TaskUs(US:TASK)2023-03-06 22:20Part I Business TaskUs provides outsourced digital services, including Digital CX, Trust and Safety, and AI, with a growth strategy focused on client and geographic expansion, primarily operating in the Philippines - TaskUs provides outsourced digital services with a focus on three key areas: Digital Customer Experience (Digital CX), Trust and Safety, and Artificial Intelligence (AI) Services30 FY2022 Revenue by Service Offering | Service Offering | 2022 Revenue % | 2021 Revenue % | | :--- | :--- | :--- | | Digital Customer Experience | 66% | 64% | | Trust and Safety | 19% | 22% | | Artificial Intelligence Services | 15% | 14% | - The company's growth strategy includes expanding with current clients, winning new clients (40 new wins in 2022 with a 43% win rate), expanding service offerings, geographic expansion, and M&A333435 - As of December 31, 2022, TaskUs had approximately 49,500 employees across 27 sites in 13 countries, with the Philippines being the largest offshore market, accounting for 64% of the total headcount3269 - Client concentration is significant, with the top 10 clients accounting for 58% of revenue in FY2022. The largest client, Meta, accounted for 22% of revenue81 Risk Factors The company faces significant risks including high client concentration, challenges in Trust and Safety services, international operational dependencies, cybersecurity threats, and concentrated voting control - The business is highly dependent on key clients. The top five clients accounted for 44% of revenue, and the top client (Meta) accounted for 22% of revenue for the fiscal year ended December 31, 2022105 - The Trust and Safety services, a large portion of the business, expose the company to risks related to the mental health of employees moderating prohibited content, which could lead to liability, negative publicity, and difficulty in recruitment120121 - A significant portion of operations are international, particularly in the Philippines (53% of revenue) and India (11% of revenue), making the company vulnerable to political instability, natural disasters, and labor cost increases in these regions131 - The dual-class stock structure concentrates 96.3% of the combined voting power with the Sponsor and Co-Founders as of December 31, 2022, limiting the influence of Class A stockholders259 - The company is subject to foreign currency risk as a majority of revenues are in U.S. Dollars while costs are primarily in local currencies like the Philippine Peso and Indian Rupee146 - The company faces risks from potential data security breaches, which could result in liability, reputational harm, and loss of client confidence115116 Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments284 Properties As of December 31, 2022, TaskUs leases approximately 1.5 million square feet of office space globally, including its corporate headquarters in New Braunfels, Texas - The company leases approximately 1.5 million square feet of office space worldwide as of December 31, 2022285 - All properties are leased, and the company does not own any real property285 Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, with specific details referenced in Note 10 of the Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 10, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements286 Mine Safety Disclosures This item is not applicable to the company - Not applicable287 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TaskUs's Class A common stock trades on Nasdaq under the symbol "TASK", with no current plans for dividends, and a $100 million share repurchase program authorized in September 2022, leading to 911,020 shares repurchased in Q4 2022 - Class A Common Stock is listed on Nasdaq under the symbol "TASK"; Class B common stock is not publicly traded289 - The company has no current plans to pay dividends on its common stock291 Q4 2022 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2022 | 665,397 | $19.57 | | Nov 2022 | 245,623 | $17.27 | | Dec 2022 | — | — | | Total | 911,020 | | - A share repurchase program authorizing up to $100.0 million was approved on September 7, 2022, and is effective until December 31, 2024292 Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2022, TaskUs reported $960.5 million in service revenue, a 26.3% increase, with net income turning around to $40.4 million from a prior year loss, driven by service line growth and geographic expansion, and supported by debt refinancing FY2022 vs FY2021 Financial Highlights | Metric (in millions) | FY2022 | FY2021 | % Change | | :--- | :--- | :--- | :--- | | Service Revenue | $960.5 | $760.7 | 26.3% | | Net Income (Loss) | $40.4 | $(58.7) | NM | | Adjusted Net Income | $142.8 | $129.4 | 10.4% | | Adjusted EBITDA | $223.2 | $187.9 | 18.8% | - In April 2022, TaskUs acquired heloo, a Croatia-based Digital CX provider, expanding its European presence and language capabilities308 - Macroeconomic pressures led some clients to shift work from onshore (U.S.) to offshore