TaskUs, Inc. (TASK) Q4 2021 Earnings Call Transcript


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TaskUs, Inc. (NASDAQ:TASK)
This autumn 2021 Earnings Name
Feb 28, 2022, 5:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Good afternoon, and welcome to the TaskUs investor name. My title is Olivia, and I will probably be your convention facilitator at this time. Right now, all strains have been positioned on mute to keep away from background noise. After the audio system’ remarks, there will probably be a question-and-answer session.

[Operator instructions] I’d now prefer to introduce Alan Katz, vp of investor relations. Alan, chances are you’ll start.

Alan KatzVice President, Investor Relations

Good afternoon, and thanks for becoming a member of the TaskUs fourth quarter and year-end 2021 earnings name. Becoming a member of me on the decision at this time are Bryce Maddock, co-founder and chief govt officer of TaskUs; and Balaji Sekar, chief monetary officer. Full particulars of our outcomes and extra administration commentary can be found in our earnings launch, which might be discovered on the investor relations part of the web site at ir.taskus.com. We additionally plan to put up supplemental info on our web site, together with an investor presentation and different supplies following this name.

Please be aware that this name is being concurrently webcast on the investor relations part of the corporate’s company web site. Earlier than we begin, I want to remind you that the next dialogue accommodates forward-looking statements inside the that means of the federal securities legal guidelines, together with, however not restricted to, statements concerning TaskUs’ future monetary outcomes and administration’s expectations and plans for the enterprise. These statements are neither guarantees nor ensures and contain dangers and uncertainties which will trigger precise outcomes to vary materially from these mentioned right here. You shouldn’t place undue reliance on any forward-looking statements.

Elements that might trigger precise outcomes to vary from forward-looking statements might be present in our up to date prospectus filed with the SEC on October 22, 2021, which is accessible on the SEC’s web site, in addition to within the investor relations part of our web site, and could also be supplemented with subsequent periodic reviews we file with the SEC. Any forward-looking statements made on this convention name, together with responses to questions, are primarily based on present expectations as of at this time, February 28, 2022, and TaskUs assumes no obligation to replace or revise them whether or not on account of new developments or in any other case, besides as required by legislation. The next dialogue accommodates non-GAAP monetary measures. For a reconciliation of every of those non-GAAP monetary measures to essentially the most straight comparable GAAP metrics, please see our earnings press launch, which is accessible on the IR part of our web site at ir.taskus.com.

Now I’ll flip the decision over to Bryce Maddock, co-founder and chief govt officer of TaskUs. Bryce?

Bryce MaddockCo-Founder and Chief Govt Officer

Thanks, Alan. Good afternoon, everybody, and thanks for becoming a member of us. 2021 was a really robust yr for TaskUs. Our crew delivered development within the fourth quarter that when once more got here in above the excessive finish of our steering vary, and we set ourselves up for one more yr of strong development in 2022.

Earlier than I dive into the monetary outcomes, I wish to take a minute to acknowledge the nice work of our crew in protecting our teammates secure and wholesome. The pandemic and up to date world occasions have impacted everybody in several methods. Many people have seen our psychological well being impacted. In response, our world wellness and resiliency crew stepped as much as help our teammates throughout this tough yr.

They accomplished almost 30,000 group and one-to-one counseling periods with TaskUs teammates throughout the globe. At TaskUs, our teammates are a very powerful asset in our firm. Our highest precedence is to help them and hold them secure. Transferring to our financials.

This autumn was one other very robust quarter of prime and bottom-line development. Income grew organically by 63.4% yr on yr to $226.8 million, above the highest finish of our steering vary of $217 million. Adjusted EBITDA grew 70.5% yr on yr to $56.2 million for an adjusted EBITDA margin of 24.8%, additionally above the highest finish of our steering vary of 23.3%. For the complete yr, we achieved $760.7 million in income and $187.9 million in adjusted EBITDA or an adjusted EBITDA margin of 24.7%, once more above the highest finish of our steering ranges.

We ended the yr with top-line development of over 59%, whereas sustaining margins that we imagine are among the many highest within the business. To say that I am pleased with what we achieved this yr can be an understatement. 2022 is off to a robust begin. The theme for the yr will probably be development pushed by a broad and diversified consumer base.

For 2022, we count on to develop revenues organically at 30% on the midpoint of our steering vary. Balaji will present a extra detailed breakdown of our steering later within the name. For now, I am going to flip again to This autumn. We proceed to make nice progress throughout our 5 development levers this previous quarter.

We executed notably effectively on the primary two development levers, increasing with our present high-growth shoppers and including new shoppers throughout verticals. In digital buyer expertise, we grew income by 69% in comparison with This autumn 2020 pushed by expansions with current shoppers and new consumer signings. An enormous a part of our success on this space has been pushed by our investments within the fintech and cryptocurrency house the place we’re delivering the specialised companies these high-growth companies have to develop and shield their manufacturers. We additionally noticed continued growth with our ridesharing and meals supply shoppers.

These shoppers’ enterprise fashions proceed to evolve and develop, and we’re being requested to tackle extra complicated work, dealing with premium clients and dedicating groups to help essential rider and driver security strains, in addition to examine and handle fraud and disputes. Content material safety revenues grew by 23% in comparison with This autumn 2020, largely pushed by quantity development with current shoppers. We count on Content material Safety development to be a bit extra lumpy than the remainder of the enterprise as volumes from this service are nonetheless extremely concentrated amongst three main social media corporations. We at the moment present these companies to one in every of these corporations and imagine the opposite two corporations characterize significant development alternatives.

