Telus International (Cda) Inc.  TIXT  $23.00-$25.00 33.3 million shares Underwriters: JP Morgan, Morgan Stanley, Barclays, BofA Securities, CIBC Capital, Citigroup, Credit Suisse, RBC Capital, Baird, BMO Capital   Co-Managers: MUFG, National Bank of Canada Proposed trade date of 2/3  They are a leading digital customer experience innovator that designs, builds and delivers next-generation solutions for global and disruptive brands.

Telus International (Cda) Inc.   TIXT

• 33,333,333 shares to be offered between $23.00 and $25.00 per share
• Underwriters: JP Morgan, Morgan Stanley, Barclays, BofA Securities, CIBC Capital, Citigroup, Credit Suisse, RBC Capital, Baird, BMO Capital Co-Managers: MUFG, National Bank of Canada
• Proposed trade date of 2/3
• Rating = 3

Click here to view the prospectus.

https://www.sec.gov/Archives/edgar/data/1825155/000104746921000180/a2242820zf-1a.htm

Company Overview

They are a leading digital customer experience innovator that designs, builds and delivers next-generation solutions for global and disruptive brands. Their services support the full lifecycle of their clients' digital transformation journeys and enable them to more quickly embrace next-generation digital technologies to deliver better business outcomes. They work with their clients to shape their digital vision and strategies, design scalable processes and identify opportunities for innovation and growth. They bring to bear expertise in advanced technologies and processes, as well as a deep understanding of the challenges faced by all of their clients, including some of the largest global brands, when engaging with their customers. Over the last 15 years, they have built comprehensive, end-to-end capabilities with a mix of industry and digital technology expertise to support their 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 their founding, they have made a number of significant organic investments and acquisitions, with the goal of better serving their growing portfolio of global clients. They have expanded their 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.

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

They have expanded their 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 their service offerings and quickly become their largest and most important industry vertical. Today, they are a leading digital customer experience ("CX") innovator that designs, builds and delivers next-generation solutions for global and disruptive brands. They believe they have a category-defining value proposition with a unique approach to combining both digital transformation and CX capabilities.

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

They have built an agile delivery model with global scale to support next-generation, digitally-led customer experiences. Substantially all of their delivery locations are connected through a carrier-grade infrastructure backed by cloud technologies, enabling globally distributed and virtualized teams. The interconnectedness of their teams and ability to seamlessly shift interactions between physical and digital channels enables them to tailor their delivery strategy to clients' evolving needs. They have almost 50,000 team members located in 50 delivery locations across over 20 countries. Their delivery locations are strategically selected based on a number of factors, including access to diverse, skilled talent, proximity to clients and ability to deliver their services over multiple time zones and in multiple languages. They have established a presence in key global markets, which supply them with qualified, cutting-edge technology talent and they have been recognized as an employer of choice in many of these markets.

Today, their clients include over 600 companies across high-growth verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. Their relationship with TELUS, their largest client and controlling shareholder, has been instrumental to their success. TELUS provides significant revenue visibility, stability and growth, as well as strategic partnership with respect to co-innovation within their Communications and Media industry vertical. They have renewed their 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.

Acquisition of Lionbridge AI

On December 31, 2020, they 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.  They 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 their credit agreement, of which $265.0 million was drawn on the term loan facilities, and the remainder on the revolving facilities.

IPO Detail

This is the initial public offering of Telus International (Cda) Inc. and no public market currently exists for its common stock. Telus International (Cda) Inc.is offering 33,333,333 shares of common stock as described in the prospectus. The company expects the initial public offering price of its common stock to be between $23.00 and $25.00 per share. The company has applied to list its common stock on the New York Stock Exchange under the symbol “TIXT.”

