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spk01: Good afternoon and welcome to the TASCA second quarter 2023 investor call. My name is John and I will be your conference facilitator today. At this time, all lines have been placed on mute to avoid any 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 now I'd like to introduce Alan Kath, Vice President of Investor Relations. Thank you, Alan. You may begin.
spk09: Good afternoon, and thank you for joining us for the Task Us second 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 on the investor relations section of the 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 the website. Before I 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 these 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 TASCUS 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. I will now turn the call over to Bryce Maddock, co-founder and chief executive officer of Tasca. Bryce?
spk08: Thank you, Alan. Good afternoon, everyone, and thank you for joining us. In the second quarter, we outperformed both our revenue and adjusted EBITDA guidance arrangements. We delivered $229.2 million in revenue compared to the top end of our guidance range of $228 million. We delivered adjusted EBITDA of $54.7 million for an adjusted EBITDA margin of 23.8%, also above our guidance of a 23% margin. These results were once again stronger than our expectations. This is the result of the tireless efforts of our global team. However, similar to other players in our industry, a number of our clients in the tech space have continued to focus on driving efficiencies, thereby reducing volume expectations for the remainder of the year. As a result of this reduction and the continued lengthening of our sales pipeline, our revenue outlook for the remainder of the year has decreased, and we've updated our guidance range to reflect this. Given the lower revenue outlook and the investments that we're making to drive growth, we've returned our adjusted EBITDA guidance to 23% for the full year, in line with our initial guidance. Our team has made great progress on our efficiency program, which has protected our margins despite top line headwinds. I'll spend some time going through the details of our Q2 performance and signings, and we'll then discuss in more detail some of the investments that we're making to drive our three strategic growth initiatives. Bology will then walk through our financials, as well as our updated guidance ranges for Q3 and the remainder of 2023. Starting with growth with our current clients, revenue from our top 20 clients declined by 12% year over year in Q2, impacted by the transition of work offshore at our largest client and the declines in volume at our largest crypto and equity trading clients. If we exclude those three clients, our largest 17 clients grew 7% year over year. Revenue from clients outside the top 20 also grew by 7% year on year. Looking at our service offerings, digital customer experience revenue declined by 9.9% compared with Q2 of 2022, as expansions with existing clients and new client signings were more than offset by the decline in revenues from crypto and equity trading clients and the impact of lower volumes from certain other clients. In terms of major DCX signings, we're winning business from the competition and are continuing to see internal volumes from certain clients shift to us to drive cost savings. In Q2, we had strong wins in the retail space. We signed DCX deals with two large, well-known global retail clients. For the first client, a global sports brand will be providing Spanish language support for their Latin American customers from our site in Cali, Colombia. This major brand ultimately chose to work with us because of our ability to support Spanish at scale, our heavy focus on driving volume to digital channels, and our ability to effectively help customers while driving revenue through commercial conversations. We will be providing support for another high-end retail brand out of our operations in Mexico. We won this business due to our ability to enhance the overall learning experience for the frontline, and we expect to deliver significant cost savings for this client without sacrificing the quality of service. We continue to see strong demand for our nearshore solutions. In fact, revenue from this region has increased by approximately 70% year over year. Based on this demand, we opened our newest site in Medellin, Colombia, and launched our first client in that site last month. We also signed two new DCX contracts with clients in the health tech space. The first, a fast-growing, non-emergency medical transportation service, was experiencing high levels of attrition and inconsistent quality with their prior provider. They turned to TaskUs as an experienced operational capabilities to stabilize and grow their member experience operations. The second client is a disruptive mental health startup that helps patients connect with therapists they can afford. Taskus is supporting patient eligibility and provider verification services and will soon be adding other operational support services. This client selected Taskus to help streamline current operations so they can scale more efficiently. We were selected based on our reputation as a provider that leverages innovative technologies and data-driven insights for our clients. Moving on to trust and safety, revenues in this service offering declined by 2.4% compared with Q2 