TELUS International (Cda) Inc. (TIXT) Earnings Call Transcript & Summary

Good day. Welcome to TELUS Digital's Q2 2025 Investor Call. I would like to introduce your speaker, Ms. Elena Lebac. Please go ahead.

Thank you, Karl. Good morning, everyone. Thank you for joining us today for the TELUS Digital Second Quarter 2025 Investor Call. Joining our call today are Jason Macdonnell, our Acting CEO, COO and President of Customer Experience; Tobias Dengel, President of Digital Solutions; and Gopi Chande, our CFO. We'll begin with prepared remarks from Jason, Tobias and Gopi and then open the line for your questions. At the end, Jason will offer his closing remarks. For our cautionary statements and further details on certain non-GAAP measures used during today's call, please refer to the earnings release issued this morning and regulatory filings available on SEDAR+ and EDGAR. With that, I'll pass the call over to Jason.

Thank you very much, and good morning, everyone. In the second quarter of 2025, TELUS Digital delivered positive incremental revenue improvement, both sequentially and year-over-year, primarily driven by our existing client base, including TELUS. Our parent company represents 26% of our year-to-date revenues. With these results, including our performance in the large language model work stream of our AI & Data Solution service line as well as other sales funnel activity this quarter, we are reiterating our outlook. At the same time, we also continue to work on protecting our margins, which remain pressured due to the overall competitive pricing environment in our industry, labor inflation in some geos and some of the more complex work requirements that we see coming through. We see this EBITDA and margin pressure persisting alongside some contraction within our legacy services. While we are able to modestly grow revenues, these persistent pressures further emphasize the need for more pronounced and accelerated advancement of our operational methods, AI capabilities and overall efficiency programs. I'd also like to briefly outline a couple of important items you've seen in our disclosure this morning. Gopi, our CFO, will provide more commentary on both items later on in this call. Our leverage ratio was elevated as of the quarter end when compared to previous quarters. This was primarily due to measurement reflecting on a lower adjusted EBITDA on a trailing 12-month basis in addition to a noncash increase in derivative liabilities. As of June 30, we remain in compliance with our credit facility covenant. We are confident in our parent company's continued support, as they have demonstrated over the prior quarters to help us stay compliant with the covenant over the quarters ahead. We will also partner with our banking syndicate. Further, we performed and completed our goodwill assessment and have subsequently recorded an impairment charge on goodwill in Q2 as a result of our latest financial modeling. Now turning to our commercial highlights for the quarter. We welcomed several new clients across diverse industry verticals, including healthcare, cloud communications, gaming, content development, radar technology and many others. In terms of existing client growth, we've deepened our relationships with several key accounts, including our top 3 clients, focused on diversification of existing work for them and further improving product intensity. We also enhanced our partnership with a major automotive player in our AI & Data Solutions service line and broadened our engagement with another major tech company for customer support services. As I alluded to at the start, our AI & Data Solutions business continues to show momentum. We're increasingly recognized by our clients as a partner of choice for high-quality data infrastructure. Our capabilities span foundational model development, computer vision and responsible AI implementation. While the size of this work is still modest relative to, say, our CX portfolio, we look forward to continued growth and focus and investment in this area. In light of industry competitive news, we're gaining further trust from our clients by being a neutral and independent vendor in the AI space. This recent industry development has created immediate opportunities for us, resulting in expanded wallet share and potential near-term growth with several existing clients, particularly in the automotive and tech sectors. Our position as a trusted independent partner will continue to differentiate us in this highly competitive marketplace, and we look forward to this growth area, making larger contributions to our data services work mix. Overall, for our business, our focus remains on ensuring key priorities of business evolution, service quality excellence and talent development are all aimed at driving sustainable growth and improved margins. Incremental upside we've seen on revenue growth so far this year is a good sign we're progressing on these priorities. However, we need to find further levers to mitigate pressures on our profitability margins, and we have concrete plans in place. That said, service quality and excellence is a nonnegotiable element of our business success. Our teams continue to prioritize operational excellence and more specifically, attaining the #1 position in the services we provide. We are moving with speed, focus and purpose, leveraging data and analytics and our depth of operational knowledge elevate our customers' experience every day. We continue to work on improving our proactive approach to identify performance opportunities and take actions to evolve our services through the implementation of advanced methods, fostering quality, differentiated talent and applying new AI and technology solutions to our operational environments. [indiscernible] we assess our performance on the sustainability of improvements, prioritizing long-term fundamental changes instead of one-off temporary patches. As of Q2 end, we have experienced over 80 existing clients recognize our differentiated service with the most important complement of awarding us new program wins. But then that we have our global team's full commitment to prioritize operational excellence and drive us towards becoming the #1 vendor across our product and service lines and incredible thought partner for innovation. And I want to commend our team on their excellent progress in elevating the customer experience to the benefit of [Audio Gap]. Overall, we remain excited about our future prospects and the market potential ahead. And with that, I'll now turn it over to Tobias.