We’ve got continued to develop our content material safety companies with different shoppers, corresponding to courting apps, e-commerce websites, and thrilling new NFT marketplaces. Lastly, AI operations revenues continued to develop tremendously in This autumn. Income from AI operations grew by 128% yr on yr within the quarter, pushed primarily by expansions with new and current shoppers in social media, fintech, and e-commerce and a big autonomous automobile firm. We have been investing closely in AI Operations, growing a crowdsourcing platform that we name the TaskVerse.

taskverse.com is now dwell and accepting sign-ups. This platform will allow gig staff with various talent units from throughout the globe to carry out micro duties for our high-growth tech shoppers. We imagine the most typical use case for this platform will probably be gathering and annotating knowledge units for machine studying initiatives, however we’re excited to see what our shoppers demand and our group delivers. We’re within the means of rebranding AI operations as AI companies to raised characterize our breadth of choices and align to business nomenclature.

Going ahead, I am going to confer with this service as AI companies, which will probably be made up of the identical kinds of work that we beforehand described as AI operations. Transferring on to signings. Progress from current shoppers once more accounted for about two-thirds of our signings in This autumn. We had our largest signing within the quarter with one in every of our fintech shoppers.

This consumer is a significant participant within the cryptocurrency house. We will probably be increasing the shopper expertise work that we do for them at this time, rising our help for institutional shoppers, and offering safety evaluation of blockchain transactions. We signed an growth with our largest well being tech consumer, a digital medical health insurance supplier to satisfy their speedy development wants. We’re offering each inbound and outbound companies for his or her sufferers and suppliers and count on income from this consumer to roughly triple in 2022.

We added some nice new shoppers in This autumn, together with an NFT market, a fast-growing outside retailer with a cult-like following, and a big on-line family tree enterprise. Lastly, we landed our first contract with one of many largest tech corporations on this planet. Right here, we’re serving to them to scale their studying and improvement operate by delivering tutorial designers, technical writers, and studying specialists. Total, 2021 was an incredible yr for our gross sales and consumer service groups.

We ended the yr with a brand new consumer win fee of 49% and a complete new enterprise win fee of 60%. Our internet income retention fee for the yr was 141%, up from 117% in 2020 as a result of we retained our high-growth shoppers and helped them to scale aggressively. As we head into 2022, now we have a robust pipeline of alternatives with each new and current shoppers. Earlier than we transfer on, I wish to present an replace on our largest consumer.

As we mentioned up to now, this consumer is just not solely our largest consumer, but in addition continues to be one in every of our strongest consumer relationships. Actually, we did extra enterprise with them in This autumn than in some other prior quarter. In January of this yr, we started discussing a undertaking to optimize our world supply footprint for this consumer. Primarily based on this evaluation, we plan to shift lots of of roles to our operations within the Philippines and India.

We proceed to develop our teammate inhabitants globally with this consumer and count on to have extra teammates supporting them on the finish of the yr than we do at the moment. However given the altering geographic combine, we aren’t forecasting any year-on-year income development from this consumer in our 30% income development outlook for 2022. This optimization undertaking will start in Q2 and be accomplished earlier than the tip of the yr. As soon as the transition is full, we are going to proceed to have teammates supporting this consumer in all 4 nations from which we offer them companies at this time.

We count on this consumer to proceed to be our largest consumer for the foreseeable future. It is also vital to notice that with strong demand throughout our broadening consumer base, we don’t anticipate having to get rid of any jobs on account of this transition. Teammates supporting this consumer at this time whose roles will probably be transitioned will transfer to help a few of our most enjoyable and fast-growing shoppers. As I mentioned initially of the decision, we count on 2022 to be a yr of diversified development throughout a rising portfolio of high-tech shoppers.

We did an important job laying the muse for this final yr. For instance, in 2020, we had 46 shoppers at $1 million a yr or extra in income, together with eight shoppers at over $10 million a yr. In 2021, we grew to 72 shoppers over $1 million a yr in revenues, and the variety of shoppers for whom we delivered $10 million or extra in companies doubled to 16 shoppers. We additionally continued to increase the variety of specialised companies that we ship to our largest shoppers.

In 2020, seven of our prime 20 shoppers used two or extra of our specialised companies. In 2021, this quantity greater than doubled to fifteen of our prime 20 shoppers. That segues properly into our third development lever, growth of our service choices. We elevated our investments in fincrime and danger within the fourth quarter.

In This autumn, we appointed our former Head of Authorized to steer this new enterprise line. We additionally started hiring a crew of skilled fraud danger and compliance practitioners and cryptocurrency consultants to steer our go-to-market technique for these choices. We see this as a pure growth of our capabilities for fintech shoppers and see an incredible alternative forward. We’re additionally increasing our studying expertise companies.

Along with the signing that I discussed earlier, now we have a number of shoppers now turning to us to handle studying and coaching throughout their enterprise. We’re serving to them to modernize their studying methods, ship studying analytics and keep their tutorial and knowledge-based content material. This service space is born out of our capability to coach and develop our personal teammates. We’re excited to proceed our investments in thought management and other people improvement by broadening our suite of companies.