of 2022, driven by the impact of our largest client moving work to our locations in the Philippines and India. However, our volumes in the trust and safety service offering continued to grow in Q2. The number of trust and safety teammates that task us increased 31% year over year as volumes grew across our clients. This quarter, we signed a contract with a leading web browser to provide content moderation out of the Philippines for their upcoming social media platform launch. They signed with us based on our expertise in content moderation and industry-leading wellness programs. We want additional work from one of the world's leading multi-channel social communications platforms. We started working with this client about a year ago and have already expanded into additional service lines and geographies. We're now moving our trust and safety work into Malaysia after delivering strong performance for them from the Philippines. Expansion into Malaysia will allow us to support a group of Asian languages as well as provide alternatives for low-cost English support. We also signed an expansion with a client in the syntax space for dispute support, adding to the DCX work that we already do for them. We won this business based on our ability to drive cost savings while improving performance. The client has told us that our performance has consistently been the highest out of all their outsourcing partners. Moving on to our AI service offering, revenue grew 1% in Q2 compared with Q2 of 2022, driven primarily by growth with new clients, including those in the generative AI space. This quarter, we began working with a leading measurement data and analytics provider to provide data training and annotation support in Spanish, Portuguese, and French. We will be providing new services out of India, which has become a very attractive location for tagging work across multiple languages. We see the opportunity to expand with this client to provide Korean, German, and Japanese support in the near future. We have also been leveraging our Taskverse platform to bring in specific talent for the generative AI space. Finding nuanced experts in certain fields is a unique capability that positions us to win against competitors. This past quarter, we also combined the Taskverse platform with TaskGPT to streamline the research and copywriting process at one of our clients. This is a great example of how our investments in the new technologies are positioning us to win share and drive savings at our clients. We also highlighted the launch of TaskGPT this quarter with our inaugural client, MoneyLions. This is a great partner, a fast-paced, forward-thinking fintech that is looking to leverage our expertise and technology to drive efficiency and augment our teammates' performance. We've integrated TaskGPT to expand and enhance our customer service capabilities across this client's business. Before I move on to our verticals, given the impact across our service offerings, I wanted to discuss our largest client. Our relationships here remain strong, and we believe we are continuing to take share from our competitors. That said, we've seen a continued focus on cost savings and efficiency. In addition, we've also seen a continued shift away from certain R&D projects, leading to additional impacts on our projected revenues from this client. We have multiple opportunities with this client in the pipeline, but as of today, we would expect to show a double-digit revenue decline from them in 2023 and likely a more modest decline in 2024 revenues, given the annualization of the changes we're currently making. Turning to our industry verticals, we're seeing particular strength from our technology vertical, which grew at 50% year-over-year. This was largely driven by our continued traction with some of the world's largest technology companies. We're also seeing strength in our entertainment and gaming vertical, which grew in the mid-teen percentages year over year. Our work with the leading multi-channel social communications platform that I mentioned earlier, as well as growth with our largest gaming and streaming media clients, is driving this traction. In terms of other trends, last quarter, I highlighted our margin expansion at one of our large clients where we use an outcome-based pricing model. We continue to make progress this quarter, driving process improvement. These process improvement initiatives drove lower teammate counts and revenues in the near term, but drove improved service level performance for the client while expanding our margins, which positions us well to keep or even take share from our competitors. As a result of efficiency gains, as well as lower volumes from certain clients, we ended Q2 with 47,000 teammates, up by 4% compared with Q2 of last year, but down slightly from the prior quarter. At the start of this year, we discussed three areas of focus to return to revenue growth, expanding with our large technology and enterprise accounts, serving increasingly global clients in new geographies, and focusing on our specialized services. Let me discuss some of the investments that we're making to support these growth initiatives. First, in terms of expanding with our global technology and enterprise accounts, we've made significant progress. Over the past year, we highlighted signings with some of the largest global tech companies and some of the world's largest retailers. Since that time, we've expanded with these clients. For