Thank you, Jason. I'll spend a little time talking about the digital solutions area, specifically, where we're seeing strong client engagement, driven by both a recovery of our core digital product, experience and transformation work and our clients' continued demand for cost optimization and automation solutions. Our Q2 performance reflects this positive momentum with year-over-year revenue growth and current sales funnel. Our top priority now is to ensure we're well staffed and rapidly hire the needed talent to meet the demand that we're seeing ahead. Our commercial success in Q2 was marked by both new logo acquisition and existing client growth, with approximately 10% of our new bookings coming from new logos, including one notable hospitality client. The remaining 90% represented expansions with existing clients across various industry verticals, including financial services, communications, entertainment, technology, retail and healthcare. We're seeing continued momentum in discretionary spend returning over the next 2 quarters, particularly across our data and AI consulting services and our CX portfolios within Digital Solutions, where we are investing in an expanded footprint and capability suite across all our clients, including in our work with our parent company, TELUS. Here, we are leveraging a blend of our strategy engagements, technology delivery and implementation expertise as well as homegrown product solutions to add value. Specifically, we utilized our Smart CX framework to identify high-impact opportunities of successful growth and value creation for our clients by partnering with them to draw strategy and technology conclusions based on their deep customer data and interaction history. Let me share a few notable success stories. For a leading global retailer, our CX strategy audit identified key AI opportunities to enhance buyer and seller experiences, solidifying our position as their primary outsourced CX partners and leading to geographic expansion. In another example, with a major payment platform, we implemented AI-powered improvements in IVA routing, knowledge-based updates and agent assist tools resulting in the transfer of 8 additional lines of business to TELUS Digital. We completed -- complemented that with early pilots of our newly launched Fuel iX agent trainer, addressing underperforming agents where we transformed agent performance and ranking from bottom quartile to top quartile in 30 days for 80% of the agents in the trial and driving an overall customer satisfaction score uplift of 16% across channels. Similarly, ongoing implementation of Fuel iX-powered agent tooling at a global digital marketplace drove a sustained 13% improvement in average handle time and a 7% or 400 basis point improvement in customer satisfaction. As another external recognition in June, our teams were thrilled that Fuel iX copilots platform was selected as the winner of the Chatbot Platform of the Year Award in the Annual AI Breakthrough Awards program that recognizes the top companies, technologies and products in the global artificial intelligence marketplace. We continue to enhance our suite of services in the CX space complementing our deep CX services with equally deep technology capabilities from CCaaS technologies and CRMs such as Salesforce, bolstered by our acquisition to Zendesk via our partnership and initial client implementations. These wins we're seeing a client reengagement, and the momentum from our ongoing investments further illustrate our progress in positioning TELUS Digital as a strategic partner at the C-suite level, uniquely positioned to drive insights from our CX work that inform our technology deployments. With that, I'll hand it over to you, Gopi.