We’ll announce this new providing publicly this quarter, branding it as TaskUs Studying Expertise Options or LXS. Through the fourth quarter, we additionally made progress on our fourth lever, geographic growth. We expanded into Japan and Malaysia and count on to increase into Poland and Romania this yr. We’re additionally rising in our present geographic footprint, including capability in India, the Philippines, the U.S., and Latin America.

Lastly, when it comes to M&A, our fifth development driver, we proceed to take a look at offers and have seen some attention-grabbing alternatives. We’re specializing in corporations which might be accretive to our long-term development charges, margin targets, and, most significantly, our tradition. We’re notably all for M&A to speed up our development in Europe or add to our specialised service capabilities. It is vital to notice that any M&A accomplished in 2022 will probably be incremental to the income steering we’re offering at this time.

Our progress on these 5 development levers and our broadening base of high-growth shoppers positions us to ship on our medium-term income development goal of 25% or above for the years to come back. Our success in 2021 was equally impacted by our operations. Throughout the business, we have heard in regards to the challenges of attracting and retaining expertise. In This autumn, we added roughly 4,500 internet new TaskUs teammates and met our shoppers’ hiring necessities.

Attracting nice expertise is vital, however retaining expertise is equally as vital. Our attrition fee for the yr, as measured by voluntary attrition after 180 days of employment, was 15.3%. Our Glassdoor score was 4.6 stars on the finish of the yr, down 0.1 stars from final quarter, however effectively above our friends. As of December 31, roughly 90% of TaskUs front-line teammates across the globe proceed to work safely from residence.

We count on to start to return some teammates to our workplaces beginning in Q2. However given the current variants, we’re taking a cautious method right here. A portion of our world teammate inhabitants will possible proceed to do business from home for the foreseeable future. 2022 is off to a robust begin.

Our development is being pushed by a broadening base of progressive shoppers. We’re increasing our geographic supply footprint and deepening the specialised companies our shoppers depend on us for. We’re well-positioned to ship 30% natural income development on the midpoint of our steering vary. With that, I am going to hand it over to Balaji to undergo the financials in a bit extra element and supply our outlook for Q1 and the yr forward.

Balaji SekarChief Monetary Officer

Thanks, Bryce, and good afternoon, everybody. I will focus my remarks on our monetary outcomes for the fourth quarter. Please be aware that a few of these objects are non-GAAP measures, and the related reconciliations are hooked up to the press launch we issued earlier at this time. Within the fourth quarter, we earned complete revenues of $226.8 million, a rise of 63% over the prior yr, resulting in complete revenues for the yr of $760.7 million and development of over 59%.

We noticed year-over-year development in every of our three specialised service choices. Within the fourth quarter, our digital buyer expertise providing generated $148.1 million for a year-over-year development fee of 69%. Our content material safety enterprise grew 23% in comparison with This autumn 2020, leading to $44.6 million of income. And our AI operations enterprise grew 128% yr over yr for revenues of $34.1 million.

In This autumn, we continued to see diversification of our income base. We grew income with our prime two shoppers yr over yr, whereas rising with the remainder of our shoppers at a fair sooner fee. Because of this, our income focus with our largest consumer was 25%, down from 27% in Q3 and 32% in 2020. Even with this enchancment in income focus, our largest consumer grew revenues quarter over quarter by roughly $3 million.

Our second-largest consumer was 9% of our income, down from 11% within the earlier quarter. This slight sequential quarterly decline was the results of our success in serving to this consumer optimize their world footprint and price construction. We count on to return to sequential income development with this consumer, starting Q1 of 2022, and may proceed to see sustained development all year long. In This autumn of 2021, our prime 10 and prime 20 shoppers accounted for 60% and 75% of our income, respectively, in comparison with 66% and 80% within the prior yr as our pattern of income diversification continues.

Within the fourth quarter, we generated 52% of our revenues within the Philippines, 31% of our revenues in the US, and 17% of our revenues from the remainder of the world, primarily pushed by our operations in India and Mexico. By way of our value of service, as a proportion of revenues, it was 56.2% within the fourth quarter in comparison with 57.1% within the prior yr. The year-over-year discount in value of service was primarily pushed by the depreciation in Philippine peso. We count on our value of service as a proportion of income to be roughly flat in 2022 as wage inflation and bills related to starting to maneuver our teammates again to the workplace will probably be offset by geographic combine and the cost-of-living value will increase included in lots of our contracts.

Within the fourth quarter, our SG&A bills had been $65.7 million or 29% of income. This compares with SG&A in This autumn 2020 of $29.9 million or 21.5% of income. Our This autumn 2021 SG&A expense included a full quarter of public company-related bills, in addition to stock-based compensation expense, which we didn’t incur as a personal firm. Inventory-based compensation and transaction prices had been roughly 10% of income.

Thus, excluding stock-based compensation and transaction prices, SG&A would have been roughly 19%. We earned adjusted EBITDA of $56.2 million and a 24.8% margin in This autumn in comparison with $32.9 million and 23.7% adjusted EBITDA margin in the identical quarter final yr. Our income development and decrease value of service greater than offset the rise in public firm prices and investments in digital initiatives. For the complete yr, we achieved $187.9 million in adjusted EBITDA for an adjusted EBITDA margin of 24.7%, above the highest finish of our steering ranges.

Adjusted internet revenue for the quarter was $37.1 million, and adjusted earnings per share was $0.34. By comparability, within the prior-year interval, we earned adjusted internet revenue of $20 million and adjusted EPS of $0.22. For the complete yr, adjusted internet revenue was $129.4 million and adjusted earnings per share was $1.26. Now transferring on to our money move and stability sheet.

