TaskUs(TASK) - 2024 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements Summary of Principal Risk Factors This section outlines principal risks including client dependence, AI impact, data security, employee mental health, international operations, and regulatory compliance - Business is highly dependent on key clients; loss or non-renewal of contracts could severely impact operations[7] - Utilization of AI by clients or failure to integrate AI into operations could adversely affect business, reputation, or financial results[7] - Trust and Safety services, a large portion of the business, pose risks related to employee mental health, potential liabilities, and regulatory scrutiny[7] - Heavy reliance on international operations, particularly in the Philippines and India, makes the company vulnerable to disruptions in these regions[7] Website and Social Media Disclosure Company Information Channels TaskUs uses its website and social media for material company information, advising investors to monitor these channels - TaskUs utilizes its website (www.taskus.com) and social media outlets (Facebook, Instagram, LinkedIn, YouTube, X) for distributing company information, which may be deemed material[10] - Investors should monitor these digital channels, alongside press releases, SEC filings, and public conference calls, for important company information[10] Part I. Financial Information Item 1. Financial Statements This section presents TaskUs's unaudited condensed consolidated financial statements for the quarter and six months ended June 30, 2024 Unaudited Condensed Consolidated Balance Sheets | Assets (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $171,133 | $125,776 | | Total current assets | $378,616 | $328,518 | | Total noncurrent assets | $507,530 | $535,684 | | Total assets | $886,146 | $864,202 | | Liabilities (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Total current liabilities | $117,157 | $101,804 | | Total noncurrent liabilities | $308,796 | $321,687 | | Total liabilities | $425,953 | $423,491 | | Shareholders' Equity (in thousands) | June 30, 2024 | December 31, 2023 | | :-------------------- | :------------ | :---------------- | | Total shareholders' equity | $460,193 | $440,711 | | Total liabilities and shareholders' equity | $886,146 | $864,202 | - Total assets increased by $21.9 million from December 31, 2023, to June 30, 2024, primarily driven by an increase in cash and cash equivalents[12] - Total liabilities saw a slight increase, while total shareholders' equity increased by $19.482 million, reflecting improved financial position[12] Unaudited Condensed Consolidated Statements of Income | (in thousands, except share and per share data) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service revenue | $237,928 | $229,169 | $465,398 | $464,475 | | Total operating expenses | $215,206 | $207,000 | $419,118 | $423,906 | | Operating income | $22,722 | $22,169 | $46,280 | $40,569 | | Income before income taxes | $19,935 | $17,523 | $38,157 | $33,001 | | Provision for income taxes | $7,337 | $7,391 | $13,845 | $13,360 | | Net income | $12,598 | $10,132 | $24,312 | $19,641 | | Basic EPS | $0.14 | $0.10 | $0.27 | $0.20 | | Diluted EPS | $0.14 | $0.10 | $0.27 | $0.20 | - Net income increased by 24.3% for the three months ended June 30, 2024, and by 23.8% for the six months ended June 30, 2024, compared to the respective prior periods[14] - Diluted EPS increased from $0.10 to $0.14 for the three-month period and from $0.20 to $0.27 for the six-month period year-over-year[14] Unaudited Condensed Consolidated Statements of Comprehensive Income | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $12,598 | $10,132 | $24,312 | $19,641 | | Retirement benefit reserves | $17 | $19 | $22 | $27 | | Foreign currency translation adjustments | $(7,734) | $(3,706) | $(11,047) | $(123) | | Comprehensive income | $4,881 | $6,445 | $13,287 | $19,545 | - Comprehensive income decreased for both the three-month and six-month periods ended June 30, 2024, primarily due to significant negative foreign currency translation adjustments[16] Unaudited Condensed Consolidated Statements of Shareholders' Equity | (in thousands, except share data) | Balance as of Dec 31, 2023 | Balance as of June 30, 2024 | | :-------------------------------- | :------------------------- | :-------------------------- | | Class A common stock | $305 | $317 | | Class B common stock | $700 | $700 | | Additional paid-in capital | $683,117 | $704,438 | | Accumulated deficit | $(89,984) | $(65,672) | | Accumulated other comprehensive loss | $(9,551) | $(20,576) | | Treasury stock, at cost | $(143,876) | $(159,014) | | Total shareholders' equity | $440,711 | $460,193 | - Total shareholders' equity increased from $440.7 million at December 31, 2023, to $460.2 million at June 30, 2024, driven by net income and additional paid-in capital, despite an increase in accumulated other comprehensive loss and treasury stock[18] Unaudited Condensed Consolidated Statements of Cash Flows | (in thousands) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $81,211 | $82,213 | | Net cash used in investing activities | $(8,088) | $(16,045) | | Net cash used in financing activities | $(18,614) | $(45,835) | | Increase in cash and cash equivalents | $54,509 | $20,333 | | Cash and cash equivalents at end of period | $171,133 | $153,640 | - Net cash provided by operating activities remained strong at $81.2 million for the six months ended June 30, 2024, slightly down from $82.2 million in the prior year[20] - Net cash used in investing activities significantly decreased from $16.0 million to $8.1 million, primarily due to lower property and equipment purchases[20] - Net cash used in financing activities decreased from $45.8 million to $18.6 million, mainly due to lower payments for stock repurchases[20] Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business and Organization - TaskUs, Inc. provides outsourced digital services and next-generation customer experience, helping clients with Digital Customer Experience, Trust and Safety, and AI Services[22] - The company's global delivery model operates from multiple sites, including the United States, the Philippines, and India[22] - AI Services primarily involve high-quality data labeling, annotation, context relevance, and transcription for training machine learning algorithms[22] 2. Summary of Significant Accounting Policies - The financial statements are prepared in accordance with US GAAP for interim financial information and Form 10-Q instructions[23] - The company qualifies as an 'emerging growth company' and has elected to adopt new accounting guidance within the same timeframe as private companies[28] - New ASUs on Segment Reporting (ASU 2023-07) and Income Taxes (ASU 2023-09) are being reviewed, but are not expected to have a material impact on consolidated financial statements[29] 3. Business Combination - The acquisition of heloo (Parsec d.o.o. and Q Experience d.o.o.) was completed on April 15, 2022, for $35.4 million[31] - Contingent earn-out payments for heloo, not exceeding €20 million, were based on EBITDA targets for periods ending April 30, 2023, and 2024. The second earnout period expired with no additional amount paid[31] - Compensation expense related to earn-out payments decreased significantly from $7.9 million in the six months ended June 30, 2023, to $0.0 million in the same period of 2024[31] 4. Revenue from Contracts with Customers | Service Offering (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Digital Customer Experience | $148,352 | $150,916 | $291,843 | $308,052 | | Trust and Safety | $59,066 | $45,209 | $114,338 | $85,807 | | AI Services | $30,510 | $33,044 | $59,217 | $70,616 | | Service revenue | $237,928 | $229,169 | $465,398 | $464,475 | | Geographical Location (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Philippines | $138,308 | $127,261 | $269,521 | $254,120 | | United States | $25,267 | $37,235 | $50,857 | $83,897 | | India | $29,468 | $28,995 | $58,377 | $57,238 | | Rest of World | $44,885 | $35,678 | $86,643 | $69,220 | | Service revenue | $237,928 | $229,169 | $465,398 | $464,475 | - Trust and Safety revenue increased significantly by 30.7% for the three months and 33.3% for the six months ended June 30, 2024, while AI Services revenue decreased by 7.7% and 16.1% respectively[32] - Revenue from the Philippines and Rest of World geographies showed strong growth, while the United States saw a substantial decrease[33] 5. Forward Contracts - TaskUs uses foreign currency exchange rate forward contracts to mitigate volatility in cash flows from Philippine peso and Indian rupee denominated costs and to hedge foreign currency-denominated assets and liabilities[35] | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total notional amount of settled forward contracts | $52,178 | $75,923 | $110,547 | $135,348 | | Realized losses (gains) from settlement of forward contracts | $2,076 | $(1,793) | $2,769 | $(175) | | Unrealized losses (gains) on forward contracts | $1,966 | $4,661 | $3,463 | $(1,675) | | (in