TaskUs, Inc.

Good morning and welcome to the Task Us first quarter 2023 investor call. My name is John and I'll be your conference facilitator today. At this time, all lines have been placed on mute to avoid background noise. After the speaker's remarks, there will be a question and answer period. If anyone should require operator assistance during the conference, please press star zero. And as a reminder, this conference is being recorded. I would now like to introduce you to Alan Katz, Vice President of Investor Relations. Thank you, Alan. You may begin.

Good afternoon, and thank you for joining us for the Task Us first quarter 2023 earnings call. Joining me on the call today are Bryce Maddock, 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 in the investor relations section of our website at ir.taskus.com. We have also posted supplemental information on our website, including an investor presentation and an Excel-based metrics file. 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's 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 6, 2023. This filing is accessible on the SEC's website and on our website at ir.tasks.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 has seen 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 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. With that, I will now turn the call over to Bryce Maddock, our co-founder and chief executive officer. Bryce?

Thank you, Alan. Good afternoon, everyone, and thank you for joining us. In the first quarter, we outperformed both our revenue and adjusted EBITDA guidance ranges. We delivered $235.3 million in revenue compared to the top end of our guidance range of $233 million. We delivered adjusted EBITDA of $55.2 million for an adjusted EBITDA margin of 23.5%, also well above our guidance of a 21% margin. While our first quarter results were stronger than expectations, we revised our revenue outlook for the remainder of the year as the macro environment has become more challenging. We've seen a continued lengthening of the sales cycle, delaying some forecasted revenues for the year. Additionally, our US-based delivery revenues continue to decline. Here, the largest client we serve from the US lost a large contract, significantly impacting our forecasted revenues from this client. Finally, we continue to see volatility at our largest global client as their development priorities evolve. In the first quarter, we took decisive action to drive additional operational efficiency into our own business. As a result, we've improved profitability and now expect to deliver 23.5% adjusted EBITDA margins for the full year. At the midpoint of our guidance range, we expect to earn over $220 million in adjusted EBITDA, essentially unchanged from last quarter's guidance. We also continue to expect to deliver over $100 million in free cash flow at any point in our guidance range, excluding an earn-out payment associated with the HALU acquisition. I'll go through the details of our Q1 performance and provide an update on our three strategic growth drivers, as well as the impact from our efficiency gains. Bology will then walk through our financials, as well as our updated guidance ranges for Q2 and the remainder of 2023. Starting with growth with our current clients, revenue from our top 20 clients declined by 8% year-over-year in Q1, impacted by the transition of work offshore at our largest client and the declines in volume at our largest crypto and equity trading client. If we exclude those three clients, our largest 17 clients grew 20% year over year. Revenue from our clients outside of the top 20 grew by 17% year over year. Looking at our service offerings, digital customer experience revenue declined by 1.6% compared with Q1 of 2022. Expansions with existing clients and new client signings were offset by the decline in revenues from crypto and equity trading clients. As a reminder, crypto and equity trading clients, which accounted for 15% of total revenues in Q1 of 2022, dropped to just 4% of total revenues in Q1 of this year. In terms of major DCX signings, we continue to win business from the competition. In Q1, we signed a fast-growing direct to consumer wellness product. Their prior outsourcer was not performing, so they turned to us to improve their customer engagement. We're assisting with customer complaints and new product orders via email, chat, and voice. We also signed a sizable contract with the Consumer Savings App that moved all of their digital support to us from a competitor. They were looking to partner with a company that utilized technology to drive efficiency and quality in supporting their customers. We also expanded our work during the quarter with the nation's leading home leasing company after a successful pilot last year. Our work with them spans multiple service lines, from voice support for their leasing agents to digital support for their residents to moderation of their social media and online reviews. Finally, we signed two new contracts in the health tech space for digital customer experience. Both of these clients are AI-enabled provider platforms that we're looking to leverage our global delivery model to drive efficiency while simplifying practice management and improving the patient experience. We'll be serving one of these clients out of Latin America and another one out of the Philippines. Moving on to trust and safety, revenues in this service offering declined by 11.5% compared with Q1 of 2022, driven by the impact