Money from operations was $30.8 million for the fourth quarter as in comparison with $13.2 million in This autumn 2020 pushed by income development. Money and money equivalents had been $63.6 million as of December 31, 2021, in contrast with September 30 stability of $61.3 million. The development in DSO and accounts receivable was offset by the cost of a portion of our year-end bonus and elevated capex related to investments in know-how infrastructure and our workplaces. Our DSO decreased from 71 days in Q3 to 65 days in This autumn pushed by enhancements in our order-to-cash course of.

We see the chance for continued enchancment on this course of all through 2022. Within the first half of 2021, our DSO elevated on account of income development resulting in unbilled receivables that had been larger as a proportion of revenues than the roughly 33% or one month of in-period revenues that we might count on to see. We additionally had a big consumer that was paying their invoices virtually instantly that started to pay their invoices per their contract phrases. This led to a destructive working capital affect in 2021.

To be clear, this consumer has continued to pay on or forward of their agreed-upon cost phrases. Our capital expenditure elevated within the fourth quarter to $20.8 million or 9% of income in comparison with $7 million or 5% of income in This autumn 2020. For the complete yr, capex was $59.4 million or 8% of income, up barely as a p.c of revenues in contrast with fiscal 2020. Capex was primarily pushed by purchases of laptop gear attributable to elevated headcount and the ability expansions as a part of our return-to-office plans.

We count on that capex can be comparatively flat as a p.c of revenues in 2022 as we construct out new geographies and proceed to spend money on know-how techniques. At this level, I’ll define our monetary outlook for the rest of the yr. We anticipate full yr 2022 complete revenues to be within the vary of $980 million to $1 billion, representing year-over-year development fee of 30.1% on the midpoint. We count on to earn full yr 2022 adjusted EBITDA margin of roughly 23%.

For the primary quarter 2022, we anticipate revenues to be within the vary of $229 million to $232.2 million, representing year-over-year development of fifty.8% on the midpoint. We count on to earn adjusted EBITDA margin of roughly 22.5%. On account of the unfold of omicron, we noticed elevated absenteeism in January. Whereas attendance has returned to regular ranges in February, our Q1 revenues will probably be impacted by roughly $2 million.

This affect is mirrored within the Q1 steering I simply offered. As a reminder, Q1 additionally has the affect of fewer working days when in comparison with some other quarter. Regardless of the affect of each these things, we predict over 50% development on the midpoint. By way of margins, now we have a cost-of-living value escalator in lots of our contracts, which is able to offset wage inflation all year long as sure contracts attain their anniversaries.

Over time, we might additionally count on to see the optimistic affect from our geographic combine with sure shoppers transferring work to offshore geographies and the advantages from forex because the greenback has appreciated versus the rupee and the peso in contrast with final yr. The year-over-year comparability of adjusted EBITDA margin will proceed to be impacted by public firm bills within the first two quarters of the yr. Additionally, we’re planning for added bills related to returning a portion of our teammates to the workplace. Lastly, we’re persevering with to spend money on growing know-how, deepening our service line experience, and increasing our gross sales and consumer organizations so as to drive development.

All in, we’re very effectively positioned to satisfy our income development and margin targets this yr, in addition to ship upon our medium-term targets of 25% or higher year-on-year income development and adjusted EBITDA margin goal at or above 25%. Thanks. And I will hand it again to Bryce earlier than we take your questions.

Bryce MaddockCo-Founder and Chief Govt Officer

Thanks, Balaji. Earlier than we transfer into our Q&A session, I needed to share one other TaskUs teammate’s story. In December 2021, Storm Odette devastated elements of the Philippines and particularly impacted our website in Bohol. When it turned clear that Odette was going to hit the positioning, we mobilized as an organization, and our folks and clients rallied to make sure the protection and well-being of our teammates.

Janice and Mediator Boisar are two teammates who work at Lizzy’s Playground, our website in Bohol. Janice and Mediator’s household residence was destroyed by the storm. Through the storm, our crew grew involved as each teammates had been unreachable by cellphone. The day after the storm, our door-to-door rescue crew was capable of find Janice and Mediator, and our crew offered them momentary shelter in a lodge, free meals, and transportation companies.

Regardless of having misplaced their residence, Janice and Mediator informed us that they had been able to report again to work. So we remodeled the second ground of our workplace into a brief shelter for teammates and their households like Janice and Mediator who had been affected by the storm. Throughout their keep, all teammates had been offered free meals, medication, and toiletries. And at this time, I am proud to report that Janice and Mediator are having their houses rebuilt by TaskUs teammates as a part of our TaskUs residence rebuilding program.

Our shoppers and teammates world wide donated their time, cash, and assets to make this occur. With quarantine restrictions now lifted, I am lastly going again to the Philippines subsequent quarter and plan to go to our website in Bohol to thank our crew there personally. For now, I wish to give a heartfelt and public thanks to all of our teammates, their leaders, and our unimaginable shoppers whose compassion made this attainable. With that, I am going to ask our operator to open our line for the question-and-answer session.

Questions & Solutions:

Operator

[Operator instructions] Please stand by whereas we compile the Q&A roster. And our first query coming from the road of Maggie Nolan with William Blair. Your line is now open.

