TaskUs, Inc.

Greetings and welcome to Task Us Inc. Q1 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Alan Katt, Vice President, Investor Relations. Thank you, sir. You may begin your presentation.

Good afternoon, and thank you for joining us for the Task Us first quarter 2022 earnings call. Joining me on the call today are Bryce Maddock, our co-founder and chief executive officer, Jasper Weir, our co-founder and president, and Balaji Sekhar, our chief financial officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the investor relations section of the website at ir.taskus.com. We also plan to post supplemental information on this website, including an investor presentation and an Excel-based metrics file following this call. Please note that this call is being simultaneously webcast on the IR section of our website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our future financial results and management expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ from those forward-looking statements can be found in our annual report on Form 10-K, which was filed with the SEC on March 9, 2022. This filing is accessible on the SEC's website and on our website at ir.taskus.com. and may be supplemented with subsequent periodic reports we file with the SEC. Any forward-looking statements made on today's conference call, including responses to questions, are based on current expectations as of today, and TASCAS assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following discussion contains non-GAAP financial measures. For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release, which is available in the IR section of our website. Now I will turn the call over to Bryce Maddock, co-founder and chief executive officer of TaskUs. Bryce.

Thank you, Alan. Good afternoon, everyone. And thank you for joining us. 2022 is off to a very strong start with both top and bottom line results for Q1 coming in above the high end of our guidance ranges. Our go-to-market function is executing well, starting the year with a strong quarter of signings from both new and existing clients. And as Jasper will discuss later in the call, we completed our first acquisition in mid April. We started our return to office and now have approximately 20% of our teammates working safely from Taskus offices around the globe. It's been great to see teammates who've been with Taskus for years, reconnect in person, and to see the engagement from those teammates who joined us during the pandemic and hadn't yet been able to experience our amazing office culture. The number of teammates returning to the office will increase over the course of this year. As always, we're prioritizing the health and safety of the team above all else. In terms of financials, Q1 revenue grew organically by 56.8% year on year to $239.7 million, above the top end of our guidance range of $232.2 million. Adjusted EBITDA grew 36.9% year on year to $54.1 million for an adjusted EBITDA margin of 22.6%, just above our guidance of 22.5%. In terms of people, in Q1, we set a hiring record 5,700 net new teammates joined TaskUs as demand for our services accelerated in the Philippines and in India. Our results were driven by the continued execution on our five growth levers. Let's discuss how we're performing on each of these levers in a bit more detail. I'll start with a closer look at our revenue and recent sales activity. Growth in Q1 was the result of continued success on the first two growth levers. expansion with our current high growth clients, and adding new clients across verticals. Starting with our current clients, as a group, our top 20 clients in Q1 increased their spend year over year by approximately 50%, while revenue growth from clients outside of our top 20 customers grew at approximately 80%, supporting our continued focus on revenue diversification. Our fintech and health tech verticals grew revenues well into the triple digits, and our gaming vertical grew revenue well north of 50%, all when compared to Q1 of 2021. In digital customer experience, we grew revenue by 60.2% compared with Q1 of 2021 as a result of expansion with existing clients and new client signings. This year, we've seen an increase in demand for our services from more traditional enterprises who are turning to task us for help with their digital transformations. In terms of new business signings inside DCX, we signed an engagement with one of the largest U.S. airlines in Q1, just as travel demand has begun to hit a post-COVID ramp. We launched a chat button in this client's mobile app and are helping to divert thousands of contacts from the phones to more efficient digital channels. This is a great example of how our digital expertise can be leveraged by enterprise clients as they look to transform the way they engage with their customers. We also signed a digital customer experience transformation contract with a large, well-known e-commerce brand to provide customer experience and order management support. This client had been working with their prior partner for 20 years, and we successfully displaced them by offering an innovative solution for customer engagement. As our high-growth technology customers increase their focus on efficiency and cost, we're seeing increased interest from clients who want to leverage our automation solutions. We've recently signed contracts to launch our chatbot technology across multiple programs. We're building RPA tools to fully automate workflows and implementing an automated security supervisor that we call Falcon to prevent fraud. These offerings were key differentiators in positioning us to win new business. We expect