Thank you, Tobias, and good morning, everyone. I'd like to address the goodwill impairment upfront and then move on to our usual review of the financial statements. At the end of Q2, informed by our most recent financial model refresh, we recorded an impairment of goodwill. The key assumptions that we updated during the latest model review included higher weighted average cost of capital, lower perpetual growth rates and lower cash flow forecast arising from pressures on margins. You can find the details related to the impairment and assumptions underlying it in our notes to the financial statements. Moving on to the financial performance review in the second quarter. TELUS Digital generated revenue of $699 million, a increase of 7% year-over-year or 6% on a constant currency basis. With our top 10 clients in Q2, revenue grew 10% year-over-year. TELUS grew 12% year-over-year with continued momentum in Digital Solutions. With clients 2 to 10, revenue grew 8% in the second quarter. With Google, the year-over-year revenue comparison continues to reflect a higher 2024 comparison base. Similar to the prior year, we've achieved growth in our overall revenue in the AI & Data Solutions space as we work to diversify across more clients in this service line. Revenue with a leading social media client who remains within our top 3 by revenue, grew year-over-year in the second quarter. Earlier this year, we rebalanced our footprint in Europe. And as a result of that, we are expecting a lower run rate of trust, safety and security volumes. But so far, we've seen it partially offset by our diversification with this client, particularly in AI & Data Solutions and the CXM source lines. Across our industry verticals, in Tech & Games, our largest and absolute dollar contribution, revenue increased 11%, driven by growth with certain social media clients and other technology clients. TELUS primarily drove growth in our Communication & Media and health care industry verticals, which grew 11% and 9%, respectively. Revenue in BFSI industry vertical grew 8%, with growth from certain North American and global financial services clients. On the flip side, in e-commerce and fintechs, our revenue decreased 14% year-over-year due to a decline in service volumes, which in turn reflects an overall consumer demand moderation for our clients' business. Among our geographies, we delivered revenue growth in the Americas and Europe, while revenue generated in the Asia Pac segment was softer year-over-year. These results remained in line with expected fluctuations in service volume and demand across our regions. In the second quarter, our adjusted EBITDA margin was 13.4%, with a year-over-year decrease reflecting several factors. As we previously discussed, in the second quarter of 2024, our adjusted EBITDA included other income generated from changes in business combination-related provisions, meaning an unfavorable year-over-year comparison for the second quarter and the first half of the year. The operational component of this was due to an increase in salary and benefits as well as goods and services purchased, outpacing revenue growth for the period. Some examples of specific operational pressure we are seeing include wage inflation in some geographies as well as more complex customer requirements. With the development of large AI and technology tool implementations for workforce management, we hope to release some of these pressures. Our leverage, defined as net debt to adjusted EBITDA leverage ratio as per our credit agreement, was at 3.75x as of June 30, 2025. This level is elevated compared to previous quarters, primarily due to lower adjusted EBITDA on a trailing 12-month basis. And in addition, due to a noncash increase in derivative liabilities attributed to a stronger euro exchange against the U.S. dollar in the second quarter. As Jason noted, we remain in compliance with our credit facility covenant, and we are confident in our parent company's continued support, as demonstrated over the prior quarters, to help us stay compliant. We are also further engaging with the banks in our facility on forward-looking resolutions. In the second quarter, we generated free cash flow of $33 million. The year-over-year decline was primarily due to increases in operating expenses outpacing revenue growth and again, a negative noncash impact in the quarter from foreign currency swaps due to stronger euro exchange against the U.S. dollar. It also reflected higher capital expenditures due to incremental investments in site builds in Asia Pacific and Europe as well as investments in our digital solutions services line. For the full year 2025, we are reiterating our outlook for revenue growth of approximately 2% on a constant currency and on an organic basis, adjusted EBITDA of circa $400 million and adjusted diluted EPS of approximately $0.32. We are working towards achieving our targets for investments of approximately $67 million and efficiencies of approximately $50 million for the year. Further overall focus on running an agile operation with tight controls over indirect costs should help us move closer to our profitability target for the year. With that, let's move on to questions. [Operator Instructions] And as a reminder, we are not able to comment on the TELUS proposal, which is currently under review by the special committee of the TELUS Digital Board of Directors. With that, Karl, over to you.

