Q1 2022 Taskus Inc Earnings Call

Greetings and welcome to Task US Inc. Q1, 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Alan Katz, Vice President Investor Relations. Thank you. Sir you may begin your presentation.

Good afternoon, and thank you for joining us for the task of <unk> first quarter 2022 earnings call.

Joining me on the call today are Bryan <unk>, our co founder and Chief Executive Officer, Jesper Weird, our co founder and President and <unk> <unk>, our Chief Financial Officer.

Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at IR <unk> com.

Also plan to post supplemental information on this website, including an investor presentation, and an excel based metrics file following this call.

Please note that this call is being simultaneously webcast on the IR section of our website.

Before we start I would like to remind you that the following discussion contains forward looking statements within the meaning of the federal securities laws, including but not limited to statements regarding our future financial results and management's expectations and plans for the business.

These statements are another promises nor guarantees that involve risks and uncertainties that may cause actual results to differ materially from those discussed here you should not place undue reliance on any forward looking statements.

Factors that could cause actual results to differ from those forward looking statements can be found in our annual report on Form 10-K, which was filed with the SEC on March nine 2022 despite.

This filing is accessible on the SEC's website and on our website IR <unk> com and may be supplemented with subsequent periodic reports, we file with the SEC.

Any forward looking statements made on today's conference call, including responses to your questions are based on current expectations as of today and task and assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law.

The following discussion contains non-GAAP financial measures for a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric. Please see our earnings press release, which is available in the IR section of our website.

Now I will turn the call over to <unk> co founder and Chief Executive Officer of Task list price.

Thank you Alan good afternoon, everyone and thank you for joining US 2022 is off to a very strong start with both top and bottom line results for Q1 coming in above the high end of our guidance ranges. Our go to market function is executing well.

Starting the year with a strong quarter of signings from both new and existing clients and as Jasper will discuss later in the call. We completed our first acquisition in mid April .

We started our return to office and now have approximately 20% of our teammates working safely from tasked us offices around the globe.

It's been great to see teammates who've been with task is for years reconnect in person and to see the engagement from those teammates who joined us during the pandemic and hadn't yet been able to experience our amazing office culture.

The number of teammates returning to the office will increase over the course of this year.

As always we're prioritizing the health and safety of the team above all else.

In terms of financials Q1 revenue grew organically by 56, 8% year on year to $239 $7 million above the top end of our guidance range of $232 2 million.

Adjusted EBITDA grew 36, 9% year on year to $54 1 million for an adjusted EBITDA margin of 22, 6%.

Above our guidance of 22, 5%.

In terms of people in Q1, we set a hiring record.

<unk> thousand 700, net new teammates joined task us as demand for our services accelerated in the Philippines and in India.

Our results were driven by the continued execution on our five growth levers.

Let's discuss how we're performing each of these levers in a bit more detail.

I'll start with a closer look at our revenue and our recent sales activity.

Growth in Q1 was the result of continued success on the first two growth levers expansion with our current high growth clients and adding new clients across verticals.

Starting with our current clients as a group our top 20 clients in Q1 increased their spend year over year by approximately 50%.

While revenue growth from clients outside of our top 20 customers grew at approximately 80% supporting our continued focus on revenue diversification.

Our Fintech health Tech verticals grew revenues well into the triple digits and our gaming vertical grew revenue well north of 50% all when compared to Q1 of 2021.

And digital customer experience, we grew revenue by 62% compared with Q1 of 2021 as a result of expansion with existing clients and new client signings.

This year, we've seen an increase in demand for our services for more traditional enterprises are turning to task us for help with their digital transformations.

In terms of new business signings inside <unk>, we signed an engagement with one of the largest U S. Airlines in Q1, just as travel demand has begun to hit our post COVID-19 ramp.

We launched a chat button in this client's mobile app and are helping to divert thousands of contacts from the phones to more efficient digital channels.

This is a great example of how our digital expertise can be leveraged by enterprise clients as they look to transform the way they engage with their customers.

We also signed a digital customer experience transformation contract with a large well known e-commerce brand to provide customer experience in order management support.

This client had been working with their prior partner for 20 years, and we successfully displaced them by offering an innovative solution for customer engagement.

As our high growth technology customers increase their focus on efficiency and cost we're seeing increased interest from clients, who want to leverage our automation solutions. We've recently signed contracts to launch our chatbot technology across multiple programs, we're building RPI tools to fully automate workflows and <unk>.

Implementing an automated security supervisor that we called Falcon to prevent fraud.

These offerings were key differentiators and positioning us to win new business. We expect these capabilities to help us differentiate and protect margins, while we drive improved performance and efficiency for our clients all while maintaining our support of frontline teammates.

Content security revenues grew by 26, 9% compared with Q1 of 2021.

Largely driven by volume growth with existing clients outside of our largest clients. We continue to expand the type of work we're doing in the geographies, where we provide content security services.

In the first quarter, we signed some very exciting new content security work <unk>.

New signings included an expanded scope of work with one of the world's largest audio streaming platforms to provide content security services out of Europe .

In a few weeks ago, we signed another expansion of service support them out of Malaysia.

We also signed a significant expansion with one of the world's largest dating apps, providing content moderation out of India.

This was a competitive RFP process, and our policy and wellness expertise truly differentiated.

At this stage I want to provide an update on the transition of work for our largest clients we.

We successfully transitioned hundreds of roles for this client and the transition will be complete this month.

Our relationship with our largest clients remained strong in fact that now awarded US approximately 8000 additional roles in offshore geographies since the transition began and we expect to scale most of those roles in the back half of the year.

As we've noted before we make less revenue per employee offshore and we do onshore.

So we will see the impact of this transition in our Q2 revenues.

As a result of this shift we expect our content security revenues to be roughly flat in Q2 and decline year over year in Q3 and in Q4.

We expect to return constant security to growth in 2023.

Since we transitioned this work offshore we expect our margins to expand in the back half of the year.

Finally, AI services revenues continue to grow in Q1.

Revenue from AI services doubled compared with Q1 of 2021 to $34 $1 million, driven primarily by expansions with new and existing clients in the social media travel and autonomous vehicle spaces.

While we expect AI services revenues to continue to grow this year. They will also be impacted by the shifting geographic mix.

This is a high growth market and we expect to continue to grow this business over the medium term.

In terms of specific Q1 wins in AI services, we signed a significant expansion with our largest client and a new deal with an online brand management company.

We were also awarded our first enterprise project for the task force our gig worker platform.

This platform will allow us to reach a wide breadth of global talent to complete data collection and annotation tasks that are vital for the creation of AI models.

Overall, our signings were once again driven significantly by growth from existing clients, which accounted for approximately 75% of the total new business signings in Q1, we.

We signed expansions across service lines with several of our top 10 clients.

We also continued our growth trajectory in Europe .

<unk> signing with a leading audio streaming platform that I mentioned earlier and an expansion with an online gaming clients.

Proving the power of our global platform, we will now support both of these clients from three different countries.

We also continued our progress on our third growth lever in Q1 expansion of specialized services.

Over the last several quarters you have heard me speak about the progress we've made in the area of financial crime investigations fraud risk and compliance services.

We've officially launched new services is past us risks and response.

We mostly report risk and response revenues within the content Security service line.

Here, we've won deals to support digital identity verification regulatory compliance and anti fraud, primarily with Fintech clients online marketplaces, and crypto currency platforms.

Our fast growing markets, where we can differentiate ourselves from traditional providers through industry knowledge and world class tools that enable our teammates.

In Q1, we expanded a risk and response relationship we have with a large vacation rental company. We're now providing support for know your customer sanctioned and reviews payment risk operation and anti money laundering work for this customer.

On our last call I also discussed our learning experience services, which we call <unk> SaaS, We primarily report this service within our digital customer experience service line today.

This is a great example of us leveraging an internal skill set and commercializing it.

Given market trends, we see a meaningful opportunity to become a strong player in this space.

We work with clients, who tend to have an immediate need for training services given their growth rates and the expansion of both internal and vendor teams and.

In fact, we signed two <unk> deals in Q1 with Fintech clients supporting their onboarding and training processes.

This adds to the <unk> business that we already deliver for one of the world's largest technology companies and a leader in the autonomous vehicle space.

While this offering is still new to the market I am pleased with our initial success.

In terms of our fourth growth lever, adding additional geographies. We're seeing good initial traction in Malaysia, we have signed several deals there and are currently ramping teammates in Malaysia for food delivery customer.

We also added new delivery capabilities in Europe through our acquisition of <unk>, which was led by my partner and co founder Jasper. So I'll pass it off the Jasper to discuss our fifth and final growth lever M&A.

Thanks, Brian and good afternoon, everyone since our IPO, we've ramped up our focus on M&A, we hired industry veteran.

To lead this practice attached to us we see M&A as one of the key strategic levers to drive growth moving forward.

The results of our efforts and achieved an important milestone this past month.

Through the acquisition of Hulu, a European provider of outsourced specialized services.

This is the first acquisition in the history of our company and we will support expansion of our European delivery footprint in a meaningful way, we now have teammates in Croatia, and a handful of other European locations deepening our capabilities to support more than 20 European languages to our global clients.

We're already discussing these additional European language capabilities with our clients and are seeing significant interest.