Maggie NolanWilliam Blair — Analyst

Hello. Thanks and big congrats to you guys for surpassing expectations. Bryce, you mentioned you are optimizing the worldwide supply footprint to your largest shoppers. Are you able to discuss a bit of bit extra about what does this imply for the connection and for profitability on the account? After which do you count on this sample in different giant accounts?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. Thanks, Maggie. So the connection with our largest consumer stays one in every of our strongest consumer relationships. Firstly of the yr, we got here collectively, and we put collectively a plan to optimize our world supply footprint.

And beneath that plan, we will transfer lots of of roles to the Philippines and India earlier than the tip of this yr. As we mentioned up to now, we make decrease income per worker within the Philippines and India, and that is the rationale we’re not forecasting any annual income development from this consumer at the moment. With that mentioned, since we put this plan in place, we have truly been awarded two new strains of enterprise that can add lots of of further roles to our groups supporting this consumer globally. So by the tip of this yr, we will have extra roles supporting this consumer globally than we do at this time as a result of the groups have lots of of extra roles.

It is also value noting that the Philippines and India are our highest-margin geographies. So as soon as the transition is full, the margins we earn from the consumer will increase. And eventually, we’re seeing very strong development from our different shoppers throughout our world areas. So each single teammate supporting this consumer at this time whose roles will probably be transitioned will probably be provided new roles supporting a few of our most enjoyable and fast-growing shoppers.

Maggie NolanWilliam Blair — Analyst

Thanks. That is useful. After which nice information, together with the outlook for Q1. Are you able to discuss a bit of bit in regards to the gross sales tendencies and the pipeline to date this yr and the way that compares to the prior yr and Q1 within the prior yr? Thanks.

Bryce MaddockCo-Founder and Chief Govt Officer

2021 was one in every of our strongest — truly our strongest gross sales yr ever. And I beforehand shared that Q1 of 2021 was the very best quarter that we have ever had when it comes to gross sales in our firm’s historical past. Q1 of 2022 is off to a really quick begin, and it feels harking back to Q1 of final yr. So I am excited to let you know extra in regards to the specifics of the wins we have had to date after we report our Q1 outcomes.

Maggie NolanWilliam Blair — Analyst

Thanks.

Operator

And our subsequent query comes from the road of James Faucette with Morgan Stanley. Your line is now open.

James FaucetteMorgan Stanley — Analyst

Thanks very a lot. I needed to ask about in the event you’re seeing any incremental wage stress out there proper now and the way that could be impacting your expectations for margin evolution by means of the course of the yr.

Bryce MaddockCo-Founder and Chief Govt Officer

Sure. So I am going to let Balaji discuss a bit of bit about this in particular, however let me simply discuss a bit of bit in regards to the hiring setting. We’re seeing a really aggressive hiring setting, and it is in environments like this that we see the investments that we have made in our worker worth proposition since day one actually repay. The hiring setting at this time permits us to additional distinguish ourselves from the competitors.

So in 2021, we added over 16,000 internet new positions, and we truly added progressively extra roles in every quarter and delivered in opposition to our shoppers’ very hiring — very aggressive hiring timelines. Firstly of 2022, we’re seeing the competitors intensify, and that is definitely placing stress on wages. We’re seeing this most acutely within the U.S. and for our world management positions.

However regardless of this, we anticipate including extra — as many or extra roles in Q1 than we did in This autumn of 2021, which actually underlines our capability to draw and retain expertise in virtually any market. Balaji, you wish to remark additional on margins?

Balaji SekarChief Monetary Officer

Yeah. Thanks, Bryce. So we’re seeing wage stress throughout all supply places, most importantly within the U.S. And the wage inflation truly is dependent upon geography, the efficiency, and tenure, however these are being factored into the margin steering that I offered at this time.

We imagine that we’re paying present market charges within the geographies wherein we function. So we aren’t in a state of affairs the place we at the moment are enjoying catch-up. And wage stress will probably be offset by COLA provisions in our contracts, the margin-accretive offshore geography combine that we’re beginning to see this yr, and optimistic forex setting. And we imagine that value of service as a p.c of revenues will probably be roughly flat from 2021 in 2022.

James FaucetteMorgan Stanley — Analyst

Obtained it. After which if we have a look at type of your information for this yr and with type of the adjustments in supply combine, and many others., what do you assume is the sufficient variety of internet headcount additions at the very least on a quarterly foundation to help the income development? And I assume as a part of that, Bryce, you talked about acquisitions might be incremental to your information, however what are the opposite potential upside drivers that you just see to your development fee for this yr? Thanks.

Bryce MaddockCo-Founder and Chief Govt Officer

Sure. Thanks for that query, James. So to begin, we anticipate persevering with so as to add effectively north of 4,000 internet new teammates in each quarter of this yr. And we’re very assured in our capability to proceed to do this for our shoppers.

So far as the 30% development forecast that we offered on the midpoint, 2022 is off to a really, very robust begin. We have visibility to round 95% of the forecast that we offered at this time, and we’re persevering with to see strong demand throughout our broadening portfolio of shoppers. Except our largest consumer, we count on that the opposite 4 of our prime 5 shoppers will develop income considerably yr on yr. We count on two of our prime 5 shoppers to develop income by double-digit proportion factors yr on yr and the opposite two to develop by triple-digit percentages yr on yr.

And what’s greatest about that’s that we’re already within the midst of aggressive hiring efforts for these shoppers at this time. So a big portion of this development will probably be ramped by the tip of Q1. As I’ve already mentioned, Q1 gross sales are off to a really robust begin, and Q1 of 2022 feels harking back to our document gross sales quarter, Q1 of 2021. And I would just end by saying that we have reported three quarters now as a public firm.

