TaskUs, Inc.

Good afternoon and welcome to the Task Us second quarter 2024 investor call. My name is Josh and I will 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. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to introduce Trent Thrash, Senior Vice President of Corporate Development and Investor Relations. Trent, you may begin.

Good afternoon, and thank you for joining us for TaskUp's second quarter 2024 earnings call. Joining me on today's call are Bryce Maddock, our co-founder and chief executive officer, and Balaji Shekhar, 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 our website at ir.taskus.com. We have also posted supplemental information on our website, including an investor presentation and an Excel-based financial metrics file. Please note that this call is being simultaneously webcast on the investor relations 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 Law, 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 8, 2024. This filing, which may be supplemented with subsequent periodic reports we file with the SEC, is accessible on the SEC's website and our investor relations website. 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 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, our co-founder and chief executive officer. Bryce?

Thank you, Trent. Good afternoon, everyone, and thank you for joining us. In the second quarter, we generated $237.9 million, outperforming the top end of our revenue guidance by approximately $6 million or 2.6%. I'm proud of our team, which has worked tirelessly throughout the challenges of the past 18 months. Their efforts paid off and we returned to year over year growth in Q2, delivering nearly 4% revenue growth in the quarter. Our investments in sales and marketing are paying off. In Q2, we had our best bookings quarter since 2022. As a result of this, and continued sales momentum in early Q3, we have even greater confidence that our year-over-year revenue growth rate will continue to accelerate in Q3 and Q4 of this year. Accordingly, we're increasing both the bottom and top ends of our annual revenue guidance and now expect revenue of $955 to $975 million for the year. In just one quarter, we've increased the midpoint of our full-year guidance by $27.5 million. The acceleration of revenue growth requires additional investments in operations, facilities, hiring, and training, which impacts our margins and cash flow. On a sequential basis, we grew adjusted EBITDA in the quarter to $51.3 million for an adjusted EBITDA margin of 21.5%. This was below our margin guidance. As our growth rate accelerates in the back half of 2024, we expect this trend to continue. We now expect to deliver approximately 22% adjusted EBITDA margins and approximately $120 million in free cash flow for the full year 2024. In summary, we've emerged from the challenges we faced in 2023. We are experiencing robust global demand from new and existing clients. We expect our revenue growth rate to accelerate in the back half of the year. In fact, at the top end of both our Q3 and updated annual guidance, we would expect to return to double digit revenue growth in Q4. This is a tremendous accomplishment for our global team. With the increase in our growth rate, we will see a temporary reduction in margins as we invest to support our scaling operations. As we look towards 2025, our goal is to continue driving growth while improving our margin and cash flow profile. Next, I'll spend time going through some of the highlights of our Q2 performance. Bology will then walk through our Q2 financials and Q3 outlook and our increased full year 2024 guidance. Q2 revenue was $237.9 million. An increase of 3.8% on a year-over-year basis. The 4.6% sequential quarterly revenue increase was reflective of quarter-over-quarter growth in all three of our service lines and continued strength in revenue and bookings from our top 20 clients who generated 68% of total revenue during the quarter. In particular, we have seen strong demand from our largest client who contributed approximately 20% of total revenue in Q2 of 2024. In terms of delivery geographies, as expected, revenue from US delivery declined 32% in Q2 on a year-over-year basis. As a result, US revenue was approximately 11% of total revenue during Q2. Our offshore geographies continue to demonstrate strong revenue results, growing by approximately 11% year over year. While Q2 saw rapid growth in Latin America, again at more than 40% year over year, we also delivered year over year growth in all of our major delivery geographies, including the Philippines, India, and the rest of the world. We ended the quarter with approximately 51,700 global teammates, an increase of approximately 2,100 teammates from the end of Q1. In Q2, our sales and client service teams once again delivered strong performance. Like Q1, the majority of sales were driven by bookings from existing clients, which accounted for approximately 66% of total signings. This marked a positive shift towards growth in new client bookings, which made up 34% of total signings compared to 28% in Q1. The size, quality, and depth of pipeline opportunities across our service lines from new and existing clients of all sizes continue to be encouraging and supportive of our commitment to accelerate growth throughout the remainder of 2024. During Q2, We again made progress on our strategic goal of cross-selling our suite of specialized services to our client base. The number of clients using multiple services increased by more than 10% year over year. We also continued expanding our presence in new markets, including adding notable use cases for clients in the fintech and health tech industries, as well as with fast-growing clients in the generative AI and technology verticals. Shifting focus to our service lines, in Q2 of 2024, digital customer experience revenue declined by 1.7% compared with Q2 of 2023. In DCX, year-over-year growth from new clients was more than offset by the prior year's termination of a travel industry client and other client cost optimization initiatives, which we've discussed on prior calls. However, compared to a sequential decline of 5.6% in Q1, sequential quarterly growth accelerated to an increase of approximately 3.4% in Q2. We now expect DCX to return to year-over-year growth during the second half of the year. In terms of DCX