We're excited about the <unk> acquisition for a number of reasons, but the one that is most important to US is the cultural alignment Tom in them. The two co founders of Halloo have built a company that completely aligns with the vision that Bryce and I had for task is when we first started.

They are hyper focused on their teammates and culture and they bring a portfolio of high growth tech clients with an especially strong presence in e-commerce and gaming.

On our Q4 earnings call <unk> told you that in addition to cultural alignment. We're focused on companies that are accretive to our long term growth rates and margin targets, while halloo isn't going to be a large driver of revenue. This year I am pleased to say that this acquisition is expected to meet both of these criteria we.

<unk> growth rate to exceed our overall growth for the foreseeable future.

The acquisition was paid for through a combination of cash and stock with a significant portion to be paid if the company achieved performance milestones.

It is exciting to see this deal come to fruition after a lot of hard work from the team.

More broadly in the medium term, we see our expanding footprint is a significant driver of value for our clients and growth for <unk>.

In the context of the current economic and inflationary environment expanded geographies and the ability to offer country diversification through multiple offshore and nearshore locations is very attractive to our clients that are looking to drive further efficiencies in their operations.

We continue to see interesting M&A opportunities in the market and we remain disciplined and are pursuing deals that were confident will drive long term value.

Let me turn it back to price to go through our outlook for the rest of the year.

Thanks, Jasper before I turn the call over to biology, I'll spend a few minutes on our guidance for the year and the current hiring environment.

We are maintaining our outlook for 30% revenue growth at the midpoint of our range.

Although we are off to a very strong start for the year. The current environment is volatile.

Since our last call we've seen several of our clients in the high growth technology space quickly shift their focus to reducing cost.

We have also seen the impact of the recent downturn in the equity and crypto markets caused fluctuations in volumes and our fintech vertical.

Across all verticals the operating environment has led to an acceleration in our clients' demand for growth in offshore work and the decrease in demand for onshore work. We've also seen a number of additional clients shift existing work being done onshore or offshore delivery locations.

We are well positioned to deliver for our clients here as our largest and most mature delivery locations are in India and the Philippines.

While these geographic shifts will have some impact on revenue in the near term our clients increased focus on cost actually creates a massive opportunity for us.

Partnering with our clients to help them drive efficiency into their businesses, we're leveraging our global footprint and automation capabilities and seeing an increased appetite for unit based pricing, which will allow us to expand margins over time.

Given the strength of our client relationships and global operations, we are confident in our ability to take share and continue to grow significantly faster than our peers.

These geographic shifts will now lead to some employee layoffs in the U S. Our teams continue to fight to find roles for as many of our domestic teammates as possible and.

And nothing Disappoints me more than having to say goodbye to great colleagues.

This process will maintain our commitment to being a best in class employer and provide robust transition assistance to all exiting teammates in Q2, we will incur severance costs as we support these employees through this transition.

Despite this we continue to see robust growth across the rest of the globe and expect to continue to grow our total number of global teammates in Q2.

The combination of our Q1 revenue and bookings and the opportunities. We see ahead of us with both existing and new clients gives us confidence in our ability to deliver our 2022 guidance range of $980 million to $1 billion in revenue.

Before I finish up I will touch on that very important topic of talent.

Attracting and retaining frontline teammates the leaders remains a key point of focus for every company in this industry. Our team delivered another quarter of very strong performance on this front in Q1.

Approximately 5700, net new task as teammates, which is a company record.

As we began to return teammates to the office in Q1, we saw an uptick in attrition when compared to our annual 2020, and 2021 numbers, but we remained below our 2019 attrition levels.

Finally, our Glassdoor rating remains among the highest in the space at four six stars.

Working at task US continues to be an aspirational career across geographies, enabling our teams to deliver for our clients talent demands.

Q1 was a very strong start to the year, we are well positioned to meet our growth commitments and we look forward to sharing our progress throughout the year with that I'll hand, it over to biology to go through the financials in a bit more detail and provide our outlook for Q2 and the year ahead.

Thanks, Brian and good afternoon, everyone.

I'm going to discuss our financial results for the first quarter of 2022. Please.

Please note that some of these items, our non-GAAP measures and the relevant reconciliations are attached to the press release.

<unk> great.

In the first quarter, we earned total revenues of $239 $7 million in it.

Piece of $56 $8 thing or the prior year.

We saw growth in each of our three specialized service offering.

The first quarter, our digital customer experience offering generated Harlem $59 $7 million year over year growth rate of 62%.

Our content security business grew six 9% versus Q1, 2021, resulting in $45 $9 million.

Our air services business due 102 person yoga, where your core revenues of $34 $1 million.

In Q1, we saw continued diversification of our revenue.

As growth from our largest client.

<unk> by the ongoing expansion of the rest of our client base.

As a result of our revenue concentration with our largest client was approximately 24% down from 25% in Q4 down from 29% in Q1 of 2021.

Our second largest client was 10% of our revenue up slightly from Q4, 2021 as we return to sequential quarterly growth, but down from 11 first thing in Q1 of 2021.

Our top 10 and softer declines.

<unk>, 461% and 75%.

But compared with Q4 of 2021, but down from 64% and 78% as of Q1 2021.

We ended the first quarter regenerated, 50% of our revenues in the Philippines.

33% of our revenues in the United States and 17% of our revenues from the rest of the world, mainly driven by our operations in India, Taiwan and Latin America.

Our concentration of revenue is expected to continue to shift.

Towards the offshore geographies this year.

As a reminder, our cost of service as a percentage of revenue.

Our margin profile is primarily driven by the geography location from vis vis us up provider rather than the specific service lines.

All time, this geography mix shift should drive margin expansion.

Our cost of service as a percentage of revenue was 58, 9% in the fourth quarter compared to 57, 6% in Q1 of the prior year.

The increase was primarily driven by increased absenteeism due to omnicom.

The additional expenses associated with the return to the office and thoughts that we typically incur a submit them back in the office, which was partially offset by the currency benefit.

As Brian discussed given wage inflation.

Increased focus on profitability, we are seeing an acceleration in clients leveraging offshore delivery capabilities.

Net net we think this environment will ultimately be a benefit for us.

Given our deep presence in markets like the Philippines, and India, we are well positioned to win clients and expand volume with existing clients.

Again revenues generated at our offshore locations.

The higher margin profile.

In the first quarter, our SG&A expenses were $64 2 million or 26, 8% of revenues.

This compares to SG&A in Q1 of 2021 of $31 5 million or 26% of revenue.

<unk> compensation expenses in the quarter, we had $18 9 million relating to <unk>, while we did not accrue any stock compensation expenses in Q1 of 2021 when we were not a public company.

Q1, 2020 to also include a full quarter of public company related expenses, which we did not have last year.

In the first quarter of 2022, we earned adjusted EBITDA of $54 1 million.

On the 42, 6% margin.

But the $9 $5 million under 35, 9% margin earned in the first quarter of 2021.

The reduction in our adjusted EBITDA margin was primarily driven by the increase in cost of services that I just explained.

And public company costs.

Adjusted net income for the quarter was $35 million and adjusted earnings per share was 34.

By comparison in the year ago period, we earned adjusted net income of $28 $2 million.

And adjusted EPS.

That'd be one thing.

Now moving onto the balance sheet.

Cash and cash equivalents were $77 1 million as of March 30, plus would be 'twenty two.

Compared with the December 31st predict 'twenty, one balance of $63 6 million.

Cash generated from operations.

$6 9 million for the fourth quarter of 2022, as compared with cash generation of $39 $9 million in Q1 of 2021.

We maintained our DSO at 65 days a gain this quarter.

Our capital expenditure increased in the first quarter of 2022 to $17 8 million.

Compared to $10 1 million in Q1 of 2021.

The increase was primarily driven by facility expansion as part of our return to office plan.

In terms of our financial outlook for the remainder of the year our guidance remains unchanged.

We continue to anticipate full year 2022 total revenue to be in the range of $980 million to $1 billion.

Representing year over year growth of 30% at the midpoint.

We also continue to expect.

On a full year 2022, adjusted EBITDA margin of approximately 23%.

For the second quarter 2022.

<unk> revenues to be in the range of $241 5 million.

$243 5 million.

The year over year growth of approximately 35%.

We expect to on our Q2 2020 to adjusted EBITDA margin of approximately 22, 5%.

I will now hand, it back to Brian before we take your questions.

Thank you <unk> before we get to Q&A I want to share another task of teammates story.

Last month, I was able to visit our team in India for the first time since the pandemic started.

Every time I visit India, I'm reminded how strong our team there is the kind of come in such a short period of time.

This has been the fastest growing region that we ever entered and we now have over 7500 teammates in the country.

One of our India based teammates IU sheet joint task in indoor two five years ago, as our frontline teammates supporting and anti money laundering campaign for one of our Fintech clients. This.

This was our second job out of school and she was the first woman and her family to work for a multinational corporation.

AH you. She was an impressive talent from the start exceeding service levels and always raising our hand to take on additional responsibilities.

Within a year she was promoted from frontline teammate to team leader.

She excelled in a leadership role and we fostered this by giving her additional opportunities and responsibilities. She has continued to support for Fintech client and is now an operations manager with approximately 150 teammates on her team.

<unk> consistently received accolades from her teammates that work on the campaign as well as from a client.