So hopefully, you are getting the sense that we solely present forecasts that now we have a excessive diploma of conviction that we are able to meet or exceed.

James FaucetteMorgan Stanley — Analyst

That is nice. Thanks a lot, guys.

Operator

And our subsequent query coming from Puneet Jain with J.P. Morgan. Your line is open.

Puneet JainJPMorgan Securities Inc. — Analyst

Hello. Thanks for taking my query. Bryce or Balaji, are you able to speak about like margin profile of a number of the new companies that you’re including, and the way ought to we take into consideration margins past this yr? Like simply qualitatively when it comes to the levers, places and takes we should always contemplate as we mannequin margins past this yr.

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. Thanks for that query, Puneet. So to begin, , up to now, we identified that the primary driver of margin is geography moderately than service line. With that mentioned, we’re seeing larger margins in a few of our new service strains corresponding to monetary crimes, Studying Expertise Options, and the extra superior areas of AI companies.

In order these areas make up a bigger and bigger proportion of our revenues, they will assist us to increase our margins. Balaji, I am going to allow you to remark possibly on the midterm margin steering.

Balaji SekarChief Monetary Officer

Yup. So Puneet, so now we have — whereas for this yr, we have indicated about 23 proportion in adjusted EBITDA margin, what we indicated that within the medium time period, we will ship about 25-plus proportion from an adjusted EBITDA — at or above 25% in adjusted EBITDA margin. And a few issues that’s going to drive that first is working leverage that comes from development. We’d see that each in our value of service and SG&A line objects.

And second is the geo combine shift that we spoke about earlier towards offshore, which is margin accretive. And lastly, the expansion in specialised companies that Bryce simply spoke about, that are higher priced, resulting in development in margins.

Puneet JainJPMorgan Securities Inc. — Analyst

Obtained you. And might you additionally speak about your use of money priorities? I do know you talked about M&A and natural investments in enterprise. Are you able to speak about like which areas you are on the lookout for offers and which areas you are trying to spend money on?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. I imply we’re investing this yr to proceed our development into 2023 and past. Particularly, we’re making investments to deepen our specialised companies, increase into new geographies, and to additional speed up our improvement in know-how to assist our shoppers drive efficiencies into their enterprise. We’re additionally increasing our gross sales and go-to-market crew to speed up our development.

As we have indicated, we completely intend to pursue acquisitions to speed up all of those efforts, and we don’t count on to let money construct up on the stability sheet.

Balaji SekarChief Monetary Officer

And Puneet, simply so as to add on to what Bryce mentioned can also be now we have a really comfy money place, and our internet leverage ratio in comparison with adjusted EBITDA was about 0.9x as of the year-end, which is beneath our debt covenant of about — roughly about 3.75.

Puneet JainJPMorgan Securities Inc. — Analyst

Thanks.

Operator

And our subsequent query coming from the road of Dave Koning with Baird. Your line is open.

David KoningBaird — Analyst

Yeah. Hey, guys, congrats. And it was all very spectacular, however one factor that stood out that is notably spectacular, simply to information 30%-ish after which principally have a headwind from the geo shift, it looks as if. So possibly may you inform us what your quantity development expectation? Like — it looks as if it’ll be properly higher than the 30%, I assume, to begin off.

Bryce MaddockCo-Founder and Chief Govt Officer

Dave, yeah, that is appropriate. And I feel what’s underlying that is our — the energy of development that we’re seeing from throughout the remainder of our consumer portfolio. So apart from our largest consumer, we count on the opposite two of our prime 5 shoppers to develop income yr over yr by both double- or triple-digit proportion factors. And that’s going to result in this actually broad diversified base of consumers that can assist us to satisfy or exceed that 30% income development information.

David KoningBaird — Analyst

Gotcha. Thanks. After which I assume the second query, simply do you continue to count on — now that the bottom retains getting greater and larger, do you continue to count on you could develop 25% a yr type of previous this yr? And are there acquisitions — possibly broadening out to completely different vertical markets and stuff, are there acquisitions yow will discover that truly can sustain the identical sort of development fee as you see?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. So to reply the primary query, we do. Once we take into consideration medium time period, we take into consideration the subsequent two to 3 years. And so we completely imagine we are able to develop income 25% or above for the subsequent two to 3 years at a minimal.

Once we have a look at our acquisitions, we began by specializing in modestly sized acquisitions that will probably be simpler for an organization of our dimension to digest. And happily, these corporations are rising income at a proportion that is comparable or, in some circumstances, higher than ours. And so we’re excited to concentrate on that sort of firm after we do our first acquisition.

David KoningBaird — Analyst

Nice, thanks. Good job.

Operator

And our subsequent query coming from the road of Jason Kupferberg with Financial institution of America. Your line is open.

Jason KupferbergFinancial institution of America Merrill Lynch — Analyst

Thanks, guys. Congrats on this quarter. I do know there’s been so much requested on revenues and margins, however I am going to ask on DSO and money move as a result of I believed that was fairly spectacular as effectively. And Balaji, I do know you talked about the advance within the DSO, I feel, from 71 to 65 quarter over quarter.

Are you able to give us the breakdown on the unbilled portion of the DSO there? And any ideas on that metric for 2022 and at no cost money move for that matter? Thanks.

