS, if imposed, will have a material impact on its business. See "Risk Factors—Risks Related to Our Acquisition of Lionbridge AI and its Business—Our acquisition of Lionbridge AI remains subject to review by CFIUS and we are not certain how the outcome of the review will impact our business".
We financed the acquisition with approximately $149.6 million in cash received from the issuance of 1,678,242 Class A common shares to TELUS, $80.4 million in cash received from the issuance of 901,101 Class B common shares to Baring and borrowings of $709.0 million under our credit agreement, of which $265.0 million was drawn on the term loan facilities, and the remainder on the revolving facilities.
For more information on Lionbridge AI, please see "Lionbridge AI."
Risk Factors Summary
Investing in our subordinate voting shares involves a high degree of risk. You should carefully consider the risks described in "Risk Factors" before making a decision to invest in our subordinate voting shares. If any of these risks actually occur, our business, financial condition and financial performance would likely be materially adversely affected. In such case, the trading price of our subordinate voting shares would likely decline and you may lose part or all of your investment. Below is a summary of some of the principal risks we face: