TaskUs(TASK) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements for the period ended September 30, 2021, reflect significant revenue growth but a net loss for the nine-month period, primarily due to substantial IPO-related expenses and negative operating cash flow Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $61,330 | $107,728 | | Accounts receivable, net | $157,605 | $87,782 | | Total current assets | $233,241 | $211,304 | | Total assets | $731,532 | $707,506 | | Liabilities & Equity | | | | Total current liabilities | $147,902 | $114,842 | | Long-term debt | $191,039 | $198,768 | | Total liabilities | $388,548 | $372,369 | | Total shareholders' equity | $342,984 | $335,137 | - Cash decreased by $46.4 million from year-end 2020, while Accounts Receivable increased significantly by $69.8 million, reflecting strong revenue growth[20] Unaudited Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Service revenue | $201,053 | $122,425 | $533,946 | $339,254 | | Cost of services | $112,423 | $65,378 | $304,251 | $191,296 | | SG&A expense | $60,342 | $32,190 | $269,650 | $83,630 | | Operating income (loss) | $16,129 | $16,295 | $(74,498) | $32,248 | | Net income (loss) | $11,636 | $11,456 | $(77,800) | $20,979 | - Service revenue grew 64.2% YoY for the third quarter and 57.4% for the nine-month period. A significant increase in Selling, General, and Administrative (SG&A) expense, primarily due to IPO-related costs, led to a net loss of $77.8 million for the nine months ended Sep 30, 2021[22][101][103] Unaudited Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(63,426) | $45,629 | | Net cash used in investing activities | $(38,603) | $(21,886) | | Net cash provided by financing activities | $62,093 | $38,303 | - Net cash used in operating activities was $63.4 million for the first nine months of 2021, a significant shift from the $45.6 million provided in the same period of 2020. This was primarily driven by the net loss which included large one-time cash payments for phantom share bonuses related to the IPO[31][193] - Financing activities provided $62.1 million in cash, mainly from the $120.7 million net proceeds of the IPO, offset by a $50.0 million dividend distribution and debt payments[31][195] Notes to Unaudited Condensed Consolidated Financial Statements - The company's main service offerings are Digital Customer Experience, Content Security, and AI Operations[40] Revenue by Service Offering (in thousands) | Service Offering | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Digital Customer Experience | $125,310 | $76,255 | $338,587 | $212,817 | | Content Security | $45,376 | $33,787 | $124,498 | $91,401 | | AI Operations | $30,367 | $12,383 | $70,861 | $35,036 | - Upon its IPO, the company settled its phantom stock plan, recognizing an expense of $127.5 million, which was recorded in selling, general, and administrative expense for the nine months ended September 30, 2021[68] - In connection with the IPO, the company adopted the 2021 Omnibus Incentive Plan and began recognizing stock-based compensation expense. For the nine months ended Sep 30, 2021, total stock-based compensation expense was $152.5 million, which includes the one-time phantom stock plan settlement[71][75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Q3 2021 revenue growth, but significant one-time IPO costs led to a nine-month GAAP net loss, despite robust non-GAAP performance and sufficient liquidity Quarterly Financial Highlights (in millions) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Service Revenue | $201.1 | $122.4 | 64.2% | | Net Income | $11.6 | $11.5 | 1.6% | | Adjusted Net Income | $32.8 | $22.2 | 47.5% | | Adjusted EBITDA | $48.1 | $30.1 | 59.7% | - The significant increase in Selling, General, and Administrative (SG&A) expense for the nine-month period (222.4% YoY) was primarily driven by one-time IPO-related costs, including $133.7 million for phantom share and teammate bonuses, and $24.5 million in stock-based compensation expense[145] - Client concentration remains high. For the nine months ended September 30, 2021, the top client (Facebook) accounted for 27% of service revenue, and the second-largest client (DoorDash) accounted for 11%[153] Adjusted EBITDA Reconciliation - Q3 (in thousands) | Line Item | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net income | $11,636 | $11,456 | | Adjustments (Taxes, Interest, D&A) | $15,422 | $12,618 | | EBITDA | $27,058 | $24,074 | | Stock-based compensation expense | $19,243 | $— | | Other adjustments | $1,799 | $5,843 | | Adjusted EBITDA | $48,100 | $30,117 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including foreign currency exposure from Philippine peso expenses, interest rate risk from variable-rate debt, and significant credit risk due to high client concentration in accounts receivable - Foreign Currency Risk: A substantial portion of expenses are in Philippine pesos. A hypothetical 10% appreciation/depreciation of the peso against the US dollar would have impacted expenses by approximately +$23.9 million or -$19.5 million, respectively, for the nine months ended Sep 30, 2021, excluding hedges[202][203] - Interest Rate Risk: Borrowings under the 2019 Credit Facilities accrue interest at LIBOR plus 2.25%. A hypothetical 10% change in LIBOR would have a minimal impact on annual interest expense (less than $0.1 million)[208] - Credit Risk: As of September 30, 2021, two clients accounted for approximately 39% of gross accounts receivable and 38% of service revenue for the nine-month period, indicating significant client concentration risk[209] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021[211] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[212] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings and is not aware of any pending or threatened litigation that would have a material adverse effect on its business or financial condition - The Company is not currently a party to any material legal proceedings[215] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's prospectus dated October 20, 2021 - There have been no material changes to the risk factors included in the prospectus[216] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None reported[217] Other Information There is no other information to report for the period - None reported[220] Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's amended and restated certificate of incorporation and bylaws, CEO and CFO certifications, and XBRL data files - Exhibits filed include Sarbanes-Oxley Act certifications by the Principal Executive Officer and Principal Financial Officer[223]