TaskUs, Inc.

Greetings. Welcome to the Task Us Inc. Q2 2022 earnings 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 the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Alan Katz, Vice President of Investor Relations. You may begin.

Good afternoon, and thank you for joining the Task Us second quarter 2022 earnings call. Joining me on the call today are Bryce Muddock, our co-founder and chief executive officer, 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 have also posted supplemental information on this website, including an investor presentation and an Excel-based metrics file. Please note that this call is simultaneously being webcast in 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 task force 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 TASCA. Bryce?

Thank you, Alan. Good afternoon, everyone, and thank you for joining us. We delivered another strong quarter in Q2, with revenue and adjusted EBITDA coming in above the top end of our guidance ranges. Q2 revenue grew by 36.9% year-on-year to $246.5 million, above the top end of our guidance range of $243.5 million. Adjusted EBITDA grew 26.2% year-on-year to $55.7 million for an adjusted EBITDA margin of 22.6%, just above our guidance of 22.5%. I'm also proud to report that this quarter, Everest Group named Taskus the fastest growing business process service provider in the world. While we delivered strong results, we are seeing the impact of our clients shifting their focus from growth to cost optimization. In the search for immediate savings, some of our clients have cut vendor spend. Since our last call, this trend has accelerated, particularly among our clients in the cryptocurrency and equity trading spaces. Given these trends, we've lowered guidance for the remainder of the year. I want to be clear. In the face of these significant challenges, we are still positioned to deliver industry-leading profitable growth. This is because our teams continue to execute strongly on our five growth levers. Our clients' focus on cost presents a major opportunity as they're increasingly turning to us to help optimize their spend by leveraging our offshore teams. I'll review how we performed in Q2 and then return to our updated outlook for the remainder of the year and our strategy to continue to grow faster than the industry. In Q2, we executed well across our first two growth levers, expansion with our current high growth clients and adding new clients across verticals as we delivered signings from both new and existing clients. Starting with our growth with current clients, in Q2, our top 20 clients increased their spend year over year by almost 30%, while revenue from clients outside of the top 20 grew at more than 60%. Our largest client grew 12% compared to Q2 of 2021. As expected, this growth rate is lower than prior quarters, driven by the impact of their transition offshore beginning to flow through this quarter. We've made great progress reducing client revenue concentration and improving the diversity and resilience of our client base. Looking at our service offerings, digital customer experience revenue grew 47.4% compared with Q2 of 2021 as a result of expansion with existing clients and new client signings. Demand for our DCX services has been particularly strong in gaming, travel and transportation, and among challenger banks and remittance apps in the fintech space. We signed a digital customer experience expansion with a personal wellness brand to expand from one geography to three. We expect to add an additional 400 teammates in Latin America and the Philippines to support this client. We expanded our European language support work in Greece for one of the world's largest e-commerce marketplaces. We're now delivering services from three different countries for this client. We'll provide multilingual customer support, tech support, and sales through various channels. In a quest for cost savings, our clients have begun to shift work they were previously doing in-house to our offshore teams. One of our clients, a large gaming company where we provide player support in multiple languages, shifted a large portion of their European language DCX work to our team in Greece, and some of their Tier 3 support work to our teams in the Philippines. Finally, we signed another digital transformation contract with a large travel client. This client actively sought us out, given our experience in the travel and transportation space. We've launched a center of excellence for them in Texas, where we will provide them with a few hundred travel advisors in the coming months. Going forward, we believe we will see demand for our onshore operations from enterprise clients. Moving on to content security, revenues in this service offering grew by 7.8% compared with Q2 of 2021, driven by volume growth with existing clients and new client signings. We saw particularly strong signings growth this past quarter for constant security work out of Malaysia, where we signed an expansion with one of the world's largest audio streaming platforms. We also signed a risk and response deal in Malaysia for a new client in the peer to peer payment space. We were providing this client with know your customer and fraud investigation support. Two of our challenger bank clients also asked us to take on complex processes previously done by their in-house teams. Here, our risk and response organization will be delivering any money laundering and know your customer services while significantly reducing our clients' spend on new services. Finally, we began working with one of the world's most popular gaming communication platforms. Given early success, we've already expanded the scope of trust and safety support that we will be providing this platform. We see an enormous growth opportunity ahead at this client. At our largest client, we completed the transition of hundreds of roles offshore at the end of May. Given the timing of this transition and the offsetting ramp of additional roles, we expect Q3 to be the lowest revenue quarter for our content security service offering this year. We expect to return content security to growth in 2023. Our relationship with our largest client remains very strong. we're in the process of scaling over a thousand new roles in our offshore delivery environments for them. Given the reduction to our onshore teams, this client's revenues in the back half of the year will be down slightly when compared to the first half. But we now expect to earn more from this client in 2022 than we did in 2021. We also expect to continue modest annual revenue growth with this client in 2023. AI service revenues grew 39.4% in Q2 compared with 2021. This growth was driven primarily by expansions with existing clients in the social media, travel, and autonomous vehicle spaces, offset by the transition of work with our largest client. We signed several exciting projects for the Taskverse, our gig worker platform. This included multiple projects with two big tech firms, one of which is a first-time Taskus client. We also signed a Taskverse agreement with another one of our top 10 clients in the e-commerce space. Taskverse.com is seeing strong initial demand for our data labeling and AI support services. In response, we're investing in sales and marketing to fuel its growth. Overall, our signings were again driven largely by growth from existing clients, which accounted for approximately 75% of our total new business signings in Q2. Looking at revenue growth within our industry verticals, we're seeing particular strength from our health tech, entertainment and