thousands) | June 30, 2024 | December 31, 2023 | | :---------------------------------------------------- | :------------ | :---------------- | | Total notional amount of outstanding forward contracts | $103,676 | $214,222 | - The company recognized realized losses of $2.076 million and unrealized losses of $1.966 million from forward contracts for the three months ended June 30, 2024[36] 6. Property and Equipment, net | (in thousands) | June 30, 2024 | December 31, 2023 | | :------------------------- | :------------ | :---------------- | | Property and equipment, gross | $196,673 | $195,697 | | Accumulated depreciation | $(139,197) | $(126,804) | | Property and equipment, net | $57,476 | $68,893 | | (in thousands) | June 30, 2024 | December 31, 2023 | | :------------------------- | :------------ | :---------------- | | Philippines | $22,645 | $29,765 | | United States | $5,139 | $7,308 | | India | $13,411 | $17,452 | | Rest of World | $16,281 | $14,368 | | Property and equipment, net | $57,476 | $68,893 | - Net property and equipment decreased by $11.417 million from December 31, 2023, to June 30, 2024, with the majority of assets located in the Philippines[40][41] 7. Goodwill and Intangibles | (in thousands) | Balance as of December 31, 2023 | Balance as of June 30, 2024 | | :------------------------- | :------------------------------ | :-------------------------- | | Goodwill | $218,108 | $217,458 | | Foreign currency translation | — | $(650) | | Intangible Assets (in thousands) | June 30, 2024 Net | December 31, 2023 Net | | :------------------------------- | :---------------- | :-------------------- | | Customer relationships | $156,890 | $165,723 | | Trade names | $25,838 | $27,235 | | Other intangibles | $0 | $0 | | Total | $182,728 | $192,958 | - Goodwill decreased slightly due to foreign currency translation adjustments. Total intangible assets, net, decreased by $10.23 million, primarily in customer relationships and trade names[42] 8. Long-Term Debt | (in thousands) | June 30, 2024 Total | December 31, 2023 Total | | :---------------------- | :------------------ | :---------------------- | | Term Loan | $262,238 | $265,613 | | Less: Debt financing fees | $(1,199) | $(1,388) | | Total | $261,039 | $264,225 | - Total long-term debt, net of financing fees, decreased from $264.2 million at December 31, 2023, to $261.0 million at June 30, 2024[43] - The 2022 Term Loan Facility had an interest rate of 7.694% per annum as of June 30, 2024, based on the SOFR rate[44] - The company had $190.0 million of borrowing availability under the 2022 Revolving Credit Facility with no outstanding balance as of June 30, 2024, and was in compliance with all debt covenants[44] 9. Leases | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease costs - Cost of services | $4,642 | $4,137 | $9,119 | $8,535 | | | June 30, 2024 | December 31, 2023 | | :------------------------------------ | :------------ | :---------------- | | Weighted average remaining lease term | 3.1 years | 3.5 years | | Weighted average discount rate | 6.4 % | 6.3 % | - Operating lease costs recorded to cost of services increased for both the three-month and six-month periods ended June 30, 2024[46] - Future lease payments on operating lease liabilities totaled $44.103 million as of June 30, 2024, with additional operating leases of approximately $10.0 million set to commence in 2024[47] 10. Commitments and Contingencies - TaskUs is involved in various legal proceedings, including a purported class action lawsuit (Lozada v. TaskUs, Inc. et al.) alleging false and misleading information in IPO documents and earnings calls[49] - The company is defending three lawsuits with similar legal/factual issues, including two class action lawsuits (Gregory Forsberg et al. vs. TaskUs, Inc. and Shopify, Inc., and Naeem Seirafi et al. v. Ledger SAS, Shopify (USA) Inc., and TaskUs, Inc.) related to a 2020 data breach impacting Ledger cryptocurrency wallets[49][51] - The company believes these lawsuits are without merit and intends to defend them vigorously, but cannot predict the length or potential liability at this preliminary stage[49] 11. Stock-Based Compensation | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of services | $501 | $1,038 | $1,181 | $1,915 | | Selling, general, and administrative expense | $10,620 | $14,002 | $20,175 | $26,589 | | Total | $11,121 | $15,040 | $21,356 | $28,504 | - Total stock-based compensation expense decreased by 26.1% for the three months and 25.2% for the six months ended June 30, 2024, compared to the