[Operator Instructions] The first question is from Stephanie Price from CIBC.

I was hoping you could dig a little bit deeper into the margin pressures that you're seeing here. Maybe talk a little bit about what lines of business in the biggest impact and how you're working to offset. And then related, can you talk a little bit about the restructuring you carried out in the quarter? It looks like it's largely we've seen in the past. And how should we think about restructuring for the rest of the year?

Thank you. Maybe I'll just take a crack at the pressures that we're seeing in the environment. And then Gopi, you can speak to the latter part. When you look at areas of the business that are coming under pressure, I think there's two ways to look at it. One, in certain service lines. So obviously, the customer experience service line is one that is always under constant cost pressures as companies and clients look to drive as much efficiency as possible. Those -- that pressure comes from a couple of different sources or areas. One is on just top line pricing itself as our clients have their own budgetary pressures. Obviously, they look to us as being a source of savings. And then, of course, just in the general geographic differences that we see. So for example, pressures in Europe around labor costs are definitely things that we have to address or sometimes even in our U.S.-based services, labor costs have risen. So what we need to do to offset that is improved workforce management capabilities, bring in new technology, including AI capabilities to drive efficiency; and making sure that from a pricing perspective, we're being very disciplined around the prices that we take forward and being opportunistic with our clients and looking at win-win opportunities on outcome-based pricing. So the CX space is one space. The other space that you see it in is in content moderation and content moderation, I think it's well known, is an area that's coming under increased scrutiny and pressure relative to a lot of the simpler work being substituted with AI capabilities. That being said, again, the more complex work that we do gives us an opportunity to make sure that we are securing a more premium price for that work and making sure we use our skill and expertise to make that as valuable as possible for clients. Maybe Gopi, I'll turn the second part of the question over to you.

Thanks, Jason. So with regards to AIO, a few different factors this quarter. One item that was more unusual in the quarter was you would have read in April, we made -- mention of a rebalancing with one of our customers in Europe. So included in this balance are the related [ guardian ] leave and severance costs. Also included in this balance are continuous efficiency programs that we look to undertake both with regards to our processes and our people as well as real estate consolidation. So you have a combination in Q2. To your question in terms of how to think about this going forward, we are not expecting any major other rebalances that we're aware of currently, but we do expect our routine processes around focusing on efficiencies and agile operations to continue to drive efficiency programs and some dollars into our restructure balance. So hopefully that gives you a sense of both the routine and nonroutine in that balance.

The next question is from Jerome Dubreuil from Desjardins.

First one, I'd like an update maybe on the -- what you're seeing in terms of the evolution and the reinforcement learning through human feedback? Wondering if there's any change in the market dynamics versus some of the more AI space feedback and if you can provide an update in general on your AI solutions line of business.

Sure. Tobias, why don't you take that one? And I'll just pop up with some of the LLM work we're doing.

Yes. So AI hits our business in multiple different ways. Obviously, our AI consulting business, which is on the digital solutions side of the house, is evolving quite strongly. I think the trend that we're all looking at right now is most of the last year was heavily based on proofs of concept, and now we're actually going into full deployment. So on the AI consulting and implementation business aided by our Fuel platform. We are seeing much stronger growth. And I think that will really start hitting in '26 and '27 as companies start doing production-level AI deployments. And Jason, I'll hand it to you to talk about the solution side of the house.

