Q4 2022 Taskus Inc Earnings Call

Good morning, and welcome to the task of Investor call. My name is Paul and I will be your conference facilitator today at this time all lines have been placed on mute to prevent any background noise.

Speakers remarks, there will be a question and answer period.

If you require operator assistance. Please press star zero on your telephone keypad.

As a reminder, this call is being recorded.

I'd now like to introduce Alan Katz, Vice President of Investor Relations Ellen you may begin.

Good afternoon, and thank you for joining us for the task us fourth quarter and full year 2022 earnings call. Joining me on the call today are <unk> co founder and Chief Executive Officer of Task Symbology 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.

Relations section of our website at IR Dot task Dot com.

Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate web site.

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 neither 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 that task of Dot com and may be supplemented with subsequent periodic reports filed with the SEC.

We expect our 2022 10-K to be filed with the SEC in the coming week.

Any forward looking statements made on today's conference call, including responses to questions are based on current expectations as of today and <unk> 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 metrics. 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 of tasks.

Rice.

Thank you Alan good afternoon, everyone and thank you for joining US we had a strong end to 2022 with both revenue and adjusted EBITDA coming in above our guidance ranges.

I'm so proud of our global team that worked tirelessly throughout this year to advance our strategic goals.

We completed our first acquisition of <unk>, which expanded our European delivery footprint.

Finished the year ahead of plan.

We expanded our operations into new geographies, such as Malaysia, and Japan and launch New service offerings, such as the financial crimes work led by our risk and response team and training and development solutions led by our learning experience organization.

We also officially launched our <unk> platform delivering scaled AI annotation and E Commerce data project to both existing and new task with clients.

We signed contracts with three of the largest global tech companies in the world and added and expanded our business with large enterprise clients.

Lastly, we continue to maintain what we believe is the strongest corporate culture in the industry and have brought 42% of our teammates back because he office as of the end of the year.

Overall sales activity remained strong throughout the year as we continued to strengthen and diversify our revenue base.

We ended 2022 with 86 client billing $1 million or more on an annual basis, and 21 client billing $10 million or more annually up from 72 and <unk> the year prior.

We also made significant progress on our efficiency and cost efforts.

As a result, we increased our adjusted EBITDA margins in Q4 and ended the year well above both our most recent guidance range and our initial outlook that we provided at the start of the year.

These are just a few of the incredible accomplishments of our team in a very challenging environment.

In 2022, our client shifted their focus from growth to efficiency amidst increasing economic uncertainty.

This has increased demand for our efficient offshore delivery and automation solutions from both new and existing clients.

As we discussed on the last call over the next few quarters, we expect to continue to see a volatile macro environment as well as a challenging set of comps from the first half of 2022.

However, I remain confident in our ability to drive profitable organic revenue growth in 2023, and exit the year and an even stronger position.

I'm going to move on to a quick recap of the fourth quarter and full year results then I'll discuss the impact that we expect from the current macro environment and what that means for our 2023 outlook and lastly, I'll discuss our strategy to improve profitability and drive growth in the back half of this year into 2024.

And beyond.

Let's start with financials.

Q4 was another strong quarter of both topline and Bottomline growth.

Revenue grew by six 8% year on year to $242 $2 million above the top end of our guidance range of $233 million.

Adjusted EBITDA grew by three 2% year on year to $57 $9 million for an adjusted EBITDA margin of 23, 9% also above our guidance of 23, 2%.

For the full year 2022, we achieved $965 million in revenue and $223 2 million and adjusted EBITDA for an adjusted EBITDA margin of 23, 2% again above the top end of our guidance ranges. We ended the year with <unk>.

Top line growth of over 26%, while maintaining margins that we believe to be among the highest in the industry.

Moving on to findings and growth with our current clients in Q4 revenue from our top 20 clients increased 1% year over year.

This growth rate continued to be materially impacted by the transition of work offshore at our largest client.

And the declines in volume at our largest crypto and equity trading clients if.

If we exclude the impact from those three clients our largest 17 teen clients grew over 27% year over year.

And revenue from clients outside the top 20 grew at approximately 25% year on year.

We expect to see our clients outside of our top 20 grow at a faster rate than our largest clients in 2023, as we improved the diversity and resilience of our client base.

Looking at our service offerings.

Digital customer experience revenue grew by seven 3% compared with Q4 of 2021.

As a result of expansion with existing clients and new client signings, we're seeing strong signing activity from existing clients and the health Tech high Tech travel and on demand transportation spaces, as well as with non crypto fintech clients.

This service offering returned to sequential quarterly revenue growth this quarter as the lower volumes from clients in the crypto and equity trading spaces were more than offset by clients looking to leverage our global footprint to drive efficiency.

As I discussed last quarter, our large clients have continued to turn to us to absorb volumes after announcing internal staff reductions.

In terms of our crypto and equity trading clients as expected. They represented 4% of our Q4 revenue or $10 $5 million.

While we continue to be the preferred partner of the largest players in this space. We expect revenues from these clients to continue to decline throughout 2023.

Yeah.

Moving onto some of the signings for the quarter in Q4, we signed it digital CX contract with a leading provider of global money transfers and multi currency management.

We will be supporting email chat text and calls for this client multinational operations and are driving a digital transformation process, enabling cost savings and efficiency gains will be servicing their end users in Europe , North America, and Latin America.

In Q4, we also started at ECS engagement with health care data and analytics provider.

This company turned to task to provide data validation for health plan participation had appointment information.

Port data poses significant risk to the health care industry's ability to close gaps in care and drive better patient outcomes.

By solving this problem, we are protecting patients and providers, while improving our clients' operating efficiency.

We also expanded our Dcs relationship with a telehealth provider in the quarter supporting a large expansion of their business.

Both of these clients are being served out of our U S operations, we have seen strong demand for our U S delivery among health care customers due to the regulatory requirements and the highly sensitive nature of their work.

This type of work is a great example of a U S. Based services that we believe will remain onshore regardless of the economic environment.

We see the U S. As a key geography for delivering highly specialized services, particularly to health care clients.

Moving on to trust and safety, which we previously called content security revenues in this service offering declined five 1% compared with Q4 of 2021, driven by the impact of our largest clients moving work to our locations in the Philippines and India.

If we excluded the impact from our largest client this quarter is trust and safety revenues would have grown by 8% compared with Q4 of 2021.

At our largest client we continued to see volume increases and take share from our competitors in queue for.

The number of teammates supporting this client increased by 29% from the start of 2022 to the end of the year.

With skilled offshore operations in both the Philippines, and India were well positioned to continue to grow volumes at our largest client in 2023.

As I discussed on the Q3 call. We continued to transition rules from the U S to offshore geographies. This transition will now be complete at the end of Q1 at which time effectively all of our U S. Based revenue with this client will have shifted offshore.

Looking at our other client findings in the trust and safety offering we expanded our relationship with one of the country's largest dating apps to provide both content moderation support as well as <unk> services.

This client has grown from a small pilot in 2021 and to date, we support them across 10 business lines leveraging both in office teammates and task versus based gig workers, our expertise in automation and process engineering, that's led to hub multiple expansion opportunities, which we believe will.

<unk> in the current environment.

We also expanded our trust and safety work with a social engagement platform that maintained online communities for large digital publishers.

This platform enables publishers to bring conversations back from social networks to the publishers on site.

As such it is vital to ensure that all of the user generated content follows. The publishers moderation policies. We've helped this client to craft their product and policies to protect these diverse virtual communities.

Recognizing our expertise this quarter, our client transitioned content moderation for one of the worlds largest publications to task us there.

They turn to us for our expertise on trust and safety research proactive and reactive classification flagging, a district disinformation trends and policy enforcement.

AI services revenues grew 21% in Q4, compared with Q4 of 2021, driven primarily by expansions with existing clients and the autonomous vehicle, social media and travel and transportation spaces.

Last quarter, I highlighted an exciting new engagement with a leading provider of generative AI technology.

Their user base has grown exponentially since our last call and we've supported this growth and expanded the scope of services that we provide to them.

They continue to leverage our AI services to train and develop their algorithm.

In Q4, we began to provide content moderation services to ensure their technology responds to use your questions in accordance with policy guidelines.

We're doing the complex sensitive in center work that requires the claim mission led wellness support that task pioneered for this industry.

This serves as another Great example of the task of discovering new industries and developing the specialized services those industries need to scale.

We also expanded the scope of our crowdsource data collection and data annotation business using the task force, our global gig worker platform, which we brought to market at the start of 2022.

We now have approximately 115000 taskers signed up for dig work in approximately 80 countries covering over 90 languages.

In its first year the path versus supported some of the largest technology companies in the world.

For one of our e-commerce clients, our task or community performed more than $1 2 million annotations over the period of just a few weeks.

For one of our Big Tech clients, we collected and annotated tens of thousands of videos from Taskers supporting the development of our clients' most advanced and inclusive machine learning based products.

While this is a small service offering from a revenue perspective, we expect growth of revenues from the path to significantly outpaced every other part of our business for the next few years.

Looking at our overall findings activities our engagement this quarter were again, driven largely by growth from existing clients, which accounted for over 75% of the total new business signings in Q4.

We ended the year with an annual net revenue retention rate of 114% and our current pipeline is the largest it has ever been including opportunities for expansion with existing clients, new client engagements and large transformational deals.

Turning to revenue growth within our industry verticals, we're seeing particular strength from clients in the retail and E Commerce space The high Tech space, which we will begin the call just technology and with on demand travel and transportation clients.

Each of these verticals grew by approximately 40% this quarter compared with Q4 of 2021.

We also saw approximately 30% growth from clients in the entertainment and gaming space This quarter.

In Q4, we delivered excellent results for three of the world's largest technology firms that we began working with earlier in the year.

We now have plans to expand all three relationships in 2023.

We see the potential for even more significant growth across these clients, but view this as upside to the 2023 outlook that we're providing today.

I'll spend a few minutes discussing our teammates and the environment for talent before I move onto our outlook for 2023.

In Q4, we added 800 net new teammates to task of bringing our global head count to 49500.

We continue to see year over year increases in the size of our teammate populations in every country, except Ireland and the United States.

In the back half of 2022, we saw a significant improvement in employee retention and in Q4, we had the best employee retention numbers of the entire year.

Overall 2022 employee attrition was higher than in 2020, and 2021, but lower than in 2019, which is the last full year, where we had all of our teammates in the office.

