TaskUs, Inc.

Good evening and welcome to TASCA's third quarter 2023 investor call. My name is Sherry 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 on your telephone keypad. I would now like to introduce Trent Strash, Senior Vice President of Corporate Development and Interim Head of Investor Relations. Trent, you may begin.

Good afternoon, and thank you for joining us for the Task Us Third Quarter 2023 Earnings Call. Joining me on today's call are Bryce Maddock, our co-founder, and Chief Executive Officer in Biology Secker, 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 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 statement. 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 file is accessible on the SEC's website and on our website at ir.tasca.com. It 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 TASCOS 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 on our website. Now, I will turn the call over to Bryce Maddock, our co-founder and chief executive officer.

Bryce? Thank you, Trent. Good afternoon, everyone, and thank you for joining us. In the third quarter, we outperformed both our revenue and adjusted EBITDA margin guidance. we delivered $225.6 million in revenue compared to the top end of our guidance range of $222 million. In terms of margins, we delivered adjusted EBITDA of $52.9 million for an adjusted EBITDA margin of 23.5%, 110 basis points above our guidance for a 22.4% margin. I am so proud of our global team, which continues to work tirelessly despite a challenging macroeconomic backdrop. As a result of these efforts, we're increasing our revenue guidance for the full year between $915 million and $917 million in revenue, up from a midpoint of $905 million. Despite this improvement, the environment remains challenging. In the face of these challenges, our team has continued to focus on maximizing cash generation by optimizing our G&A and CapEx spending, while continuing to invest in our generative AI initiatives, along with sales and marketing to drive growth. As a result, we generated $32.2 million in free cash flow in the third quarter, excluding the impact of our HALU acquisition earn-out payment. As a result, we're increasing our full-year free cash flow guidance for more than $100 million to more than $115 million, excluding the earn-out payment. I'll spend some time going through the details of our Q3 performance and signings, and we'll then discuss in more detail some of the results of our strategic growth initiatives. All of you will then walk through our financials, as well as our updated guidance ranges for the remainder of 2023. Starting with our current clients, total revenue declined by 2.8% on a year-over-year basis. Revenue from our top 20 clients declined by 7% year-over-year in Q3, as the top 20 continued to be impacted by the optimization of our largest clients' delivery model, as well as operational efficiency initiatives at certain other clients. Revenue from clients outside of the top 20 grew by 8% year-over-year. Revenue from U.S. delivery declined by 33.9% in Q3 year over year, while revenue from all other geographies grew by approximately 6%, demonstrating the strength of our offshore business. Looking at our service offerings, the number of clients who use more than one of our specialized services increased by nearly 28% year over year, demonstrating our ability to cross-sell into our base. Focusing first on digital customer experience, revenue declined by 3.6% compared with Q3 of 2022 as expansions with existing clients and new client signings were offset by declines in revenues from our largest client, as well as cost optimization initiatives and declines in volume at a few other clients. In terms of major DCX signings, we are winning business from the competition and are continuing to see internal volumes from certain clients shift to us to drive cost savings. We've seen opportunities emerge as clients look to diversify their partner networks following recent industry consolidation. In Q3, we saw returns on our investments in providing services to clients in the generative AI and healthcare spaces. as well as expanding our DCX engagements with current clients to include sales and customer acquisition services. We signed an expansion of our relationship with the world's leading large language model developer in Q3. With this expansion of our specialized support services, we're now supporting this client across all three of our service lines for multiple delivery geographies. Within healthcare, we signed a multi-year contract supporting the open enrollment activities of a company providing transformative cloud-based technology and services to the Medicare market. This win, with its seasonal peak in Q4, contributes to our confidence in raising our full-year revenue expectations. We also signed an expansion of services to a provider of mental health technology solutions where we're providing credentialing, charting, and coding services. We've seen an increase in demand for our sales and customer acquisition services as our clients continue to invest in growth. Our largest signing for the quarter came from one of our top three clients. This client, a food delivery app, tasked us to replace a large incumbent provider and expanded our new merchant acquisition, activation, and onboarding services to cover multiple larger geographies after we proved ourselves in a smaller market. We now provide these services to multiple clients in on-demand travel and transportation. We also added additional sales and customer acquisition work for clients in our retail and e-commerce and technology verticals during Q3. These global brands continue to choose TaskUs because of our ability to support their complex, multilingual needs at scale and our tech-forward approach to solving their most challenging