Sure. So when you look at the large language model work that we're doing, there's a variety of work in that space. As you know, these are projects that usually involve anywhere from short-term to long-term sprints. And we're really pleased with what we've seen, especially with some of the recent competitive announcements that have happened. We're increasingly being seen as a next trusted adviser, if you will, or a developer of these large language models. The type of work that we're seeing there is really promising as well. When I look at some of the agentic AI data sets that we're doing and we're evaluating agentic model performance versus ground truth expectations, those are really key, I think, for some of the leading platforms that are out there. Other work we're doing is working on identifying and validating sources of information returned in response to user queries, whether it's from large documents or other sources. And we're also doing work around Q&A payers from conference transcriptions. Our computer vision work in that space to help in the advancement of automotive industry has also been quite popular. So I think it's a great opportunity for our team to branch out and continue to scale and offset perhaps some of the some of the flattening of the work that we see in something like search relevance, which is the more simpler aspect in the data and AI space. And then for us, in terms of how we capitalize on that even more as we move forward, we have some great platforms that help them manage these projects and manage things like experts sourcing and crowd sourcing. But we want to see those investments also turn to larger-scale capabilities that allow us to ramp faster with more agility and to simplify and streamline the management of these processes.

Awesome. That's good to hear. And then second for me, just wondering about the impact of the Scale AI acquisition by Meta, wondering if there's maybe an impact on your relationship with Meta that you could be seeing? Or on the contrary, if that increases other opportunities with former Scale AI clients?

Yes. We absolutely saw immediate interest, if you will, in partnering for some of the clients that perhaps were looking for an alternate partner with the advent of that development. And so that has been a great opportunity for us, and we're taking full advantage of that. As of yet, right now, I've not -- we've not seen a big impact on the Meta side. But certainly, as we move forward here, we're looking forward to cultivating even better and deeper relationships with the companies that are looking for alternative source support in large language model development.

The next question is from Puneet Jain from JPMorgan.

I wanted to follow up on a question around competition, but for your digital customer care segment. Are you seeing like more IT services or technology vendors becoming increasingly a competitor for you in that segment?

We don't necessarily see it more in terms of the quantity of competitors entering the market. I think the -- and all the competitors in our industry, especially around customer experience and business process outsourcing are fairly well known. I think where the competitive pressure comes in is in terms of being able to advance capabilities beyond what I would call legacy or classic customer experience work and ensuring that we're embedding thought leadership and efficiency productivity gains within our traditional work. So I think we're doing a really good job at differentiating our technology services with human-in-the-loop capabilities and experience. And so to the extent that I'm seeing more competitors or differentiation to us in that space, it really hasn't been prevalent. I think what's more prevalent is just the sheer competitiveness and the intensity for the company's fighting for market share in the space.

Got it. And are you seeing any differences across verticals in AI adoption, specifically like I'm thinking about, say, for example, Tech & Games, especially the tech vertical versus like, say, financial services or healthcare?

Tobias, why do you take that one, and I will top up?

Yes. I think you're seeing significant differences in especially how AI applied consumer-facing end-user facing based on regulation, based on PII, et cetera, and based on whether companies have a deep tech history and mindset and a willingness to take, in their minds, at least, more risk. So I think you'll see a variety of different velocities of implementation based on industry for external use cases. For internal use cases, we actually see a very consistent adoption of AI across the board because I think everyone is well aware right now of the cost management capabilities and the efficiency and the improvements in customer set. And it's a unique technology, in that I think historically, when you've deploy technologies you're either going for cost reduction or you're going for improvements in customer satisfaction or quality. And AI is somewhat unique in that, you're able to do both of those things at once. But the trick is doing it at a scaled production level capability where you are controlling -- you have guardrails, you're controlling unwanted responses and you're working on velocity of response, which we all know in our use of AI lives is not always there yet. So I think we're very, very well positioned to be the partner of choice to our clients using all the data from their contact centers and the processes that we use every day to help them optimize those processes over time.

If I could quickly follow up, so for external use cases, which verticals are ahead of others in adoption?

Yes. I mean I think what -- you hit on some of them right out of the gate. Gaming is one that is a very natural space. And again, it's always with humans in the loop at this point, but those are kind of very standard. I think when you look at things like content moderation, kind of those supported by AI, is a very obvious use case. And then you get into ones that are less -- lower -- much lower velocity are things like financial services, anything with PII, that's where things will move much more slowly, I think.