Balaji SekarChief Monetary Officer

Yeah. Yeah. So from an unbilled perspective, one of many issues that I discussed earlier is that we did see an enchancment in unbilled in Q3 and This autumn of 2021. So in the event you have a look at the primary half of 2021, unbilled as a proportion of interval revenues was about 39 proportion.

And the rationale why it was as a result of we had a backlog of bill due to the expansion that we noticed in 2021, which we caught in Q3 and This autumn. And going ahead, on this enterprise, unbilled sometimes tends to be about one month of quarterly revenues, which was the case in This autumn, the place we had been roughly about 33 proportion. And that’s what we are going to proceed to see stepping into 2022.

Jason KupferbergFinancial institution of America Merrill Lynch — Analyst

OK. And I do know you guys talked about fintech and crypto a few instances. Curious what you may have the ability to inform us when it comes to dimension and development of these verticals mixed at this level. It sounds prefer it’s turning into rather more related for you.

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. Thanks for that query. So truly, in 2021, fintech, well being tech and retail, and e-commerce all grew revenues at triple-digit proportion factors yr over yr. And we’re seeing that development sustained into 2022, notably for fintech and healthtech.

We have been working with a number of the business leaders in each the fintech and cryptocurrency house. Along with offering the shopper help, we’re additionally offering monetary crimes work, the place we’re analyzing blockchain safety transactions, doing anti-money laundering and know-your-customer work. And so whereas we have seen strong development during the last yr, we expect we’re simply getting began within the total development potential on this house.

Jason KupferbergFinancial institution of America Merrill Lynch — Analyst

All proper. Effectively, thanks for the feedback. Respect it.

Operator

And our subsequent query coming from the road of Brian Essex with Goldman Sachs. Your line is open.

Brian EssexGoldman Sachs — Analyst

Hello, good afternoon, and thanks for taking the query, and congrats on what, I assume, is a greater than rule-of-80 quarter. Needed to observe up with — to Maggie’s query with regard to your largest buyer and that migration effort. How lengthy does that take from starting to finish? Possibly in the event you may give us a bit of little bit of coloration when it comes to how that dialog transpired. Was it extra of an effort of them to type of mitigate some rising prices on their facet? Or has this been type of the playbook from the start? And does this type of minimize over in a selected quarter? Or is there a basic migration all year long?

Bryce MaddockCo-Founder and Chief Govt Officer

Thanks for the query, Brian. So we, as an organization, undergo these migrations with clients over time. We have a tendency to begin with shoppers after they’re very small, scale in a short time after which look to optimize our consumer spend. And so all of those efforts are executed in conjunction and collaboration between TaskUs and our shoppers.

And so this was a dialog that started in January of this yr as we regarded for methods to optimize our shoppers’ spend, and we made a advice to shift a big portion of those roles to the Philippines and to India. The transition will begin in Q2, and we count on it to be accomplished in Q3. So there will probably be a comparatively low affect to Q1 revenues, and you will see a full affect to our This autumn revenues. And with that mentioned, I am going to simply say once more that we proceed to win very thrilling new enterprise from this consumer.

We have received two alternatives since placing this plan in place, and that’ll add lots of of further headcount to our world supply footprint for the consumer this yr. So we’re very optimistic about our capability to develop with this consumer once more in 2023.

Brian EssexGoldman Sachs — Analyst

Obtained it. That is tremendous useful. So thanks for that. And possibly only a fast follow-up.

Simply on the highest 10 shoppers, simply backing out the primary — the 2 largest for the quarter, it appears like shoppers three by means of 10 greater than doubled, if my math is midway proper. May you give us a bit of little bit of coloration when it comes to the dynamics at play there? Was {that a} comparatively various set of consumers within the prime 10? Have been there ones that swapped in or out? And what had been a number of the core drivers of that development?

Bryce MaddockCo-Founder and Chief Govt Officer

Sure. So it’s a very various set of consumers. And we have got on-demand transportation shoppers, fintech shoppers, e-commerce shoppers, all in our prime 10 clients. And we have seen actually robust development throughout that group, as you mentioned, about 100% once you again up the highest two shoppers yr over yr.

And as I mentioned, as we stay up for 2022, amongst our prime 5, apart from our largest buyer, 4 of these shoppers are going to be rising between double and triple proportion factors yr on yr. So we’re actually excited in regards to the broad base of development that we’re seeing in 2022.

Brian EssexGoldman Sachs — Analyst

Obtained it. Useful. Thanks very a lot.

Operator

And our subsequent query coming from the road of Dan Perlin with RBC Capital. Your line is open.

Dan PerlinRBC Capital Markets — Analyst

Thanks, and I am going to echo my effectively needs right here on some excellent numbers, which we clearly enormously respect. I had a query round type of the scope of labor and the way it’s modified up to now yr. So, Bryce, you talked about — and I feel you mentioned fintech, healthtech and retail, all had been triple digits. And would it not — a few of this seems like all of those new shoppers are transferring extra — they’re providing you with extra specialised work.

That work looks as if it is a optimistic combine shift for you when it comes to each type of breadth of alternatives, but in addition probably longer-term margin alternatives. So possibly are you able to simply communicate to the scope of labor and the way that is modified over, for example, the previous possibly 12 months?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. Thanks for the query, Dan. So now we have seen rising demand for extra subtle companies, for instance, inside AI companies going from doing issues like knowledge annotation into software program high quality operations. We have seen demand inside our monetary know-how companies going from doing buyer help into supporting institutional shoppers or doing monetary crimes work.