After giving effect to this offering, TELUS Corporation will have 66.6% of the combined voting power attached to all of their issued and outstanding shares (and 68.0% if the underwriters' over-allotment option is exercised in full). They will be a "controlled company" under the corporate governance rules for New York Stock Exchange ("NYSE")-listed companies, and therefore they will be permitted to, and they intend to, elect not to comply with certain NYSE corporate governance requirements.

Use of Proceeds

They estimate that the net proceeds to them f in this offering will be approximately $493.9 million. They will not receive any proceeds from the sale of subordinate voting shares in this offering by the selling shareholders. They 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 their credit agreement and for general corporate purposes. As at September 30, 2020, they had $351.5 million of borrowings outstanding under the revolving credit facilities and $585.0 million outstanding under the term loan facilities of their credit agreement. In connection with the acquisition of Lionbridge AI, they made additional borrowings of $709.0 million under their credit agreement, of which $265.0 million was drawn on the term loan facilities, and the remainder on the revolving facilities.

Competition

Market Opportunity

Their 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 Global, Inc. ("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. Digital transformation services are estimated by IDC to have been a $147 billion market in 2019. 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.

In addition to DCXM, they serve markets that have experienced high growth in recent years, such as content moderation, which includes review and compliance services of customer created content on social media and other digital platforms. The necessity of moderating content on digital platforms has prompted enterprises to seek specialized services to accommodate changes in the uncertain, highly regulated environment. Everest Group estimates the content moderation market to have been approximately $1.5 billion to $2.0 billion in 2018, and expects it to experience estimated growth of 40%-50% through 2021.

Target Markets

 Expand Their Current and Potential Services with Existing Clients.    They seek to deepen existing client relationships by providing their clients with more of their existing services, as well as developing new adjacent services to address their evolving digital enablement and customer experience needs. They believe they have a significant opportunity to grow within their existing client base by deploying more of their existing solutions, such as cloud migration and content moderation. They have successfully expanded the number of services they offer their top ten clients and plan to similarly expand with the balance of their portfolio. For example, all of their top ten clients use multiple TELUS International services.

Furthermore, they believe that they have visibility into areas of fast-growing and high-value adjacent service offerings that are relevant to their clients by virtue of several factors, including their domain expertise, their strength in both customer experience, digital IT, AI data annotation services and their ability to understand and anticipate their clients' challenges. They seek to continue to leverage these strengths to identify new opportunities and capitalize on emerging trends to deliver greater value and to further grow within their client base. For example, their relationship with a global eCommerce client started with the provision of customer care services and later expanded to digital IT services due to the high quality of their work and strength of their technology.

Establish Relationships with New Clients.    They believe there are significant untapped opportunities to win new clients across all of their targeted industry verticals. They target potential clients that value customer experience as a brand differentiator. Within this opportunity, they prioritize potential clients that are experiencing significant growth and require a partner capable of evolving with them. They have historically won new clients based upon the strength of their position in the marketplace as well as references from existing clients.

The capabilities and solutions they have developed can be adapted and easily used to meet the needs of clients in additional industry verticals and sub-sectors that are increasingly pressured to transform. They will continue to leverage current processes, services and solutions to design and build new offerings to address new clients' needs for more comprehensive customer experience management.

Leverage Technology and Process to Drive Continuous Improvement.    They strive to continuously iterate and improve upon their operations to optimize the overall efficiency of their organization, enhance operating leverage and margins and better serve their clients. Their organization has over 2,000 "Six Sigma" certified team members that help them better leverage their technologies, processes, policies and practices to improve operational excellence and drive productivity at scale. These capabilities create the opportunity to reinvest in key initiatives and implement best-in-class technologies across functional areas, which they believe will further expand their competitive and operational advantages.

Their approach to innovation includes applying methodologies and technologies internally to evaluate viability and scalability before deploying their solutions to clients. They aim to continue growing both organically and inorganically, and they believe that the returns generated by their focus on technology-enabled efficiency across the organization will increase.