I, usually his journey with task is a great metaphor for what we've seen in India since 2019.

Justice task Us in India has grown at a rapid pace I, usually his career has expanded exponentially.

One of the things I'm. Most proud of is building a company that provides a career path for smart motivated talented teammates who share our vision of doing great work for our clients all while not taking ourselves too seriously.

As we continue to grow developing talent and providing opportunities for advancement will be a key driver of our success.

With that I'll ask the operator to open the lines for our question and answer session.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two huge here and we'll get a question from the queue for participants using speaker equipment and maybe nest.

Sarah Fay to pick up your handset before pressing the star keys, one moment, while we poll for questions.

First question comes from the line of Maggie Nolan with William Blair. You May proceed with your question.

Thank you so much and congrats on yet another quarter on the books.

I wanted to ask a little bit more about the transition with the largest client in.

Youre seeing that delivery transition create some growth headwinds can you talk about your confidence in the long term sustainable growth rate that you've put out and how that investment in the client kind of factors into the equation.

Yes. Thank you so much for the question so.

Our relationship with our largest client is as strong as it's ever been.

At the start of the year, we came together with this client and we built the plan to optimize our global delivery footprint by moving hundreds of roles to the Philippines, and India and in that initial plan, we were cautious about how fast we can hire and train these teammates.

Given the incredible work of our recruitment training and transition teams, we deliver faster than we expected and most of that transition has already been completed and the remaining portion is going to be completed this month. While this is going to impact Q2, and Q3 revenues. It has further strengthened our relationship with our largest client and we're continuing to be.

Awarded business here, we've now won over 1000 additional roles from this client we've significantly expanded the services that we're delivering to them and we've really deepened our partnership and we expect that this client's revenues while flat in 2022 will return to growth in 2023.

I'll just comment from a high level on our our growth outlook, we remain confident in our ability to drive 25% or higher revenue growth over the medium term and this is based on the strength of our five growth levers.

The sales acceleration that we're seeing in the market today continues to give us a deep confidence in that medium term outlook.

That's helpful. Thanks, and then you also had some commentary about clients engaging you.

Or work to help them reduce costs.

And then you also had the commentary about the content security segment, and how you expected that to perform so could you kind of <unk>.

Bring all that together with some updates on how the pipeline looks across kind of your three disclosed service bucket.

Yes, yes, so actually Q1 saw the highest sales numbers that we posted as a public company and our pipeline today is as large as it's ever been.

I'll comment on a couple of things that we're seeing in the pipeline specifically, we've seen an increased interest from fortune 500 companies that are looking for support with their digital transformation in the prepared comments I mentioned the airline deal that we closed in Q1, and we expect to close more deals like that this year. We're also getting great traction with the world's largest.

Companies here as well, we expect to close a number of exciting deals. This year at the time of our IPO. We mentioned that we didn't have significant work with any of the four largest tech companies in the world and by the end of this year, we expect to have.

Deals in place with at least three of them.

Those four companies.

<unk> also seen more high growth technology companies interested in launching operations offshore. Many of these companies are looking to ship in house operations being done in the U S or western Europe to date to our low cost delivery centers.

And finally, we're seeing demand from our existing clients for more complex specialized services here again, we're seeing areas of the business that our clients had previously been hesitant about outsourcing.

We're seeing our clients turn to us.

Increased opportunities in those areas on the call I mentioned, the learning experience services that we're seeing and also the risk and response services that we're seeing there so.

So the pipeline is very strong there is definitely a shift to demand for higher value services. In addition to leveraging our nearshore and offshore footprint to control costs.

Very helpful. Thank you.

Our next question comes from the line of James Faucette with Morgan Stanley You May proceed with your question.

Hey, guys. This is Jonathan on for James Thanks for taking my questions. You had mentioned the signing of the airline client, which marks a departure from your usual high growth new economy and customer base is there any change in strategy or are you going after more traditional PPO and call Center work and how are you thinking about the airline industry is a new vertical.

Yes, Jonathan Thanks for the question. So fortune 500 clients are turning to us to support their digital transformation.

In the past, we mentioned that during the pandemic one of the U S is the largest grocery chains turned to us to launch their delivery App and we successfully scaled operation for that customer both in the U S.

And in one of our nearshore markets. This quarter, we launched a chat button within the mobile App of one of the U S is largest airlines.

And we see demand for similar services from the Fortune 500 down the line to be clear we are not interested in traditional call center work instead, we're selling our digital expertise to be the established enterprises and we expect demand for digital transformation deals like this to really take off this year.

Got it thanks, Bryce and then I guess one for Jasper.

Now that you've announced your first acquisition how are you thinking about future ones, what does the pipeline look like and our evaluations palatable.

In the space.

Yeah. Thanks for the question. So look we're seeing compression and public market valuations flow through to the private market, but I think that actually helps our case to continue to acquire companies. We do see a high level of deal activity in the market. Today is while we believe <unk> has a strong require for the same reasons that our clients.

To work with us, which is a great culture and our industry leading growth.

Our pipeline remains strong and we're going to continue to be really disciplined in our approach to find those rare companies that meet our criteria mainly ones that are accretive to financials in terms of margin and growth and most importantly, culturally accretive as the Hollywood acquisition is so we're looking to continue to expand our footprint.

Specialized digital services and any acquisitions that we can find that accomplish that it's certainly a bonus will continue to evaluate those sorts of opportunities. We'll also look at bolt on technology opportunities that make our teammates and our offerings more productive or deliver higher quality service.

Really helpful. Thanks for the color guys.

Our next question comes from the line of Puneet Jain with Jpmorgan. You May proceed with your question.

Yes, hi, thanks for taking my question.

I appreciate the commentary on how some of the digital time focusing on profitability in the current environment.

Well I agree.

But that could result in higher cost focus.

<unk> moved offshore over the long term.

Is it also driving any sort of delays in this isn't making project awards.

As clients.

Adjust to this new environment.

Thanks for the question, it's actually accelerating.

The awards, what we've seen here is clients, who have large in house operations turning to us for quick transformations of their businesses.

These are operations typically that had been built by the customers themselves in the U S or western Europe , and as a result of the cost focus theyre looking to leverage our near shore or offshore delivery footprint as quickly. So we've got a number of those opportunities that we closed in Q1 and a number in the pipeline for Q2 and beyond.

Got it and then there was some news in Philippines as it relates to delivery of the new law there.

Can you talk about what that means for you what it means for us.

If that if there could be any wage inflation impact as well as excess for this year.

Yeah I'll take the question around impact on attrition and then ill have biology jump in on any tax impact so.

The Philippine Economic Zone Authority has put out guidance on return to office and while we're not breaking out the specific percentages that have returned to office by region. We can say that the Philippines is the geography, where we have the highest percentage of teammates who returned to office and we actually have certain offices in the Philippines.

That are 100% back in office.

So similar to our other regions as I said on my prepared remarks, we've seen a slight uptick in attrition rates as we return teammates to the office in the Philippines, but the Philippines remains one of the lowest regions globally for us when it comes to attrition.

So we're confident in a return to office strategy as it relates to the Philippines, and then I could have followed you comments on any tax impact.

Okay, Thanks, Mike and Craig from a tax perspective, we believe that we will be compliant with exotic lateral length. The return of our office employees to the office.

Just a reminder, not all of our system to be falling into the.

Zone, and we do not expect to see any material impact to us.

<unk> absolutely off the returns go opposite equivalents.

And how about any impact on wage inflation there.

And device people to return to offices maybe.

Yes, thanks for that.

But I followed you want to take that question.

Let me take on base, maybe you can add a little bit more color. So from a from a beat inflation perfect again, I believe that the company that has been.

I did.

Added to the total forecast and one of the things that we spoke about before.

Critical contracts have colloquially weekend.

Kind of been a net benefit and second also we are having a benefit from a currency perspective, which has a positive impact both in the Philippines, and India and we continue to hire really particularly in Q1. So we added a total of 700 net neutral in the quarter.

Got you. Thank you.

Our next question comes from the line of Jason Kupferberg with Bank of America. You May proceed with your question.

Hey, guys. This is Kathy on for Jason Firstly, I just wanted to ask two clarification questions kind of following up on your answer before body.

Are there any update on the FX assumption in your overall 2020 guidance then in the quarter itself I know you called out some FX benefits on the cost side, but was there anything incremental on the revenue side you should ask.

And then the second question is also a clarification is that.

So the top client that you guys mentioned kind of like the shifting head count geographical location.

I was going to be a headwind for content moderation in <unk> as well is there any impact on the digital CX business or is that pretty much untouched and it's more than the other two segments of the business.

Yes.

Yes, Thanks, Chris for the question.

I think the FX personal have black Panther. The subsequent Boston So from an FX perspective, as a reminder, majority of our contract our booth and collected in U S. Dollars. So we don't have an exposure from an ethics perspective partners on a revenue basis, but on the on the cost side, we do hedge our.

<unk> worked with people some of our exploration of the Philippines and.

And we kind of get some of the.

An example in Q1 and we had expected to do that in Q2, we would get a net benefit from a currency perspective remember offshore location and like I said before that is going to be helping us offset some of the impact that will have on wage inflation along with the call up the reason that we havent done complex.

So, but I just wanted to talk to and then as far as.