from our largest client moving work to our locations in the Philippines and India. Despite this, volumes continue to grow within our trust and safety offering. The number of trust and safety teammates that task us increased by 16% year over year as volumes grew at our clients. Our relationship with our largest client remains strong. We expect that their trust and safety volumes will grow again this year as we continue to take share from competitors. However, given the onshore to offshore shifts, and the deprioritization of certain R&D projects, we expect that revenue will decline with this client year over year in 2023. Looking at our other clients and signings in our trust and safety offering, we signed a new risk and response engagement with a high growth fintech company. We're supporting their chargebacks and disputes, know your customer and fraud monitoring work, taking share from another provider. Another milestone for our trust and safety service offering came last month when we were named both a leader and a star performer in Eversgroup's trust and safety services peak matrix assessment for 2023. The recognition reflects our continued progress in delivering on our vision for trust and safety clients around the world, as well as our significant investments building a hybrid solution of technology and talent to detect and remove harmful content. Our inclusion as a leader among a small handful of large providers is humbling. To further be named a star performer demonstrates the trust we've earned from clients as we invest in the best technology and people to protect their platforms. Moving on to our AI service offering, revenues grew 10.2% in Q1 compared with Q1 of 2022, driven primarily by expansions with our current clients including growth in the generative AI space. Volumes continued to grow in the service line as well, demonstrated by over 17% growth in the number of teammates providing AI services to our clients. Within the service line, we signed expansion agreements with clients in the social media space, and we signed an exciting new generative AI startup that has raised hundreds of millions of dollars in venture funding. We will be providing adversarial testing to prevent their model from providing harmful or misleading responses. After a successful pilot in Europe with this client, we have already expanded to the US. Our deep understanding of generative AI and our industry-leading wellness program is what differentiated us from the competition and won us this business. We also signed an expansion with a dating app to provide additional trust and safety support. we'll be leveraging our task force offering to provide a portion of these services. This will allow for flexibility for the client and is an attractive use case of our gig platform. Turning to revenue growth within our industry verticals, we're seeing particular strength from our technology and entertainment and gaming verticals, both of which grew 40% year over year. Additionally, our on-demand travel and transportation vertical, which includes food delivery clients, grew almost 30% year over year. We continue to see clients turning to us to take on volumes as they optimize their internal cost structures. One of our largest clients, one of the world's leading e-commerce platforms, expanded their efficiency efforts recently. They've reduced the size of their in-house team and are scaling with us. In addition to scaling our core support offerings, this client relocated multiple strategic business lines to our team. This year, we expect revenues from this client to nearly double from 2021, and we're now supporting this client from five different countries. Another one of our large clients, who we migrated to an outcome-based pricing model, has turned to us to drive cost savings. In order to ensure that this is a win-win, we made significant progress in the quarter, leveraging automation and process re-engineering to reduce our teammate count and improve margins. This increase in efficiency drove the majority of the reduction in our global teammate count over the past quarter. As Bology will discuss, this was also one of the drivers of our margin improvement in Q1, as margins with this client increased by four percentage points over the course of the quarter. We expect to see an increase in client interest for outcome-based pricing underpinned by automation in this environment. I'll spend a few minutes discussing our teammates and the environment for talent before I move on to an update on our growth drivers. We ended Q1 with 47,700 teammates, up by 4% compared with Q1 of last year. We grew year over year in all geographies with the exception of the US and Ireland. As I mentioned, we also grew the number of teammates year over year in both our trust and safety and AI service lines by 16% and 17% respectively. Despite a competitive environment for talent, we continue to attract new teammates to task us in the quarter and we're able to meet all of our hiring SLAs. We exited the quarter with Task Us teammates rating us 4.5 stars on Glassdoor. Moving on to our growth strategy, I discussed three initiatives to accelerate revenue over the course of 2023 on our last earnings call. Growing with our large global technology and traditional enterprise clients, expanding to serve increasingly global clients and new geographies, and increasing our focus on specialized services. First, we continue to expand with the large global technology and traditional enterprise clients that we signed in 