Quick Take
TELUS International (TINT) has filed to raise $100 million in an IPO of its subordinate voting shares, according to an F-1 registration statement.
The firm provides enterprises with digital customer experience management transformation consulting and implementation.
TINT has grown impressively and is producing earnings and free cash flow while operating in a strong growth industry.
I’ll provide a final opinion when we learn more IPO details from management.
Company & Technology
Vancouver, Canada-based TELUS was founded as a division of parent firm TELUS Corporation to enable enterprises to maximize their customer engagement and value through its customer experience knowledge and consulting capabilities.
Management is headed by president and CEO Jeffrey Puritt, who has been with the parent company since 2001 and President of TELUS International since 2008.
Below is a brief video of six customer experience trends:
Source: Bernard Marr
The firm recently acquired Lionbridge AI, the data automation business of Lionbridge Technologies to provide crowd-based training data to power machine learning capabilities. Purchase price for the deal was $939 million in cash.
TINT is owned by TELUS Corporation, a national communications company in Canada and Baring Asia Private Equity.
Customer Acquisition
The company pursues new client relationships with mid-size and large enterprises via a direct sales & marketing model with a consultative approach tailored to each client's unique requirements.
TINT has made a number of acquisitions and received outside investment since its inception within its parent firm.
TELUS has nearly 50,000 employees in 50 delivery locations in more than 20 countries.
The firm counts over 600 company clients in the technology, games, communications, media, ecommerce, fintech, healthcare, travel and hospitality industries, among others.
Employee Benefits expenses as a percentage of total revenue have been stable as revenues have increased, as the figures below indicate:
Employee Benefits | Expenses vs. Revenue |
Period | Percentage |
Nine Mos. Ended Sept. 30, 2020 | 62.1% |
2019 | 61.8% |
2018 | 62.6% |
Source: Company registration statement
The Employee Benefits efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Employee Benefits spend, doubled to 0.6x in the most recent reporting period, as shown in the table below:
Employee Benefits | Efficiency Rate |
Period | Multiple |
Nine Mos. Ended Sept. 30, 2020 | 0.6 |
2019 | 0.3 |
Source: Company registration statement
Market & Competition
According to a 2020 market research report by Grand View Research, the global customer experience management market is expected to reach $23.6 billion by 2027.
This represents a forecast CAGR of 17.7% from 2020 to 2027.
The main drivers for this expected growth are the continuing transition to digital engagement by enterprises in response to changing customer behavior demanding increased quality, convenience, and speed of service.
Also, the ongoing rise in the use of social media networks and online business is increasing demand for 'contextualized and personalized consumer experience through data management.'
Brands now understand the ability of consumers to share their experiences and potentially affect the brand's reputation for better or worse.
Additionally, companies are choosing cloud-based delivery models for their ease of initial installation and expanding adoption within client firms through 'land and expand' approaches.
Major competitive or other industry participants include:
Endava (DAVA)
EPAM (EPAM)
Globant (GLOB)
Accenture (ACN)
Cognizant (CTSH)
Genpact (G)
WNS (WNS)
24-7 Intouch
TaskUs
Teleperformance SE (OTCPK:TLPFF)
Webhelp
Appen (OTC:APPEF)
Financial Performance
TELUS’s recent financial results can be summarized as follows:
Sharply growing topline revenue
Reduced operating profit and operating margin
Increased net income and cash flow from operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue | ||
Period | Total Revenue | % Variance vs. Prior |
Nine Mos. Ended Sept. 30, 2020 | $ 1,139,300,000 | 52.5% |
2019 | $ 1,019,600,000 | 22.2% |
2018 | $ 834,600,000 | |
Operating Profit (Loss) | ||
Period | Operating Profit (Loss) | Operating Margin |
Nine Mos. Ended Sept. 30, 2020 | $ 79,600,000 | 7.0% |
2019 | $ 114,100,000 | 11.2% |
2018 | $ 87,700,000 | 10.5% |
Net Income (Loss) | ||
Period | Net Income (Loss) | |
Nine Mos. Ended Sept. 30, 2020 | $ 81,900,000 | |
2019 | $ 69,000,000 | |
2018 | $ 47,100,000 | |
Cash Flow From Operations | ||
Period | Cash Flow From Operations | |
Nine Mos. Ended Sept. 30, 2020 | $ 161,300,000 | |
2019 | $ 141,600,000 | |
2018 | $ 93,500,000 | |
Source: Company registration statement
As of September 30, 2020, TELUS had $139 million in cash and $1.8 billion in total liabilities.
Free cash flow during the twelve months ended September 30, 2020, was $154.5 million.
IPO Details
TELUS intends to raise $100 million in gross proceeds from an IPO of its subordinate voting shares, although the final figure will likely be higher.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Subordinate voting shares will be entitled to one vote per share and multiple voting shares will be entitled to ten votes per share.
The S&P 500 Index no longer admits firms with multiple classes of stock into its index.
Management says it will use the net proceeds from the IPO as follows:
We intend to use the net proceeds from this offering to repay outstanding borrowings under one or more of the revolving credit facilities or the term loan facilities of our credit agreement and for general corporate purposes. As at September 30, 2020, we had $351.5 million of borrowings outstanding under the revolving credit facilities and $585.0 million outstanding under the term loan facilities of our credit agreement. In connection with the acquisition of Lionbridge AI, we made additional 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.
Management’s presentation of the company roadshow is not yet available.
Listed bookrunners of the IPO are J.P. Morgan, Morgan Stanley and numerous other U.S. and Canadian bookrunners.
Commentary
TELUS is seeking public investment capital to pay down debt incurred as a result of its recent acquisition of Lionbridge AI.
The firm’s financials show very strong topline revenue growth and impressive growth in other major financial metrics including free cash flow.
Employee Benefits expenses as a percentage of total revenue have remained relatively stable as revenues have increased; its Employee Benefits efficiency rate has doubled in the most recent reporting period, an enviable result.
The market opportunity for providing customer experience consulting and implementation services is likely a very fast-growing market, if the overall customer experience management market is any gauge.
A risk to the company’s business model would be competitors pursuing business in this profitable and in-demand segment of the digital transition market. I view this risk as low due to the early stage of the customer experience market and extremely strong demand trajectory.
J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 118% since their IPO. This is a top-tier performance for all major underwriters during the period.
TINT has produced impressive results and I look forward to learning about management’s pricing and valuation assumptions for the IPO.
Expected IPO Pricing Date: To be announced.
Note: This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research before making any decisions. IPO investing carries significant volatility and risk of loss.
Gain Insight and actionable information on U.S. IPOs with IPO Edge research.
Members of IPO Edge get the latest IPO research, news, and industry analysis.
Get started with a free trial!