Task as teammates really that's four six stars on Glassdoor as of the end of the quarter.

Now, let's move onto our outlook for 2023.

In our press release issued this afternoon, we indicated revenue of $965 million at the midpoint of our guidance range and adjusted EBITDA margin of 23% and free cash flow generation of at least $100 million.

Excluding the earn out payment associated with the <unk> acquisition that we completed in the second quarter of 2022.

Like our clients, we are laser focused on improving the efficiency of our business.

This year, our goal is to improve both our adjusted EBITDA and free cash flow year over year, regardless of what happens in the macroeconomic environment.

Apology will provide more details on what will drive these results later in the call.

Let me spend a few minutes on our guidance and how the current macroeconomic environment plays into our outlook.

We worked closely with each of our clients as part of their 2023 budgeting processes on.

On the Q3 call I noted two trends across our client base that emerged from these conversations.

First clients are looking to reduce costs by leveraging our global delivery model shifting expensive in house resources to our efficient offshore teams.

We continue to see this as a large driver of signings in the past quarter, we're doing more complex work and taking on more sensitive and critical processes at the same time, a number of our clients continue to reduce the size of our teams supporting them from the U S.

The size of this impact in Q1 of 2020% to 33% of our revenues came from U S delivery.

By Q4 of 2022, this number had dropped to 21% of total revenues.

The midpoint of the guidance provided today contemplates a scenario in which the number drops to just 15% of total revenues for the back half of this year.

The U S. As a key geography for us and will always play a vital role in our global delivery model a majority of the work that remains in the U S must stay in the U S for regulatory reasons process compliance or because of strong client preferences. We continue to win exciting new clients for our U S operations like the two health care.

So that I mentioned earlier, who rely on our U S teams for sensitive and regulated processes.

But it's clear that the growth engine of our business in the years to come will be our efficient offshore operations in the Philippines, and India Nearshore operations in Colombia, and Mexico, and our digital automation capabilities.

Given these trends and the uncertain macroeconomic environment, we've decided to take a cautious approach by setting a wider guidance range for 2023.

As we near a floor on our U S revenue declines and accelerate the growth of our global delivery locations, we expect to return to growth in the back half of this year.

We are focused on three initiatives to accelerate revenue growth over the course of 2023.

First we see meaningful opportunity to expand with a large global technology and traditional enterprise clients that we signed in 2022.

Given our stellar performance in 2020 to these clients focus on cost and our ability to deliver efficiencies. We're confident we're going to see meaningful growth here.

Second we see a significant increase in demand for our specialized services from industries, where we have a distinct competitive advantage, we have exciting opportunities into health Tech and autonomous transportation spaces.

I'm personally very excited about the services, we're providing to the generative AI industry here.

Here again, we are well ahead of the competition supporting the leader in the space and developing a set of specialized services that hundreds of startups in this space will need to develop and maintain their own models.

Lastly, we are expanding our go to market efforts globally in particular in Europe and Asia as.

As we grew in Europe in 2020 to our <unk> acquisition helped to cement our reputation there as a top service provider.

In 2022, we supported approximately 40 clients that are based in Europe , tripling, our European client base and just a single year.

From our sites in Malaysia, Taiwan, and Japan, We're now providing services for the Asia operations at several of our largest global clients positioning us well to compete for business in the region.

Global go to market expansion represents a vast opportunity area for us.

By executing on these three initiatives I believe that we will grow profitably in 2023, while increasing our adjusted EBITDA and free cash flow.

With that I'll hand, it over to biology to go through the Q4 financials in a bit more detail and provide our outlook for Q1 and the year ahead.

Thank you, Brian and good afternoon, everyone.

I'm going to focus my remarks, primarily on our fourth quarter.

We will reference a few key full year metrics.

Note that some of these items our non-GAAP measures.

And the relevant reconciliations are attached to the press release, we issued earlier today.

In the fourth quarter, we earned total revenues of $242 2 million.

An increase of six 8%.

The prior year.

Leading to total revenues for the year of $965 million and growth of 26, 3%.

Higher than the top end of our guidance range.

The strong revenue performance in the fourth quarter compared with guidance was primarily driven by two factors.

First the timing of offshoring sort of our largest client which shifted from Q4 to Q1, resulting in higher revenues from this client in the quarter.

Second we also saw stronger seasonality with our consumer exposed clients.

Than we had expected as of the last earnings call and some of the volume risks that we expected did not materialize.

This was particularly true for clients in the e-commerce food delivery and on demand transportation spaces.

Although offshore delivery model.

Since an attractive way to drive efficiency into their businesses.

Hence as these clients have shifted their focus to cost. This past holiday season, we were able to grow volumes with them.

Moving onto our service offerings.

We saw yield or what are your growth in two of our three specialized service offerings.

In the fourth quarter, our digital customer experience offering generated heartland $69 million.

On a year over year growth rate of seven 3%.

Our trust and safety business declined five 1% compared to Q4 of 2021, resulting in $42 $3 million of revenues.

Driven by the offshoring of volumes from our largest client.

And the AI services business grew 21% yield or what a year for revenues of $40 9 million.

In Q4, we continue to see the diversification of our revenue base.

Our revenue concentration with our largest client was 22%.

With Q3.

Down from 35% in Q4 of 2021 right.

While our second largest client.

Priced less than 10% of our revenue.

I'll start with Q3.

Down from 11% in 2021.

This showed sequential and year over year revenue growth with this client in both Q3 and Q4 of 2022.

In Q4 of 2022, our top 10, and top 20 clients accounted for 58% and 71% of our revenue respectively.

3rd% to 60% and 75% in the prior year as our trend of revenue diversification continues.

In the fourth quarter, we generated 54% of our revenue in the Philippines, 21% of our revenues in the United States, 12% of our revenues from India, and 13% of our revenues from the rest of the world, mainly driven by our operations in Europe and Asia.

You'll note that we began reporting India at the Standalone geography, given our tremendous growth there over the past several years and the potential for India in the future to be as large as the Philippines.

We felt that this increased disclosure what's important.

In terms of our cost of service as a percentage of revenue. It was 57, 5% in the world.

Compared to 56, 2% in the prior year.

Year over year increase was driven by wage inflation.

<unk> is associated with a return to the office and the transition cost associated with shifting work offshore.

This was primarily offset by the strong U S dollar.

And the geography mix of revenue.

In the fourth quarter, our SG&A expenses were $64 5 million or 26, 6% of revenue.

This compares with SG&A in Q4, 2021 up $65 7 million or 29%.

We continue the investment sales automation and the past versus platform, while taking significant actions to drive efficiency into the corporate functions.

Stock compensation expenses in the quarter with $13 3 million.

Relating to equity grants compared to $24 million in Q4, 2021.

Stock compensation expense reductions in Q4 2022.

They are primarily offset by $4 $8 million associated with the earn out consideration of Google from our acquisition of Halo.

We earned adjusted EBITDA of $57 9 million and $23, 9% margin in Q4 compared to $56 2 million at.

At 24, 8% margin in the fourth quarter last year.

Our revenue growth.

The strong U S dollar and our geography.

<unk> of revenue was partially offset by increased costs due to return to office wage inflation and expenses associated with transitioning work offshore.

For the full year, we achieved $223 $2 million and adjusted EBITDA.

And then adjusted EBITDA margin of $23, 2% above our guidance range.

As our clients have shifted their focus to driving efficiencies into their businesses. So we'll have beat.

In 2022, we kicked off a multiyear effort to improve the efficiency of our global operating model.

Leveraging automation and shared services.

<unk> been in millions of dollars of saving last year.

In 2023, we will continue these efforts further optimizing our global operation and support and administrative functions through the use of technology and process design.

This multiyear program will lead to approximately $20 million of in year savings in 2020.

This efficiency effort combined with the growth of our higher margin offshore business.

Allow us to continue to invest in strategic growth areas.

It will also help offset wage inflation and other cost items and drive improvement in our adjusted EBITDA margin in the back half of 2023 and beyond.

Adjusted net income for the quarter was $33 $3 million and adjusted earnings per share was 33.

Impacted by increased financing expenses and higher taxes in the quarter.

By comparison in the prior year period, we earned adjusted net income.

$37 $1 million and adjusted EPS of <unk> 34.

For the full year adjusted net income was 142 8 million.

Adjusted earnings per share was $1 39.

Compared with $129 4 million in adjusted net income and $1 26 of adjusted earnings per share in 2021.

Now moving onto our cash flow and balance sheet.

Free cash flow was $24 $9 million in Q4.

$103 $3 million for the full year 2022 above our guidance of $100 million.

This represents a conversion rate of 46, 3% of adjusted EBITDA for the full year in line with our medium term target of being between 40% to 50%.

Cash and cash equivalents were $134 million as of December 31, 2022.

Compared with the September 30 balance of Heartland, $22 5 million.

Our DSO in the quarter remained flat at 66 days compared with Q3.

Our capital expenditure.

In the fourth quarter to $7 7 million.

3% of revenues compared to $20 8 million.

Our 9% of revenue in Q4 of 2021.

For the full year, Capex was $43 8 million or 5% of revenue.

Compared with $59 million in 2021, 8% of revenue.

This decrease was driven largely by better utilization of technology assets.

Employees return back to the office.

We expect that overtime, our build capex could trend lower as we leverage a more balanced work from home model.

Improving free cash flow conversion.

In terms of use of cash we maintained our disciplined capital allocation program and this year, we allocated $100 million towards our buyback program.

In the quarter, we bought 900000 shares for $17 3 million.

For the year, we have repurchased one 6 million shares for $31 million.

We will continue to allocate capital to all of our buyback program Opportunistically.

We continue to de lever the balance sheet and ended the year at <unk> six times net debt to adjusted EBITDA leverage ratio.

Our priority remains investing for growth.

Given the strength of our balance sheet, we have ample capacity to take action on any M&A opportunities that meet our investment criteria.

Continue to return capital in the form of repurchases.

At this point I will outline our financial outlook for the full year.

And first quarter of 2023.

We anticipate full year 2023 total revenue to be in the range of 948000 $990 million.

We expect to on a full year 2022, adjusted EBITDA margin of approximately 23%.

And we are confident we will achieve over $100 million.

Free cash flow in 2023, excluding the earn out payment.

Associated with the.

Halo acquisition.