As far as the top the top client, while we're seeing an impact because of the shift from onshore to offshore inside content security and AI services, we don't expect to see any impact there to digital CX.

Okay Perfect and then my second question is just on Hulu I know you guys said, it's not a material contributor in 'twenty, two but is that already kind of baked into your updated reiterate at Q2, and 2022 guidance and I guess just like how is the integration going there what's the strategy there like enhancing that asset and maybe cross selling.

To that existing client base, just wanted to get some more detail there. Thank you.

Yes, <unk> you want to take the first part and then I'll talk about the integration.

Yes, so the.

We have factored that into the guidance for 'twenty, but you'll see that.

If not we don't believe it.

The other portion of the Opex guidance currently but it has been factored into the model.

Yes, when it comes to the integration of <unk> as a high growth business with an excellent management team led by tier two foundries. This is not a turnaround story or a cost synergy play for us. So we're taking a somewhat light touch approach to integration as the companies get to know one another with that said we have a dedicated.

Project management team, who is running the integration and we plan to support Hello operationally in areas, where we have strengths and it might be a little bit more operationally mature just based on our size versus theirs. Now we will continue to focus on cross selling <unk> clients, who are looking for a global footprint along with our clients who are looking.

To expand further into Europe and have already expressed interest in some of their locations.

Got it really helpful guys. Thank you.

Our next question comes from the line of Brian Essex with Goldman Sachs. You May proceed with your question.

Hi, good afternoon, and thank you for taking the question.

I guess, either one of you could could could feel this one but I was wondering if I guess, it's certainly appreciate as you migrate customers too.

Other geographies, particularly the largest customer, but others as well as you ramp up accelerated hiring in the Philippines, and India that would that would.

Provide some margin benefit.

Could you, perhaps let us know what some of your assumptions are with regard to the reiteration of margin guidance for the full year, what some of the offsetting effects might be I don't know if you can quantify any of them.

Such as I think you've listed a number of them, including absenteeism related omicron, just maybe if you could quantify some of the more substantial headwinds perhaps the impacted this quarter are they.

Relatively recurring or might we see some of those abate in the back half of the year, just so that we can evaluate.

How that margin progression might be throughout the remainder of the year.

Yes, absolutely.

Brian we delivered about particular, 6% adjusted EBITDA in Q1, and we're getting to what particular to half a percent in Q2 plus.

First half margin has the impact of certain onetime or nonrecurring cost that you called out one is the higher absenteeism that we saw due to omnicom secondly, if additional cost.

Sure.

That would be weaker as we return our team made back to the office and then the bright spoke about the severance cost that we are going to be putting in Q1, but that's been factored into the model.

In the hitch too we would also have transition of our largest clients to offshore resulting in incremental margin.

The short term, we are prioritizing growth over margin due to the volatility.

Volatility that we're seeing in the market by increasing our investments in digital.

Digital initiatives.

Maintaining our 2022 guidance up 23% and maybe just talking about the medium term.

Confident about the medium term target of 25% by scaling more nearshore and offshore driving greater G&A leverage and focusing on our specialty service offerings.

Yeah.

Got it that's helpful and maybe just to follow up on the on the margin theme.

Maybe if you could.

Help us understand that some of the dynamics that that you might have for customers that may not choose to migrate to other geo locations.

Any sense of Dayton offer for typical contract duration are you able to put through price increases with a measure of success and what impact might we expect on.

Particularly gross margins as you progressed through the year for those customers.

Yes, so if we look at our onshore delivery footprint we've got.

Core strong core customers that rely on our onshore delivery for regulatory reasons or for specific services and so we feel very confident in.

The resilience of that business, we have been able to successfully pass along cost of living adjustments to our customers regardless of the region that they are in but we do see the greatest wage pressure in the U S market.

And so this is part of the reason why an acceleration in growth in our offshore delivery geographies will expand margin in the back half of the year.

Got it very helpful. Thank you.

Our next question comes from the line of Dan Perlin with RBC capital markets. You May proceed with your question.

Thanks, Good evening everyone.

I was I was wondering if you can just comment on visibility I think in the past you've had a pretty high level as you kind of enter any one period I think you've talked about 95%.

But this year it seems like it's got a particularly large amount of moving parts and I'm just wondering.

What are some of the key.

Tenants to the confidence you have got to reaffirm guidance, how much visibility do you really have.

Think about the cadence over the next couple of quarters.

And then just secondarily when we think about the guidance.

And you talked about having to do some layoffs in the U S. What should we be expecting around head count growth that's necessary to support the.

Affirmation of guidance. Thanks.

Yes.

Let me talk about just before casting process.

So we have a bottoms up process.

Budgeting and forecasting so what we do is we work with clients to develop an outlook on the unexpected volume based on the current visibility which includes any transition that is happening to offshore geography, then importantly, the base level assumption of new business finally.

And finally, we factored in the macro level.

From increased market volatility that you're seeing to ensure we present the forecast that we are confident that we can deliver.

David do you want to take focusing on head count.

Yes, let me take that one so so.

Again, we've seen.

And acceleration in net head count additions in the first quarter and the majority of that was driven from our nearshore and offshore delivery locations.

In the second quarter as a result of the reductions in the U S that number will be lower but we still expect to add.

Net new teammates globally as we would expect for every quarter of this year.

Got it okay.

And then just a quick follow up.

I think you said, 75% of new business signings are coming from existing clients in the quarter.

Just wondering is the nature embedded in those client relationships is the nature of that we're changing materially I know you've talked about enterprise and some of those I wasn't sure if that was in.

In the same vein of that cohort.

Yeah, so for our existing clients. What we're seeing is two trends. The first is an interest in outsourcing more sophisticated services. These are services that they werent previously comfortable turning to it helps our service providers to deliver and since we've proven ourselves capable of delivering against their core business.

<unk> needs our clients that are facing cost pressures are increasingly turning to us for for a more specialized offerings. The second trend. We're seeing is that interest in offshore and near shore geographies in order to control costs of their core operations and those core operations could be being done by task. This in the U S today, where they could be being done.

By an alternative vendor domestically or by in house operations at our customers.

Got it okay. So that's the same thing you guys were talking about really thank you.

Our next question comes from the line of Matt <unk>.

With <unk> you May proceed with your question.

Yes, hi, good afternoon, thanks for taking the question.

Wanted to ask one maybe about a little bit longer term view on Europe , especially in light of the Hulu acquisition, how does this kind of impact.

Ongoing geographic and office expansion across Europe .

Then also how do you expect it to impact maybe winning net new logos with European based headquarters rather than.

A lot of U S operations with with European headquarter, our European operations and the like thanks.

Yeah. Thanks for the question, Matt So to start we remain committed to expanding our.

Our European footprint in the past, we've talked about launching offices in Romania, and Poland and we intend to continue those operations. In addition to the expansion of offices and Croatia.

Through the <unk> acquisition. We also are very excited by the client base that Hulu acquisition brings us we've got some exciting European based customers in gaming and E. Commerce space that we're excited to be able to cross sell our global platform into in.

In addition, we're very excited to be able to sell our current global customers into our European operations, including how we these operations.

Alright very helpful.

And then when you look at.

It sounds like maybe a little bit of an acceleration.

Or kind of a.

Short term decision for some of your U S.

Work to be moved offshore how is that.

Maybe the last couple of months been different than previous times, where you've had the U S operations that want to move to offshoring as they expand.

With you both from sort of the.

The timeframe that it takes to have that revenue headwind as you get slightly lower but then also the total scope of the project.

In the past versus where Youre seeing now maybe companies looking to directly move like for like offshore.

Yes, so historically, what we've seen is clients want to launch in scale in the U S and then as they gain confidence in.

Our operations look to supplement those operations with offshore teams.

Change this quarter has started.

Starting with our largest client who we came together with and built the plan to optimize costs by scaling teams in the Philippines and in India.

And then we've seen other clients, particularly those clients, whose volumes have been impacted in the crypto and equity spaces.

Followed suit and so just the amount of that shifts the amount of those shifts that are happening simultaneously.

Just kind of what has led to this one time situation.

When we look out at the market. What we're seeing is a simultaneous focus across our client base on optime optimizing their cost structures and so we're leaning into that opportunity. We actually think that this is one of the most exciting markets we've ever seen to sell into despite the slowdown in revenue growth.

We'll see in the next quarter, we remain very confident in the guidance, we provided to grow at or above 30% this year and at or above 25% for the medium term.

And then sorry quickly biology on the margin impact from that ongoing shift do you get any kind of I guess extra benefit or little bit more leverage in terms of how those contracts are structured when the clients are looking to reduce cost as quickly as possible.

Yes, so typically banks the ones.

Right.

It shouldn't happen.

From an onshore to offshore perspective, we do see benefits from a margin perspective, because we get incremental margin percentage.

In terms of what we deliver and deliver on the piano, but in terms of just yielded the via the phone and cyclical.

<unk> tend to be pretty similar in terms of what we signed up with the customer and then the statement of what we will be cycling a regional in nature in terms of what we signed with each of these customers' needs of the geographies.

Wonderful thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. <unk> for closing remarks.

Well. Thanks, so much in closing I want to thank our teammates clients and shareholders for their continued support we look forward to connecting with you again on our second quarter results in August .

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation during the rest of your day.

