Q2 2022 Taskus Inc Earnings Call

Greetings and welcome to the Task US Inc. Q2, 2022 earnings 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 the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.

I'll now turn the conference over to your host Alan Katz, Vice President of Investor Relations you may begin.

Good afternoon, and thank you for joining the task <unk> second quarter 2022 earnings call. Joining me on the call today are bright smiles are co founder and Chief Executive Officer anthology Soccer, 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.

Our relations section of the website at IR Dot task Dot com.

We have also posted supplemental information on this website, including an investor presentation, and an excel based metrics file please.

Please note that this call is simultaneously being webcast in 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 and 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.

This filing is accessible on the SEC's website and on our website at 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 questions are based on current expectations as of today and task. This 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 Heska right.

Thank you Alan good afternoon, everyone and thank you for joining US we delivered another strong quarter in Q2 with revenue and adjusted EBITDA coming in above the top end of our guidance ranges.

Q2 revenue grew by 36, 9% year on year to $246 5 million above the top end of our guidance range of $243 $5 million.

Adjusted EBITDA grew 26, 2% year on year to $55 7 million for an adjusted EBITDA margin of 22, 6% just above our guidance of 22, 5%.

I'm also proud to report that this quarter Everest group named task is the fastest growing business process service provider in the world.

While we delivered strong results, we are seeing the impact of our clients shifting their focus from growth to cost optimization.

In the search for immediate savings some of our clients have cut vendor spend.

Since our last call. This trend has accelerated particularly among our clients in the crypto currency and equity trading spaces given.

Given these trends we've lowered guidance for the remainder of the year.

I want to be clear in the face of these significant challenges, we are still positioned to deliver industry leading profitable growth.

This is because our teams continued to execute strongly on our five growth levers.

Our clients focus on cost presents a major opportunity as they are increasingly turning to us to help optimize their spend by leveraging our offshore teams.

I'll review, how we performed in Q2, and then return to our updated outlook for the remainder of the year and our strategy to continue to grow faster than the industry.

In Q2, we executed well across our first two growth levers expansion with our current high growth clients and adding new clients across verticals as we delivered signings from both new and existing clients.

Starting with our growth with current clients in Q2, our top 20 clients increased their spend year over year by almost 30% while revenue from clients outside of the top 20 grew at more than 60%.

Our largest client grew 12% compared to Q2 of 2021.

As expected this growth rate is lower than prior quarters, driven by the impact of their transition offshore beginning to flow through this quarter.

We've made great progress, reducing client revenue concentration and improving the diversity and resilience of our client base.

Looking at our service offerings digital customer experience revenue grew 47, 4% compared with Q2 of 2021 as a result of expansion with existing clients and new client signings.

Demand for our D. CX services has been particularly strong in gaming travel and transportation and among challenger banks and remittance apps in the Fintech space.

We signed a digital customer experience expansion with a personal wellness brand to expand from one geography to three we expect to add an additional 400 teammates to Latin America, and the Philippines to support this client.

We expanded our European language support work in Greece for one of the world's largest E. Commerce marketplaces, we're now delivering services from three different countries for this client.

We will provide multi lingual customer support tech support and sales through various channels.

Request for cost savings our clients have begun to shift work. They were previously doing in house to our offshore teams.

One of our clients a large gaming company, where we provide player support in multiple languages shifted a large portion of their European language <unk> work towards making grease and some of their tier three support work to our teams in the Philippines.

Finally, we signed another digital transformation contract with a large travel client.

This clients actively sought us out given our experience in the travel and transportation space.

We've launched a center of excellence for them in Texas, where we will provide them with a few hundred travel advisors in the coming months.

Going forward, we believe we will see demand for our onshore operations from enterprise clients.

Moving on to content security revenues in this service offering grew by seven 8% compared with Q2 of 2021, driven by volume growth was with existing clients and new client signings.

We saw particularly strong signings growth this past quarter for concert security work out of Malaysia, where we signed an expansion with one of the worlds largest audio streaming platforms.

We also signed a risk and response deal in Malaysia for a new client in the peer to peer payment space.

We were providing this client with know your customer and fraud investigation support.

Two of our Challenger Bank clients also asked us to take on complex processes previously done by their in house teams here.

Here, our risk and response organization will be delivering any money laundering and know your customer services, while significantly reducing our clients' spend on new services.

Finally, we began working with one of the world's most popular gaming communication platforms.

Given early success, we've already expanded the scope of trust and safety support that we will be providing this platform. We've seen enormous growth opportunity ahead at this client.

At our largest client we completed the transition of hundreds of roles offshore at the end of May.

Given the timing of this transition and the offsetting a ramp of additional roles. We expect Q3 to be the lowest revenue quarter for our content security service offering this year.

We expect to return content security to growth in 2023.

Our relationship with our largest client remains very strong.

In the process of scaling over a thousand new roles in our offshore delivery environments for them.

Given the reduction to our onshore teams. This client's revenues in the back half of the year will be down slightly when compared to the first half.

But we now expect to earn more from this client in 2022 than we did in 2021.

We also expect to continue modest annual revenue growth with this client in 2023.

AI service revenues grew 39, 4% in Q2 compared with 2021.

This growth was driven primarily by expansions with existing clients in the social media travel and autonomous vehicle spaces.

Offset by the transition of work with our largest client.

We signed several exciting projects for the task force our gig worker platform. This included multiple projects with two big Tech firms one of which is a first time task as client.

We also signed a task versus agreement with another one of our top 10 clients in the ecommerce space.

<unk> Dot com is seeing strong initial demand for our data labeling and AI support services. In response, we are investing in sales and marketing to fuel its growth.

Overall, our signings were again driven largely by growth from existing clients, which accounted for approximately 75% of our total new business signings in Q2.

Looking at revenue growth within our industry verticals, we're seeing particular strength from our health Tech Entertainment and gaming and non crypto fintech clients all of which grew revenue over 50% year on year in Q2.

As economies around the world have reopened and business travel has resumed we're also seeing a pickup in demand for our on demand travel and transportation business.

Revenue in this vertical grew by over 40% year on year.

This includes astounding growth at our largest ridesharing client, where we more than tripled our revenue compared to Q2 of 2021 as we took significant share from our competitors.

As I mentioned earlier several enterprise travel companies have now turned to us to support their digital transformations. We're also seeing exciting opportunities in the autonomous vehicle space, where we have seen traction for both our AI services and learning experience solutions.

The high Tech vertical also continues to be a major area of focus.

Last quarter I discussed opportunities, we were pursuing with some of the biggest tech companies.

I am proud to report that we have since signed deals with three big Tech firms.

Here, we're focused on delivering the operational excellence task is known for to earn the opportunity to expand while we don't expect significant revenues from these clients. This year they have the potential to contribute meaningful growth over the next few years.

Moving onto our third growth lever. We also showed continued progress expanding our specialized services.

As I mentioned, we closed multiple AI services deals on the task force and several risks in response engagements this quarter.

We also expanded our engagement with our largest learning experience services client. We're now servicing this client from three locations, providing training services to their global teams.

As clients are shifting their focus to cost we're beginning to see opportunities to bring other service offerings to the market. Our learning experience solution is a great example of our clients' willingness to look at certain in house functions or processes that may have not been a candidate for outsourcing in the past.

We're seeing good progress with our fourth growth lever, adding additional geographies with Malaysia, and Europe , performing particularly well this quarter.

Since launching Malaysia at the start of the year, we've signed four clients.

<unk> geographic expansions with three of our existing global client relationships. We've also had strong sales performance out of Greece, where our head count grew by more than 50% from Q1 to Q2 of this year.

Finally, our acquisition of Hulu has opened up central and eastern Europe as a delivery hub for our clients. This gives us a lower cost footprint pretty European language support work.

This brings me to our fifth growth driver M&A, we closed our first acquisition in April and over the past three months, we've made great progress integrating the <unk> team in the task ups how.

<unk> is performing ahead of plan and we're starting to see opportunities for our sales teams to sell alongside one another.

Given the current market dynamics, we are very excited about using M&A to consolidate our market over the medium term. However.

However, we have not yet seen private market valuations align with the current public market reality.

We remain disciplined and focused on accretive acquisitions, and we have the balance sheet and operating capacity to move quickly and to take advantage of these opportunities.

Turning to our teammates and the environment for talent at the end of Q2 total head count was 45300 down by about 500 teammates compared with the end of last quarter.

This was driven by our clients focus on cost reduction by reducing team sizes, primarily in our U S operations and among our crypto currency clients.

We also moved to eliminate certain corporate roles in response to our updated revenue guidance.

The environment for talent continues to be competitive we've seen attrition increased this quarter compared to both last year and Q1.

The primary driver of this increase nutrition has been returning teammates to the office.

We now have approximately 40% of our teammates working safely from task is to offices around the globe up from 20% last quarter.

Whether working from home or in our offices, we continue to deliver classes on time and meet our clients' needs.

We are working aggressively to reduce attrition and I'm happy to say that our initial investments appear to be paying off as attrition in July was lower than in Q2.

Our Glassdoor rating also remains amongst the highest in the space at four five stars as at the end of the quarter.

Now, let's move on to our outlook for the remainder of the year.

While we performed well in the first half of the year. The current macro environment is impacting many of our clients.

As a result, we've revised our outlook for 2022 and now expect to grow at 23, 6% at the midpoint of our guidance.

This change in outlook was primarily driven by two factors.