This adjusted EBITDA margin guidance for the full year is based on current Forex rates. So any change to tenancy days would impact our margins.

As a reminder, the majority of our revenue is billed and collected in U S. Dollars. So we do not see the impact from U S dollar fluctuation on our revenues.

<unk> will also be impacted.

The typical wage inflation that we see on an annual basis, partially offset by higher gross margins achieved in our offshore geographies and the reduced G&A spending our team achieved in the back half of 2022.

Looking at the more immediate term.

Outlook for Q1 is unchanged from our expectations as of the time of the Q3 call.

You can see the reduction from our Q4 seasonal volumes.

And we will realize the impact of the transition of work offshore for our largest client.

As a result, we.

<unk> revenues to be in the range of $231 million to $233 million.

And we expect to earn an adjusted EBITDA margin of approximately 21%.

The adjusted EBITDA margin for Q1 will be impacted by lower revenues, while we execute on our next phase of cost saving initiatives.

We expect these to begin flowing through in Q2 and more significantly impact our reported margin in the back half of the year as we start growing again.

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

Thank you <unk> before we open for questions I want to share another task us teammates story.

Earlier this month I visited our team in Tijuana, Mexico.

Our frontline first mantra means we invest in providing inspiring facilities and world class benefits to attract and retain the best talent in the industry in.

In Mexico, we offer our teammates scholarships to take college courses part time to advance their careers. Additionally, our teammates told me that we are the only BPL provider in the region to offer fully paid comprehensive health insurance.

This program proved to be a critical investment for Marcos our procurement manager at the Oasis location.

Marcos Joint task is from a manufacturing company, partially because we provided such good healthcare coverage.

<unk> is a passionate motorcyclist and earlier this year, we hit a major fall while writing.

Caskets insurance paid for markets to go to a private hospital, where he had emergency surgery and covered his salary during his recovery.

And our conversation Marcos remark that joining task us Mike just that saved his life and he ended the conversation by saying I got my sold back when I joined tasked us.

Listening to Mark Us with a powerful reminder, for me of the positive impact that task. This has on the lives of our teammates across the globe.

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

Operator.

Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and <unk>.

Confirmation tone will indicate your line is in the question queue.

You May press star two if you'd like to remove your question from nature for participants using speaker equipment. It may be necessary to pick up your handset before pressing the SRT one moment please poll for questions.

Thank you. Our first question is from Maggie Nolan with William Blair. Please proceed with your question.

Hi, Thank you you had given some color on the pipeline, including some mention of large transformational deals.

How quickly are you able to close deals of this nature and would there be a resulting margin impacts from the types of deals.

Yes, Thanks, Maggie for the question, so I've talked before about shifting the way we bill our clients from our outcomes. We've done this in a number of cases in the past, but we're now seeing increased interest and larger deal size. The transformational deals in the pipeline today are in the tens of millions of dollars.

A year in revenue.

And this shift is being driven by the increased focus on cost across our client base and the revolution that were seeing in degenerative AI space.

So again these transformational deals tend to have larger deal sizes and longer contract terms.

Give us control over the levers that we need to drive margins, whether that's automation process or geographic delivery.

And finally, we do expect that these deals will take somewhat longer to close than traditional deals.

All that being said I'm very excited about the prospect of these types of engagement to drive growth and margin expansion over time.

Okay, that's great to hear and then so it sounds like maybe they materialized a little bit later in the year in terms of the revenue and then <unk> you had mentioned some seasonality that drove revenue in the fourth quarter of 2022.

What sort of expectation should we have a seasonality in 2023.

Yes.

Yes.

Yes, perfect Scott go ahead <unk>.

Yes, so Mike in terms of seasonality what typically happens is that.

Especially with some of the consumer.

We do see seasonality pick up in Q4, and then we see that impacting in Q1, and then for the rest of the year, we typically don't see seasonality.

Typically see a pick up again in Q4 of 2023.

Aggregating more seasonal award, but again for the overall business seasonality is not a big impact, it's a pretty small impact from our overall revenue perspective for the year.

Okay. Thank you.

Thank you. Our next question is from Cathy Chan with Bank of America. Please proceed with your question.

Hey, guys. Thanks for taking my question.

I just wanted to ask what are some of the assumptions that are baked into your 2023 outlook. So how much are you expecting for growth in your top client you mentioned that in <unk>. You grew your second largest client as well year over year and quarter over quarter are you expecting that trend to continue into 2023, and I think you gave a little bit of color on crypto as well.

<unk>.

But I just wanted to make sure that I got that right in terms of you're expecting declines in crypto throughout 2023 is that as a percentage of your total or is that in dollar terms of that $10 $5 million Dave. Thank you.

Yes, thanks, Cathy so our current outlook for Q1 is consistent with the outlook that we provided on the Q3 call in terms of Q2 and the back half of 2023, we're striking a cautious tone just due to macroeconomic uncertainty and specifically we're watching two things. The first is the speed.

Decision, making while our pipeline is larger than ever we do anticipate some delayed decision, making and as I. Just said those large transformational deals we do expect us to take longer to close the second is the economic environment continues to cause our clients to pursue.

Cost savings and this has increased the potential for further reductions in offshore shifts that impacted our U S business. We do believe we're approaching a floor here.

But at the midpoint of our guidance range, we contemplate a scenario in which U S revenues fall to just 15% of overall revenues in the back half of 2023 down from about a third of revenues in the first half of 2022.

If we look at specific clients.

Our largest client we continue to have a very strategic relationship given our large offshore footprint, we do expect to see significant opportunities to help them save costs in 2023.

I said on the call in 2022, our head count supporting this client grew 29% year over year with that being said our largest client is very cost focus this year.

And that has meant they had to look for additional areas to cut costs in Q1 as an example in addition to the reductions in on offshore shifts that we discussed last quarter. This client has eliminated a line of business that we had expected to remain permanently in the U S. During the first quarter and this will have an impact on our year.

Over year growth rates as a result, the midpoint of our guidance contemplates a small year on year revenue decline, while our volumes increased modestly at this client given our offshore footprint and the strong client relationship. We believe we're well positioned to continue to take share from our competitors and growth here overtime.

In terms of the crypto space, our guidance contemplates a slight reduction in run rate annual revenues from Q4, we continue to support the largest players in both the crypto and equity trading spaces and I believe we're actually the largest provider for many of our clients in this space.

But the volumes at some of these clients have been reduced by up to 95% given the ongoing crypto winter that's being experienced.

Got it Super helpful. And then just a follow up so you guys, obviously gave a guidance range for revenues, but.

More of a specific number from Morgan so that 23%.

And of the revenue range, how should we think about how much flexibility you have in terms of achieving that margin outlook.

Yes, so in terms of the guidance, we provided for the two person.

At the midpoint and in terms of the low end of the range. We have demand stated that in 2022 that we've been able to react to changes in revenue by adjusting our cost base and maintaining our EBITDA margin. So we beat our initial guidance that we provided for EBITDA and free cash flow in 2022.

Despite some of the headwinds that we had from a from a revenue perspective and also on the call I spoke about an efficiency program that we started in 2020.

And we'll continue to dive into a different degree between Delaware full year savings of about $20 million. So we'll fight program appropriately based on our forecast and performance towards the year and also we've been very thoughtful in this exercise to make sure that we continue to invest in all the appropriate areas that is required in the business to grow.

<unk>.

We continue to invest in sales and technology.

Thanks, guys.

Thank you. Our next question is from Dan Perlin with RBC capital markets. Please proceed with your question.

Thanks, Good evening.

I just wanted to follow up a little bit on the question around AI I mean, it's obviously super topical you guys are kind of talking about it like it's going to be a potentially large opportunity transformational I think thats. The way you described it with your clients.

But I also want to understand maybe the flip side of that I mean do you see.

Maybe the balance between the positive attributes of new client wins for you, but what about potential.

Potential headwinds or risks that you foresee to your businesses.

Some of the things you've done in the past a little bit more cannibalized if possible. Thanks.

Again, thanks, so much for the question. So we're incredibly excited about the revolution, that's taking place in generative AI and as you say there are two important questions that we need to ask when considering the potential implications of this technology for cash cows.

First question is in what ways can we support the creation of these generative AI technologies.

I mentioned on the call, we're working with the market leader in the space, providing them trust and safety and AI services and since our last call. This industry has exploded with hundreds of new entrants and hundreds of millions of dollars in venture funding.

Engaged with many of these companies on opportunities to provide them with our AI services and trust and safety support.

As with past technology trend in social media and on demand transportation and food delivery, we plan to become the industry meter for Schwartz support services for degenerative AI space.

But the second question that we need to ask is what will be impact of generative it'd be on our digital CX business.

Our digital automation team had been working with open AI is GPT III API for over a year and we built a number of amazing prototypes and are actively engaged with clients to use this technology to improve the efficiency of their support process.

Back in 2022, we launched a scaled support solution using generative AI technology for one of our large enterprise customers. The results are really exciting, but there are also challenges large language.

Language models have a well documented tendency tussle recent eight in other words make up an answer in these models must also be integrated into our clients' existing technology stack in order to be effective so for the foreseeable future generative AI is going to create a lot more work for service providers and system integrators and it will.

Destroy or cannibalize in the next few years, our belief is that most of the profits in this industry are going to accrue to picks and shovels providers like task.

But long term.

The question is what will be impact fee and at this point I would say anyone who claims to understand exactly what the impact is going to be from the technology would be speculation. So if I had to speculate I would say that I am watching two trends that I think may emerge. The first is that there may be a reduced need for native language support.

Translation models improve support and moderation will be able to be performed in the lowest cost country in theory, I think our operations in the Philippines, and India are particularly well suited and.

And second there is likely to be an increase for demand for white glove support and this is because when simple support interactions are automated one of the key ways companies will differentiate from one another will be based on the quality of support in those moments that matter here, our focus on premium support position us well to deliver so it's early.

Days, but we've been.

Very excited about this space I think we've seen solid progress.

And we will continue to stay on top of it in the quarters to come.

Yes, that's a great answer thank you.

Just a quick follow up on gross margins as you think about.

Kind of a pivot to more offshore out of the United States and the pace of that change is that cadence.

I mean, obviously, it's positive for gross margins, but is that cadence.

I guess consistent with the trends that we would expect to see within EBITDA or is there is there a timing difference between certain aspects of that.