We simply signed a deal this quarter with one of many largest know-how corporations on this planet, a consumer that we have been pursuing for a very long time. And as a substitute of getting in there doing customary buyer help work, we will be offering Studying Expertise Options, so truly writing their coaching content material and sustaining their data base. And all of these are companies the place we are going to make larger margins. So we’re starting to see this specialised service technique repay within the type of larger margins.

Dan PerlinRBC Capital Markets — Analyst

OK. Is there one thing, only a follow-up, distinctive as we take into consideration fintech, crypto, healthtech turning into bigger and bigger percentages of the combination of what you are promoting that we should be conscious of? Do they have an inclination to wish to be a bit of bit extra in decrease geo areas, which helps along with the specialised companies that you just’re offering? Or is it simply the character of the work that is coming your means now?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. I feel that in each of those classes, we’re supporting business leaders. And these are corporations that actually care in regards to the high quality of service that they are delivering. Relating to issues like regulation, in some ways, they’re serving to to champion a few of these rules, and we imagine that these rules will truly result in a rise in demand for our companies.

However after we take into consideration geographic supply footprint, a few of our fintech and healthtech shoppers demand that we hold work onshore for both regulatory causes or simply consumer preferences. And so I feel that there is most likely a decrease chance of the type of geographic footprint optimization that we’re going by means of with another shoppers in the mean time. However in the end, time will inform.

Dan PerlinRBC Capital Markets — Analyst

Sure. OK. That is nice. Thanks.

Operator

And our subsequent query coming from the road of Matt VanVliet with BTIG. Your line is open.

Matt VanVlietBTIG — Analyst

Congrats, guys. Thanks for taking the query. I assume first, Bryce, you’ve got talked about studying companies alternative, each on the giant tech firm and possibly increasing that out. So needed to dig in a bit of bit extra there.

Is that this one thing that you’ve got been doing for plenty of your shoppers for some time, and it is now simply turning into possibly a bit of bit extra of a formalized product providing? Or is that this one thing you’ve got actually simply developed within the final a number of months or a few quarters and at the moment are able to go to market with it?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. Thanks for the query, Matt. So — and so truly, what occurred right here was actually attention-grabbing. We have all the time invested an enormous quantity within the worker expertise.

And that begins with ensuring that we’re coaching our teammates in essentially the most thrilling and progressive means attainable. So we have got an unimaginable studying chief, a gentleman named Vinay Sharma, who has actually championed our method to instructing our teammates the talents they should help our shoppers and placing our management by means of a very strong management improvement program. In order that work attracted one in every of our giant shoppers a few years again. It is a giant autonomous automobile firm, and so they had been all for us taking on a crew that was engaged on coaching content material for them.

It is a rebadge of the crew primarily based in the US. We did that efficiently and have since scaled that providing to a number of shoppers utilizing a mix of home and offshore assets to take care of knowledge-based content material and put collectively tutorial content material, in lots of circumstances, truly conduct the coaching periods on behalf of our shoppers.

Matt VanVlietBTIG — Analyst

Nice. After which as you talked about a few instances, each along with your largest buyer and possibly second and plenty of others, as they begin to use extra of TaskUs, they have an inclination to take a look at the offshore markets possibly a bit of bit extra targeted, are you able to give us a way of possibly what number of of all of your clients are you seeing some type of offshore at this time? Possibly not simply income combine, however simply possibly long term type of what the chance is, how which may have type of places and takes within the mannequin total?

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. So we — as an organization, we began with supply operations within the Philippines, and the Philippines solely. And it wasn’t till 2016 after we launched our operations within the U.S. that we had operations wherever else.

So the overwhelming majority of our clients at this time use some portion of our offshore supply mannequin. However that being mentioned, we have got operations at this time in 10 completely different nations. And we’re actually seeing a strong demand amongst clients to not simply single supply for causes of enterprise continuity, language protection and sourcing the best expertise on the proper value. Our clients are more and more leveraging two, three, or 4 of our nations to ship their companies.

Matt VanVlietBTIG — Analyst

All proper, nice. Thanks for taking my questions.

Operator

And I am exhibiting no additional questions at the moment. I’d now like to show the decision again over to Bryce Maddock, TaskUs’ CEO and co-founder, for closing remarks.

Bryce MaddockCo-Founder and Chief Govt Officer

Yeah. Thanks, Olivia. And simply in closing, I wish to thank our teammates, our shoppers, and our shareholders. We have had a really robust 2021, and we’re wanting ahead to delivering one other very robust yr in 2022.

Stay up for our subsequent name in Might. Speak quickly.

Operator

[Operator signoff]

Period: 61 minutes

Name members:

Alan KatzVice President, Investor Relations

Bryce MaddockCo-Founder and Chief Govt Officer

Balaji SekarChief Monetary Officer

Maggie NolanWilliam Blair — Analyst

James FaucetteMorgan Stanley — Analyst

Puneet JainJPMorgan Securities Inc. — Analyst

David KoningBaird — Analyst

Jason KupferbergFinancial institution of America Merrill Lynch — Analyst

Brian EssexGoldman Sachs — Analyst

Dan PerlinRBC Capital Markets — Analyst

Matt VanVlietBTIG — Analyst

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TaskUs, Inc. (TASK) Q4 2021 Earnings Call Transcript

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