First our clients in the crypto and equity trading spaces have reduced volumes faster and deeper than we expected as of our first quarter call.

To put this in context, crypto and equity trading clients as a group accounted for over 15% of our revenues in Q1.

We now expect that there will be approximately 5% of our revenues in the fourth quarter.

While some of this impact was baked into our outlook provided on the Q1 call we've since seen incremental volume reductions.

Second we're seeing other high growth tech clients look for immediate savings in response to market uncertainty here. Our clients are focused on our U S. Based resources. Some of these clients are leveraging our offshore model and others are reducing vendor spend across the board.

While the increased focus on cost creates meaningful opportunities with both new and existing clients over the coming quarters. It also puts immediate pressure on revenues.

In response to these updates we've not only taken steps to reduce our corporate spend but it also frozen hiring for most non revenue generating roles.

We will continue to invest in our technology and go to market teams is that these investments will drive our growth in 2023 and beyond.

In terms of margins, we now expect that our adjusted EBITDA margin for the full year will be approximately 22, 3% or $210 million at the midpoint of our guidance range.

We also expect to generate approximately $100 million.

Free cash flow this year.

Task is a highly cash generative business and our disciplined approach to capital allocation will continue to support our growth.

As we look to 2023 and beyond we remain confident in our ability to grow faster than the rest of the industry.

Task. This has been the fastest growing business process service company. Since we were founded in 2008, because we are the preferred provider of high growth Tech Disruptors.

While it is a volatile time for tech firms. Our view is that these companies will continue to outgrow the market over the long run more.

More immediately we have a strong pipeline of opportunities to help these clients reduce their operating expenditures by shifting functions that they were currently doing in house to our offshore delivery locations.

Finally, we're expanding our addressable market by working with enterprise clients on their digital transformations and closing deals with Big Tech.

This quarter, we signed pilots with three big Tech firms. These are companies that spend billions of dollars a year on outsourced services as we've done in the past, we expect to earn the opportunity to scale with these clients through the strength of our execution.

With that I'll hand, it over to biology to go through our Q2 financial results and provide more details on our guidance.

Thanks, Brian and good afternoon, everyone.

I'm going to discuss our financials.

For the second quarter of 2022.

Please note that some of these items our non-GAAP measures.

And the relevance of the cancellations are attached to the press release, we issued earlier today.

In the second quarter, we earned total revenues of $246 $5 million.

Greece of $36 nine per site or the prior year.

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

In the second quarter our total.

But experience offering generated 167 $4 million.

For the year over year growth rate of 47, 4%.

Our content security business grew seven eight birkeland versus Q2 of <unk> 21, this sort of.

In fact, the $6 3 million.

No.

And our air services business Butte 39, 4% year over your core revenues of $2 7 million.

In Q2, we saw continued diversification of our revenue growth from a top line.

EBIT by the ongoing expansion of the desktop.

Absolutely.

Other revenue concentration with our largest client.

Approximately 22%.

Down from 24% in Q1.

And so I guess the $1 72.

2021.

Although our second largest client was 9% up over revenue down from approximately 10% in Q1 and well posted in Q2 off maybe 'twenty one.

Our thoughts then and soft drink decline accounted for 58% and 73% down from 61% and 75% in Q1 of this year.

<unk> from Citi.

Person in 77 Portland.

As of Q2 of 2021.

In the second quarter, we generated 51% of our revenues in the Philippines.

30% of our revenues in the United States and 19% of our revenue from the respectively.

Mainly driven by our operations in India, Europe , and Latin Nobody thought.

As bright.

We have seen a pickup in finding for services to be delivered out of our Malaysia and grief locations.

We expect the fee of a revenue concentration generally shift towards the offshore geographies for the remainder of the year.

As a reminder, although mark.

Margin is driven in large part by our geography mix.

Although cost of service as a percentage of revenue is lower in offshore locations.

Positions us well for margin expansion overtime.

Our cost of service.

<unk> revenue was 58, 2% in the second quarter.

Third to 57, 7% in Q2 of the prior year.

The increase was primarily driven by ongoing expenses associated with the return to the office.

Costs associated with the transition of work.

From onshore to offshore locations.

While we've seen wage inflation across geographies. This year. The majority of this impact was offset by the currency benefit of the strong U S dollar and price increases from Cola provision in our contract.

In the second quarter.

G&A expenses were $68 $9 million or 28% of revenue.

This compares to SG&A in Q2, 2021 of Harman $77 $8 million or 98, 8% of revenue.

Included onetime Phantom share bonus.

Our non recurring theme bonuses associated with the IPO of permanent but $3 7 million.

Stock compensation expenses in the quarter with $18 $1 million.

Relating to equity grants compared with $5 7 million in Q2 of 2021.

Given the timing of the IPO in Q2 of last year.

We had the impact of a partial quarter of stock compensation.

Public company expenses during that quarter.

In the second quarter of 2022.

We earned adjusted EBITDA of $55 $7 million under 22, 6% margin.

Compared to $44 $1 million under 24, 5% margins earned in the second quarter of 2021.

The reduction in our adjusted EBITDA margin was primarily driven by ongoing cost associated with the return to office under.

And the full quarter of public company costs.

We expect adjusted EBITDA to be impacted by the slower revenue growth for the balance of this year.

We will also continue to invest to drive growth, which will partially be offset by other G&A cost optimization initiatives.

And have a higher margin offshore due to the mix change.

Adjusted net income for the quarter was $38 7 million.

Earnings per share was <unk> 38 cents.

By comparison in the year.

Both BDA, we earned adjusted net income of $31 $4 million and adjusted EPS all the people.

Now moving onto the balance sheet.

Cash and cash equivalents.

$104 7 million as of June 32022, compared with the March 31, 2022 balance of $77 $1 million.

Cash generated from operations of $36 1 million for the second quarter of 2022 as compared to cash generation of $5 8 million in Q2 of 2021.

Our DSO was 66 days in the current quarter.

Our capital expenditure.

In the second quarter of 2022 to $11 $6 million.

Compared to $13 3 million in Q2 of 2021.

The decrease was primarily driven by E rate related equipment purchases in Q2 of $2 21, which was lower this year.

Free cash flow was $24 5 million.

Our 44% of adjusted EBITDA.

As Brian discussed we have always been a business that prioritizes free cash flow and we continue to see this as an area of focus going forward.

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

We've updated our guidance as follows.

We now anticipate full year 2022, total revenues to be in the range of $930 million to $950 million.

Let's suppose something year over year growth rate of 23, 6% at the midpoint.

In addition, we expect on a full year 2020, adjusted EBITDA margin of approximately 42, 3%.

Lastly, we've added free cash flow, which we define as cash flow from operation less capex as an app.

Annual guidance metric this quarter.

We expect our 2022 full year free cash flow to be approximately $100 million.

For the third quarter of 2022.

We anticipate revenues to be in the range of $224 million.

$226 million.

The person thing year over year growth rate of approximately 12% at the midpoint.

And we expect to own a Q3 2022, adjusted EBITDA margin of approximately 22%.

Our outlook implies that we will exit 2022, it's flat to low single digit top line growth.

While we arent providing guidance for 2023 on this call we recognize that we will face challenging revenue bump in the first half of next year.

We are confident that our growth rate will increase through the course of 2023.

Given by the opportunities that Brian outlined.

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 as teammates story.

At this time for me, Dan less one of our teammates in Colombia.

Yes. Please.

Move to Colombia from Venezuela in 2020, as a result of the economic situation in her home country.

This woman, who trained as an engineer in Venezuela suddenly found herself unemployed in a new city.

She began looking for opportunities in the BPM industry, hoping that she could apply her leadership skills to her new role.

But you heard time and time again that while her background was impressive for English was not yet strong enough for customer service position.

After some research she set our sights on landing a role at task us because of our culture and unique benefits.

She applied to task is in January and our recruitment team instantly soccer potential we invited her to join our art of fluency program and English language training program that we've developed to rapidly improve English proficiency for customer support.

Within a few months she was hired as a teammate.

<unk> is growing quickly a task us she supports one of our challenger bank clients and is delivering top quartile customer satisfaction scores.

Less than a year downloads has gone from being an unemployed refugee with limited English proficiency to a top performing teammate supporting a global fintech firm.

These stories that inspire us our investment in our people continues to deliver for our teammates and our clients and our Diffluence C program is an Amazing example.

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

Thank you and 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 if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith We also ask all participants asking questions limit themselves to only one question and one follow up question.

One moment, please as we poll for questions.

Okay.

Our first question comes from the line of Dave Koning with Baird. Please proceed with your question.

Yeah, Hey, guys nice job on the second quarter and thanks for all that the guidance on the back half.

And maybe to kind of kick it off just.

If we look at the back half and kind of compare it to even last year. If you exclude crypto and maybe anything else maybe talk to a little more on whether it's crypto and one or two other things maybe would the back half actually be quite good growth and then the second from that is is Q4 really the base now.

Kind of numbers from Q4 to just kind of grow more normalized sequentially going forward I'll leave it there lets you kind of talk through some of those.

Yes, I'll jump in here, Dave. Thanks, So much for the question. So obviously since our last call we've seen our clients shifted their focus to cost reduction.

Some of them have done this by moving some of the work we're doing onshore to our offshore teams and others have done this by simply reducing vendor spend looking for immediate savings.