Yes, so well let me just quickly talk about gross margins, but we do not guide on gross margins, but expect it to be roughly flat compared to 2022, so and the reason why the seniors that we have continued to see the benefit from mix shift, but it has been somewhat offset because of the impact of wage inflation.

And then the second factor is what I spoke about earlier.

Depreciation in the U S dollar.

When compared to especially the second half of 2022.

Paul the Filipino peso, so while majority of our revenues is billed in U S and others. We do have exposure from a cost perspective. When this happened and then the last is the shift that we saw the largest client from shipping from onshore to offshore getting into Q1. So.

That is what is happening from a gross margin perspective, and you would kind of see.

I'm kind of particularly the alignment between between gross margins and EBITDA. One additional factor is that we will we will be now.

We will be now.

Optimizing our <unk> genius dollar G&A spend which I spoke about earlier Ms. Catherine <unk>.

Optimization in our G&A cost so that could be additional benefit that we may not see the gross margin level, but we'll start seeing more.

At EBITDA level.

Is what do we see diabetic anything upside there.

Yeah, I would just add that while our expectations this year.

Essentially flat gross margins.

As we look at 2024 and more of a full year impact of those offshore shifts also combined with the automation projects and large transformational deals that were undertaking.

We see a path to expanding gross margins over time.

Great. Thank you.

Thank you. Our next question is from Puneet Jain with Jpmorgan. Please proceed with your question.

Yes, hi.

Thanks for taking my question.

I was glad to hear you talk about growth strategy.

Can those packages getting growing into double digits beyond this year.

You can double click on benefits you can expect from the large enterprise clients this year and beyond that's the case.

Yes. Thanks, so much for the question Puneet. So on our last call I said that we expected to return to double digit revenue growth in the back half.

Of this year as we started 2023, we see double digit revenue growth returning in Q4 in the top half of the guidance range that we're providing today.

As I said on the call. There are three growth initiatives that we're focused on to get US. There first we need to continue to expand our relationships with those big Tech and enterprise clients that we won in 2022 and at these clients will ramp up their cost savings initiatives. There are meaningful opportunities ahead for US. There are also meaningful opportunities ahead across.

Their subsidiary companies, which were actively engaged with second we need to take advantage of the significant opportunities that we are appropriately positioned for just like those in the generative AIG space that I just discussed and finally, we're going to accelerate our go to market efforts in both Europe and Asia. So the combination of these three growth initiatives will be.

Bring us back to double digit revenue growth and I believe put us on a trajectory to grow in double digits in 2024 and beyond.

Got it.

And.

And you also talked about the U S mix to revenue could decline to 15% in the back half of this year.

How much of downside.

What's left to that mix or how low that mix can go given there is some work that cannot move offshore and how should we think about gross margin benefit. If you can quantify the gross margin benefit of mix shift.

Yeah. Thanks, Puneet I'll take the first question and then ill, let <unk> answer the second so clearly the biggest headwinds to our business in 2022 and 2023 have come from the impacts we've seen in our U S delivery.

As we've discussed before this was driven by the large volume reductions that are large crypto and equity trading clients as well as the shift offshore at our largest client.

In addition to these impacts we have seen some smaller movements of teams offshore.

That would have created additional headwinds that we need to outgrow.

Besides this in dollar terms, if we compare our annual U S revenue run rate from Q1 of 2021 to Q1 of 2023.

The forecast we have for the U S. We've lost approximately $130 million of annual revenue from U S deliberate give.

Given these trends before we provided our guidance we did a detailed review of our entire U S business and we struck a cautious tone in today's guidance, taking the percentage of revenues coming from U S delivery in the back half of 2023 down to 15% of total revenues at the midpoint.

At that stage the majority of the work that remains in the U S must stay in the U S for regulatory reasons and process compliance. Additionally.

Additionally, we continue to win exciting new clients for our U S operations, just like the two health care firms that I mentioned earlier, who rely on us for.

Sensitive and regulated operational processes, so with all that said the U S is absolutely a key geography for us and will continue to play a vital role in our global delivery model.

And political touch upon your second question quick neutral from a.

So the offshore revenues generate lower revenues when compared to onshore so let's.

Let's say about particular party person onshore revenue, but from a margin perspective tend to pay higher so which means about 70% to 80% higher margin.

So while the profit dollars that you get offshore.

I mean, it will be flat in terms of what you are losing but we do generate higher margin percentage, so that is going to be accretive.

On to the model, especially as we start growing offshore in the second half of the of the year. So that is going to be helping us from a margin accretion perspective, getting doubled particularly percent EBIDTA for the whole year.

Got it thank you.

Thank you. Our next question is from Ryan Potter with Citi. Please proceed with your question.

Hey, Thanks for taking my question on the call you mentioned that some clients were turning to you to us for support following headcount reductions on their side.

So I was just wondering if this is a trend youre seeing in multiple instances and I guess could you remind us as clients kind of pivot and shift their focus more to costs what are the typical actions they take.

We immediately turned to us to help on the cost side or is it usually kind of a lag related to kind of think through their actions.

Yes. Thank you for the question Ryan So we're seeing this.

Across industries and across geographies.

On our last call I talked about.

With the gaming customer who shifted a large portion of their European support to our operations in Greece.

A large e-commerce customer.

That shifted a large portion of their global support to our operations in the Philippines and India.

That trend continued into Q4 across clients.

For media.

Fintech.

And gaming gaming spaces.

And sorry, the second question was.

Just typical actions clients take as they kind of activity costs.

Yes, I think what we're seeing is.

Really a consultative led approach here. So our client service teams are having strategic conversations with our clients as they are contemplating these shifts those shifts has been factored into the 2023.

Budget conversations that we talked about earlier.

We do see that as a continued driver of growth this year.

Got it and I guess off of that are you also seeing increase instances.

Clients undergoing better consolidation exercises.

And if so have you typically fared and these have you continue to maintain or improve wallet share with the majority of your clients.

Yes, so we have seen a few instances of vendor consolidation efforts brought on by our clients increased focus on cost. Fortunately, we started very well and all of those exercises and have increased our share as I discussed on the call we've seen our share increased materially as our.

At our largest client we tried to size this by talking about the head count increase that we saw in the year of about 29%.

This has been consistent across our largest clients.

We are a key part of their vendor strategy, they like to work with task because of our agility and innovation.

In our offshore delivery footprint in the Philippines, and India positions us very well to help them save costs.

Great. Thank you.

Okay.

Thank you. Our next question is from Dave Koning with Baird. Please proceed with your question.

Yeah, Hey, guys just a couple quick ones on <unk>.

I guess in the content business I know this year, obviously the drag has been in the back half as Ben just on offshore movement is that a business do you expect that to grow or are there any headwinds whether it's.

Political AD reviews for any any one off type stuff into 2023 that kind of goes away in the future and just kind of how do we think of that once we're steady state geographically is that a 10% plus business.

Yes, thanks for the question David.

Volume level. This business continues to grow well into the double digits, but obviously at a revenue level. We faced some headwinds as a result of those shifts that are at our largest client as we lap those shifts. This year, we do expect to return to meaningful revenue growth.

Within the trust and safety space.

To elaborate here, a little bit we're seeing opportunities across clients and the social media dating.

<unk> and e-commerce space for our content moderation solutions.

We have also.

Embedded most of the work we're doing in the risk and response space in our trust and safety numbers and there we're continuing to see strong demand for all of our financial crimes and fraud work occur.

Our e-commerce and Fintech customers.

Yes, yes that makes sense and then just for biology, just a couple of really quick ones. The tax rate kind of moved around this this last year, but is that kind of mid teens to high teens, just like in 2022, and then and then debt rates I would assume maybe interest goes up just a touch sequentially and then kind of holds in there the rest of the year.

Yes, so from a tax rate perspective, again, particularly Q2 effective tax rate of about 37% compared to the 2021 effective tax rate of four four thing and the reason why particularly one was lower is because we had the one time factors payout.

I am from a from a GAAP non-GAAP ETR.

We've got about 20%, 30% women, particularly need to enter into 'twenty one.

And then we expect to deal with it.

<unk> thousand three degree Edr, who will be able to adopt.

At about 36% pretty much in line with 2022, and then from an interest cost perspective again.

Ended the year at about six 6%.

Interest rate and we would expect that to continue getting into 'twenty.

Gotcha, alright, thanks, guys.

Okay.

Thank you. Our next question is from James Faucette with Morgan Stanley . Please proceed with your question.

Great. Thank you very much I just wanted to go back to this point around offshoring I think <unk> you mentioned that in the fourth quarter you had expected to move some work offshore and then that didn't happen. So that resulted in some better revenue but.

I want to make sure that I understood that correctly and if you are expecting that to still go offshore in future, but more importantly.

More broadly what are the conversations that youre, having with.

Beyond your existing customers, where it sounds like you've kind of did an analysis of what could happen there, but with new customers or are they looking to task to.

To amp up our ramp up what they can do offshore from a customer support perspective et cetera.

Yes, I'll take that question James So.

Be clear here at our largest client last quarter, we talked about the fact that we would be transitioning some additional work offshore in Q4 that shift got got pushed from the end of Q4 to the store.

Q1, thus the revenue impact.

We saw an additional.

Just reduction of work at that client, which brings the total permanent workforce supporting that client in the U S to just a handful of teammates so effectively all of the recruiting revenue from that client is no longer going to be in the U S.

When we think about this trend more broadly we've looked across our U S client base and really ask the question, which of these revenues must stay in the U S because of regulation or process compliance reasons, and we factored those risks into the guidance that we provided to date.

Which at the midpoint contemplates U S revenues dropping to 15% in the back half of the.

Here.

That's great and then just.

<unk>.

Sequential headcount growth looks somewhat muted in the quarter how much of that.

How much of that is a function of the mix shift offshore.

And really what I'm trying to get at is how should we think about your pace of hiring into calendar 'twenty three especially.

We think we are probably reaching some level of mix stabilization here.

Yes, it's a great question. So we added 800 net new teammates in the fourth quarter.

That number was lower than it would have been.

If we factored in all of the seasonal volumes and the reason for that is that a lot of the seasonal hiring that we do happens in in September preparing us for the full quarter.

As we look at this year, we will see a reduction in our global head count in the first quarter as those seasonal volumes are removed.

And we take into consideration some of the additional reductions in the U S business.

But we expect to get back to sequential.

Head count growth in the second quarter of this year.

Thank you very much.