The next question is from Jonathan Lee from Guggenheim.

I'll keep the one question. Interesting that you highlighted an expectation for discretionary spend to return over the next 2 quarters, especially as peers may not necessarily be seeing that. Can you talk about some of the verticals you may be seeing this in, how that's contemplating the outlook and how pricing has trended in that type of work considering this environment?

Sure. Gopi, do you want to take a shot at that?

Sure. And then Tobias, I'll pass to you in terms of some of the specifics that you're seeing in Digital Solutions. So overall, as Tobias mentioned earlier in the call, what we're seeing is the focus on cost containment, cost transformation, is where we're seeing the demand increase. So that's very positive to see. We were in some just maybe paralysis of decision, and we're seeing that turn around, which is nice to see in another digital solution space. With the supply-demand dynamic of that business, we do expect that will help us keep some of the price competitive nature and utilization of our team. But Tobias, maybe I can pass to you to speak more to where you're seeing some of that demand to recover and stabilize.

Yes. And I think on a go-forward basis, we're really seeing this in the Digital Solutions space. And as Gopi said, projects around cost optimization, cost control, often using AI are -- they're coming in rapidly. Every client is virtually talking to us about that. But we're also seeing a rebound in some of our more classic digital business of helping our clients build apps, build -- rebuild websites, build multimodal experiences. So I think in -- this is purely based on our pipeline continuing to increase, our road map with our clients continuing to increase that we've now kind of crossed back over to a space where our biggest challenge, frankly, is hiring fast enough to keep up with some of the demand we're seeing on the Digital Solutions side. I would also say that it's broad-based. It's not industry specific in the case of Digital Solutions. We're seeing it across most of our industries. Now in some industries, there might be more of an emphasis on cost optimization types of projects. And in other industries, it's more revenue creation, new digital experiences. But I think, with the advent of AI, most of our clients are looking at the fact that they have to rebuild their apps and their websites over the next 2 to 3 years to take full advantage of multimodal AI.

[Operator Instructions] The next question is from Divya Goyal from Scotiabank.

I wanted to get a little bit more color in terms of your key clients beyond the top 3 clients. So there was a pretty sizable growth that was noted in terms of the other client segments, so almost 8%, based on our math here. Could you help us understand what were some of the products or solutions? I know you've talked about it a little bit here that are driving that growth. And then also if you could help us understand, what exactly is going on with Google as a client? I know Gopi mentioned that Google obviously is getting back to the '23 levels. But in Q3 '23, that revenue line scaled up quite significantly. So just wondering where should we expect Google as a client to go going forward from a product positioning standpoint?

Okay. So I'll just touch on the customer mix a little bit and the different industries that we're seeing there, Gopi and maybe you could touch on the latter part of the question. When we look at revenue growth and when you start to go beyond the top 10, which is why we speak to usually the top 3 and the top 10 and a lot, it becomes quite diverse, right? So if you were to look at our service line, for example, you look at AI & Data Solutions; trust, safety and security; our customer experience group and then our Digital Solutions group, they're relatively fairly well balanced across the board. When you go beyond that and get into the individual companies, it ranges across the industry, right? So we start to see -- we're seeing growth, for example, and more traction in our health-based companies as we are -- as the work we do for TELUS also makes us a very credible and authentic source of work to support employer solutions as well as health solutions. We see some improvements in and interest as well as more contracts across our Comms & Media Group. And so we're seeing a lot of the clients that we've been working with in Comms & Media over the last year, starting to be in a place where they want to invest and get moving now on implementations. And some of those pilots and proof of concepts that Tobias mentioned, are now coming into play. We're seeing more and expanded work on the video content platforms from various companies. Automotive suppliers, that's expanding for us as well. We're also seeing work even in the agricultural workforce solutions. That's another area that has really come into play. And then, of course, when you look at financial institutions, that's an area that we're also seeing more wins in. So it really is a diverse set of clients, which I think is a good thing for us, given our client concentration. And it has been a great highlight for us in Q2, quite frankly. Gopi, do you want to...