gaming, and non-crypto fintech clients, all of which grew revenue over 50% year on year in Q2. As economies around the world have reopened and business travel has resumed, we're also seeing a pickup in demand for our on-demand travel and transportation business. Revenue in this vertical grew by over 40% year on year, This includes astounding growth at our largest ride-sharing client, where we more than tripled our revenue compared to Q2 of 2021, as we took significant share from our competitors. As I mentioned earlier, several enterprise travel companies have now turned to us to support their digital transformations. We're also seeing exciting opportunities in the autonomous vehicle space, where we have seen traction for both our AI services and learning experience solutions. The high-tech vertical also continues to be a major area of focus. Last quarter, I discussed opportunities we were pursuing with some of the biggest tech companies. I'm proud to report that we've since signed deals with three big tech firms. Here, we're focused on delivering the operational excellence Taskus is known for to earn the opportunity to expand. While we don't expect significant revenues from these clients this year, they have the potential to contribute meaningful growth over the next few years. Moving on to our third growth lever, we also showed continued progress expanding our specialized services. As I mentioned, we closed multiple AI services deals on the task force and several risk and response engagements this quarter. We also expanded our engagement with our largest learning experience services client. We're now servicing this client from three locations, providing training services to their global teams. As clients are shifting their focus to cost, we're beginning to see opportunities to bring other service offerings to the market. Our learning experience solution is a great example of our client's willingness to look at certain in-house functions or processes that may have not been a candidate for outsourcing in the past. We're seeing good progress with our fourth growth lever, adding additional geographies, with Malaysia and Europe performing particularly well this quarter. Since launching Malaysia at the start of the year, we've signed four clients, including geographic expansions with three of our existing global client relationships. We've also had strong sales performance out of Greece, where our headcount grew by more than 50% from Q1 to Q2 of this year. Finally, our acquisition of Heloo has opened up Central and Eastern Europe as a delivery hub for our clients. This gives us a lower cost footprint for European language support work. This brings me to our fifth growth driver, M&A. We closed our first acquisition in April, and over the past three months, we've made great progress integrating the Heloo team into Task Us. Heloo is performing ahead of plan, and we're starting to see opportunities for our sales teams to sell alongside one another. Given the current market dynamics, we are very excited about using M&A to consolidate our market over the medium term. However, we have not yet seen private market valuations align with the current public market reality. We remain disciplined and focused on our creative acquisitions, and we have the balance sheet and operating capacity to move quickly and to take advantage of these opportunities. Turning to our teammates and the environment for talent, at the end of Q2, total headcount was 45,300. down by about 500 teammates compared with the end of last quarter. This was driven by our clients' focus on cost reduction by reducing team sizes, primarily in our US operations and among our cryptocurrency clients. We also moved to eliminate certain corporate roles in response to our updated revenue guidance. The environment for talent continues to be competitive. We've seen attrition increase this quarter compared to both last year and Q1. The primary driver of this increase in attrition has been returning teammates to the office. We now have approximately 40% of our teammates working safely from Taskus offices around the globe, up from 20% last quarter. Whether working from home or in our offices, we continue to deliver classes on time and meet our clients' needs. We're working aggressively to reduce attrition, and I'm happy to say that our initial investments appear to be paying off as attrition in July was lower than in Q2. Our Glassdoor rating also remains amongst the highest in the space at 4.5 stars as of the end of the quarter. Now, let's move on to our outlook for the remainder of the year. While we've performed well in the first half of the year, the current macro environment is impacting many of our clients. As a result, we revised our outlook for 2022 and now expect to grow at 23.6% at the midpoint of our guidance. This change in outlook was primarily driven by two factors. First, our clients in the crypto and equity trading spaces have reduced volumes faster and deeper than we expected as of our first quarter call. To put this in context, crypto and equity trading clients as a group accounted for over 15% of our revenues in Q1. We now expect that there will be approximately 5% of our revenues in the fourth quarter. While some of this impact was baked into our outlook provided on the Q1 call, we've since seen incremental volume reductions. Second, we're seeing other high growth tech clients look for immediate savings in response to market uncertainty. Here, our clients have focused on our US-based resources. Some of these clients are leveraging our offshore model and others are reducing vendor spend across the board. While the increased focus on cost creates meaningful opportunities with both new and existing clients over the coming quarters, it also puts immediate pressure on revenues. In response to these updates, we've not only taken steps to reduce our corporate spend, but have also frozen hiring for most non-revenue generating roles. We will continue to invest in our technology and go-to-market teams as these investments will drive our growth in 2023 and beyond. In terms of margins, we now expect that our adjusted EBITDA margin for the full year will be approximately 22.3%, or $210 million at the midpoint of our guidance range. We also expect to generate approximately $100 million of free cash flow this year. Taskus is a highly cash-generated business and our disciplined approach to capital allocation will continue to support our growth. As we look to 2023 and beyond, we remain confident in our ability to grow faster than the rest of the industry. Taskus has been the fastest-growing business process service company since we were founded in 2008 because we are the preferred provider of high-growth tech disruptors. While it is a volatile time for tech firms, our view is that these companies will continue to outgrow the market over the long run. More immediately, we have a strong pipeline of opportunities to help these clients reduce their operating expenditures by shifting functions that they are currently doing in-house to our offshore delivery locations. Finally, we're expanding our addressable market by working with enterprise clients on their digital transformations and closing deals with big tech. This quarter, we signed pilots with three big tech firms. These are companies that spend billions of dollars a year on outsourced services. As we've done in the past, we expect to earn the opportunity to scale with these clients through the strength of our execution. With that, I'll hand it over to Balaji to go through our Q2 financial results and provide more details on our guidance.