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Greetings and welcome to Task US Inc. Q1, 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Alan Katz, Vice President Investor Relations. Thank you. Sir you may begin your presentation.

Good afternoon, and thank you for joining us for the task of first quarter 2022 earnings call.

Joining me on the call today are Bryan <unk>, our co founder and Chief Executive Officer, Jesper, where our co founder and President and <unk> <unk>, Our Chief Financial Officer Paul.

Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at IR Dot task is dot com.

Also planned to post supplemental information on this website, including an investor presentation, and an excel based metrics file following this call.

Please note that this call is being simultaneously webcast on the IR section of our website.

Before we start I would like to remind you that the following discussion contains forward looking statements within the meaning of the federal securities laws, including but not limited to statements regarding our future financial results and management's expectations and plans for the business.

These statements are another promises nor guarantees that involve risks and uncertainties that may cause actual results to differ materially from those discussed here you should not place undue reliance on any forward looking statements.

Factors that could cause actual results to differ from those forward looking statements can be found in our annual report on Form 10-K, which was filed with the SEC on March nine 2022 <unk>.

This filing is accessible on the SEC's website and on our website at IR Dot task is dot com and may be supplemented with subsequent periodic reports, we file with the SEC.

Any forward looking statements made on today's conference call, including responses to questions are based on current expectations as of today and task and assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law.

The following discussion contains non-GAAP financial measures for a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric. Please see our earnings press release, which is available in the IR section of our website.

Now I will turn the call over to <unk> co founder and Chief Executive Officer of Task list price.

Thank you Alan good afternoon, everyone and thank you for joining US 2022 is off to a very strong start with both top and bottom line results for Q1 coming in above the high end of our guidance ranges. Our go to market function is executing well.

Starting the year with a strong quarter of signings from both new and existing clients and as Jasper will discuss later in the call. We completed our first acquisition in mid April .

We started our return to office and now have approximately 20% of our teammates working safely for tasked us offices around the globe.

It's been great to see teammates who've been with task is three years reconnect in person and to see the engagement from those teammates who joined us during the pandemic and hadn't yet been able to experience our amazing office culture.

The number of teammates returning to the office will increase over the course of this year.

As always we're prioritizing the health and safety of the team above all else.

In terms of financials Q1 revenue grew organically by 56, 8% year on year to $239 $7 million above the top end of our guidance range of $232 2 million.

Adjusted EBITDA grew 36, 9% year on year to $54 1 million for an adjusted EBITDA margin of 22, 6% just above our guidance of 22, 5%.

In terms of people in Q1, we set a hiring record.

5700, net new teammates joined task us as demand for our services accelerated in the Philippines and in India.

Our results were driven by the continued execution on our five growth levers.

Let's discuss how we are performing on each of these levers in a bit more detail.

I'll start with a closer look at our revenue and our recent sales activity.

Growth in Q1 was the result of continued success on the first two growth levers expansion with our current high growth clients and adding new clients across verticals.

Starting with our current clients as a group our top 20 clients in Q1 increased their spend year over year by approximately 50%.

While revenue growth from clients outside of our top 20 customers grew at approximately 80% supporting our continued focus on revenue diversification.

Our fin Tech and health Tech verticals grew revenues well into the triple digits and our gaming vertical grew what revenue well north of 50% all when compared to Q1 of 2021.

And digital customer experience, we grew revenue by 62% compared with Q1 of 2021 as a result of expansion with existing clients and new client signings.

This year, we've seen an increase in demand for our services for more traditional enterprises, who are turning to task us for help with their digital transformation.

In terms of new business signings inside VCX, we signed an engagement with one of the largest U S. Airlines in Q1, just as travel demand has begun to hit our post COVID-19 ramp.

We launched a chat button in this client's mobile app and are helping to divert thousands of contacts from the phones to more efficient digital channels.

This is a great example of how our digital expertise can be leveraged by enterprise clients as they look to transform the way they engage with their customers.

We also signed a digital customer experience transformation contract with a large well known e-commerce brand to provide customer experience in order management support.

This client had been working with their prior partner for 20 years, and we successfully displaced them by offering an innovative solution for customer engagement.

As our high growth technology customers increased their focus on efficiency and cost we're seeing increased interest from clients, who want to leverage our automation solutions. We've recently signed contracts to launch our chatbot technology across multiple programs, we're building RPI tools to fully automate workflows.

And implementing an automated security supervisor that we called Falcon to prevent fraud.

These offerings were key differentiators and positioning us to win new business. We expect these capabilities to help us differentiate and protect margins, while we drive improved performance and efficiency for our clients all while maintaining our support of frontline teammates.

Content security revenues grew by 26, 9% compared with Q1 of 2021, largely driven by volume growth with existing clients outside of our largest clients. We continue to expand the type of work we're doing in the geographies, where we provide content security services.

In the first quarter, we signed some very exciting new content security work.

These signings included an expanded scope of work with one of the world's largest audio streaming platforms to provide content security services out of Europe .

In a few weeks ago, we signed another expansion of service support them out of Malaysia.

We also signed a significant expansion with one of the world's largest dating apps, providing content moderation out of India.

This was a competitive RFP process, and our policy and wellness expertise truly differentiated.

At this stage I want to provide an update on the transition of work for our largest clients. We successfully transitioned hundreds of roles for this client and the transition will be complete this month.

Our relationship with our largest clients remains strong in fact that now awarded US approximately 8000 additional roles in offshore geographies since the transition began and we expect to scale most of those roles in the back half of the year.

As we've noted before we make less revenue per employee offshore than we do onshore.

So we will see the impact of this transition in our Q2 revenues.

As a result of this shift we expect our content security revenues to be roughly flat in Q2 and decline year over year in Q3 and in Q4.

We expect to return content security to growth in 2023.

Since we transitioned this work offshore we expect our margins to expand in the back half of the year.

Finally, AI services revenues continue to grow in Q1 <unk>.

Revenue from AI services doubled compared with Q1 of 2021 to $34 $1 million, driven primarily by expansions with new and existing clients in the social media travel and autonomous vehicle spaces.

While we expect AI services revenues to continue to grow this year. They will also be impacted by the shifting geographic mix.

This is a high growth market and we expect to continue to grow this business over the medium term.

In terms of specific Q1 wins in AI services, we signed a significant expansion with our largest client and a new deal with an online brand management company.

We were also awarded our first enterprise project for the task force our gig worker platform.

This platform will allow us to reach a wide breadth of global talent to complete data collection and annotation tasks that are vital for the creation of AI models.

Overall, our signings were once again driven significantly by growth from existing clients, which accounted for approximately 75% of the total new business signings in Q1.

We signed expansions across service lines with several of our top 10 clients.

We also continued our growth trajectory in Europe , including signing with a leading audio streaming platform that I mentioned earlier and an expansion with an online gaming client.

Moving the power of our global platform, we will now support both of these clients from three different countries.

We also continued our progress on our third growth lever in Q1 expansion of specialized services.

Over the last several quarters you have heard me speak about the progress we've made in the area of financial crime investigations fraud risk and compliance services.

We've officially launched new services is tasked us risks and response.

We mostly report risk and response revenues within the content Security service line.

Here, we've won deals to support digital identity verification regulatory compliance and anti fraud, primarily with Fintech clients online marketplaces, and crypto currency platforms.

These are fast growing markets, where we can differentiate ourselves from traditional providers through industry knowledge and world class tools that enable our teammates.

In Q1, we expanded a risk and response relationship we have with a large vacation rental company. We're now providing support for know your customer sanctioned and reviews payment risk operation and anti money laundering work for this customer.

On our last call I also discussed our learning experience services, which we call <unk>.

Primarily report this service within our digital customer experience service line today.

This is a great example of us leveraging an internal skill set and commercializing it.

Given market trends, we see a meaningful opportunity to become a strong player in this space.

We work with clients, who tend to have an immediate need for training services given their growth rate and the expansion of both internal and vendor teams and.

In fact, we signed two <unk> deals in Q1 with Fintech clients supporting their onboarding and training processes.

This adds to the <unk> business that we already deliver for one of the world's largest technology companies and a leader in the autonomous vehicle space.

While this offering is still new to the market I am pleased with our initial success.

In terms of our fourth growth lever, adding additional geographies. We're seeing good initial traction in Malaysia, we have signed several deals there and are currently ramping teammates in Malaysia for food delivery customer.

We also added new delivery capabilities in Europe through our acquisition of <unk>, which was led by my partner and co founder Jasper. So I'll pass it off the Jasper to discuss our fifth and final growth lever M&A.

Thanks, Brad and good afternoon, everyone since our IPO, we've ramped up our focus on M&A, we've hired industry veteran.

To lead this practice of task, yes, we see M&A as one of the key strategic levers to drive growth moving forward.

We saw the results of our efforts and achieved an important milestone this past month.

The acquisition of <unk>, a European provider of outsourced specialized services.

This is the first acquisition in the history of our company and will support expansion of our European delivery footprint in a meaningful way, we now have teammates in Croatia, and a handful of other European locations deepening our capabilities to support more than 20 European languages to our global clients.

We're already discussing these additional European language capabilities with our clients and are seeing significant interest.

We're excited about the <unk> acquisition for a number of reasons, but the one that is most important to US is the cultural alignment Tom in them. The two co founders of Hallo have built the company that completely aligns with the vision embracing I had for task is when we first started.