prior year periods[54] - As of June 30, 2024, there was $4.3 million, $41.5 million, and $4.9 million of unrecognized compensation expense related to unvested stock options, RSUs, and PSUs, respectively, expected to be recognized over weighted-average periods of 1.2 to 1.6 years[54] 12. Income Taxes | (in thousands) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $7,337 | $7,391 | $13,845 | $13,360 | | Effective tax rate | 36.8% | 42.2% | 36.3% | 40.5% | - The effective tax rate decreased to 36.8% for the three months and 36.3% for the six months ended June 30, 2024, from 42.2% and 40.5% respectively in the prior year[55][56] - The difference from the 21% federal statutory rate in 2024 was primarily due to GILTI inclusion, nondeductible officer compensation, and tax benefits from foreign income tax holidays[56] 13. Earnings Per Share | (in thousands, except share and per share data) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $12,598 | $10,132 | $24,312 | $19,641 | | Weighted-average common shares outstanding – basic | 88,331,992 | 96,524,111 | 88,563,601 | 97,042,881 | | Weighted-average common shares outstanding – diluted | 91,629,930 | 98,200,005 | 91,739,908 | 99,576,289 | | Basic EPS | $0.14 | $0.10 | $0.27 | $0.20 | | Diluted EPS | $0.14 | $0.10 | $0.27 | $0.20 | - Diluted EPS increased to $0.14 for the three months and $0.27 for the six months ended June 30, 2024, from $0.10 and $0.20 respectively in the prior year[57] - The weighted-average diluted common shares outstanding decreased year-over-year for both periods, contributing to the EPS increase[57] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of TaskUs's financial condition and operational results for Q2 and H1 2024 Overview - TaskUs provides outsourced digital services and next-generation customer experience, specializing in Digital Customer Experience, Trust and Safety, and AI Services[60] - The company emphasizes its 'ridiculously good' outsourcing and strong company culture as key differentiators for attracting and retaining clients and highly engaged employees[60] 2024 Developments - TaskUs observed a subsiding of market uncertainty and challenges faced in 2023, leading to a return to revenue growth[61] - Revenue growth of 3.8% was achieved for the three months ended June 30, 2024, compared to the prior year, with expectations for continued improvement[61] - Accelerated revenue growth necessitates additional investments in operations, facilities, hiring, and training, alongside increased pricing pressure from clients focused on cost reduction[61] Recent Financial Highlights | Financial Metric (in millions) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service revenue | $237.9 | $229.2 | $465.4 | $464.5 | | Net income | $12.6 | $10.1 | $24.3 | $19.6 | | Adjusted Net Income | $28.6 | $31.8 | $55.9 | $64.3 | | Adjusted EBITDA | $51.3 | $54.3 | $101.9 | $109.3 | - Service revenue increased by 3.8% for the three months and 0.2% for the six months ended June 30, 2024[62] - Net income increased by 24.3% for the three months and 23.8% for the six months ended June 30, 2024, driven by revenue growth, foreign currency impacts, higher interest income, and lower stock-based compensation and earn-out consideration[64] - Adjusted Net Income and Adjusted EBITDA decreased for both the three-month and six-month periods year-over-year[64] Results of Operations Comparison of the Three Months Ended June 30, 2024 and 2023 | (in thousands, except %) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Period over Period ($) | Change (%) | | :------------------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :--------- | | Service revenue | $237,928 | $229,169 | $8,759 | 3.8 % | | Total operating expenses | $215,206 | $207,000 | $8,206 | 4.0 % | | Operating income | $22,722 | $22,169 | $553 | 2.5 % | | Other income, net | $(2,703) | $(684) | $(2,019) | 295.2 % | | Financing expenses | $5,490 | $5,330 | $160 | 3.0 % | | Income before income taxes | $19,935 | $17,523 | $2,412 | 13.8 % | | Provision for income taxes | $7,337 | $7,391 | $(54) | (0.7)% | | Net income | $12,598 | $10,132 | $2,466 | 24.3 % | Service revenue (3 months) | Service Offering (in thousands, except %) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Period over Period ($) | Change (%) | | :---------------------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :--------- | | Digital Customer Experience | $148,352 | $150,916 | $(2,564) | (1.7)% | | Trust and Safety | $59,066 | $45,209 | $13,857 | 30.7 % | | AI Services | $30,510 | $33,044 | $(2,534) | (7.7)% | | Service revenue | $237,928 | $229,169 | $8,759 | 3.8 % | | Geographical Location (in thousands, except %) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Period over Period ($) | Change (%) | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :--------- | | Philippines | $138,308 | $127,261 | $11,047 | 8.7 % | | United States | $25,267 | $37,235 | $(11,968) | (32.1)% | | India | $29,468 | $28,995 | $473 | 1.6 % | | Rest of World | $44,885 | $35,678 | $9,207 | 25.8 % | | Service revenue | $237,928 | $229,169 | $8,759 | 3.8 % | - Trust and Safety revenue grew by 30.7%, primarily from existing clients in Social Media and FinTech, while Digital Customer Experience and AI Services saw decreases[66][68] - Geographically, the Philippines and Rest of World (led by Latin America) experienced significant revenue increases, offsetting a substantial decrease in the United States[69] Operating expenses (3 months) - Cost of services increased by $10.3 million (7.7%) primarily due to higher personnel costs associated with increased headcount and site expansion[65][70] - Selling, general, and administrative expense decreased by $1.9 million (3.3%) due to lower earn-out and stock-based compensation, partially offset by increased bonus expense and litigation costs[65][71] Other income, net (3 months) - Other income, net, decreased significantly by $2.019 million (295.2%) due to foreign currency exchange risk exposure and economic hedges, partially offset by higher interest income[65][73] Financing expenses (3 months) - Financing expenses increased by $0.16 million (3.0%) driven by changes in the SOFR rate used to calculate debt interest[65][73] Provision for income taxes (3 months) - The effective tax rate for the three months ended June 30, 2024, was 36.8%, down from 42.2% in the prior year[73] Comparison of the Six Months Ended June 30, 2024 and 2023 | (in thousands, except %) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Period over Period ($) | Change (%) | | :------------------------------------- | :----------------------------- | :----------------------------- | :--------------------- | :--------- | | Service revenue | $465,398 | $464,475 | $923 | 0.2 % | | Total operating expenses | $419,118 | $423,906 | $(4,788) | (1.1)% | | Operating income | $46,280 | $40,569 | $5,711 | 14.1 % | | Other income, net | $(2,905) | $(2,861) | $(44) | 1.5 % | | Financing expenses | $11,028 | $10,429 | $599 | 5.7 % | | Income before income taxes | $38,157 | $33,001 | $5,156 | 15.6 % | | Provision for income taxes | $13,845 | $13,360 | $485 | 3.6 % | | Net income | $24,312 | $19,641 | $4,671 | 23.8 % | Service revenue (6 months) | Service Offering (in thousands, except %) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Period over Period ($) | Change (%) | | :---------------------------------------- | :----------------------------- | :----------------------------- | :--------------------- | :--------- | | Digital Customer Experience | $291,843 | $308,052 | $(16,209) | (5.3)% | | Trust and Safety | $114,338 | $85,807 | $28,531 | 33.3 % | | AI Services | $59,217 | $70,616 | $(11,399) | (16.1)% | | Service revenue | $465,398 | $464,475 | $923 | 0.2 % | | Geographical Location (in thousands, except %) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Period over Period ($) | Change (%) | | :--------------------------------------------- | :----------------------------- | :----------------------------- | :--------------------- | :--------- | | Philippines | $269,521 | $254,120 | $15,401 | 6.1 % | | United States | $50,857 | $83,897 | $(33,040) | (39.4)% | | India | $58,377 | $57,238 | $1,139 | 2.0 % | | Rest of World | $86,643 | $69,220 | $17,423 | 25.2 % | | Service revenue | $465,398 | $464,475 | $923 | 0.2 % | - Trust and Safety revenue increased by 33.3%, driven by existing clients in Social Media, FinTech, and On Demand Travel + Transportation, while Digital Customer Experience and AI Services declined[75] - Revenue growth was strong in the Philippines and Rest of World (Latin America and Asia), but substantially offset by a 39.4% decrease in the United States[76] Operating expenses (6 months) - Cost of services increased by $7.971 million (2.9%) due to higher personnel costs and expenses related to site expansion and headcount for growth[74][77] - Selling, general, and administrative expense decreased by $13.289 million (10.9%) primarily due to reduced earn-out and stock-based compensation, partially offset by litigation and higher software costs[74][78] - Depreciation increased