Enhance Core Capabilities with Strategic Acquisitions.    They intend to continue to enhance their core capabilities and solutions through acquisitions that support their strategy to design, build and deliver exceptional customer experiences for their clients. They seek out acquisition opportunities that expand the breadth of their service offerings, enhance the depth of their digital IT capabilities and accelerate their presence in attractive client industry verticals. They seek to acquire companies that have the potential to enhance their capabilities and which they believe will contribute positively to their financial profile and that are culturally aligned with their values. For example, their recent acquisition of Lionbridge AI provided them with data annotation capabilities that expand their total addressable market and expanded the set of solutions they are able to offer to their key clients, particularly in their Tech and Games industry vertical.

Company's Unique Strengths

Cultural Differentiation.    They have a unique and differentiated culture that places people and a shared set of values at the forefront of everything they do. They have carefully cultivated their caring culture over the last 15 years by ensuring alignment with their team members and clients alike. They believe continuously investing in their culture and operating as a socially responsible company builds stronger relationships with their clients and team members, and positively impacts the communities in which they operate.

Diverse Client Base Across Sectors.    They partner with a diverse set of disruptive and established clients across their core industry verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. Within some of these industry verticals, they serve clients across several high-growth sub-sectors.

Deep Domain Expertise.    They have developed expertise serving clients in their 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, they 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, their client engagements support digital transformation and innovation across their 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, they believe they have been at the forefront of helping social networks manage the rapidly expanding volume of user-generated content on their platforms. They use AI/ML-assisted solutions to help clients monitor content for compliance with local policies and regulations. Additionally, they 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 their deep understanding of "gamer culture".

Comprehensive, Integrated Capabilities to Enable Digital-First Experiences.    They have proactively built a set of integrated capabilities to deliver innovative customer experience solutions for their clients' customers. Their services span design, build and deliver so that they 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. They believe that their end-to-end solutions address client needs at all stages of their digital journeys and position them best to address their evolving priorities while expanding wallet share with them over time.

Best-In-Class Technology and Processes.    They rely on best-in-class technology to power everything they do. By virtue of their TELUS pedigree, they have built their business with a deep understanding of the importance of technological reliability and availability, fueling their "always-on" carrier-grade network infrastructure. This infrastructure is augmented by their next-generation private and public cloud-based architecture, which enables their complete suite of integrated digital services and enables them to be agile, efficient and scalable.

Globally Scaled and Agile Delivery Model.    Over several years they have built a differentiated global delivery model enabled by next-generation technology with the scale and agility needed to best serve their clients. The sophistication, agility and scale of their delivery capabilities enable them to tailor their 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, they were able to continuously serve their clients' needs despite the mandatory closure of many facilities.

Company's Unique Risks

Their ability to grow and maintain their profitability could be materially affected if changes in technology and client expectations outpace their service offerings and the development of their internal tools and processes, which could have a material adverse effect on their business, financial performance, financial condition and cash flows.

If they are unable to accurately forecast their pricing models or optimize the mix of products and services they provide to meet changing client demands, or if they are unable to adapt to changing pricing and procurement demands of their clients, their business, financial performance, financial condition and cash flows may be adversely affected.

Two clients account for a significant portion of their revenue and loss of or reduction in business from, or consolidation of, these or any other major clients could have a material adverse effect on their business, financial condition, financial performance and prospects. They have derived and believe that, in the near term, they will continue to derive, a significant portion of their revenue from a limited number of large clients. TELUS, their controlling shareholder, is their largest client and, for the fiscal years ended December 31, 2019 and 2018, TELUS accounted for approximately 26% and 24% of their revenue. For the nine-month period ended September 30, 2020, TELUS accounted for approximately 20% of their revenue, respectively. Google, Inc. ("Google") was their second largest client in the fiscal years ended December 31, 2019 and 2018 and accounted for approximately 12% and 14% of their revenue in such periods, respectively. In addition, Google is the largest client of Lionbridge AI, the data annotation business they acquired on December 31, 2020. Google accounted for 65% of Lionbridge AI's revenue in the year ended December 31, 2019. As a result of their acquisition of Lionbridge AI, an even greater percentage of their revenue will be dependent on Google

Their client contracts, which can be canceled at any time, are generally long-term, requiring them to estimate the resources and time required for the contracts upfront, and contain certain price benchmarking, compliance-related penalties and other provisions adverse to them, all of which could have an adverse effect on their business, financial performance, financial condition and cash flows.