Across our entire client base. This has been most acute amongst our crypto and equity trading clients. So I want to make a few points about what we're seeing happen in the crypto and equity trading space task has a low double digit number of clients, whose products feature a crypto or equity trading feature.

These could be businesses that are entirely dedicated to trading equities or crypto or they could be a broader financial platform that offer crypto or equity trading as part of their offering.

These clients made up 15% in fact over 15% of our revenues in Q1, and we now expect that they will be 5% of our revenues in Q4.

With that said, we have not lost a single client in this space. We remain the preferred provider of high growth tech companies, including those in the crypto and equity trading spaces.

Despite these challenges we remain confident in our growth trajectory as we continue to have very very strong relationships with all of our clients and in particular, our largest clients.

We previously discussed that at our largest client we've been shifting a large portion of the work we're doing there from higher revenue onshore locations to lower revenue offshore locations, which is the transition that we completed in Q2, but we've seen very strong overall volume growth with this client we are adding over 1000 additional roles.

For them in the back half of this year given this head count growth.

And our current pipeline of opportunities, we would expect that will grow revenues with our largest client year on year in both 2022, and 2023 and hopefully beyond that as well. We also see continued growth at our largest on demand transportation and food delivery clients on the call I mentioned that our revenues with our large.

Just on demand transportation client has more than tripled.

Year over year in Q2, we're taking significant share from our competitors and are now supporting this client from four different countries. Finally, we just signed pilots with three big Tech companies that we believe have the potential to contribute meaningfully to our growth in 2023 and beyond so strategically we remain focused.

On supporting technology companies and this is a space that is clearly experiencing some volatility today, but we believe it is going to outgrow the market over the long term for now we've shifted our focus from.

Selling onshore teams to selling offshore teams to increasingly selling our automation solutions to help these clients reduce their costs. We've also expanded our addressable market by pursuing digital transformation deals with enterprise clients and signing the big Tech deals that I just mentioned so while we have encountered some significant challenges in the first half of the.

Year, we do feel like our base has been reset and we're very optimistic about our ability to continue to grow faster than the industry.

Gotcha. Thanks for all that color and maybe just a quick follow up when we look at 2023 and I know you haven't given any sort of formal guidance, but it's fair to say the first half is a pretty tough comp and we could expect it to grow slower than normal just because of that and then the 22% margin in the back half is that a good place to kind of think about next year are there any puts and <unk>.

That that would change that.

Apology, if you want to take that question.

Yeah. Thanks, Dave So from a predictability perspective like Brian mentioned, a few of our growth rate improve in the back half of 2023.

And we would expect to see begin to see margin expansion as well and would also start seeing the positive impact of offshoring getting into it.

And like I said earlier, we'll continue to monitor.

While we continue to invest in growth, hence, we expect adjusted EBITDA margin to be a both continued predictable margin getting into 'twenty.

Gotcha. Thanks, guys. Thanks for all the color.

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

Hey, Thanks for taking my question I wanted to ask about the large tech companies than contracts, we signed that.

Can you talk about the type of work you do for some of those times and also that potential opportunity and even of those potentially be a 10% client overtime.

Should we expect that work to be relatively more stable than the work you do for small and medium sized clients given.

Possibly.

Volume there.

Accounts.

Thanks, so much for the question. So we're very excited to have closed. These deals. These are clients that we have pursued for many years and this opens up a huge area of addressable spend and outsourcing budgets that run into the billions of dollars. So the best way to think about the potential.

<unk> here is to look back at our relationship with our largest client with our largest client. We initially signed a very small deal in fact in our first year I think we did about $1 million in revenue, but we worked really hard and we proved our value and we started to win RFP. After RFP. So we grew.

Grew in the second year in a $50 million in revenue and have continued working together and to date, we have over $200 million from that client. So we're optimistic about the potential with all three of these clients, it's going to take a lot of hard work.

We want to continue to diversify our revenue base and when we think about <unk>.

Smaller clients versus larger clients, we always want to keep at a healthy mix.

Both but.

The revenue growth that we're trying to drive into 2023 2024 and beyond will be greatly helped by upside at these big Tech clients.

No I appreciate that color and then another question on the guidance for this year.

So it looks like you have assumed significant reductions like that crypto and equity trading clients, but what ties confidence that the other accounts have been derisked.

And that guidance and should not be a source of incremental surprise given the macro environment.

Okay.

Yeah. So we're we're.

A very cautious approach to our outlook for the remainder of 2023, given the macro environment, sorry did the outlook for the remainder of 2022, given the macro environment. We have a very robust forecasting process that goes client by client and look at the comp.

Patients were having with those clients and committed volumes.

We have listened intently to the earnings calls of all of our public clients and we're hearing quite a lot of optimism amongst our largest clients clients in the social media ride sharing and food delivery space. We continue to have very strong relationships and very strong growth.

<unk> and so that's where we drive our confidence for the guidance that we're providing today.

Got it thank you.

Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Thank you maybe to ask that question in a slightly different way can you expand a little bit on the nature of work that youre doing for the equity trading in crypto clients that was particularly sensitive to those client budget cuts and then if that work.

Kevin any of your other segments as we think about how weaker macro could affect other segments from here.

Yes.

Fintech space across Fintech clients, we provide two primary areas of service, we provide digital customer experience services. So that's supporting their customers answering their questions are solving account issues. We also provide a significant amount of risk and response services. This could.

Be anti money laundering know your customer fraud investigations work both.

<unk> of those service lines were impacted by overall trading reductions so trading volumes came down contacts and investigation demand came down.

And given the just broader pressure in the space. There has also been an increased focus on reducing opex in order to get to profitability.

When we look across the rest of our verticals we offer a range of specialized services that we've discussed digital customer experience is our biggest service line.

We have not seen anywhere near the same volume impact across any other vertical than we've seen in the fintech vertical as it relates to crypto and equity trading clients over the course of the last quarter.

That's helpful. Thank you.

And then as we think about.

Our ability to service offshore or onshore can you comment a little bit on where you're seeing demand currently it seems like some of the new signings may have an onshore components off the bat is that still the preferred way to start engagements are you starting to see more clients willing to embrace offshore from the desktop.

Broadly we have seen an uptick in interest in our offshore delivery locations, we've seen clients who have a <unk>.

In our in our onshore locations ask us about supplementing their teams with offshore locations to help bring down costs. We've also seen a lot more interest in our new logo clients in our offshore offerings. I think this is to be expected given the macro environment people are looking for ways to opt.

<unk> more efficiently, but that doesn't mean that we're not seeing any new clients in our domestic operations as I mentioned, we signed a brand new travel client returned to task us to build a center of excellence in Texas, we're going to be hiring hundreds.

Teammates to support that client between now and the back half of the year. We've also signed multiple smaller deals in the last quarter.

Our U S operations, so while overall, we've seen a decline in our U S operations in Q2, we do see continued interest from some of our new logos.

Thank you.

Our next question comes from the line of Ryan Potter with Citi. Please proceed with your question.

Hey, Thanks for taking my question I just wanted to continue on that topic. I know you mentioned that you signed the travel client and then <unk> seen some increased interest from traditional enterprise clients.

Just wondering how you go about kind of assessing those inbounds are you trying to only work with kind of the highest growth highest margin opportunities that come in and to what extent confirmed this kind of traditional enterprise.

Chris.

Be used to offset some of the clients sort of pressures you're seeing in areas like Kentucky.

Thanks, Brian .

We had some concerns after last call and our discussion about the digital transformation deal that we signed with an airline.

I think some people thought that was a sign that we were turning to traditional call center work it is not.

Working with these clients on their digital transformations. Most of these deals are being done at margins that are actually accretive to the rest of our business. So broadly we're really excited about the enterprise deals that we've closed.

We think that that.

There is massive upside as we expand our addressable market and seeing increased interest from clients in this space and as I mentioned on the call. We're finding that most of the interest for our domestic delivery capability today is coming from enterprise clients. So we think that it has.

These clients have the ability to drive a disproportionate amount of our revenue growth in the quarters to come.

Got it.

And then one question on your AI services offering.

With your test versus platform launching last quarter I was wondering if you could give some color on the kind of adoption you've seen on it so far.

And how does it kind of going to about to attract freelancers to the platform.

M&A be used essentially to help scale this offering and broadly kind of how do you view kind of growth there.

Yeah. So it's obviously early days for us and the task burst, but we've seen great interest in this product from our clients there aren't a ton of scaled offerings that can do crowdsourced data labeling and AI services and there is huge appetite.

Amongst our.

Innovative clients for Disruptors in the space.

I said on the call we've signed a few really exciting deals to big Tech clients, one of which is brand new to task US one of our top 10 clients in the E. Commerce space has also become a user of the task force platform.

So there is huge upside here and we're starting from zero right. So there is the sky is kind of a limit when I think about <unk>.

Freelancer Onboarding, we're trying to be the best platform for freelancers in the way that we feel we're the best.

Company in the bps space for our teammates.

We've actively recruited freelancers from all over the World, we're working hard to ensure that they are paid promptly.

And that they have a healthy flow of tasks to do to keep them busy.

So we're really excited about that as well we are very interested in continuing to pursue M&A across all of our specialized service lines and we do think that buying other businesses in this space could be a way to supplement not only the crowd that we're building, but also the underlying platform.

Great. Thanks.

Our next question comes from the line of Jason Kolbert.

<unk> with Bank of America. Please proceed with your question.

Hey, guys. This is Kathy on for Jason.