They are hyper focused on their teammates and culture and they bring a portfolio of high growth tech clients with an especially strong presence in e-commerce and gaming.

On our Q4 earnings call <unk> told you that in addition to cultural alignment. We're focused on companies that are accretive to our long term growth rates and margin targets, while Hulu isn't going to be a large driver of revenue. This year I am pleased to say that this acquisition is expected to meet both of these criteria we.

<unk> <unk> growth rate to exceed our overall growth for the foreseeable future.

Acquisition was paid for through a combination of cash and stock with a significant portion to be paid if the company achieved performance milestones.

It's exciting to see this deal come to fruition after a lot of hard work from the team.

More broadly in the medium term, we see our expanding footprint as a significant driver of value for our clients and growth for <unk> in the context of the current economic and inflationary environment expanded geographies and the ability to offer country diversification through multiple offshore and nearshore locations.

He is very attractive to our clients that are looking to drive further efficiencies in their operations.

We continue to see interesting M&A opportunities in the market and we remain disciplined and are pursuing deals that were confident will drive long term value let.

Let me turn it back to price to go through our outlook for the rest of the year.

Thanks, Jasper before I turn the call over to biology, I'll spend a few minutes on our guidance for the year and the current hiring environment.

We are maintaining our outlook for 30% revenue growth at the midpoint of our range.

Although we are off to a very strong start for the year. The current environment is volatile.

Since our last call we've seen several of our clients in high growth technology space quickly shift their focus to reducing cost.

We are also seeing the impact of the recent downturn in the equity and crypto markets caused fluctuations in volumes and our fintech vertical.

Across all verticals the operating environment has led to an acceleration in our clients' demand for growth in offshore work and a decrease in demand for onshore work. We've also seen a number of additional clients shift existing work being done onshore or offshore delivery locations.

We are well positioned to deliver for our clients here as our largest and most mature delivery locations are in India and the Philippines.

While these geographic shifts will have some impact on revenue in the near term our clients increased focus on cost actually creates a massive opportunity for us.

Partnering with our clients to help them drive efficiency into their businesses, we're leveraging our global footprint and automation capabilities and seeing an increased appetite for unit based pricing, which will allow us to expand margins over time.

Given the strength of our client relationships and global operations, we are confident in our ability to take share and continue to grow significantly faster than our peers.

These geographic shifts will now lead to some employee layoffs in the U S. Our teams continue to fight to find roles for as many of our domestic teammates as possible and.

And nothing Disappoints me more than having to say goodbye to great colleagues throughout this process will maintain our commitment to being a best in class employer and provide robust transition assistance to all exiting teammates in Q2, we will incur severance costs as we support these employees through this transition.

Spite this we continue to see robust growth across the rest of the globe and expect to continue to grow our total number of global teammates in Q2.

The combination of our Q1 revenue and bookings and the opportunities. We see ahead of us with both existing and new clients gives us confidence in our ability to deliver our 2022 guidance range of $980 million to $1 billion in revenue.

Before I finish up I will touch on the very important topic of talent.

Attracting and retaining frontline teammates the leaders remains a key point of focus for every company in this industry. Our team delivered another quarter of very strong performance on this front in Q1.

Approximately 5700, net new task as teammates, which is a company record.

As we began to return teammates to the office in Q1, we saw an uptick in attrition when compared to our annual 2020, and 2021 numbers, but we remained below our 2019 attrition levels.

Finally, our Glassdoor rating remains among the highest in the space at four six stars.

Working at task US continues to be an aspirational career across geographies, enabling our teams to deliver for our clients talent demands.

Q1 was a very strong start to the year, we are well positioned to meet our growth commitments and we look forward to sharing our progress throughout the year with that I'll hand, it over to <unk> to go through the financials in a bit more detail and provide our outlook for Q2 and the year ahead.

Thanks, Brian and good afternoon, everyone.

I'm going to discuss our financial results for the fourth quarter of 2022. Please.

Please note that some of these items, our non-GAAP measures and the relevant reconciliations are attached to the press release, we issued.

Sure there'll be a good day.

In the first quarter, we earned total revenues of Jordan $39 7 million.

An increase of $56 $8 thing or the prior year.

We saw growth in each of our three specialized service offering.

The first quarter, our digital customer experience offering generated Harlem $59 $7 million product year over year growth rate of 62%.

Our content security business grew six 9% versus Q1 2021.

And $45 $9 million off maybe.

Our air services businesses, due 102% year over year for revenues of $34 1 million.

In Q1, we saw continued diversification of our revenue.

As growth from our largest client.

Ceded by the ongoing expansion, albeit that stuff all of our client base.

As a result of our revenue concentration with our largest client was approximately 24%.

<unk> from 25% in Q4 down from 29% in Q1 of 2021.

Our second largest client was 10% of our revenue up slightly from Q4, 2021 as we return to sequential quarterly growth, but down from 11 first thing in Q1 of 2021.

Our thoughts then on software decline accounted for 61% and 75%.

But compared with Q4 of 2021, but down from 64% and 78% as of Q1 2021.

We ended the first quarter regenerated, 50% of our revenues in the Philippines.

33% of our revenues in the United States and 17% of our revenue from the rest of the world, mainly driven by our operations in India, Taiwan and Latin America.

Our concentration of revenue is expected to continue to shift.

Towards the offshore geographies this year.

As a reminder, our cost of service as a percentage of revenue and our.

Our margin profile.

Primarily driven by the geography location from VIX, so at least a thoughtful idose.

Other than the fixed service line.

All time, this geography mix shift should drive margin expansion.

Our cost of service as a percentage of revenue was 58, 9% in the first quarter compared to 57, 6% in Q1 of the prior year.

The increase was primarily driven by increased absenteeism due to omnicom.

Additional expenses associated with the return to the office and thoughts that we typically incur a fee up back in the office, which was partially offset by the currency benefit.

As Brian discussed given wage inflation.

Increased focus on profitability.

Seeing an acceleration in clients leveraging offshore delivery capabilities.

Net net we think this environment will ultimately be a benefit for us.

Given our deep presence in markets like the Philippines, and India, we are well positioned to win clients and expand volume with existing clients.

Again revenues generated at our offshore locations.

The higher margin profile.

In the first quarter, our SG&A expenses were $64 2 million or 26, 8% of revenues.

This compares to SG&A in Q1 of 2021.

$1 5 million or 26% of revenue.

<unk> compensation expenses in the quarter, we had $18 $9 million relate.

Relating to equity grants, while we did not accrue any stock compensation expenses in Q1 of 2021 when we were not a public company.

Q1, 2022 also included full quarter public company related expenses, which we did not have last year.

In the first quarter of 2022.

Adjusted EBITDA of $54 1 million.

And two 6% margin.

But the $9 $5 million.

And the 35, 9% margin earned in the first quarter of 2021.

The reduction in our adjusted EBITDA margin was primarily driven by the increase in cost of services that I just explained.

Public company costs.

Our adjusted net income for the quarter was $35 million and adjusted earnings per share was <unk> 34.

By comparison in the year ago period, we earned adjusted net income of $28 $2 million.

And then just to the EPS.

That'd be one thing.

Now moving onto the balance sheet.

Cash and cash equivalents were $77 1 million as of March but it would be 22.

Paired with a December 31st 2021 balance of $63 6 million.

Cash generated from operations was $36 9 million for the fourth quarter of 2022 as compared to cash generation of $39 $9 million in Q1 of 2021.

We maintained our DSO at 65 days a gain this quarter.

Our capital expenditure increased in the first quarter of 2022 to $17 8 million.

Compared to $10 $1 million in Q1 of 2021.

The increase was primarily driven by facility expansion as part of our digital to office plans.

In terms of our financial outlook for the remainder of the year our guidance.

Items remains unchanged.

We continue to anticipate full year 2022 total revenue to be in the range of $980 million to $1 billion.

Representing year over year growth of 30% at the midpoint.

We also continue to expect.

On a full year 2022, adjusted EBITDA margin of approximately 23%.

For the second quarter 2022.

<unk> revenues to be in the range of $241 5 million.

$243 5 million.

And being year over year growth of approximately 35% points.

We expect the on Q2 2020 to our adjusted EBITDA margin of approximately 22 under 5%.

I will now hand, it back to Brian before we take your questions.

Thank you <unk> before we get to Q&A I want to share another task of teammates story.

Last month, I was able to visit our team in India for the first time since the pandemic started.

Every time I visit India, I'm reminded of how strong our team there is the kind of come in such a short period of time.

This has been the fastest growing region that we ever entered and we now have over 7500 teammates in the country.

One of our India based teammates IU sheet joint task in indoor two five years ago, as our frontline teammates supporting and anti money laundering campaign for one of our Fintech clients.

This was our second job out of school and she was the first woman and her family to work for a multinational corporation.

Are you she was an impressive talent from the start exceeding service levels and always raising our hand to take on additional responsibilities.

Within a year she was promoted from frontline teammate to team leader.

She excelled in a leadership role and we fostered this by giving her additional opportunities and responsibilities. She has continued to support her fintech client and is now an operations manager with approximately 150 teammates on her team.

She consistently received accolades from her teammates that work on the campaign as well as from a client.