They may face difficulties in delivering complex projects for their clients that could cause clients to discontinue their work with them, which may have a material adverse impact on their financial performance, financial condition and cash flows.

They often face a long selling cycle to secure a new client or a new program with an existing client. If they are not successful in obtaining and efficiently maintaining contractual commitments after the selling cycle their business, financial performance, financial condition and cash flows may be adversely affected.

The inelasticity of their labor costs relative to short-term movements in client demand could adversely affect their business, financial condition and financial performance. Their business depends on maintaining large numbers of team members to service their clients' business needs and on being able to quickly respond to new client programs or new programs for existing clients. As a result, and consistent with their caring culture, they try where possible not to terminate team members in response to temporary declines in demand when existing projects end or when clients terminate services. Moreover, rehiring and retraining team members at a later date could force them to incur additional expenses and they may not be able to do so in a timely manner. Additionally, any termination of their team members could also have a negative impact on their hiring and recruitment efforts and the morale of the remaining team members and could involve the incurrence of significant additional costs in the form of severance payments to comply with labor regulations in the various jurisdictions in which they operate, all of which would have an adverse impact on their operating profit margins. Furthermore, they are subject to a variety of legal requirements related to the termination of team members in the countries and cities where they operate.

Team member wage increases in certain geographies may prevent them from sustaining their competitive advantage and may reduce their profit margin. Their most significant costs are the salaries and related benefits of their team members. For example, wage costs in India, the Philippines, Romania and Ireland have historically been significantly lower than wage costs in the United States, Canada and Europe for comparably skilled professionals, which has been one of their competitive advantages. As economic growth increases in the countries where they benefit from lower wage costs, concurrent with increased demand by them and their competitors for skilled employees, wages for comparably skilled employees are increasing at a faster rate than in the United States, Canada and Europe, which may, over time, reduce this competitive advantage. 

They may choose to expand their operations to additional countries, which carries significant risks, and they may not be successful in maintaining their current profit margins in, or repatriating cash from, their new locations due to factors beyond their control.

Their business and financial results have been, and in the future may be, adversely impacted by the COVID-19 pandemic.  For example, some of the geographies in which their team members work remotely may not be well-suited to work-from-home approaches to providing client services due to connectivity or other issues with the local infrastructure. The effects of the pandemic have caused their clients to defer decision making, delay planned work, reduce volumes or seek to terminate current agreements with them. Additionally, a number of their clients in their Travel and Hospitality vertical have been and may, in the future, be negatively impacted as a result of the pandemic and the corresponding reduction in demand for their services may negatively affect the revenue they will be generating from those clients. 

They rely upon third-party providers of "cloud" computing services to operate certain aspects of their services and any disruption of or interference with their use of these cloud providers or increase in cost of their services could adversely impact their business, financial performance, financial condition and cash flows.

Some of their contractual arrangements with their clients require them to deliver a minimum quality of service, and their failure to meet those quality standards could adversely impact their business or subject them to liability or penalties.

Their content moderation team members may suffer adverse emotional or cognitive effects in the course of performing their work, which could adversely affect their ability to attract and retain team members and could result in increased costs, including due to claims against them. Their content moderation team members are tasked with reviewing discriminatory, threatening, offensive, illegal or otherwise inappropriate multimedia content. Reviewing this content is emotionally and cognitively challenging for many of their team members, which may result in their team members suffering adverse psychological or emotional consequences. These impacts could lead to higher expenses to support their team members, higher levels of voluntary attrition and increased difficulty retaining and attracting team members. If they are not able to effectively attract and retain content moderation team members, they may experience a decline in their ability to meet their clients' expectations, which may adversely impact the demand for their services. Additionally, they may be required under applicable law to provide accommodations for team members who experience or who assert they are experiencing mental health consequences.