I wanted to ask what's baked in for the low end of your full year revenue outlook. So is it that additional clients are going to shift offshore is at that crypto and equity revenue and volume declines significantly further I know you talked about that like 5% attrition continues to worsen and therefore head count growth kind of contracts in the second half and then specifics.

Kind of wanted to ask what you guys are baking in or assuming for volumes, specifically from ride sharing and food delivery.

Thanks, so much Kathy so we've updated our guidance and taking into consideration a range of scenarios given the visibility that we have got into Q3 revenues and the confirmed growth for many of our largest clients. We're very confident in our ability to deliver upon the guidance that we're providing today.

Hey.

When we look out into 2023 and beyond.

We're very confident in the underlying fundamentals of our clients. There is some volatility in the crypto and equity trading spaces in particular, but we've listened to the calls of many of our clients in the on demand transportation food delivery.

And social media spaces, and those give us optimism that we're going to continue to see healthy level of growth across all customers beyond that we continue to take share within most of our largest client relationships.

So at this stage those are the things that are giving us a high degree of confidence about our ability to continue to grow faster than the industry in 2023 and beyond.

Okay, and I guess switching gears a little bit.

Your free cash flow if my math is right I think you guys actually raise it.

45, 50% of adjusted EBITDA for 2022.

<unk> was 30% to 40% of our conversion rate.

I remember that correctly can you just talk a little bit more about like what are the key drivers of this and kind of what kind of cadence. We should expect in Q4 Q is.

Is this kind of sustainable level, we can expect.

2023.

Yes.

So from a free cash flow perspective, like I mentioned before.

It's always been important to us, but in the current market environment. It is even more important.

We've added free cash flow within the annual guidance metric now, which was particularly to like you said, it's $100 million and almost a people thing from a free cash flow.

Conversion to adjusted EBITDA and a couple of these past couple of factors that are going to be.

We do think that.

It's obviously going to be the adjusted EBITDA margin and second is the capex that we're going to be investing in.

One of the things that we've called out is that this year they are going to be investing more in capex than other years, because we haven't got the capex, which is coming in from previous year, and we expect capex to be somewhere around seven figures on FIFO. So thats a possibility of revenues, but on ongoing basis at.

At least in the medium term, we expect the conversion to be somewhere between 50 to.

The person in the medium term, but in the long term as we start optimizing capex through increasing work from home and as they continue to grow offshore one of the things that we've seen is that the seat utilization is better.

In offshore geographies. So from a long term perspective, we would expect this conversion to be able to keep us off I'd just add we don't want them.

Okay. Thank you.

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

Thanks.

Yeah.

I'm a little surprised we've made thus far through the call without the macro question, but just wondering if youre seeing any changes to decision, making our decision cycles.

Particularly because of macro uncertainty right now more so than what youre hearing from your customers say to the public.

James Thanks, so much for the question. So our pipeline right now is as big as it's ever been and it's filled with opportunities to support both our current clients and prospects to help reduce their operating expenditures, but the macro environment has slowed deal velocity.

Somewhat in.

In the last quarter. There were two very large deals that were at the one yard line and both of these companies launched internal hiring freezes.

And and then went on to to put our deal on hold.

We're very confident that these deals will get done I mean, we believe very strongly in the underlying value proposition of helping.

These companies to reduce opex in the midst of.

More challenging macro environment.

But obviously that has a direct impact on revenue this year.

So I think we probably will continue to see some hesitation.

Particularly in some of these larger deals.

High growth tech space, but over time.

We think that there will be a broader based adoption of outsourcing as a way to reduce cost.

Thanks for that Brian and then I guess as part of that.

Conversation you on some of your peers have talked about vendor consolidation can you talk about what youre seeing in the current environment and how that's contemplated in your outlook.

In it.

As your customers are looking to control cost if thats part of that conversation.

It is particularly amongst our larger clients, we've been the beneficiary of quite a bit of vendor consolidation over the last few quarters I mentioned, our largest ridesharing client on the call is just one example of that so as we look ahead, we think theyre going to be continued on.

Opportunities for us to take share from our competitors by offering a better value proposition.

Helping our clients to reduce their costs, while delivering with the quality of that task is known for.

Okay.

Thanks, a lot.

Okay.

Our next question comes from the line of Matt Van Vliet with BTG. Please proceed with your question.

Yes. Good afternoon, thanks for taking the question.

Thinking about some of the faster pace or maybe even very recently decided shift to offshoring from a number of your existing clients I'm curious how we should think about this impacting revenue not just for the rest of the year, but in the 'twenty three especially framing it in the light of your largest.

Customer.

Who is obviously, creating a headwind to growth this year, but.

A much more planned out and you've already seen.

It sounds like upside to that initial plan as you move offshore and adding additional head count.

And rolls is that something that you anticipate could happen in 'twenty three and beyond as these customers move offshore.

Or does this feel more of a reactionary reduce costs and we will have to wait and assess in the next year or even 24. Thank you.

Yes, when we think about the.

The impact on 'twenty three.

We know that we face challenging revenue comps in the first half of 'twenty three when compared to the first half of <unk>.

<unk> 22, and that's because of exactly what you just said the shifts at our largest client.

Reductions that we've seen.

Our U S business from crypto in equity trading clients, but.

But we remain very optimistic about our ability to continue to grow faster than the industry in 2023, given what we're seeing in the pipeline given the deals that we've signed with big Tech firms given the interest from enterprise clients.

So I think that right now.

The the market.

As volatile, but that volatility should benefit us overtime now I want to talk a little bit about.

The domestic operation more specifically at the start of this year, a 33% of our revenues came from the U S.

And given the reductions we've seen in Q4, we will get we derive about 20% of our revenues now from the U S.

A question that could follow from that as well what will happen in the remainder of that 20% over half of that revenue has to stay in our domestic business for regulatory reasons or strong client preferences.

And we are continuing to see growth outside of that revenue in the form of the travel deal that we just signed for hundreds of additional roles in the U S. In a number of other clients who've approached us about launching domestic operations.

So while we're seeing reductions in our domestic business at the moment, we remain confident about the importance of our domestic operations to task us long term.

Okay, and then I guess looking at the AI services.

This quarters.

Slight quarter over quarter decline.

After being very strong growth over the last several.

Curious if that is specific to any of the industries you have called out or are there particular projects that just sort of wind down and haven't necessarily been filled through the pipeline yet.

Should we think about the AI.

Services group for not only the rest of the year, but sort of overall demand understanding that the.

The freelance and gig program, maybe offset some of that.

Yes, so ed in the Air services area we.

A large portion of that work being done domestically with our largest client given the transition we've seen a slight sequential quarter over quarter decline, while continuing to grow AI services revenue at a pretty healthy rate year over year.

Given the full quarter impact, we will see that again in Q3, but when we look at the total number of clients who are using our AI services. The total number of geographies that we're delivering new services from both of those things continue to grow quarter over quarter. So we remain very very optimistic about the service line.

Alright, great. Thank you.

And our last question comes from the line of Brian Essex with Goldman Sachs. Please proceed with your question.

Great. Thanks, Good afternoon, and thank you for taking the question I was wondering if you can hit on.

They understand the I guess, the reduced revenue from volume driven business.

But if I look out over what we see in the private company space, particularly in technology a lot of these emerging companies had been asked by their investors to reduce spend so I.

I guess with regard to the topic of companies looking to reduce spend overall outside the volume driven business. What are those conversations usually look like and are there other ways that they are trimming again outside of that volume driven business.

Thanks, so much for the question Brian .

Start 15 of our top 20 clients are public.

Amazing transformation from just a few years ago when the.

That number was almost inverse so we have a very large client base that has already gone public.

Our large enterprises, but when we look at the long tail of our clients. We do have a tremendous number of high growth innovators.

And many of them are venture funded and there we're seeing similar trends to what we've seen in our largest customers. They are all being asked to buy.

Find a way to get to profitability.

And tasked us as part of that solution.

Have helped a number of our venture funded clients shifts work that they were doing in house to our offshore delivery locations.

Great our automation solutions into their operations as a means of reducing operating expenditures and achieving profitability.

So it's a similar tail while there was some hesitation amongst new clients, we think that over time.

This situation will actually drive additional growth in that space.

Yeah.

Got it got it that's helpful and maybe to follow up biologic.

If we think about some of the fluctuations we've seen in FX could you remind me.

Are you billing, 100% in domestic currency, how much might be built in local currencies outside of the U S and how do we think about the impact of FX to the customer's ability to afford your solution as well as maybe impacted margins to the extent that you are paying for labor in offshore locations.

Yes.

Thanks for the question. So the majority of deferred revenues are with clients that feels in U S dollars under Brent in U S dollars.

The small portion of revenue that could be built in euros.

Through the recent acquisition that we made.

Hello.

So the exposure is more in our costs that we incurred outside of the U S and local country. So we can be but could it be as being our largest exposure in <unk>.

So in terms of a quad X hedging our approach has been to do a rolling four quarter hedging program that covers about 50% of our forecast an expensive endeavor.

We are currently looking at the hedging establishing a hedging program for India as well given the growth in that geography for the last two years, but the appreciation of the dollar versus the <unk> and the Filipino peso has been helpful. But they are.

Especially to offset some of the wage inflation that we're seeing in those companies.

Got it that's super helpful. Thank you very much.

And we have reached the end of the question and answer session, which also concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

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Okay.

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Yes.

Okay.