You see his journey with task is a great metaphor, but what we've seen in India since 2019.

Just this task us in India has grown at a rapid pace I, usually his career has expanded exponentially.

One of the things I'm. Most proud of is building a company that provides a career path for smart motivated talented teammates who share our vision of doing great work for our clients all while not taking ourselves too seriously.

As we continue to grow developing talent and providing opportunities for advancement will be a key driver of our success.

With that I'll ask the operator to open the lines for our question and answer session.

At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two Terra will be a question from the queue for participants using speaker equipment and maybe nest.

Sarah Fay to pick up your handset before pressing the star keys, one moment, while we poll for questions. Our first question comes from the line of Maggie Nolan with William Blair. You May proceed with your question.

Yeah.

Thank you so much and congrats on yet another quarter in the book.

I wanted to ask a little bit more about the transition with the largest client.

As you are seeing that delivery transition create some growth headwinds can you talk about your confidence in the long term sustainable growth rate that you've put out and how that investment in the client kind of factors into the equation.

Yes. Thank you so much for the question so our relationship with our largest client is as strong as it's ever been.

At the start of the year, we came together with this client and we built the plan to optimize their global delivery footprint by moving hundreds of roles to the Philippines, and India and in that initial plan, we were cautious about how fast we can hire and train. These teammates given the incredible work of our recruitment training and transition teams we deliver.

Faster than we expected and most of that transition has already been completed and the remaining portion is going to be completed this month. While this is going to impact Q2, and Q3 revenues. It has further strengthened our relationship with our largest client and we're continuing to be awarded business. Here. We've now won over 1000 additional roles from this client.

We've significantly expanded the services that we're delivering to them and we've really deepened our partnership and we expect that this client's revenues while flat in 2022 will return to growth in 2023.

I'll just comment from a high level on our our growth outlook, we remain confident in our ability to drive 25% or higher revenue growth over the medium term and this is based on the strength of our five growth levers.

The sales acceleration that we're seeing in the market today continues to give us a deep confidence in that medium term outlook.

That's helpful. Thanks, and then you also had some commentary about clients engaging you for work to help them reduce costs.

And then you also had the commentary about the content security segment, and how you expected that to perform so could you kind of.

Bring all that together with some updates on how the pipeline looks across kind of your three disclosed service bucket.

Yes, yes, so actually Q1 saw the highest sales numbers that we posted as a public company and our pipeline today is as large as it's ever been.

Comment on a couple of things that we're seeing in the pipeline specifically, we've seen an increased interest from fortune 500 companies that are looking for support with their digital transformation in the prepared comments I mentioned the airline deal that we closed in Q1, and we expect to close more deals like that this year. We're also getting great traction with the world's largest.

Companies here as well, we expect to close a number of exciting deals. This year at the time of our IPO. We mentioned that we didn't have significant work with any of the four largest tech companies in the world and by the end of this year, we expect to have.

Deals in place with at least three of those four companies. We've also seen more high growth technology companies interested in launching operations offshore. Many of these companies are looking to ship in house operations being done in the U S or western Europe today to our low cost delivery centers.

And finally, we're seeing demand from our existing clients for more complex specialized services here again, we're seeing areas of the business that our clients had previously been hesitant about outsourcing.

We're seeing our clients turn to us.

Increased opportunities in those areas on the call I mentioned, the learning experience services that we're seeing and also the risk and response services that we're seeing there so.

So the pipeline is very strong there is definitely a shift to demand for higher value services. In addition to leveraging our nearshore and offshore footprint to control costs.

Very helpful. Thank you.

Our next question comes from the line of James Fawcett with Morgan Stanley You May proceed with your question.

Hey, guys. This is Jonathan on for James Thanks for taking my question you.

You had mentioned the signing of the airline client, which marks a departure from your usual high growth new economy of customer base is there any change in strategy are you going after more traditional PPO and call Center work and how are you thinking about the airline industry is a new vertical.

Yes, Jonathan Thanks for the question. So fortune 500 clients are turning to us to support their digital transformation.

The past, we mentioned that during the pandemic one of the U S is the largest grocery chains turned to us to launch their delivery and.

And we successfully scaled operation for that customer both in the U S.

And one of our nearshore markets. This quarter, we launched a chat button within the mobile App of one of the U S is largest airlines and we see demand for similar services from the Fortune 500 down the line to be clear we are not interested in traditional call center work instead, we're selling our digital expertise to be the established enterprise.

And we expect demand for digital transformation deals like this to really take off this year.

Got it thanks, Brad and then I guess one for Jasper.

Now that you've announced your first acquisition how are you thinking about future one what does the pipeline look like and our evaluations palatable.

In the space.

Yeah. Thanks for the question. So look we're seeing compression and public market valuations flow through to the private market, but I think that actually helps our case to continue to acquire companies. We do see a high level of deal activity in the market today, while we believe <unk> has a strong require for the same reasons that our clients choose to.

Work with us, which is a great culture, and our industry leading growth. So our pipeline remains strong and we're going to continue to be really disciplined in our approach to find those rare companies that meet our criteria mainly ones that are accretive to financials in terms of margin and growth and most importantly, culturally accretive as the Halo acquisition is so.

We're looking to continue to expand our footprint add specialized digital services and any acquisitions that we can find that accomplish that it's certainly a bonus will continue to evaluate those sorts of opportunities. We'll also look at bolt on technology opportunities that make our teammates and our offerings more productive or deliver higher quality service.

Really helpful. Thanks for the color guys.

Our next question comes from the line of Puneet Jain with Jpmorgan. You May proceed with your question.

Yes, hi.

Thanks for taking my question.

And I appreciate the commentary on how some of the digital clients are focusing on profitability.

Current environment.

Well I agree.

But that could result in higher cost focus and mood offshore over the long term.

But is it also driving any sort of delays in this isn't making a project award.

As clients.

Just to this new environment.

Thanks for the question Puneet, it's actually accelerating.

The awards, what we've seen here is clients, who have large in house operations turning to us for quick transformations of their businesses.

Again. These are operations typically that had been built by the customers themselves in the U S or western Europe , and as a result of the cost focus theyre looking to leverage our near shore or offshore delivery footprints quickly. So we've got a number of those opportunities that we closed in Q1 and a number in the pipeline for Q2 and beyond.

Got it and then there was some news in Philippines as it relates to delivery that you.

Can you talk about what that means for you what it means for us.

If that if there could be any wage inflation impact as well as excess for this year.

Yeah I'll take the question around impact on attrition and then ill have biology jump in on any tax impact so.

The Philippines' economic Zone authority has put out guidance on return to office and while we're not breaking out the specific percentages that have returned to office by region. We can say that the Philippines is the geography, where we have the highest percentage of teammates who returned to office and we actually have certain offices in.

The Philippines that are 100% back in office.

So similar to our other regions as I said on my prepared remarks, we've seen a slight uptick in attrition rates as we returned teammates to be office in the Philippines, but the Philippines remains one of the lowest regions globally for us when it comes to attrition.

We're confident in a return to office strategy as it relates to the Philippines, and then I could have followed you comments on any tax impact.

Okay, Thanks, Mike and Craig's comment back quickly to the new debt will be compliant with that.

Requirement to return overall.

Place to the office.

As a reminder, not all of our facilities, Paul and do the fees outside of the zone and we do not expect to see any material impact to us is that factoring some dose absolutely off the returns go opposite equivalents.

And how about any impact on wage inflation there.

And device people to return to offices maybe.

Yes, thanks for that.

So I apologies you want to take that question.

Yeah, let me take them, maybe you can add a little bit more color. So from a from a beat inflation.

I believe that the company that has been.

Hi.

Or there could be a pseudo forecasts.

One of the things that we spoke about before is that the majority of all contracts have collaboration.

Kind of been a net benefit and second also we are having a benefit from a currency perspective, which has a positive impact both in the Philippines.

In India, and we continue to hire really particularly in Q1. So we added a total of 700 net neutral in the quarter.

Got it thank you.

Our next question comes from the line of Jason Kupferberg with Bank of America. You May proceed with your question.

Hey, guys. This is Kathy on for Jason Firstly, I just wanted to ask two clarification questions kind of following up on your answer before body.

Was there any update on the FX assumption in your overall 2020 guidance ending the quarter itself I know you called out some FX benefits on the cost side, but was there anything incremental on the revenue side you should be.

And then the second question is also a clarification as yet.

For the top client that you guys mentioned kind of like the shifting head count geographical location.

It's going to be a headwind for content moderation and so on AI ops as well is there any impact on the digital CX business or is that pretty much untouched and this more than the other two segments of the business. Thank you.

Yes, Thanks, Chris for the question.

Thank the ethics.

A brief answer to these public michelson, so from an ethics perspective, as a reminder, majority a whole lot to contract our booth and collected in U S. Dollars. So we don't have an exposure from an ethics perspective partners on a revenue basis, but on the on the cost side, we do hedge our.

Ultimately they will put people opened up our exploration of the Philippines and.

And we kind of did some of that.

An example in Q1 than we had expected to do that in Q2, we will get benefit from our current proposal activity number of OXXO location and like I said before that is going to be helping us offset some of the impact that will have on wage inflation along with the call up the reason that we have enough opex.

So, but I just wanted to talk a little bit as far as.