Thank you there are no further questions at this time. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

[music].

[music].

[music].

Good morning, and welcome to the task of industrial call. My name is Paul and I will be your conference facilitator today at this time all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

If you require operator assistance. Please press star zero on your telephone keypad.

As a reminder, let's call it being recorded I would now.

Now, let's introduce Alan Katz, Vice President of Investor Relations Ellen you may begin.

Good afternoon, and thank you for joining us for the task us fourth quarter and full year 2022 earnings call. Joining me on the call today are priced Mueller co founder and Chief Executive Officer tasked us Symbology 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 Relations section of our website at IR Dot task or Dot com.

Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate web site.

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 neither 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 got task of Dot Com and may be supplemented with subsequent periodic reports filed with the SEC.

Yeah.

We expect our 2022 10-K to be filed with the SEC in the coming week.

Any forward looking statements made on today's conference call, including responses to questions are based on current expectations as of today and <unk> 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 metrics. 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 of tasked us price.

Thank you Alan good afternoon, everyone and thank you for joining US we had a strong end to 2022 with both revenue and adjusted EBITDA coming in above our guidance ranges.

I'm so proud of our global team that worked tirelessly throughout this year to advance our strategic goals.

We completed our first acquisition of how Loo, which expanded our European delivery footprint.

Finished the year ahead of plan.

We expanded our operations into new geographies, such as Malaysia, and Japan and launch New service offerings, such as the financial crimes work led by our risk and response team.

Reining in development solutions led by our learning experience organization.

We also officially launched our <unk> platform delivering scaled AI annotation and e-commerce data projects to both existing and new task with clients.

We signed contracts with three of the largest global tech companies in the world and added and expanded our business with large enterprise clients.

Lastly, we continue to maintain what we believe at the Chicago corporate culture in the industry that have brought 42% of our teammates back to the office.

The end of the year.

Overall sales activity remained strong throughout the year as we continued to strengthen and diversify our revenue base.

We ended 2022 with 86 client billing $1 million or more on an annual basis, and 21 client billing $10 million or more annually up from 72 in 2016. The year. Prior we also made significant progress on our efficiency and cost efforts.

As a result, we increased our adjusted EBITDA margins in Q4 and ended the year well above both our most recent guidance range and our initial outlook that we provided at the start of the year.

These are just a few of the incredible accomplishments of our team and a very.

Very challenging environment.

In 2022, our client shifted their focus from growth to efficiency amidst increasing economic uncertainty.

This is increased demand for our efficient offshore delivery and automation solutions from both new and existing clients.

As we discussed on the last call over the next few quarters, we expect to continue to see a volatile macro environment as well as a challenging set of comps from the first half of 2022.

However, I remain confident in our ability to drive profitable organic revenue growth in 2023, and exit the year and an even stronger position.

I'm going to move on to a quick recap of the fourth quarter and full year results then I'll discuss the impact that we expect from the current macro environment and what that means for our 2023 outlook and lastly, I'll discuss our strategy to improve profitability and drive growth in the back half of this year into 2024 and beyond.

<unk>.

Let's start with financial.

Q4 was another strong quarter of both topline and Bottomline growth Rev.

Revenue grew by six 8% year on year to $242 $2 million above the top end of our guidance range of $233 million.

Adjusted EBITDA grew by three 2% year on year to $57 9 million for an adjusted EBITDA margin of 23, 9% also above our guidance of 23, 2%.

For the full year 2022, we achieved $965 million in revenue and $223 2 million in adjusted EBITDA for an adjusted EBITDA margin of 23, 2% again above the top end of our guidance ranges. We ended the year with <unk>.

<unk> growth of over 26%, while maintaining margins that we believe to be among the highest in the industry.

Moving onto findings and growth with our current clients in Q4 revenue from our top 20 clients increased 1% year over year.

This growth rate continued to be materially impacted by the transition of work offshore at our largest client.

And the declines in volume at our largest crypto and equity trading clients if.

If we exclude the impact from those three clients our largest 17 <unk> clients grew over 27% year over year.

And revenue from clients outside the top 20 grew at approximately 25% year on year.

We expect to see our clients outside of our top 20 grow at a faster rate than our largest clients in 2023, as we improve the diversity and resilience of our client base.

Looking at our service offerings digital customer experience revenue grew by seven 3% compared with Q4 of 2021.

As a result of expansion with existing clients and new client signings, we're seeing strong signing activity from existing clients and the health Tech high Tech travel and on demand transportation spaces, as well as with non crypto fintech clients.

This service offering returned to sequential quarterly revenue growth this quarter as the lower volumes from clients in the crypto and equity trading spaces were more than offset by clients looking to leverage our global footprint to drive efficiency.

As I discussed last quarter, our large clients have continued to turn to us to absorb volumes after announcing internal staff reductions.

In terms of our crypto and equity trading clients as expected. They represented 4% of our Q4 revenue or $10 $5 million.

While we continue to be the preferred partner of the largest players in this space. We expect revenues from these clients to continue to decline throughout 2023.

Yeah.

Moving on to some of the signings for the quarter in Q4, we signed it digital CX contract with a leading provider of global money transfers and multi currency management, we will be supporting E mail chat text and calls for this clients multinational operations and are driving a digital transformation process.

Enabling cost savings and efficiency gains will be servicing their end users in Europe , North America, and Latin America.

In Q4, we also started the VCX engagement with our health care data and analytics provider.

This company turned to task to provide data validation for health plan participation had appointment information.

Poor data poses significant risk to the health care industry's ability to close gaps in care and drive better patient outcome by.

By solving this problem, we are protecting patients and providers, while improving our clients' operating efficiency.

We also expanded our Dcs relationship with a telehealth provider in the quarter supporting a large expansion of their business.

Both of these clients are being served out of our U S operations, we have seen strong demand for our U S delivery among health care customers due to the regulatory requirements and the highly sensitive nature of their work.

This type of work is a great example of a U S. Based services that we believe will remain onshore regardless of the economic environment.

We see the U S as a key geography for delivering highly specialized services, particularly to healthcare clients.

Moving onto trust and safety, which we previously called content security revenues in this service offering declined five 1% compared with Q4 of 2021, driven by the impact of our largest clients moving work to our locations in the Philippines and India.

If we excluded the impact from our largest client this quarter is trust and safety revenues would have grown by 8% compared with Q4 of 2021.

At our largest client we continued to see volume increases and take share from our competitors in queue for the.

The number of teammates supporting this client increased by 29% from the start of 2022 to the end of the year.

With skilled offshore operations in both the Philippines, and India were well positioned to continue to grow volumes at our largest client in 2023.

As I discussed on the Q3 call we continue to transition roles from the U S. The offshore geographies. This transition will now be complete at the end of Q1 at which time effectively all of our U S. Based revenue with this client will have shifted offshore.

Looking at our other client findings in the trust and safety offering we expanded our relationship with one of the country's largest dating apps to provide both content moderation support as well as <unk> services.

This client has grown from a small pilot in 2021 and to date, we support them across 10 business lines leveraging both in office teammates and path versus base gig workers, our expertise in automation and process engineering, that's led to a multiple expansion opportunities, which we believe will.

<unk> in the current environment.

We also expanded our trust and safety work with a social engagement platform that maintained online communities for large digital publishers.

This platform enables publishers to bring conversation back from social networks to the publishers on site.

As such it is vital to ensure that all of the user generated content follows. The publishers moderation policies. We've helped this client to craft their product and policies to protect these diverse virtual communities.

Recognizing our expertise this quarter, our client transitioned content moderation for one of the worlds largest publication to task us there.

They turn to us for our expertise on trust and safety research proactive and reactive classification flagging, a different disinformation trend and policy enforcement.

AI services revenues grew 21% in Q4, compared with Q4 of 2021, driven primarily by expansions with existing clients that can be autonomous vehicle, social media and travel and transportation spaces.

Last quarter, I highlighted an exciting new engagement with a leading provider of generative AI technology.

Their user base has grown exponentially since our last call and we supported this growth and expanded the scope of services that we provide to them.

They continue to leverage our AI services to train and develop their algorithm.

In Q4, we began to provide content moderation services to ensure their technology responds to use your questions in accordance with policy guidelines.

We're doing the complex sensitive in the center work that requires the clinician led wellness support the task has pioneered for this industry.

This serves as another Great example of the task of discovering new industries and developing the specialized services those industries need to scale.

We also expanded the scope of our crowd source data collection and data annotation business using the task force, our global gig worker platform, which we brought to market at the start of 2022.

We now have approximately 115000 Taskers signed up for good work in approximately 80 countries covering over 90 languages.

In its first year the path versus supported some of the largest technology companies in the world.

For one of our ecommerce clients, our task or community performed more than $1 2 million annotations over the period of just a few weeks.

For one of our Big Tech clients, we collected and annotated tens of thousands of videos from Taskers supporting the development of our clients most advanced and inclusive machine learning based products.

This is a small service offering from a revenue perspective, we expect growth of revenues from the task force to significantly outpaced every other part of our business for the next few years.

Looking at our overall findings activities our engagement this quarter were again, driven largely by growth from existing clients, which accounted for over 75% of the total new business signings in Q4.

We ended the year with an annual net revenue retention rate of 114% and our current pipeline is the largest it has ever been including opportunities for expansion with existing clients, new client engagements and large transformational deals.

Turning to revenue growth within our industry verticals, we're seeing particular strength from clients in the retail and E Commerce space. The high Tech space, which we will begin to call just technology and with on demand travel and transportation clients.

Each of these verticals grew by approximately 40% this quarter compared with Q4 of 2021.

We also saw approximately 30% growth from clients in the entertainment and gaming space This quarter.

In Q4, we delivered excellent results with three of the world's largest technology firms that we began working with earlier in the year. We now have plans to expand all three relationships in 2023, we.

We see the potential for even more significant growth across these clients, but view this as upside to the 2023 outlook that we're providing today.

Ultimately a few minutes discussing our teammates and the environment for talent before I move onto our outlook for 2023.

In Q4, we added 800 net new teammates the task of bringing our global head count to 49500.

We continue to see year over year increases in the size of our teammate populations in every country, except Ireland and the United States.

In the back half of 2022, we saw a significant improvement in employee retention and in Q4, we had the best employee retention numbers of the entire year.

Overall 2022 employee attrition was higher than in 2020, and 2021, but lower than in 2019, which is the last full year, where we had all of our teammates in the office.