Yeah.

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Greetings and welcome to the task of Inc. Q2, 2022 earnings call at this time, all participants are in a listen only mode.

And answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.

I will now turn the conference over to your host Alan Katz, Vice President of Investor Relations you may begin.

Good afternoon, and thank you for joining the task of second quarter 2022 earnings call. Joining me on the call today are Brian <unk>, Our co founder and Chief Executive Officer anthology Soccer, 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 Dot com.

We have also posted supplemental information on this website, including an investor presentation, and an excel based metrics file.

Please note that this call is simultaneously being webcast in 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 and 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. This.

This filing is accessible on the SEC's website and on our website at 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 questions are based on current expectations as of today and task. This 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 on the IR section of our website now I will turn the call over to <unk> co founder and Chief Executive Officer Kafka right.

Thank you Alan good afternoon, everyone and thank you for joining US we delivered another strong quarter in Q2 with revenue and adjusted EBITDA coming in above the top end of our guidance ranges.

Q2 revenue grew by 36, 9% year on year to $246 5 million above the top end of our guidance range of $243 5 million.

Adjusted EBITDA grew 26, 2% year on year to $55 7 million for an adjusted EBITDA margin of 22, 6% just above our guidance of 22, 5%.

I'm also proud to report that this quarter Everest group named task is the fastest growing business process service provider in the world.

While we delivered strong results, we are seeing the impact of our clients shifting their focus for growth cost optimization.

And the search for immediate savings some of our clients have cut vendor spend.

Since our last call. This trend has accelerated particularly among our clients in the crypto currency and equity trading spaces given.

Given these trends we've lowered guidance for the remainder of the year.

I want to be clear in the face of these significant challenges, we are still positioned to deliver industry leading profitable growth.

This is because our teams continue to execute strongly on our five growth levers.

Our clients focus on cost presents a major opportunity as they are increasingly turning to us to help optimize their spend by leveraging our offshore teams.

I will review, how we performed in Q2, and then return to our updated outlook for the remainder of the year and our strategy to continue to grow faster than the industry.

In Q2, we executed well across our first two growth levers expansion with our current high growth clients and adding new clients across verticals as we delivered signings from both new and existing clients.

Starting with our growth with current clients in Q2, our top 20 clients increased their spend year over year by almost 30% while revenue from clients outside of the top 20 grew at more than 60%.

Our largest client grew 12% compared to Q2 of 2021.

As expected this growth rate is lower than prior quarters, driven by the impact of their transition offshore beginning to flow through this quarter.

We've made great progress, reducing client revenue concentration and improving the diversity and resilience of our client base.

Looking at our service offerings digital customer experience revenue grew 47, 4% compared with Q2 of 2021 as a result of expansion with existing clients and new client signings.

Demand for our DCF services has been particularly strong in gaming travel and transportation and among challenger banks and remittance apps in the Fintech space.

We signed a digital customer experience expansion with a personal wellness brands to expand from one geography to three we expect to add an additional 400 teammates in Latin America, and the Philippines to support this client.

We expanded our European language support work in Greece for one of the world's largest E. Commerce marketplaces, we're now delivering services from three different countries for this client.

We will provide multi lingual customer support tech support and sales through various channels.

Request for cost savings our clients have begun to shift work. They were previously doing in house to our offshore teams.

One of our clients are large gaming company, where we provide player support in multiple languages shifted a large portion of their European language <unk> work towards <unk> in Greece, and some of their tier three support work to our teams in the Philippines.

Finally, we signed another digital transformation contract with a large travel client.

This clients actively sought us out given our experience in the travel and transportation space.

We've launched a center of excellence for them in Texas, where we will provide them with a few hundred travel advisors in the coming months.

Going forward, we believe we will see demand for our onshore operations from enterprise clients.

Moving on to content security revenues in this service offering grew by seven 8% compared with Q2 of 2021, driven by volume growth was with existing clients and new client signings.

We saw particularly strong signings growth this past quarter for content security work out of Malaysia, where we signed an expansion with one of the worlds largest audio streaming platforms.

We also signed a risk and response deal in Malaysia for a new client in the peer to peer payment space.

We're providing this client with know your customer and fraud investigation support.

Two of our Challenger Bank clients also asked us to take on complex processes previously done by their in house teams here.

Here, our risk and response organization will be delivering any money laundering and know your customer services, while significantly reducing our clients' spend on new services.

Finally, we began working with one of the world's most popular gaming communication platforms.

Given early success, we've already expanded the scope of trust and safety support that we will be providing this platform. We've seen enormous growth opportunity ahead at this client.

At our largest client we completed the transition of hundreds of roles offshore at the end of May.

Given the timing of this transition and the offsetting a ramp of additional walls. We expect Q3 to be the lowest revenue quarter for our content security service offering this year.

We expect to return content security to growth in 2023.

Our relationship with our largest client remains very strong.

In the process of scaling over a thousand new roles in our offshore delivery environments for them.

Given the reduction to our onshore teams. This client's revenues in the back half of the year will be down slightly when compared to the first half.

But we now expect to earn more from this client in 2022 than we did in 2021.

We also expect to continue modest annual revenue growth with this client in 2023.

AI service revenues grew 39, 4% in Q2 compared with 2021.

This growth was driven primarily by expansions with existing clients in the social media travel and autonomous vehicle spaces offset by the transition of work with our largest client.

We signed several exciting projects for the task force our gig worker platform. This included multiple projects with two big Tech firms one of which is a first time task as client.

We also signed at Kaspersky Arena with another one of our top 10 clients in the ecommerce space.

<unk> Dot com is seeing strong initial demand for our data labeling and AI support services. In response, we are investing in sales and marketing to fuel its growth.

Overall, our signings were again driven largely by growth from existing clients, which accounted for approximately 75% of our total new business signings in Q2.

Looking at revenue growth within our industry verticals, we're seeing particular strength from our health Tech Entertainment and gaming and non crypto fintech clients all of which grew revenue over 50% year on year in Q2.

As economies around the world have reopened and business travel has resumed.

Also seeing a pickup in demand for our on demand travel and transportation business.

Revenue in this vertical grew by over 40% year on year.

This includes our scouting growth at our largest ridesharing client, where we more than tripled our revenue compared to Q2 of 2021 as we took significant share from our competitors.

As I mentioned earlier several enterprise travel companies have now turned to us to support their digital transformations. We're also seeing exciting opportunities in the autonomous vehicle space, where we have seen traction for both our AI services and learning experience solutions.

The high Tech vertical also continues to be a major area of focus.

Last quarter I discussed opportunities, we were pursuing with some of the biggest tech companies.

I am proud to report that we have since signed deals with three big Tech firms.

Here, we're focused on delivering the operational excellence task is known for to earn the opportunity to expand while we don't expect significant revenues from these clients. This year they have the potential to contribute meaningful growth over the next few years.

Moving onto our third growth lever. We also showed continued progress expanding our specialized services.

As I mentioned, we closed multiple AI services deals on the task force and several risk and response engagements this quarter.

We also expanded our engagement with our largest learning experience services client. We're now servicing this client from three locations, providing training services to their global teams.

As clients are shifting their focus to cost we're beginning to see opportunities to bring other service offerings to the market. Our learning experience solution is a great example of our clients' willingness to look at certain in house functions or processes that may have not been a candidate for outsourcing in the past.

We're seeing good progress with our fourth growth lever, adding additional geographies with Malaysia, and Europe , performing particularly well this quarter.

Since launching Malaysia at the start of the year, we've signed four clients <unk>.

<unk> geographic expansions with three of our existing global client relationships. We've also had strong sales performance out of Greece, where our head count grew by more than 50% from Q1 to Q2 of this year.

Finally, our acquisition of Halloo has opened up central and eastern Europe as a delivery hub for our clients. This gives us a lower cost footprint pretty European language support work.

This brings me to our fifth growth driver M&A, we closed our first acquisition in April and over the past three months, we've made great progress integrating the <unk> team in the task ups Lewis.

<unk> is performing ahead of plan and we're starting to see opportunities for our sales teams to sell alongside one another.

Given the current market dynamics, we are very excited about using M&A to consolidate our market over the medium term.

However, we have not yet seen private market valuations align with the current public market reality.

We remain disciplined and focused on accretive acquisitions, and we have the balance sheet and operating capacity to move quickly and it take advantage of these opportunities.

Turning to our teammates and the environment for talent at the end of Q2 total head count was 45300 down by about 500 teammates compared with the end of last quarter.

This was driven by our clients focus on cost reduction by reducing team sizes, primarily in our U S operations and among our crypto currency clients.

We also moved to eliminate certain corporate roles in response to our updated revenue guidance.

The environment for talent continues to be competitive we.

Seen attrition increased this quarter compared to both last year and Q1.

The primary driver of this increase in attrition has been returning teammates to the office.

We now have approximately 40% of our teammates working safely from task as the offices around the globe up from 20% last quarter.

Whether working from home or in our offices, we continue to deliver classes on time and meet our clients' needs.

We're working aggressively to reduce attrition and I'm happy to say that our initial investments appear to be paying off as attrition in July was lower than in Q2.

Our Glassdoor rating also remains amongst the highest in the space at four five stars as at the end of the quarter.

Now, let's move onto our outlook for the remainder of the year.

While we performed well in the first half of the year. The current macro environment is impacting many of our clients.

As a result, we've revised our outlook for 2022 and now expect to grow at 23, 6% at the midpoint of our guidance.