example, one of these clients typically has increased seasonal volumes around the holidays, and we would have expected them to reduce volumes in the first half of this year. Not only were we able to maintain volumes, but this client has grown with us every sequential quarter since we signed them. For another client, one of the world's largest technology companies, we have a multi-year partnership to provide highly skilled learning experience services out of the U.S. including instructional design, graphic design work, and more. Recently, we expanded this partnership to the Philippines while keeping the work that we do in the US. In terms of investment, we've built out our client service and engagement team, bringing on additional talent to manage client relationships at some of the largest global tech and retail companies in the world. These individuals are uncovering new opportunities to add value to our clients. Second, we've continued to expand to serve clients in new geographies. We're seeing particularly strong traction in Latin America, where we have increased revenues by 70% year over year. We opened operations last year in Malaysia, and we're seeing strong demand for this region to cover Asian languages. We also continue to grow our operations in Greece and Croatia, providing European language services to our global clients. We're expanding our go-to-market talent in key geographies, and our investment here is beginning to pay off. We've seen the number of European clients increase by approximately 30% compared with Q2 of last year. Lastly, in terms of specialized services, we're seeing traction across our offerings. We're working with our clients to build generative AI into their workflows to drive efficiencies. we've already launched with a number of clients, including MoneyLiant, which I mentioned earlier. We expect to see this technology embedded in additional client processes this quarter. As I mentioned, we have continued to expand our learning experience services with some of the biggest technology companies in the world, turning to us for instructional design and LMS maintenance. We also continue to see global demand for our trust and safety work expanding into Malaysia to support one of the world's leading multi-channel social communication apps. Furthermore, inside Trust and Safety, our fraud and investigations work has continued to gain traction over the past several quarters. This past quarter, we signed an expansion with an e-commerce client for fraud and investigations work. We started working with this client less than a year ago during Tier 1 fraud work. Their Tier 2 risk and chargeback work was being done by internal teams in the U.S. and Japan, as well as another outsourced partner. But given our strong performance, they centralized all this work with us. In terms of investment, we've launched our technology and innovation center in Chennai, India. This office is our hub for generative AI talent to support past GPT. Also within our sales organization, we continue to bring on talent with specific expertise selling AI services. Our progress on these growth initiatives is encouraging. and I'm confident they will drive revenue growth over time. However, we no longer expect to return to growth by the end of 2023 and have lowered our revenue outlook for the remainder of the year. We now expect that revenue for the full year will be between $900 million and $910 million. At the top end of our range, we would expect to see a stabilization in sequential revenues by year end. In terms of margins, we're continuing to focus on our cost structure and have made very good progress on this front. Our multi-year efficiency program is more than offsetting the impact of lower revenue. However, we are also focused on making investments to get back to growth. Given these investments, our adjusted EBITDA margin for the year is now approximately 23%. We would expect to return to higher margins as revenue stabilizes and we return to growth. Our outlook on free cash flow has not changed. We continue to expect to deliver greater than $100 million of free cash flow at any point in our guidance range, excluding the earn-out payment associated with a Helu acquisition. We're optimizing working capital and balancing CapEx investments with current growth needs. In this environment, we are very focused on using our cash to drive shareholder value. As I discussed, our first priority is to invest in the business to drive growth. We continue to see M&A as a potential use of cash to drive value in the future. However, we've not seen private market valuations match with public market realities. Given our low leverage ratio of just half a turn, we're well positioned to move quickly on M&A when the valuations look more attractive. Given the current public valuation of TaskUs, we see repurchases as the most attractive use of cash today. As of the quarter end, we've repurchased almost 5.3 million shares since the start of our share repurchase program. We were much 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 and believe that as growth returns, our repurchases at these levels will result in significant value creation. We remain focused on executing against our strategic initiatives and investing for growth, while at the same time remaining diligent on our cost structure. With that said, I'll hand it over to Balaji to go through the Q2 financials in a bit more detail and provide our outlook for Q3 and the year ahead.