Task with teammates really that's four six stars on Glassdoor as of the end of the quarter.

Now, let's move on to our outlook for 2023.

In our press release issued this afternoon, we indicated revenue of $965 million at the midpoint of our guidance range and adjusted EBITDA margin of 23% and free cash flow generation of at least $100 million excludes.

Excluding the earn out payment associated with the <unk> acquisition that we completed in the second quarter of 2022.

Like our clients, we are laser focused on improving the efficiency of our business.

This year, our goal is to improve both our adjusted EBITDA and free cash flow year over year, regardless of what happens in the macroeconomic environment.

<unk> will provide more details on what will drive these results later in the call.

Let me spend a few minutes on our guidance and how the current macroeconomic environment plays into our outlook.

We worked closely with each of our clients as part of their 2023 budgeting processes.

On the Q3 call I noted two trends across our client base that emerged from these conversations.

First clients are looking to reduce costs by leveraging our global delivery model shifting expensive in house resources to our efficient offshore teams.

We continue to see this as a large driver of signings in the past quarter, we're doing more complex work and taking on more sensitive and critical processes at the same time, a number of our clients continue to reduce the size of our teams supporting them from the U S.

The size of this impact in Q1 of 2020% to 33% of our revenues came from U S delivery.

By Q4 of 2022, this number had dropped to 21% of total revenues.

Midpoint of the guidance provided today contemplates a scenario in which the number drops to just 15% of total revenues for the back half of this year.

The U S. As a key geography for us and will always play a vital role in our global delivery model a majority of the work that remains in the U S must stay in the U S for regulatory reasons process compliance or because of the strong client preferences.

We continue to win exciting new clients for our U S operations like the two health care clients that I mentioned earlier, who rely on our U S teams for sensitive and regulated processes.

But it's clear that the growth engine of our business in the years to come we will be our efficient offshore operations in the Philippines, and India Nearshore operations in Colombia, and Mexico, and our digital automation capabilities.

Given these trends and the uncertain macroeconomic environment, we decided to take a cautious approach by setting a wider guidance range for 2023.

As we near a floor on our U S revenue declines and accelerate the growth of our global delivery locations, we expect to return to growth in the back half of this year.

We are focused on three initiatives to accelerate revenue growth over the course of 2023.

First we see meaningful opportunity to expand with a large global technology and traditional enterprise clients that we signed in 2022.

Given our stellar performance in 2020 to these clients focus on cost and our ability to deliver efficiencies. We're confident we're going to see meaningful growth here.

Second we've seen a significant increase in demand for our specialized services from industries, where we have a distinct competitive advantage, we have exciting opportunities in the health Tech and autonomous transportation spaces.

I'm personally very excited about the services, we're providing to the generative AI industry here.

Here again, we are well ahead of the competition supporting the leader in the space and developing a set of specialized services that hundreds of startups in this space will need to develop and maintain their own models.

Lastly, we are expanding our go to market efforts globally in particular in Europe and Asia as.

As we grew in Europe in 2020 to our <unk> acquisition helped to cement our reputation there at the top service provider.

In 2022, we supported approximately 40 clients that are based in Europe , tripling, our European client base and just a single year.

From our sites in Malaysia, Taiwan, and Japan, We're now providing services for the Asia operations of several of our largest global clients positioning us well to compete for business in the region.

Global go to market expansion represents a vast opportunity area for us.

By executing on these three initiatives I believe that we will grow profitably in 2023, while increasing our adjusted EBITDA and free cash flow.

With that I'll hand, it over to biology to go through the Q4 financials in a bit more detail and provide our outlook for Q1 and the year ahead.

Thank you, Brian and good afternoon, everyone.

I'm going to focus my remarks, primarily on our fourth quarter.

We will reference a few key full year metrics.

Note that some of these items our non-GAAP measures.

And the relevant reconciliations are attached to the press release, we issued earlier today.

In the fourth quarter, we earned total revenues of $242 2 million.

An increase of six 8% over the prior year.

Leading to total revenues for the year up $965 million and growth of 26, 3%.

Higher than the top end of our guidance range.

The strong revenue performance in the fourth quarter compared with guidance was primarily driven by two factors.

First the timing of offshoring sort of our largest client which shifted from Q4 to Q1, resulting in higher revenues from this client in the quarter.

Second we also saw stronger seasonality with our consumer exposed clients.

Than we had expected as of the last earnings call and some of the volume risks that we expected did not materialize.

This was particularly true for clients in the e-commerce food delivery and on demand transportation spaces.

Although offshore delivery model.

This is an attractive way to drive.

Efficiency into their businesses.

And as these clients have shifted their focus to cost this past holiday season.

We grew volumes with them.

Moving on to our service offerings.

We saw yield or what are your growth in two of our three specialized service offerings.

The fourth quarter, our digital customer experience offering generated heartland $59 million.

Year over year growth rate of seven 3%.

Our trust and safety business declined five 1% compared to Q4 of 2021, resulting in $42 $3 million of revenues.

Driven by the off shoring up volumes from our largest client.

And about AI services business grew 21% yield or what are your thought revenues of $40 9 million.

In Q4, we continued to see the diversification of our revenue base.

Although our revenue concentration with our largest client was 22%.

With Q3.

Down from 35% in Q4 of 2021 while our second largest client comprise less than 10% of our revenue.

Assistant with Q3 and.

Down from 11% in 2020 one.

We showed sequential and year over year revenue growth with this client in both Q3 and Q4 of 2022.

In Q4 of 2022, our top 10, and top 20 clients accounted for 58% and 71% of our revenue respectively.

Compared to 60% and 75% in the prior year as our trend of revenue diversification continues.

In the fourth quarter, we generated 54% of our revenue in the Philippines.

1% of our revenues in the United States.

As a percent of our revenues from India, and 13% of our revenue from the rest of the world, mainly driven by our operations in Europe and Asia.

Note that we began reporting India as a standalone geography, given our tremendous growth there over the past several years and the potential for India in the future to be as large as the Philippines.

We felt that this increased disclosure what's important.

In terms of our cost of service as a percentage of revenue. It was 57, 5% in the fourth quarter compared to 56, 2% in the prior year.

The year over year increase was driven by wage inflation.

Sensors associated with our return to the office and the transmission thoughts associated with shifting work offshore.

This was primarily offset by the strong U S dollar.

And the geography mix of revenue.

In the fourth quarter SG&A expenses were $64 5 million or 26, 6% of revenue.

This compares with SG&A in Q4, 2021 up 65 by $7 million or 29% of revenue.

We continue the investment sales automation and the basketball platform, while taking significant actions to drive efficiency into the cockpit functions.

Stock compensation expenses in the quarter with $13 3 million.

Relating to equity grants compared to $24 million in Q4, 2021.

Stock compensation expense reduction in Q4 2022.

They are primarily offset by $4 $8 million associated with the earn out consideration of Google from our acquisition of Halo.

Beyond adjusted EBITDA of $57 9 million and $3, 9% margin in Q4 compared to $56 2 million at.

At 24, 8% margin in the fourth quarter last year.

Our revenue growth.

The strong U S dollar and our job mix of revenue was partially offset by increased costs due to return to office wage inflation and expenses associated with transitioning work offshore.

For the full year, we achieved $223 $2 million and adjusted EBITDA.

And then adjusted EBITDA margin of 23, 2% above our guidance range.

As our clients shifted their focus to driving efficiencies into their businesses so have been.

In 2022, we kicked off a multiyear effort to improve the efficiency of our global operating model.

Leveraging automation and shared services.

The thing in millions of dollars of seeming last year.

In 'twenty two 'twenty three we will continue these efforts further optimizing our global operation and support and administrative functions through the use of technology and process design.

This is multi year program will lead to approximately $20 million of <unk> savings in 2020.

This efficiency effort combined with the growth of our higher margin offshore business.

Allow us to continue to invest in strategic growth areas.

It will also help offset wage inflation and other cost items and drive improvement in our adjusted EBITDA margin in the back half of 2023 and beyond.

Adjusted net income for the quarter was $33 $3 million and adjusted earnings per share was 33.

Impacted by increased financing expenses and higher taxes in the quarter.

By comparison in the prior year period, we earned adjusted net income of <unk>.

$37 $1 million and adjusted EPS of <unk> 34.

For the full year adjusted net income was $142.8 million and adjusted earnings per share was $1 39.

Compared with $129 4 million in adjusted net income and $1 26 of adjusted earnings per share in 2021.

Now moving onto our cash flow and balance sheet.

Free cash flow was $24 $9 million in Q4.

$103 $3 million for the full year 2022 above our guidance of $100 million.

This represents a conversion rate of 46, 3% of adjusted EBITDA for the full year in line with our medium term target of being between 40% to 50%.

Cash and cash equivalents were $134 million as of December 31st 2022.

Compared with the September 30 balance of Heartland $22 $5 million.

Our DSO in the quarter remained flat at 66 days compared with Q3.

Although capital expenditure decreased in the fourth quarter to $7 7 million.

3% of revenues compared to $20 8 million or 9% of revenue in Q4 of 2021.

For the full year, Capex was $43 8 million or 5% of revenue.

Compared with $59 million in 2021, 8% of revenue.

This decrease was driven largely by better utilization of technology assets.

Employees returned back to the office.

We expect that overtime, our bill don't Capex would trend lower as we leverage a more balanced work from home model.

Improving free cash flow conversion.

In terms of use of cash we maintained our disciplined capital allocation program and this year, we allocated $100 million towards our buyback program.

In the quarter, we bought 900000 shares for $17 $3 million.

For the year, we have repurchased one 6 million shares for $31 million.

We will continue to allocate capital to all of our buyback program Opportunistically.

We continue to de lever the balance sheet and ended the year at <unk> six times net debt to adjusted EBITDA leverage ratio.

Our priority remains investing for growth.

Given the strength of our balance sheet, we have ample capacity to take action on any M&A opportunities that meet our investment criteria.

Continue to return capital in the form of repurchases.

At this point I will outline our financial outlook for the full year.

And first quarter of 2023.

We anticipate full year 2023 total revenue to be in the range of $948 $990 million.

We expect to on a full year 2022, adjusted EBITDA margin of approximately 23%.

And we are confident we will achieve over $100 million in free cash flow in 2023, excluding the earn out payment associated with the.

Hello acquisition.