This change in outlook was primarily driven by two factors.

First our clients in the crypto and equity trading spaces have reduced volumes faster and deeper than we expected as of our first quarter call.

To put this in context, crypto and equity trading clients as a group accounted for over 15% of our revenues in Q1.

We now expect that there will be approximately 5% of our revenues in the fourth quarter.

While some of this impact was baked into our outlook provided on the Q1 call we've since seen incremental volume reductions.

Second we're seeing other high growth tech clients look for immediate savings in response to market uncertainty here. Our clients are focused on our U S. Based resources. Some of these clients are leveraging our offshore model and others are reducing vendor spend across the board.

While the increased focus on cost creates meaningful opportunities with both new and existing clients over the coming quarters. It also puts immediate pressure on revenues.

In response to these updates we've not only taken steps to reduce our corporate spend but it also frozen hiring for most non revenue generating roles.

We will continue to invest in our technology and go to market teams.

These investments will drive our growth in 2023 and beyond.

In terms of margins, we now expect that our adjusted EBITDA margin for the full year will be approximately 22, 3% or $210 million at the midpoint of our guidance range.

We also expect to generate approximately $100 billion.

A free cash flow this year.

This is a highly cash generative business and our disciplined approach to capital allocation will continue to support our growth.

As we looked at 2023 and beyond we remain confident in our ability to grow faster than the rest of the industry.

Task as has been the fastest growing business process service company. Since we were founded in 2008, because we are the preferred provider of high growth Tech Disruptors.

While it is a volatile time for tech firms. Our view is that these companies will continue to outgrow the market over the long run more.

More immediately we have a strong pipeline of opportunities to help these clients reduce their operating expenditures by shifting functions that they were currently doing in house to our offshore delivery locations.

Finally, we're expanding our addressable market by working with enterprise clients on their digital transformations and closing deals with Big Tech.

This quarter, we signed pilots with three big Tech firms. These are companies that spend billions of dollars a year on outsourced services as we've done in the past, we expect to earn the opportunity to scale with these clients through the strength of our execution.

With that I'll hand, it over to biology to go through our Q2 financial results and provide more details on our guidance.

Thanks, Brian and good afternoon, everyone.

I am going to discuss our financial results.

For the second quarter of 2022.

Please note that some of these items our non-GAAP measures.

Under the 11 for the cancellations are attached to the press release, we issued earlier today.

In the second quarter, we earned total revenues of $246 $5 million and increase of $36 nine per se or the prior year.

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

In the second quarter, our digital customer experience offerings generated 167 $4 million.

For the year over year growth rate of 47, 4%.

Our content security business grew seven 8% versus Q2 of 2021. This other thing influx of $6 million.

And our air services, the new 39, 4% yield or your core revenue.

$2 7 million.

In Q2, we saw continued diversification of our revenue growth from our top line.

By the ongoing expansion of the desktop.

That sort of thing.

Other revenue concentration with our largest client.

Approximately 22%.

Down from 24% in Q1.

So I guess, the 1% in Q2 of 2021.

Although our second largest client was 9% up over revenue down from approximately 10% in Q1.

Well first on the Q2 off maybe 'twenty one.

Our thoughts and and Salt 20 clients accounted for 58.

73% down from 61% and 75% in Q1 of this year.

<unk>.

The first one and 77% as of Q2 of 2021.

In the second quarter, we generated 51% of our revenues in the Philippines.

30% of our revenue in the United States and 19% of our revenue from that that's about the right.

Mainly driven by all patients in India, Europe , and Latin America.

As bright.

We have seen a pickup in signing for services to be delivered out of our Malaysia and great locations.

We expect to see a revenue concentration generally shift towards the offshore geographies for the remainder of the year.

As a reminder, although margin is driven in large part by our geography mix.

Although cost of service as a percentage of revenue.

Lower in offshore locations.

Which positions us well for margin expansion overtime.

Our cost of services as a percentage of revenue was 58, 2% in the second quarter.

Compared to 57, 7% in Q2 of the prior year.

The increase was primarily driven by ongoing expenses.

Associated with the return to the office.

And cost associated with the transition of work from.

Onshore to offshore locations.

While we have seen wage inflation across geographies this year.

Majority of this impact was offset by the currency benefit of the strong U S dollar.

And price increases from Cola provision in our contract.

In the second quarter.

SG&A expenses were $68 $9 million or 28% of revenue.

This compares to SG&A in Q2, 'twenty 'twenty 100.

$177 $8 million or 98, 8% of revenue.

Which included one time Phantom share bonus.

Non recurring theme made bonuses associated with the IPO of covenant at $3 7 million.

Stock compensation expenses in the quarter with $18 $1 million.

Relating to equity grants.

Third with $5 7 million in Q2 of 2021.

Given the timing of the IPO in Q2 of last year.

We had the impact of a partial quarter of stock compensation.

Public company expenses during that quarter.

In the second quarter of 2022.

We earned adjusted EBITDA of $55 $7 million under 22, 6% margin.

Compared to $44 $1 million under 24, 5% margins earned in the second quarter of 2021.

The reduction in our adjusted EBITDA margin was primarily driven by ongoing cost associated with the return to office under.

On the full quarter of public company costs.

We expect adjusted EBITDA to be impacted by the slower revenue growth for the balance of this year.

We will also continue to invest to drive growth, which will partially be offset by our G&A cost optimization initiatives.

And have a higher margin offshore due to the mix change.

Adjusted net income for the quarter was $38 7 million.

And adjusted earnings per share was <unk> 38 cents.

By comparison in the year.

<unk>, we earned adjusted net income of $31 $4 million and adjusted EPS all the people.

Now moving on to the balance sheet.

Cash and cash equivalents.

$104 $7 million as of June 32022, compared with the March 31, 2022 balance of $77 $1 million.

Cash generated from operations of $36 1 million for the second quarter of 2022 as compared to cash generation of $5 $8 million in Q2 of 2021.

Our DSO was 66 days in the current quarter.

Our capital expenditure.

In the second quarter of 2022 to $11 $6 million.

Compared to $13 3 million in Q2 of 2021.

The decrease was primarily driven by the mid related equipment purchases in Q2 of <unk> 21, which was lower this year.

Free cash flow was $24 5 million or.

Our 44% of adjusted EBITDA.

As Brian discussed we have always been a business that prioritizes free cash flow.

We continue to see this as an area of focus going forward.

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

We've updated our guidance as follows.

We now anticipate full year 2022, total revenues to be in the range of $930 million to $950 million.

Year over year growth rate of 23, 6% at the midpoint.

In addition, we expect on a full year 2020, adjusted EBITDA margin of approximately 42, 3%.

Lastly, we've added free cash flow, which we define as cash flow from operation less capex.

Annual guidance metrics this quarter.

We expect our 2022 full year free cash flow to be approximately $100 million.

For the third quarter of 2022.

We anticipate revenues to be in the range of $224 million.

$226 million.

The person been year over year growth rate of approximately 12% at the midpoint.

And we expect to on a Q3 2022, adjusted EBITDA margin of approximately 22%.

Our outlook implies that we will exit 2022 it's flat to low single digit top line growth.

While we arent providing guidance for 2023 on this call we recognize that we will face challenging revenue comp in the first half of next year.

We are confident that our growth rate will increase through the course of 2023.

And by the opportunities that Bryce alkaline.

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 as teammates story.

At this time for me, Dan less one of our teammates in Colombia.

Yes.

Move to Colombia from Venezuela in 2020, as a result of the economic situation in our home country.

This woman, who trained as an engineer in Venezuela suddenly found herself unemployed in a new city.

She began looking for opportunities in the BPM industry, hoping that she could apply her leadership skills to her new role.

But you heard time and time again that while her background was impressive for English was not yet strong enough for customer service position.

After some research she set our sights on landing a role at task us because of our culture and unique benefits.

She applied to task us in January and our recruitment team instantly saw her potential we invited her to join our art of fluency program and English language training program that we've developed to rapidly improve English proficiency for customer support.

Within a few months she was hired as a teammate.

<unk> has grown quickly a task us she supports one of our challenger bank clients and is delivering top quartile customer satisfaction scores.

Less than a year downloads has gone from being an unemployed refugee with limited English proficiency to a top performing teammate supporting a global fintech firm.

These stories that inspire us our investment in our people continues to deliver for our teammates and our clients and the Arda fluency program is an Amazing example.

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

Thank you and 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 if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith. We also ask all participants asking questions to limit themselves to only one question and one follow up question.

One moment, please as we poll for questions.

Our first question comes from the line of Dave Koning with Baird. Please proceed with your question.

Yeah, Hey, guys nice job on the second quarter and thanks for all the guidance on the back half.

And maybe that kind of kick it off just.

If we look at the back half and kind of compare it to even last year. If you exclude crypto and maybe anything else maybe talk to a little more on whether it's crypto and one or two other things maybe would the back half actually be quite good growth and then the second from that is is Q4 really the base now.

Kind of numbers from Q4 to just kind of grow more normalized sequentially going forward I'll leave it there lets you kind of talk through some of those.

Yes, I'll jump in here, Dave. Thanks, So much for the question. So obviously since our last call we've seen our clients shifted their focus to cost reduction.

Some of them have done this by.

Moving some of the work we're doing onshore to our offshore teams and others have done this by simply reducing vendor spend looking for immediate savings.