spk06: Thanks, Bryce, and good afternoon, everyone. I'm going to discuss our financial results for the second quarter of 2023. Please note that that some of these items are non-GAAP measures and the relevant reconciliations are attached to the press release we issued earlier today. In the second quarter, we earned total revenues of $229.2 million, a decrease of 7% compared to Q2 of 2022. We outperformed compared to our guidance as a result of revenues from new client signings coming in slightly stronger than expected primarily within our digital customer experience service line. In the second quarter, our DCX offering generated $150.9 million for a year-over-year decline of 9.9%, driven by the impact of lower revenues from our largest client and from crypto and equity trading clients, as well as the impact of process improvement at an outcome-based client. Our trust and safety business declined by 2.4% compared to Q2 of 2022, resulting in $45.2 million of revenues. This decline was the result of the geographic mix shift from our largest client moving volumes offshore and lower volumes from one of our equity trading clients. Our AI services business grew 1% year over year, for revenues of $33 million as a result of expansion with both existing and new clients, partially offset by the geographic mix shift from our largest client moving volumes offshore. Our client base has continued to diversify in Q2. Our revenue concentration with our largest client was approximately 19%, down from 22% in Q2 2022, primarily driven by the shift from onshore to offshore. Our top 10 and top 20 clients accounted for 55% and 69%, down from 58% and 73% in Q2 of last year. In the second quarter, we generated 55% of our revenues in the Philippines, 16% of our revenues in the United States, 13% of our revenues in India, and 16% of our revenues from the rest of the world. We saw particularly strong growth in Latin America and Asia. Our cost of service as a percentage of revenues was 58.3% in the second quarter compared to 58.2% in Q2 of the prior year. The increase was due to wage inflation and return to office expenses as we have more people back in the office compared with last year, which was partially offset by the gains from the stronger dollar in the current quarter compared with Q2 of 2022 and the transition of work from our onshore to offshore locations, which have a lower cost of service. In the second quarter, Our SG&E expenses were $58.2 million or 25.4% of revenue. This compares to SG&E Q2 of 2022 of $68.9 million or 28% of revenue. Excluding the impact of severance cost, the earn out accrual associated with our hello acquisition and stock based compensation for the quarter, SG&A as a percentage of revenue would have been 18.6%. The impact of our cost optimization and other efficiency efforts will continue to drive improvement in our G&A spend. However, as we invest in sales and marketing to drive growth and we see the impact of lower revenues, we expect total SG&A as a percentage of revenue could increase in the back half of the year. In the second quarter of 2023, we earned adjusted EBITDA of $54.7 million, a 23.8% margin, compared to $55.7 million and 22.6% in the second quarter of 2022, mainly driven by the cost optimization initiative in GNA that I just discussed. We came in higher than our guidance for the quarter, driven by our higher than expected revenues, and operational efficiency gains. Adjusted net income for the quarter was $31.8 million, and adjusted earnings per share was 32 cents. By comparison, in the year-ago period, we earned adjusted net income of $38.7 million and adjusted EPS of 38 cents. The decline in adjusted net income was primarily due to higher financing expenses compared to last year due to the impact of higher interest rates and a higher accrual for taxes due to increased income before taxes. Now, moving on to the balance sheet. Cash and cash equivalents were $153.6 million as of June 30, 2023, compared with the December 31, 2022 balance of $134 million. In the quarter, we utilized approximately $38 million for share repurchases, buying back approximately 3.2 million shares at an average price of $11.76. As of quarter end, we had approximately $124.8 million of authorization left on our plan. Our net leverage ratio continues to be healthy and was 0.5 times as of quarter end. Cash generated from operations was $38.5 million for the second quarter of 2023 as compared to $36.1 million in Q2 of 2022. Our capital expenditure decreased in the second quarter of 2023 to $9.8 million compared to $11.6 million in Q2 of 2022. The decrease was primarily driven by lower technology and facilities-related expenses as employees have returned to the office. We now expect CapEx to be $35 million for the year. Pre-cash flow was $28.7 million, or 52.6% of adjusted EBITDA. Given our current outlook for CapEx spend and working capital, we expect to see a slightly lower conversion rate for the remainder of the year. Year to date, we have generated $67.2 million of free cash flow representing 61.1% conversion rate from adjusted EBITDA. In terms of our financial outlook for the remainder of the year, we have updated our guidance. We now anticipate full year 2023 total revenues to be in the range of $900 million to $910 million. We expect to earn a full year 2023 adjusted EBITDA margin of approximately 23%, which aligns with our outlook at the start of the year. And we expect to deliver greater than $100 million of free cash flow at any point in our guidance range, excluding the earn or payment associated with the hello acquisition, which implies a conversion rate of 45 to 50% of adjusted EBITDA. For the third quarter, we expect revenue to be in the range of 220 million to $222 million. And we expect our adjusted EBITDA margin to be approximately 22.4% for the quarter. This adjusted EBITDA margin guidance for the third quarter and full year is based on current forest rates. So any change to currency rates would impact our margins. As a reminder, the majority of our revenues is built and collected in U.S. dollars. So we do not see the impact of U.S. dollar fluctuation in our revenues. I'll now hand it back to Bryce before we take your questions.