by $1.027 million (5.2%) as a result of capital expenditures for leasehold improvements related to site expansions[74][79] Other income, net (6 months) - Other income, net, remained relatively flat, with changes driven by foreign currency exchange risk and economic hedges, offset by higher interest income[74][81] Financing expenses (6 months) - Financing expenses increased by $0.599 million (5.7%) due to changes in the SOFR rate affecting debt interest[74][82] Provision for income taxes (6 months) - The effective tax rate for the six months ended June 30, 2024, was 36.3%, down from 40.5% in the prior year[83] Revenue by Top Clients | | Three months ended June 30, 2024 | June 30, 2023 | Six months ended June 30, 2024 | June 30, 2023 | | :-------------- | :------------------------------- | :------------ | :----------------------------- | :------------ | | Top ten clients | 55 % | 55 % | 55 % | 56 % | | Top twenty clients | 68 % | 69 % | 68 % | 70 % | - The top ten clients consistently accounted for 55% of total service revenue for both the three and six months ended June 30, 2024 and 2023[84] - The largest client contributed 20% of service revenue for the six months ended June 30, 2024 and 2023[84] - TaskUs aims to achieve meaningful client and revenue diversification by acquiring new clients and growing with existing ones in high-growth industry verticals[84] Foreign Currency - As a global company, TaskUs is exposed to foreign currency exchange rate movements, particularly impacting expenses incurred in Philippine pesos and Indian rupees[85] - Fluctuations in foreign currencies affect reported assets, liabilities, revenue, operating expenses, and cash flows of foreign subsidiaries when translated into U.S. dollars[85] Non-GAAP Financial Measures - TaskUs uses Adjusted Net Income, Adjusted EPS, EBITDA, Adjusted EBITDA, Free Cash Flow, and Conversion of Adjusted EBITDA as key non-GAAP measures to assess business performance[86] - These non-GAAP measures are used to supplement GAAP results, providing a more complete understanding of factors and trends affecting the business by excluding certain non-cash and unusual items[86] Adjusted Net Income | (in thousands, except %) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Period over Period ($) | Change (%) | | :----------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :--------- | | Net income | $12,598 | $10,132 | $2,466 | 24.3 % | | Amortization of intangible assets | $4,982 | $5,125 | $(143) | (2.8)% | | Earn-out consideration | $0 | $1,268 | $(1,268) | (100.0)% | | Foreign currency gains | $(1,312) | $(196) | $(1,116) | NM | | Litigation costs | $2,318 | $0 | $2,318 | 100.0 % | | Stock-based compensation expense | $11,128 | $15,107 | $(3,979) | (26.3)% | | Tax impacts of adjustments | $(1,173) | $(31) | $(1,142) | NM | | Adjusted Net Income | $28,635 | $31,822 | $(3,187) | (10.0)% | | (in thousands, except %) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Period over Period ($) | Change (%) | | :----------------------------- | :----------------------------- | :----------------------------- | :--------------------- | :--------- | | Net income | $24,312 | $19,641 | $4,671 | 23.8 % | | Amortization of intangible assets | $9,967 | $10,249 | $(282) | (2.8)% | | Earn-out consideration | $0 | $7,916 | $(7,916) | (100.0)% | | Foreign currency gains | $(298) | $(2,178) | $1,880 | (86.3)% | | Litigation costs | $2,618 | $0 | $2,618 | 100.0 % | | Stock-based compensation expense | $21,692 | $28,779 | $(7,087) | (24.6)% | | Tax impacts of adjustments | $(2,788) | $(2,019) | $(769) | 38.1 % | | Adjusted Net Income | $55,907 | $64,333 | $(8,426) | (13.1)% | - Adjusted Net Income decreased by 10.0% for the three months and 13.1% for the six months ended June 30, 2024, primarily due to lower earn-out consideration and stock-based compensation expense in the prior year, and increased litigation costs in the current year[88][90] Adjusted EPS | | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP diluted EPS | $0.14 | $0.10 | $0.27 | $0.20 | | Per share adjustments to net income | $0.17 | $0.22 | $0.34 | $0.45 | | Adjusted EPS | $0.31 | $0.32 | $0.61 | $0.65 | - Adjusted EPS decreased slightly to $0.31 for the three months and $0.61 for the six months ended June 30, 2024, compared to $0.32 and $0.65 respectively in the prior year[92] EBITDA and Adjusted EBITDA | (in thousands, except %) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Period over Period ($) | Change (%) | | :----------------------------- | :------------------------------- | :------------------------------- | :--------------------- | :--------- | | Net income | $12,598 | $10,132 | $2,466 | 24.3 % | | Provision for income taxes | $7,337 | $7,391 | $(54) | (0.7)% | | Financing expenses | $5,490 | $5,330 | $160 | 3.0 % | | Depreciation | $9,978 | $10,079 | $(101) | (1.0)% | | Amortization of intangible assets | $4,982 | $5,125 | $(143) | (2.8)% | | EBITDA | $40,385 | $38,057 | $2,328 | 6.1 % | | Earn-out consideration | $0 | $1,268 | $(1,268) | (100.0)% | | Foreign currency gains | $(1,312) | $(196) | $(1,116) | NM | | Litigation costs | $2,318 | $0 | $2,318 | 100.0 % | | Stock-based compensation expense | $11,128 | $15,107 | $(3,979) | (26.3)% | | Interest income | $(1,361) | $(357) | $(1,004) | 281.2 % | | Adjusted EBITDA | $51,252 | $54,296 | $(3,044) | (5.6)% | | (in thousands, except %) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Period over Period ($) | Change (%) | | :----------------------------- | :----------------------------- | :----------------------------- | :--------------------- | :--------- | | Net income | $24,312 | $19,641 | $4,671 | 23.8 % | | Provision for income taxes | $13,845 | $13,360 | $485 | 3.6 % | | Financing expenses | $11,028 | $10,429 | $599 | 5.7 % | | Depreciation | $20,767 | $19,740 | $1,027 | 5.2 % | | Amortization of intangible assets | $9,967 | $10,249 | $(282) | (2.8)% | | EBITDA | $79,919 | $73,419 | $6,500 | 8.9 % | | Earn-out consideration | $0 | $7,916 | $(7,916) | (100.0)% | | Foreign currency gains | $(298) | $(2,178) | $1,880 | (86.3)% | | Litigation costs | $2,618 | $0 | $2,618 | 100.0 % | | Stock-based compensation expense | $21,692 | $28,779 | $(7,087) | (24.6)% | | Interest income | $(2,478) | $(552) | $(1,926) | 348.9 % | | Adjusted EBITDA | $101,857 | $109,329 | $(7,472) | (6.8)% | - EBITDA increased by 6.1% for the three months and 8.9% for the six months ended June 30, 2024. However, Adjusted EBITDA decreased by 5.6% and 6.8% respectively, primarily due to the absence of earn-out consideration and lower stock-based compensation in the prior year, and higher litigation costs and interest income in the current year[95][97] Free Cash Flow | (in thousands) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $81,211 | $82,213 | | Purchase of property and equipment | $(8,088) | $(15,045) | | Free Cash Flow | $73,123 | $67,168 | | Conversion of Adjusted EBITDA | 71.8 % | 61.4 % | - Free Cash Flow increased by $5.955 million (8.9%) to $73.1 million for the six months ended June 30, 2024, driven by lower capital expenditures[98] - Conversion of Adjusted EBITDA improved to 71.8% for the six months ended June 30, 2024, from 61.4% in the prior year[98] Liquidity and Capital Resources - As of June 30, 2024, TaskUs had $171.1 million in cash and cash equivalents and $190.0 million in borrowing availability under its 2022 Revolving Credit Facility[100] - Total indebtedness, net of debt financing fees, was $261.0 million as of June 30, 2024, with an interest rate of 7.694% per annum on the Term Loan Facility[100] - The company repurchased 1,310,167 shares of Class A common stock for $15.0 million during the six months ended June 30, 2024, with $42.2 million remaining available under the share repurchase program[100] - Management believes existing liquidity sources are sufficient to meet working capital and capital expenditure needs for at least the next 12 months[100] Cash Flows | (in thousands) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $81,211 | $82,213 | | Net cash used in investing activities | $(8,088) | $(16,045) | | Net cash used in financing activities | $(18,614) | $(45,835) | - Net cash from operating activities was $81.2 million, slightly down from $82.2 million in the prior year, reflecting net income and non-cash adjustments[102] - Net cash used in investing activities significantly decreased to $8.1 million from $16.0 million, primarily due to reduced property and equipment purchases[103] - Net cash used in financing activities decreased to $18.6 million from $45.8 million, mainly due to lower share repurchase payments[104] Critical Accounting Estimates - There have been no material changes to the critical accounting estimates reported in the company's Annual Report[105] Recent Accounting Pronouncements - For additional information on recent accounting pronouncements, refer to Note 2, 'Summary of Significant Accounting Policies' in the Notes to Unaudited Condensed Consolidated Financial Statements[106] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details TaskUs's exposure to financial