TaskUs(TASK) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Financial Statements The company reported a net income of $19.3 million for H1 2022, a significant turnaround, with total assets growing to $883.5 million and strong operating cash flow of $73.0 million Unaudited Condensed Consolidated Balance Sheets Total assets increased to $883.5 million from $750.0 million, driven by cash and goodwill, while total liabilities rose to $449.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $104,734 | $63,584 | | Total current assets | $317,054 | $246,306 | | Goodwill | $216,567 | $195,735 | | Total assets | $883,480 | $749,998 | | Liabilities & Equity | | | | Total current liabilities | $192,047 | $135,941 | | Total long-term debt | $179,643 | $187,240 | | Total liabilities | $448,994 | $370,864 | | Total shareholders' equity | $434,486 | $379,134 | Unaudited Condensed Consolidated Statements of Operations Q2 2022 service revenue grew 36.9% to $246.5 million, resulting in a net income of $7.7 million compared to a prior-year net loss due to one-time IPO costs Statement of Operations Summary (in thousands, except per share data) | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Service revenue | $246,459 | $180,022 | $486,139 | $332,893 | | Operating income (loss) | $19,373 | $(113,028) | $39,927 | $(90,627) | | Net income (loss) | $7,729 | $(105,943) | $19,315 | $(89,436) | | Diluted EPS | $0.07 | $(1.14) | $0.19 | $(0.97) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $73.0 million for H1 2022, with investing activities using $52.6 million and financing providing $25.4 million Cash Flow Summary (in thousands) | Activity | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $72,966 | $45,677 | | Net cash used in investing activities | $(52,592) | $(23,453) | | Net cash provided by financing activities | $25,393 | $67,733 | | Increase in cash and cash equivalents | $45,767 | $89,957 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the heloo acquisition for $35.4 million, strong Digital Customer Experience growth, 22% client concentration, and a class action lawsuit - On April 15, 2022, the company acquired heloo, a Croatian Digital Customer Experience provider, for a total consideration of $35.4 million. This resulted in the recognition of $21.6 million in goodwill and $11.2 million in intangible assets[52][53][55] Revenue by Service Offering (in thousands) | Service Offering | Three months ended June 30, 2022 | Three months ended June 30, 2021 | | :--- | :--- | :--- | | Digital Customer Experience | $167,420 | $113,566 | | Content Security | $46,331 | $42,995 | | AI Services | $32,708 | $23,461 | | Total Service Revenue | $246,459 | $180,022 | - Client concentration remains significant, with the largest client (Client A) accounting for 22% of service revenue in Q2 2022 and 18% of accounts receivable as of June 30, 2022[41] - A class action lawsuit was filed against the company and its officers in February 2022, alleging materially false and misleading information in its IPO registration statement and subsequent earnings calls. The company believes the lawsuit is without merit[78][79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 36.9% Q2 2022 revenue growth to client expansion and the heloo acquisition, with Adjusted EBITDA growing 26.2% to $55.7 million and strong liquidity Results of Operations Q2 2022 service revenue increased 36.9% to $246.5 million, driven by Digital Customer Experience, while operating expenses decreased due to the absence of prior-year IPO bonuses Q2 2022 vs Q2 2021 Results (in thousands) | Metric | Q2 2022 | Q2 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Service revenue | $246,459 | $180,022 | $66,437 | 36.9% | | Cost of services | $143,538 | $103,798 | $39,740 | 38.3% | | SG&A expense | $68,919 | $177,810 | $(108,891) | (61.2)% | | Operating income (loss) | $19,373 | $(113,028) | $132,401 | (117.1)% | - The decrease in SG&A expense in Q2 2022 was primarily driven by the absence of $133.7 million in one-time phantom share bonuses and non-recurring teammate bonuses associated with the IPO in Q2 2021[118][101] Revenue by Top Clients (% of Total Service Revenue) | Client Group | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Top ten clients | 58% | 63% | | Top twenty clients | 73% | 77% | Non-GAAP Financial Measures Non-GAAP measures show Q2 2022 Adjusted EBITDA increased 26.2% to $55.7 million and Adjusted Net Income grew 23.5% to $38.7 million, excluding specific non-recurring items Reconciliation to Adjusted EBITDA (in thousands) | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | | :--- | :--- | :--- | | Net income (loss) | $7,729 | $(105,943) | | Adjustments (Taxes, Interest, D&A, etc.) | $18,891 | $(94,015) | | EBITDA | $26,620 | $(99,928) | | Further Adjustments (Stock Comp, IPO Bonus, etc.) | $29,054 | $144,043 | | Adjusted EBITDA | $55,674 | $44,115 | Reconciliation to Adjusted Net Income (in thousands) | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | | :--- | :--- | :--- | | Net income (loss) | $7,729 | $(105,943) | | Adjustments (Amortization, Stock Comp, IPO Bonus, etc.) | $31,013 | $137,315 | | Adjusted Net Income | $38,742 | $31,372 | - For the six months ended June 30, 2022, Free Cash Flow was $43.6 million, representing a 39.7% conversion of Adjusted EBITDA[174] Liquidity and Capital Resources As of June 30, 2022, liquidity included $104.7 million in cash and $17.6 million available credit, with total net indebtedness at $265.9 million, deemed sufficient for future needs - As of June 30, 2022, the company had $104.7 million in cash and cash equivalents[175] - Total indebtedness, net of financing fees, was $265.9 million as of June 30, 2022, including $72.4 million outstanding on the Revolving Credit Facility[180] Six-Month Cash Flow Summary (in thousands) | Activity | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $72,966 | $45,677 | | Net cash used in investing activities | $(52,592) | $(23,453) | | Net cash provided by financing activities | $25,393 | $67,733 | Quantitative and Qualitative Disclosures About Market Risk The company faces foreign currency, interest rate, and credit risks, with significant exposure to PHP/USD fluctuations and 30% of accounts receivable concentrated in two clients - A substantial portion of expenses are incurred in Philippine pesos (PHP). Based on H1 2022 operations, a 10% appreciation/depreciation in the PHP against the USD would have changed expenses by approximately $18.0 million or $14.7 million, respectively[193][194] - The company uses foreign currency forward contracts to mitigate exchange rate risk, resulting in realized losses of $3.5 million and unrealized losses of $7.5 million for H1 2022[195][196][197] - As of June 30, 2022, two clients accounted for approximately 30% of the company's gross accounts receivable[200] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The company's CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[202] - No changes occurred in the company's internal control over financial reporting during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, internal controls[203] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, and other required disclosures Legal Proceedings The company is subject to a class action lawsuit filed in February 2022 alleging federal securities law violations related to its IPO, which it intends to vigorously defend - A class action lawsuit, Lozada v. TaskUs, Inc. et al., was filed on February 23, 2022, alleging materially false and misleading information in connection with the company's IPO. The company intends to defend the lawsuit vigorously[78][79][206] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the Annual Report[207] Unregistered Sales of Equity Securities and Use of Proceeds In April 2022, the company issued 200,103 shares of Class A common stock as part of the heloo acquisition, exempt from registration as a private offering - In connection with the acquisition of heloo, the company issued 200,103 shares of Class A common stock in a private offering exempt from registration[208] Other Information This section indicates no other information requiring disclosure - None[211] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, stock plan agreements, and officer certifications