This adjusted EBITDA margin guidance for the full year is based on current Forex rate. So any change to currency. It is would impact our margins.

A reminder, the majority of our revenue is billed and collected in U S. Dollars. So we do not see the impact from U S dollar fluctuation on our revenues.

Profitability will also be impacted.

By the typical wage inflation that we see on an annual basis, partially offset by higher gross margins achieved in our offshore geographies and the reduced G&A spending our team achieved in the back half of 2022.

Looking at the more immediate term.

Our outlook for Q1 is unchanged from our expectations as of the time of the Q3 call.

You can see the reduction from our Q4 seasonal volumes.

And we will realize the impact of the transition of work offshore for our largest flight.

Sorry.

Dissipated revenues to be in the range of $231 million to $233 million.

And we expect to earn adjusted EBITDA margin of approximately 21%.

The adjusted EBITDA margin for Q1 will be impacted by lower revenues, while we execute on our next phase of cost saving initiatives.

We expect these to begin flowing through in Q2 and more significantly impact our reported margin in the back half of the year as we start growing again.

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

Thank you <unk> before we open for questions I want to share another task US teammates story earlier this month I visited our team in Tijuana Mexico.

Our frontline first mantra means we invest in providing inspiring facilities and world class benefits to attract and retain the best talent in the industry and <unk>.

Mexico, we offer our teammates scholarships to take college courses part time to advance their careers. Additionally, our teammates told me that we are the only BPL provider in the region to offer fully paid comprehensive health insurance.

This program proved to be a critical investment for Marcos our procurement manager at the Oasis location.

Marcos Joint task is from a manufacturing company, partially because we provided such good health care coverage Marcos.

<unk> is a passionate motorcyclist and earlier this year, we hit a major fall while writing.

Caskets insurance paid for markets to go to a private hospital, where he had emergency surgery and covered his salary during his recovery.

And our conversation Marcos remark that joining task of might just that saved his life and he ended the conversation by saying I got my sold back when I joined tasked us.

Listening to Mark Us with a powerful reminder, for me of the positive impact that <unk> has on the lives of our teammates across the globe.

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

Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone pizza a confirmation tone will indicate your line is in the question queue.

Let's start too if you'd 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 Cherokee one moment. Please poll for questions.

Thank you. Our first question is from Maggie Nolan with William Blair. Please proceed with your question.

Hi, Thank you.

You've given some color on the pipeline, including some mention of large transformational deals.

How quickly are you able to close deals of this nature and would there be a resulting margin impacts from the types of deals.

Yes, Thanks, Maggie for the question, so I've talked before about shifting the way we bill our clients from our outcomes. We've done this in a number of cases in the past, but we're now seeing increased interest and larger deal size. The transformational deals in the pipeline today are in the tens of millions of dollars.

A year in revenue.

And this shift is being driven by the increased focus on cost across our client base and the revolution that were seeing in degenerative use AI space.

So again these transformational deals tend to have larger deal sizes and longer contract terms.

They give us control over the levers that we need to to drive margins further automation process or geographic delivery.

And finally, we do expect that these deals will take somewhat.

Longer to close than traditional deals all.

All that being said I'm very excited about the prospect of these types of engagement to drive growth and margin expansion over time.

Okay, that's great to hear and then so it sounds like maybe they materialized a little bit later in the year in terms of the revenue and then <unk> you had mentioned some seasonality that drove revenue in the fourth quarter of 2022.

What sort of expectation should we have for seasonality in 2023.

Yeah, So Maggie.

Yes.

Yes, perfect Scott go ahead <unk>.

Yes, so Mike in terms of seasonality what typically happens is that.

Especially with some of the consumer.

We do see seasonality pick up in Q4, and then we see that impacting in Q1, and then for the rest of the year, we typically don't see seasonality.

Typically see a pick up again in Q4 of 2023.

In fact, gaining more seasonal but again part of the overall business seasonality is not a big impact, it's a pretty small impact from our overall revenue perspective for the year.

Okay. Thank you.

Thank you. Our next question is from Cathy Chan with Bank of America. Please proceed with your question.

Hey, guys. Thanks for taking my question.

I just wanted to ask what are some of the assumptions that are baked into your 2023 outlook. So how much are you expecting for growth in your top client you mentioned that in <unk>. You grew your second largest client as well year over year and quarter over quarter are you expecting that trend to continue into 2023, and I think you gave a little bit of color on crypto as well.

<unk>.

But I just wanted to make sure that I got that right in terms of you're expecting declines in crypto throughout 2023 is that as a percentage of your total or is that in dollar terms of that $10 $5 million Dave. Thank you.

Yes, Thanks, Cassie so our current outlook for Q1 is consistent with the outlook that we provided on the Q3 call in terms of Q2 and the back half of 2023, we're striking a cautious tone just due to macroeconomic uncertainty and specifically we're watching two things. The first is the speed of <unk>.

Decision, making while our pipeline is larger than ever we do anticipate some delayed decision, making and as I. Just said those large transformational deals we do expect those to take longer to close. The second is the economic environment continues to cause our clients to pursue.

Cost savings and this has increased the potential for further reductions in offshore shifts that impacted our U S business. We do believe we're approaching a floor here.

At the midpoint of our guidance range, we contemplate a scenario in which U S revenues fall to just 15% of overall revenues in the back half of 2023 down from about a third of revenues in the first half of 2022.

If we look at specific clients.

Our largest client we continue to have a very strategic relationship given our large offshore footprint, we do expect to see significant opportunities to help them save costs in 2023.

I said on the call in 2022, our head count supporting this client grew 29% year over year with that being said our largest client is very cost focus this year.

And that has meant they had to look for additional areas to cut costs in Q1 as an example in addition to the reductions in on offshore shifts that we discussed last quarter. This client has eliminated a line of business that we had expected to remain permanently in the U S. During the first quarter.

This will have an impact on our year over year growth rates as a result, the midpoint of our guidance contemplates a small year on year revenue decline, while our volumes increased modestly at this client given our offshore footprint and the strong client relationship. We believe we're well positioned to continue to take share from our competitors and growth here over time.

In terms of the crypto space, our guidance contemplates a slight reduction in run rate annual revenues from Q4, we continue to support the largest players in both the crypto and equity trading spaces and I believe we're actually the largest provider for many of our clients.

In this space, but the volumes that some of these clients had been reduced by up to 95% given the ongoing crypto winter that's being experienced.

Got it Super helpful. And then just a follow up so you guys, obviously gave a guidance range for revenues, but.

More of a specific number from Morgan so that 23%.

So end of the revenue range, how should we think about how much flexibility you have in terms of achieving that margin outlook.

Yes, so definitely in terms of the guidance we provided for the department.

Items like the mid point and in terms of the low end of the range. We have demand stated that in 2022 that we've been able to react to changes in revenue by adjusting our cost base and maintaining our EBITDA margin. So we beat our initial guidance that we provided for EBITDA.

And for free cash flow in 2022, despite some of the headwinds that we had from a from a revenue perspective and also on the call I spoke about an efficiency program that we started in 2020.

And we'll continue to dive into a different degree between Delaware full year savings of about $20 million. So we will fight program appropriately based on our forecast and performance towards the year and also will be very thoughtful in this exercise to make sure that we continue to invest in all the appropriate areas that is required in the business to grow.

<unk>.

We continue to invest in sales and technology.

Thanks, guys.

Thank you. Our next question is from Dan Perlin with RBC capital markets. Please proceed with your question.

Thanks, Good evening.

I just wanted to follow up a little bit on the question around AI I mean, it's obviously super topical you guys are kind of talking about it like it's going to be a potentially large opportunity transformational I think just the way you described it with your clients.

But I also want to understand maybe the flip side of that I mean do you see it.

Maybe the balance between the positive attributes of new client wins for you, but what about potential.

Potential headwinds or risks that you foresee to your businesses.

Some of the things you've done in the past a little bit more cannibalized if possible. Thanks.

Again, thanks, so much for the question. So we're incredibly excited about the revolution, that's taking place in generative AI and as you say there are two important questions that we need to ask when considering the potential implications of this technology for cash cows.

First question is in what ways can we support the creation of these generative AI technologies.

I mentioned on the call, we're working with the market leader in the space, providing them trust and safety and AI services and since our last call. This industry has exploded with hundreds of new entrants and hundreds of millions of dollars in venture funding.

Engaged with many of these companies on opportunities to provide them with our AI services and trust and safety support.

As with past technology trend in social media and on demand transportation and food delivery, we plan to become the industry leader for Schwartz support services for degenerative AI space at.

And the second question that we need to ask is what will be impact of generative it'd be on our digital CX business.

Our digital automation team had been working with open AI is GPT III API for over a year and we built a number of amazing prototypes and are actively engaged with clients to use this technology to improve the efficiency of their support process. In fact in 2022, we launched a scaled support solution using generative AI technology.

One of our large enterprise customers. The results are really exciting, but there are also challenges large language.

Large language models have a well documented tendency tussle recent eight in other words make up an answer in these models must also be integrated into our clients' existing technology stack in order to be effective so for the foreseeable future generative AI is going to create a lot more work for service providers and system integrators than it.

We will destroy or cannibalize in the next few years, our belief is that most of the profits in this industry are going to accrue to picks and shovels providers like task.

But long term.

Question is what will be impact and at this point I would say anyone who claims to understand exactly what the impact is going to be from the technology would be speculation. So I had to speculate I would say that I am watching two trends that I think may emerge. The first is that there may be a reduced need for native language support is true.

<unk> models improve support and moderation will be able to be performed in the lowest cost country and.

I think our operations in the Philippines, and India, particularly well suited and.

And second there is likely to be an increase for demand for white glove support and this is because when civil support interactions are automated one of the key ways companies will differentiate from one another will be based on the quality of support in those moments that matter here, our focus on premium support position us well to deliver so it's early.

Days, but we've been.

Very excited about this space I think we've seen solid progress.

And we will continue to stay on top of it in the quarters to come.

Yes, that's a great answer thank you.

Just a quick follow up on gross margins as you think about kind of the.

The pivot to more offshore out of the United States and the pace of that change is that cadence.

Obviously, it's positive for gross margins, but is that cadence.

I guess consistent with the trends that we would expect to see within EBITDA or is there is there a timing difference between certain aspects of that.

Yes.