signings in Q2, we saw broad-based strength in bookings across most of our vertical markets, including our on-demand travel and transportation, technology, media and entertainment, health tech, and fintech verticals. Consistent with recent quarters, crypto and equity trading-related revenue remained below 5% of total revenues for Q2. In connection with our healthcare expansion strategy, in Q2, we signed two new multimillion dollar DCX contracts. One with a provider of consumer healthcare and pharmacy services, leveraging our onshore work from home solutions, and the second delivering provider and patient support and revenue cycle management services from our operations in Columbia to a company in the mental health industry. Lastly, as an example of the continued strength and demand we have seen for Latin American-based delivery, we signed a DCX contract with a leading provider of cloud-based website and e-commerce solutions for services to be delivered from Colombia. Moving on to trust and safety, which includes our risk and response solutions, revenue growth in this service line was again accretive to our overall growth rate, increasing 30.7% year-over-year, and 6.9% quarter-over-quarter. This quarter, we again saw broad-based growth, including strong performance with our largest client, as well as with certain fintech, social media, and on-demand travel and transportation clients. During Q2, growth from our risk and response offering was again accretive to the overall growth rate of the trust and safety service lines. I want to take a moment to highlight the success we have had in growing the financial crimes and compliance work that we classify as risk and response. Revenue from this subservice line doubled year over year. From a sales perspective, we continue to see strong demand for our trust and safety services. Based on recent booking trends and the increasing number of clients utilizing this service line, we expect trust and safety to continue outpacing DCX and AI services growth rate, resulting in trust and safety representing an increasing percentage of total revenue in future quarters. Notably, during Q2, we signed an expansion of European language content moderation and platform integrity operations with our largest client. We also increased the scope of work we provide to a global marketplace for unique and creative goods and the world's leading multi-channel social and gaming communications platform. Turning to AI services, while revenues declined approximately $2.5 million or 7.7% on a year-over-year basis, we were pleased with the improved trajectory of this service line when compared to the 23.6% year-over-year decline we saw in Q1. As discussed last quarter, Q2 year-over-year AIS revenue comparisons continue to be impacted by declines at our largest client and our largest autonomous vehicle client. Despite the year-over-year decline, we were pleased that our AI service line returned to growth on a sequential basis in Q2, generating sequential growth of approximately 6.3%. As noted in our Q1 call, we anticipate AI services revenue to continue to stabilize over the course of 2024 as difficult comparisons lapse and recent signings continue to ramp. Moving to sales, we continue to see strong demand for AI services across multiple client verticals, including from clients in the social media and generative AI industries. We signed multiple new statements of work supporting our largest client's generative AI development initiatives and an expansion of our relationship with the world's leading large language model developer in Q2. We continue to support this client across all three of our service lines in multiple geographies. Given this recent success selling AI services, we now anticipate a return to year-over-year growth in this service line during the second half of the year. Before moving on to our updated 2024 outlook, I want to provide a brief update on our own generative AI initiatives. We continue to see success deploying our task GPT solutions to increase the efficiency and accuracy of our teammates. In the near term, we believe the biggest impact from generative AI will come from combining these technologies with well-trained teammates to deliver results that improve the customer experience on behalf of our clients. Many clients have been slow to launch customer-facing generative AI initiatives, citing concerns with accuracy and data security. Thus far, we believe GenAI has created more opportunity than risk for Task Us. Having said that, we recognize that over the next few years, clients will use GenAI to automate basic customer interactions. We've embraced this and are working hard to support our clients' automation efforts. we have and will continue to focus our offerings on the more complex and sensitive customer interactions and content types that we believe are less likely to be automated. Additionally, we will continue pursuing opportunities to support the emerging business process needs of companies in the Gen AI industry. Before handing it over to Balaji to provide more details on our Q2 results, I want to touch briefly on our 2024 outlook. In light of our strong operational execution and sales momentum, we're increasing our full-year revenue guidance to between $955 and $975 million. This represents a $27.5 million increase to a midpoint of $965 million. We expect our revenue growth rate to continue to accelerate in the back half of the year. As such, we will be investing in new facilities, hiring, and training initiatives during the back half of 2024, which will have some impact on our margins this year. Additionally, we have seen an increase in pricing pressure as some of our competitors who have excess capacity reduce their rates. We believe we are a premium provider of specialized services. As such, we've been able to maintain adjusted EBITDA margins that are among the best in the industry. but we expect to continue to price our services competitively in order to achieve above-market growth rates. As a result of these factors, we now expect full-year adjusted EBITDA margins of approximately 22% and free cash flow of approximately $120 million. As we look to 2025, our team is working tirelessly to lead the industry on adjusted EBITDA margins and revenue growth. With that, I'll hand it over to Balaji to go through the Q2 financials and our 2024 outlook in more detail.