support and growth needs. Moving on to trust and safety revenues in this service offering increased by 10.9% compared with Q3 of 2022, largely driven by the continued growth in our large on-demand travel and transportation clients, as well as certain clients in the social media and FinTech markets. This growth more than offset the volume declines we saw from our largest equity trading client. As a reminder, In addition to content moderation, our trust and safety services also include the work of our risk and response teams, which deliver financial compliance, risk and fraud detection services. While we don't separately report this offering, we're pleased that our Q3 risk and response revenue growth was accretive to the overall growth rate of the trust and safety vertical. This is another clear demonstration of our success selling highly specialized services to our client base. Demand for all of our trust and safety services continues to grow. The number of clients using our trust and safety solutions increased by 42% year over year. If we exclude our largest client, which was impacted by onshore to offshore mix changes, trust and safety revenue grew by 22% annually in the quarter. We expanded our relationship with one of the world's largest technology companies. We're providing complex work to authenticate and validate submissions from their developer community to their app marketplace. We won this work from a competitor who the client was unsatisfied with due to a lack of innovation. This win represents an important entry point for our trust and safety solutions to a client with massive addressable spend. We also signed a contract to implement our proprietary Shield technology for the world's leading multi-channel social and gaming communications platform, expanding our relationship for a fifth quarter in a row. Shield is a proprietary tool we developed to deliver user safety and content moderator safety all in one platform. It is a wellness tool designed to reduce the emotional impact of reviewing offensive content. The platform includes a variety of wellness interventions with flexible deployment options. Notably, this client now is using Shield not only for the work delivered by TaskUs, but also for the work done by their internal teams. This is a great example of TaskUs' continued leadership and commitment to the health and wellness of the professionals who protect all of us from harmful online content. Moving on to our AI service offering. revenues declined approximately $5.8 million, or 15.7% on a year-over-year basis. Here, we've simultaneously been impacted by contractions at our largest overall client and our largest autonomous vehicle client. We continue to have very strong relationships with both clients, and Taskus continues to be one of their largest providers of AI services. In response to their reduced outsource spend on AI services, we've implemented new processes and leveraged our global footprint to achieve greater efficiencies on behalf of both clients. Despite these large client dynamics, we continue to see an expansion in the number of clients utilizing our AI services. In Q3, we had 16% more Kaskas clients utilize our AI services versus the same quarter a year ago. While some of these clients have started with small engagements or project-based work, we expect to expand these relationships in the future. Additionally, our AI services pipeline, particularly in the generative AI and autonomous vehicle segments, remains strong. During the quarter, we signed new business supporting an autonomous vehicle technology provider's vehicle safety operations. This is an expansion of our complex work troubleshooting vehicles in the field. We will now take over the critical response operations in the event of technology-related safety issues affecting our clients' riders. We're excited for this new real-time service supporting AI in the field. We also saw expansion at a leading advertising data and analytics provider, which we launched with earlier this year, as well as a number of new AI service projects, and our largest client. Last quarter, we highlighted our implementation of TaskGPT for our client Moneyline. Our teammates are using TaskGPT to quickly and accurately respond to customer questions. We also recently completed the implementation and rollout of TaskGPT in support of a large e-commerce marketplace for unique and creative goods. In both cases, TASH GPT has demonstrated a meaningful improvement in average handle times for both chat and voice support while improving customer satisfaction. Our sales and client service teams continue to see demand from new and existing clients interested in leveraging TASH GPT through both outcome and subscription-based pricing models. From a headcount perspective, we ended Q3 with 47,000 teammates, a decrease of 3% compared with Q3 of last year and flat 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 from new geographies, and focusing on our specialized services. Let me discuss some of the results we're seeing from the investments we are making to support these growth initiatives. First, we continue to expand our relationships with the world's largest technology companies. This holiday season, we're once again ramping a large team for a global e-commerce retailer. Throughout the year, our operations team has continuously improved versus this client's appropriately high service expectations landing us in the top quartile of their partners in just 12 months. We will double the size of our holiday staff versus 2022 and then look to expand into additional services and geographies with this client over time. We also signed our first trust and safety engagement with another one of the world's largest technology companies. Here we're doing complex work to review and approve submissions to their developer