spk08: Thank you, Balaji. Before we open for questions, I want to share another TaskUs teammate story. Next month, TaskUs will celebrate our 15th anniversary. One of the most meaningful parts of our incredible journey is seeing our teammates grow here at TaskUs. Almost as long as Taskus has been around, I've worked with Faith Colonia. Faith has been with us for over 13 years. She began her journey as a teammate in the Philippines right after graduating from college. Over the years, Faith demonstrated strong skills and a dedication to her work, leading to a promotion to team leader. And today, Faith is an operations manager for our brand new site in Molino, Philippines, which we call Greenhouse. She's doing a tremendous job. One of the things that makes me most proud is how TASCUS has supported Faith's personal journey. As a single mom, Faith was among the first recipients of our TASCUS Scholars Program, and for the past seven years, we've paid almost 100% of her son's tuition fees at private school. As part of our commitment to fostering even greater impact, we recently announced the expansion of the program for our 15th anniversary, aiming to provide tuition support to 1,500 students worldwide. Faith's story shows the potential of our People First culture in creating rewarding lives and careers for our teammates. With that, I'll ask the operator to open our line for our question and answer session. Operator?
spk01: Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you'd like to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment while we poll for questions. And the first question comes from the line of Puneet Jain with JP Morgan. Please proceed with your question.
spk04: Yeah, hi. Thanks for taking my question. Quick questions on the guidance guide. So first, what gives you confidence that the worst is behind you and there should not be any incremental surprises this year? And also, given the exit rate implied for Q4,
spk08: in high single digits or maybe low double digits decline can you share qualitative comments on next year's growth rates yeah thanks so much for the question so you know clearly over the past 18 months we've seen our clients shift their focus to cost reduction many of our clients have laid off internal employees and they have cut their outsourcing budgets they've driven efficiency into their outsource relationships by shifting work from high-cost to low-cost geographies, in some cases improving their own product and process to contain more contacts, and finally deciding to simply stop supporting certain non-critical workflows. These shifts at our clients have been a headwind to revenue growth, and they've also slowed our sales as companies reducing spending are less likely to introduce new vendors. With that being said, there is a limit to how much these efficiency improvements can drive volumes down. There remain millions of customer interactions to respond to, millions of pieces of content to moderate, in addition to exciting new investment areas like creating and rating content for generative AI applications. So while I'm not ready to predict exactly where we're at in this cycle of inefficiency, I do believe that we're closer to the end than the beginning. And while we're not providing guidance for 2024 at this stage, I do feel confident we will return to growth next year.
spk04: That's fair. And then your largest customer, did the weakness there stem from content moderation volumes? Or was it like some other initiatives that you had been working on for that client? And the clarification, like in Balaji's comments, like about increased offshore mix there, I'm assuming that's year-on-year change and not necessarily on a sequential basis.
spk08: So let me take the first question and then I'll hand the second question to Balaji. You know, at our largest client, we continue to have a very strong relationship. We have more people supporting our largest client currently than we did at this stage last year. So we've seen volume growth. The revenue decline has been driven primarily by moving work from high-cost onshore markets to low-cost offshore markets, which we obviously described prior. And I apologize, I'll have you jump in on the next question.
spk06: Yeah, Punit, you're right. So the number that I provided is year-on-year comparison. They're for the largest client where we were approximately 19% when compared to 22% in Q2 of 2022.
spk04: Got it. So on a sequential basis, there was no incremental increase in low-cost labor mix there because it was already low. as of last quarter?
spk06: Yeah, last quarter we were approximately at about 20%, and this quarter we are about 90%.
spk04: Got it. All right. Thank you.
spk01: And the next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.
spk02: Thank you. On the volumes, You know, can you help translate that into what kind of visibility you have into the guidance that you put out? You know, what kind of factors specifically are impacting those volumes? And then are you assuming any sort of recovery in the back half of any of those volumes?
spk08: Yeah. So, as we've demonstrated in the past, we've got very strong visibility into the current quarter. Given that we're already more than halfway through the year and halfway through Q3, we've got less potential variability in our range than we had when we started at the start of this year. We have incorporated every main risk from a client perspective into our forecast and have embedded further conservatism into our expectations around new sales and around client volumes. You know, we feel reasonably confident in our visibility into client volumes headed into 2024 as well.
spk02: And then can you give us some idea of how you're viewing AI and generative AI in terms of the opportunity and threat from a more granular level, like across your different service lines? I imagine there'd be different impacts there.