Across our entire client base. This has been most acute amongst our crypto and equity trading clients. So I want to make a few points about what we're seeing happen in the crypto and equity trading space task has a low double digit number of clients, whose products feature a crypto or equity trading feature.

These could be businesses that are entirely dedicated to trading equities or crypto or they could be a broader financial platform that offer crypto or equity trading as part of their offering.

These clients made up 15% in fact over 15% of our revenues in Q1, and we now expect that they will be 5% of our revenues in Q4.

With that said, we have not lost a single client in this space. We remain the preferred provider of high growth tech companies, including those in the crypto and equity trading spaces.

Despite these challenges we remain confident in our growth trajectory as we continue to have very very strong relationships with all of our clients and in particular, our largest clients.

We previously discussed that at our largest client we've been shifting a large portion of the work we're doing there from higher revenue onshore locations to lower revenue offshore locations, which is the transition that we completed in Q2, but we've seen very strong overall volume growth with this client we are adding over 1000 additional roles.

For them in the back half of this year given this head count growth.

And our current pipeline of opportunities, we would expect that will grow revenues with our largest client year on year in both 2022, and 2023 and hopefully beyond that as well. We also see continued growth at our largest on demand transportation and food delivery clients on the call I mentioned that our revenues with our large.

Just on demand transportation client has more than tripled.

Year over year in Q2, we're taking significant share from our competitors and are now supporting this client from four different countries. Finally, we just signed pilots with three big Tech companies that we believe have the potential to contribute meaningfully to our growth in 2023 and beyond.

Strategically we remain focused on supporting technology companies and this is a space that is clearly experiencing some volatility today, but we believe it is going to outgrow the market over the long term for now we've shifted our focus from.

Selling onshore teams to selling offshore teams to increasingly selling our automation solutions to help these clients reduce their costs. We've also expanded our addressable market by pursuing digital transformation deals with enterprise clients and signing the big Tech deals that I just mentioned so while we have encountered some significant challenges in the first half of the.

A year, we do feel like our base has been reset and we're very optimistic about our ability to continue to grow faster than the industry.

Got you. Thanks for all that color and maybe just a quick follow up when we look at 2023 and I know you haven't given any sort of formal guidance, but it's fair to say the first half is a pretty tough comp and we could expect you to grow slower than normal just because of that and then the 22% margin in the back half is that a good place to kind of think about next year are there any puts and <unk>.

Takes that that would change that.

<unk> do you want to take that question.

Yes, hey, thanks.

If we talk about predictability perspective, like Brian mentioned bigger our growth rate improve in the back half of 2023.

We would expect to see begin to see margin expansion as well and would also start seeing the positive impact of offshoring getting into clinic.

And like I said earlier, we'll continue to monitor unit.

While continuing to invest in growth, hence, we expect adjusted EBITDA margin will be both continued predictable margin getting into everybody. Thanks.

Gotcha. Thanks, guys. Thanks for all the color.

Yeah.

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

Hey, Thanks for taking my question.

Wanted to ask about.

The large tech companies that income taxes on that.

Can you talk about the type of work you do for some of those times and also that potential opportunity and even of those potentially be a 10% client over time.

And should we expect that look to be relatively more stable than the work you do for small and medium sized clients given.

Possibly.

Volume there.

Accounts.

Thanks, so much for the question. So we're very excited to have closed. These deals. These are clients that we have pursued for many years and this opens up a huge area of addressable spend and outsourcing budgets that run into the billions of dollars. So the best way to think about the potential.

<unk> here is to look back at our relationship with our largest client with our largest client. We initially signed a very small deal in fact in our first year I think we did about $1 million in revenue, but we worked really hard and we proved our value and we started to win RFP. After RFP. So we grew.

Grew in the second year at a $50 million in revenue and have continued working together and to date, we have over $200 million from that client. So we're optimistic about the potential with all three of these clients, it's going to take a lot of hard work.

We want to continue to diversify our revenue base and when we think about <unk>.

Smaller clients versus larger clients, we always want to keep at a healthy mix.

Both but.

The revenue growth that we're trying to drive into 2023 2024 and beyond will be greatly helped by upside at these big Tech clients.

No I appreciate that color and then another question on the guidance for this year.

So it looks like you have assumed significant reductions like that crypto and equity trading clients, but what ties confidence that the other accounts have been de risked.

And that guidance and should not be a source of incremental surprise given the macro environment.

So Tim.

Yes, so we're taking a very cautious approach to.

Our outlook for the remainder of 2023, given the macro environment, sorry did the outlook for the remainder of 2022, given the macro environment. We have a very robust forecasting process that goes client by client and looks at the conversations we're having with those clients and committed volumes.

Sure.

We have listened intently to the earnings calls of all of our public clients and we're hearing quite a lot of optimism amongst our largest clients clients in the social media ride sharing and food delivery space. We continue to have very strong relationships and very strong growth trajectory.

And so that's where we drive our confidence for the guidance that we're providing today.

Got it thank you.

Our next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Thank you maybe to ask that question in a slightly different way can you expand a little bit on the nature of work that youre doing for the equity trading in crypto clients that was particularly sensitive to those client budget cuts and then if that work.

Kevin any of your other segments as we think about how weaker macro could affect other segments from here.

Yes.

Fintech space across Fintech clients, we provide two primary areas of service, we provide digital customer experience services. So that's supporting their customers answering their questions are solving account issues. We also provide a significant amount of risk and response services. This could.

Anti money laundering know your customer fraud investigations work both.

<unk> of those service lines were impacted by overall trading reductions so trading volumes came down contacts and investigation demand came down.

And given the just broader pressure in the space. There has also been an increased focus on reducing opex in order to get to profitability.

When we look across the rest of our verticals we offer a range of specialized services that we've discussed digital customer experience is our biggest service line.

We have not seen anywhere near the same volume impact across any other vertical than we've seen in the fintech vertical as it relates to crypto and equity trading clients over the course of the last quarter.

That's helpful. Thank you.

And then as we think about your ability to service offshore or onshore can you comment a little bit on where youre seeing demand currently it seems like some of the new signings may have an onshore components off the bat is that still the preferred way to start engagements or are you starting to see more clients willington.

<unk> offshore somebody got that.

Broadly we've seen an uptick in interest in our offshore delivery locations, we've seen clients who have.

Presence in our in our onshore locations ask us about supplementing their teams with offshore locations to help bring down costs. We've also seen a lot more interest in our new logo clients in our offshore offerings. I think this is to be expected given the macro environment people are looking for ways to op.

Right more efficiently, but that doesn't mean that we're not seeing any new clients in our domestic operations as I mentioned, we signed a brand new travel client returned to task us to build a center of excellence in Texas, we're going to be hiring hundreds.

Teammates to support that client between now and the back half of the year. We've also signed multiple smaller deals in the last quarter.

Our U S operations, so while overall, we've seen a decline in our U S operations in Q2.

Do see continued interest from some of our new logos.

Thank you.

Our next question comes from the line of Ryan Potter with Citi. Please proceed with your question.

Hey, Thanks for taking my question I just wanted to continue on that topic. I know you mentioned that you signed a travel client and then you've seen some increased interest from traditional enterprise clients.

I was wondering how you go about kind of assessing those inbounds are you trying to only work with kind of the highest growth highest margin opportunities that come in and to what extent confirmed as kind of traditional enterprise interests be.

We used to offset some of the clients sort of pressures you're seeing in areas like our conduct.

Thanks, Brian So we had some concerns after last call and our discussion about the digital transformation deal that we signed with an airline.

I think some people thought that was a sign that we were turning to traditional call center work. It is not we're working with these clients on their digital transformations. Most of these deals are being done at margins that are actually accretive to the rest of our business. So broadly we're really excited.

<unk> about the enterprise deals that we've closed.

We think that that.

There is massive upside as we expand our addressable market and see an increased interest from clients in this space and as I mentioned on the call. We're finding that most of the interest for our domestic delivery capability today is coming from enterprise clients. So we think that it has.

These clients have the ability to drive a disproportionate amount of our revenue growth in the quarters to come.

Got it and then one question on your AI services offering.

With your test versus platform launching last quarter I was wondering if you could give some color on the kind of adoption you've seen on it so far.

And how does it kind of going to about to attract freelancers to the platform.

M&A fees essentially scaled offering in broadly kind of how do you view kind of growth there.

Yeah. So it's obviously early days for us and the task burst, but we've seen great interest in this product from our clients there aren't a ton of scaled offerings that can do crowdsourced data labeling and AI services and there is huge appetite.

Amongst our.

Innovative clients for Disruptors in the space and as I said on the call. We've signed a few really exciting deals to big Tech clients, one of which is brand new to task US one of our top 10 clients in the ecommerce space has also become a user of the task force platform.

So there's huge upside here and we're starting from zero right. So there is the sky is kind of a limit when I think about.

Freelancer Onboarding, we're trying to be the best platform for freelancers in the way that we feel we're the best comp.

Company in the bps space for our teammates.

We've actively recruited freelancers from all over the World, we're working hard to ensure that they are paid promptly.

And that they have a healthy flow of tasks to do to keep them busy.

So we're really excited about that as well we are very interested in continuing to pursue M&A across all of our specialized service lines and we do think that buying other businesses in this space could be a way to supplement not only the crowd that we're building, but also the underlying platform.

Great. Thanks.

Our next question comes from the line of Jason Kolbert.

Freeburg with Bank of America. Please proceed with your question.