risks, including foreign currency, interest rate, and credit risk Foreign Currency Risk - TaskUs faces foreign currency exchange rate risk due to a substantial portion of expenses being incurred in Philippine pesos and Indian rupees, while most revenues are in U.S. dollars[108] - A 10% depreciation of the Philippine peso against the U.S. dollar would have decreased expenses by approximately $15.5 million for the six months ended June 30, 2024[108] - The company uses foreign currency forward contracts to mitigate exchange rate risks, which are not designated as hedging instruments, with gains/losses recognized in other income, net[108] Interest Rate Risk - Interest rate risk is influenced by changes in rates on outstanding borrowings, primarily under the 2022 Credit Facilities, which accrue interest at SOFR plus 2.25%[109] - As of June 30, 2024, a hypothetical 10% increase or decrease in SOFR would impact interest expense by approximately $1.4 million over the next 12 months[109] Credit Risk - As of June 30, 2024, accounts receivable, net, totaled $175.3 million, with one client accounting for approximately 15% ($27.2 million) of gross accounts receivable[110] Item 4. Controls and Procedures This section addresses the effectiveness of TaskUs's disclosure controls and internal control over financial reporting Disclosure Controls and Procedures - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2024[111] - It was concluded that the design and operation of disclosure controls and procedures were effective at the reasonable assurance level[111] Changes in Internal Control over Financial Reporting - There have been no material changes in internal control over financial reporting during the most recent fiscal quarter[112] Part II. Other Information Item 1. Legal Proceedings This section incorporates legal proceedings information from Note 10, 'Commitments and Contingencies,' in the financial statements - Information regarding legal proceedings is incorporated by reference from Note 10, 'Commitments and Contingencies,' in the Notes to Unaudited Condensed Consolidated Financial Statements[114] Item 1A. Risk Factors This section states no material changes to risk factors from the Annual Report on Form 10-K, advising consideration of prior disclosures - There have been no material changes to the risk factors included in the Annual Report on Form 10-K[115] - Readers should carefully consider the risk factors outlined in the Annual Report and other information in this Quarterly Report[115] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities under its publicly announced program during Q2 2024 Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------ | | April 1, 2024 through April 30, 2024 | 871,173 | 11.29 | 871,173 | 44,024 | | May 1, 2024 through May 31, 2024 | 153,383 | 11.80 | 153,383 | 42,214 | | June 1, 2024 through June 30, 2024 | — | — | — | 42,214 | | Total | 1,024,556 | 11.36 | 1,024,556 | | - During the three months ended June 30, 2024, TaskUs repurchased 1,024,556 shares of Class A common stock at an average price of $11.36 per share[116] - As of June 30, 2024, approximately $42.2 million remaining available under the share repurchase program, which terminates on December 31, 2024[116] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[117] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[117] Item 5. Other Information This section includes disclosures on Section 13(r) and Rule 10b5-1 trading arrangements by company officers Section 13(r) Disclosure - Disclosures regarding activities at Mundys S.p.A., a potential affiliate of Blackstone and TaskUs, are incorporated by reference from Exhibit 99.1[119] Rule 10b5-1 Trading Arrangements - Stephan Daoust, COO, adopted a Rule 10b5-1 trading plan on May 17, 2024, for the potential sale of up to 251,161 shares of Class A Common Stock between August 16, 2024, and December 15, 2024[119] - Jarrod Johnson, CCO, adopted a Rule 10b5-1 trading plan on May 16, 2024, for the potential sale of up to 146,865 shares of Class A Common Stock between August 15, 2024, and March 31, 2025[119] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, incentive plans, and certifications - The exhibits include the company's Certificate of Incorporation, Bylaws, Performance Stock Unit Grant Notice and Agreement, certifications from principal officers, Section 13(r) Disclosure, and XBRL instance documents[121] - Agreements and documents filed as exhibits are intended to provide factual information only for their specific terms, not for other contexts[122]