spk08: Yeah, we ultimately believe that generative AI is going to be a net positive for us. We launched PassGPT, which is our generative AI agent assist tool that's based on OpenAI's GPT-4 API. We've been integrating PassGPT into client workflows, driving efficiency gains that we're sharing with clients, and we believe that our progress on this front is increasing our competitiveness. We do believe that certain digital customer experience workflows are likely to be further automated. However, Our customer support work is mostly complex, involving real-time interactions with multiple systems and changing variables, and we believe that this work is less likely to be automated in the near term. Additionally, we believe strongly that chat GPT and generative AI in general is going to create significant demand for trust and safety services. It's hard to imagine all of the workflows that are going to be created as a result of this, but when you think about the amount of content, both image, video, and text that is going to be generated using these generative AI tools, the potential here is massive. We also believe that we're going to continue to see growth and demand for AI services to support the development of these generative AI models. So ultimately, we're very aware that generative AI may automate some of the work that we do today, but we believe it has the potential to create a lot more work as well.
spk07: Thanks, Bryce.
spk01: And the next question comes from the line of Ryan Potter with Citi. Please proceed with your question.
spk10: Hey, thanks for taking my question. I wanted to double-click on the lower outlook one more time. I guess regarding the demand environment, where would you say things have moved incrementally worse since last earnings in terms of? service offerings and verticals, and is the software client volumes concentrated more in certain larger clients, or is it more of a broad base, not what I'm seeing across the general client base?
spk08: Yeah, let me comment on this, and I'll have Balaji add any color. Ultimately, the lower outlook is being driven by lower volumes at existing clients, and a slowdown in our overall sales pipeline. The size of the pipeline remains robust, but the velocity is significantly slower than it was at this stage last year. We're seeing existing clients really push the boundaries of how they can drive efficiency. We've gone through a wave of moving work from high-cost CEOs to low-cost CEOs. We have worked with clients to automate certain workflows and follow clients' instructions on not supporting certain non-critical workflows. As I said, I do believe that we're closer to the end of this efficiency cycle than we are to the beginning. But those are the things that have driven the revised guidance. Balaji, do you have anything you want to add to that?
spk06: No, I'll just kind of reiterate what Bryce mentioned just from a forecasting process perspective. So one is that we do have very strong visibility in the current quarter. So for this year, we are halfway through the year, halfway through Q3. So we have less potential variability and also in terms of risk assessment, we do capture main risk at the client level and then further conservatism into the expectations around both client volumes and new sales from a forecast perspective.
spk10: Got it. And then on your US delivery, have you seen any incremental client reductions away from the US beyond the client that you kind of called out last quarter? Is there any change to your expectations in terms of US delivery falling to 10% in terms of what's embedded in the outlook?
spk08: Yeah. So between last call and this call, there hasn't been a material change in our expectations for US delivery. This revision and guidance has been driven more by volume reductions across clients at a global scale. So, you know, we would still expect the U.S. to represent 10% or perhaps more of our revenues at the end of the year and into next year.
spk07: Got it. Thank you.
spk01: And the next question comes from the line of Matt Van Fleet with BTIG. Please proceed with your question.
spk11: Yeah, good afternoon. Thanks for taking the question. I guess I wanted to dig in a little bit on the health tech vertical, an area that has been emerging for you and curious what you're seeing in terms of trends there, really kind of outside of the bigger tech realm, but curious on how much you're seeing. You called out the mental health startup, but any other commentary that you can have to give us some directionality on that group?
spk08: Yeah, health tech has been a huge driver of growth for us in the past year. We've seen a lot of demand from mental health startups, both counselors and psychiatrists that are available remotely to patients. And we've developed a real expertise in that area, as well as across the health tech space more generally. Right now, what we need to do is use our credentials in the health tech space to get into the enterprise health care space. We've been making solid progress, but have yet to close any material deals in that area. I think that represents a potential upside as we continue to expand into more enterprise customers.
spk11: And then I guess on a similar vein, you know, earlier or over the last several quarters, you talked about getting into kind of newer areas or newer business units across more traditional enterprise customers. Any updates on maybe a potential new business or at least pipeline generation plans? trying to get into traditional enterprise that are looking to be a little more disruptive or guard against other disruptors coming into their space?
spk08: We've made really good progress on the retail front here. We signed two enterprise class retailers in this past quarter, both to deliver out of our Latin American operations, and we see meaningful upside there. Right now, health care is an area, obviously, that's very interesting for us. We've yet to make significant progress in terms of closing deals, but have a strong pipeline. We're also interested in more traditional banking and financial services. We're making investments to bring on failed leaders who have enterprise expertise, and we expect that to accelerate our sales pipeline going forward.