Let me just quickly talk about gross margin, but we do not guide on gross margin, but we expect it to be roughly flat compared to 2022, so and the reason why the seniors that we have continued to see the benefit from mix shift, but it has been somewhat offset because of the impact of wage inflation.

And then the second factor is what I spoke about earlier.

The issue in the U S dollar.

When compared to especially the second half of 2022.

Paul the Filipino peso so while the majority of our revenues is building use it the other way.

We do have exposure from a cost perspective, when this happened and then the last is the shift that we saw the largest flying from shipping from onshore to offshore getting into Q1. So.

That is what is happening from a gross margin perspective, if you kind of see some.

I'm good.

Hey, good alignment between between gross margins and EBITDA. One additional factor is that we will we will be now.

We will be.

Optimizing our <unk> genius dollar G&A spend which I spoke about earlier the option to work with others.

I will see migration in other G&A costs. So there could be additional benefit that we may not see it the gross margin level, but we'll start seeing more than just.

At EBITDA level.

Is what do we see the rest of it.

I'll start there.

Yeah, I would just add that while our expectations. This year is essentially.

Essentially flat gross margins.

As we look at 2024 and more of a full year impact of those offshore shifts.

So combined with the automation projects and large transformational deals that were undertaking.

We see a path to expanding gross margins over time.

Great. Thank you.

Thank you. Our next question is from Puneet Jain with Jpmorgan. Please proceed with your question.

Yeah, Hi, Thanks for taking my question was.

Glad to hear you talk about growth strategy.

Ken those packages that you're growing into double digits beyond this year.

If you can double click on benefits you can expect from the loss pick in enterprise clients this year and beyond.

Yes. Thanks, so much for the question Puneet. So on our last call I said that we expected to return to double digit revenue growth in the back half.

This year as we started 2023, we see double digit revenue growth returning in Q4 in the top half of the guidance range that we're providing today and as I said on the call. There are three growth initiatives that we're focused on to get US. There first we need to continue to expand our relationships with those big Tech and enterprise clients that we.

One and 2022.

And at these clients will ramp up their cost savings initiatives. There are meaningful opportunities ahead for US. There are also meaningful opportunities ahead across their subsidiary companies, which were actively engaged with second we need to take advantage of the significant opportunities that we are appropriately positioned for just like those in that generative AIG space that I just discussed.

And finally, we're going to accelerate our go to market efforts in both Europe and Asia. So the combination of these three growth initiatives will bring us back to double digit revenue growth and I believe put us on a trajectory to grow in double digits in 2024 and beyond.

Got it.

And.

And you also talked about the U S mix to revenue could decline to 15% in the back half of this year.

Much of a downside.

It's left to that mix or how low that mix can go given there is some work that cannot move offshore and how should we think about gross margin benefit. If you can quantify the cross margin benefit of mix shift.

Yeah. Thanks, Puneet I'll take the first question and then ill, let <unk> answer the second so clearly the biggest headwinds to our business in 2022 and 2023 have come from the impacts we've seen in our U S delivery.

As we've discussed before this was driven by the large volume reductions that are large crypto and equity trading clients as well as the shift offshore at our largest client.

In addition to these impacts we have seen some smaller movements of teams offshore.

That would have created additional headwinds that we need to outgrow.

Besides this in dollar terms, if we compare our annual U S revenue run rate from Q1 of 2021 Q1 of 2023.

The forecast we have for the U S. We've lost approximately $130 million of annual revenue from U S delivery.

Given these trends before we provided our guidance we did a detailed review of our entire U S business and we struck a cautious tone in today's guidance, taking the percentage of revenues coming from U S delivery in the back half of 2023 down to 15% of total revenues at the midpoint.

At that stage the majority of the work that remains in the U S must stay in the U S for regulatory reasons and process compliance.

Additionally, we continue to win exciting new clients for our U S operations, just like the two health care firms that I mentioned earlier, who rely on us for.

Sensitive and regulated operational processes, so with all that said the U S is absolutely a key geography for us and will continue to play a vital role in our global delivery model.

And particularly touch upon your second question quick lethal from Aw.

So the offshore revenues generate lower revenues come.

Come back to onshore.

Let's say about particular party person onshore revenue, but from a margin perspective tend to stay higher.

About 70% to 80% higher margin so.

While the profit that you get offshore.

I mean, it would be flat in terms of what you are losing but we do generate higher margin percentage. So that he is going to be accretive.

Two the model, especially as we start growing offshore in the second half of the of the year. So that is going to be helping us from a margin accretion perspective, getting doubled particularly percent EBITDA for the full year.

Got it thank you.

Thank you. Our next question is from Ryan Potter with Citi. Please proceed with your question.

Hey, Thanks for taking my question on the call you mentioned that some clients were turning to you to us for support following headcount reductions on their side.

So I was just wondering if this is a trend youre seeing in multiple instances that I guess could you remind us as clients kind of pivot and shift their focus more to costs. What are the typical actions as they take they immediately turn to us to help on the cost side or is it usually kind of a lag related kind of where things are there.

<unk>.

Yes. Thank you for the question Ryan So we're seeing this across industries and across geographies I believe on our last call I talked about.

Both the gaming customer shifted a large portion.

Their European support to our operations in Greece, and a large e-commerce customer.

That shifted a large portion of their global support to our operations in the Philippines and India.

And that trend continued into Q4 across clients in the social media fin.

Fintech.

And gaming gaming spaces.

And sorry, the second question was.

Just typical actions clients take as they kind of activities and costs.

Yes, I think what we're seeing is.

Really a consultative led approach here. So our client service teams are having strategic conversations with our clients as they are contemplating these shifts those shifts has been factored into the 2023.

Budget conversations that we talked about earlier and we do see that as a continued driver of growth this year.

Got it and I guess off of that are you also seeing increase instances.

Clients undergoing better consolidation exercises.

And if so have you typically fared and these have you continue to maintain or improve wallet share with the majority of your clients.

Yes, so we have seen a few instances of vendor consolidation efforts brought on by our clients increased focus on cost. Fortunately, we stood very well and all of those exercises and have increased our share.

I discussed on the call we've seen our share increased materially as our at our largest client.

We tried to size this by talking about the head count increase that we saw in the year of about 29%.

This has been consistent across our largest clients.

We are a key part of their vendor strategy, they like to work with task because of our agility and innovation.

In our offshore delivery footprint in the Philippines, and India positions us very well to help them save costs.

Great. Thank you.

Okay.

Thank you. Our next question is from Dave Koning with Baird. Please proceed with your question.

Yeah, Hey, guys just a couple quick ones on <unk>.

In the content business I know this year, obviously, the drag has been in the back half as Ben just on offshore movement is that a business do you expect that to grow or are there any headwinds whether it's.

Political AD reviews for any any one off type stuff into 2023 that kind of goes away in the future and just kind of how do we think of that once we're steady state geographically is that a 10% plus business.

Yes, thanks for the question David.

Volume level. This business continues to grow well into the double digits, but obviously at a revenue level. We faced some headwinds as a result of those shifts that are at our largest client as we lap those shifts. This year, we do expect to return to meaningful revenue growth within the trust and safety.

Space.

And to elaborate here, a little bit we're seeing opportunities across clients and the social media.

<unk> and e-commerce space for our content moderation solutions.

And we have also.

Embedded most of the work we're doing in the risk and response space in our trust and safety numbers and there we're continuing to see strong demand for all of our financial crimes and fraud work.

Cros are e-commerce and <unk>.

Customers.

Yes, yes that makes sense and then just for biology, just a couple of really quick ones. The tax rate kind of moved around this last year, but is that kind of mid teens to high teens, just like in 2022, and then and then debt rates I would assume maybe interest goes up just a touch sequentially and then kind of holds in there the rest of the year.

Yes, so from a tax rate perspective, again, particularly Q2 effective tax rate, both of which 57% compared to the 2021 effective tax rate of footwear thing and the reason why particularly one was lower is because we had the one time payout.

I am from a from a GAAP non-GAAP ETR.

We've got about 20%, 30%, given particularly need to enter into 'twenty. One and then we expect it will be.

2023, ETR to be able to adopt it.

About 36% pretty much in line with 2022, and then from an interest cost perspective again.

We ended the year at about six 6%.

Interest rate and we would expect that to continue getting into 'twenty.

Gotcha, Alright, hey, thanks, guys.

Okay.

Thank you. Our next question is from James Faucette with Morgan Stanley . Please proceed with your question.

Great. Thank you very much I just wanted to go back to this point around offshoring I think <unk> you mentioned that in the fourth quarter, you would expect it to move some work offshore and then that didn't happen. So that resulted in some better revenue but.

I want to make sure that I understood that correctly and if you are expecting that to still go offshore in future, but more importantly, and more broadly what are the conversations that youre having with.

Beyond your existing customers, where it sounds like you've kind of did an analysis of what could happen there, but with new customers or are they looking to task to amp up our ramp up what they can do offshore from a customer support perspective et cetera.

Yes, I'll take that question James so to be clear here at our largest client last quarter, we talked about the fact that we would be transitioning some additional work offshore in Q4 that shift got got pushed from the end of Q4 to the Q1, thus the revenue impact.

<unk>.

We saw an additional.

Reduction of work at that client, which brings the total permanent workforce supporting that client.

The U S to just a handful of teammates so effectively all of the recruiting revenue from that client is no longer going to be in the U S.

When we think about this trend more broadly we've looked across our U S client base and really ask the question, which of these revenues must stay in the U S because of regulation or process compliance reasons, and we factored those risks into the guidance that we provided to date.

Which at the midpoint contemplates U S. Robyn just dropping to 15% in the back half of the.

Here.

That's great and then just.

<unk>.

Sequential headcount growth looks somewhat muted in the quarter how much of that.

How much of that is a function of the mix shift offshore.

Really what I'm trying to get at is how should we think about your pace of hiring into calendar 'twenty three especially.

We think we are probably reaching some level of mix stabilization here.

Yes, it's a great question. So we added 800 net new teammates in the fourth quarter.

That number was lower than it would have been.

If we factored in all of the seasonal volumes and the reason for that is that a lot of the seasonal hiring that we do happens in in September are preparing us for the full quarter.

As we look at this year, we will see a reduction in our global head count in the first quarter as those seasonal volumes are removed.

And we take into consideration some of the additional reductions in the U S business.

But we expect to get back to sequential.

Head count growth in the second quarter of this year.

Thank you very much.

Thank you there are no further questions at this time. This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.