app store. Finally, we expanded our scope of work with the autonomous vehicle division of one of these companies. We were providing vehicle safety operations from the U.S. Amongst enterprise clients, we've made solid progress in healthcare and retail and e-commerce. In our healthcare vertical, we signed a provider of technology and services to the Medicare market and a provider of technology for Americans seeking mental health assistance. In our retail and e-commerce vertical, we continue to ramp our support of multiple clients, including a provider of technology solutions to brick and mortar businesses, a well-known international house of fashion brands, and one of the world's best known athletic apparel and footwear brands. We continue to invest in our sales and client service teams to drive growth across new and existing clients. Second, we've continued to expand to serve increasingly global clients from new geographies. We're seeing particularly strong traction in Latin America, where we again grew revenue by more than 70% year over year. This quarter, we signed a new client where we will provide multi-channel bilingual support to a large global provider of governance, risk, and compliance software solutions from Medellin, Colombia. We expanded our work with one of our top three clients from Cali, Colombia, and we successfully cross-sold Spanish language support services to one of the clients we brought on as part of the Helu acquisition. This German-based provider of remote desktop management software will now be supported from our operations in both Croatia and Colombia. We've seen growth in Japan, Malaysia, and Taiwan for the delivery of Asian language services. Revenue from these global delivery geographies grew by nearly 35% year over year in Q3. This quarter, we also expanded our support of the world's leading audio streaming platform and one of our large on-demand travel and transportation clients from Malaysia. We also signed a contract to provide Japanese language support to a global provider of integrated financial technology, commerce, and payment solutions. We also continue to grow our revenue in Greece, where we launched a new site recently, and Croatia, providing European language services to our global clients. Lastly, in terms of specialized services, we continue to see traction across our offerings. I mentioned the significant growth we've seen in our trust and safety offering. Our industry-leading position was once again highlighted by the Everest Group as they ranked Taskus a leader in their augmented intelligence, The future of trust and safety is humans plus AI report during Q3. We continue to believe that generative AI, synthetic data, and the overall growth in user-generated content will lead to long-term growth opportunities in the trust and safety market. And we've made great progress in the area of generative AI this quarter. First, we expanded our relationship providing support services to the leading large language model providers. Additionally, we deployed more instances of task GPT for clients and have seen significant improvements to both productivity and client satisfaction as a result of these implementations. Our progress on these growth initiatives is encouraging, and I'm confident they will bring us back to revenue growth in time. As I mentioned at the start of the call, the tireless efforts of our team have led to an increase in our full-year revenue guidance between $915 million and $970 million, up from $905 million at the midpoint of the guidance range we provided last quarter. We expect to generate $225 million to $227 million in revenue in the fourth quarter. This includes between $4 million and $6 million in seasonal revenue. In addition to losing these seasonal volumes, we expect to see some continued volume reductions given the impact of ongoing macroeconomic uncertainty. As a result, we expect Q1 2024 revenue to decline from Q4 of this year. We will provide our full year 2024 revenue guidance on our annual earnings call early next year. Given the uncertain growth environment, our team has been hyper-focused on improving margins and cash flow. In terms of margins, our ongoing focus on cost optimization, process improvement, and technology-driven automation continued to pay dividends in Q3, resulting in Q3 adjusted EBITDA margins of 23.5%. We now expect to deliver adjusted EBITDA margins of 23.3% for the full year of 2023, compared with our prior guidance of 23%. In light of our Q3 performance, our outlook on free cash flow has been revised upward. We now expect to deliver more than $115 million of free cash flow at any point in our guidance range, excluding payments associated with the Helu acquisition. In this environment, we are very focused on using our cash to generate shareholder value. As I discussed, our first priority is to invest in the business to drive growth. We also continue to see M&A as a potential use of cash to drive value in the future. However, we've still not seen private market valuations align with the public market. Given our low leverage ratio of just 0.7 times were well positioned to move quickly on M&A when valuations improve. As noted in Q2, given the public valuation of TaskUs, we see continued share repurchases as an attractive use of cash today. As of the end of Q3, we had repurchased more than 9.8 million shares since the start of our share repurchase program. We were much more active in the market during the third 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. In closing, we remain focused on executing against our strategic initiatives and investing for growth, while at the same time remaining diligent on our cost structure and driving value for shareholders. With that, I'll hand it over to Balaji to go through the Q3 financials in more detail and provide our outlook for Q4.