2022. To take just one example, in Q4, we ramped to support the holiday volumes of one of the world's largest technology companies. Typically, the majority of these volumes would ramp down in Q1, but our team delivered excellent customer satisfaction and efficiency in our first year supporting this client. As a result, not only did we retain all the volume we had over the holiday season, but we've since doubled the size of this team. We expect to see continued growth with this client this year. Second, we continue to focus on expanding our global client base, particularly in Europe and Asia. We signed two new engagements and an expansion deal with European clients this past quarter. We have a solid pipeline of global opportunities for clients in Europe and Southeast Asia. Our European-based sales team has been integrated with HALU's go-to-market organization, and they've begun to cross-sell our capabilities and offerings. Finally, we continue to see demand for specialized services where we have a distinct competitive advantage. We continue to sign new clients in the health tech space, adding two new healthcare clients in Q1. Healthcare continues to be a growth opportunity for us. We've also seen an increase in demand for our generative AI services. We're now supporting the development of two out of the three leading large language models. We've developed adversarial testing and prompt engineering teams. In the past quarter, we've doubled the size of the team supporting the industry's leader, and we see significant demand for these services ahead. Beyond the support that we're providing to generative AI companies, there are significant strategic questions about what generative AI means for the BPO industry in general and our business more specifically. As I said on our last call, We're very excited about the generative AI revolution. We've been using this technology for nearly two years. Recently, we've seen a significant uptick in client interest. We've launched TaskGPT, our open AI-powered platform that supercharges the productivity of our teammates. Since the start of the year, we've engaged with multiple clients to implement TaskGPT to improve the efficiency and quality of their workflows. While we're early in this journey, This type of dynamic, rapidly changing environment is where TaskUs thrives. We've consistently demonstrated an ability to quickly discover and launch services in new markets as they grow exponentially. Generative AI represents our next opportunity to do this. We believe the future of generative AI is one of augmentation rather than automation. Our talented teammates will leverage these tools to meaningfully improve customer outcomes and operational efficiencies. Over the next few years, there are large revenue opportunities for system integrators and service providers to successfully build, integrate and deploy this technology for our clients. Finally, every new technology produces demand for novel, unexpected services. A decade ago, no one would have guessed that tens of thousands of people would be employed moderating political ads on social media or coordinating between restaurants, drivers, and hungry customers to ensure food was delivered hot and on time. We believe that the same will be true of generative AI. For example, we expect to see enormous demand for trust and safety services in a world of infinite content creation and deepfake technology. Many other demands are impossible to predict today. but Taskus is well positioned to discover these service needs and deliver them for our innovative clients. Despite progress across these three initiatives, since our last call, we've seen a lengthening sales cycle, lower volumes at our largest U.S. client, and shifting priorities impacting projects for our largest global client. These factors have led us to lower our revenue outlook for the remainder of the year. We now expect that revenue for the full year will be between $925 and $950 million. We expect to return to year-over-year revenue growth in the fourth quarter at the midpoint of our range. In light of the changed revenue outlook, we've taken immediate action to improve our margins and cash generation. We're executing well on our multi-year efficiency program as demonstrated in our adjusted EBITDA margins for Q1. As a result of these decisive actions, we've increased our guidance for adjusted EBITDA margins to 23.5% for the year, leading to an outlook for adjusted EBITDA dollars that is essentially unchanged. We've also reaffirmed our guidance of at least $100 million of free cash flow for the year. We're using this cash to drive shareholder value. We've repurchased over 2.5 million shares since the start of our share repurchase program in September of last year. You'll see that we were even more active in the market during the second quarter, driven by our dynamic repurchase plan that allows us to purchase more shares at lower prices. We see repurchasing our stock as a very attractive use of capital. As a result, our board has approved an increase in our repurchase authorization of another $100 million through the end of 2024. Our three strategic growth initiatives, coupled with our focus on cost, will underpin our results for the remainder of 2023 and gives us confidence that we will achieve the revenue-adjusted EBITDA and free cash flow outlook that we've provided today. With that, I'll hand it over to Balaji to go through the Q1 financials in a bit more detail and provide our outlook for Q2 and the year ahead.