Their acquisition of Lionbridge AI remains subject to review by CFIUS and they are not certain how the outcome of the review will impact their business. They completed their acquisition of Lionbridge AI on December 31, 2020. In connection with the acquisition, they submitted a declaration filing with CFIUS. At the end of its 30-day assessment of the declaration filing, CFIUS requested that they file a joint voluntary notice pursuant to Section 721 of the Defense Production Act, which triggered an additional 45-day review period. Their understanding is that the additional CFIUS review is focused on certain commercial relationships that TELUS, their controlling shareholder, has with certain foreign telecom network infrastructure vendors. Although CFIUS has authority to require divestitures in connection with its review of any transaction, it is their understanding that CFIUS sought an additional review period due to its interest in the commercial relationships of TELUS and not based on concerns regarding their business or that of Lionbridge, and they believe based on their discussion with CFIUS staff that the likelihood of a divestment outcome in connection with the Lionbridge acquisition is remote.

One of Lionbridge AI's clients accounts for 65% of its revenue and five clients represent 98% of its revenue and loss of or reduction in business from, or consolidation of, these or any of these clients could have a material adverse effect on its and their business, financial condition, financial performance and prospects.

The dual-class structure that will be contained in their articles has the effect of concentrating voting control and the ability to influence corporate matters with TELUS and Baring, who held their shares prior to their initial public offering. Following the consummation of this offering, they will have two classes of shares outstanding: multiple voting shares and subordinate voting shares. Their multiple voting shares will have ten votes per share and their subordinate voting shares, which are the shares they and the selling shareholders are selling in this offering, will have one vote per share. TELUS and Baring are the only shareholders who hold the multiple voting shares. Following the completion of this offering, it is expected that TELUS will have approximately 66.6% of the combined voting power of their outstanding shares and Baring will have approximately 31.5% of the combined voting power of their outstanding shares (or, if the underwriters' over-allotment option is exercised in full, TELUS and Baring would have approximately 68.0% and 29.9%, respectively, of the combined voting power of their outstanding shares following this offering).  In addition, because of the ten to one voting ratio between their multiple voting shares and subordinate voting shares, the holders of their multiple voting shares will continue to control a majority of the combined voting power of their outstanding shares even where the multiple voting shares represent a substantially reduced percentage of their total outstanding shares. 

Their dual-class structure may render their subordinate voting shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of their subordinate voting shares.

Bottom Line

For the years ended December 31, 2019, 2018 and 2017, their 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 their pro forma revenue for the year ended December 31, 2019, was $1,571.4 million. For the nine months ended September 30, 2020 and 2019, their revenues were $1,139.3 million and $747.1 million, respectively and their pro forma revenue for the nine months ended September 30, 2020 and 2019, was $1,350.1 million and $1,154.0 million, respectively. Their 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 their pro forma net loss for the year ended December 31, 2019, was $1.6 million. Their net income for the nine months ended September 30, 2020 and 2019, was $81.9 million and $41.7 million, respectively, and their pro forma net income (loss) for the nine months ended September 30, 2020 and 2019, was $78.1 million and $(21.7) million, respectively. Their 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 their 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.