Hey, guys. This is Kathy on for Jason I wanted to ask Nathan said, the low end of your full year revenue outlook. So is it that additional clients are going to shift offshore is at that crypto and equity revenue and volume decline significantly further I know you talked about that like 5% attrition continues to worsen and therefore head count growth kind of contract in the second.

Half.

And specifically kind of wanted to ask what you guys are baking in or assuming for volumes, specifically from ride sharing and food delivery.

Thanks, so much Kathy so we've updated our guidance and taking into consideration a range of scenarios given the visibility that we have got into Q3 revenues and the confirmed growth for many of our largest clients. We're very confident in our ability to deliver upon the guidance that we're providing today.

Hey.

When we look out into 2023 and beyond.

We're very confident in the underlying fundamentals of our clients. There is some volatility in the crypto and equity trading spaces in particular, but we've listened to the calls of many of our clients in the on demand transportation food delivery.

And social media spaces, and those give us optimism that we're going to continue to see healthy level of growth across all customers beyond that we continue to take share within most of our largest client relationships.

So at this stage those are the things that are giving us a high degree of confidence about our ability to continue to grow faster than the industry in 2023 and beyond.

Okay, and I guess switching gears, a little bit so I see that your free cash flow. If my math is right I think you guys actually raise it. So it's maybe 45, 50% of adjusted EBITDA for 2022.

It was 30% to 40% of our conversion rate.

If I remember that correctly can you just talk a little bit more about like what are the key drivers of this and kind of what kind of cadence we should expect in Q4 Q.

Is this kind of sustainable level, we could expect.

In 2023.

Yes, absolutely.

So from a free cash flow perspective, like I mentioned before.

And important to us, but in the current market environment. It is even more important.

We've added free cash flow within the annual guidance metric now, which was particularly to like you said, it's $100 million and almost a people thing from a free cash flow.

Conversion to adjusted EBITDA and coupled with a couple of factors that are going to be.

Good thing.

Obviously going to be the adjusted EBITDA margin and second is the capex that we're going to be in this thing and.

One of the things that we've called out is that this year, we're going to be investing more in capex than others, because we haven't got to Capex, we've just coming in from previous year, and we expect capex to be somewhere around seven vikas on FIFO, So thats a possibility of revenues, but on an ongoing basis.

In the medium term, we expect the conversion to be somewhere between 50 to protect.

50% in the medium term, but in the long term as you start optimizing capex through increasing work from home and we've actually continued to grow offshore one of the things that you've seen is that the seat utilization is better.

In offshore geographies. So from a long term perspective, we would expect this conversion to be above 50% off or just sticking with that model.

Okay. Thank you.

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

Thanks.

I'm a little.

We have made thus far through the call without the.

The macro question, but just wondering if youre seeing any changes to decision, making our decision cycles.

Particularly because of macro uncertainty right now more so than what youre hearing from your customers say to the public.

James Thanks, so much for the question. So our pipeline right now is as big as it's ever been and it's filled with opportunities to support both our current clients and prospects to help reduce their operating expenditures.

But the macro environment has slowed deal velocity somewhat.

In the last quarter. There were two very large deals that were at the one yard line and both of these companies launched internal hiring freezes.

And and then went on to to put our deal on hold.

Very confident that these deals will get done I mean, we believe very strongly in the underlying value proposition of helping.

These companies to reduce opex in the midst of.

More challenging macro environment.

But obviously that has a direct impact on revenue this year.

So I think we probably will continue to see some hesitation.

Particularly in some of these larger deals in the high growth tech space, but over time.

We think that there will be a.

Broader based adoption of outsourcing as a way to reduce cost.

Thanks for that pricing and then I guess as part of that same conversation you on some of your peers have talked about vendor consolidation can.

Can you talk about what youre seeing in the current environment and how that's contemplated in your outlook.

In it.

As your customers are looking to control cost if thats part of that conversation.

It is particularly amongst our larger clients, we've been the beneficiary of quite a bit of vendor consolidation over the last few quarters I mentioned, our largest ridesharing client on the call.

One example of that.

As we look ahead, we think theyre going to be continued opportunities for us to take share from our competitors by offering a better value proposition helping.

Helping our clients to reduce their costs, while delivering with quality and task is known for.

Okay.

Thanks for that price.

Okay.

Our next question comes from the line of Matt Van Vliet with BTG. Please proceed with your question.

Yes. Good afternoon, thanks for taking the question.

Thinking about some of the faster pace or maybe even very recently decided shift to offshoring from a number of your existing clients I'm curious how we should think about this impacting revenue not just for the rest of the year, but in the 'twenty three especially framing it in the light of your largest.

Customer.

Who is obviously, creating a headwind to growth this year, but.

A much more planned out and you've already seen.

It sounds like upside to that initial plan as you move offshore and adding additional head count.

And rolls is that something that you anticipate could happen in 'twenty three and beyond as these customers move offshore.

Or does this feel more of a reactionary reduce costs and we will have to wait and assess in the next year or even 24. Thank you.

Yes, when we think about the.

The impact on 'twenty three.

We know that we face challenging revenue comps in the first half of 'twenty three when compared to the first half of <unk>.

<unk> 22, and that's because of exactly what you just said the shifts at our largest client.

Reductions that we've seen.

Our U S business from crypto in equity trading clients, but.

But we remain very optimistic about our ability to continue to grow faster than the industry in 2023, given what we're seeing in the pipeline given the deals that we've signed with big Tech firms given the interest from enterprise clients.

So I think that right now.

The the market.

As volatile, but that volatility should benefit us overtime now I want to talk a little bit about.

The domestic operation more specifically at the start of this year of 33% of our revenues came from the U S.

And given the reductions we've seen in Q4, we will get we derive about 20% of our revenues now from the U S.

A question that could follow from that as well what will happen in the remainder of that 20% over half of that revenue has to stay in our domestic business for regulatory reasons or strong client preferences.

And we're continuing to see growth outside of that revenue in the form of the travel deal that we just signed for hundreds of additional roles in the U S. In a number of other clients who've approached us about launching domestic operations.

So while we're seeing reductions in our domestic business at the moment, we remain confident about the importance of our domestic operations to task us long term.

Okay, and then I guess.

Looking at the AI services.

This quarters, a slight quarter over quarter decline.

After being very strong growth over the last several.

Curious if that is specific to any of the industries you have called out or are there particular projects that just sort of wind down and haven't necessarily been filled through the pipeline yet.

Should we think about the AI services group for not only the rest of the year, but sort of overall demand understanding that the.

The freelance in.

Gig program, maybe offset some of that.

Yes, so ed in the ARY services area, we had a large portion of that work being done domestically with our largest client given the transition we've seen a slight sequential quarter over quarter decline.

Continuing to grow AI services revenue.

Healthy rate year over year.

Given the full quarter impact, we will see that again in Q3, but when we look at the total number of clients who are using our AI services. The total number of geographies that we're delivering services from both of those things continue to grow quarter over quarter. So we remain very very optimistic about the service line.

Alright, great. Thank you.

And our last question comes from the line of Brian Essex with Goldman Sachs. Please proceed with your question.

Great. Thanks, Good afternoon, and thank you for taking the question Brian I was wondering if you can hit on.

Totally understand the I guess, the reduced revenue from volume driven business.

If I look out over what we see in the private company space, particularly in technology a lot of these emerging companies had been asked by their investors to reduce spend so.

I guess with regard to the topic of companies looking to reduce spend overall outside the volume driven business. What are those conversations usually look like and are there other ways that they are trimming again outside of that volume driven business.

Thanks, so much for the question Brian .

Start 15 of our top 20 clients are public it's an amazing transformation from just a few years ago when the.

Number was almost inverse so we have a very large client base that has already gone public in our large enterprises, but when we look at the long tail of our clients. We do have a tremendous number of high growth innovators.

And many of them are venture funded and there we're seeing similar trends to what we've seen in our largest customers theyre all being asked to.

Find a way to get to profitability.

And tasked us as part of that solution.

<unk> helped the number of our venture funded clients shifts work that they were doing in house to our offshore delivery locations.

Great our automation solutions into their operations.

<unk> of reducing operating expenditures and achieving profitability.

So it's a similar tale, while there was some hesitation amongst new clients, we think that over time.

This situation will actually drive additional growth in that space.

Yeah.

Got it got it that's helpful and maybe to follow up biology.

If we think about some of the fluctuations we've seen in FX could you remind me.

Are you building a 100% in domestic currency, how much might be built in local currencies outside of the U S and how do we think about the impact of FX to the customer's ability to afford your solution as well as maybe impacted margins to the extent that you are paying for labor in OXXO locations.

Yes.

Thanks for the question. So the majority of deferred revenues are with clients that feels in U S dollars on that building U S. Others. The small portion of revenue that would be built in Europe is coming through the recent acquisition that we made.

Okay.

So the exposure is more in our cost that we incurred outside of the U S. In local currency. So we can be the Philippines being our largest exposure in India.

So in terms of products hedging our approach has been to do a rolling four quarter hedging program that covers about 50% of our forecast and expect those into production.

We are currently looking at establishing a hedging program for India as well.

Given the growth in their geography for the last two years, but the optimization of the dollar versus the <unk> and the Filipino peso has been helpful.

Especially to offset some of the beef inflation that we're seeing those challenges.

Got it that's super helpful. Thank you very much.

And we have reached the end of the question and answer session, which also concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.