spk07: Great. Thank you.
spk01: And the next question comes from the line of James Fawcett with Morgan Stanley. Please proceed with your question.
spk05: Great. Thanks a lot. I wanted to ask in terms of the efficiency programs, et cetera. And, Bryce, I understand the comments that we may be near the end, particularly for those that have been undertaking that for the last few quarters. But how are you feeling about the broader – segment of clients that you have and where they're at in those processes? And do you think that they're, like, what are the things that you're looking for that may be indicators that they may want to start to undertake their own efficiency programs, et cetera?
spk08: Yeah, so, you know, the bulk of the efficiency programs have been at our largest clients. And as we said in the past, we've gone on a journey with many of our clients from, you venture-funded startups to publicly traded enterprises. And this is a chapter in that journey as they shift their focus from growth at all costs to being more efficient and profitable. And so at this stage, we have seen early signs of demand reviving at certain of our larger clients. We're actively in discussions at most of them about new exciting opportunities in areas of potential expansion. But clearly, in the near term, we've seen a decline just as a result of the three factors I mentioned earlier.
spk05: Got it, got it. And then you made interesting comments there on outcome-based pricing. Can you break down percentage of contracts maybe that are outcome-based right now versus time and materials and just kind of help us think through what the potential trajectory is for outcome-based pricing and the impact it could have on the business and what kind of time frame?
spk08: Yeah, as we said, we've got one large client that we have on an outcome-based agreement. And over the past two quarters, we've seen material improvements in their margins as we've driven additional efficiencies into the business. This has resulted in lower top-line revenue but expanded margins and a stronger relationship with the client. At this stage, we've got a low double-digit percentage of our revenues that is derived from outcome-based contracts. But in an environment in which our clients are so focused on efficiency, we continue to have lots of conversations about making the shift. We believe that the future of the business will be more outcome-based agreements supported by tech-enabled talent.
spk07: Got it, got it, got it. Great, appreciate that.
spk01: And the next question comes from the line of Cassie Chan with Bank of America. Please proceed with your question.
spk00: Hey guys, thanks for taking my question. So first I just wanted to ask a little bit about geography. You guys mentioned some strong traction in newer countries, in Latin America and Europe, for example, Colombia. You know, I guess how much, and then at the same time you guys mentioned your head count sort of declined 700, about 700,000 to 47K. So two-part question. The first is, you know, how much of that is, net versus gross, voluntary versus involuntary, and then the expectations for headcount in the back half of the year? And then the second is related to that offshore and geography piece. It's just how big is offshore in terms of your total global delivery model now? And are you expecting any margin impact from continuing to expand offshore?
spk08: Yeah, Cassie, thanks so much for the question. So clearly the Latin American nearshore region has been a huge driver of growth. Over the course of the last year, we grew revenues by approximately 70% there. The slight decrease in headcount over the course of the last quarter was driven mostly in the United States, although we have seen, I would say, a modest flattening of growth in our offshore regions. Philippines and India continue to be the bulk of our business. And that's good because we make higher margins in those geographies and feel like we've got a more robust product to sell. But in recent quarters, we've seen our clients really more interested in buying the near shore product versus the offshore product.
spk07: And so, you know, we'll have to keep an eye on that going forward.
spk00: Okay, and then switching gears, I saw that you guys also launched TaskGPT with MoneyLion. I think that's pretty new. That's exciting. Can you just give us a little bit of insight about how that partnership has been going? You know, who initiated that conversation initially? And are you guys able to maybe take that as an initial use case and easily implement that with other customers? Are you seeing, you know, some interest in that as well? Thank you.
spk08: Yeah, so the product is – is totally applicable to other customers. In fact, we've launched with a number of other clients. But we've made great progress with Money Lion, increasing the efficiency and accuracy of the teammates that we have supporting their clients. So we're very excited about that, and we expect to see similar results across our other clients.
spk00: Okay, thanks, guys.
spk01: There are no further questions at this time, and I would like to turn the floor back over to Bryce for any closing comments.
spk08: Thanks so much. In closing, I wanted to thank everyone of our incredible teammates around the globe. In the face of challenges, this team has continued to work tirelessly to return Taskos to growth.
spk07: We look forward to updating you on our progress towards that goal on our next earnings call.
spk01: Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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