They are a leading digital customer experience ("CX") innovator that designs, builds and delivers next-generation solutions for global and disruptive brands. They provide strategy and innovation, next-generation technology and information technology ("IT") services, and CX process and delivery solutions to fuel their clients' growth. Substantially all of their delivery locations are connected through a carrier-grade infrastructure backed by cloud technologies, enabling globally distributed and virtualized teams. They have almost 50,000 team members located in 50 delivery locations across over 20 countries. Today, their clients include over 600 companies across high-growth verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. TELUS provides significant revenue visibility, stability and growth, as well as strategic partnership with respect to co-innovation within their Communications and Media industry vertical. On December 31, 2020, they 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. 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. Lionbridge AI's solutions help improve data functionality and deliver secure, compliant, scalable and high-quality solutions for its clients. They 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 their credit agreement, of which $265.0 million was drawn on the term loan facilities, and the remainder on the revolving facilities.

Their 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 Global, Inc. ("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. Digital transformation services are estimated by IDC to have been a $147 billion market in 2019. 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. Everest Group estimates the content moderation market to have been approximately $1.5 billion to $2.0 billion in 2018, and expects it to experience estimated growth of 40%-50% through 2021.

`They believe they have a significant opportunity to grow within their existing client base by deploying more of their existing solutions, such as cloud migration and content moderation. Furthermore, they believe that they have visibility into areas of fast-growing and high-value adjacent service offerings that are relevant to their clients by virtue of several factors, including their domain expertise, their strength in both customer experience, digital IT, AI data annotation services and their ability to understand and anticipate their clients' challenges. They believe there are significant untapped opportunities to win new clients across all of their targeted industry verticals. Their approach to innovation includes applying methodologies and technologies internally to evaluate viability and scalability before deploying their solutions to clients. They aim to continue growing both organically and inorganically, and they believe that the returns generated by their focus on technology-enabled efficiency across the organization will increase. They intend to continue to enhance their core capabilities and solutions through acquisitions that support their strategy to design, build and deliver exceptional customer experiences for their clients. They seek out acquisition opportunities that expand the breadth of their service offerings, enhance the depth of their digital IT capabilities and accelerate their presence in attractive client industry verticals.

They believe continuously investing in their culture and operating as a socially responsible company builds stronger relationships with their clients and team members, and positively impacts the communities in which they operate. They partner with a diverse set of disruptive and established clients across their core industry verticals, including Tech and Games, Communications and Media, eCommerce and FinTech, Healthcare and Travel and Hospitality. Within some of these industry verticals, they serve clients across several high-growth sub-sectors. They have developed expertise serving clients in their 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, they have built an understanding of their unique, industry-specific challenges and digital transformation journeys, as well as the solutions and services to address them. Additionally, they 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 their deep understanding of "gamer culture".  They have proactively built a set of integrated capabilities to deliver innovative customer experience solutions for their clients' customers. They believe that their end-to-end solutions address client needs at all stages of their digital journeys and position them best to address their evolving priorities while expanding wallet share with them over time. They have built their business with a deep understanding of the importance of technological reliability and availability, fueling their "always-on" carrier-grade network infrastructure. This infrastructure is augmented by their next-generation private and public cloud-based architecture, which enables their complete suite of integrated digital services and enables them to be agile, efficient and scalable. T. he sophistication, agility and scale of their delivery capabilities enable them to tailor their 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.