these capabilities to help us differentiate and protect margins while we drive improved performance and efficiency for our clients, all while maintaining our support of frontline teammates. Content security revenues grew by 26.9% compared with Q1 of 2021, largely driven by volume growth with existing clients outside of our largest client. We continue to expand the type of work we're doing and the geographies where we provide content security services. In the first quarter, we signed some very exciting new content security work. These signings included an expanded scope of work with one of the world's largest audio streaming platforms to provide content security services out of Europe. And a few weeks ago, we signed another expansion of service to support them out of Malaysia. We also signed a significant expansion with one of the world's largest dating apps, providing content moderation out of India. This was a competitive RFP process, and our policy and wellness expertise truly differentiated us. At this stage, I want to provide an update on the transition of work for our largest client. We successfully transitioned hundreds of roles for this client, and the transition will be complete this month. Our relationship with our largest client remains strong. In fact, they've now awarded us approximately a thousand additional roles in offshore geographies since the transition began. And we expect to scale most of those roles in the back half of the year. As we've noted before, we make less revenue per employee offshore than we do onshore. So we'll see the impact of this transition in our Q2 revenues. As a result of this shift, we expect our content security revenues to be roughly flat in Q2 and decline year over year in Q3 and in Q4. We expect to return content security to growth in 2023. Since we've transitioned this work offshore, we expect our margins to expand in the back half of the year. Finally, AI services revenues continue to grow in Q1. Revenue from AI services doubled compared with Q1 of 2021 to $34.1 million, driven primarily by expansions with new and existing clients in the social media, travel, and autonomous vehicle spaces. While we expect AI services revenues to continue to grow this year, they will also be impacted by the shifting geographic mix. This is a high growth market and we expect to continue to grow this business over the medium term. In terms of specific Q1 wins in AI services, we signed a significant expansion with our largest client and a new deal with an online brand management company. We were also awarded our first enterprise project for the Taskverse, our gig worker platform. This platform will allow us to reach a wide breadth of global talent to complete data collection and annotation tasks that are vital for the creation of AI models. Overall, our signings were once again driven significantly by growth from existing clients, which accounted for approximately 75% of the total new business signings in Q1. We signed expansions across service lines with several of our top 10 clients. We also continued our growth trajectory in Europe including signing with a leading audio streaming platform that I mentioned earlier, and an expansion with an online gaming client. Proving the power of our global platform, we will now support both of these clients from three different countries. We also continued our progress on our third growth lever in Q1, expansion of specialized services. Over the last several quarters, you've heard me speak about the progress we've made in the area of financial crimes investigations, fraud risk and compliance services. We've officially launched these services as Task Us Risk and Response. We mostly report risk and response revenues within the content security service line. Here we've won deals to support digital identity verification, regulatory compliance, and anti-fraud, primarily with FinTech clients, online marketplaces, and cryptocurrency platforms. These are fast-growing markets where we can differentiate ourselves from traditional providers through industry knowledge and world-class tools that enable our teammates. In Q1, we expanded a risk and response relationship we have with a large vacation rental company. We're now providing support for know your customer, sanction and reviews, payment risk operations, and anti-money laundering work for this customer. On our last call, I also discussed our learning experience services, which we call LXS. We primarily report this service within our digital customer experience service line today. This is a great example of us leveraging an internal skill set and commercializing it. Given market trends, we see a meaningful opportunity to become a strong player in this space. We work with clients who tend to have an immediate need for training services, given their growth rates and the expansion of both internal and vendor teams. In fact, we signed two LXS deals in Q1 with FinTech clients, supporting their onboarding and training processes. This adds to the LXS business that we already deliver for one of the world's largest technology companies and a leader in the autonomous vehicle space. While this offering is still new to the market, I'm pleased with our initial success. In terms of our fourth growth lever, adding additional geographies, we're seeing good initial traction in Malaysia. We've signed several deals there and are currently ramping teammates in Malaysia for a food delivery customer. We also added new delivery capabilities in Europe through our acquisition of Helu, which was led by my partner and co-founder Jasper. So I'll pass it off to Jasper to discuss our fifth and final growth lever, M&A.