So Divya, with Google, in particular, as you noted, we are seeing a decrease year-over-year, but that really is because of the height of some of the work we took over last year. Overall, what I would say on that customer is the evolution is progressing as we hoped and as we expected. There is a change in that industry definitively. We want to continue to partner with Google, be a strategic partner and move up the chain on the complexity of the work we do with them. So as expected, we are seeing some of the more basic work or the search work decline, but that's being offset by more complex work or large language model work. So that evolution is as expected, and the added benefit is the work that we do in this space, our excellent test beds for us in terms of just picking up on what Jason mentioned earlier about moving into various different industries with our skill set in this area and then the volume of work we've done with Google. So overall, a bit of a shift year-over-year, but strategically on plan.

The next question is from Aravinda Galappatthige from Canaccord Genuity.

Maybe just help us sort of think through the segments. I mean as I read through the press release and hear your comments, I mean, clearly, AI & Data Solutions grew, it appears, quite nicely. And it seems like Digital Solutions was also up, even though that wasn't clear. When I think of the overall 6% constant currency growth, how should I think of that mix as we kind of also talk about CX and the trust and safety? Were there declines in some of the other segments or was it a case of more balanced growth across the -- across all 4 segments here?

So I've been -- we've been really pleased with the balance of growth when you look across the segments. However, certainly, there are some areas that were down year-over-year more than others, right? So I'll let Gopi touch on the details. But e-commerce and fintech, for example, is an area that was down year-over-year for some very clear reasons, but definitely seeing areas like healthcare, banking, financial services and insurance moving up. When you look at the service lines themselves, Gopi, I'll let you just speak to that. And when I look at the service lines, there's been some great improvements, if you will, on product intensity across service lines as well, especially with Digital Solutions. So the fusion of CX and Digital Solutions now is coming alive. And we're seeing so much more interest in our entire client base implementing these AI capabilities and technology capabilities. So that's something we need to keep in mind as we look at the balance, product intensity and overlap between the various vertical groups or the service line groups will be really key for us. Gopi?

Thanks, Jason. And so picking up on Jason's comments there and we really are starting to see that interlap, overlap between our service lines. But if we look in the quarter, you picked up the main themes. So in AI and [ DS ], seeing that diversification, the growth, seeing the growth in the work we're doing with auto companies and other tech sectors, Tobias spoke to some of the quarter and year-over-year as well as forward-looking on what we're seeing in Digital Solutions, so those are coming in strong. On both CX and trust and safety, as we've noted through this call, some variability. And we expect to continue to see that. We spoke about the rebalancing in trust and safety. And so we will see some shifts there. We are, again, seeing success in offsetting that in our other service lines with similar clients, and we find the stickiness when our customer has multiple service lines with us, and we have multiple relationships that's got much better. And again, on CX, it's a theme we've been talking to you about regularly in terms of there is a geo shift that's going on. Occasionally, it's part of our strategy with our customers for both CX and trust and safety. So seeing growth there, seeing some new logo, seeing existing, but more volatility currently on the CX, trust and safety side and then more growth and stability currently on the AI [ DS ] and [ DS ] side.

[Operator Instructions] The next question is from [ Matt Desort ] from William Blair.

This is Matt on for Maggie Nolan. Following up on the earlier question on margins. I think you noted multiple moving pieces pressuring those margins, including higher wages, test complexity and maybe some churn. Can you just discuss the actions you're putting in place to protect margins? And how we should think about those three drivers and what's embedded in guidance? Are you assuming that they stabilize or maybe deteriorate further?