locations to reduce costs, contributing to a deceleration in the revenue growth rate309 FY2022 Revenue by Geography | Geography | 2022 Revenue (in thousands) | % of Total | | :--- | :--- | :--- | | Philippines | $504,361 | 52.5% | | United States | $252,457 | 26.3% | | India | $102,561 | 10.7% | | Rest of World | $101,110 | 10.5% | | Total | $960,489 | 100% | - The company refinanced its debt in September 2022, entering into a new credit agreement with a $270.0 million term loan and a $190.0 million revolving credit facility, both maturing in 2027387 - Net cash provided by operating activities was $147.1 million in 2022, a significant improvement from $32.7 million used in operating activities in 2021, which was impacted by one-time IPO-related payments394 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include foreign currency exchange rate risk, interest rate risk from variable-rate debt, and significant credit risk concentration with two clients accounting for 30% of accounts receivable - The company is exposed to foreign currency risk, as most revenues are in USD, but a large portion of expenses are in Philippine pesos and Indian rupees; a 10% appreciation/depreciation in the Philippine peso would have impacted 2022 expenses by approximately $30.0-$36.6 million, excluding hedges418419 - To mitigate currency risk, the company uses foreign currency forward contracts, which are not designated as hedges; in 2022, realized losses from these contracts were $13.3 million421422 - Interest rate risk exists due to variable-rate borrowings under the 2022 Credit Facilities; a hypothetical 10% increase in the SOFR rate would increase annual interest expense by $1.2 million425 - Significant credit risk concentration exists, with two clients representing 30% of the $178.7 million in net accounts receivable as of December 31, 2022426 Financial Statements and Supplementary Data This section presents TaskUs's audited consolidated financial statements for fiscal years 2020-2022, along with KPMG LLP's report and detailed notes on accounting policies, acquisitions, revenue, debt, leases, stock-based compensation, and legal contingencies Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | Account (in thousands) | Amount | | :--- | :--- | | Total Assets | $902,015 | | Cash and cash equivalents | $133,992 | | Goodwill | $217,382 | | Total Liabilities | $446,402 | | Long-term debt | $264,225 | | Total Shareholders' Equity | $455,613 | Consolidated Statement of Operations (Year Ended Dec 31, 2022) | Account (in thousands) | Amount | | :--- | :--- | | Service Revenue | $960,489 | | Total Operating Expenses | $876,592 | | Operating Income | $83,897 | | Net Income | $40,422 | | Diluted EPS | $0.39 | - The report of the independent registered public accounting firm, KPMG LLP, provides an unqualified opinion on the consolidated financial statements431 - Note 3 details the April 15, 2022 acquisition of heloo for a total consideration of $35.4 million, which added $21.9 million in goodwill and $11.2 million in intangible assets503505507 - Note 10 discloses a class action lawsuit filed in February 2022 related to the company's IPO, which the company believes is without merit and intends to defend vigorously537 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None reported582 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022584 - Management concluded that internal control over financial reporting was effective as of December 31, 2022585 - No material changes were made to the internal control over financial reporting during the most recent fiscal quarter587 Other Information This section includes a disclosure pursuant to Section 13(r) of the Exchange Act, relating to activities in Iran by an affiliate of Blackstone, provided in Exhibit 99.1 - Incorporates by reference Exhibit 99.1, which contains a disclosure under Section 13(r) of the Exchange Act regarding activities of an affiliate589 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company reports that this item is not applicable - None reported590 Part III Directors, Executive Officers and Corporate Governance Information concerning directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement593 Executive Compensation Information concerning executive compensation is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement594 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement595 Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement596 Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from the company's 2023 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement597 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report, with consolidated financial statements located in Part II, Item 8 - The company's consolidated financial statements are listed under Part II, Item 8599 - A comprehensive list of exhibits filed with the report is provided, including key agreements and certifications601602 Form 10-K Summary The company indicates that there is no Form 10-K summary - None609