Their ability to grow and maintain their profitability could be materially affected if changes in technology and client expectations outpace their service offerings and the development of their internal tools and processes. They may be unable to accurately forecast their pricing models or optimize the mix of products and services they provide to meet changing client demands, or if they are unable to adapt to changing pricing and procurement demands of their clients. TELUS, their controlling shareholder, is their largest client and, for the fiscal years ended December 31, 2019 and 2018, TELUS accounted for approximately 26% and 24% of their revenue. For the nine-month period ended September 30, 2020, TELUS accounted for approximately 20% of their revenue, respectively. Google, Inc. ("Google") was their second largest client in the fiscal years ended December 31, 2019 and 2018 and accounted for approximately 12% and 14% of their revenue in such periods, respectively. In addition, Google is the largest client of Lionbridge AI, the data annotation business they acquired on December 31, 2020. Google accounted for 65% of Lionbridge AI's revenue in the year ended December 31, 2019. As a result of their acquisition of Lionbridge AI, an even greater percentage of their revenue will be dependent on Google. Their client contracts, which can be canceled at any time, are generally long-term, requiring them to estimate the resources and time required for the contracts upfront, and contain certain price benchmarking, compliance-related penalties and other provisions adverse to them. They may face difficulties in delivering complex projects for their clients that could cause clients to discontinue their work with them. The inelasticity of their labor costs relative to short-term movements in client demand could adversely affect their business, financial condition and financial performance. Their business depends on maintaining large numbers of team members to service their clients' business needs and on being able to quickly respond to new client programs or new programs for existing clients. As a result, and consistent with their caring culture, they try where possible not to terminate team members in response to temporary declines in demand when existing projects end or when clients terminate services. Moreover, rehiring and retraining team members at a later date could force them to incur additional expenses and they may not be able to do so in a timely manner. Furthermore, they are subject to a variety of legal requirements related to the termination of team members in the countries and cities where they operate. Their most significant costs are the salaries and related benefits of their team members. Wage costs in India, the Philippines, Romania and Ireland have historically been significantly lower than wage costs in the United States, Canada and Europe for comparably skilled professionals, which has been one of their competitive advantages. As economic growth increases in the countries where they benefit from lower wage costs, concurrent with increased demand by them and their competitors for skilled employees, wages for comparably skilled employees are increasing at a faster rate than in the United States, Canada and Europe, which may, over time, reduce this competitive advantage. They may choose to expand their operations to additional countries, which carries significant risks, and they may not be successful in maintaining their current profit margins in, or repatriating cash from, their new locations due to factors beyond their control. The effects of the pandemic have caused their clients to defer decision making, delay planned work, reduce volumes or seek to terminate current agreements with them. Additionally, a number of their clients in their Travel and Hospitality vertical have been and may, in the future, be negatively impacted as a result of the pandemic and the corresponding reduction in demand for their services may negatively affect the revenue they will be generating from those clients. They rely upon third-party providers of "cloud" computing services to operate certain aspects of their services and any disruption of or interference with their use of these cloud providers or increase in cost of their services could adversely impact their business, financial performance, financial condition and cash flows. Their content moderation team members are tasked with reviewing discriminatory, threatening, offensive, illegal or otherwise inappropriate multimedia content. Reviewing this content is emotionally and cognitively challenging for many of their team members, which may result in their team members suffering adverse psychological or emotional consequences. Additionally, they may be required under applicable law to provide accommodations for team members who experience or who assert they are experiencing mental health consequences. Their acquisition of Lionbridge AI remains subject to review by CFIUS and they are not certain how the outcome of the review will impact their business. It is their understanding that CFIUS sought an additional review period due to its interest in the commercial relationships of TELUS and not based on concerns regarding their business or that of Lionbridge, and they believe based on their discussion with CFIUS staff that the likelihood of a divestment outcome in connection with the Lionbridge acquisition is remote. One of Lionbridge AI's clients accounts for 65% of its revenue and five clients represent 98% of its revenue and loss of or reduction in business from, or consolidation of, these or any of these clients could have a material adverse effect on its and their business, financial condition, financial performance and prospects. Following the consummation of this offering, they will have two classes of shares outstanding: multiple voting shares and subordinate voting shares. Their multiple voting shares will have ten votes per share and their subordinate voting shares, which are the shares they and the selling shareholders are selling in this offering, will have one vote per share. Following the completion of this offering, it is expected that TELUS will have approximately 66.6% of the combined voting power of their outstanding shares and Baring will have approximately 31.5% of the combined voting power of their outstanding shares (or, if the underwriters' over-allotment option is exercised in full, TELUS and Baring would have approximately 68.0% and 29.9%, respectively, of the combined voting power of their outstanding shares following this offering).  Their dual-class structure may render their subordinate voting shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of their subordinate voting shares.