So obviously, our goal is to make sure they stabilize and improve over time. I think it will take some time to do that. These are some structural changes that we're seeing in the industry itself in terms of price intensity and some of the labor cost inflation. So specifically, let's tackle those in turn. From a pricing perspective, our opportunity is to make sure that we are pricing accurately for the full expectations and capabilities that we want to achieve. So if you want to be #1 in customer experience, you want to make sure that you have the best talent. Sometimes you have to pay a little bit more to get that talent. Sometimes you have to train a little bit longer to achieve that. But in the long run, what it does is it makes sure that you have lower turnover and better attrition and make sure that you have team members that are ready sooner and could be fully billable at an earlier date. So there's a lot of things that are going into pricing accuracy, making sure that we are quoting and evaluating the opportunity fully and that then we have effective workforce management and recruitment that ensures that we've got the right talent that is optimized for the project. Similar to that, there's a lot that goes into just optimizing the work itself, making sure from a workforce management and scheduling perspective that you are really well balanced, making sure that culturally and from a workforce environment perspective, we're managing attrition and any issues around productivity, making sure that we are adding in the AI capabilities and the technology capabilities that allow us to be more productive and more efficient everywhere from recruitment to training all the way through to task and making sure that those work environments are running as efficiently as possible. And then also being creative and a thought partner and a leader in performance-based outcomes. So taking advantage, for example, of our capabilities in inbound and outbound selling excellence and really putting forward outcome-based propositions to our clients that make it a win-win for both. And those capabilities, in particular, I'm quite excited about because we have a lot of efficacy in the sales capability. So those would be some very specific elements on workforce technologies that are helping to improve things. We've got AI helping us with next best action on sales opportunities. We've got AI working to help simplify and streamline the administrative processes so -- and everything from quality control to training, which reduces the management that we need to do that. There's a ton of activities that are being put into place, both for indirect costs as well as direct labor cost efficiency. Hopefully, that gives you a bit of a flavor.

Our final question is from James Faucette from Morgan Stanley.

It's [ Antonio ] on for James Faucette. I wanted to ask more on your Gen AI investment strategy. What types of investments are you trying to make? And maybe any signs of early ROI on those investments?

Yes. The great thing about the Gen AI space is that it moves so quickly that you get fairly quick ROI on any incremental or transformational improvement. So we do see it every time in an agile environment in the world now, every time you make an improvement, and it means you can accelerate the projects that you're doing or improve the efficiency and efficacy of those projects, it's certainly something that we're very comfortable investing in from an ROI perspective. When you -- in terms of the types of investment, there's probably three types of investments that are quite specific relative to platform and capability. One would be in managing the workforce or the talent that is behind a lot of the large language model training, so your crowd sourcing platforms, as an example, and managing everything from how people are sourced, recruited, how they're paid making sure that's highly efficient. And you want to be able to do that on mass at scale very quickly and effectively. And so there's always more you can do to improve that, so that would be one area of investment. The other area of investment is how the projects are run, how are they managed, how we execute against the tasks that are involved in this space and making sure that those are run with high degrees of efficacy with strong reporting and insights on everything from quality to productivity to outcomes, making sure that those insights are something that you can implicate into more effective, higher-quality, higher-outcome results on behalf of our clients. And then the third level of investment is really around the talent, ensuring that we have the best talent to run and manage these projects to work with our clients so that we are a strong partner at the table helping to shape and inform and advance their projects. And we also need to invest more and more into data sets and being a source of quality data sets that help support the learning of the models that our clients are pursuing. So those are probably some of the big investment areas.

There are no further questions in the queue.

Thank you, Karl. We'll return the call back to Jason for his closing remarks.

Well, thank you very much, everyone, for joining us today. And as always, we appreciate your time and your engagement. And as we move forward to deliver on our financial objectives for the year, underpinning that is our focus on driving operational improvements shaped by our key priorities of business evolution, service quality excellence and talent development. With the goal of driving further revenue growth and improving margins, we remain committed to providing you with timely updates over the coming months and into our next quarterly reporting in early November. I hope you all enjoy the rest of the summer. Thank you, and goodbye for now.

Ladies and gentlemen, this concludes the TELUS Digital's Q2 2025 Investor Call. Thank you for your participation, and have a nice day.