Yes, as far as the top the top client, while we're seeing an impact because of the shift from onshore to offshore inside content security and AI services, we don't expect to see any impact there to digital CX.

Okay Perfect and then my second question is just on Hulu.

I know you guys said, it's not a material contributor in 'twenty, two but is that already kind of baked into your updated reiterate in Q2, and 2022 guidance and I guess just like how is the integration going there whats the strategy there like enhancing that asset and maybe cross selling to that existing client base just wanted to get some more detail there. Thank you.

Yes, apologies you want to take the first part and then I'll talk about the integration.

Yes.

We have factored back though.

So the guidance but.

But not we don't believe it makes a material portion of the Opex guidance currently but it has been factored into the model.

Yes, when it comes to the integration <unk> is a high growth business with an excellent management team led by Sir to Congress. This is not a turnaround story or a cost synergy play for us. So we're taking a somewhat light touch approach to integration as the companies get to know one another with that said we have a dedicated project.

<unk> management team, who is running the integration and we plan to support Hello operationally in areas, where we have strengths and it might be a little bit more operationally mature just based on our size versus theirs.

We will continue to focus on cross selling <unk> clients, who are looking for a global footprint along with our clients who are looking to expand further into Europe and have already expressed interest in some of their locations.

Got it really helpful guys. Thank you.

Our next question comes from the line of Brian Essex with Goldman Sachs. You May proceed with your question.

Hi, good afternoon, and thank you for taking the question.

I guess I wonder if you could could could feel this one but I was wondering if I could.

Certainly appreciate as you migrate customers too.

Other geographies, particularly the largest customer, but others as well as you ramp up and accelerate hiring in the Philippines, and India that would that would provide.

Provide some margin benefit.

Could you, perhaps let us know what some of your assumptions are with regard to the reiteration of margin guidance for the full year, what some of the offsetting effects might be I don't know if you can quantify any of them.

I think you've listed a number of them, including absenteeism related to Omnipod.

Maybe if you could quantify some of the more substantial headwinds perhaps the impacted this quarter are they.

Relatively recurring or might we see some of those abate in the back half of the year, just so that we can evaluate.

How that margin progression might be throughout the remainder of the year.

Yes, absolutely.

Brian will be deliberate about particularly six person.

Adjusted EBITDA in Q1, and we'll get into what particular to half a percent in Q2.

First half margin has the impact of certain one time or not.

Nonrecurring costs make you pause one is the higher absenteeism that we saw due to omnicom. The second just additional cost.

That would be equal as we return our team made back to the office and then the bright spoke about the severance cost that we are going to be putting in Q1, but that's been factored into the model.

In the hitch too.

We would also have transition of our largest clients to offshore resulting in incremental margin.

And in the short term, we are prioritizing growth over margin due to the rollout.

Well, let's leave it that we're seeing in the market by increasing our investments in digital.

Initiatives, while maintaining our commitment to guidance would it be person and maybe just talking about the medium term, we feel confident about the medium term target of 25% by scaling more nearshore and offshore driving greater G&A leverage and focusing on our specialized service offerings.

Got it that's helpful and maybe just a follow up.

On the on the margin theme.

Maybe if you could help.

Help us understand that some of the dynamics that that you might have for customers that may not choose to migrate to other geo locations.

Any sense of they can offer for typical contract duration are you able to put through pricing increases with a measure of success and what impact might we expect on.

Particularly gross margins as you progress through the year for those customers.

Yes, so if we look at our onshore delivery footprint, we've got a core strong core of customers that rely on our onshore delivery for regulatory reasons or for specific services and so we feel very confident in.

Resilience of that business, we have been able to successfully pass along cost of living adjustments to our customers regardless of the region that they are in but we do see the greatest wage pressure in the U S market.

So this is part of the reason why an acceleration in growth in our offshore delivery geographies, we will expand margin in the back half of the year.

Got it very helpful. Thank you.

Our next question comes from the line of Dan Perlin with RBC capital markets. You May proceed with your question.

Thanks, Good evening everyone.

I was I was wondering if you could just comment on visibility I think in the past you've had a pretty high level as you.

Kind of any one period I think you've talked about 95%.

But this year it seems like it's got a particularly large amount of moving parts and I'm just wondering.

What are some of the key.

Tenants to the confidence you have got to reaffirm guidance, how much visibility do you really have.

We think about the cadence over the next couple of quarters.

And then just secondarily when we think about the guidance.

And you talked about having to do some layoffs in the U S. What should we be expecting around head count growth that's necessary to support.

The reaffirmation of guidance. Thanks.

Yes.

Let me talk about just the forecasting process.

We have a bottoms up process for budgeting and forecasting so what we do is we work with clients to build.

And outlook on the expected volume based on the current visibility which includes any transition that is happening to offshore geography, then importantly, the base level assumption of new business finding them.

And finally, we factored in the macro level.

From increased market volatility that you're seeing to ensure we present the forecast that we are confident that we can deliver.

But if you wanted to take the question on head count.

Yes, let me take that one so so.

Again were seeing.

And acceleration in net head count additions in the first quarter and the majority of that was driven from our nearshore and offshore delivery locations.

In the second quarter as a result of the reductions in the U S that number will be lower but we still expect to add thousands of net new teammates globally. As we would expect for every quarter of this year.

Got it okay.

And then just a quick follow up.

I think you said, 75% of new business signings are coming from existing clients in the quarter.

I'm just wondering is the nature embedded in those client relationships is the nature of that we're changing materially I know you've talked about enterprise and some of those I wasn't sure if that was in.

In the same vein of that cohort. Thank you.

Yes, so for our existing clients. What we're seeing is two trends. The first is an interest in outsourcing more sophisticated services. These are services that they werent previously comfortable turning to an outsourced service provider to deliver and since we've proven ourselves capable of delivering against their core business.

This means our clients that are facing cost pressures are increasingly turning to us for for a more specialized offerings. The second trend. We're seeing is that interest in offshore and near shore geographies in order to control costs of their core operations and those core operations could be being done by task. This in the U S today, where they could be being done.

An alternative vendor domestically or by in house operations at our customers.

Got it okay. So that's the same thing you guys were talking about earlier. Thank you.

Our next question comes from the line of Matt <unk>.

With <unk> you May proceed with your question.

Yes, hi, good afternoon, and thanks for taking the question.

Wanted to ask one maybe about a little bit longer term view on Europe , especially in light of the Hulu acquisition.

Is this going to impact your sort of ongoing geographic and office expansion across Europe , and then also how do you expect it to impact maybe winning net new logos with European based headquarters rather than.

U S operations with European headquarter, our European operations and the like thanks.

Yes.

Yes. Thanks for the question, Matt So to start we remain committed to expanding.

Our European footprint in the past, we've talked about launching offices in Romania, and Poland and we intend to continue those operations. In addition to the expansion of offices and Croatia.

<unk> Hello acquisition.

We also are very.

Cited by the client base that Hulu acquisition brings us we've got some exciting European based customers in gaming and E. Commerce space that we're excited to be able to cross sell our global platform into.

In addition, we're very excited to be able to sell.

Our current global customers into our European operations, including how we use operations.

Alright very helpful.

Then when you look at.

It sounds like maybe a little bit of an acceleration.

Or kind of a very short term decision for some of your U S.

Work to be moved offshore how has that maybe.

Maybe the last couple of months been different than previous times, where you've had U S operations that want to move to offshoring as they expand.

With you both from sort of the.

The timeframe that it takes to have that revenue headwind as you get slightly lower but then also the total scope of the project in.

In the past versus where Youre seeing now maybe companies looking to directly move like for like offshore.

Yeah.

Yes, so historically, what we've seen is clients want to launch in scale in the U S and then as they get confidence in.

Our operations look to supplement those operations with offshore teams.

Change this quarter is.

Starting with our largest client who we came together with and built the plan to optimize costs by scaling teams in the Philippines and in India.

And then we've seen other clients, particularly those clients, whose volumes have been impacted in the crypto and equity spaces.

Followed suit and so just the amount of that shifts none of those shifts that are happening simultaneously.

Just kind of what has led to this one time situation.

When we look out at the market. What we're seeing is a simultaneous focus across our client base on optime optimizing their cost structures and so we're leaning into that opportunity. We actually think that this is one of the most exciting markets we've ever seen to sell into despite the slowdown in revenue growth.

We'll see in the next quarter, we remain very confident in the guidance, we provided to grow at or above 30% this year and at or above 25% for the medium term.

And then sorry quickly biology on the margin impact from that ongoing shift do you get any kind of I guess extra benefit or little bit more leverage in terms of how those contracts are structured when the clients are looking to reduce cost as quickly as possible.

Yes, so, particularly eventful one.

Placements of the physician happened somewhat.

From an onshore to offshore perspective, we do see benefits from a margin perspective, because we get incremental margin percentage.

In terms of what we deliver and deliver on the piano, but in terms of just purely the via the phone.

<unk> tend to be similar in terms of what we signed up with the customer and then the statement of what we'll be cycling a regional in nature in terms of what we find with each of these customers' needs of the geographies.

Wonderful thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. <unk> for closing remarks.

Well. Thanks, so much in closing I want to thank our teammates clients and shareholders for their continued support we look forward to connecting with you again on our second quarter results in August .

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation during the rest of your day.