TaskUs(US:TASK)2023-05-09 20:43PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, detailing balance sheets, operations, and cash flows, with accompanying notes Condensed Consolidated Balance Sheet (Unaudited) | (in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $368,222 | $341,425 | | Total assets | $925,444 | $902,015 | | Total current liabilities | $114,321 | $109,884 | | Total liabilities | $449,689 | $446,402 | | Total shareholders' equity | $475,755 | $455,613 | Condensed Consolidated Statement of Operations (Unaudited) | (in thousands, except per share data) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Service revenue | $235,306 | $239,680 | | Operating income | $18,400 | $20,554 | | Net income | $9,509 | $11,586 | | Diluted EPS | $0.09 | $0.11 | Condensed Consolidated Statement of Cash Flows (Unaudited) | (in thousands) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $43,683 | $36,890 | | Net cash used in investing activities | ($6,244) | ($17,770) | | Net cash used in financing activities | ($7,097) | ($4,094) | | Cash and cash equivalents at end of period | $167,011 | $77,074 | - On May 8, 2023, the Board of Directors authorized a $100.0 million increase to the Company's share repurchase program, bringing the total authorization to $200.0 million As of May 5, 2023, approximately $155.1 million remained available for repurchases81 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting a decrease in service revenue due to shifts in service offerings and geographic delivery, alongside an increase in Adjusted EBITDA Service Revenue by Service Offering (Q1 2023 vs Q1 2022) | (in thousands) | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Digital Customer Experience | $157,136 | $159,731 | (1.6)% | | Trust and Safety | $40,598 | $45,852 | (11.5)% | | AI Services | $37,572 | $34,097 | 10.2% | | Total Service Revenue | $235,306 | $239,680 | (1.8)% | Service Revenue by Delivery Geography (Q1 2023 vs Q1 2022) | (in thousands) | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Philippines | $126,859 | $120,080 | 5.6% | | United States | $46,662 | $79,131 | (41.0)% | | India | $28,243 | $23,358 | 20.9% | | Rest of World | $33,542 | $17,111 | 96.0% | - Macroeconomic factors, including inflation and potential recession, have led clients to focus on cost reduction, resulting in a shift of work from onshore (U.S.) to offshore delivery locations and a deceleration in revenue growth91 Non-GAAP Financial Highlights (Q1 2023 vs Q1 2022) | (in thousands) | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Adjusted Net Income | $32,511 | $34,965 | (7.0)% | | Adjusted EBITDA | $55,228 | $54,131 | 2.0% | | Free Cash Flow | $38,439 | $19,120 | 101.0% | - Client concentration decreased, with the top ten clients accounting for 58% of service revenue in Q1 2023, down from 61% in Q1 2022 The largest client represented 20% of revenue, down from 24%115116 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, interest rate changes, and concentrated credit risk, utilizing forward contracts to mitigate currency exposure - A hypothetical 10% appreciation/depreciation in the Philippine peso against the U.S. dollar would have impacted expenses by approximately +$9.6 million or -$7.8 million, respectively, in Q1 2023149 - A hypothetical 10% increase or decrease in the SOFR interest rate would cause an approximate $1.3 million change in annual interest expense based on the debt balance as of March 31, 2023155 - The company utilizes foreign currency forward contracts to mitigate exchange rate risk, which are not designated as hedging instruments, resulting in unrealized gains of $6.3 million in Q1 2023151153 - As of March 31, 2023, two clients accounted for approximately 27% of the company's gross accounts receivable, indicating significant credit risk concentration156 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective158 - There were no material changes to the company's internal control over financial reporting during the most recent fiscal quarter159 PART II. OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings, including purported class action lawsuits, which it believes are without merit and intends to vigorously defend - The company is defending a purported class action lawsuit (Lozada v. TaskUs, Inc. et al.) alleging false and misleading information in its IPO registration statement and subsequent earnings calls, with a motion to dismiss pending68 - The company is also named in three other lawsuits with similar factual issues, including one related to a 2020 data breach impacting Ledger SAS, which it believes are without merit and is defending vigorously697071 Risk Factors This section confirms no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors included in the Annual Report on Form 10-K163 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, TaskUs repurchased 389,801 shares of Class A common stock for approximately $6.4 million, with $62.7 million remaining available under the program Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2023 | 106,148 | $17.32 | | February 2023 | 48,300 | $19.01 | | March 2023 | 235,353 | $15.37 | | Total | 389,801 | | - The share repurchase program, authorized on September 7, 2022, allows for up to $100.0 million in repurchases of Class A common stock through December 31, 2024164 Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None166 Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable167 Other Information This section includes a disclosure required by Section 13(r) of the Exchange Act, referencing Exhibit 99.1 regarding activities of a potential affiliate, Mundys S.p.A - The report includes a disclosure pursuant to Section 13(r) of the Exchange Act concerning activities of a potential affiliate, Mundys S.p.A. (formerly Atlantia S.p.A.), related to Iran168 Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, executive certifications, and the Section 13(r) disclosure - The exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and the Section 13(r) Disclosure (99.1)169